NATIONAL INSURANCE CONTRIBUTIONS

HC Deb 01 May 2002 vol 384 cc956-1012 3.49 pm

The Chief Secretary to the Treasury (Mr. Andrew Smith)

I beg to move, That provision may be made for, and in connection with, increasing national insurance contributions and for applying the increases towards the cost of the National Health Service. There is a simple reason to support the motion: to secure high-quality public services and an NHS comprehensively available and free at the point of need. The motion paves the way for the Bill that will introduce changes to the national insurance legislation. It is right that the House should have the opportunity to debate it prior to the Bill.

David Taylor (North-West Leicestershire)

Given the great emphasis placed on the proposed national insurance changes by the shadow Chancellor of the Exchequer, is my right hon. Friend surprised by his absence? Perhaps it is symptomatic of the shambles that is Her Majesty's Opposition these days.

Mr. Smith

That is a matter for the Opposition. I can only conclude that the shadow Chancellor did not relish debating the issues yet again this afternoon. I shall have more to say later about his record and that of his right hon. and hon. Friends.

We are continuing the principle established in the 1940s of raising resources towards the cost of the national health service through national insurance contributions. The Bill will allocate those resources to a modern health service, building on the Beveridge principles to provide a system of comprehensive care on which we can all rely and of which we can all be proud. An NHS free to all at the point of need has been the subject of a consensus that has endured for the past 50 years. It is the fairest and most efficient way of funding health care and it was, until the last general election, the policy of the Conservative party.

I remind Conservative Members of the promise that they made at the last election. The shadow Chancellor stated at the time: There will be no charges. Do not believe the lies which are being spread by our opponents. Conservatives will retain a free and comprehensive national health service. That is what they said then, but they refuse to give that commitment now. While the Conservative party is abandoning its promise and commitment to the NHS, we are delivering on ours.

Together with far-reaching reform, the extra resources that we are providing will deliver a health service worthy of a consensus of support for the years to come. I believe that the British people will draw a sharp contrast between the clarity, purpose and energy of our proposals, and the vacuous, evasive and world-weary cynicism of the shadow Chancellor and the Conservative Opposition, saying in public that they do not know what their policy is, while saying in private that charges—the shadow Health Secretary's self-pay system—are the way forward.

In contrast, the Government believe that national insurance contributions are the fairest way of raising additional resources for the NHS. Using national insurance will ensure that people contribute according to their ability to pay. It will also ensure that vulnerable groups on fixed incomes, such as pensioners, will be protected, and that incentives to save will be unaffected.

Mr. John Taylor (Solihull)

I am grateful to the Minister for giving way. I should like to impart to him a piece of information. The proposed national insurance contributions will increase by £900,000 per annum the take from Solihull council alone as an employer, quite apart from the cost to its employees or all the other employers and employees in Solihull. In other words, there will be many, many millions of pounds annually of extra money from my constituency. I will do a deal with the Minister. If he will give us a 24-hour accident and emergency facility at Solihull hospital, he can keep the change.

Mr. Smith

I take it from those comments that the hon. Gentleman means that, having talked to his constituents in Solihull, he will support us if the extra money goes into the national health service and raises standards as we propose. Were he to do so—[Interruption.] Either he wants the money for Solihull hospital or he does not.

Mr. Taylor

I am asking the right hon. Gentleman to spend the money not in the ways that he proposes, but in the ways that I propose.

Mr. Smith

We will spend the money in the way in which the patients and public of Solihull need it to be spent. Commitments and reforms are being introduced that will deliver higher standards, shorter waiting times and more nurses and doctors—the very things that I am sure his constituents want.

Mr. Taylor

I accept that remark in the spirit in which it was made, and I will tell the right hon. Gentleman what the people of Solihull want: 24-hour accident and emergency facilities at Solihull hospital. That is what they want and what they have told me to tell him.

Mr. Smith

And I am sure that they want a national health service that is comprehensively available and free at the point of need. That is the commitment that this party and this Government are making, but which Conservative Front Benchers refuse to make. The hon. Gentleman might like to take that message back to the people of Solihull and indeed to reflect on it himself.

To increase resources, employees and the self-employed will pay an extra 1 per cent. of all their earnings above £89 a week, so someone on the median income of £410 a week will pay £3.70, and those on higher incomes will pay more, while those on lower incomes will pay less. Indeed, half of families with children will pay less overall because of the introduction of the child tax credit and the working tax credit. As employers have a strong interest in having a healthy work force, they will make an equivalent additional contribution. It was the Confederation of British Industry that estimated that workplace absence cost British business more than £10 billion in 1999. I am sure that many employers would regard investment in their employees' health and welfare as not only a social obligation, but an economic necessity.

The extra money that we are investing must secure extra results, so my right hon. Friend the Secretary of State for Health has already announced vital new reforms, including new financial incentives for hospital performance, greater freedoms for high-performing hospitals and trusts, powers and resources that are devolved to front-line staff and primary care trusts, reform of social services care for the elderly and a series of measures increasing choice for patients. For the first time in the history of the NHS, there will be independent audit, inspection and scrutiny of patient complaints with a duty to account and report to the public on money spent and standards achieved. In future, an annual report to Parliament will be prepared by the new independent auditor, accounting for the money allocated to the NHS, where it has been spent and the results of the expenditure.

There will be a new system of financial incentives for NHS organisations. Hospitals that can treat more patients will earn more money. Traditional incentives have worked in the opposite direction; indeed, the poorest performers have often received most financial help. We will therefore introduce a new system for money to flow around the health service, ending perverse incentives and paying hospitals by results. The incentive will be to treat more NHS patients more quickly and to higher standards.

Patient choice will drive that system. Starting with those who have the most serious clinical conditions, patients will have a greater choice about when and where they are treated. From this summer, patients who have been waiting six months for a heart operation will be able to choose a hospital that has the capacity to offer quicker treatment.

So on the basis of reform and modernisation, we have announced the largest ever increase in investment in the NHS, raising United Kingdom NHS spending on average by 7.4 per cent. in real terms each year—an annual cash rise of 10 per cent. not just for three years, but for five years.

Mr. Steve Webb (Northavon)

The Chief Secretary said that the fairest way to fund the extra money for the health service was through national insurance. Does he accept that some of the richest people in the land live not on earned income but on dividends and investment income, and that they will not pay a penny towards the increase to help the health service? Would not it therefore have been fairer to use income tax?

Mr. Smith

No, we do not accept that. The hon. Gentleman must accept that if we raised the money primarily through income tax, many pensioners on fixed incomes would have to pay more, and it would deter saving. [Interruption.] The hon. Gentleman mutters about affluent pensioners from a sedentary position. I remind him that many moderately affluent pensioners are on fixed incomes and watch every penny of their expenditure. Any Government would need to consider carefully before raising the money through them.

Mr. Webb

The Chief Secretary is generous to give way again. He may have misheard my sedentary comment. The Government repeatedly tell us that two thirds of pensioners do not pay any tax. We therefore exempt all pensioners, rich and poor alike, but we put a levy on some low earners and exclude the filthy rich who live off dividends and investments.

Mr. Smith

We reformed the national insurance system to take out the lowest earners. As I have already explained, the combination of the working tax credit and the child tax credit means that half of families with children will not pay extra in overall terms, even allowing for national insurance contributions.

As a consequence of what we are doing, and yearly increases in investment, UK health spending will grow from £65.4 billion this year to £105.6 billion in 2007–08. Even after inflation, that is a 43 per cent. increase over five years. That is a real-terms doubling of health service investment since 1997. United Kingdom health spending will therefore rise from 6.7 per cent. of national income in 1997 and 7.7 per cent. of national income this year to 9.4 per cent. by 2007–08.

Let me give some examples of what the new investment will mean. It will deliver 35,000 more nurses, 15,000 more doctors, 40 new hospitals and 500 primary care centres, which will all provide better care and quicker treatment times. We will realise our commitment on the national health service and make clear the choice about our public services. The debates on the Budget and the Finance Bill show that the dividing line is not only between those who support raising national insurance and those who do not, but between those who support a national health service that is comprehensively available and free at the point of need and those who would abandon it.

The country faces a clear choice between a high-quality national health service that fulfils the needs of the British people and that is funded through general taxation, and a system whereby families are forced to take out private insurance and have to pay more for treatment through charges. We choose the NHS, the Opposition choose charges. We are providing record new investment, combined with reform, to deliver results as we reaffirm the basic principle of the national health service: health care should be available on the basis of need, not ability to pay.

To vote for the motion is to back the NHS, which the British people want and deserve. I commend it to the House.

Mr. Speaker

I inform hon. Members that I have not selected the amendment in the name of the nationalist parties.

4.4 pm

Mr. David Lidington (Aylesbury)

The Government's aim in tabling the motion and introducing the national insurance contributions Bill, whenever it eventually makes its way to the House for a belated Second Reading, is to perpetuate the two great myths about the Chancellor's recent Budget.

The first is that the Budget is almost solely about increasing expenditure on the national health service. The second is that raising taxes in the manner proposed in this motion will be sufficient to bring about the kind of improvement in the quality of health care that all of us want—whatever our political party.

The Conservatives believe that both those Government claims are misleading. The first claim—that rises in national insurance contributions are all about funding the NHS and nothing else—was blown out of the water by the research carried out by my hon. Friend the Member for Havant (Mr. Willetts). Drawing on figures prepared by the House of Commons Library, he pointed out that the Government plan to increase their spending on the NHS by a smaller amount than the increase planned for the expenditure on benefits and tax credits.

That leads me to a number of more detailed points about the motion, which I hope the Chief Secretary or the Paymaster General will respond to if time permits at the end of this debate. The motion will allow for provision to be made for increasing national insurance contributions, and for applying those increases towards the costs of the national health service. Does that mean that the Government are proposing that all revenue from those increases in contributions will be applied exclusively to health expenditure? If not, what proportion of the revenue from those increases will be so applied?

This is an important point, because the Government have got themselves into a tangle over their own arguments. If all the revenue that will flow from the proposed increases in national insurance contributions in 2003–04 were spent on the NHS, that sum would, according to our calculations, be greater than the planned rise in NHS spending, much of which was funded anyway. Surely the Chancellor also said in his Budget statement that the income from freezing personal allowances was supposed to go towards helping the NHS and not towards other Government expenditure. We would be grateful for further elucidation on those points.

The truth is that we are faced with this motion today because the Government are trying to pretend that they are not putting up taxes on income when, in fact, they are, and that all the extra money is intended for the NHS when it is not.

The second myth about the Budget is that, by implementing this motion and the Bill that will follow it, the Government will finally be able to bring about the improvements in health care that Ministers have promised us repeatedly over the past five years but have so far failed to deliver. In his opening speech, the Chief Secretary said—as we have heard other Ministers say over those five years—that additional expenditure has been provided and that there will be important new health service reforms to ensure that that money is properly spent.

In a recent statement, the Secretary of State for Health made what Conservative Members might regard as one or two encouraging noises. There was talk about the money following the patient, and the Chief Secretary is now talking about patient choice receiving greater priority. Indeed, one might suggest that the Ministers should christen these reforms "the internal market", were it not for the fact that that would cause too much embarrassment on the Benches behind them.

We are sceptical, partly because we have heard all this so many times before, and partly because the ministerial language about greater freedom of choice, more flexibility, and decentralisation contrasts starkly with the experience of the health service in our constituencies. When I went to talk to my local primary care trust just a few days ago, I was told that it had been given clear instructions by the NHS top management that it must give priority to meeting the Government's acute hospital waiting list targets, rather than any other targets that the PCT might wish to set to reflect its own judgment of what was best for the health of the people in its area, or any other targets specified by the Department of Health as those that PCTs were created to implement.

John Mann (Bassetlaw)

The hon. Gentleman makes an interesting point. Last week, the chair of my primary care trust said that, as a result of the Chancellor's previous Budgets, there were already well-advanced plans for three new health centres in Harworth, Worksop and Warsop in my constituency. The hon. Gentleman can look at my website to get the details. Is he mistaken in his view? Never mind the increases announced in the current Budget, the Chancellor was able to fund increases from money provided in previous Budgets.

Mr. Lidington

I can only contrast the hon. Gentleman's experience with that in my part of the world, where the primary care trust, far from talking about improvements in health care, is, sadly, having to discuss reductions in health care. It cannot replace district nurses or speech therapists because of the debt that it inherited from its predecessor organisations.

The point that I was trying to make was that there needs to be much greater decentralisation and devolution of power to take decisions in the national health service. I am sceptical about whether that is what we will get from the Government. Our scepticism derives partly from seeing the record of how the money that the Government have allocated to health expenditure in recent years has been spent.

In the financial year 2000–01, no less than £629 million of the money that was allocated by the Government for the national health service was never spent. According to the report published this week by the Select Committee on the Treasury, the Government have been extremely slow in producing measures to ensure that money allocated is effectively spent, and that necessary reforms to the management of those resources are introduced. Paragraph 39 of the report was agreed unanimously by members of the Committee from all parties without any division during the deliberative sitting. The Committee concluded: On the issue of underspending, and of the matching of money to reforms, promised by the Chancellor … it remains far from clear what sanctions are proposed and how they might be implemented. I believe that, without change, we will not see the difference to the quality of health care that all hon. Members want.

John Mann

My hospital has a new accident and emergency unit, which was created in the past two years. Has not the hon. Gentleman's hospital also had one?

Mr. Lidington

The straightforward answer is no. If the hon. Gentleman looks back at the history of the health service under 18 years of Conservative government and five years of Labour government, he will find that there are examples under both Administrations of particular units being redeveloped and new facilities provided. At the moment, the Government—certainly in the form of the Labour party chairman—have admitted that performance in public services is patchy and in some cases has been getting worse. There is a vast gap between the improvement that people expect, and believed that the Government had promised them, and the standards being delivered.

The Government would have us believe that the answer is simply to enable large amounts of public money, raised through additional taxation, to be spent on the health service, without the thorough reform that is necessary. To spot the problems with that we need only look at Scotland and Wales, where spending is much higher than in England but the service is worse in some important respects, and becoming worse still.

Of course our constituents want more to be spent on health care, and so does my party. I want to make that clear beyond question to the Chief Secretary. People also want the United Kingdom's health service to match and, if possible, surpass the highest standards that patients can find in other developed countries. Again, so do we. The Government are in danger of underestimating the extent to which members of the public now assess, with increasing interest, the service available in some European countries in particular, and ask why treatments and waiting times provided by our partners in Europe are better, in certain key respects, than those in the national health service. They want to know why we cannot learn lessons from the experience of our neighbours.

Mr. Tom Harris (Glasgow, Cathcart)

Perhaps the people to whom the hon. Gentleman refers are employed by Conservative central office. Opinion polls have shown that 70 per cent. of the nation warmly welcomes the Government's commitment to funding the health service publicly. How can he say that the general public view is that the service should not be funded in the way that we propose?

Mr. Lidington

I am disappointed that the hon. Gentleman maintains such a closed mind on the subject. The same opinion polls show that the public do not believe that the measures announced by the Government will deliver the improvements in health care that they want. Polls also show increased readiness to look at experience elsewhere, especially since some patients from south-east England in particular have begun to experience treatment in European hospitals as a consequence of measures introduced recently by Ministers.

Mr. Andrew Smith

While on the subject of open minds, perhaps the hon. Gentleman could open his mind a little and share his thinking with us; otherwise, when the public judge these matters they will conclude that he and his party are in an intellectually and politically bankrupt position. The Conservatives say that they recognise the need for extra money for the health service and that they respect certain of its principles, but they will not say how much they would put in and where they would get it from. Will he give the public an idea of how much extra money he is talking about, and where he would find it?

Mr. Lidington

The right hon. Gentleman protests too much. He has heard what our position is from my right hon. Friends the Leader of the Opposition and the shadow Chancellor, and from other Conservative Members.

Mr. Smith

What is it?

Mr. Lidington

The right hon. Gentleman knows that we are committed to giving the people of this country a health service of world standard to which everyone will have access, and that we believe that top-quality health care should be available to the British people irrespective of their ability to pay. He is right that we have not yet produced a finished, costed policy proposal, but I remind him that when my right hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith) was elected Leader of the Opposition roughly seven months ago, he instituted a thorough policy review including, naturally, a review of our policy on health care.

The public would expect of a party such as mine, which suffered a right clobbering in two successive general elections, a period of careful and thorough reflection on its policies.

Mr. Mark Hendrick (Preston)

rose—

Mr. Lidington

They would expect Conservatives to examine the experience of other countries, and to offer clear and costed proposals when we have completed that period of analysis. That is what we shall do—and well before the next general election.

Mr. Andrew Smith

Yesterday's Financial Times states: The Conservatives have put back plans to unveil policy announcements on health for at least another year, believing voters still have too much faith in the government's ability to turn round the National Health Service. Is that true?

Mr. Lidington

No. The timing of our announcement will he determined by our satisfying ourselves that we have the right policy mix to provide the top-quality service that people expect and are entitled to, and by our working out how that service should be financed and what it will cost. We can then put forward detailed proposals that will stand up to the rigorous debate and scrutiny that we will be happy to submit them to.

Mr. Hendrick

Will the hon. Gentleman give way?

Mr. Lidington

No, I shall not give way again now. I have given a clear explanation of where we stand on this matter.

The way to secure the improvement that people want is to learn from the experience of others. We should not, as the Government would have us do, close our minds to lessons from abroad on how we could modernise and improve the quality of health care.

Matthew Taylor (Truro and St. Austell)

As the hon. Gentleman does not want closed minds, he is presumably aware that a large range of systems exists throughout Europe: from the Danish system that, although a little more decentralised than ours, is similar in most respects, to the French system, in which people pay to see their doctor. As he suggests, all European systems deliver quicker treatment for patients and shorter waiting times. However, that can surely be attributed not to the existence of many different funding systems—including systems such as ours—but to the fact that every single other country has more doctors per head of population.

Mr. Lidington

I have already told the House that we accept the need for additional resources for health care. We must get right the amount of money that goes into health care, but we also need a much greater degree of decentralisation and devolution of decision-making powers than exists under the current system. The record shows, however, that we are not going to get that from the current team of Ministers. We further need to decide on a way of funding the health service that will lever in resources in the quantity achieved by the European countries to which the hon. Gentleman refers.

Matthew Taylor

The hon. Gentleman is unsure about how to reform funding, but he agrees that we need more doctors. He and his party agree that we need to put more money into social services, so that we can pay for care for elderly people in residential and nursing homes and in their own homes, thereby freeing up hospital beds. Why, therefore, should we wait to implement those measures until his party has come up with an alternative that it has yet to think of? Why not act now and spend the money on social services, and on the provision of the extra doctors whom he agrees are needed?

Mr. Lidington

The hon. Gentleman is ignoring the fact that the Government were elected five years ago, and again last year, on a programme of promised improvements to the health service. We believe that reforms are needed to deliver those promised improvements in quality. The Government have not come forward with the necessary proposals for reform, and on those grounds we do not believe they have justified the tax increases that they propose today. I am only sorry that the hon. Gentleman has been left alone in the Chamber today by his colleagues and I wish that he had been able to persuade more of them to attend.

We intend to hold the Government to their word, both on the reforms that they have promised but failed to deliver to the health service and on employees' contributions to national insurance. The Chancellor, in his evidence to the Treasury Committee in December last year, said that he had made a pledge not to raise income tax because the Government "wanted to reward work". He said that that was an essential part of the Government's strategy in encouraging and reinvigorating the work ethic. It would be hard to devise any measure better calculated to blow a hole in that strategy than an increase in taxation that hits only those people who are in work. As the Institute for Fiscal Studies has pointed out, the increase in contributions and the removal of the ceiling delivers a tax increase which is very, very close to being identical to an increase of 1 per cent. in the 10 per cent., 22 per cent. and 40 per cent. rates of Income Tax. Other groups at work will be hit disproportionately hard. We have about 100,000 older women and widows on low pay who rely on their husbands' pension provision through the national insurance system and pay only 3.85 per cent. rather than the standard 10 per cent. rate. A 1 per cent. increase in the rate payable by those mostly older women, many of whom are now approaching retirement, means an effective rise of a quarter in the contribution that they pay to the Treasury.

Mr. Hendrick

It is strange that the Liberal Democrats are criticising us for not putting a penny on income tax while the Conservatives are accusing us of doing precisely that. What is the reason for the difference between the two Opposition parties? I would have thought that opposition is opposition.

Mr. Lidington

One thing I have learned in my time is not to attempt to claim responsibility for what happens on the Liberal Democrat Benches. We also intend to hold the Government to account on what they have said on the national insurance ceiling. The present Secretary of State for Trade and Industry said in May last year: We've got no plans at all to raise that ceiling on national insurance contributions … It is not going to happen. However, the Chancellor and his team still cling to the pretence that the ceiling remains in place. As the Chancellor said when delivering his Budget: Save for this 1 per cent. contribution, the ceiling … remains in place".—[Official Report, 17 April 2002; Vol. 382, c. 591.]

Mr. Tom Harris

I wonder what position the hon. Gentleman held in the Conservative party in 1979, when Sir Geoffrey Howe promised the country that his party would not double the rate of VAT, but subsequently did so when it got into office. I also wonder what position he held when John Major, the former Prime Minister, promised not to extend VAT but then did so after the 1992 general election.

Mr. Lidington

On the first point, I was a student at the time. There is little point in going back and looking at what happened 20 and more years ago. I do not recall members of the Labour party praising Conservative Ministers for being ready to change their minds on those measures. Instead of going into the pros and cons of the Budgets of 1979 and 1992, we should remember that the key point, in the wake of the 2001 general election result, is that we agree that the quality of public services should take priority in the framing of policy for the future of this country, but we believe that the Government's approach will not deliver that quality. The Government's proposal will hit individuals and companies very hard through the imposition of tax increases.

How can the ceiling remain in place when people are paying national insurance contributions on income above that level? The Treasury Select Committee was surely right to conclude earlier this week that Government rhetoric on the matter was mere sophistry. That is a pretty damning indictment of the arguments employed by the Chancellor of the Exchequer and by others on his team.

However, I noticed that the Chief Secretary did not speak at all in his opening comments about the nature of the powers that the Government intend to assume. The Treasury Select Committee has rightly asked that the national insurance contributions Bill be framed in such a way that further primary legislation would still be needed before the rate of charge above the upper earnings limit could be increased. I hope that Ministers will make it clear later in the debate whether that will be the case. It would be wrong for the Government to include in the Bill an enabling power that allowed them to rush through further breaches of the national insurance contributions ceiling without adequate debate and scrutiny.

If the Paymaster General is unable to give that pledge when she winds up the debate tonight, that will only reinforce the widespread and growing suspicion that the Budget is only the first step towards the Government's objective of scrapping the upper limit altogether. People and companies must have real doubts about the Government's intentions, given the increasing scepticism expressed by many independent observers, as well as Opposition Members of Parliament, about the reliability of the Government's forecasts for economic growth. Such doubts were expressed most recently in a study published by the National Institute of Economic and Social Research.

The Chief Secretary did not refer either to the position of self-employed people. The Government have rightly talked a great deal about the need to encourage enterprise and competitiveness in this country, but the proposed increase in national contributions for self-employed people will act as a disincentive to enterprise, and will discourage it. Even allowing for the offsetting effects of tax deductibility, the proposals mean that a self-employed person with an annual income of about £20,000 a year could expect to pay an extra £143 a year, that one on £30,000 a year could expect to pay £232 more, and that one on £40,000 could pay £868 a year in additional national insurance contributions.

However, we intend to hold the Government to their word on employers' national insurance contributions. The proposals have rightly been dubbed a straightforward tax on jobs. The Labour party's business manifesto last year stated: United Kingdom business taxation levels, including employers' social security contributions and corporation tax, are competitive with the rest of the European Union. This is a situation we intend to maintain. The motion breaks that pledge too.

All over the country, businesses and trade organisations are reckoning up the risks that the motion poses to their competitiveness and future success. Representatives of the glass industry told me only this morning that the increase in employers' national insurance contributions will give rise to an extra bill for them of around £1.5 million each year.

John Mann

Will the hon. Gentleman give way?

Mr. Lidington

No, I have given way to the hon. Gentleman twice already.

This week, the director general of the Confederation of British Industry said that businesses around the country are accusing the Government of talking an enterprise game … and yet on a major thing—something that overshadows it all—they are actually going backwards. Even before this Budget, the CBI's figures showed that the business tax burden is higher in only one of our major trading partners than it is in the United Kingdom.

If business has to pay out more on national insurance, it will have less money to spend on other things. If business has to pay out more on national insurance, it will have less to invest. It is no wonder that the Item Club concludes that the Budget levies will further depress business investment". The CBI fears possible cuts in capital spending, training, research and development. Business leaders are surely right when they say that pension contributions could also be hit.

Mr. Tom Harris

I am grateful to the hon. Gentleman for giving way again. Members on both sides of the House know how important it is for manufacturing industry in particular to invest. The fact is that with interest rates half what they were under the Conservatives, companies are finding it much easier to find the capital to invest now than they did then.

Mr. Lidington

The hon. Gentleman needs to listen to what businesses have been saying in the past week about the Budget. They have been scathing—[Interruption.] I hear the hon. Member for Bradford, North (Mr. Rooney) shout, "Whingeing." That will be a very interesting indicator to business and business organisations of the true attitude towards them of too many Labour Members.

What is shocking about the Government's approach is that they appear to have made no assessment of the effect of the increase in contributions upon jobs. I have read the compliance cost assessment that the Inland Revenue published today in respect of the Bill, which has yet to be published. I was disappointed that the compliance cost assessment made no attempt to analyse the impact of a higher rate of employers' contributions on jobs. The rise in employers' contributions is nothing other than a direct tax on jobs.

Mr. Webb

As for whether employers' national insurance is a tax on jobs, the hon. Gentleman will be aware that there was a ceiling on employees' but not employers' contributions, but that it was abolished in 1985. I will leave him to recall who did that. Does he think that that was a mistake and that it was a tax on jobs?

Mr. Lidington

The record shows that if all the changes to basic rate income tax and national insurance during the 18 years of Conservative government are taken together, the marginal tax rate was still significantly lower when we left office than it was in 1978 to 1979. I wish that Ministers would understand that as the director general of the CBI said recently: It might just be the straw that breaks the camel's hack in a boardroom decision on whether to get rid of people. Oxford Economic Forecasting, an independent body, reportedly estimates a potential cut in jobs growth of up to 100,000 over the next three years, depending on how great a cut in annual pay increases workers are willing to accept. The Government may have a more optimistic assessment of the impact on jobs of this increase in contributions than does Oxford Economic Forecasting. They owe it to the House, to business and to the wider public to make a clear statement and to place their analysis in the public domain so that their assumptions and figures can be judged against those made available in estimates by outside organisations. However, I fear that no such assessment has been carried out, for when asked by the Select Committee whether he had carried out any impact assessment of the increase in employer national insurance contributions, the Chancellor replied, quite simply, no.

We are being asked to vote through a motion without any assessment having been made of its impact on employment. This comes from the same Chancellor and Treasury team who two years ago claimed that the lower national insurance contributions that accompanied the climate change levy will act to promote employment opportunities. We have a Government who think that lower national insurance contributions help to create jobs, but who refuse to acknowledge the damaging effect on jobs of higher national insurance contributions. Nor have they analysed the additional problems that these tax increases will cause to the very public services that Ministers say they want to help.

The Local Government Association reckons that the cost to local government of the rise in employers' contributions will be £300 million a year. That is equivalent to an increase of about £17 in the average band D council tax.

The national health service faces an increase in its payroll tax of about £250 million. We have it on the authority of none other than the Prime Minister's official spokesman that the total bill for the public sector is expected to be about £1.2 billion.

What about individual public service workers? Nurses, police officers, teachers and firefighters will all get hit, too. The place worst hit will be London, where the cost of living is higher and average wages, too, are higher. This tax rise might have been designed to clobber Londoners.

What will happen to those public servants? An operational fire station officer on £30,600 a year will pay about £289 more a year in national insurance. A police sergeant earning £33,400 will pay about £308 more a year in his national insurance contributions. I cannot see how that will do anything other than worsen the already desperate problems in recruitment and retention of key public service workers in London and elsewhere in the south-east of England.

All those workers, and many like them in both the public and private sectors, have been let down by the Government. Everyone relying on public services has been let down, too. The Labour party has no answers on how to improve the national health service. The Budget was a final and desperate throw of the dice. Business, taxpayers and, above all, the patients who actually use our health service will pay the price of the closed minds of the Labour party and Labour Ministers.

A Government who have talked long about enterprise have introduced a measure that is damaging to enterprise. A Government who said that there would be no tax rises are bringing in tax rises. A Government who promised no more money unless there was reform in the public services are now promising money but have failed to deliver the reforms. It is time to hold the Government to their word. That is why we shall vote against the motion.

4.42 pm

Denzil Davies (Llanelli)

I shall speak briefly on the resolution, which, as my right hon. Friend the Chief Secretary to the Treasury told the House, is a paving measure for the legislative framework to increase national insurance contributions in order to raise much-needed extra investment for the national health service.

None of us is so naive as to believe that money alone can solve the problems of the national health service. Structures must be reformed and there must certainly be a cull of many aspects of bureaucracy. None the less, without extra investment there will be no hope of solving the problems and of recreating a world-class national health service.

The last time that I spoke in the House when the Government of the day were seeking to raise national insurance contributions to benefit the public sector was 25 years ago. I am sorry to say that that was in 1977. I had the invidious task of winding up a debate on something called the national insurance surcharge.

My right hon. and hon. Friends on the Treasury Bench may be interested to know that, at that time, unfortunate Ministers were unable to obtain any real briefing from the civil service, because the Department of Social Security said that the surcharge was a tax but the Inland Revenue said that it was not. Ministers were able to overcome those problems, however. I am sure that they no longer exist and I certainly do not want to engage in the sterile—almost metaphysical—argument as to whether national insurance is a tax.

Many hon. Members may remember, although they were not here at the time, that the surcharge was a direct and immediate consequence of the Rooker-Wise amendment. That amendment was forced through the Committee that considered the Finance Bill in 1997 by two Labour Back Benchers: Lord Rooker, as he is now—he is also a Minister of the Crown—and Mrs. Audrey Wise, who is sadly deceased.

Although it was said at the time that perhaps the voices that enunciated that amendment were clearly those of Rooker and Wise, the hand behind it all was said to be that of Mr. Nigel Lawson. I do not know whether that is correct, but the Rooker-Wise amendment was agreed to in Committee at about 3 o'clock in the morning, when the then Labour Government had a majority of two. Of course, the two Members who went across to the other side at that occasion were Rooker and Wise.

The amendment was about indexation, and it enabled personal allowances to be indexed at a time of very high inflation. Unfortunately, as a result of what happened in the early hours of that morning, the possible loss to the Labour Government was about £3 billion. A very distinguished economist, Mr. Nicholas Kaldor—or Lord Kaldor, as he became—was the special adviser to the then Chancellor of the Exchequer. In those days, special advisers were special. He was very special indeed; he came up with the splendid invention of the national insurance surcharge—presumably not very different from an increase in national insurance contributions.

However, times have changed—the wheel is turning full circle, and the Chancellor announced in his speech, as has been mentioned, his decision that for the next year at least personal allowances will not be indexed. Indexing came in 25 years ago and I do not know whether it is going out now, but with very low inflation there may be an argument for not indexing personal allowances. With next year's non-indexation, another £700 million will be available, according to the Red Book, for public expenditure and the national health service, but I merely mention the fact that all the funding for the NHS will not come from this ways and means resolution or from non-indexation; funding will also come from borrowing.

Just as indexation is on the way out, the old public sector borrowing requirement is coming back. Most hon. Members have perhaps never heard of it; its name has changed over the years, but I will still call it the public sector borrowing requirement. Looking at table 2.7 on page 33 of the Red Book, I see that it has another name—it is called a treaty deficit. That is all right; what is in a name?

I notice, en passant, that the treaty deficit column is headed "treaty commitments". I will not develop that point, but I take it that that is uncharacteristically sloppy drafting by the Treasury because, of course, the figures listed are not treaty commitments. They will not be treaty commitments until we sign up to the dreaded growth and stability pact under the Maastricht treaty. Leaving that to one side, the PSBR is now called the treaty deficit.

I see from table 2.7 that, taking the first full year, the treaty deficit—the PSBR in my language—will be 1.1 per cent. of gross domestic product next year. The following year, it will be 1.1 per cent. of GDP. In the year after that—let us take a three-year period—it will be 1.4 per cent. of GDP.

Now, let us take GDP as shown in table C3 on page 211 of the Red Book. In fact, that table shows the GDP that the Treasury uses for the public expenditure assumptions. My mathematics may not be terribly good, but we come up with a figure of about £12 billion next year and about £12 billion the following year. The sum then jumps, because of the 1.4 per cent. figure, to about £17 billion in the third year. That is about £42 billion worth of PSBR—treaty deficit—within three years.

To return to the Chancellor's Budget statement, he said: The monetary and fiscal figures that I am publishing today— he said it with some flourish— also show that we are well within the Maastricht criteria for the euro".—[Official Report, 17 April 2002; Vol. 383, c. 580.] Of course, that is right. Those who were here at the time, and who debated the provisions ad nauseam, know that the Maastricht criteria for the euro require a rate of 3 per cent. The world has moved on since the Maastricht criteria, however, because we now have an absurdly named growth and stability pact—or is it now the stability and growth pact? I think that the name is changed every year depending on how the European economy goes. The growth and stability pact is a fearsome pact because it says that we cannot borrow at all—or virtually not at all—at this stage of the economic cycle. That is one of the problems faced by Germany with its 2.7 per cent. of GDP borrowing, which it must eliminate by 2004—it does not matter whether Herr Stoiber or Chancellor Schröder wins the election, or what the German people want to vote for.

I was not surprised to note that the Chancellor did not refer to the growth and stability pact in his Budget statement. Despite some heroic attempts at reinterpretation, interpretation and analysis of the growth and stability pact by the Chancellor—who has done his best—we are not within the growth and stability pact on the basis of the figures to which I referred. On those figures, if we were part of the euro, we would have to find £42 billion over three years.

Mr. Hendrick

Would my right hon. Friend accept that, although we are not within the euro, this country is subject to treaty provisions for the multilateral surveyance of budgets, as are Sweden and Denmark? Would he also accept that it makes sense, when a country has such a low ratio of debt to GDP as Britain has, that countries should be able to borrow for investment in times of declining growth?

Denzil Davies

I do not want to prolong this debate, but, first, surveyance is different from being forced to do something. Secondly, although there may be various interpretations of this treaty, there must be almost balance at this stage of the economic cycle, and we do not have it. I merely hope that we will not find ourselves, some time in the future, with another hole in the public sector finances, for which we have to find £42 billion. I would not wish my right hon. and hon. Friends to have to introduce another national insurance surcharge to cover that hole, which some of us had to try to cover years ago.

In 1977, the motion was carried—no doubt because of the brilliance of the Minister replying to the debate—by a majority of two. It was said that those two happened to have been Mr. Brian Walden and Mr. John Mackintosh, who were very distinguished Members of the House at the time. They did not always find their way into the Aye Lobby, but, thankfully, they saved the illustrious career of the Minister winding up—they found the Aye Lobby at around 11 o'clock at night and registered their votes. I understand that my hon. Friend the Paymaster General is winding up tonight, and I think that she will secure a better majority than two. I trust, hope and believe that she will have a slightly gentler winding up than her counterpart 25 years ago.

4.54 pm

Matthew Taylor (Truro and St. Austell)

Although we have some criticisms of what the Government have done—I shall come on to them—it is our intention to support the resolution for two fundamental reasons. The Conservative party should consider both reasons.

The first fundamental reason is that we do not want to stand in the way of the investment that will improve the health service, attract the doctors and nurses that it needs and free up beds for the elderly by funding improvements in local authority spend so that people can leave hospital and go into nursing or residential care or receive care in their own homes. Given that the Conservative party's spokesman, the hon. Member for Aylesbury (Mr. Lidington), has agreed that such things are important, it is odd that that party should stand in the way of such investment.

The Conservative party accepts that money is needed and it has identified areas in which it could be spent. If we care about patients in the national health service, surely the proper thing to do is to release funding into the health service. If the Conservative party wishes to propose different reforms from those that the Government have put forward, it can make that case. However, given the size of the Government's majority, the chance of there being an election in the next three years is extremely slender. There is an urgent need for expenditure in the NHS now, and the Conservative party should support such expenditure given that it accepts the need for it.

The second and even more fundamental reason why the Conservative party should support the resolution is that it is not about the national insurance increases but, in effect, about the hypothecation to the NHS of the money derived from those increases. It will specifically allow the increase in the national insurance take to be devoted to the NHS. That is a requirement under the legislation covering the national insurance fund, but that requirement appears to have escaped the Government. That is why we are having to go through this somewhat awkward procedure of debating Budget resolutions and then this resolution before we get on to discussing the national insurance legislation. Nevertheless, that procedure must be fol lowed.

The Conservative party is worried about tax rises and how they will be used, but this is one occasion on which the House can have a direct say about how money is spent and make sure that it is devoted to the NHS. The House hardly ever takes that opportunity, because we hardly ever debate in detail the way in which money raised is devoted to specific expenditure. Parliament devotes some days of the year to such discussions, but the debates are hardly ever put to a vote. The last time that a specific vote took place was when the then Lord Chancellor decided to redecorate and add a bathroom to his residence. I do not, of course, refer to the current Lord Chancellor, because that took place many years ago. In the past century, the House has hardly ever taken the opportunity to put such matters to a vote, so the Opposition should welcome this opportunity to nail the Government's feet to the floor and ensure that the money goes where they say it will go.

Mr. Stephen Dorrell (Charnwood)

The hon. Gentleman has laid great stress on the argument that the motion will hypothecate all the yield from the increased rates of national insurance contributions to the national health service. However, his argument is blown clean out of the water by the Red Book. The yield from the changes is £8 billion, but only £2.4 billion is being voted to the national health service.

Matthew Taylor

At the end of my speech, I shall consider the weakness of hypothecating increases. When one spends more money than the increase on a service area, one can hypothecate the rise but there is no guarantee that money will not flow out at the other end of the expenditure. I shall come to that point, because I have a proposal for the House. However, the extra sums of money raised from national insurance over the next few years will broadly link in with the extra money going into the health service.

Mr. Dorrell

Hang on a moment. The hon. Gentleman bases his argument on the principle of hypothecation, but the Red Book makes it clear that the increases in the financial year beginning next April will raise £8 billion. In the same year, according to the Red Book, we are being asked to vote £2.4 billion of that to the NHS. By my arithmetic, that leaves £5.6 billion going spare.

Matthew Taylor

I have already told the right hon. Gentleman that there is a problem with the proposed form of hypothecation. However, although the forward spending figures show a shortfall for the early years, that is reversed later on and the national health service will end up getting more money than is proposed. I agree that there is a problem with the clarity and effectiveness of hypothecation, but there is no sleight of hand in the long run because the Government are devoting more money to the NHS than they are raising through hypothecation. So the right hon. Gentleman is wrong in the long run.

The public are concerned about three things: honesty, whether their money is well spent and whether it goes to the NHS. On honesty, as I have said before, it is impossible to believe that the Government were not aware before the general election that they had to raise extra money for the NHS by increasing taxes. That is not credible because the general public knew that that had to happen. Indeed, they told the Government that they would have to raise taxes to sort out the NHS and overwhelmingly supported the idea. Interestingly, when the Liberal Democrats proposed such increases, we were told that the public would not support them in practice, but the Budget is phenomenally popular. It has received overwhelming public support, even among the majority of Conservative voters.

The problem, however, is that the Government were not honest. They attempted to evade the issue even to the point that while ruling out income tax rises, they were prepared to change their position on national insurance. It is only on the most extreme technical reading of the Government's position that the Chancellor can defend the Budget by saying: We have kept all our promises on tax. It is a complete falsehood to suggest we haven't. It is clear that they did not set out that they would increase tax to save the NHS when they knew that they would have to. Indeed, the Chancellor's aides, before and since the Budget, said time and again that he knew all along that that would have to happen.

Frankly, had the Prime Minister explained the real position in the 1997 manifesto, the Government would still have had a clear mandate, albeit for a different purpose. Rather than saying that they would not increase income tax or have no plans to increase national insurance or raise its cap, it would have been more accurate and honest for them to say, "We will double NHS expenditure in real terms within a decade. In our first term, we will raise taxes by stealth to pay off the Tory deficit. In our second, we will raise annual taxes openly by £8 billion on jobs and incomes to secure the future of the NHS and education." They say that they have done nothing dishonest because they told people exactly what they would do, but few would agree with them.

The Government will discover at the ballot box that they have done a great disservice, both to themselves and to politics. Whatever they say at the next election, people will find it harder to believe them and, as the hon. Member for Glasgow, Cathcart (Mr. Harris) said, this is not the first time that this has happened. The Conservatives did the same thing in 1979 and, more relevantly, in 1992, when the re-election of the Conservative Government was followed by the biggest tax increases in history. The Government are eroding public confidence in the political process and politicians. Even our party is made aware of that lack of confidence, and we spelled out the true position in those election campaigns.

Nevertheless, when we knock on doors we find that there is now palpable cynicism about politicians in general. There is every reason to suppose that in tomorrow's local elections we will see an even lower turnout because of increased reluctance to vote for politicians and perhaps, although I hope not, electors turning away from mainstream political parties, in some cases towards extremes. If that happens, it will be partly because of this House.

Mr. Tom Harris

I disagree very strongly with the hon. Gentleman's conclusions. This Government have done more than any other to make sure that their manifesto commitments are precisely enacted. I challenge the hon. Gentleman to tell the House where, in the 1997 or 2001 manifestos, Labour says other than that it would not increase the basic or higher rates of income tax. Nothing in the proposal before the House today contradicts anything in those manifestos, and that is because this party is the honest party of government.

Matthew Taylor

It is very difficult to publish a full list of everything that one will not do, but it is fairly common in a manifesto to concentrate on the things that one will do. It is clear that the Government knew that they were going to introduce a very large increase in tax for the NHS, and they declined to put that in the manifesto. That may be the hon. Gentleman's view of complete and utter honesty, but he will find, on the doorstep, that his electorate disagree with him.

We have seen an increase in tax on incomes broadly equivalent to a 1p increase in the basic rate of income tax, plus another penny on the rest of income tax. The difference that the Chancellor seeks to set out between the national insurance increase and the income tax increase that he has ruled out is nothing but a fig leaf, and frankly that leaves him unpleasantly exposed.

The issue for a Labour Government, however, is worse than that. In his latest excuse, the Chancellor struggles to argue that his measure protects pensioners, but of course it does not protect pensioners as a whole. The great majority of pensioners—two thirds—pay no tax. The measure protects pensioners who are in the fortunate position of having a large income, many of whom live off large investments. At the same time, the policy increases tax for some people on very low incomes—the people whom the Labour party has traditionally sought to defend. Multi-millionaire pensioners have never been particularly high on Labour's list of priorities, so it is a little surprising to find that they are now a higher priority than some of the very poorest in this country, who work and try to earn an income.

Mr. Terry Rooney (Bradford, North)

rose—

John Mann

rose—

Matthew Taylor

I shall give way in a moment, but first I want to give figures to support my case.

The Treasury's own figures for changes in the overall tax burden in Labour's first term show that, taking all taxes into account, tax on the poorest quintile of households in the country rose 3 per cent., from 38 to 41 per cent. The rise for the highest quintile was only I per cent., from 36 to 37 per cent. The net result is that a 2 per cent. gap favouring the richest has risen to 4 per cent. since Labour took office.

John Mann

I want to clarify an extremely important point about the Liberal Democrats' policy on pensioners. There is a new group of relatively wealthy pensioners—those workers, many of them ex-miners, who are to receive compensation for industrial injury and asbestos-related conditions. In my constituency, there are 7,500 such people, and there are many more in other constituencies. They will receive a significant amount of capital, from which they will earn income, and they will also receive a small occupational pension from the National Coal Board. Some of them may move into taxation. The hon. Gentleman speaks of rich pensioners. I would say that those whom I described, a significant group, are getting deferred earnings. They are being paid because of employer errors in the past or poor management. Is the hon. Gentleman suggesting that they should be taxed?

Matthew Taylor

The problem is that if such people were 55, had been involved in an industrial accident, had received a pay-out and had the sort of income that the hon. Gentleman describes, they would be asked to pay a tax increase, but if they happened to be 65, they would not. It has always been the view of the hon. Gentleman's party and ours that people should pay according to their means and their ability to pay. Of course their real costs must be taken into account, but I do not see the differentiation.

I pick on the argument because it is the one that the Chancellor is using to defend his position. In order to hold to their income tax pledge while in effect introducing an income tax rise, Labour has picked a slightly different form of tax, which has a peculiar effect. A pensioner with an income of £100,000 a year—a retired chief of a conglomerate, perhaps Rupert Murdoch if he happened to live and pay taxes in this country—would pay no extra tax towards the NHS, but somebody working part-time on less than £5,000 a year would be subject to a tax increase.

In terms of equity and fairness, that seems a peculiar choice for the Government to have made, were it not for the fact that they are trying to use it as a fig leaf so that they can say that they stuck by a policy, when anyone with common sense knows they have not. They might as well have admitted it, because the public agree with the policy that they have followed. The public do not make the distinction that the Government think they do, so the Government might as well have said to people, "We did not tell you the truth before the election, but we do believe that this is important for the NHS, so we're spending your money even without your permission." That is exactly what has happened.

Mr. Rooney

For clarity, will the hon. Gentleman tell us at what level of pensioner income the Liberal Democrats propose a tax increase?

Matthew Taylor

We have made our position clear. We believe that there should have been a 1p increase on income tax and a rise to 50 per cent. for the top rate of tax on income over £100,000 a year. The straightforward answer to the hon. Gentleman's question is that it would depend on the pensioner's income. A rise in income tax would have fallen far more fairly. Because of the Government's income tax pledge, every time they have raised taxes, the increase has fallen harder on the poor than on the rich. The figures that I presented earlier show that the rich have been even more advantaged by Government policy, compared to the poor.

Mr. Tom Harris

rose—

Matthew Taylor

I shall give way once more, then I must move on, as I have been speaking for some time.

Mr. Harris

I am grateful to the hon. Gentleman. How does he square that claim with the fact that in the four years to 2001, the poorest 20 per cent. of households saw their income grow at exactly the same rate as the richest 20 per cent.? He should compare that with the years up till the Labour Government were elected, when the richest 20 per cent. of households saw their income increase by 30 times the rate of the poorest households.

Matthew Taylor

If the hon. Gentleman reads my speech from last week on the Budget resolutions, he will see that I said that the two ways in which the Government have spent the money is, first, on paying off the Conservative deficit and, secondly, on measures of redistribution. However, that redistribution has been limited in its target. Low earners without children have been disadvantaged by the Government's policy. The overall tax burden has shifted against the poor, which I think is wrong. I acknowledge some of the changes that the Chancellor has made, but they have been at the expense of the investment in health and education that we believe is necessary.

The Paymaster General (Dawn Primarolo)

The hon. Gentleman has been at great pains today and yesterday to quote the Treasury Committee's report on the Budget. Does he recall that one of the Committee's conclusions was that the Budget is redistributive, which the Committee welcomed? That included both the working tax credit and the child tax credit.

Matthew Taylor

I have just acknowledged the redistributive nature of the Budget, but it is not as redistributive as it could have been. Indeed, the overall policies are not as good as they could have been if the Government had not become hitched on their income tax pledge for purely political reasons. I do not think that anyone in the Treasury seriously believes otherwise. After all, the Chancellor has two hats: that of Chancellor and that of chairman of the Labour party general election campaign team in two elections. The idea that he did not know what he was doing is very hard to accept.

There is another peculiarity. The Government chose to raise employers' national insurance rather than to take the route for which we argued and adopt a new top rate of tax. Again, that decision was based on a Labour pledge, although briefings from the Chancellor's friends suggest that he would have preferred the 50 per cent. rate. However, his manifesto—after all, that is what it was—ruled that out, so he cannot take that approach. The result is a taxation policy that increases tax on employers and hits manufacturing in particular, as well as other businesses with low margins and high employment. At the same time, it does relatively little to put any cap on the consumer boom that is forcing up house prices in London and the south-east—increases that are driven not least by the many people on very high incomes in that area.

From any normal reading of the state of the economy, one would suggest damping down the consumer side but giving some help and encouragement to manufacturing, which has suffered from some 150,000 job losses in the past year and, according to the OECD, some 400.000 job losses since 1995, as well as a substantial loss of competitiveness. Of course, a disproportionate number of Labour Members represent the areas that have been hardest hit by that decline and by the current exchange rate. Again, the only possible interpretation is clear. After all, the Treasury issued press releases as recently as 1999 arguing that the reason for the cut in NICs was as follows: We are cutting tax on employment … encouraging employment opportunities". The Treasury therefore acknowledged the link between employers' national insurance contributions and the effect on jobs. The only possible conclusion is that the Government were prepared to sacrifice jobs in the wider community for the sake of protecting jobs on their own Benches in the general election.

I shall be very brief on the further issue of importance: how the money is spent. Indeed, I think that I have said almost enough about that; I have spoken longer than I intended in order to answer questions. It is quite clear that training more doctors and nurses is a crucial target for investment if we are to have the doctors and nurses that we need for the future. It is crucial to put money into local authorities for expenditure on social security placements and supporting people in their own homes, and on nursing and residential beds, which can very quickly free hospital beds.

It is also vital to invest in better pay and conditions for professional low-paid staff in the NHS—an issue about which the Government have made some worrying statements in the past few weeks. That investment is crucial not for moral reasons—we can all talk about the wonderful job that doctors, nurses and others do in the NHS—but for a practical and economic reason: these people are currently fleeing the NHS because they cannot afford to stay in it, especially in the areas of highest housing cost. It is impossible to deliver a better NHS if its experienced staff are leaving it and we are not training sufficient numbers even to replace them.

Finally, I should like to mention another aspect of the Government's peculiar position on tax. I gather from Ministers who argue in favour of a national insurance rise and against an income tax rise that it remains the Government's position to rule out income tax rises in this Parliament, but not further national insurance rises. That is the only logic in their position. Given that the National Institute of Economic and Social Research said today that it believes that the Government's figures could create a medium-term funding gap, the Government may have to resort to further increases.

Since the national insurance contributions Bill has not been published, perhaps the Chief Secretary will clarify what we will be asked to vote for. Will it be an enabling measure that allows further changes without more legislation, or can the Chief Secretary guarantee that a similar legislative proposal will have to be made before any such change can take place?

Dawn Primarolo: Yes.

Matthew Taylor

The Financial Secretary says yes. I hope that she is right because that is important.

Mr. Webb

My hon. Friend mentioned the need to tackle social services problems. The money that the Government raise will be spent on social services, and the local authority national insurance bill will match that sum. Yet if social services departments do not perform, they will be fined. Does not he believe that the Government must tackle that, even if we generally welcome the extra revenue?

Matthew Taylor

My hon. Friend is right. Most social services departments spend much more than the Government standard spending assessment. Even if the Government give extra money that is theoretically tied to social services, money is already being spent and national insurance money is being lost from elsewhere. There is therefore no guarantee that the extra money will contribute to improvements to support the elderly in the first year. After that, there will be increases.

I have already argued that the matter is urgent because beds in hospitals are currently blocked. The sooner we get the money in the better. I hope that the Government have the chance to do that because the comprehensive spending review is still to come. I also hope that they will seriously consider local government problems. I fear that if they do not tackle them, the improvements in getting elderly patients out of hospital beds that they do not need and into residential, nursing or supported care will not be made as quickly as they should. The beds will not be free for other patients and the improvements in the NHS will not happen. That is the Conservative party's only chance of rubbishing the NHS and making its case for ultimately dismantling it.

Let us consider hypothecation. For many years, we have argued that it is possible to hypothecate a rise. That is now happening and we welcome it, although it was not done as honestly as we would wish. At least the Government have taken the advice. We have witnessed the popular support for the action, and that is some vindication of our argument. However, in the long run, if we hypothecate £2 billion, £3 billion or £8 billion to a budget of £60 billion, £70 billion, £80 billion or even, in future, more than £100 billion, there is no guarantee that the Treasury will not decide that it is short of money for transport, education or a new plane for the Prime Minister and grab some of it back because the NHS is no longer so high on the list.

Even if the Government remain in office, there is no guarantee that, in the long term, the money will go where they say it will. Of course, if the Conservative party is elected, there is no guarantee that the money will remain with the NHS. The Government can hide behind snatching the money, leave the provisions for national insurance as they are but use the money for other purposes.

The Chancellor ruled out the suggestion, but I urge the Government to consider hypothecating a whole income stream to the NHS so that it can have greater certainty and transparency. People would know when they paid the tax that it went straight to the NHS and that any change would help the NHS, or hurt it if the Government chose to take money away.

The two national insurance figures that the Government have published show that in 2007–08 the figures are close. Therefore, why not hypothecate national insurance? That has happened historically, and there has been a link with the NHS. Such hypothecation would provide a broad-based income stream that increased broadly in line with growth in the economy. It would give the NHS a good base, and when people paid that money they would know that it went to the health service.

The Government have chosen a route that includes an opportunity that is worth considering. The national insurance system could be reformed; people may believe that using a different tax is a better route.

Mr. Dorrell

I am grateful to the hon. Gentleman for giving way to me again. This is a relatively old potato. If the Liberal party is really going to nail its colours to this mast, it must ensure that its supporters understand that, when the economy goes into a dip—all economies go up and down—the result of its policy will be NHS cuts. Will he explain that to his supporters?

Matthew Taylor

The answer to that is that we would treat this income flow in exactly the same way as the Treasury now wisely treats its overall income flows. It plans on the basis of long-term growth in the economy rather than short-term swings up and down. If it undershoots on its growth figure this year, as it is, it will not cut expenditure because it knows that, provided it remains in line with the 2.5 per cent. growth forecast, it will get the revenue back in future years.

That is not a difficult process, and it is one that the Government have already introduced. The real issue is whether we can find ways of reconnecting the electorate to the tax that they pay and the decisions that are taken about it. The population are cynical about politics at the moment, and do not believe that the money they pay goes where the politicians claim it will go. Our proposal represents a way of addressing that problem, and of reconnecting people to the spending decisions being made.

The Conservative Opposition seem to be in the most appalling position at the moment. They are denying the NHS the money that it needs now for doctors and nurses, to back a policy that they have not even invented yet and will not be able to introduce for at least three years. If that policy turns out to be about tearing up the NHS, they will not be able to introduce it in the lifetime of any of those on their Benches, because I do not believe that the public would support the break-up of the NHS. The Conservatives also have to get over the problem that people remember just how badly they treated the NHS when they were in office. People remember the destruction and underfunding of services and the appalling treatment that patients received over many years. If there are problems now, they are in large measure the inheritance of what has gone before.

We know the excuse that the Conservatives make, because we heard it yesterday from the shadow Chief Secretary to the Treasury, the hon. Member for Buckingham (Mr. Bercow). When questioned on an event in 1995—not that long ago—during their last term in office, he said: I disclaim all responsibility for It immediately on the ground that I was not here, I did not know, I am not responsible, I cannot be brought to book, and it is a matter of the most stupefying irrelevance to me."—[>Official Report, 30 April 2002; Vol. 384, c. 822–23.] Unfortunately for the hon. Gentleman, the British people were here when the Conservatives had charge of the NHS. They know what happened, they hold the Conservatives responsible and they still consider that highly relevant. As long as that is the case, the Conservatives will not be in a position to influence the future of the NHS, thank God.

5.28 pm

Mr. Tom Harris (Glasgow, Cathcart)

Thank you for calling me to speak in this debate, Madam Deputy Speaker. I had the good fortune to be here yesterday during all seven hours of the debate on the Finance Bill. I would like to take this opportunity to take to task some of my hon. Friends who told me afterwards that it was a waste of time if one did not get called to speak. I am sure you would agree, Madam Deputy Speaker, that it is not a waste of time when you are enjoying the eloquent contributions from both sides of the House on a subject as important as the Finance Bill, and that there is more point to being in the Chamber than simply speaking. I am delighted, however, to be given the opportunity to contribute to this debate.

The hon. Member for Aylesbury (Mr. Lidington) has, apparently, been talking to a great many public servants, including nurses and police officers, who are appalled at the content of the Budget and who are absolutely opposed to the proposed increase in national insurance contributions.

I am sure that every hon. Member has shared my experience of being identified by friends and family, immediately after being elected to this place, as a spokesperson for a party or for the Government. After I was elected. I received not only congratulations, but much criticism and many appeals from friends, some of whom work in the health service. They pleaded with me to use my considerable influence with my right hon. Friend the Chancellor to get him to increase taxes or national insurance contributions to bring about a huge investment in the NHS. That view is reflected in opinion polls.

I spoke to nurses in my constituency before and after the Budget. Before the Budget they said, "Please give us the extra money. We don't mind paying extra taxes", and after they Budget they said, "Congratulations. Fantastic. That is such a welcome Budget." I have never experienced such popular support for any Budget.

Mr. Iain Luke (Dundee, East)

Does my hon. Friend accept that that view is held not only by workers in the NHS, but by 74 per cent. of the general population? The majority of Conservative voters also believe that this is a good Budget.

Mr. Harris

My hon. Friend is correct. I am somewhat bemused by the hostile reaction of Conservative Members to a proposal that enjoys great support among their dwindling band of supporters.

I should like to refer to the comments of the hon. Member for Truro and St. Austell (Matthew Taylor). There is an old story, which is worth re-telling, about the person who phones the Liberal Democrats' headquarters one night, gets the answer machine and is told to leave a message after the high moral tone.

The Liberal Democrats constantly criticise the Government and the Conservatives for being dishonest. Me thinks that they protest too much. We know their strategy. We have all been involved in by-elections and we have seen the way in which they behave during campaigns. It is purely a device to allow them to take the moral high ground. They take every opportunity to criticise the honesty of the Labour party and the Conservative party—I am not defending the Conservative party: I will leave that to Conservative Members. The hon. Gentleman, by the language he uses, tries to create and encourage the electoral cynicism that he criticises and that is a major problem in society today. I do not accept that he does that with the correct motives.

The Budget, especially the increase in national insurance contributions, was described by many commentators as representing a sea change in the direction that the Government are taking. One commentator described it as the first Labour Budget since 1979. I completely disagree. Yes, it is a redistributive Budget—

Madam Deputy Speaker (Sylvia Heal)

Order. I remind the hon. Gentleman that the debate is about national insurance contributions.

Mr. Harris

I appreciate your direction, Madam Deputy Speaker. I pay tribute to my right hon. Friend the Member for Llanelli (Denzil Davies), who managed to bring the euro into the debate. That was very impressive, but I shall try to keep to the subject.

The rise in national insurance contributions is a redistributive measure. There is no doubt about that. Some Labour candidates have to say "redistribution" in a lower voice than they may have used in previous years, but I am delighted to see my hon. Friend the Financial Secretary nodding when I describe the Budget as redistributive. [Interruption.]

The Budget and the national insurance contribution rise have been welcomed by many of my constituents. I am interested and fascinated to learn that the Conservatives will vote against this measure. They have compared it with a 1 per cent. increase in the bottom, middle and higher income tax brackets. Thus, I assume that, instead of supporting the national insurance rise, they will propose a 1 per cent. increase in the bottom, middle and higher rate of income tax. I am sure that at some point in the next three years we will know whether that comes to pass.

If Opposition Members have a copy of the 2001 Labour party manifesto to hand—I am sure they all do—I challenge them to say now where it refers to our keeping national insurance contributions at the existing level. The fact of the matter is that the Government made a commitment to keep the basic and upper rate of income tax at 2001 levels.

Dr. Andrew Murrison (Westbury)

Can the hon. Gentleman explain the difference between income tax and a tax on income?

Mr. Harris

The hon. Gentleman is well aware that national insurance contributions are a tax on earnings, not on income. The hon. Member for Truro and St. Austell pointed out that many pensioners would not have to make national insurance contributions if they were earning money from their savings. There is an obvious difference between the two mechanisms, which is one reason why I am delighted that the Government have chosen this one.

Mr. Lidington

Does the hon. Gentleman think, then, that the hon. Member for Streatham (Keith Hill) was straying off message when he said on 4 June 2001 we have absolutely no plans to raise the ceiling on National Insurance"?

Mr. Harris

I cannot speak for my hon. Friend, but I know that when I was campaigning for the 2001 general election I explained to my constituents exactly what was in the party manifesto, and I know that the Government have stuck to the commitments in that manifesto—which is more than the Conservatives ever managed to do.

Although yesterday's debate was not about increases in national insurance contributions, it focused on the Budget and national insurance was mentioned. My hon. Friend the Member for Dumbarton (Mr. McFall), the Chairman of the Treasury Select Committee, said that the reason why the increase was on the cards was the NHS. I disagree with one thing he said, however. He said we should be trying to recreate the consensus between the two parties in favour of the NHS. In 1948 there was no consensus in the House for the creation of the NHS, but there are close similarities between the position now and that in 1948.

Like the Attlee Government, the present Government face a Tory party that will always side with the vested interests of the medical profession rather than with patients. They face a party that opposes the public financing of the NHS, and has yet to commit itself publicly to an NHS that is free to all at the point of use. If the hon. Gentleman wishes to commit his party to that aim, I shall be delighted.

Dr. Murrison

I am not going to commit my party or indeed myself, but I would like to make an observation, as a member of the medical profession. The hon. Gentleman said that the medical profession would always side with the Conservatives; I think that our experience over 18 years suggests the opposite.

Mr. Harris

I am delighted that the hon. Gentleman has raised that point, because I wanted to deal with a proposal that I know to be supported by many of my colleagues.

We have talked of the importance of reform of the NHS, hand in hand with the increased investment. Every health service employee works full time for the health service and is paid full time by it, but the problem of waiting lists can never be dealt with through the national insurance increase until we can get consultants' contracts sorted out.

If a consultant is paid full time by the NHS, he or she should work full time for the NHS. That is an important reform that must be made if the money we are asking people to contribute from their income is to be used properly. I expect considerable opposition to that proposal from the Conservatives: after all, the idea of a consultant's working full time for the NHS is presumably anathema to many of them.

Mr. Mark Hoban (Fareham)

I wonder whether the hon. Gentleman has read a document called "Delivering the Change", which is the Government's blueprint for delivery of the NHS plan. It refers to increasing the provision of health care provided by the private sector. If the hon. Gentleman rules out consultants' working—

Madam Deputy Speaker

Order. That is a little wide of the subject. I again remind all Members that we are debating national insurance contributions. There can be reference to the financing of the NHS.

Mr. Harris

Again I am grateful for your guidance, Madam Deputy Speaker, and 1 shall try not to deviate further.

As I have said, national insurance is not an income tax. I believe that the modest increase proposed by the Chancellor is welcomed by the public, and should be welcomed by the House. I know it will be welcomed by nearly all those employed by the NHS, and by all who are treated in the NHS.

5.39 pm

Mr. Stephen Dorrell (Charnwood)

I begin by declaring an interest. I am a director of, and a shareholder in, two businesses that operate in this country. They employ people, so they have an interest in the burden that this national insurance measure will impose on employers' costs, and which I want to discuss.

I think it fitting that the House should debate this increase in national insurance contributions on the fifth anniversary of this Government's election. The fact that the increase forms the centrepiece of this year's Budget finally strips away any shred of respectability from the balloon of rhetoric that secured the Government's election in 1997. They were elected on the basis that new Labour was going to be different from old Labour, that the third way was something different from what we had seen before in British politics, and that it would usher in a new way of doing business in politics.

It is worth reminding ourselves of why we were asked to believe that new Labour was different. We should look at such claims in the context of this Budget and the national insurance contribution's role as its centrepiece. The most important claim made for new Labour, as distinct from old Labour, was that the latter was in favour of tax and spend but that the former had somehow found a new way of dealing with the dilemmas at the heart of the delivery of public services. New Labour was going to be something different. Amid all the rhetoric, it was not entirely clear why it was going to be different, but under new Labour we were definitely not going to witness merely a return to the tax and spend ways with which we became extremely familiar under Labour Governments of the 1960s and 1970s.

I enjoyed the contribution of the right hon. Member for Llanelli (Denzil Davies), who does not worry too much about the distinction between old Labour and new Labour. In his own rather endearing way, he reminded the House that the centrepiece of this year's Budget is the national insurance surcharge that he himself had justified as a Treasury Minister 25 years earlier. The fact that the man who introduced the tax increase that was necessary under the old Labour days of the Callaghan Government is supporting—on exactly the same basis as 25 years ago—this year's increase rather makes my own case for me. He said that he introduced the national insurance surcharge 25 years ago, and that he is happy to support in the House of Commons today the introduction of the same policy under a new Labour Government.

As I said, the right hon. Gentleman is not too concerned about distinctions between new Labour and old Labour. He recognises the essential truth of this Budget: the national insurance contribution increase is a simple, straightforward, £8 billion tax increase. That is what this Budget introduced, and that is what we are debating in today's ways and means resolution.

Mr. Luke

Is it not true that the UK's economic situation was completely different 25 years ago? One major initiative of this Government was to put the power to change interest rates in the hands of the Bank of England. The past five years have been very prosperous. The right hon. Gentleman is talking about different era.

Mr. Dorrell

I suspect that you might interrupt me, Madam Deputy Speaker, were I to discuss monetary policy. I do not propose to go there, other than simply to observe that I actually agree with that aspect of Government policy. What I disagree with is a return to tax and spend, and that is what we are debating this afternoon.

Of course, the distinction to which I referred was not the only one that we were asked to believe that the new Labour Government, led by the current Prime Minister, would draw between themselves and old Labour traditions. We were asked to believe that whereas old Labour had been distinctly suspicious of the wealth creation process and tended to regard the business community as a milch cow to pay for its public spending ambitions, new Labour would be totally different. After all, it had—we were told—spent many years in opposition on the famous prawn cocktail circuit, it had many friends in business, it understood the wealth creation process and it would be a business-friendly Government. However, in recent months and years, the business community has grown more and more suspicious of the developing record of the Government. In the light of the Budget—especially the £8 billion tax increase—it is crystal clear what the friendship between new Labour and the business community is worth.

Despite all the crocodile tears about the manufacturing sector, the difficulty of trading in a global economy on the basis of a strong pound, and all the rhetoric about the importance of employing people, about wealth creation and about a Budget for enterprise, we have already had a £5 billion tax increase on pension funds in the Government's first five years—

Madam Deputy Speaker

Order. The right hon. Gentleman is well aware of the comments I made earlier, and I remind him of them.

Mr. Dorrell

Indeed, Madam Deputy Speaker, but I was linking the £5 billion increase in tax on pension funds that has already been introduced with the £4 billion—of the £8 billion that we are discussing today—that will land directly on the cost of employing people in the British economy. When we consider whether that is a sensible tax policy, we should recognise that those two measures alone—ignoring all the smaller measures that the Government have introduced—constitute a direct increase of £9 billion in the cost of employing people. Through those two measures, this pro-business new Labour Government will be responsible for a £9 billion increase in the cost of employing people. The two measures that we are discussing today alone constitute a tax increase of £8 billion from 6 April next year.

I agree with my right hon. and hon. Friends on the Front Bench that we should oppose this ways and means resolution tonight, because I regard it as simply a tax increase. What is worse, it comes on top of previous tax increases that have already constituted a substantial increase in the cost of employing people.

John Mann

The right hon. Gentleman talks about tax increases on business. Have the corporation tax and capital gains tax paid by his businesses gone up or down?

Mr. Dorrell

I am delighted to say that the corporation tax burden is lower than it used to be, but I am focusing the attention of the House on what is alleged to be one of the policy objectives of the Government—the encouragement of the employment of British people in the British economy in the wealth creation process. It is an odd way to encourage something to happen to put an extra tax burden of £9 billion on that activity.

Mr. Hendrick

When unemployment is a fraction of what it was under the Conservatives, does not the right hon. Gentleman accept that this Government's judgment is better than his own was as part of the previous Government?

Mr. Dorrell

I am coming to exactly that point, because I wish to explore why I am opposed to tax increases in this economy at this time. I shall talk about health later, in which I have a political interest, but I wish first to focus the House's attention on the economic consequences of the tax increase and the reasons why we should not support it.

It is important not to allow ourselves to spend—as we have—many years focusing on the importance of competitiveness and the need to compete in a global economy, and then to throw that analysis out of the window the moment that we have some tough decisions to make on health. Simply because it is said to be necessary for the NHS, a tax increase of £8 billion is allowed to go through with no questions asked. The line adopted by the hon. Member for Truro and St. Austell (Matthew Taylor) was that we should be content to vote through the tax increase simply because the Chancellor has said that it is needed for health.

Before I return to that argument. I shall focus on the economic case against a tax increase. Britain led the way in Europe towards a low-tax, competitive, flexible and market-oriented economy. We did not do that through any great foresight. By the end of the 1970s, Britain faced worse problems than any other country did. We had no choice but to cut taxes and make the economy more flexible so that we could be more competitive.

After 18 years in opposition, the Labour party finally said that it had taken the point and that it understood the need for a low-tax, competitive economy. Since the Labour Government came to power, however, they have started to increase the tax burden again. I have already mentioned two measures, and there are many others. This Budget takes the process a big stage further, just when our competitors around the world are understanding the importance of cutting the tax burdens on their economies.

The hon. Member for Preston (Mr. Hendrick) asked about the low levels of unemployment and Britain's economic success in recent years, and it is true that there has been more competitive economic activity and more successful wealth generation here. That has happened because we have had a lower-tax, more flexible economy than our competitors. The Government are reversing that: they are raising taxes in the British economy just when Germany, France, Italy, Spain, the United States and Japan—our competitors in an increasingly open and flexible world market place—are cutting taxes.

It is not good enough for hon. Members to say that a private problem in Britain with respect to health care means that we are locked out of the global economy. We are throwing to the winds everything learned in the past 25 years, and we are raising taxes just when the lessons that we learned the hard way are being applied by our competitors to make their economies more competitive.

Mr. Tom Harris

The right hon. Gentleman decries the Government's decision to treat the NHS as a priority. Does he not agree that, if the Government to whom he belonged had treated the NHS as the priority that it was in the 1980s, we might have avoided the crisis now facing the service?

Mr. Dorrell

I shall come to the NHS later, but just now I shall simply observe that the Government cannot say that difficulties in the NHS must give rise to a tax increase. I am depressed by the fact that we have been misled by Government spin in this debate. I congratulate the Chancellor on the way in which he has presented his tax increase. He has introduced a big, tax-increasing Budget and has invited us to debate health care.

If I wanted to introduce a tax-increasing Budget in today's world, I should take the same approach, but that does not mean that we—the legislators being asked to approve the tax increase—should vote it through just because of a convenient argument in support of the Budget. I believe that we should look at the downsides of the case that the Chancellor has presented. One of the key downsides is that the rise represents a significant increase in the tax burden on business, and that it will significantly undermine our economy's competitiveness.

Matthew Taylor

There is an argument—it is legitimate, but I do not agree with it—that says that tax burdens need to be lowered to improve competitiveness. That can be done in two ways. First, one can build up a big deficit. That is not a legitimate approach: it happened under the previous Conservative Government, although I admit that they planned to reduce it later with tax rises. The second option is to cut expenditure. How would the right hon. Gentleman cut expenditure significantly, and in which services? I remind him that Conservative Front-Bench Members have ruled that out.

Mr. Dorrell

I shall make my speech in my own way, as the hon. Gentleman did. However, I wanted to focus the House's attention on the fact that this is a tax increase. That rather obvious point seems to have escaped much public attention so far.

In his speech, the hon. Member for Truro and St. Austell said that we needed to reconnect voters with the political process. He may find that tax increases are quite a good way to achieve exactly that.

There is another reason for attacking this tax-increasing Budget, and this proposal in particular, which represents the bulk of the tax increases. Several speakers, including the hon. Member for Truro and St. Austell, have noted that the Government said that the increases would not be necessary. Indeed, before the last general election, the Government cut income tax. They cut the direct tax burden and told people that they would do more of the same if they were re-elected.

The Government's actions are breathtakingly cynical—there is no other way to describe them. The Government cut income tax before the election, but raised national insurance contributions after it. Labour Members should not be surprised at what happens when their constituents come to understand that the NHS will not change overnight, but that their tax bills will, on 6 April next year. Labour Members will then have to explain why tax bills are rising, despite their repeated assurances less than 12 months ago that no such rise was necessary.

How do the Government defend the tax increase? I repeat that the Chancellor has introduced a tax increase and tried to persuade us to avert our eyes from all conventional economic arguments and focus on the health argument. It has been said that the tax rise is necessary for health.

In an intervention on the hon. Member for Truro and St. Austell I said that that is simple arithmetical nonsense. The Chancellor is raising £8 billion in extra tax, and is spending £2.4 billion of it on the NHS. He must therefore justify the other £5.6 billion. He cannot say that all of it is needed by the NHS, as he is not committing to the NHS well over half of the sum that he is raising. In fact, he is committing at least as much to the tax credit programme as to the NHS, as my hon. Friend the Member for Havant (Mr. Willetts), the shadow spokesman on work and pensions, has made clear. So it is arithmetically untrue to say that the tax increase is justified by increased health spending.

There is another argument to be made. As the Red Book makes clear, total Government expenditure in 2003–04 will be £390 billion. The Chancellor of the Exchequer is asking us to believe that we must accept all the economic damage flowing from this huge tax increase in order to deliver an extra £2.4 billion to the NHS next year—extra money that amounts to 0.6 per cent. of expected Government expenditure.

This Government say that they embrace the need to make hard choices. Does any hon. Member really believe that it is impossible to find, in total Government expenditure of £390 billion, an extra £2.4 billion for the NHS? If the Chancellor and the Prime Minister want those extra resources to be made available to the NHS, is it impossible for what the Prime Minister has called hard choices to be made to free up those resources?

Mr. Hendrick

If the right hon. Gentleman wished to find that money from elsewhere in the £390 billion he mentioned, which services and provisions would he cut?

Mr. Dorrell

It is one of the joys of government that the Government have to make choices. I am simply asking people to embrace the concept that in £390 billion of public expenditure there is not, somewhere, £2.4 billion—roughly 0.5 per cent.—that could not be better spent on health. I challenge Labour Members to say that they could not find, if they really had to, 0.6 per cent. out of that budget to spend on health.

Mr. Tom Harris

The right hon. Gentleman served in a previous Government as Secretary of State for Health. Can he tell us from his experience how easy it would have been to persuade his Cabinet colleagues to surrender £4 billion of their own budgets, and if it was easy, why did he not do it?

Mr. Dorrell

It flatters my vanity but achieves almost no other purpose to tell the hon. Gentleman of the headline that said, "Dorrell wins £4 billion for the national health service". I guess that that answers the hon. Gentleman's question.

There is no escape from the conclusion that the Government are introducing this tax increase because they are running away from the need, to use their own rhetoric, to make hard choices and decisions.

Is the economic damage associated with the tax increase at least mitigated by the fact that extra money is being voted into the national health service? I stand as a strong supporter of the principle of access to health care. We must continue to embrace the ideal that health care should be available on the basis of clinical need, not on ability to pay. We should also embrace the ideal of delivering world-class health care to those who need it on the basis of clinical need. Last year, the World Health Organisation concluded that we were among the worst performers of any European country against those two ideals.

The question is whether the Budget can be justified by the fact that a proportion at least of this tax increase is being committed to health care. To answer that, I invite the House to cast its mind back to a day that we shall all remember—11 September 2001. It is, of course, carved in history as a day of infamy. However, when the Prime Minister got up that morning, he wanted 11 September 2001 to be remembered for a quite different reason. On that day the Prime Minister was planning to address the Trades Union Congress about the need for fundamental reform in the delivery of public services.

There had been extensive briefing ahead of 11 September that the autumn of 2001 was going to be when the re-elected new Labour Government engaged with their supporters about the need fundamentally to reform delivery of public services in Britain. The Prime Minister was making it clear that there would, in principle, be extra resources available, but that those resources would be conditional upon the delivery of reform.

I believe that the Prime Minister played a distinguished role in international events at the end of last year, and I do not criticise him for not following those plans through. However, when he re-engaged in British domestic politics at the beginning of this year, we had another round of briefing about the importance of fundamental reform of the delivery of public services. That was to be another of the reasons why new Labour was different from all its predecessors. However, while the Prime Minister was away, the Chancellor of the Exchequer had taken control of the argument. The Chancellor had, by the beginning of the year, made it clear that there was to be more money for the health service and despite what the Prime Minister wanted and had briefed about last autumn, it was not going to be conditional on the delivery of fundamental reform.

The Red Book has one fleeting reference to the importance of conditionality associated with the money going into the national health service. The message that comes out of the Budget and the tax increase is that the Government are absolutely committed to a £30 billion increase in health expenditure over five years and—in parenthesis, and very much sotto voce—that that is conditional on reform. At its annual conference immediately after the Budget, the Royal College of Nursing made it crystal clear that it understood that the money was available and the conditionality had simply disappeared.

The Budget introduces a huge tax increase, avoiding the need for difficult decisions in public expenditure programmes, and the Government are vacating the ground of fundamental reform of the national health service. We are being asked to bless a huge increase of extra resources for a fundamentally unreformed structure.

I come back to the point with which I began. Today, five years on from the election of the new Labour Government, we see that they are, in truth, simply another tax-and-spend Government who run away from the hard decisions about choices within public expenditure and the need for fundamental reform of public services.

6.7 pm

John Mann (Bassetlaw)

I have attempted to glean more information about the hard choices perceived by the Opposition. That is difficult because they are reserving judgment, so I took the liberty of examining the websites of their Treasury Front-Bench team. Only two have websites. That of the hon. Member for Arundel and South Downs (Mr. Flight) is called the Flight Site, but, unfortunately, it crashed repeatedly, so I could not judge his views.

Luckily, however, the website of the hon. Member for Aylesbury (Mr. Lidington) was available. Unfortunately, I could find no comment on the Budget, health, taxation or national insurance contributions, but there was a questionnaire that his voters could use for giving feedback. [HON. MEMBERS: "On the Budget?"] Not quite. There were several questions eliciting voters' views on immigration, but none on the Budget. I therefore propose that he add to his website a question or two on the Budget asking whether his electorate are in favour of it and prepared to pay the additional national insurance contributions.

My website outlines my view. It spells out that I will use my vote for the NHS. The electorate in Bassetlaw are very clear about where I stand on the issue. I have gone beyond the website in letting the local population know my views on the Budget and the hard choices. I hope that the hon. Member for Aylesbury will do likewise. I commend him on his questionnaire, which is well laid out. This is an ideal opportunity for him to do that. I have asked my researcher to monitor his website daily over the next week to see whether those questions are added. Perhaps we could have an analysis of the results as well.

Chris Grayling (Epsom and Ewell)

In the hon. Gentleman's efforts to find out the views of the people of Bassetlaw, has he asked them whether they believe that the extra money on national insurance will actually transform the national health service? The evidence of the opinion polls is that people have profound doubts that it will make a difference.

John Mann

Of course I ask that. I note that the hon. Gentleman has a website, too; I should have investigated it for good hints and tips. As I listen to the debate, I seem to be living in virtual reality but, yes, I do go out in Bassetlaw.

Indeed, this very week, the huts that were put up as wards for Bassetlaw hospital in 1938 are being knocked down. On the eve of the Budget, in a presentation to the Bassetlaw chamber of commerce, the general manager of the hospital outlined her vision of what the hospital would be like if the resources were available—the additional provision of acute services and the use of the land on which those huts have stood since 1938. She had some answers, but what did the Bassetlaw chamber of commerce have to say? Its president, as a business man, described it as "A fair Budget".

Like the right hon. Member for Charnwood (Mr. Dorrell), I should, of course, as a shareholder and a former director of a business, declare an interest because of the implications for employers' national insurance; but I also have an interest in the corporation tax reduction. For me, profitability means that I shall receive a greater net benefit due to the reduction in corporation tax this year than the total net increase even if the higher national insurance contributions had already been in force for a year.

Of course, the capital gains tax change for budding entrepreneurs such as myself, the right hon. Member for Charnwood and others is phenomenal: the difference for entrepreneurs in my constituency, or anywhere in the country, is formidable. I have not sold my shares, although I have an offer for them. I do only one job at a time; as an MP, I do not want two jobs. It is almost embarrassing when we consider the difference that the Chancellor and the Government have made for entrepreneurs through successive Budgets—Budgets for entrepreneurship.

Of course, employers never want to pay more, but what are the alternatives? Let us consider them, because they have not been spelt out. There are various European models for increased taxation. Each takes more of the national income in taxation than we do, however that is dressed up. We might call them the European continental model. It has not been adopted by the Government. Some people may suggest that it is a good model, but, despite the nuances in some of the remarks of Opposition Front-Bench Members, I have not heard that from them yet.

Another model is the American one, which is extremely interesting. There appears to be a presumption in the debate that employees and employers in the United States do not pay for their health service through taxation. That is true. In the United States, 45 per cent. of small businesses do not offer their employees private medical insurance. That possibility is not open to the 45 per cent. of employees who earn less than $7 an hour. That is one of the fundamental problems of the US health care system.

I offer the House an example using a theoretical company. I note that the shadow Chancellor, as a Minister, employed five special advisers. If the company was American, we could call it "Special Advisers Inc.", but I shall discuss the American model later. A UK company might be called "Special Advisers Ltd."

What would be the cost to the right hon. and learned Gentleman, as an employer of five employees, of the increase in employers' national insurance contributions? It would be less than half the cheapest rate that BUPA quoted me for insurance for such a company. BUPA offers a cut-price version, because it relies on the national health service. It has no accident or emergency facilities and there are all sorts of get-outs.

How could I get a cut price? I should have to make a judgment about the special advisers. Currently, there are 19 of them among the Tories—11.6 per cent. of the parliamentary Conservative party were special advisers. I took an average age of 38. I thought that to take a higher age would be unfair, because, as we all know, with the American model of private health insurance, the older people are, the worse it is.

Furthermore, in the American system, people with mental health problems cannot obtain the same insurance and they have to pay more. Discrimination against those with mental health problems has been debated in Congress during the past few weeks.

Chris Grayling

The hon. Gentleman's exposition is fascinating, but I am uncertain why he is giving it: as he will be aware, the shadow Health Secretary has said clearly that we are not considering the American model.

John Mann

At present, the Conservatives do not appear to be considering any model—not the higher-tax, European continental model, not the American model and not the UK model. I have not yet seen a new model, although I am sure that one will emerge.

Mr. Stephen O'Brien (Eddisbury)

Who is in government?

John Mann

We are in government. We have made the decisions and, as I said earlier, I applaud them—so does the population. However, it is fair to discuss these points in a major debate on health and the funding of an expanded and improved health service. I am sure that everyone concurs that we want that. The debate is about how best to achieve it.

I want to turn to the American model—Special Advisers Inc. In the American system, those 19 employees—the 11.6 per cent.—would join a union. In America, 99 per cent. of large employers have a collective bargaining agreement with a union. I picked an American union at random; it was the first website to come up when I checked—

Mr. Deputy Speaker (Sir Michael Lord)

Order. The hon. Gentleman is straying rather wide of the mark; he should come back more specifically to the matter before the House.

John Mann

I wanted to develop the point that five options are available. Employers and employees in America pay for the funding of the health system through the collective bargaining agreement—each pays part of the cost. In principle, there is no difference between that and the changes to national insurance contributions that have been made in this country—employees and employers both pay. Anyone who suggests that the American model is different is highly misguided.

Mr. Kevan Jones (North Durham)

The shadow Chancellor might not have referred to private health care, but the shadow health spokesman clearly did. Does my hon. Friend agree that, in the United States, people in work have access to health care, but when they fall on hard times—if they are made redundant or their family circumstances change—they no longer have access to the private health schemes to which he referred? It is estimated that about 40 million Americans are not covered by any health insurance at all.

John Mann

In the United States, 45 per cent. of workers on low wages are not offered medical insurance. The co-chair of the American social security commission, Daniel Moynihan, proposes that the retirement age should be raised to 70. That seems rather extreme because most people suggest an age between 65 and 67, but he does co-chair the commission.

That is another alternative: we could raise the retirement age, and stop people receiving their pensions. That would be one way to solve some of the NHS funding problems in this country. It is an alternative that I entirely reject, but it is part of the debate currently under way in the United States. On average US pensioners, spend 21 per cent. of their income on health care.

Dr. Murrison

My hon. Friend the Member for Epsom and Ewell (Chris Grayling) has already pointed out that our hon. Friend the Member for Woodspring (Dr. Fox) dismissed the American model as a possibility. Presumably, Labour Members have done the same thing, so the hon. Gentleman is talking hypothetically.

John Mann

I am making a contribution to the debate by suggesting that there are three models; the United Kingdom model; the European continental model, which is a higher-tax model; and the American model. Of course, there are nuances and variations in each model, but they are the three options. There are no other alternatives, and we have to decide on one of them.

Chris Grayling

With respect, the continental model is not a higher-tax model. In no part of the rest of western Europe does any state attempt to fund its health care system wholly by taxation through one large national bureaucracy. That is the difference in this country, and the Conservatives are challenging the status quo because we see no sign that it is delivering the kind of improvements that other countries enjoy.

John Mann

In France, employers pay more than the national insurance contribution in this country—about twice as much. There are different ways of funding, but those employers and employees pay more. There is no such thing as a free meal ticket, so expanding the NHS—or private health, or whatever alternative is proposed-requires more expenditure. That expenditure does not come from anywhere else, unless a Government unwisely borrow money that they have not got and pretend that they can spend money now, although doing so will become a legacy for years to come.

Thankfully, the Government have definitely chosen not to borrow. That is a difference from the past. Of course, increases in national insurance contributions are no new thing. What happened in 1981 and 1984? National insurance contributions went up in both those years. After the 1979 and 1983 general elections, national insurance contributions rose. I cannot recall whether they went up later, under the right hon. Member for Charnwood, but national insurance contributions repeatedly rose throughout that period.

Let us consider the tax burden under the Conservatives—the so-called business party. In 1980, 8.4 per cent. of the total tax take came from corporate income. By 1990, the figure had risen to 11.6 per cent. and, by 1997, to 12.2 per cent. In other words, a higher burden was repeatedly placed on business. It is no surprise that so much of the country's wealth had to be spent on paying for unemployment benefits and on the debt repayments involved in borrowing money to try to hold the nation together. This Government's major achievement is having moved away from both those positions.

Under the Government's proposals, tax will rise as a proportion of national income from 37 per cent. in 2001–02, to 38.3 per cent. in 2005–06. That figure is still lower than those recorded in virtually every year of Margaret Thatcher's prime ministership. The difference is that the Government have stable spending plans based on real money, not on borrowing with hyper-inflation and high interest rates. There is a stable economy, and they are using real money, not theoretical money with a price to pay in the future. That is why the national insurance increases will not seriously damage the British economy.

Mr. Ian Liddell-Grainger (Bridgwater)

I am intrigued. The farmers in my constituency are trying to recover from last year's foot and mouth outbreak, and the one thing that no one in rural areas wants at the moment is another tax increase. We are an eternally taxed economy. Unemployment is very low, but people are being driven out of jobs in rural areas. Will the hon. Gentleman accept that?

John Mann

I was living on a beef farm during the foot and mouth crisis. My constituency is primarily rural. Some 360 square miles of it are rural, so I am very aware of the rural economy. People in the rural economy tell me that they want a health service in which they are not discriminated against. A big problem in rural areas is that people have to travel further to facilities. Such areas do not have the concentrations of support that exist in more urban areas, so people in rural areas do not get such a good service. That is precisely what the new investment will address.

In my constituency, three new health centres—in Warsop, Harworth and Worksop—are already beyond the planning stage and moving to implementation, and that is happening before the increase. That is what the rural economy wants: good services with a rational calculation of how to pay for them.

Of course this is a tax increase—no one has suggested that it is not—but it is popular and it will not damage the economy because of the strength of the economy. We have the fastest growing economy in the G7. We remain a low-tax economy, especially compared with our European competitors. There is a 3 per cent. difference between us and the EU average tax rate. The main rate of corporation tax—30 per cent.—is lower than that in any other major European country. Of course the low tax position is even better for small businesses such as the one in which I have been involved.

Mr. Hendrick

Does my hon. Friend agree that, contrary to what the right hon. Member for Charnwood (Mr. Dorrell) said earlier, this country can afford this tax increase because corporation tax and other business taxes in this country are lower than those of our European competitors? We can afford this small increase.

John Mann

Our economy is growing well. Interest and inflation rates are at their lowest since the 1960s. The unemployment rate—3.1 per cent.—is the lowest since August 1975. An extra 1.5 million people have been employed since May 1997. We have a strong and stable economy, so it is a question of choices.

I shall end on the choices that are available. Private health care is like travel insurance, and we all know what happens with that. We can insure against delays, but we all know about the opt-outs in the small print and how difficult it is to make claims. We can make baggage claims, but we do not take many bags with us and we all know what the baggage excesses are. What we really pay for is emergency health insurance while we are away.

Everyone in the country knows what the private health care premiums would be for themselves or their families. We all know that the more infirm people are, the higher the premium they pay. If people have had a serious illness, if they have just come out of hospital or if they are pensioners or disabled, their premiums are higher and the exclusions in the small print are greater. That is the only other real option; it is the American system, and we do not want it here.

What we want here is a system where people do not have to read the small print first or calculate the excesses and do not have to beware of the opt-outs. From the cradle to the grave, in sickness and in health, I want health professionals to identify the most effective treatment for me, not to calculate the profitability of my life.

6.28 pm

Adam Price (East Carmarthen and Dinefwr)

I should say at the outset that the hon. Member for Cardiff, West (Kevin Brennan) accused me of lacking a spirit of generosity towards the Government. On reading the Hansard report yesterday, my generosity towards the hon. Gentleman was dimmed slightly, possibly by his comments.

We are pleased to support the Government in this ways and means resolution because we accept the central tenet. As the Wanless report accurately stated, we have had 30 years of underinvestment in the health service in particular, under successive Labour and Conservative Governments. We have some reservations about the means that the Government have used to generate the extra investment, but anyone who is familiar with our public services could not fail to support any measure, however imperfect, that would generate extra investment in those services.

I listened with great interest to the contribution made by the right hon. Member for Charnwood (Mr. Dorrell), which was, as ever, interesting. He very successfully demolished any lingering doubt as to whether this is anything other than a rise in personal taxation. It is clearly a tax increase, although perhaps there has been an attempt by those on the Front Bench to mystify things, and perhaps there might be a greater degree of honesty in the attitude to public finances.

Where I disagree is that I cannot see any correlation between competitiveness and economic success and the level of spending in the public sector. If we consider the index of competitiveness, which Conservative Front-Bench spokesmen have always been keen to use, perhaps until this week, we realise that there is no linear or non-linear correlation between the level of taxation and public expenditure across various countries. There are high-tax, high-public expenditure countries that are economically successful, and, admittedly, there are low-tax economies with low spending in the Government sector, which are also successful. The issue of taxation and expenditure is not principally one of economic efficiency but one of political decision. Society ticks in terms of the relative allocation of resources between personal or family consumption and social or collective consumption. Tax and spend works both ways—it can be personal tax and personal spend.

We welcome the additional resources going into the national health service. I am the second Welshman to contribute to this debate on national insurance. The predecessor to the right hon. Member for Llanelli (Denzil Davies)—Jim Griffiths, who was Minister of National Insurance—came from my home town of Amanford. Of course, we have all dusted down the National Insurance Act 1946 and the National Assistance Act 1948. We should not forget that Lloyd George, another illustrious Welshman, did some of the ground work in 1911.

As I understand it, the original Act provided for mandatory contributions from employees and employers that were principally aimed at supporting benefits, although a small proportion went into the health service. It was anticipated that the Government would take up the shortfall. We are now in the opposite situation—I am sure that the Government would argue that it is down to their sound management of public finances—in which the national insurance fund has a record surplus of more than £15 billion, according to the latest figures that I have seen. We are now using the national insurance fund to support general Government expenditure. The former Member for Llanelli might have had difficulty with that because it cuts across the contributory principle that lay at the heart of the national insurance system, which was an earmarked social insurance system.

We have already heard from the right hon. Member for Charnwood that even next year, with around £8 billion raised, only £2.4 billion is going into the national health service. Clearly, that figure will increase in years to come. Even when we are talking about national insurance increases, however, we are not talking about any form of hypothecation. The Treasury Committee is absolutely right to argue that it is wrong to exclude unearned income. If we accept the argument that there is a case for greater contributions through personal taxation, direct taxation is the most socially equitable means of raising those funds. That point was made eloquently last night by the hon. Member for Birmingham, Selly Oak (Lynne Jones).

National insurance is also a tax on a social good—employment. According to the figure from Oxford Economic Forecasting, it may reduce jobs growth by about 100,000 over the next few years. Other economic forecasters may have different views, but that one has been echoed by all the main business organisations. Even the Secretary of State for Trade and Industry said that it had been a most unwelcome surprise—I presume that she included herself in that.

We support the objective of renewing the public services through extra investment. We would have liked the Chancellor to go further and faster in undoing underinvestment by successive Governments. That is why we may reconsider the issue of exempting the public sector from the employers' contribution. The Government have been very careful to herald the increase in public spending, but they kept a little quieter about the proportion of the money that will be clawed back through the employers' contribution—£1.2 billion a year, as we heard. The employers' contribution will cost the NHS some £26 million a year in Scotland, and some £11 million in Wales.

If we accept that the central tenet of the Budget is to renew the national health service, it seems curious to use the payroll tax for that purpose. As we know, the national health service is the biggest employer in Europe—apart from the Russian armed forces, I believe—with 1.5 million employees. The payroll tax is therefore probably the last policy tool that should be used to effect an increase in new resources available to the national health service in the short term. Of course, other public sector employers will also be hit badly. Consignia—I presume it is still in the public sector—is losing £1.5 million a day and, I believe, it is coming before the Welsh Affairs Committee. It will have to pay an additional £35 million to £40 million a year on top of that, thereby adding to its financial difficulties. As we have heard, local authorities have particular problems in the care sector, which the Chancellor addressed specifically through the Budget. Because of the revolving door of Government revenue, however, whereby the Chancellor gives with one hand and takes away with the other, local authorities in Scotland are losing about £35 million and those in Wales are losing some £15 million.

Apart from the clawback, there is also a danger that the employers' contribution will add further to worries about wage inflation in the public sector. The value of the extra money going into the NHS could be lost to inflation. As the King's Fund told the Treasury Committee, 40 per cent. of the extra cash for the NHS could go straight into higher pay and prices. We are aware of the comments of one of the City economists, Michael Sanders of Schroders, that public sector wage inflation is already increasing apace—an average of 4 per cent. compared with 2.3 per cent. across the economy as a whole. That has implications in terms of the Chancellor's stated aim of increasing the NHS budget by 7 per cent. in real terms. If inflation in the public sector is higher owing to wage increases and the fact that the Government are less reliant on cheaper imports, it could eat considerably into the 7 per cent. increase.

To a certain extent, the pent-up demand in the public sector for wage increases is understandable. For 20 years, public sector employees were treated as the poor relations. Their pay was restricted, their conditions were undermined, and their status was downgraded to a certain extent. It is therefore no surprise that the Government find it difficult to recruit the doctors, teachers, nurses and police needed to staff existing services, let alone the huge increases of 35,000 extra nurses and 30,000 extra therapists that the Secretary of State for Health has talked about.

The Secretary of State for Health has said that pay is not a something for nothing arrangement. The same applies to recruitment. The only way to recruit that number of people in what is admittedly a tight labour market is to offer serious additional incentives in terms of public sector pay. That, on top of the changes in employees' and employers' national insurance contributions, will make a very difficult environment for the public sector in the next few years. The fear is that the extra spending will be swallowed up by salaries and additional inflation that is unique to the public sector. Therefore, although the increase in investment is necessary, it is insufficient to deal with 30 years of underinvestment in the health service.

Of course, what is true for the health service is true right across the board for the public sector. Although I do not want to stray into wider territory in terms of the economy, there are widely expressed doubts about the Chancellor's arithmetic in terms of economic growth. The Government's own figures from last week show a 0.1 per cent. increase in the first three months of this year, and that comes on top of a zero increase in the last three months of last year. That clearly suggests that the economy will not meet the Chancellor's growth forecast for this year. If that develops into a wider economic problem, it will impact seriously on the public finances. The Institute for Fiscal Studies and the National Institute of Economic and Social Research have also pointed to the hole, as they see it, in the Government's arithmetic for the public finances even if the Chancellor meets his economic targets.

Kevin Brennan (Cardiff, West)

Will the hon. Gentleman give way?

Adam Price

I may give way to the hon. Gentleman later in this Parliament, and I think that he understands the reasons for that. In any case, I am about to wind up my speech.

I hope that we will be able to table more detailed amendments when the Bill is before us. Obviously, our natural enthusiasm got the better of us in the amendment that we drafted to the resolution, but there is a legitimate argument for providing an additional cushion and additional stimulus for the public sector by exempting it from the national insurance increases. We look forward to having that debate.

There has been much talk about the rebirth of old Labour, but I have not been convinced by that talk. We can look back to the past, and the right hon. Member for Llanelli will know the figures because, to quote Max Boyce, "He was there." Between 1974 and 1976, there was a 5 per cent. increase in public expenditure as a proportion of GDP, and that was in the first two years of that Labour Government. We are now in the second term of this Labour Government, and even with the changes announced by the Chancellor, we shall see only a 1 per cent. increase in public expenditure as a proportion of GDP over a five-year term. The figure is even lower than that for the last year of the Government of whom the right hon. Member for Charnwood was a member. Suggestions of the rebirth of old Labour are possibly overstated.

I hope that these proposals are not the final word but the beginning of a new debate, a new dispensation and a new honesty about the relative balance in the United Kingdom and in the countries of the United Kingdom between private affluence and public welfare.

6.42 pm

Mr. Mark Hoban (Fareham)

The ways and means resolution before us illustrates the way in which the Government have sold the Budget. They have said that the increase in national insurance contributions will pay for the cost of increased spending in the NHS. However, as my right hon. Friend the Member for Charnwood (Mr. Dorrell) pointed out so clearly, in the first fiscal year in which the increase in national insurance contributions will affect businesses, the cost of £8 billion will far exceed the amount that will actually be spent on the NHS. It is not surprising that the Chancellor has decided to sell the Budget as a Budget for the health service, because that is a good way of avoiding the message that describes the pain that will be inflicted on public services as well as businesses next year.

In my borough of Fareham, it is estimated that the cost of the increased national insurance contributions will be £91,000. That is a relatively small figure because it is a small local authority, but it will translate into a 1 or 2 per cent. increase in council tax this time next year. I talked to representatives of the charitable sector earlier this week, and they estimate that the increase in employers' national insurance will cost the sector more than £50 million a year. The cost of more than £200 million has already been cited for the health service and, in an answer given earlier this week, the Department for Education and Skills identified that the additional costs for teachers' salaries will be about £140 million.

Once those increases are taken into account, it is not surprising that a total cost to the public sector of £1.2 billion will arise from the increase in national insurance contributions. That demonstrates the sheer scale of the increases and the impact that they will have on the provision of public services—about which the Government speak so proudly—and on the improvements in delivery that the Government expect to see.

One sector that will be particularly affected by the increase in national insurance—it is relevant given the rationale that has been given for the increase—is the care home sector. It has already lost 50,000 beds since 1996–97, and it has been interesting to note reactions to the Budget from people in the sector. Frank Ursell, chief executive officer of the Registered Nursing Home Association, said: For those care home owners who are already teetering on the brink, this tax increase on wages could be the final straw. Many care home owners could say 'I've had enough'". Sheila Scott of the National Care Homes Association said: Stealth taxes are killing my members. This tax increase may push some care home owners over the edge". Philip Scott, chief executive of Southern Cross, one of Britain's largest nursing home owners, said: We've very quickly done a calculation of what this will do to our payroll costs, and it seems to increase them by about £600,000. Many nursing homes are small and have thin margins. Their wage costs account for about 80 per cent. of their total costs, so a I per cent. increase in national insurance will reduce their margins by about a fifth. That will push many of them over the edge. We cannot simply accept a decline in the number of nursing home beds.

Mr. Hendrick

Will the hon. Gentleman tell us how we can improve and increase expenditure on the health service if not through an increase in national insurance contributions? The right hon. Member for Charnwood (Mr. Dorrell) said that business should not have to pay more tax and the hon. Gentleman suggests that the public sector will also be heavily hit by the proposal. If the public and private sectors are not willing through their national insurance contributions to pay more tax, where will the money come from? Furthermore—

Mr. Deputy Speaker

Order. The hon. Gentleman is making an intervention, and he has already done well enough.

Mr. Hoban

The hon. Gentleman asks how we are going to fund the increased expenditure. My contention is that the increases in national insurance contributions will make the situation worse, not better. The closure of nursing home beds as a consequence of the increases will lead to more bed blocking and longer waiting lists. The health care changes that the Government suggest will come through will not materialise. This tax increase will be counterproductive. Over the past five years, the increases in health care spending that the Government have announced have not translated into better standards of care.

A number of my constituents have written to me about podiatry services. In Portsmouth, 10,500—

Mr. Hendrick

On a point of order, Mr. Deputy Speaker. When the House is holding a debate on national insurance increases and the Government have put forward their proposals, is it in order for the Opposition not to put forward any proposals? Is that a proper debate?

Mr. Deputy Speaker

That is not a point of order; it is a matter of debate.

Mr. Hoban

As I was saying, increases in health service spending over the past five years have not been translated into improvements in the quality of service offered to people in my constituency. Some 10,500 pensioners in the Portsmouth area now no longer receive podiatry services despite all the Government's promises of better standards and more care. The case is yet to be demonstrated.

John Mann

Will the hon. Gentleman give way?

Mr. Hoban

I will not give way, because I am conscious that other colleagues wish to speak.

Previous promises of increased expenditure have not led to improved services. Without fundamental change in the NHS, the tax increases in the Budget and the increases in national insurance contributions will not translate into better health care. The Government have shown an unwillingness to adopt fully a programme of change and reform in the NHS that would lead to improvements in the delivery of health care. I fear that businesses, the public sector and care homes—indeed, a host of affected interests across the country—will suffer pains as a consequence of increased national insurance contributions. I cannot envisage the NHS gaining from that unless there is real change in the provision of health care.

6.50 pm

Dr. Andrew Murrison (Westbury)

We have heard that the increase in national insurance levied in the Budget will be used to fund the national health service, so it is on that that I shall focus. Although I am mindful of the comment that only a proportion of that take will be spent on the NHS, it is important to explain that the NHS is not just about cash. I regret the remarks made by the hon. Member for Truro and St. Austell (Matthew Taylor), who seemed to suggest that the NHS started in 1997, so nullifying everything that went before. I trained in the NHS in the early 1980s and have worked in it. I regret such remarks, which will reflect poorly on the hon. Gentleman when they appear in Hansard tomorrow.

The Chancellor should not fall into the trap that because he has turned on the taps, the NHS is going to blossom like the desert after the rains have come. Recent experience suggests that that will not be the case. The Science and Technology Committee, of which I am a member, found that the £570 million that was pledged as part of the NHS cancer plan ran into the sand. Professor Gordon McVie, director general of the Cancer Research Fund, told us: I think there is still some mystery about where some of the money is and whether the cheque got lost in the post or whether it has been absorbed like creosote into the fence post of the administration of the health service. That is quite damning. Notwithstanding the Government's commission to audit and check that money is being spent as it should be, we need structural change to ensure that that is not required. We do not want Parliament to get another damning report suggesting that money has run into the post like creosote. However, as there is no evidence of structural change, we are concerned that the money will not be well spent and will not be focused on what really matters. It is not just a case of spending money on the NHS or health services broadly defined. I believe that our constituents want to see the outcomes of health care policy.

The Government's stance on alternative funding has hardened in recent months since the Chancellor asked Mr. Wanless to craft his report. The Wanless report cannot be seen as independent or even objective, but even it admits: The degree of individual choice tends to be relatively limited under tax financing … in a world where patient expectations are rising rapidly and people are increasingly looking for health services which offer greater personal choice in non-clinical services, it may not be acceptable or equitable to meet all of these additional demands through public financing. Acceptable and equitable are important terms indeed.

I do not know whether our system, funded overwhelmingly through general taxation, can sustain us, and I am prepared to examine other models. We have to accept that our system is unique and we have got it either very right or very wrong. Either way, we have to be prepared to countenance other models of health service funding. We should compare a system based on rationing that will always be driven by available resources—the United Kingdom is the exemplar of that—with demand-led systems elsewhere that focus on cost containment. It is a great shame that the Chancellor has put his faith exclusively in the former.

John Mann

Does the hon. Gentleman rule in or rule out the scheme in the United States?

Dr. Murrison

Hon. Members have repeatedly said that no one on either side of the House is interested in the American system. For myself, as a humble Back Bencher, I do not think that the system works particularly well in the United States and it certainly would not work well here. I hope that that gives the hon. Gentleman, for the last time, the answer that he seeks.

Mr. Stephen O'Brien

He does not want to believe it.

Dr. Murrison

I fear my hon. Friend is correct.

John Mann

What alternative does the hon. Gentleman propose?

Dr. Murrison

If I can crave your indulgence, Mr. Deputy Speaker, I shall have to labour the point. I do not know how we should best fund health in this country, but I am prepared to examine alternatives. Rather like Lewis Carroll's Red Queen, the Chancellor has closed his mind without first examining the evidence. I hope that the Opposition continue to examine what is best for the British public so that we get the very best health outcomes. That is the important consideration, not institutions. I say that as someone who worked in the NHS and has every respect for it and its staff. Frankly, my constituents would consider surrendering the nine-minute average GP slot that they get under the current system for 20 minutes in the not-for-profit Californian system run by Kaiser Permanente.

The recent Treasury Committee Budget report makes the pertinent observation: The proposed increases in NICs for employees and the self-employed will deliver a tax increase to those groups that is very similar to a 1 per cent. increase in the rates of income tax. However, unlike increases in income tax, increases in NICs will not affect pensioners and those living off unearned income, who benefit from the insurance provided by the National Health Service, and may be in a position to make a contribution. We think that the Treasury has, as yet, failed to make the case for choosing a method of revenue raising (higher employer and employee national insurance contributions) which excludes well-off pensioners and people living comfortably off unearned income from making a contribution to higher NHS spending. The House should bear it in mind that that is an influential. Labour-dominated Committee.

The public policy campaign group, Reform, listed a series of concerns that it has about the NHS. It points out that the Department of Health estimates that 16 to 20 per cent. of the NHS budget is lost as a result of poor management, fraud, blocked beds, hospital-related infections and other aspects of mismanagement. We need to address that urgently. We know that Scotland spends the EU average on health care, yet public health figures tell us that it enjoys among the worst health care in Europe. In other words, it is not just about money; it is what we do with it. The tax cost of the NHS to the average family has more than doubled in 10 years, but is that reflected in the improvements in their health care? Probably not.

As an aside, as someone who worked in the NHS and who has viewed health care with interest for most of my adult life, most of the extremely positive advances in the past 50 years have not been due to the number of the doctors on which the Government are so fixated. It pains me to say that. I am a doctor and I would love to be able to tell the House that the problems could be solved by recruiting more doctors. Sadly, that is not case. It is far more complicated than that.

The Adam Smith Institute estimates that only 17 per cent. of any new resources for the NHS end up in front-line services, which bears out the findings of the Science and Technology Committee. The Secretary of State for Health described the NHS as the last great nationalised industry". The Institute of Directors points out that Government policy remains set on sending more men over the top instead of opening up new fronts. The Institute of Directors represents many small and medium-sized organisations. We need to pay due credence to what it says because they generate the wealth that, at the end of the day, funds the public services that we all want.

Let me conclude by citing two of the most prominent medical men in the country. The chairman of the British Medical Association recently said: the NHS in its current state cannot survive without radical change". The president of the Royal College of Surgeons recently stated: things are in such a mess, much worse than I would have imagined possible … the NHS is in a desperate state.

6.59 pm

Chris Grayling (Epsom and Ewell)

May I begin by apologising to the Chair and to Members on both Front Benches for missing the start of the debate? I was at a sitting of the Transport Sub-Committee; clearly, I view attendance at Select Committees as particularly important, especially this week.

I feel strongly that the increase in employers' national insurance contributions introduced in the Budget is foolhardy and will damage a wide range of organisations. It is worth thinking back to the comments made by the Chancellor of the Exchequer two years ago, when he said that a small adjustment downwards in employers' contributions was an employment-creating measure. By definition, his decision to increase employers' contributions this year must be an employment-damaging measure; the two facts inevitably go together.

The impact will be felt, first and foremost, in business. I know that the hon. Member for East Carmarthen and Dinefwr (Adam Price) has argued that the public sector will be the problem, and I will go on to reinforce many of his comments, but it is not only the public sector that will be affected. As a result of this change, small businesses throughout this country, particularly in manufacturing, which has suffered as a result of adverse exchange rates in the past few years, will take on costs that they can ill afford.

Yesterday, at Scotland Office questions, I pointed out that employment in manufacturing in Scotland has fallen to a historically low level, yet the Budget will take £50 million out of Scottish manufacturing companies. That cannot happen without it having an adverse effect on employment. I do not know the comparable figures for Wales—I hope that the hon. Gentleman will forgive me—but I am certain that the Budget will also lead to a loss of tens of millions of pounds for manufacturing companies in Wales and other parts of the country, which they can ill afford at this time.

It is easy for Ministers to talk about small amounts for individual companies. It is true that a small service firm with a turnover of £500,000 a year will end up spending £3,000 or £4,000 a year extra as a result of the measure, but where does that money come from? In most small companies, costs are fixed: salaries have to be paid, the rates have to be paid and the bills for heat and light have to be paid. There is relatively little discretionary spending in any company's budget, and when adjustments have to be made the money comes from such sources as sales and marketing, the training budget or the investment budget—perhaps the company will buy fewer computers that year. No small business can afford to give up those things.

I am sorry that the hon. Member for Bassetlaw (John Mann) is no longer in his place. He mentioned profitability. Whatever the Government have done for profitability, many of our growth companies do not make a profit in their first few years, but they still employ people and so carry the costs of employment. Those businesses in particular will suffer as a result of the change.

The measure will also have a huge impact on our biggest companies, such as Nissan in the north-east, which has been struggling to deal with the high exchange rate and is a substantial employer. For Nissan, being in business in this country is now less viable. The same is true of Corns, which has been forced to make cuts in south Wales, which we all regret. How many more jobs with Corus will be lost as a result of the Budget?

The truth is that businesses both big and small will suffer, but there will be an equally huge impact on our public services, and I want to say a little about how the measure will affect our education system. In the past few days, I have been finding out in a series of written answers exactly what the impact on schools and colleges will be. Can Ministers assure the House that local authorities will be fully funded so that they can address the shortfalls that schools will face as a result of the higher employers' contributions?

Some of the figures that I have been given are frightening. I asked the Department for Education and Skills about the total amount of national insurance contributions paid, directly and indirectly, through its budget. Using the available data, it said, it estimates that the cost of contributions paid by the Department in this financial year will be £3 billion. That means that, next year, with a 10 per cent. increase in the national insurance rate, approximately £300 million extra in employers' contributions will have to be found. That money will come out of education budgets.

If we could be certain that the schools and colleges that will have to pay those bills would be refunded, we might be reassured, but a further written answer about colleges gave me further cause for anxiety. It said: The additional cost in employers' national insurance contributions in 2003–04 for all English colleges (including sixth form colleges) providing further education is estimated to be about £25 million. This cost will be considered alongside other priorities and pressures in the 2002 spending review."—[Official Report, 29 April 2002; Vol. 384, c. 572W.] So there are no guarantees that those funds will not come straight off the bottom line. I suspect that a cost of £25 million spread across all colleges may equate to the cost of a teaching post in each one.

I have figures for primary and secondary schools. The cost of the increase in contributions will be £20,000 for the average secondary school, which is about the same as the cost of a teaching post for a new graduate. The cost will be £4,000 for the average primary school, which is more than most of them have to spend on books and equipment every year. Will that money be refunded to schools through next year's education settlement, or will they find that it has been cheese-pared away and that local authorities have been underfunded for next year's pay settlements? Even Ofsted does not escape. I have a letter from the chief inspector, who says: I estimate that the additional cost in 2003–04 will be about £½ million. That is £500,000 that will not be available to fund school inspections.

There is no logic whatever in taxing our schools and colleges to pay for the NHS, or indeed, as hon. Members have said, in taxing the NHS to pay for the NHS. The Government are taxing hospitals, primary care trusts, social services and, outside the public sector but equally importantly, care homes. The flaw in the amendment to which the hon. Member for East Carmarthen and Dinefwr put his name is that it does not mention care homes. They are privately owned but they depend on a small cadre of staff who are dedicated but not highly paid. They are businesses that often operate close to the margin. They will have to fund this extra tax, and they may well be unable to afford it.

Throughout the country, small and large businesses and, in the public sector, the health service, our schools and colleges, our police forces and our councils will pay extra. It is far from clear that they will all get their money back and that services will not suffer as a result. The measure is ill-thought-out, and it will do far more harm than good. It is far from clear that it will deliver improvements to the health service of the kind that are undoubtedly needed. It is a bad measure and it should he opposed by the House.

7.7 pm

Mr. Ian Liddell-Grainger (Bridgwater)

I, too, must apologise to the House for being slightly late.

I want to begin where I left off in my intervention on the hon. Member for Bassetlaw (John Mann), in which I spoke of the effect that the increase in national insurance will have in areas such as mine that have been affected by last year's foot and mouth epidemic. Rural economies are fragile at the best of times; they have very little meat on their bones to keep themselves going. Last year, we saw the meat on those bones devastated in entire constituencies.

We lost all our tourist trade. Tourism is now trying to bring itself back from the brink. Last year, business was down by 80 per cent., and those companies depend totally on part-time rural labour. The problem in tourism now is that people are beginning to say to their banks, "I can see my way out of this." They hope that they can trade their way out of the problems. This national insurance increase will make that much more difficult. These companies have very little to play with, and they have made budget predictions, not only for this year but for a couple of years, which will now be wrong, and, as we well know, banks are somewhat less than forgiving.

What about farming itself? The industry has gone through a massive change in the past five years. It has cut the number of people employed on the land, and the problem now is that it will have to make further cuts. The average income for a farmer is £5,000. If a farmer employs somebody, he will lose 1 per cent. of that person's wage in national insurance. That is yet another increase that farmers and rural businesses can ill afford. There is no way out for farmers—they have to be on the land, working the land. Are we seriously suggesting that, despite the working time directive, farmers will now have to work 24 hours a day because they can ill afford to employ people to help when they need it most?

What about small businesses in seaside towns? I was talking to a company that supplies slot machines. It has a problem because business is cyclical, so it shuts for six months of the year. It takes on part-time workers and, after the six months of work, it gets rid of them again. With an increase in national insurance, any business that is cyclical and totally dependent on one sector of the community will find it very difficult to expand.

I wonder whether the Government are aware that over the past few years there have been £6 billion a year of extra taxes and £5 billion a year of extra red tape. In my constituency, we have Butlins, which has 9,000 guests a week. It employs 750 people who are all local part-time workers. Butlins will be affected by the increase, because red tape is a disaster for such a business. People will go overseas on holiday. That is what Butlins is competing with. The market is large and aggressive, and it is fickle, depending on what the pound does that year or at the time.

I also have a tea company in my constituency. It obviously relies on imports from around the world to blend and make tea. It is a tiny company that has done very well. I am trying to get its products into this honourable place. The increase will affect such a company in the long term. The company will find it more and more difficult to get the sort of people that it wants, because of the overhead costs. A tea blender or a tea taster is a professional person, not just someone who can be picked off the streets and trained. We would not be very happy downstairs if that were the case.

Productivity growth has slowed under this Government and is faster in the United States. Royal Ordnance plc in my constituency is looking to move production to America, because its overheads make it uncompetitive in this country. Its parent company, BAE Systems, is looking to move Royal Ordnance overseas because it is not economic. Its production in this country does not make the money that is required.

I recently introduced the Patents Act 1977 (Amendment) Bill. In that connection, I was intrigued by the fact that Mr. Dyson is moving his production overseas because of the increased cost of his work force in this country. The reason for introducing the Bill was to protect people such as him. As a result of the increases in taxation, they will now go offshore—in Mr. Dyson's case, I believe, to Malaya.

Whether or not a company is making a profit, it still has to pay national insurance contributions, so companies that have been affected over the past year by circumstances beyond their control are still being charged NICs, which cannot be healthy.

Another aspect of the problem is the cost to local authorities. For instance, West Somerset district council has a budget of only £4 million. The increase will make a substantial difference to the local services that it can provide. Somerset county, which is Liberal Democrat-controlled, increased its provision by 12.9 per cent. That will cost more this year because of the rise. Over the past few years Somerset has lost 248 care beds, and will lose more. Somerset county cannot afford to pay the money necessary to keep the beds going. Greater pressure will be put on county and district councils because of the increases in taxation and red tape.

I do not believe for one minute that the Government have thought through the implications of the measure. Areas such as Somerset can least afford it. It will result in a substantial lack of investment in long-term help for the elderly and in care homes. If we continue to shut care homes at the present rate, bed blocking will become even more prevalent.

We have three cottage hospitals. The pooling of resources could mean that those hospitals will come under threat. With the loss of care home places, people will end up being bed blocked because there is nowhere else to put them. The local hospitals that provide some relief to doctors and to larger hospitals will have gone. That is the depth and width of the problem that we face.

Raising taxes penalises people in rural areas who can least afford it. Companies such as Nissan have been mentioned. Those have a better chance, but the Government cannot take away what we have not got. Many people in rural areas will go out of business because they cannot afford to continue.

7.14 pm

Mr. Christopher Chope (Christchurch)

The debate has been fascinating. It was about the £8 billion increase in tax and the Government's litany of broken promises: We've got no plans at all to raise that ceiling on National Insurance Contributions—it is not going to happen. That is what the Secretary of State for Trade and Industry said to the "Powerhouse" programme on 29 May 2001 during the general election campaign. The Government have broken their promise to the electorate about employees' national insurance and abandoned their own words about employers' national insurance.

On 6 October 1999, the Government responded to the report of the Select Committee on Trade and Industry dated 19 July 1999. In paragraph (i) of their response they stated: The climate change levy and the associated reduction in employers National Insurance Contributions represents a shift in the burden of taxation from 'goods' such as labour to 'bads' such as environmental pollution. The reduction in NI contributions will reduce the cost of labour and thereby encourage employment opportunities throughout the economy. During the debate the Government have turned those words on their head. If it is true that reducing national insurance contributions will reduce the cost of labour and encourage employment opportunities, then it must be true that increasing national insurance contributions will increase the cost of labour and reduce employment opportunities. That is the charge that the Government must answer.

The speeches of my right hon. Friend the Member for Charnwood (Mr. Dorrell) and my hon. Friends the Members for Fareham (Mr. Hoban), for Westbury (Dr. Murrison), for Epsom and Ewell (Chris Grayling) and for Bridgwater (Mr. Liddell-Grainger) demonstrated that they are extremely sceptical about whether the £8 billion that is to be raised will generate improvements in the health service. They are also gravely concerned about the impact of the additional impost on employers in their constituency, including the public sector.

The point was made earlier that the Government are raising £300 million in additional tax from local authorities. At the time of the Budget, the Government made much of the fact that they would give £300 million to local authorities to help them with the burdens of social services. What the Government give with one hand they take away with the other.

My right hon. Friend the Member for Charnwood made an incisive and hard-hitting speech. He spoke of the burden on business and showed that the United Kingdom is increasing tax at a time when our competitors are cutting tax. He drew attention to the fact that of the £8 billion, only £2.4 billion is earmarked to go to the NHS, and he asked what will happen to the other £5.6 billion. My right hon. Friend's most devastating critique was on the issue of conditionality. There are no strings attached to the way in which the money is to be spent.

I can tell the House that I do not have a closed mind. I have an open mind. Last night I attended a fascinating lecture by a Swedish expert on health care. He illustrated how it is possible to have better health care without having to increase tax. He said that in 1991 the funding system in Stockholm was changed to one based on outputs. As a result, health service output increased by 19 per cent. He said that St. George's hospital and other hospitals in Stockholm became independent boards in 1994, thereby generating 40 per cent. extra productivity. In 1999, St. George's hospital in Stockholm was sold to the private sector, producing a reduction in costs of between 10 and 15 per cent. If health care can be improved in Sweden without taxing, spending and wasting, we can do it in this country as well, given the will.

The hon. Member for Truro and St. Austell (Matthew Taylor) repeated that the people of this country are not taxed highly enough. All I can say is that he is totally out of touch with the reality on the ground. Five years ago today I was elected in Christchurch to succeed a Liberal Democrat who had failed the people of Christchurch. I am proud that this is my fifth anniversary of representing that constituency.

What we want is an end to this tax, spend and waste, and a genuine reform of the NHS. That is why we will vote against the resolution.

7.19 pm

The Paymaster General (Dawn Primarolo)

It is extraordinary that the hon. Member for Christchurch (Mr. Chope) should pray in aid Sweden. I suggest that he look at its tax rates before he goes any further.

I begin with the issue raised about business and its response to the national insurance proposals. Anthony Goldstone, president of the British Chambers of Commerce, said: Now any of us in business know that we get what we pay for. If we want a world class health service in the UK we need to pay more. The advance of medical science, new treatments and more advanced drugs means costs are increasing. The question is not whether we need to pay more, but how. He went on to say that it is also crucial that business recognises the importance of having a health service that is capable of treating and maintaining a healthy work force.

I say to the many hon. Members who have contributed that employers have a strong interest in a healthy labour supply. The CBI has estimated that workplace absence costs British business more than £10 billion a year. Even after the 1 per cent. increase in employers' national insurance, employers in the UK will be paying less than those in France and Germany towards their employees' health needs. The benefits to business of a better NHS are clear, and it is right that it should bear some of the costs.

Britain is a good place to be an employer. UK inflation is the lowest in Europe and the UK is rated by the OECD as having the lowest barriers to entrepreneurship of any major economy. The Budget went further in assisting that. Indeed, yesterday's report by the Institute of Management Development says that the UK has the most resilient economy, ahead of those of the United States and Germany, the largest direct investors abroad and the third largest inward investment. It goes on to say: The United Kingdom has better withstood the uncertainties of the global economy. The economy is strong, but on any proposal that the Government make, Opposition Members constantly claim that jobs will be lost. They did so on the national minimum wage and on every other proposal that we have made.

Let me turn briefly to the points made about how the national insurance fund will operate and what will happen to the revenue. The increase in national insurance contributions is specifically aimed at funding Government spending on the national health service while taking into account other spending priorities, and it needs to meet the strict fiscal rules. The increase in national insurance is to be seen in the context of the five-year pledge on health spending and the Government's fiscal rules and priorities in other places. The proportion of the contributions that is currently allocated to the national health service will be increased by the amount of the increase in national insurance, in exactly the way to which the hon. Member for Truro and St. Austell (Matthew Taylor) referred.

There was a further question about the need for primary legislation with regard to the 1 per cent. level varying on national insurance above the upper earnings limit. I can confirm that primary legislation would be required if there was to be any variation above that upper limit.

I turn now to the right hon. Member for Charnwood (Mr. Dorrell) and his various boasts. The Conservative Government increased national insurance many times, but especially in April 1994, when he was Financial Secretary to the Treasury. I looked at his speech on the Budget at that time. Some £10 billion of cuts were made in public expenditure, and he bragged that growth in public expenditure would be less than 1 per cent. He went on, with his Government, to increase national insurance, in contrast with what Lord Howe of Aberavon did, which was mentioned last night; his Budget cut public expenditure by £4 billion, raised VAT to 15 per cent, and froze child benefit and the real value of pensions.

It was 56 years ago yesterday that the National Health Service Bill was discussed in the House. I looked at the comments that Conservative Members made at that time and found that they were the same old Tories. They said that they were in favour of health, but not of the national health service; they were in favour of developments, but not keen to give the money. They were in favour of those things without saying what their policies were. In this debate, they have continued in exactly the same way to argue that they like the health service, but they are not prepared to say how they would pay for it. We know that their aims are the same now as on 30 April 1946. They want to break up the national health service, just as they did in 1979. They want to cut public expenditure, just as the right hon. Member for Charnwood did when he was Financial Secretary.

The motion provides the vehicle for discussion of the national insurance Bill and I commend it to the House.

Question put:—

The House divided: Ayes 314, Noes 137.

Division No. 224]	[7.26 pm
AYES
Abbott, Ms Diane	Brennan, Kevin
Adams, Mrs Irene (Paisley N)	Brown, Rt Hon Gordon (Dunfermline E)
Ainger, Nick
Ainsworth, Bob (Cov'try NE)	Brown, Rt Hon Nicholas (Newcastle E & Wallsend)
Alexander, Douglas
Allen, Graham	Brown, Russell (Dumfries)
Anderson, Rt Hon Donald (Swansea E)	Bruce, Malcolm
	Buck, Ms Karen
Armstrong, Rt Hon Ms Hilary	Burnett, John
Atkins, Charlotte	Bumham, Andy
Austin, John	Caborn, Rt Hon Richard
Banks, Tony	Cairns, David
Barnes, Harry	Campbell, Rt Hon Menzies (NE Fife)
Barrett, John
Barron, Kevin	Carmichael, Alistair
Battle, John	Caton, Martin
Beard, Nigel	Chaytor, David
Beckett, Rt Hon Margaret	Clark, Mrs Helen (Peterborough)
Begg, Miss Anne	Clark, Dr Lynda (Edinburgh Pentlands
Beggs, Roy
Bell, Stuart	Clark, Paul (Gillingham)
Benn, Hilary	Clarke, Rt Hon Tom (Coatbridge)
Bennett, Andrew	Clarke, Tony (Northampton S)
Benton, Joe	Clelland, David
Berry, Roger	Coaker, Vernon
Best, Harold	Coffey, Ms Ann
Blackman, Liz	Colman, Tony
Blears, Ms Hazel	Connarty, Michael
Blunkett, Rt Hon David	Cook, Frank (Stockton N)
Boateng, Rt Hon Paul	Cook, Rt Hon Robin (Livingston)
Borrow, David	Cooper, Yvette
Bradley, Rt Hon Keith (Withington)	Corbyn, Jeremy
Bradley, Peter (The Wrekin)	Corston, Jean
Breed, Colin	Cotter, Brian

Cox, Tom	Howells, Dr Kim
Cranston, Ross	Humble, Mrs Joan
Cruddas, Jon	Hurst, Alan
Cryer, John (Hornchurch)	Hutton, Rt Hon John
Cummings, John	Iddon, Dr Brian
Darling, Rt Hon Alistair	Illsley, Eric
Davey, Valerie (Bristol W)	Ingram, Rt Hon Adam
David, Wayne	Irranca-Davies, Huw
Davidson, Ian	Jackson, Helen (Hillsborough)
Davies, Rt Hon Denzil (Llanelli)	Johnson, Alan (Hull W & Hessle)
Davis, Rt Hon Terry (B'ham Hodge H)	Jones, Jon Owen (Cardiff C)
	Jones, Kevan (N Durham)
Dawson, Hilton	Jones, Lynne (Selly Oak)
Dean, Mrs Janet	Jones, Martyn (Clwyd S)
Denham, Rt Hon John	Joyce, Eric
Dhanda, Parmjit	Kaufman, Rt Hon Gerald
Dismore, Andrew	Keeble, Ms Sally
Dobson, Rt Hon Frank	Keen, Alan (Feltham & Heston)
Donohoe, Brian H	Keen, Ann (Brentford & Isleworth)
Doran, Frank	Keetch, Paul
Doughty, Sue	Kelly, Ruth
Dowd, Jim	Kemp, Fraser
Drew, David	Kennedy, Jane (Wavertree)
Dunwoody, Mrs Gwyneth	Kidney, David
Eagle, Maria (L'pool Garston)	Kilfoyle, Peter
Edwards, Huw	Knight, Jim (S Dorset)
Efford, Clive	Ladyman, Dr Stephen
Ellman, Mrs Louise	Lamb, Norman
Etherington, Bill	Lammy, David
Ewing, Annabelle	Laws, David
Field, Rt Hon Frank (Birkenhead)	Lazarowicz, Mark
Fisher, Mark	Lepper, David
Fitzpatrick, Jim	Leslie, Christopher
Flynn, Paul	Levitt, Tom
Follett, Barbara	Liddell, Rt Hon Mrs Helen
Foster, Don (Bath)	Linton, Martin
Foulkes, George	Lloyd, Tony
Francis, Dr Hywel	Llwyd, Elfyn
Galloway, George	Lucas, Ian
Gapes, Mike	Luke, Iain
Gardiner, Barry	Lyons, John
George, Rt Hon Bruce (Walsall S)	McAvoy, Thomas
Gerrard, Neil	McCafferty, Chris
Gibson, Dr Ian	MacDonald, Calum
Gidley, Sandra	McDonnell, John
Goggins, Paul	MacDougall, John
Green, Matthew (Ludlow)	McFall, John
Griffiths, Jane (Reading E)	McIsaac, Shona
Griffiths, Win (Bridgend)	McKechin, Ann
Grogan, John	McKenna, Rosemary
Hain, Rt Hon Peter	Mackinlay, Andrew
Hall, Mike (Weaver Vale)	MacShane, Denis
Hall, Patrick (Bedford)	Mactaggart, Fiona
Hamilton, David (Midlothian)	McWalter, Tony
Hancock, Mike	Mahon, Mrs Alice
Hanson, David	Mann, John
Harris, Tom (Glasgow Cathcart)	Marsden, Gordon (Blackpool S)
Harvey, Nick	Marshall, David (Shettleston)
Havard, Dai	Marshall, Jim (Leicester S)
Healey, John	Marshall-Andrews, Robert
Heath, David	Meale, Alan
Hendrick, Mark	Merron, Gillian
Hepburn, Stephen	Michael, Rt Hon Alun
Heppell, John	Milburn, Rt Hon Alan
Hermon, Lady	Miliband, David
Hewitt, Rt Hon Ms Patricia	Miller, Andrew
Hill, Keith	Mitchell, Austin (Gt Grimsby)
Hinchliffe, David	Moffatt, Laura
Hoey, Kate	Mole, Chris
Holmes, Paul	Moonie, Dr Lewis
Hood, Jimmy	Moore, Michael
Hoon, Rt Hon Geoffrey	Morgan, Julie
Hope, Phil	Morley, Elliot
Hopkins, Kelvin	Mullin, Chris
Howarth, Rt Hon Alan (Newport E)	Munn, Ms Meg
Howarth, George (Knowsley N)	Murphy, Denis (Wansbeck)

Murphy, Jim (Eastwood)	Smith, Llew (Blaenau Gwent)
Norris, Dan	Soley, Clive
O'Brien, Bill (Normanton)	Southworth, Helen
O'Hara, Edward	Spellar, Rt Hon John
Olner, Bill	Squire, Rachel
Öpik, Lembit	Steinberg, Gerry
Organ, Diana	Stewart, David (Inverness E)
Osborne, Sandra (Ayr)	Stewart, Ian (Eccles)
Owen, Albert	Stoate, Dr Howard
Palmer, Dr Nick	Strang, Rt Hon Dr Gavin
Pearson, Ian	Stringer, Graham
Perham, Linda	Stuart, Ms Gisela
Picking, Anne	Sutcliffe, Gerry
Pickthall, Colin	Tami, Mark
Plaskitt, James	Taylor, Rt Hon Ann (Dewsbury)
Pond, Chris	Taylor, David (NW Leics)
Pope, Greg	Taylor, Matthew (Truro)
Pound, Stephen	Taylor, Dr Richard Wyre F
Prentice, Ms Bridget (Lewisham E)	Thomas, Gareth (Clwyd W)
Prescott, Rt Hon John	Thurso, John
Price, Adam	Timms, Stephen
Primarolo, Dawn	Tipping, Paddy
Prosser, Gwyn	Todd, Mark
Pumell, James	Touhig, Don
Quin, Rt Hon Joyce	Trickett, Jon
Quinn, Lawrie	Turner, Dennis (Wolverh'ton SE)
Rapson, Syd	Turner, Dr Desmond (Kemptown)
Reed, Andy (Loughborough)	Twigg, Derek (Halton)
Reid, Alan (Argyll & Bute)	Tynan, Bill
Reid, Rt Hon Dr John (Hamilton N)	Walley, Ms Joan
	Wareing, Robert N
Rendel, David	Watts, David
Robertson, John (Glasgow Anniesland)	Webb, Steve
	Weir, Michael
Roche, Mrs Barbara	Whitehead, Dr Alan
Rooney, Terry	Wicks, Malcolm
Ross, Ernie	Williams, Mrs Betty (Conwy)
Ruane, Chris	Williams, Hywel (Caernarfon)
Ruddock, Joan	Williams, Roger (Brecon)
Russell, Bob (Colchester)	Willis, Phil
Salmond, Alex	Winnick, David
Sanders, Adrian	Wishart, Pete
Sarwar, Mohammad	Woodward, Shaun
Savidge, Malcolm	Woolas, Phil
Sawford, Phil	Worthington, Tony
Shaw, Jonathan	Wray, James
Sheridan, Jim	Wright, David (Telford)
Shipley, Ms Debra	Wright, Tony (Cannock)
Simon, Siôn	Younger-Ross, Richard
Simpson, Alan (Nottingham S)
Skinner, Dennis	Tellers for the Ayes:
Smith, Rt Hon Andrew (Oxford E)	Mr. Ivor Caplin and
Smith, Jacqui (Redditch)	Mrs. Anne McGuire.

NOES
Ainsworth, Peter (E Surrey)	Campbell, Gregory (E Lond'y)
Amess, David	Cash, William
Ancram, Rt Hon Michael	Chapman, Sir Sydney (Chipping Barnet)
Arbuthnot, Rt Hon James
Atkinson, David (Bour'mth E)	Chope, Christopher
Bacon, Richard	Clappison, James
Barker, Gregory	Clarke, Rt Hon Kenneth (Rushcliffe)
Baron, John
Bellingham, Henry	Clifton-Brown, Geoffrey
Bercow, John	Conway, Derek
Beresford, Sir Paul	Cran, James
Blunt, Crispin	Curry, Rt Hon David
Boswell, Tim	Davies, Quentin (Grantham)
Bottomley, Peter (Worthing W)	Davis, Rt Hon David (Haltemprice)
Bottomley, Rt Hon Virginia	Djanogly, Jonathan
Brady, Graham	Donaldson, Jeffrey M
Brazier, Julian	Dorrell, Rt Hon Stephen
Browning, Mrs Angela	Duncan, Alan (Rutland & Melton)
Burns, Simon	Duncan, Peter (Galloway)
Burnside, David	Duncan Smith, Rt Hon lain
Butterfill, John	Evans, Nigel

Fabricant, Michael	Murrison, Dr Andrew
Fallon, Michael	O'Brien, Stephen (Eddisbury)
Field, Mark (Cities of London)	Osborne, George (Tatton)
Flight, Howard	Ottaway, Richard
Flook, Adrian	Page, Richard
Forth, Rt Hon Eric	Paice, James
Fox, Dr Liam	Paterson, Owen
Francois, Mark	Pickles, Eric
Gale, Roger	Prisk, Mark
Gibb, Nick	Robathan, Andrew
Gray, James	Robertson, Hugh (Faversham)
Grayling, Chris	Robinson, Peter (Belfast E)
Green, Damian (Ashford)	Roe, Mrs Marion
Greenway, John	Rosindell, Andrew
Gummer, Rt Hon John	Ruffley, David
Hammond, Philip	Shephard, Rt Hon Mrs Gillian
Hawkins, Nick	Simmonds, Mark
Hayes, John	Simpson, Keith (Mid-Norfolk)
Heathcoat—Amory, Rt Hon David	Smyth, Rev Martin (Belfast S)
Hoban, Mark	Spicer, Sir Michael
Horam, John	Spink, Bob
Howarth, Gerald (Aldershot)	Spring, Richard
Hunter, Andrew	Stanley, Rt Hon Sir John
Jack, Rt Hon Michael	Steen Anthony
Jackson, Robert (Wantage)	Streeter, Gary
Jenkin, Bernard	Swayne, Desmond
Johnson, Boris (Henley)	Swire, Hugo
Key, Robert	Syms, Robert
Kirkbride, Miss Julie	Tapsell, Sir Peter
	Taylor, Ian (Esher & Walton)
Knight, Rt Hon Greg (E Yorkshire)	Taylor, John (Solihull)
Laing, Mrs Eleanor	Tredinnick, David
Lansley, Andrew	Turner, Andrew (Isle of Wight)
Leigh, Edward	Tyrie, Andrew
Letwin, Oliver	Viggers, Peter
Lewis, Dr Julian (New Forest E)	Walter, Robert
Liddell—Grainger, Ian	Waterson, Nigel
Lidington, David	Watkinson, Angela
Loughton, Tim	Whittingdale, John
Luff, Peter	Widdecombe, Rt Hon Miss Ann
McIntosh, Miss Anne	Wiggin, Bill
MacKay, Rt Hon Andrew	Wilkinson, John
Maclean, Rt Hon David	Willetts, David
McLoughlin, Patrick	Winterton, Mrs Ann (Congleton)
Malins, Humfrey	Winterton, Nicholas (Macclesfield)
Maples, John	Yeo, Tim
Mates, Michael	Young, Rt Hon Sir George
Mawhinney, Rt Hon Sir Brian
May, Mrs Theresa	Tellers for the Noes:
Mercer, Patrick	Mr. David Wilshire and
Mitchell, Andrew (Sutton Coldfield)	Mr. Charles Hendry.

Question accordingly agreed to.

Resolved,

That provision may be made for, and in connection with, increasing national insurance contributions and for applying the increases towards the cost of the National Health Service.

Bill ordered to brought in upon the foregoing resolution: And that the Chairman of Ways and Means, Mr. Chancellor of the Exchequer, Mr. Secretary Prescott, Mr. Secretary Darling, Mr. Secretary Milburn, Mr. Andrew Smith, Mr. Paul Boateng, Ruth Kelly and Dawn Primarolo do prepare and bring it in.

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1. NATIONAL INSURANCE CONTRIBUTIONS BILL 57 words