AMENDMENT OF THE LAW

HC Deb 17 March 2004 vol 419 cc337-415

Motion made, and Question proposed,

1. That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance.
2. This Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—

1. for zero-rating or exempting a supply, acquisition or importation;
2. for refunding an amount of tax;
3. for any relief, other than a relief that—

1. so far as it is applicable to goods, applies to goods of every description, and
2. so far as it is applicable to services, applies to services of every description.—[Mr. Gordon Brown.]

1.27 pm

Mr. Michael Howard(Con) (Folkestone and Hythe)

May I congratulate the Chancellor on the delivery of his Budget? He has chosen to deliver his Budget on St. Patrick's day. St. Patrick famously described himself as "the most humble-minded man". That is not an accolade for which the Chancellor is a contender. His Budget begged the central question that goes to the heart of his performance: if everything is going so well, why does he have to borrow so much?

The Chancellor made great play of the fact that the Budget controls the growth of spending and borrowing, but let us look in some detail at what he means by that. Three years ago, in his 2001 Budget, he forecast borrowing over five years at £30 billion. By 2002—just a year later—that forecast had risen to £72 billion. Today, he is predicting borrowing of over £140 billion, and he is on course to borrow this year alone almost four times as much as he forecast at the time of the last election—and this at a time when he claims that the economy is doing well! How much would this Chancellor be borrowing if the economy went into a downturn? That is the response to all his rigmarole about balanced Budgets.

The truth is that this is a credit-card Budget from a credit-card Chancellor; and a "borrow now, tax later" Budget from a "borrow now, tax later" Chancellor. If he has his way, the country will pay for it later in Labour's third-term tax rises.

Under this Chancellor, we know the importance of looking at the small print. Page 232 of the Red Book, just published, shows that the amount people save has fallen from 10 per cent. of their income in 1997 to just 5 per cent. this year—and that from a party that promised a savings culture. As a senior manager at one of Britain's biggest investment companies said only two weeks ago: The Government's policy on savings is a mess and it will take years to repair the damage.

The Chancellor talked about enterprise, as he does every year. Page 225 of the Red Book shows, however, that business investment has fallen for two years in a row. Page 237 shows that our trade deficit is at the highest level since the 17th century; and page 240 makes it clear that manufacturing output, in common with manufacturing investment, is lower than it was in 1997 and that the number of people employed in manufacturing is falling by 6,000 a month. All that from a Chancellor who promised an industrial policy so that our manufacturing industries can grow again".

There are, of course, some things in the Budget that we welcome. We welcome, as I am sure does the whole House, the fact that the Chancellor is increasing the resources available to combat terrorism. We also welcome the potential savings that could arise from merging the Inland Revenue with Customs and Excise, but can the Chancellor guarantee that there will be no political interference in the enforcement of tax law? After the debacle that followed the transfer of responsibility for tax credits to the Inland Revenue, can he assure us that disruption on a similar scale is not likely to happen again?

The Chancellor has also published the Barker report into housing supply, and we shall scrutinise with care the implications of the proposals for that sector. So far, all that the Government have achieved is to hold the record for the lowest number of new houses built in peacetime since 1924.

We welcome the announcement of increases for pensioners over 70, but those pensioners should be warned: what this Chancellor gives, this Chancellor takes away.

We particularly welcome the Chancellor's announcement that Britain will not be joining the euro—though to save the blushes of his right hon. Friend the Prime Minister, he did not put it quite like that. So much for his claim in June that there has been "significant progress" in achieving "cyclical convergence"! Last year, he promised that we were "within the Maastricht criteria" on deficits. We now know that he failed to keep that promise: he was not within the criteria then, and he is certainly not within them now. He has broken the rules and he has not even joined the club.

It would be churlish not to congratulate the Chancellor on getting one growth forecast right, but the growth is fuelled by a public sector boom paid for by a public sector Chancellor—and, of course, growth forecasts were not the only forecasts that he made. In last year's Budget, his forecasts for revenue were wrong; his forecasts for the deficit were wrong; and his forecasts for borrowing were wrong. None of the Chancellor's bluster can disguise the fact that this Government have increased taxes and increased borrowing, and the borrowing that he announced today is simply unsustainable.

This Budget has made it clear that if Labour gets a third term, tax rises are inevitable. When in opposition, the Prime Minister said that he had no plans to increase tax at all. At the weekend, the former Paymaster General, the hon. Member for Coventry, North-West (Mr. Robinson), told us why. They did discuss tax rises privately two years before the election, but, as he explained: It's very difficult to win an election if you go out there saying "look, if you elect me I promise you I'm going to absolutely smash you with taxes you've never heard of". So they said that they had no plans to increase tax at all, and ever since then they have indeed been smashing people with taxes that they had never heard of. There have been more than 60 tax rises, and we are paying half as much tax again as in 1997. Last year, the real value of people's take-home pay actually fell, and after another inflation-busting rise in council tax, average bills have now risen by 70 per cent. since 1997.

Business is paying more tax, too. The Chancellor has burdened it with £15 billion a year in extra taxes and red tape. As the chief executive of Tesco told the Chancellor at one of his intimate gatherings: Like a tide the level of taxes seems to be forever rising. The water is now above our waist". As David Frost, director general of the British Chambers of Commerce, says: British business cannot compete with a £30 billion millstone around its neck". Yet despite all those taxes, the Chancellor still has to borrow more and more. This is a Chancellor who said in 1996 that we could not build the new Jerusalem on a mountain of debt". A mountain of debt is exactly what he is creating today.

That is why independent commentators say that third-term tax rises are inevitable under Labour. The ITEM Club, which uses use the Treasury's own model, says that the public finances "continue to deteriorate alarmingly". The Organisation for Economic Cooperation and Development warns of a possible "sizeable structural deficit". TheFinancial Times says that the Chancellor should be preparing options for a tax rise after the election. After today's Budget, that black hole is still there. That is what happens if you have a "borrow now, tax later" Budget from a "borrow now, tax later" Chancellor.

It is not as though the money that the Chancellor has borrowed to spend has been spent wisely. After all the years when the Government said that they were spending our money really well, we now learn that their own adviser has revealed £15 billion a year of waste. This is the Chancellor who said that not "one penny more" would be spent on the health service until he secured the changes to allow the reforms necessary to "carry out the modernisation" that it needs. This is the Chancellor who said that extra money spent on public services was dependent on the release of efficiency savings. He said that in his 1998 spending review, in his 2000 spending review, in his 2002 spending review—and he is saying it again today. This is the Chancellor who said that he was "determined to get value" for "every penny we spend" to give people the public services that they want. He makes that promise every time, and he breaks it every time.

The annual cost of running central Government is up by nearly £7 billion under the Chancellor's stewardship. An extra 511 civil servants were hired every week last year, and now we discover from the Gershon report that the Government secretly plan to hire more than 300,000 extra public sector workers over the next three years—after taking into account the reductions that the Chancellor has announced today.

What has really been achieved? The number of children playing truant is up by 22 per cent.—[Interruption.] I should have thought that Government Members might be a little worried about the number of children playing truant from our schools. What hope is there for the future if, under the present Government, children do not even go to school?

NHS waiting times are getting longer and violent crime is at its highest level ever. A 37 per cent. increase in spending on the NHS has led to only a 5 per cent. rise in the number of hospital treatments. The OECD says: In the health sector there are few indicators showing unambiguous improvements in outcomes over and above trend improvements that were already apparent before the surge in spending". It goes on to say—[Interruption.] The Chancellor is fond of quoting the OECD, so he should listen to this. It states that, in some areas, such as numbers of patients treated and average waiting times, performance has actually deteriorated".

As the Minister for Energy, E-Commerce and Postal Services told a conference in America, in a speech mysteriously missing from the Government website: Too often a lot of money has been spent but very little seems to have been achieved … In a year or so we're going to have an election in the UK, when people will say, 'We've paid a lot of taxes, but what has really been achieved with all that money?' He was telling the truth. I am afraid that his prospects of survival in this Government cannot be high.

A year before he became Chancellor, the right hon. Gentleman said: I want our Labour Government to be remembered not as a big spender but as a wise spender. However, it was not long before the tax and spending habit kicked in.

Very soon, the nation will face a choice. We on this side of the House want to give patients, parents and professionals more control. We want to bring in real reform. That is the way to end the cycle of tax and spend and fail. This Government will never deliver real reform of the public services. All they offer is more of the same: higher spending, higher borrowing, and higher taxes.

This Budget will go down in history as the "borrow now, tax later" Budget, the Chancellor will go down in history as the "borrow now, tax later" Chancellor, and the Government will go into oblivion as the "borrow now, tax later" Government. And the sooner they go, the better it will be for our country.

1.41 pm

Dr. Vincent Cable(LD) (Twickenham)

As I did when I responded to the pre-Budget report, I shall start by acknowledging the positive things about the economy and the Budget.

There has been greater economic stability than before 1997; the employment and unemployment statistics are enviable; inflation is low; and the relationship between debt and gross domestic product is fundamentally healthy. All those things are positive. However, the Chancellor's finest hour came in his first week in office in 1997, when he made the Bank of England independent. Many of the problems now evident have been building up ever since. The big decision in this Budget was not to tackle them until after the general election.

Let me list some of the problems that we face. First, there is growing evidence of a very serious imbalance in the economy, based on very high levels of consumer debt and inflated house prices. That has exposed many families to financial disaster if interest rates rise and house prices fall.

I raised this matter with the Chancellor six months ago on the Floor of the House. He rather derided the matter as some personal eccentricity of mine but, as he may have been too busy to see it, let me point out what the Monetary Policy Committee said only this morning. In its minutes issued today, it notes that household financial positions could well become unsustainable and so increase the probability of an eventual abrupt adjustment process.

The problem stems from a remarkable boom in house prices, which even the International Monetary Fund says has led to an overvaluation of between 30 and 35 per cent. The Chancellor mentioned the very useful reports from Miles and Barker. I welcome the practical suggestions that they make. I was amused that, after decades of Liberal Democrats promoting the idea of site value taxation, the notion at last seems to have taken root on the Treasury Bench. However, the technical improvements that Barker and Miles point to do not even begin to address the problem of the speculative bubble that lies behind the housing market, which supports household debt worth a trillion pounds. That bubble could well collapse, with disastrous consequences.

The other side of the imbalance is what is happening to the productive sector of the economy. The Chancellor talked about his projections for manufacturing investment, but he failed to mention that it had fallen by a third over the past three years. His 200-year history of the British economy did not point out that there was an all-time record trade deficit of £4.6 billion in January.

My second point has to do specifically with the Budget. I disagree with the Leader of the Opposition: I do not believe that there is a fiscal crisis, but there is a fiscal deficit problem that needs to be addressed. The Chancellor slipped into his speech an acknowledgement that the fiscal deficit will be £6 billion higher than estimated in the pre-Budget report. He has gone some way towards acknowledging what we believe: that the growth in public spending must slow down until it is comparable to the growth of the British economy as a whole. My party does not favour the extreme measures apparently adopted by the Conservatives.

The Chancellor listed the submissions from the Conservatives, but it was interesting that he did not mention their proposal on local government finance, which would raise council tax by 10 per cent. I suspect that he did not mention it because nowhere in his Budget speech did he give his own estimate of what council tax rises are likely to be next year. That is a matter of absolutely critical importance, because it lies at the heart of our disagreement with the Government about taxation policy. The disagreement is not about the aggregate level of taxation, but about its fairness. The Chancellor has a legitimate record of concern for social justice, but he should be most ashamed that the bottom 20 per cent. of the population, in terms of income, pay a higher percentage of their income in tax than the top 20 per cent.

The major reason for that disparity is the system of council taxation, which the Government inherited from the previous Conservative Government but which they have done nothing fundamentally to reform. I hope—and sense—that our argument for local income tax is beginning to win the day. A Government spokesman said only the other day that the Government recognised that local income tax was a "realistic option" and a "strong, sustainable source" of funding for local services. We repeat our belief that ability to pay must underpin all direct taxation. It does not underpin local income tax. We know that the Prime Minister is hostile to the reform, and the Chancellor has wisely kept mum about it.

The Chancellor introduced some welcome top-ups for older pensioners—an idea that we have promoted consistently over the years, as it targets help on those who need it most. However, he will apply it not in its own right, but as a sticking plaster for the injustice created by local income tax.

Another disagreement in terms of tax policy, which the Chancellor did not touch on today, has to do with marginal rates of tax. We accept that very high earners—people earning more than £100,000 a year—should pay a marginal tax rate of 50 per cent. The Government have condemned that proposal, but they have never acknowledged that their own proposals incorporate marginal tax rates of 50 per cent. or more for several key groups. As a result of the change in provision for students, people earning more than £35,000 a year, when they pay their graduate tax, will be paying a marginal rate of 50 per cent.

The Chancellor slipped in a quiet reference to the lifetime cap on pensions. He said that he had increased it a little, but he did not acknowledge that the marginal rate of tax on the pension pots applicable to people such as airline pilots, for example, will be not the horrendous rate of 50 per cent. associated with the Liberal Democrats, but 55 per cent. So much for the Government's concern about high tax rates.

Thirdly, I turn to the issue of tax simplicity. When I first raised this matter, I made an analogy with the gentleman who has earned the nickname "Tinkerman"—Mr. Ranieri at Chelsea. As the Chelsea team is progressing rapidly through the Champions league, I should perhaps look for a less successful analogy, but my point remains valid. The Government and the Chancellor have introduced an endless succession of gizmos, wheezes and gimmicks, and we had more today. They have complicated the tax system, without improving it in any way.

One matter mentioned briefly by the Chancellor was the failure of his attempt to introduce an incentive last year for incorporated businesses. I should be grateful for clarification of the passage in the Red Book that states that the proposed reform will raise an extra £490 million in one year. Effectively, that will penalise all those businesses that, in perfectly good faith, went to the expense and trouble of shilling to incorporation.

Over the years, the Liberal Democrat view on public spending has been clear and transparent. We argued for an increase in investment in public services and for the taxes to pay for that, and we campaigned on that basis at the last general election. The Government have delivered the investment, which we voted for and supported. Unfortunately, they did not deliver it openly and honestly, which has contributed to the general public's cynicism about the tax system. The Government face tough choices on public spending, and today the Chancellor has hinted where he proposes to make some economies—we fully support the implementation of the Gershon report, which is entirely sensible. What is missing is an indication of the tough choices that must be made. Neither the Government nor the Conservatives can get away with arguing that the only way to rein in public expenditure is to cut waste, and tough choices are needed.

Some Departments—for example, the Department of Trade and Industry and the Department for Environment, Food and Rural Affairs—are grossly overstaffed and, moreover, do far too many things that should be stopped. The Government are introducing low priority proposals that are wasteful. The Chancellor referred to the need to maintain the Home Office budget, and we agree with that. But he did not point out that up to £3 billion will be taken out of the Home Office budget and spent on identity cards. His Department is responsible for introducing the baby bonds scheme, which is a superficially attractive but extremely inefficient, ill-thought-out way to use hundreds of millions of pounds that could be better used on early-years education.

Today, the Chancellor has introduced what sound like radical proposals for civil service relocation—we are totally in favour of the Lyons report. He did not point out, however, that fewer than one in 10 civil servants located in London and the south-east of England will be affected. For example, the Treasury will reduce its London staff from 1,152 to 1,134. Eighteen officials—fewer than one in 100—will be moved, which is not leading by example.

The Iraq war is one important reason why public expenditure has grown faster than expected. The cost of the Iraq war is approaching £3 billion, and it is rising by an extra £200 million a month. It is not appropriate to rehearse the political arguments in this debate, save to point out one crucial point: this country has been to war before in the middle east—in the early 1990s—as part of a genuine multilateral campaign, as a consequence of which the international community paid 80 per cent. of the costs. Because of the Government's approach to the recent conflict, the British taxpayer must pay every single penny.

On the euro, the Chancellor raised his usual annual laugh by kicking the issue ever further into the grass. The euro is obviously the biggest single economic issue confronting this country. A decision must be made sooner or later, and the Chancellor should be honest and state that costs are being incurred as a consequence of not making it. For the past seven years, British manufacturing has traded at a competitive disadvantage of around 30 per cent. as a result of the appreciation of the real exchange rate.

The collapse of Britain's share in foreign direct investment from 27 per cent. in 1998 to 7 per cent. in 2002 is a clear sign that international business is moving to the eurozone. Had we held on to our 1998 share, an extra £80 billion would have been ploughed into productive investment in parts of Britain such as the north-west and Wales. That real cost has been paid as a result of fudging and repeatedly postponing the decision. The Budget simply avoids the key decisions that must be made for the long-term future of the economy.

1.54 pm

Mr. John McFall(Lab/Co-op) (Dumbarton)

I welcome the Budget, which emphasises stability, growth and productivity, employment and public services. We do not want to return to the times when savings were wiped out every few years by bursts of double-digit inflation.

I welcome the Chancellor's assertion that the trend rate for growth—the best engine for delivering sustainable returns for savers and those in work—will be 2.5 per cent. until 2008. I agree with him that we must invest for the long term. The need for long-term investment is urgent, so it makes sound economic sense for low-debt countries to borrow to invest and not to impose balanced budget rules. I welcome the latest unemployment figures and the Chancellor's statement that employment is up by 1.3 million compared with the 1980s and by 1.5 million compared with the 1990s.

The hon. Member for Twickenham (Dr. Cable) discussed the euro. A housing market reform programme has been implemented, the inflation target has been changed, fiscal stabilisation has been achieved and the flexibility of the UK markets has been enhanced, and we must now follow through on those changes.

I remind the House of what the Prime Minister said in Tokyo last July: Treasury studies have established that over the long term monetary union is in the national interest … We are not looking for completion of the impact of reform in all areas before recommending entry, and neither are we keen to reduce the hurdle through one of a mere balance of probabilities. A clear and unambiguous decision requires sufficient material change to give us real confidence that we will benefit from entry. But it is the aggregate nature of the changes that matters. The Government must get on the euro caravan, which, as the hon. Member for Twickenham says, will be of vast economic importance to us over the next few years.

I welcome the Chancellor's announcement on tax avoidance. I have been asking for an examination of the issue because the top four accountancy firms made £1.5 billion in fee income from tax work in 2002–03, and experts say that those profits have risen rapidly since 1997. Schemes offered by the most respected firms of accountants and their partners include concerted attempts to avoid tax by manipulating the gilts markets.

Tax avoidance thrives on concealment. I recognise that the issue is international and that the choice is between following the Australian route by implementing a general tax avoidance measure, or the American route or requiring accountancy firms to disclose the schemes they sell to companies. I am glad that the Chancellor is taking up that issue, because, as Deloittes recently stated, up to 40 per cent. of avoidance schemes are successfully hidden. The Government have acted in every Budget since 1997 to close tax loopholes, but they have not had great success. They have not clearly defined tax avoidance or introduced a clear mechanism for ruling whether schemes are legitimate or illegitimate, and they should get on with such definitions as quickly as possible.

I welcome the Government's adoption of the recommendations of the Barker report, in which Kate Barker particularly emphasised social housing. The number of social houses built in the UK has fallen from about 42,700 per year in 1994–95 to about 21,000 in 2002–03. Expenditure on social housing has increased from £800 million in 2001–02 to more than £1.4 billion in 2003–04, but the rate of supply has continued to decline. Over the next 10 years, it is estimated that the number of social and affordable houses must increase by at least 17,000 per year, which will require annual investment of about £1.2 billion to meet the flow of new needy households. The lack of social housing has been a scandal for many years, but the Government now need to pay the issue urgent attention.

The central focus of my right hon. Friend's approach to his Budget has been productivity. I welcome the 10-year strategy for science spending, under which Government support for research will rise annually by at least 2.75 per cent. above inflation. I also welcome the consultative document published on the eve of the Budget, which invites business leaders, research councils, charities and scientists to advise on how the new money should be spent.

Two weeks ago, colleagues on the Treasury Committee and I visited Germany as part of our inquiry into productivity. We visited Berlin and former East German areas, including Jena. We examined the role of the research institutes, which help regions to develop their research and development. The research institutes are spread around the regions. One institute, the Fraunhofer, has links in every region of Germany. In Saxony, I pointed out to a businessman that if we developed a similar system people would say that it is for individual companies, not research institutes, to develop their research and development. He said, from a right-wing perspective, that he could not have developed his business if it had not been for the help of research institutes. There is a pressing need for a regional approach to research institutes in this country to improve competitiveness and innovation. I hope that the Government will consider that issue.

At the risk of being parochial, I must express my dismay at my right hon. Friend's imposition of tax stamps on the Scotch whisky industry. I took the Economic Secretary to my constituency and we toured the Allied Distillers plant. I put a hard hat on him and took him round the production lines. He saw for himself the effect that such an imposition would have on competitiveness and productivity. Sadly, when he went back to the Treasury, he failed in his mission, but I learn from my pager that he will meet me at 3 o'clock to discuss the issue. I warn the Government that productivity and competitiveness are extremely important to the Scotch whisky industry. It is a £2 billion industry, and we need to support it. Manufacturing has been declining year after year, and the Government should not engage in any activity that will affect productivity and competitiveness. I put the Government on warning that we will be back, week after week, to ensure that my right hon. Friend the Chancellor's rhetoric on innovation and assisting businesses is translated into action on the ground.

Mr. Alan Reid(LD) (Argyll and Bute)

I wholeheartedly back the hon. Gentleman's support for the Scotch whisky industry. When he meets the Chancellor later, will he draw his attention to the fact that he has promised the industry only £3 million in capital investment assistance? The hon. Gentleman will know that that is nowhere near enough—the cost to the industry will be far greater.

Mr. McFall

I have great respect for the hon. Gentleman, but I always like to have Liberal Democrat statistics checked. When I have done so, I will discuss the issue with my right hon. Friend the Chancellor. However, I pay tribute to the hon. Gentleman for the work that he and other colleagues have done with me on the all-party Scotch whisky group.

The Treasury Committee is concerned about credit cards and debt. Much has been made of the issue, but we approach it from the point of view of transparency and competitiveness. We look to the industry to improve the situation because, at present, consumers are left in the dark. They do not understand how annual percentage rates are calculated, because there are two definitions of them; nor do they understand how interest rates are calculated, because there are 10 different ways of doing it. That deceives the consumer, and the sooner the credit card industry realises that, the better. It is making record profits on the back of consumers' ignorance. I tell the industry that the Treasury Committee will bear down on it and that if it does not do anything over the next few months its representatives will have to reappear before the Committee, in June or July, to go through the whole rigmarole again.

We need a victory for the consumer. Last week, we heard of the tragic case of Mrs. Lewis, whom I had the opportunity to meet. When her husband died, he had 19 credit cards and excessive debt of more than £65.000. The industry does not share information about credit history. I have had some lively exchanges—all very positive—with the managing director of MBNA in this country, General Chuck Krulak, a four-star Purple Heart Vietnam veteran. He cannot understand why our industry does not adopt the open system that operates in the US: if the US has it, why cannot we have it? An information-sharing system would reduce the opportunities for people such as Mrs. Lewis's husband to get into unmanageable debt. It is important that the credit card industry ensures that that happens.

The Financial Secretary knows that the Treasury Committee is conducting an inquiry into long-term savings. Last week was a terrible one for the retail savings industry, starting on Monday with Lord Penrose's report. On Thursday, the Treasury Committee published its endowment mortgage report, which showed that the saver has no confidence in the savings integrity of the life assurance industries. Until that confidence is re-established, it will be bad news for the savers and for society. Paul Myners and Ron Sandler appeared before our Committee. Ron Sandler said that the insurance industry was trusted less than local supermarkets. That trust must be re-established, and the Government must look at the issue.

I hope that the Financial Secretary will think about reaching out to the less affluent, because the insurance industry has not tackled that issue. The less affluent are gradually being priced out of the savings and pension market. Not only has the old industrial branch, which collected premiums by making monthly home calls, disappeared, but most direct sales forces have been wound down. With the best will in the world, independent financial advisers will not make a living concentrating on the poor. The result is that long-term saving is increasingly becoming a middle class pastime. The Government and the industry need to have a long, hard look at how we might get financial advice and financial services to the less affluent.

The Committee will take evidence from several groups that are interested in the issue. It is curious, however, that the UK industry seems happy to ignore a slice of the population that others here and overseas have found to be a profitable and growing market if it is approached innovatively. Sandler products might well provide an ideal platform for selling via the workplace—regulated products with a lightly regulated sales process—but the industry's generally negative response to them has been telling.

The industry has focused on commission, but the investigation of endowment mortgages convinced the Treasury Committee that the sales-driven approach to upfront commission ensures that when the sale is made the relationship between the provider and the customer is severed. As Paul Myners said when he appeared before the Committee, there is no duty of care for the insurance and savings industry towards the saver. When the industry comes knocking on the Financial Secretary's door saying that a cap of 1 per cent. is not enough, I advise caution, because we have to address what those sales are for. Are they merely to provide upfront commission or are they to ensure that we have a well-regulated suite of low-cost products in which the consumer has confidence and that a long-term relationship is established between the industry and the consumer?

The focus should be not on selling but on what is provided over the long term. The mixture should be selling, investment performance and after-sales care. Those three ingredients are important to restore confidence in long-term savings. The Treasury Committee is looking for a much more intelligent debate within the industry, which is why my colleagues and I will meet industry representatives to ask them to come up with ideas that go beyond their complaint about a 1 per cent. cap on commission. If a product, such as a pension, is sold to an individual over a 50-year period on 1 per cent. commission, the probable cost to the customer over that period would be 30 per cent; in other words, a third of that contribution comes from the customer. That is not a bad deal.

The Financial Secretary must ensure that the industry lays out exactly what its approach to the customer will be, and after-sales care must be at the heart of that approach. The Committee is asking the industry to come up with initiatives and, over the coming weeks, we shall question it about restoring confidence in long-term savings. We shall also invite my hon. Friend to tell the Committee about her links with the industry and to confirm that new, positive measures will be put in place.

Savings are extremely important. As I said, I do not want us to go back to the days of double-digit inflation, because if we do the people who will lose out are the elderly and ordinary, low-paid individuals. A stable economy is essential and I wish the Government well in that respect, but I also want them to take cognisance of the points that we have made so that the stable economy is married to a fair environment.

2.12 pm

Mr. Peter Lilley(Con) (Hitchin and Harpenden)

I am a supporter of annual Budgets, with all the drama that we associate with them. However, one of the dangers of Budgets is that they give the illusion that economic performance is primarily the result of short-term decisions—that performance in the current year has been largely the result of decisions taken in last year's Budget, and that performance in the coming year will be largely the consequence of decisions taken in this one. That is nonsense. In fact, economic performance is primarily the result of the cumulative impact of budgetary, tax, spending, regulatory and other policies, which ideally move only in the direction of improving performance, although, in other circumstances, sadly, they may move in the other direction and cumulatively undermine performance.

I was one of those involved in developing and subsequently implementing the reforms introduced in the 1980s and early 1990s. I learned two things that I did not expect from that experience. The first was that the cumulative impact of those reforms exceeded our expectations; they did more to transform the performance of the British economy than we had dared hope. However, the second was that they took rather longer to have that impact than we had expected. The cumulative impact of reforms of trade unions, taxation, nationalised industry, the competitive environment and the regulatory framework took longer than we had expected to feed through to an improvement in our performance relative to that of other countries. We should thus bear in mind the fact that policy is long term and cumulative when we assess the Chancellor's performance in this and previous Budgets.

The Chancellor undoubtedly deserves his share of credit for the relatively strong performance of the British economy in recent years. However, I submit that that share of credit is relatively small. The strong performance is largely due to the fact that, unlike his predecessors, the Chancellor has not rapidly undermined the reforms and the strength of the economy that he inherited. None the less, he should also be held to account in due course for the long-term changes that will, as they already are, cumulatively undermining the long-term performance of the economy. They may take longer to feed through than some people anticipate but they will steadily and surely, as night follows day, reduce the performance of our economy relative to what it could have been.

The greatest single change that we made in the relative advantage of doing business in this country compared with other countries was the reduction of our tax burden relative to that of other countries. Before I spoke to the French equivalent of the CBI recently, I looked up the figures for the tax burden as a share of national income in this country since 1979 compared with that in our continental EU partners. In 1979, the share of national income going to tax and public expenditure was almost the same for all of us; at the beginning of the 1980s, it was marginally higher in the UK than on the continent. By 1997, however, partly because we had somewhat reduced its share of national income at a time when other countries had seen that share rise substantially, the gap between the share of our national income going to tax and that of our continental competitors had risen to nearly eight percentage points of gross domestic product. That was a substantial relative advantage for businesses working in this country. It meant that our cost burden was lower, so people's incentives to work, invest, save and take risks were higher, and the size of the competitive economy relative to the less competitive public sector was improved.

I have delivered a series of speeches on that topic in France, as it is of much concern there and, sadly, each time I speak the gap between us and our continental partners, in terms of the share of GDP going to taxation, seems to diminish. There are two reasons for that. In part, it is because the Chancellor has reverted to tax and spend and, in recent years, has increased expenditure taken in taxation faster than national income, after pausing for the first couple of years when he implemented the savings plans that he had inherited from us. However, it is also because other countries have followed our example of the 1980s and early 1990s and begun to reduce the share of their national income taken in tax, and done so without destroying their public services. Indeed, they have continued to improve their public services by adopting the time-old Dickensian recipe of increasing their public expenditure marginally less than their national income so that they can reduce tax rates, while we have been increasing our public expenditure somewhat faster than national income and have thus had to increase the tax burden. Public expenditure has increased on both sides of the channel, but the moderation of the increase on the continent has enabled those countries to reduce the share of national income going into taxes, thereby somewhat eroding our relative advantage. Sadly, this Budget continues the damage.

Mr. James Plaskitt(Lab) (Warwick and Leamington)

If the right hon. Gentleman is preaching the virtue of the French approach to taxation as a share of income, can he explain why our economy has been growing so much faster than the French economy and why unemployment is falling in the UK but rising in France?

Mr. Lilley

I am sorry that the hon. Gentleman clearly was not listening to the early part of my speech. The consequences of tax, regulatory and policy changes do not follow immediately, in the same year or the next year; there is a cumulative impact. Just as the changes that we made in the early 1980s did not show their full fruits until the early 1990s, one would not expect changes made in the UK or France to show up as an immediate impact on economic performance in the same year, or even necessarily in the same half of the decade. That is a lesson that we need to learn. We must start thinking long term instead of the short-term manipulation of each Budget for a quick headline, despite the damage that that may do in the longer term.

The Government were originally elected on a pledge that they would improve public services without increasing the burden of taxation. Instead, they have increased the burden of taxation without substantially improving public services. I shall explain how they have achieved that and how we can have better services without increasing tax rates, and in due course reduce them.

How is it that Labour is spending more and getting less? In terms of the NHS, the Organisation for Economic Co-operation and Development's recent report clearly spelled out the situation. I recommend that right hon. and hon. Members on both sides of the House read it. The report states that, since 1999, when the Chancellor took his foot of the brake and put it on the accelerator—expenditure has been increasing rapidly in health and other public services—we have seen a slow-down in the rate of improvement in those services compared with the previous 10 years when there was growth, but it was moderate and within the capacity of the economy to provide it and for services to absorb it and respond to it.

In the 10 years up to 1999, when my right hon. Friend the Member for Charnwood (Mr. Dorrell), among others, was responsible for the NHS—he did a very good job—we saw an increase in the number of operations performed of 2.9 per cent. every year, on average. Since 1999, when the brakes have been off and expenditure has been pouring in, the increase has slowed to only 1.9 per cent. per annum.

The Government say that that relates to operations and that they have shifted the emphasis to day care. Figures for day care come from the same source, the OECD. They show that in the 10 years up to 1999, the number of treatments on a day-care basis was rising by 3.9 per cent. per annum. That growth has slowed even more since 1999 to an increase of only 2.4 per cent. per annum. It will not do for the Prime Minister to say that this has gone up and that has gone up. It has been going up since time immemorial. The point is that the rate of improvement has slowed, and the concerns of patients have increased.

The Prime Minister hopes that he can appeal to personal experience and the public perception. I tried that during the 1980s. Whenever I had a public meeting, I would ask everyone who grumbled about the health service whether anyone present had had any experience first hand or second hand through their families or friends of the health service. Many hands would go up. I would then ask how many of them thought that the experience was good. Exactly the same number of hands would go up. My next question would be, "Why do you all think that it is getting worse?" The answer would be, "We read in the newspapers that it is getting worse."[Interruption.] That was during the 1980s.

If we read the complaints that are registered now by patients—not just those in newspapers—we see that the numbers are increasing. Expressions of concern about cleanliness in hospitals are rising. Is that merely a perception? No. According to the EU, the problem of infections in hospitals is greater in this country than elsewhere. Nearly one in 10 patients have an infection in hospital that they did not have when they entered. Nearly 10 per cent. of beds are occupied by people who got their ailment in hospital. That demands a huge share of our resources. The rate is higher in the UK than any other country in western Europe, and it is getting worse faster than in any other country in western Europe.

Mr. Barry Gardiner(Lab) (Brent, North)

Does the right hon. Gentleman appreciate that the privatisation of cleaning services in hospitals, which his Government introduced, precipitated the crisis, which, as he said, has a long-term tail on policy?

Mr. Lilley

We are talking about a problem that kills between 5,000 and 20,000 people a year. It is not the sort of problem about which we should make party political points. If the cause were what the hon. Gentleman suggests, I would support any change that would solve the problem and thereby cure it. However, the Government have decided that that is not the cause, and they have been in power for seven years. Why is that? Ministers go to other countries, as the Conservative Government's Front-Bench health team did, accompanied by the BBC. They went to Germany and saw sparkling, pristine hospitals. They said, "I bet you don't contract out your health care to private cleaners." They replied, "Of course we do. We want specialists involved in cleaning while we specialise in health."

The BBC journalist said, "We have had privatisation and all the unions say that that is the cause of all our problems. They say that the contractors do not keep things properly clean." The German official replied, "Why don't you change the contractors?" The benefit of the process is that, if it is not good enough, an improvement can be made, which would be more difficult if the system were run in-house.

If that analysis is mistaken and the hon. Gentleman is correct, let us all agree to change the system, but let us not make silly party political points when lives are at stake. It must be a silly party political point; otherwise he would have raised it with his right hon. and hon. Friends and urged them to make changes, and condemned them for tolerating something for seven years that he thinks is the cause of 5,000 people dying each year.

Mr. Stephen Dorrell(Con) (Charnwood)

I entirely agree with every word that my right hon. Friend has said in response to the point made by the hon. Member for Brent, North (Mr. Gardiner).

Is not the fundamental argument that my right hon. Friend is advancing that our health structures are not as efficient as they need to be to deliver the services that patients require and that taxpayers are entitled to see for their money? Is not that argument exactly the one that the Chancellor made two or three years ago, when he said that the extra money that he intended to provide for the health service must be conditional on fundamental reform of the delivery mechanism? The basic point to be made against the Government is that they have made the money available but forgotten about the conditionality that the Chancellor understood at the beginning of the process was fundamental for success.

Mr. Lilley

My right hon. Friend is absolutely right, and I shall address that point. Undoubtedly, the Government have increased the level of spending more rapidly than happened on a sustained basis under the previous Government, but they have seen a slow-down in performance improvement, and deterioration in some key areas. That is partly because they have intensified the central problem that the NHS and other public services face in achieving improvements: centralisation. We know that centralisation does not work. We have seen its failure on a massive scale in the Soviet Union, in the former eastern bloc and in centralised services in this country. We have seen it even in centralised companies in the private sector. An attempt to run a large organisation from the centre, top down, with command and control does not work. The resources that are thrown in never seem to filter through to the sharp end. Mr. Gorbachev, a well-intentioned man. thought that he could transform the Soviet Union without changing its fundamental structure just by setting targets, urging people to do better and sacking them if they did not.

The Prime Minister is perhaps Gorbachev's last remaining disciple on earth, because the Government have made centralisation worse. Though they have given up socialism, their belief in it has been replaced by a belief in spin and press manipulation. The whole public sector is run for good headlines. If a Government are trying to get good headlines about the health service, there must be centralised initiatives announced from Downing street that determine how money is spent. Ultimately, that means that decisions about how money is being spent that should be taken by individual hospitals or by people who are aware of clinical priorities are taken by Alastair Campbell or someone who is aware only of newspaper priorities.

Centralisation in the health service has been intensified in all respects because the Government want to take credit at the centre for everything that the NHS does that is good and for any initiative that they can think up that will win the next day's headlines. When I visited a hospital, I was told that the Government had set a waiting list target, which made a good headline. They then announced, to get another good headline, that they were appointing a waiting list manager in every hospital, which was duly done. Finally, they announced that they were going to set a centrally allocated waiting list budget for every hospital. In the hospital that I visited, the waiting list manager, to meet his waiting list target, had used his waiting list budget, ring-fenced from everything else, to introduce operations on a Sunday performed by locum consultants. That was more expensive but, in theory, should have reduced the waiting lists. However, the hospital did not employ extra sterilisation teams, so by the end of Sunday all the equipment had to be sterilised and no operations could take place on Monday. However, money to deal with that came out of the hospital's general budget, which was not ring-fenced. There was therefore an absurd procedure that resulted in no net improvement in the number of operations but an increase in cost.

That is just a micro-example of the consequences of centralised decision making. The other problem that we face in the health service, which my party is working to remedy, is the fact that the NHS and other public services tend to lack the dynamic forces that drive up quality and efficiency in most areas where choice prevails. If the user of a service can choose between providers, those providers must compete to be at least as good and efficient as the alternative, and that dynamic force of choice determines where resources go. Providers get the extra resources only if they satisfy more customers or users leading to a constant dynamic to improve quality and efficiency. We therefore need three things in the NHS. First, patients need to be given choice again. We should not forget that one of the early decisions that the Government made for the first time in the history of the health service was to remove the right of patients referred by their GP to go to the hospital of their choice. They can no longer do so, except under the reintroduction of patient choice, whereby they must go through an incredibly bureaucratic procedure with appointed choice advisers. The Government have removed that choice, and we must restore it. Secondly, we must make taxpayers' money follow that choice. In the NHS, if a patient goes to hospital A rather than hospital B, hospital A should get the extra money to provide the resources to treat that patient and reward it for doing so. If hospital B is not getting enough patients, it must take action to remedy the situation. That does not mean closing down or starting a spiral of decline—indeed, there is usually a pattern of improvement. If a hospital realises that people are not coming because, for example, it has a reputation for dirty wards, it will clean those wards. If it has a reputation for not washing hands between operations, it will remedy that practice.

Those things do not cost any extra money. A hospital's consultants may not be performing as well as they should, and may need to be retired and replaced by new consultants. It may cost less to employ a relatively young but extremely able consultant instead of a senior consultant who is past his prime. Those things do not cost extra money, but they drive up quality if we have choice and the taxpayer's money follows that choice. Thirdly, patients must have the information on which to make informed choices if that dynamic is be reintroduced in the health service.

The same applies to schools and elsewhere. The Government deserve some credit for not undermining the long-term benefits that began with the reforms of the 1980s, and for introducing improvements such as the independence of the Bank of England and so on. However, they have started a policy of tax and spend that will undermine our relative advantage and, in due course, our economic performance. It is already undermining our productivity. I remind the House of an issue that I raised in the Budget debate last year. The Chancellor claims credit for a growth rate of 2.3 per cent. this year. Growth is made up of two things—growth per head of those employed and the number of people employed. The number of employed people is rising quite rapidly, partly because we are continuing to reduce unemployment, which is excellent and to the great credit of all those policies that brought it about. The big increase, however, stems from net immigration. I have asked the Chancellor what share of our growth rate is due to net immigration—it is 0.4 per cent. of that 2.3 per cent. Without net immigration, the growth per head of the indigenous or resident population is less than 2 per cent.

We should recognise that it is only if output per head rises that income per head will rise, along with our well-being and the standard of living throughout the economy. The Chancellor should not pretend that growth that comes from increasing our population will necessarily increase net wealth per head. Indeed, it can create problems, which show up on the other side of the equation—housing problems, congestion and increased use of all the public services, to which people who come to work here naturally have the right of access. That does not show up in the Chancellor's figures, but it shows up in the demands on his Budget. The Government have therefore pursued policies that reduce productivity growth per head, and unless and until those policies are changed, there will not be an improvement in the average wealth or the growth of wealth per head, which everyone in this country wants.

2.36 pm

Denzil Davies(Lab) (Llanelli)

Unlike the right hon. Member for Hitchin and Harpenden (Mr. Lilley), I welcome the Budget. I congratulate the Chancellor on his eighth Budget and, more importantly, on a remarkable seven to eight years of stability in the British economy, with good rates of growth and low inflation and unemployment. Before I turn to the Budget itself, I should like to refer to the Chancellor's announcement about the Barker report on the supply of land for building. I was not going to mention it, but I changed my mind when the hon. Member for Twickenham (Dr. Cable) said that the Liberal Democrats favoured site value taxation. As a Minister I introduced such taxation.

Rob Morris(Lab) (Wolverhampton, South-West)

It was development land tax.

Denzil Davies: My hon. Friend is right—we did not call it site value taxation but development land tax. If my right hon. Friend the Chief Secretary to the Treasury and, indeed, the hon. Member for Twickenham wish to have the benefit of my experience, I am prepared to pass it on—obviously, in private.

To return to the Budget, my right hon. Friend the Chancellor announced that next year the growth rate would increase to 3 to 3.5 per cent. He also announced—the right hon. and learned Member for Folkestone and Hythe (Mr. Howard) made something of this—that borrowing on the Maastricht criteria would be 3.4 per cent. this year, but would go down in future years. I have not seen this year's Red Book, but previous Red Books suggest that despite the reasonable growth that we have experienced in Britain—it is better than most countries, with the possible exception of the United States—the yield from the two main taxes, VAT on goods and income tax on wages and employment, does not appear to have met the Treasury's expectations. That may change in the next few years with increased growth, but I suspect that it will not. I believe that the United States has the same problem. There are many causes, including what the Chancellor described as the new global economic challenge. Some people call that globalisation, some globalism and others global capitalism. However, goods and money can travel quickly and almost unhindered around the globe, and developing countries can speedily acquire technology, expertise and skills that in the past were the preserve of the western democratic countries.

I recently tabled a question requesting from the Treasury the figures for the yield from import VAT in the past three years—the VAT charged on imported goods. The figures were quite surprising. For 2000–01 the yield was £17 billion. For the next year, 2001–02, the yield was £16.194 billion. For 2002–03 the yield was £15. 523 billion. I thought the figures might be the wrong way round. Clearly, the reduction in yield cannot be due to the increase in the volume of imports. There probably has been an increase in the volume of imports—our trade deficit seems to imply that. The reduction in yield might be because of the strength of the pound. Over that period, the pound being relatively strong, the price of imports was reduced.

I suggest that another reason may be the pressure of globalisation. Because countries, especially in the far east, are trying to acquire a greater share of the UK domestic market, they are prepared to reduce their prices, and in fact prices are lower. Of course, if the prices of imported goods go down, the amount of VAT at 17.5 per cent. also goes down.[Interruption.] Does the right hon. Member for Charnwood (Mr. Dorrell) wish to intervene?

Mr. Dorrell

I am grateful to the right hon. Gentleman. I was simply saying—to myself, mainly—"What's wrong with that?"

Denzil Davies

It is not a question of wrong or right. It is a statement of fairly clear fact that if prices go down—including the price of domestic goods, because if domestic manufacturers have to compete with lower-priced imported goods, they have to try to reduce their prices—that must reduce the yield from VAT, unless the volume is sufficient to carry that reduction and VAT stays at 17.5 per cent. That is not a great or a grand point, or even a philosophical point.

Having been surprised by the answer to that question, I tried a similar question to the Inland Revenue in relation to yield from wages and income tax, but all I got was a reference to a website somewhere. I am not sure where the website is; I still cannot find it. I understand that if one looks at the yield from income tax over the past two or three years, and if one subtracts from that yield last year's increase in national insurance, the same phenomenon appears. Despite the growth in the economy, the yield from income tax is not as great as the Treasury hoped. That may well be putting pressure on public expenditure. Unless other taxes are found to make up for it, we are likely to have a greater deficit on the public accounts.

It could be said that globalisation has the effect of depressing wages, and if wages are depressed, the income tax yield is depressed, and another tax or taxes will have to be found. If the House will bear with me, I shall give a constituency example that, in a minuscule way, reflects my argument. I have a car component factory in Llanelli. It has been there for a long time and is under pressure, as most car component factories are. It has had to announce the outsourcing—that is the vogue word—of some 90 jobs to eastern Europe or, probably, to Asia.

We hope that we can save the jobs, but given the fairly buoyant state of the economy, I would expect—especially with the unemployment figures announced today—that a majority of those 90 workers will find other employment, possibly locally, if their jobs go. In my experience, the wages they will be paid in their new employment are likely to be lower than the wages that they now receive from the car component factory. So again, presumably, they will pay a little less in income tax. For some of them, their wages may be driven down so far that if they are family men or women they may have to claim working tax credit, or top-ups as they are called on the other side of the Atlantic. That must involve some kind of public expenditure. If they do not get jobs at all, they will have to be paid jobseeker's allowance, unemployment benefit, or whatever income support is called these days. Again, on a small scale, because of outsourcing and the pressures of globalisation, wages are going down and, as a result, the yield from income tax is falling.

Outsourcing in manufacturing is nothing new. We have seen it over the years. We are now seeing outsourcing in the service sector as well. It would be dishonest of me to pretend that there is an easy answer to the problems. I was surprised when my right hon. Friend the Secretary of State for Trade and Industry, and the Leader of the House, my right hon. Friend the Member for Neath (Mr. Hain), whose constituency is not far from mine, seemed to say that outsourcing was good for the British economy. Somehow, the argument is that outsourcing enables us to create better quality jobs. What is to stop those better quality jobs in turn being outsourced, I do not know. However, it seems to be the general view that outsourcing is good for the British economy.

I have some candidates for outsourcing, but I shall not go through the whole list. I am sure there are some economic think-tanks around Whitehall that could easily be outsourced, to the benefit of the British economy. I am probably the only Member left in the House who does not believe that central bankers have contributed much to the lower rate of inflation. I believe that that has been caused by globalisation, which has driven down prices and interest rates. The Chancellor was rightly waxing lyrical about the amount of money saved because of debt interest. That has gone down because inflation has gone down. My view is that inflation has gone down towards the realms of deflation because of the global economy.

Be that as it may, there are those of us who do not believe that central bankers have made much contribution. Perhaps we could outsource the Monetary Policy Committee. I am sure the Indians could do the job very well. They are good mathematicians, which means that they could probably be good economists, and they speak English well. We must be careful when we argue that outsourcing is good for the British economy.

The economic and political establishments in Britain are united in the view that globalisation is a universal absolute good and that we must all worship at its altar. Curiously, in that most capitalist of countries, the United States, the view seems to be changing. I know one should not take the views of the United States from primary elections, but it is remarkable how much attention has been visited upon the problems of outsourcing in the primary presidential elections and, I suspect the same will be true in the presidential election in November. US politicians are clearly concerned about outsourcing. It is not just those at the bottom of the wage chain who are concerned. A poll published inThe Wall Street Journal recently showed that most concern in the US at outsourcing was felt by people who earned $100,000 or more every year. So outsourcing is gradually moving up the wage chain, and that will present a serious problem.

The classical economic theorists in the United States, as in Britain, say that globalisation is an absolute good and we must not question it in any way. They give a number of reasons why it is good. First, they tell us that globalisation creates more jobs: it certainly has not so far in the United States, as far as I can see. There is a terrible scramble going on in the Bush Administration, aided by the most right-wing chairman of the Federal Reserve the United States has had for some time, with taxes being cut, a huge budget deficit and interest rates at I per cent.—in fact, if we take inflation into account, minus 1 per cent.; a huge effort is being made and no jobs, certainly in the private sector, are being created.

People wonder why. The answer, of course, is that jobs are being created in China and various other places. When it is pointed out that the United States has an enormous trade deficit, the classical economists say, "Well, that's all right. It doesn't matter. The Chinese merely reinvest the money in Treasury paper and lend the money back to the United States, so that the United States can buy more goods from China." Fine. I remember the aftermath of the Yom Kippur war in 1972 or 1973 when all the money that was obtained by the Arab countries from selling oil at $70 a barrel, or whatever it was then, had to be reinvested in London and Washington because the Arabs did not have a currency. They do not have a country, therefore they do not have a currency. But the Chinese have a currency. Well, yes, only the Chinese currency, but one of these days the Chinese will reform their financial system. The Chinese currency will become a proper currency and the Chinese will then decide to use the money to buy their own currency or spend it within their own country, taking it away from Treasury assets. Again, the classical economic theory that somehow this huge trade deficit is good, eventually will not work.

Finally, the economists say, "There is nothing new about globalisation, so what is all the fuss about? It is the 20th century that is the aberration." Of course there was globalisation before the first world war. Goods could move freely, perhaps even more freely than now; money could move freely; and certainly persons could move more freely—although not with the speed with which goods, persons and money move today. Yes, indeed there was globalisation before the first world war and for centuries previously, but the real difference is that that globalisation was our globalisation. Western countries were in charge of it. Western empires controlled it. When America became a strong country, America controlled it. The difference with today's globalisation is that it ain't ours. There are new kids on the block, and they are growing and learning fast. The biggest capitalist country on earth is now extremely worried.

Was it Trotsky who said, "You cannot have socialism in one country"?[Interruption.] I am told by my hon. Friend the Member for Middlesbrough (Sir Stuart Bell) that it was Lenin. Perhaps we cannot have socialism in one country. We have globalisation, global capitalism, and the United States, the most capitalistic country of all. It will come to western Europe as well. The Liberals tell us that if we join the euro, somehow everything will be fine and we will get all the investment into Europe. Europe has not started to feel the real pressures that come from globalisation.

Alan Simpson(Lab) (Nottingham, South)

Would my right hon. Friend also acknowledge that one of the big changes in the last 20 years is in the nature of capital itself? Those of us who may have no particular affection for capitalism at least recognise that in previous eras the capital was either the ownership of land or of production, and in that context, the owners of that capital also identified themselves with the country that they were in. In the last 20 or 25 years, capital has become finance capital, moved offshore, and its owners have become uninterested in the countries in which they earn their moneys and reluctant to pay tax into anyone's economy.

Denzil Davies

That is absolutely right, and the movement is much more rapid.

To digress, I am reminded of something that I read some time ago about Karl Marx. Apparently, his mother, who was not a disciple of his theories, wrote to him and said, "Karl, you have talked a lot about capital. Why don't you now try to make some?" I apologise for that digression.

My hon. Friend may be right, but there is now a challenge to western economies. We may not want to believe that, but we will have to look at the classical economic rules governing free trade and the movement of capital because at the end of day democratic Governments—we are seeing some of it in the United States—will have to protect the employment of their people, their electorate; they will have to try to preserve the tax base, which is becoming increasingly difficult; and they will also need to safeguard their public services.

Most hon. Members will not agree with me, but during the past 10 or 15 years I have seen democratic Governments in Britain and elsewhere transferring power over the economy to so-called independent or semi-independent bodies—for example, monetary power to central bankers. Fiscal policy is very often entrenched in these rules, and I am glad that the Chancellor has managed to stay within his own golden rule; and we have the rules of international trade as well. With the pressure of globalisation, Governments will have to look at those rules again and, in the interests of their economies and their own electors, will have to do something about it.

The best way to deal with the problem is to recognise it. Then, perhaps, we can come to some kind of mutual international arrangement where the benefits of free trade—because there are benefits—can be adapted and modified to preserve jobs, the tax base and our public services.

2.56 pm

Mr. Stephen Dorrell(Con) (Charnwood)

I begin by declaring an interest as a director and shareholder of a manufacturing business, which means that, as always, I listen with interest to what the Chancellor has to say in Budgets. I always listen to what the right hon. Member for Llanelli (Denzil Davies) has to say about globalisation, but on this occasion, if he will forgive me, I do not propose to follow him down that path. Whenever a Chancellor speaks with such rapid-fire delivery as this Chancellor does for virtually an hour, there is always something in what he says that can be welcomed, so I should like to begin with that. Both sides of the House welcomed his announcements concerning the efficiency of the Government machine—the first fruits of the Gershon process. If I may say so, my right hon. and learned Friend the Leader of the Opposition is entitled to a share of the credit for that. It is an example of more effective opposition starting to put the Government on their mettle. The fact that my right hon. and learned Friend set up the David James process to shadow the Government's efficiency review is part of what good opposition is about, and I enjoy the fact that we can claim some credit for improving the Government's performance. I hope that the Chief Secretary will be gracious enough to welcome my welcome for the Chancellor's announcement.

I do not think that even my right hon. and learned Friend would claim credit for another of the Chancellor's announcements, which I certainly welcome: that he accepts Kate Barker's recommendation that we establish real estate investment trusts in this country. Where that structure has been established elsewhere in the world it has a proven track record for making the property market more efficient and I warmly welcome the Chancellor's indication that we will go down that road. However, while I welcome that aspect of what Kate Barker had to say, I have much less time for some other aspects on which the Chancellor commented. He appeared to say—I hope that I am wrong—that he was attracted to the idea of regional housing plans as a way of enhancing house building and improving supply and demand in the housing market. If Kate Barker and the Chancellor are two people who think that regional housing plans will improve the efficiency of the housing market, I hope that there are not too many more, because the weight of experience is against the proposition that introducing yet another bureaucratic planning process into the housing market will improve the flow of land and houses on to the market.

The idea that introducing a development land tax will improve the flow of development land on to the market goes to an even greater extent against the weight of experience, including that of the right hon. Member for Llanelli. It is a perfect example of not needing to look into the crystal ball, but simply reading the book. We have been there and had a development tax. It impeded the efficient operation of the development land market and I can envisage no arguments that would support a return to that policy. I therefore hope that the Chancellor's words on that subject were designed to kick the proposal firmly into the long grass.

The Budget was extraordinary for several other reasons. It is the first time in my experience that a Chancellor, in announcing his stance on individual taxes for the following year, chose to say every time a tax was not changed that it was frozen, as if there were an expectation that tax rates would go up. Indeed, there is such an expectation and the Chancellor did nothing to knock it on the head. He appeared to want to claim credit for the fact that the majority of tax rates would not increase. He wanted us to cheer the fact that they were, in his word, "frozen". It is not only because I am old fashioned that I prefer a world where it is assumed that tax rates do not change unless a Chancellor announces that they will, rather than one where it is assumed that they will change unless he announces that they are frozen.

I do not believe that I exaggerate when I say that the Chancellor appeared to spend 20 minutes of his hour-long speech replying to a speech that my right hon. Friend the Member for West Dorset (Mr. Letwin) made two or three weeks ago. That is eloquent testimony to the extent to which the shadow Chancellor determines the terms of debate. The Chancellor devoted 20 minutes of a speech that lasted an hour to commenting on proposals that my right hon. Friend is solely responsible for putting on the table. I strnngly support those proposals.

On previous occasions, the Chancellor has chosen, with great theatre, to dress in the clothing of productivity. Numerous initiatives of the sort that he dearly loves are announced, and we are asked to believe that they are designed to improve the productivity of the British economy. I am open to correction, but I do not remember the word "productivity" being used today. I shall explain why that omission may have been wise in the context of the Chancellor's policy package.

Mr. Michael Jack(Con) (Fylde)

Has my right hon. Friend noticed that the Chancellor is fond of fiddling with the economy at a micro level to achieve the objectives that he has just presented, but that we never have feedback about whether the initiatives have any measurable success?

Mr. Dorrell

My right hon. Friend is right. Whenever the Chancellor announces periods within which his policies will be assessed, the timetable is always x plus one, where x equals the remaining years of the Parliament. My right hon. Friend is therefore right to point to the Chancellor's predilection for micro-fiddling. To be fair to the right hon. Gentleman, there was slightly less of that this year than in previous years, perhaps because he was trying to avert our eyes from productivity, to which I wish to revert.

The central problem that faced the Chancellor in preparing the Budget—he did not ignore it, but spent much time trying to persuade us that it did not exist—was the sustainability of his budget deficit and borrowing requirement. He should have addressed that key issue when he prepared the Budget. He announced, with a great flourish, that borrowing for the year that is finishing will be, as he predicted in December, £37 billion. It is a commentary on our position that the Chancellor can say, almost with a sigh of relief, that this year's borrowing requirement is "only" £37 billion. It is worth remembering that, at the beginning of the Parliament, he was running a budget surplus of £16 billion and that, at the time of the previous election, he predicted for this year a budget deficit, through the operation of the normal stabilisers, of £10 billion.

The prediction of a budget deficit of £10 billion for this year has been revised repeatedly—I shall not weary hon. Members with an account of every occasion when it has been revised—until it reached £37 billion, which is the outcome in the last month of the year. Against the background of that track record, the central message of the Chancellor's Budget was that the borrowing was okay and we did not need to worry about it. I shall revert to that judgment shortly.

The Chancellor tried to substantiate his assertion that the borrowing was okay by saying that, in the current cycle, the borrowing requirement satisfied his golden rule. I am prepared to believe that that is broadly arithmetically true within the margins of error. However, the analysis ignores a sharply deteriorating trend through the life of the cycle. If the golden rule is fulfilled in the cycle, it will be only through surpluses that were built up at its beginning and resulted from the spending plans that the Chancellor inherited from the previous Conservative Government and did not change. The Chief Secretary shakes his head, yet he is responsible for controlling—or failing to control—public expenditure.

The deteriorating trend in public finances has been corrected throughout the cycle's lifetime. I shall repeat figures about which the Chief Secretary should go to bed worrying. In the Parliament, on the Chancellor's projections, gross domestic product will increase by approximately 25 per cent. and total managed expenditure will rise by 33 per cent. One does not need a degree in mathematics or economics to work out that a trend over five years whereby growth increases by 25 per cent. and managed expenditure rises by 33 per cent. is not sustainable. That is why the Chancellor has a problem when he tries to persuade us that borrowing is under control.

The right hon. Gentleman's answer is that he can sell gilts and finance the debt throughout the lifetime of the Parliament. I agree—there is no obvious problem with the ability to finance the debt in the short term. However, he said two more things with which I fundamentally disagree. First, he said that we should not worry if the borrowing is required to pay for investment—"investment" is a much loved word of the Chancellor's. Unlike "productivity", "investment" appears repeatedly in today's Budget, as it does in all his other speeches. It refers to a variety of expenditure. The Chancellor is fond of saying that he will invest in health or education. While we can all understand the desire to make expenditure on those objects a priority, making something a priority is not the same as properly defining money spent on it as investment. The Chancellor appears to believe that as long as he attaches the label "investment" to a particular spending proposal, that in itself will make it financeable, as debt-financed expenditure that can be outside the operation of the golden rule.

A further inadequacy of that principle is that merely saying that something is investment, even if it is properly described as such in economic terms, is not the same as saying that it is good investment. For example, we have seen substantial sums of money put into the transport infrastructure, with sharply declining rates of return. We must ask whether that investment policy aids or undermines the Chancellor's oft-stated—although not today—commitment to productivity. His desire, expressed in good faith on other occasions, to see the productivity of the British economy improve is not assisted by an approach to investment that simply says that if an item of expenditure is investment, it is all right and we can afford to borrow to finance it.

The Chancellor also said of his current borrowing requirements that no tax increases will be required to finance them, either now or in the future. I have to say that I, in common with most observers, regard that as simply implausible. The Chancellor came quite close to arguing that it was implausible, saying more than once that he had a Budget choice to make: whether he, as Chancellor, should use his judgment to reduce expenditure, to trim his spending plans, to trim borrowing or to cut tax. That was how he saw the choice. That is very close to saying that unless he does one of those things, some time beyond the next election there will be tax increases round the corner. As my right hon. and learned Friend the Leader of the Opposition made clear in his speech, there is no need to look into a crystal ball because we have been here before and can read the book. In the same way as before the 1997 and 2001 elections, the spending plans cannot be supported without tax increases.

In the Budget, the Chancellor is averting his eyes from his commitment to productivity enhancement and from an emerging deficit problem, on the basis of what he hopes to be able to do after the next election. Without having to face up to difficult spending decisions—the Chief Secretary would clearly prefer not to address those with his colleagues, or disappoint their possible expectations—the Chancellor hopes that it will be possible to resolve all the problems after the next election with another round of tax increases. I believe that there is a near certainty of tax increases from a re-elected Labour Government.

I have mentioned the effect of the Chancellor's stance on productivity. My right hon. Friend the Member for Fylde (Mr. Jack) who, like the rest of us on this Bench—my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) and I—is a former Financial Secretary to the Treasury, referred to the Chancellor's long track record of obsessive micro-regulation of the economy. That has the effect of imposing costs on the economy. One of the great deceptions of being a Minister is to believe that we can require other people to do things, and that that is free. It is too easy to think that, because we in the Treasury, or in our Department, do not have to pick up the tab and are obscured from any resource implications, we can therefore make a decision without having to find the resources with which to implement it. In fact, regulation costs money. It imposes a cost, and unless it enhances output it also imposes reduced productivity on people elsewhere in the economy.

This Chancellor has a track record, over the whole of his chancellorship, of imposing extra costs—as have the Government more generally. Many of those costs are not huge but, as my right hon. Friend the Member for Hitchin and Harpenden stressed, incrementally over a long period they have the effect of increasing the cost burden, and so reducing the productivity, of the private sector of the economy. Despite the fact that the Chancellor enjoys talking about being the productivity Chancellor, he has on previous occasions marched resolutely in the wrong direction on that matter. Today he had an opportunity to start to reverse that trend, but he did not take it where the private sector is concerned. I see that the Chief Secretary is holding up one page of the Budget—[Interruption.] Perhaps it is 30 pages, but that is out of several hundred published today. I suspect that that is simply another lot of micro-regulation that the Chancellor neglected to report to the House when giving his Budget speech.

If it is true for the private sector that the Government's record on securing output for their expenditure input is truly appalling, it is true in spades for the public sector. A core criticism that will be made of the Chancellor's tenure—as I said in an intervention that my right hon. Friend the Member for Hitchin and Harpenden was gracious enough to take—is that although he has unleashed barrel-loads of money on key public services, the priority of which is not in dispute between the two sides of the House, he has totally forgotten about the conditionality that he said at the beginning of this phase of his Chancellorship would be a precondition to that money's being made available.

My right hon. Friend the Member for Hitchin and Harpenden gave some telling figures for the national health service, which I myself had noted down to cite. A 37 per cent. increase in expenditure on the NHS since 1999 has produced an increase of a fraction under 5 per cent. in the number of completed consultant episodes. Despite that huge increase in expenditure, average mean or median waiting times in the NHS have been extended. I shall not spend a long time talking about the NHS today, but a key reason for those problems—quite apart from the cost and salary issues in the service itself—is the Government's unwillingness to face up to the crisis in the residential care sector, which is backing up into hospitals and manifesting itself in the NHS as blocked beds. There are 13 per cent. fewer beds for residential care of the elderly available in the UK today than there were in 1997. We do not need detailed knowledge of that subject to know that demand is rising for that aspect of care. However, under the Government's watch, the availability of such care has been reduced by 13 per cent.

Those examples are aspects of a much bigger problem with the efficiency of public sector operations. The inefficient use of money in the public sector is a problem in itself, because it undermines the quality of services. It is also a problem for the wider economy, because it ties up in the inefficient delivery of core public services—whose importance we all understand—resources that could otherwise be used to assist the general productivity of the economy and deliver improved living standards to all.

That is why the shadow Chancellor, in the speech that the Chancellor took 20 minutes to reply to today, stressed that the Conservative priority is now to ensure that, in the core public services of schools and the NHS, we provide space and political support for the reform that the Prime Minister and the Chancellor say they recognise is needed but for which they have lost the political will. The reality is that the Government will not deliver world-class public services. Furthermore, by failing to do so, they will undermine the productivity of our wider economy. They will go on doing that until they address the need for real reform and real productivity enhancement within the public services. The central message of this Budget is that Labour will deliver more spending. The Chancellor made that crystal clear. That is lesson one. Lesson two is that Labour has lost interest in reform. There are two consequences of that: more tax and poor public services. I am pleased to say that my party is now starting to evolve a real alternative, which involves real reform and, critically, better-funded public services. We offer better public services and an end to Labour tax increases, and that will come not a moment too soon.

3.21 pm

Sir Stuart Bell(Lab) (Middlesbrough)

I welcome the opportunity to participate in this debate and to follow the right hon. Member for Charnwood (Mr. Dorrell). I listened to his speech with great interest. As he said, we have among us today a number of former Financial Secretaries—talk about yesterday's men from yesterday's century! We have the hon. Members for Sevenoaks (Mr. Fallon), for Sutton Coldfield (Mr. Mitchell), for North-West Norfolk (Mr. Bellingham) and for West Derbyshire (Mr. McLoughlin), and the right hon. Member for Fylde (Mr. Jack). Of course, I exempt from the term "yesterday's men" my right hon. Friend the Member for Llanelli (Denzil Davies).

Interesting though the speech of the right hon. Member for Charnwood was, he was a little curmudgeonly in his summary. When he mentioned the surplus that we had of about £16 billion, which is now a deficit of £37 billion, the Chief Secretary reminded him that in 1997 the Conservatives left us with a £51 billion deficit, which reminded me of Joseph and his coat of many colours. I think that it is perfectly legitimate for the Second Church Estates Commissioner to refer to that. Joseph interpreted the dream of the pharaoh, who had dreamt of seven fat cows and seven lean cows. Joseph told him that that meant that we have seven prosperous years, when the economic cycle is in our favour, and seven lean years when the economic cycle turns the other way, and that we must save in the good years for the bad years. The fact that the Chancellor of the Exchequer had a £16 billion surplus and that we are now able, as a nation, to live quite comfortably with a £37 billion deficit within the framework of the Budget is something that I shall be happy to delineate later.

Mr. Jack

Does the hon. Gentleman acknowledge that, by the time the 1997 general election came round, the controls that we had imposed on public expenditure were biting, that tax receipts were rising and that our monetary policy—as witnessed after the first year of the Labour Government—enabled the United Kingdom to hit its inflation target spot on?

Sir Stuart Bell

I remind the right hon. Gentleman that the Chancellor of the Exchequer at the time of that election stated that he had laid a series of elephant traps for the future Labour Government. That is precisely what he did with his toughening of public expenditure. Many Labour Members regretted that we stayed with that framework, as it did not help the economy. What did help the economy, by reducing the inflation rate, was the independence of the Bank of England, which the present Chancellor brought about.

The right hon. Member for Charnwood made a good point about freezing tax rates, but we know what the Conservatives are building up to at the next general election. It was Franklin D. Roosevelt who said, "We have nothing to fear but fear itself", and the Conservative Opposition are going to try to terrify the British public by telling them that the Labour Government have hidden tax proposals and that there will be a price to pay. I remind the right hon. Gentleman of two promises. The first was made by the then Conservative Opposition before the general election in 1979, when they said that they would not increase VAT. After the election, it went up from 8 per cent. to 15 per cent. The present Prime Minister made the second promise when he was Leader of the Opposition, and it was that a Labour Government would not increase direct taxes. In their seven years in office, our Government have not done so.

Mr. Dorrell

What about national insurance?

Sir Stuart Bell

I am always grateful for a sedentary intervention. I was Parliamentary Private Secretary to Lord Hattersley when he was deputy Leader of the Opposition. We cleverly put a question to the former Prime Minister, Lady Thatcher, to ask whether there was a difference between national insurance contributions and taxation, and of course she said no. I give the same response to the right hon. Gentleman.

Mr. Dorrell

The hon. Gentleman is citing no less a person than the former Prime Minister, Lady Thatcher, to confirm that he was wrong to say that there had been no increase in direct taxation.

Sir Stuart Bell

Lady Thatcher made the point, and I am not going to try to contradict what she said in her years of office.

I shall turn to the speech made by my right hon. Friend the Member for Llanelli, who has quietly left the Chamber. That is one of the facts of life in this place. He stated that Leon Trotsky had said that socialism was not for one country but for all, and I pointed out that actually Vladimir Ilyich Lenin had said that. I am sure that someone out there in the country who readsHansard will write to me, giving me chapter and verse and referring me to the precise page on which Leon Trotsky made that statement. Anyway, it was part of the communist dogma at the time that communism—rather than socialism—was universal and should be exported. I have to say with some regret that it was exported, which created misery and havoc for some 80 years. That is not to say that communism and enlightened socialism are the same thing—they are not.

My right hon. Friend the Member for Llanelli mentioned the pressures of globalisation, but that part of his speech was more fitting to the last century than to this one. However we look at the world economy, globalisation is here to stay. The Chancellor's speech addressed that fact by addressing the challenges in relation to monetary and fiscal policy priorities. I was interested that the right hon. Member for Charnwood referred to Aneurin Bevan and the crystal ball. Aneurin Bevan also said that the language of socialism was the language of priorities, and today we have seen the Chancellor prioritising education and health in the interest of our country and of trying to steer our economy in the right direction to deal with the globalised threats and challenges that we face. I am glad that the right hon. Member for Hitchin and Harpenden (Mr. Lilley) is still with us. He will remember, as a former Secretary of State, that we had many an intelligent debate, especially on a Friday, on economic matters, when I was on the Opposition Benches and he sat over here. I enjoyed those debates and I enjoyed his speech today. He made an important statement when he said that short-term decisions do not create the right climate for the economy; that is achieved through long-term decisions all coming together. He was right about that. He was also right to say that delivery is a matter for politicians, statesmen and Ministers, because policy and delivery are not necessarily the same thing. He recognised the fact that the delivery of a policy can take some time, and we have to recognise it as well.

I know that the right hon. Gentleman has a house in France. I congratulate him on that, as someone who lived there for 20 years. I admire his taste; to live in France is an excellent thing to do. Some of his comments about France, however, did not reflect my understanding of the French economy. He talked about the growth gap, but France has lower growth than we have.

He talked about VAT, which is 19.5 per cent. in France. He also talked about employment, social charges and the tax burden. Employers in France tell me that for every[...]100 they pay to a salaried worker, there are[...]46 of social charges, so 46 per cent. is added to the wage bill because of France's health, social insurance and taxation structure.

Mr. Lilley

I am grateful to the hon. Gentleman for giving way and, in the spirit of constructive debate in which he is speaking, may I make it clear that I was not speaking about the performance of France? I was referring to the average of all other countries on the continent relative to us. I suggested not that France is superior to us, but that it is moving in the right direction—in due course, that will have beneficial effects on its poor performance—while we are moving in the wrong direction, which will damage our good performance. I hope that I have made things clearer, if I did not make them clear before.

Sir Stuart Bell

I am grateful for the right hon. Gentleman's intervention. He is right in the sense that France is seeking to move in a particular direction. He mentions the average of all the various figures, but the fact is that growth rates in France are lower, unemployment is higher and it has severe administrative burdens and severe problems. All of France's scientists have decided to go on strike because there is not enough funding for them, and every day French newspapers report mayhem somewhere or other. Although I might be a Francophile, I am not enthusiastic about comparing the French economy with ours.

The right hon. Gentleman mentioned a report by the Organisation for Economic Co-operation and Development, which I am happy to look at, but he is wrong to say that Government investment over seven years has not yielded any improvement in public services. He also spoke of perception over reality. The other day, I visited the James Cook university hospital in my constituency, where waiting lists are coming down. We are also tackling the question of illness and disease in the hospital. The right hon. Gentleman referred to a point made by my hon. Friend the Member for Warwick and Leamington (Mr. Plaskitt). We have to make this point, which I remember well: a Conservative Government began to dismantle hospital cleaning services and introduced contracting out. Whether it was right to do those things or not, the fact is that they began at that time. If I may say so, the problems that we face relate, with some longitude and latitude, to the past.

I would not want to make a political point—not even to encourage my right hon. and hon. Friends—but listening to the debate and the speech of the Leader of the Opposition I realised that the Conservative party is not yet a party of the 21st century. It still has not come to terms with the global economy, the changed nature of our society or the view, which my right hon. Friend the Chancellor expounded, that monetary and fiscal policy must be brought together.

The Conservatives see things in isolation, not in the round, and they seem to denigrate the fact that we have placed so much emphasis on education. Again, I come back to my constituency. My hon. Friend the Member for Middlesbrough, South and Cleveland, East (Dr. Kumar) referred to the Prime Minister's visit to his constituency 10 days ago to open a city academy. The Prime Minister also came to my constituency to open a new wing of the university. When I was our parliamentary candidate in Middlesbrough in 1983, we could not even get 6,000 students at our polytechnic. We now have about 21,000 students at our university. The centre of our town has been changed. We have a town campus with the university at the centre of it all.

When I visit the schools in my constituency, I see the computer equipment that they have, the money that they have been given—directly by our Government—and the improvements in standards. I would say that the quality of life has changed in my constituency and there is an improvement in public services. We cannot use what I call the wildebeest theory: in Africa, a herd of 100 wildebeest run towards the river, but two decide to skip off and are eaten by lions. We cannot spend our time, rather than praising our public services, taking the isolated case of a trolley in a corridor and saying, "That is our health service." That is not our health service.

We must consider the question of choice, which was mentioned by the right hon. Member for Hitchin and Harpenden. My hospital in Middlesbrough is now one of the finest heart centres in the country and we have patients coming from Newcastle. Early on in my time, patients went from Middlesbrough to Newcastle for heart operations. People come the other way now; they have choice.

We now have a spinal unit in our town, which is the centre for the whole north-east, so there is choice in our health service. We are not complaining about the health service—I have never met anyone in my constituency who has left hospital complaining.

I also want to refer to lifting aspirations. There is not only a concrete improvement in the services, hospitals and education system in our town, but a lifting of aspiration. People in my constituency think that they can achieve things—it can be done. That is one of the lasting gifts of our Labour Government. The hon. Member for Twickenham (Dr. Cable), who spoke for the Liberals, claimed that the euro is the most important aspect of our economy. I am a great fan of the European single currency. I believe that we should join and that we will do so at some point, but, as St. Francis said, "Make me pure, but not yet."

Mr. Lilley

It was St. Augustine.

Sir Stuart Bell:

I am grateful to the right hon. Gentleman.Hansard may have had me wrong had it not been for that correction. I say, yes, we should join the single currency, but of course we should wait until the conditions are right. When they are right, it will be appropriate to join.

My right hon. Friend the Chancellor went to great lengths today to talk about stability and growth. He brought stability and growth together. Japan had stability for many years, but no growth. There can be stability without growth, but my right hon. Friend is saying that we can bring the two together, as one. That is part of his long-term plan.

One thing that strikes me about my right hon. Friend is that he has a vision. When I used to go to Sunday school, a Methodist preacher would stand up—my right hon. Friend the Chief Secretary will understand this with his religious background—and say, "Where are the men of vision?" Well, there was a man of vision at the Dispatch Box today.

My right hon. Friend the Chancellor has a vision for the global economy, stability, growth and priorities such as health and education. His vision means that he will not freeze, to use the word employed by the right hon. Member for Charnwood, the increase in expenditure on these important matters. The Budget is excellent, and I say that modestly, non-politically and objectively as one who follows the global economy and the changes that are necessary.

You will not believe this, Madam Deputy Speaker, although possibly you will, but I am on my feet as Second Church Estates Commissioner. Today, the Chancellor extended the listed places of worship grants scheme until 2006. He knows, as does the House, that the Church has had many discussions on a permanent arrangement for reducing VAT on church repairs. Those have involved the Economic Secretary, my right hon. Friend the Chancellor himself and Mr. Frits Bolkestein, the European Commissioner in charge of VAT affairs.

The Church of England VAT group, and, ecumenically, the Churches Main Committee under the chairmanship of the Bishop of Derby have been persistent in keeping the issue at the forefront of economic and national debate, for which I thank them. Parishes have also campaigned vigorously. Right hon. and hon. Members have been particularly assiduous, and I am particularly grateful to the hon. Member for Vale of York (Miss McIntosh) for keeping this flame burning.

In his Budget of 2000, the Chancellor graciously introduced a grants scheme that reduced VAT on church repairs to listed buildings from 17.5 per cent. to 5 per cent. Today, he extended the scheme, in terms not only of time but of money. VAT has effectively been reduced to zero per cent., which is welcome news for those within the Church who are seeking to restore listed places of worship. I urge parish churches to come forward with their schemes so that the Chancellor's new arrangements can be fully taken up.

As the House knows, our churches play an inherent part in our national life and in our communities. They support charity work and their influence may be found in national and local government and in industry. Our church services, of whatever religion, are not an adjunct to reading the Sunday newspapers or watching football on television. Religion is not an oddity within society in the face of what is now becoming an aggressive and belligerent secularity. It is a deep and abiding influence throughout national life.

It is, of course, not possible to anticipate a time when all church repairs will be completed—the painting and repainting of the Forth bridge is as nothing compared with the consistent work in upholding our national heritage. Even the best materials will need to be replaced over time. With 13,000 listed churches within the Church of England, and some 20,000 listed churches in total, the cycle of repair and renewal will be ongoing, but will be greatly aided by the Chancellor's announcement today.

To put the scale of repair in perspective, parochial returns show that the Church of England spent £86 million on major repairs in 2001. A report has identified a repair need of some £110 million per annum. Given the scale of the problem, the Church greatly appreciates the fact that the Chancellor has not looked on the grants scheme solely in financial terms, but has understood its importance to our national heritage and our national life. The scheme offers congregations, all of whom depend on their own voluntary organisational and fundraising abilities, a much-needed incentive to carry out works and repairs in a way that benefits those who regularly visit churches. We are thankful for the Chancellor's statement today. It is a great gift to the Church and a great act of generosity on his part. The extension of the scheme is, as he declared, in the national as well as the Church interest and it is welcomed and appreciated within the Church of England and other Churches.

3.42 pm

Mr. Michael Jack (Fylde) (Con)

Listening to the hon. Member for Middlesbrough (Sir Stuart Bell), I thought that he was about to rewrite the first line of a well-known hymn to read, "All things Brown and beautiful". I share his delight at the announcement on VAT changes in respect of church refurbishment. I look with renewed optimism at the prospect that the refurbishment of St. John's in Lytham, which I attend at 8 o'clock on Sunday mornings, will eventually benefit from that.

I and my right hon. and hon. Friends have clocked up many Budgets, and having sat though a Budget speech, it is an interesting first challenge to say, "Well, what did you think of it?" Some Budgets are full of whiz-bang excitement. Everybody charges out to the media to make great statements about how the world will be a much better place because the Chancellor has done X, Y and Z. I do not think that there are any fireworks in this Budget. In fact, the Chancellor made a virtue out of announcing little by way of significant change in how the UK tax structure will operate. He seemed, however, to complete the public expenditure round in allocating at least half the money to health, education and defence. If those are the beneficiaries, I would not like to be in the Departments that remain to have their moneys allocated.

I suspect that this Budget will be seen as a bit like one of those Chinese meals in which one seems to get an awful lot, but the next day one wakes up and cannot quite remember what one ate the night before. The Chancellor's speech required a lot of padding to reach an hour in length. In terms of novelty and benefit for the British economy, however, the message was simply, "Steady as we go." It is interesting to couple one of the answers that the Prime Minister gave to a question from my right hon. and learned Friend the Leader of the Opposition in Prime Minister's Question Time with the words uttered by the Chancellor.

The Prime Minister went on at length to point out that he remained pledged effectively to no change in the main marginal rates of our tax system. We now know that the main standard rate of tax will not be changed, and indeed the higher rate will not be changed. That rules out any changes in personal taxes. I am sure that Treasury Ministers will be only too happy to say that they want to run a competitive corporation and company tax system, so another possibility is ruled out. I therefore conclude that when the Chancellor must look for new resources—as is inevitable, for reasons that I will explain shortly—it is likely that other taxes will be raised in due course, or alternatively that new taxes will be devised.

None of that should surprise us. Over the period covered by the "Financial Statement and Budget Report", tax receipts again constitute a rising share of gross domestic product. The share increases from the 2002–03 outturn figure of 35.6 per cent. of GDP to the figure projected for 2008–09 of 38.3 per cent. We can safely say that the tax burden under Labour is increasing. To an extent, that too is not surprising. As others have pointed out, there is a fragility in the receipts structure faced by the Chancellor. The right hon. Member for Llanelli (Denzil Davies) put his finger on it when he drew attention to leaks in both VAT and, as we know, other revenue receipts. They have made it more difficult for the Chancellor to generate the extra moneys that he needs to sustain his substantial and ambitious spending programmes.

I question the assumptions that underpin some of the numbers in the Red Book. We are consistently told that those numbers are the subject of National Audit Office scrutiny and audit. I shall choose just one year's statistics from the various publications produced by the Treasury over the past couple of years—the projections made in "Budget 2002" for the financial year 2004–05, on which we are about to embark. On the basis of all the auditing assumptions, net borrowing was projected at £13 billion. The same auditing exercise meant that in "Budget 2003" the figure for the same year had risen to £24 billion. The document published today shows that the same exercise—the same validation of the Chancellor's assumptions, numbers and calculations—has raised the figure to £31 billion. I begin to question whether the exercise of validation is actually capable of producing valid numbers. As Treasury Ministers know, a certain amount of horse trading is inevitably involved in the construction of a Budget. A Chancellor may well be audited for some of his assumptions, but it is clear that his judgments are still down to him.

In the context of accurate data to justify what the Chancellor has presented to us, the figures that I have taken from past Red Books and the pre-Budget report bring the validity of the numbers that he gave into sharp focus. If receipts are fragile, as evidence suggests they are, the time has come for the Treasury to be a deal more transparent in publishing the models and methodology according to which they calculate the UK's tax receipts. It is very happy to put the Treasury model into the public domain, as has been the practice of Governments for some time, so that people can understand how the economy in total works; but when pressed Treasury Ministers say, "It has not been published before, and we do not need to publish it." There is now a case for publication of the data and modelling that determine our tax receipts. If we are to be able to track the progress of the economy, that is the kind of detail that we need.

I welcome some elements of the Budget. I am glad that the Chancellor is going to study possible sources of inflationary pressure. He is right to concentrate on that and ensure that, when problems can be predicted, action is taken to tackle them.

I also welcome the change in venture capital trusts, which have been the Cinderella of new investment, and I am pleased that the Chancellor has given a boost to investment in small and medium-sized companies through that mechanism.

To return to tax, while the Chancellor was at pains to stress the areas that he was freezing, he tried to make a great virtue of the fact that he was raising the inheritance tax threshold to £263,000. It is little wonder that people spend so much money trying to find legitimate schemes to avoid paying inheritance tax when they realise that, in many cases, their single biggest asset—their domestic residence—is likely to be heavily taxed. Those houses have been bought and paid for out of earned income, and many people have an innate wish to leave something to the next generation. Inheritance tax threatens that, and I personally believe that it has had its time and should go, especially if 95 per cent. of estates, as the Chancellor says, are not affected by it. There may be characteristics of the other estates that could be taxed in other ways, leaving the 95 per cent. to pass on the wealth without having to find ways of avoiding inheritance tax.

Rob Marris

The right hon. Gentleman has just suggested that the Government forgo a considerable source of revenue. He and his colleagues have suggested that the Government do not have enough revenue, so will he say how much the abolition of inheritance tax would cost in the next financial year?

Mr. Jack

I apologise for not having declared my business interests as a company director at the outset—the omission was a discourtesy, but I now correct it on the record. In response to the hon. Gentleman's question, I have the luxury of being able to say what I would like to see. If I had access to the data that I used to have as a Treasury Minister, I might well be able to give him chapter and verse on how the missing billions could be made up, but there comes a time when we have to look at taxes in principle and see whether they are still doing the job that they were designed to do. Inheritance tax was brought in when we did not have the current range of taxes on income, investments and other resources. I would not dispute that the £4.5 billion involved is a significant sum, but it is not so significant that it could not be recovered by some other mechanism. That is my personal view. It does not bind my party, which has its own views.

Rob Marris

I believe that the figure for the forgone taxation for next year would be £2.8 billion, which is a considerable sum. It is no good the right hon. Gentleman just saying, "Well, I'm in opposition, so I needn't make any positive proposals." That does not help public debate.

Mr. Jack

With great respect, that is not what I said. I said that I had the luxury of being able to give a personal view.[Interruption.] My right hon. Friend the Member for Charnwood (Mr. Dorrell) informs me that inheritance tax amounted to £2.5 billion, which is less than I had thought. Given the resources that I formerly had, I am sure that I could find ways of recovering some of that money.

The Chancellor, who was seduced by the film luvvies, has now realised what a waste of money it was to plough resources into film finance, and he is now having to change and restrict the mechanisms. He probably blew far more on one year's profligacy on the film industry than my modest change, which would be of great benefit to so many people with modest means, would cost. He tried to make a virtue of those changes, but it was he who created the problem in the first place.

The Chancellor said that he hoped to recover some of the missing tax billions through new anti-avoidance procedures. But with due respect to him and the Paymaster General—she is in her place on the Front Bench—part of the reason why people have such fun with the tax system devising complex avoidance schemes is that the tax law itself has not been written well enough, or with sufficient perceptiveness in terms of what the real world would make of such proposals.

It is all right asking people to self-report to the Treasury any new tax avoidance scheme, so that the Inland Revenue can immediately leap into action and close tax loopholes, but the Revenue and the Treasury would be better advised to use some resources to carry on with the tax law rewrite exercise and expand its scope and scale. Plain English could thus be employed as rapidly as possible on the rest of the tax code so that people could with greater clarity understand the vulnerabilities of the tax system and rules that in many cases were devised for a world different from today's financial and accounting regime. Avoidance exists only because people look at the wording of the tax statute and take a view of its applicability that differs from that of the original authors, whose words we enshrine into law yearly through the Finance Bill. One intriguing thing about the process of closing tax loopholes, as described in the Inland Revenue's press notice 5, is that there is absolutely no prediction or measurement of effectiveness. No target is set and we have no idea what the successes will be. Having listened to the Inland Revenue when I was in the Treasury, I know that its major company inspection exercises reveal threats to the tax system. Very large sums of money are presented to the Minister with responsibility for the tax system with a view to protecting it, and measures are introduced. But if the Chancellor is investing a great deal in avoidance, he will already know what kind of avoidance schemes have been discovered. There is no mention of how much money has been identified by the work to date, and there is no target for the future. I am beginning to think that this is a last-ditch pre-Budget effort to say, "I am shoring up tax revenues, but I am not quite certain what kind of fishing expedition I am on."

Mr. David Laws (Yeovil) (LD)

In fact, the right hon. Gentleman is being kind to the Chancellor. The largest item of tax avoidance that the Chancellor has identified is the loophole that he himself opened two years ago when he introduced a 0 per cent. corporation tax rate, which caused so many businesses to incorporate. By closing that loophole, he will take £850 million of yield over the next three years.

Mr. Jack

I am most grateful to the hon. Gentleman for reinforcing my argument. Perhaps this lack of awareness of what is going on in the real world of tax accounts for the figures in table C of the Red Book, which is entitled, "Changes in current receipts by tax since Budget 2003 and the 2003 Pre-Budget Report". The table shows that net taxes and social security contributions for 2003–04 are down by £4.7 billion, and down by £5.5 billion for 2004–05. There is a haemorrhaging of tax receipts, which, for the reasons that I gave earlier, brings into question the validity of the receipts line in today's Red Book. By definition, that also brings into question the amount of borrowing that the Government have put before the House today.

My right hon. Friend the Member for Charnwood challenged the Chief Secretary to the Treasury by saying that "productivity", like "prudence" and "savings", was a word that seemed to be absent from the Chancellor's speech. I do not know which table the Chief Secretary subsequently waved at my right hon. Friend, but I draw his attention to box 3.1, on page 49 of the Red Book, which points out the historical problem of productivity in the United Kingdom. It confirms that workers in the US are still just under 30 per cent more productive than UK workers.

It goes on to point out that, although there was a little growth in productivity in this country between 1997 and 2001, we are still struggling. That is despite the fact that the Chancellor has made a huge virtue out of all the micro-measures—fiddling in the general activity of the economy—that he has taken to deal with productivity. I believe that there is severe doubt about whether the current Budget proposals will have any measurable effect on the serious problem of productivity and performance in this country.

Mr. Plaskitt

The right hon. Gentleman cites box 3.1 in the Red Book, so why does he not quote what is stated above the table—that the new data show that since 1997, UK productivity has grown faster than its main competitors."?

Mr. Jack

That intervention shows that it may have grown faster, but my God it is still lagging behind and still has a lot of running to do to catch up. It is the trick of statistics. A really good position on percentage increases will depend on how low the base that a country starts from is. I am surprised that the hon. Gentleman quotes that figure, when the long-term data show that, since the Government came into office, despite all their protestations, they have done little properly to deal with the problem of productivity.

I shall now move on to environmental taxes. I must say how disappointed I am that in this Budget the Chancellor has sustained the duty reduction on biodiesel at 20p per litre. I suggested after last year's Budget—and, indeed, in debates over the Finance Bill and during the course of the Environment, Food and Rural Affairs Committee inquiry into biofuels—a wholly cost-free method whereby the Treasury could have its cake and eat it. Users could pay the increased costs of the biofuels and the Treasury would not be troubled to increase the dispensation on duty to the 30p currently required by the industry. If we simply applied the principles of the renewables obligation from the field of electricity to biofuels, we could have our incorporation at between 2 and 5 per cent. and meet the European target with no cost to the Treasury—yet the way of achieving that has not even been acknowledged. If we are serious about CO₂ reductions, that matter must be attended to.

The Chancellor made great play in the Budget speech of his efforts to reduce the size of the civil service. In due course, I hope that more details will be published, particularly regarding parts of the world outside London, where there is also a high dependency on civil service work. In that context, I think particularly of my part of the north-west of England. We are now well into the second term of a Labour Government, who have to employ outside people to identify the waste that sheer profligacy and expenditure on public services actually causes. That shows the lack of careful monitoring of how public moneys have been used. The public will view what the Chancellor said with a degree of scepticism. They know that, since the Government came to power, the average household has had to pay an additional £5,000 in tax burden. Some of that money has simply been squandered in additional waste by Departments, which now have to be cleaned up by the so-called Gershon inquiry.

I want to conclude my remarks with two points: one about expenditure, the other about savings. On expenditure, I was pleased to hear the Chancellor say that the defence budget would not be the subject of cuts. If he really wants to contribute to manufacturing industry in the north-west of England, will he ensure that his defence colleagues come to a conclusion quickly on the second tranche of the Eurofighter Typhoon? About 40,000 aerospace jobs depend on that order being concluded. The Government say that they want the aircraft and that they remain committed to the 232 Eurofighter Typhoons, so will they kindly make their minds up, sign up and get on with buying them? I conclude with some observations on savings. The Chancellor did not touch on that area of economic policy. As has been mentioned, the savings ratio has effectively halved, having from fallen from 10 to roughly 5 per cent. under this Government. Personal savings have been bashed as a result of the failure of endowment policies, the ending of tax credits and personal equity plans and the cuts in benefits from individual savings accounts that will soon come in. What on earth is the Government's savings policy?

The new children's tax fund announced by the Chancellor may be a gain, but it does not address the need to help and encourage people to save in the way that the Government believe to be necessary. For example, endowment policies have failed to deliver the funds needed to pay off mortgages. So far, in the wake of the Penrose report, the Government have turned their face against compensation. Surely, the Government should have used the tax system to encourage people to save for all the contingencies that they face? Instead, they have done nothing. That is a dereliction of duty by the Chancellor, who has missed a Budget opportunity.

Opposition Members have pointed out the good bits and the bad bits in the Budget. The Chancellor has much to do to make credible the numbers that he has put forward today. One certainty is that new and increased tax revenues will have to be found somewhere if the Chancellor is to meet his spending obligations.

4.6 pm

Mr. Barry Gardiner (Brent, North) (Lab)

I want to share two secrets with the House. The first is what my hon. Friend the Member for Nuneaton (Mr. Olner) told me earlier. Since he gave up smoking, he said, Budget debates have not been as exciting as they used to be. I suspect that even he, though, did not anticipate the effect of the response to the Budget by the Leader of the Opposition, because my second secret is that the Home Secretary's dog aroused severe mirth among the occupants of the Treasury Bench. Opposition Members did not understand why there was so much laughter, but what happened was that, while the right hon. and learned Member for Folkestone and Hythe (Mr. Howard) was speaking, the dog groaned, rolled over on her back and put her rigid legs straight up in the air. Although I do not think that the right hon. and learned Gentleman's remarks had killed the dog, they may have killed off enthusiasm among Opposition Back Benchers.

It is never easy to respond to the Chancellor of the Exchequer, but the job cannot have been made any easier for the Leader of the Opposition by the Office for National Statistics press release of 25 February. It showed that economic growth in 2003 had been revised upwards. from 2.1 per cent. to 2.3 per cent. That was exactly in line with the Chancellor's Budget prediction last year, and contrary to every prediction made by the Opposition.

It is worth surveying the economic landscape if we want to understand the challenges that my right hon. Friend the Chancellor has faced. At an international level, there has been continuing economic depression and currency instability, yet the Chancellor has managed to keep the British economy on a steady course while at the same time delivering historically high levels of investment to our public services.

My right hon. Friend the Chancellor's stewardship has ensured that business has faith in the long-term governance of the economy. The upturn in the world economy will allow British business, and our economy, to grow further. Lately, chief executives have exhibited increased optimism, while company balances look healthier and mergers and acquisitions are increasing. That, of course, is just the view of the Confederation of British Industry.

I remind Opposition Members that they presided over not one but two recessions while they were supposed to be in control of the economy, and that support for the Chancellor has not come from Labour Members alone. Praise has come from some unlikely quarters. After the pre-Budget statement, the director general of the CBI, Digby Jones, said: The Chancellor is right to raise borrowing rather than go for spending cuts or tax increases at this stage. Despite external economic factors, the UK economy continues to be insulated from what appears to be happening across the rest of Europe.

The speeches by the right hon. Members for Hitchin and Harpenden (Mr. Lilley) and for Charnwood (Mr. Dorrell) were interesting. The right hon. Member for Charnwood is unfortunately no longer in his place, but he made some particularly interesting remarks about Government debt. If one compares the £37.5 billion cash figure for debt this year with the situation a decade ago at the end of the last world recession, when the deficit in this country was equivalent to £90 billion, or around two-and-a-half times higher than it is today, one understands Conservative Members' crocodile tears and mock outrage about current Government borrowing. Net borrowing adjusted for the economic cycle is just 2.4 per cent. this year and will decrease over the next five years to 1.6 per cent. of GDP.

Sir Stuart Bell

Since my hon. Friend has referred to the speech by the right hon. Member for Charnwood (Mr. Dorrell), will he comment on the section about the housing market that seemed to pour cold water on the Chancellor's proposal to have regional house building programmes? Does he agree that the Chancellor's course of action in seeking to liberate more housing on the market to attack price inflation is better than interfering with the mortgage market?

Mr. Gardiner

My hon. Friend makes an important point about the need to spread productivity throughout the regions in a sensitive way, which is exactly what the Chancellor is doing. The Barker report, which is welcome, will be critical to the measures that the Government take in order to get the housing market right.

Returning to my theme, there will be a close call on the golden rule, but all economic commentators now agree that the Chancellor will hit the target. The Treasury says that the margin will be £11 billion, and even the Institute for Fiscal Studies predicts that it will be spot on. When Conservative Members seek to decry the fact that the golden rule will just be met, that view must be contrasted with their claims of a year or more ago when they discussed a possible excess of £100 billion. The argument was that that money would have been taken but not utilised—in other words, the Government would have set up a slush fund rather than use the money productively in the economy. It is important to compare Conservative Members' remarks on Budget day with the comments they made six months before at the time of the pre-Budget statement and a year before when last year's Budget was announced, because their remarks are invariably inconsistent.

Mr. Jack

The hon. Gentleman has just used the word "inconsistent". Will he accept that we have a right to question today's numbers in the Red Book given that only two years ago we were told that borrowing would be £11 billion, whereas today's figure is £37 billion? We have every right to question the validity of those numbers given the Chancellor's benchmarking about prudence.

Mr. Gardiner

I have no cause to say that the right hon. Gentleman should not examine the figures—indeed, it is incumbent on all hon. Members to examine them carefully. When he examines the figures, he will find that the cash figures are £37.5 billion this year, £33 billion next year, £31 billion the year after, £27 billion the year after that and £23 billion the year after that. He should compare those figures with his record in government, but I warn him that that comparison will not be favourable.

The end of year report by the International Monetary Fund on the UK economy states: The macroeconomic policy and financial supervision frameworks remain at the forefront internationally and are consistent with Fund recommendations. It continues: Directors commended the continued strong performance of the United Kingdom's economy. As some Opposition Members acknowledged, the Budget will lock in stability to the economy for the long term, and that is exactly what is required.

However, my constituents like my right hon. Friend the Chancellor not because of his ability to deliver macroeconomic targets or because he looks set to fulfil his promise to maintain the golden rule but because he is good at delivering on the bread-and-butter issues. It is thanks to my right hon. Friend that 1,565 fewer people in my constituency are unemployed and can share in the prosperity of this country. That is a 42 per cent. reduction in unemployment claimants since 1997 in my constituency, and it mirrors figures across the country that are a testament to Britain's lowest unemployment level for three decades. Many of my constituents also take comfort from this week's announcement on the uprating of the minimum wage. Those constituents will be among the 100,000 people in London who will see an increase in their pay packets when the minimum wage rises to £4.85 in October.

When the minimum wage was first put forward, the Opposition said that it would cost 2 million jobs, but we are now living with the highest level of employment that this country has ever seen. When Opposition Members claimed that the Government had not been instrumental in managing the economy to achieve its present stability and that one needed to look back before 1997—God help us!—to see the policies responsible for that stability, they should remember that they opposed every successful intervention in the economy by this Government. That included independence for the Bank of England and the dramatic introduction of the minimum wage. The Opposition opposed those policies tooth and nail. They voted against them, saying that they would have disastrous consequences for our economy. None of their predictions of doom has come true. The Government gave us the first minimum wage in the UK and continue to deliver on their commitment to social justice by ensuring that new entrants to the work force will be paid fairly. My younger constituents—aged 16 and 17—will also benefit from the new minimum wage.

Another bread-and-butter issue is school investment. In my constituency, we can see the results of the money that my right hon. Friend the Chancellor has consistently put into education. For example, £3 million has been invested in Wembley high technology college, and a further £3 million has been spent on new buildings at Kingsbury Green primary school. The same has been spent on Roe Green junior school. People in my constituency can see the tangible effect of Government policy in their environment and their children's schools. They can walk into new school buildings.

The same investment is apparent in Northwick Park hospital. The accident and emergency ward has been completely refurbished, with double the capacity. Consequently, waiting times have fallen. Before 1997—and after—they were among the worst in the country, but they have now fallen so much that they are compliant with the standard of within four hours, in all but 2 or 3 per cent. of cases. That is how my constituents see the real benefits of the Chancellor's fiscal and economic prudence.

The Chancellor who brought such stability to the UK economy has also been taking great care to address the structural economic problems that have dogged our economy for decades, such as the housing market—to which my hon. Friend the Member for Middlesbrough (Sir Stuart Bell) alluded in his intervention—and productivity, but, above all, investment in human capital and research and development. The assessment and work being conducted by the Treasury in all those sectors is to be welcomed if our current short-term economic successes are to be developed into a longterm model. The Chancellor's commitment to improving the UK's human capital through increased funding for education, and improvements in research and development, will create a step change in our economy.

In his statement, the Chancellor made a commitment to 4.4 per cent. year-on-year real-terms growth in education and skills, and an £8.5 billion commitment to education and skills in 2007. That is exactly the commitment we need to address some of the points made earlier by my right hon. Friend the Member for Llanelli (Denzil Davies). He talked about outsourcing and about the way in which call centres and other jobs in this country were moving not only to eastern Europe but also to India and elsewhere in the far east.

Two nights ago, I chaired a meeting in the Attlee suite of Labour Friends of India where there were more than 200 business leaders involved in foreign direct investment, both from the UK to India and vice versa. We discussed outsourcing and, of course, call centres. We faced up to the real challenge of an Indian economy that is growing at between 6 and 8 per cent. a year, with a huge population—1 billion people—and a huge pool of skilled and highly educated young people who are prepared, willing and able to offer services that reflect those skills.

One of the most interesting speeches made at the seminar was from Dinesh Dhamija, the chief executive of ebookers, the famous online travel company. He made the point that in the after-shock of 11 September—when sales of tickets for air travel dried up—his business in this country was faced with an almighty crisis. The only way in which he could appropriately respond was to cut his costs, to use offshoring and to outsource his call centres to India. By doing so, he saved 546 UK jobs and the entire business, thereby saving the contribution that the business makes to the UK economy.

It is nonsense to think that this country or any other country can insulate itself against globalisation. Globalisation is to be neither welcomed nor denigrated; it has to be accepted as a fact and we need businesses that can respond to that global challenge. The only way for them to do so is by upskilling—by ensuring that we have skills in this country. However, that means that we increasingly move up the value curve as jobs in this country reflect our standard of living, so we cannot compete simply on labour costs; that is impossible in a global economy.

Sir Stuart Bell

My hon. Friend refers to globalisation, which was the theme of my right hon. Friend the Member for Llanelli (Denzil Davies). My right hon. Friend made a great deal of outsourcing and of the movement of jobs from his constituency. I am glad to see the hon. Member for Strangford (Mrs. Robinson) in her place because she may have a similar problem in her constituency, to which no doubt she would allude if she were to catch Mr. Deputy Speaker's eye. Is it not a fact of life—we all have to live with it in the north-east—that global outsourcing takes place? We have lost Samsung, and areas in Northern Ireland have lost jobs? Is it not up to the Government. with the sort of Budget that was announced today, to seek to confront these problems and remedy them?

Mr. Gardiner

My hon. Friend is absolutely right. Putting a 4.4 per cent. real-terms increase into education committing £8.5 billion in 2007 to education is intended precisely to increase the skills level, which means that our work force move up the value curve, which means in turn that they are capable of sustaining challenges. We cannot simply bemoan the loss of jobs at the lower end of the market. We must create an economy in which we are competitive internationally and are able to survive and thrive within that international market by having the skills base to do so. It is precisely in that area that there will be investment.

The IMF has welcomed the Government's commitment to addressing the long-term issue—

Mrs. Iris Robinson (Strangford) (DUP)

I take up the issue that was raised by the hon. Member for Middlesbrough (Sir Stuart Bell) a few moments ago. We are talking of about 5,000 job losses in my constituency over 18 months. These are skilled jobs. The only prospects that those who are involved in the process have at present are taxiing or call centres. What do we do with their skills?

Mr. Gardiner

I do not know precisely to which jobs the hon. Lady is referring within her constituency. Similarly, I do not know the structure of the labour market there.

Mrs. Robinson

I am referring to jobs in the textile industry and also jobs in TKECC, a company that makes belts for cars.

Mr. Gardiner

The loss of any jobs is a great problem and a source of sorrow for all those concerned, particularly for the Member of Parliament who is responsible for delivering the best for his or her constituents.

I am sure that the hon. Lady would agree with me that for a Government to stand back and say, "There is nothing that we can do about this" if jobs are lost is to send out exactly the wrong message. Today, the Government have said, "We must respond to the challenges that the global market brings. We must respond to that competition." That is not done by subsidising labour in some way to try to keep jobs in one place or another. We must respond by enabling workers who lose their jobs to acquire the skills that will enable us to compete in other areas at a higher value level. I am sure that that is what the hon. Lady wants for her constituents, which is what my right hon. Friend the Chancellor suggested this afternoon for the whole economy.

The Pensions Bill has been designed to address some of the problems that lie with the provision of pensions. There are still concerns that Britain is not setting aside nearly as much as it should in retirement. That has been alluded to this afternoon. Some sections of society come out worse than others. Typically, older women find themselves in the worst situation. For that reason, I support the calls that are being made by the TUC for the Government to encourage women over the age of 60 to continue to make national insurance payments so that they continue adding to their own pension provision. The cost to the Exchequer of doing that would be minimal, but the economic benefits to the women concerned could be quite considerable. It would mean increased general economic activity and reduced pensioner poverty, as well as an attack on age discrimination in the workplace. I urge the Treasury seriously to consider that issue. I welcome the announcement this afternoon of an extra £100 for pensioners for the winter payment. I echo the remarks of my hon. Friend the Member for Dumbarton (Mr. McFall), the Chairman of the Treasury Committee, about information sharing in the credit card industry to combat the unsustainable credit levels that are being run up. I commend the admirable work that he and the Treasury Committee have done on that problem.

Our discussions today are obviously only half the picture. Many hon. Members are preparing for the spending review in July, and I should like to make a special plea for extra investment in London's transport infrastructure. Funding for Transport for London is to set to fall by £200 million in 2005–06 after record increases, I acknowledge, in recent years. The impact on my constituents and London's ability to sell itself as a world-class city will be considerable, and the effects will be felt beyond London, because if it does not receive inward investment Britain as a whole will not do so either. London's population is set to increase by 800,000—equivalent to a city the size of Sheffield—by 2016, so there will be significant extra demands on an already stretched transport system. No Government would consider building a new town with a population of 800,000 and not equipping it with a proper transport infrastructure. We should not allow London's population to grow to that extent without equipping it to cope with the increase.

The case for extra investment is clear. Better transport links would help to reduce inequality in inner-city London, an area that has the highest deprivation indices in the country. Investment would also bring new money into London and the British economy as a whole. As London is the dynamo of the British economy it is essential that investment in its infrastructure continue at the recent increased rates after decades of neglect. London's productivity levels are 25 per cent. higher than the national figure, and it makes a net contribution to the Exchequer of £10 billion to £20 billion a year. However, it cannot go on supporting the British economy without proper investment. We must reduce the £230 million annual losses caused by failures and delays on London's transport system, and must reap the benefits of proper investment. The plain fact is that this is not a national competition—it is an international one. The case for London is the case for Britain, and unless the transport infrastructure receives extra funding we will begin to lose our competitive edge against cities such as New York and Paris. I therefore urge the Treasury team to consider the impact on the economy as a whole if London's infrastructure problems become a disincentive to invest in the UK.

Next year, we face, as the Chancellor said, stark economic choices. The electorate must choose between a Chancellor who has an impeccable economic record, who promises more and has a record to back it up, and a party with an economic record that left scars on our society with two recessions, 3 million unemployed and huge economic and social inequalities. The Opposition clearly have no shame, because now they are offering the electorate the choice of more cuts—£18 billion-worth in total, which would mean cuts in everyday services, local government, crime prevention and transport. They mocked when the Chancellor spoke about freezing levels of investment and input, but they have proposed £18 billion-worth of cuts in services, and must account for that.

Hon. Members often speak about the Budget speech as though it were simply an economic event. It is, of course, a political event as well, and today's Budget was a deeply political event because the Opposition committed themselves to matching our spending on health at 7.2 per cent. in real terms every year to 2008—a 50 per cent. rise in our total spending on health since 1997. In education there is a 4.4 per cent. annual rise and an extra £8.5 billion in 2007. Now the Opposition have a political choice to make. While matching the spending and the growth levels that are being maintained by the Chancellor in every area of Government, can they commit themselves to matching our increase in health spending and in education and skills spending? If they cannot, they are denying the country the opportunity to grow and develop in the future.

It is precisely such investment in skills and education that represents the choice that every Government and every people must make. They must decide whether to consume for themselves or to invest in their children's future. If those on the Opposition Treasury Bench cannot match our commitment in that area, they will show that they are more interested in individual present consumption for greed than in investment in the country's future and our children.

4.36 pm

Mr. Michael Fallon (Sevenoaks) (Con)

I begin by declaring the interests recorded in the register.

If the hon. Member for Brent, North (Mr. Gardiner) will forgive me, I shall not follow him, partly because he spoke for so long and partly because he and the hon. Member for Middlesbrough (Sir Stuart Bell), if he will forgive me for saying so, both appear to belong to the creationist school of the Labour party, as I would characterise it, which believes that almost everything in this country started to get better only in 1997. That was not the case in Brent, and it certainly was not the case in Middlesbrough.

I am sure that, on reflection, the hon. Member for Middlesbrough will concede that although it is great to see Middlesbrough doing well now, that recovery did not start in 1997. As my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) reminded us, these things take a long time. It was back in 1987 that Lady Thatcher walked in the wilderness on Teesside and began the process of regeneration. Teesside university, which the hon. Gentleman mentioned, was set up by the last Conservative Government, not by the present Government. I am delighted that things are going well on Teesside, but the hon. Gentleman must not pretend to the House that it all started on 1 May 1997.

Sir Stuart Bell

When the hon. Gentleman was the Member of Parliament for Darlington, we used to go up on the train together and we had many a philosophical and economic discussion. From the Opposition Benches I welcomed the creation of both the urban development corporation and Teesside university. Will the hon. Gentleman accept that I am not part of the creationist school that believes it all began in 1997? The former Conservative Government greatly helped our area. That goes back to Lord Hailsham's visit in 1962.

Mr. Fallon

I am glad the hon. Gentleman has corrected what he implied earlier. Let us end this little exchange, which I fear may be diverted into regional policy going back over a long period, by agreeing that improvements such as those on Teesside, which I welcome, take a long time.

I also welcome the economic growth that the Chancellor announced today. Of course it is good news that he was more correct than some of the forecasters a year ago. However, I have two worries about that economic growth. The first is the concern to which my right hon. Friend the Member for Hitchin and Harpenden alluded: that we have yet to see the increases in productivity that we would expect to see given all the governmental activity over the past seven years. My right hon. Friend pointed out the proportion of that growth that could be attributed simply to the increase in the working population. The United States has had a similar increase in its working population, but its productivity gains have been much greater and sustained over a longer period.

Like my right hon. Friend the Member for Charnwood (Mr. Dorrell), I found little mention of productivity in the Chancellor's speech. Usually in the blizzard of documents that accompany the Budget, there is at least one special document on productivity. This time there is not. On the contrary, there are documents on flexibility and devolved decision-making. Productivity seems to be confined to a table—a box—in the Red Book.

It is worth re-reading to the House the sentence that my right hon. Friend the Member for Fylde (Mr. Jack) quoted from the Red Book: workers in the US are still just under 30 per cent more productive than UK workers. We are still not getting the increase in productivity that we need. I should have liked to have heard far more from the Chancellor about why he thinks that that is not so and what he is really doing to increase the productivity that we would have expected from the new investment in capital and new technology and the various skills and educational changes that he has introduced since 1997.

My second fear is that the growth that we have achieved is remarkably lopsided. It would have been nice to have had some acknowledgement from Labour Members today of just how crucial consumer spending and household debt has been to the growth that has been achieved. That worries me because there will come a time when that begins to end, when private debt begins to be curbed and paid off and when home owners slowly but surely begin to realise that the principal sums that they have invested in their homes will no longer be magicked away by high inflation, but will remain there for ever and have to be paid off. The over-reliance on consumer spending and home owner debt leaves our economy dangerously exposed.

At the same time, we have had a massive increase in public spending and we still seem to have a structural problem with tax revenues that leaves the economy even more vulnerable. Instead of curing or examining the structural issues, the Government are simply borrowing more and taxing more. Borrowing, as my right hon. Friends who have spoken before me have said, has gone up and up. It was supposed to be less than £20 billion; now it is £37 billion. In fact, having squandered all the receipts from the third generation licences, the Chancellor is back borrowing where he started. The figures that he has given the House today of how that borrowing, having reached the dizzy heights of £37 billion, is now planned slowly to reduce during the next three, four or five years, wholly depend on him achieving the efficiency savings that are set out and increasing the tax compliance by the various measures that he has outlined. I have to take issue with my right hon. Friend the Member for Charnwood on one point. He said that he welcomed the fruits of the efficiency saving. They are, however, only fruits—they may be low-hanging fruits, but they are not yet realised. In welcoming his successor's arrival today at the Office of Government Commerce, Sir Peter Gershon described the 2.5 per cent. efficiency gain that is to be applied right across the public services as challenging but achievable. I think that it is extremely challenging, and the Government are in effect spending money that they have not yet saved. We cannot yet be sure that those efficiency gains will materialise.

Mr. Plaskitt

The hon. Gentleman describes a level of borrowing that equates to 3 per cent. of GDP as "dizzy". What adjective would he use to describe a borrowing level that was 8 per cent. of GDP under his Government?

Mr. Fallon

What is important when we are describing borrowing is to get our forecasts right. I am not the Chancellor. The Chancellor is in charge of the economy and his credibility is undermined if he tells us one year that borrowing will be £10 billion, then suddenly it turns out to be £20 billion, then £30 billion, and by the end of the year in question it reaches £37 billion. That is what makes the rest of us question his economic competence.

When it comes to borrowing, the Chancellor cannot be sure that those efficiency savings will be locked in. To give a specific example, we have been told that 20,000 jobs will be relocated, so there will be savings. Of course there will be savings, but anyone in business knows that those savings are always further down the track than one thinks, and they are never quite as great as one originally planned. The people concerned have to be relocated and there are costs involved in all that. It is far too easy simply to say. "We'll move 20,000 jobs out of London, get rid of 40,000 people and savings will be realised immediately."

When Chancellors, of whatever party, are in difficulties over their fiscal stance, they say that they will crack down on tax avoidance and put more resources into Customs and Excise or the Inland Revenue to increase tax compliance. Again, those are targets, not givens. It is unwise of the Chancellor to assume that efficiency gains and additional revenue will automatically result from the measures that he announced.

Whether or not we like the phrase "freezing rates", it is clear that the overall burden of taxation has been increasing and will continue to hurt. The Chancellor paid little attention to where the burden is beginning to bite. I shall give three examples. First, more and more people, especially public sector workers, are being sucked into the higher band. A generation ago, it would have been inconceivable to consider police inspectors or ward sisters as the rich, having to pay the same tax rate as the richest people in our society. Now, almost 3 million people have to pay the higher rate of tax. That needs to be reconsidered.

Secondly, too many people low down the income scale pay too much tax. As soon as people earn only a few thousand pounds a year, they pay too much tax, and the tax for the relevant band has been increased today by £60. People who earn £10,000, £12,000 or £15,000 a year should not have to hand over a third to the Government. We need to reconsider the tax burden imposed on the lower paid. All the tax credits and the attendant additional complexities do not compensate for the fact that we make people pay more lower down the scale than do many of the more successful economies.

Mr. Jack

Does my hon. Friend know about the Centre for Policy Studies research, which shows that the poorest fifth of the population pays an average of 42 per cent. of their income in tax?

Mr. Fallon

I am aware of it now. That is an important point and I should like to have heard more about that from the Chancellor, who simply brushed aside the 10 per cent. rate.

Thirdly, pensioners pay too much tax. Of course, £100 here or there to redress the enormous increases in council tax imposed mainly by central Government or Labour councils may be welcome, but pensioners' savings are too harshly taxed. People are taxed throughout their lives on their earnings, and they are taxed yet again at the end of their lives on what they have managed to save.

The tax burden should be reformed and reduced because it has become too great and too complex. We need to continue to simplify it. We have had a stop-go system, whereby the Government introduced reliefs and suddenly shut them down.

Previous speakers mentioned the film tax relief, which was introduced in the late 1990s and has suddenly been withdrawn, leaving British film makers in the lurch. Let us consider the incorporation changes that were introduced in finance legislation a couple of years ago. In this year's pre-Budget report, the Chancellor states that the Government is concerned that the longstanding differences might "distort business strategies". In a sense, it is good—but almost ironic—that the Chancellor has finally got the message. We, like the world outside, have complained that the tax reliefs distort business strategy and suddenly the Chancellor complains about his own policy in his pre-Budget report and tinkers in the Budget with a relief that he introduced.

Let us consider spending. The Chancellor has announced again today additional spending all over the place, with no real emphasis on control. It is clear from the various points made by my right hon. Friend the Member for Hitchin and Harpenden that far too little expenditure is getting through to the front end and resulting in real increases in output and performance in the public sector. To see that, we have only to turn to a Wednesday edition ofThe Guardian, whose "Society" supplement shows how much bureaucracy of para-government—advisers, co-ordinators, liaison workers and taskforces—have been created at the expense of those who work at the sharp end in our hospitals, on division in our police areas and in our classrooms. The record is one of dismal failure. As my right hon. Friend the Member for Charnwood said, we have had seven years of talk about public service reform, but little real reform. Instead of action, we have had a book. I hope that you, too, Mr. Deputy Speaker, received last week a copy of the Treasury's new 438-page book entitled "Microeconomic Reform in Britain"; I believe that it was sent to most colleagues. Like everything else that the Government produce, it has no price on it. but it contains a lengthy foreword from the Chancellor and is vanity publishing at its best. Almost at the end of the 438 pages, we are finally told the answer to micro-economic reform, after passing references to last year's fad: progressive universalism. Under that wondrous new system, the Government have spent £18 billion on child trust funds, half of which goes to those who do not need it so that those who do need it get a little extra. Progressive universalism is a way of chickening out of some of the more important political choices by continuing to pay a benefit to everyone, then simply deciding to pay more of it to those who need it most. That was last year's fad.

This year's fad in micro-economic reform is—I quote from the conclusion of this masterwork—the constrained discretion model. It is the new answer to public service reform and means, apparently, the Government setting out the objective and then—wait for it—the devolution of operational responsibility to front-line agents". After seven years, we now have the answer. However, I think that it will raise a pretty hollow laugh in staffrooms, for example of schools that enjoyed grant-maintained status but then had the operational responsibility of front-line agents removed from them by the Government. It will raise a pretty hollow laugh among those who have to manage hospital trusts and those who have to drive forward policing, who are still hamstrung by national regulation, centralised pay-and-condition bargaining and by dictatorial political guidance from the centre.

If the Government are serious about devolving decision making, and about taking their constrained discretion model and making a reality of it, they must tackle the regulatory burden that they themselves have imposed on our economy and public services. When we talk to business and public service managers—Ministers do not do that often enough—we hear that their principal complaint is now the burden of regulation imposed on them. I find very little indication in the Red Book that the Government are serious about reducing that burden.

I do not pretend that reducing the regulatory burden is easy. Our deregulation taskforce, of which I was a member, attempted that; the Government now have their Better Regulation Task Force. I am intrigued to see that the chapter on regulation in the Red Book is—finally—entitled "Reforming and reducing regulation". However, when we look at paragraphs 3.59 and 3.60 of that chapter to see what is actually going to be reduced, we see just three specific proposals.

First, after the hundreds of thousands of pages that the Government have imposed on businesses and the public services over the last seven years, they now tell us that they will consult the construction, chemical and retail sectors on an "early warning" system, whereby those industries could discuss emerging policy and regulatory proposals". That does not seem to be reducing regulation. Secondly, the Government will discuss some of the payment delays in the construction industry relating to housing grants and construction schemes. That does not seem to be cutting regulation either.

Perhaps we shall get there, however, because after a two-year review, the third proposal is that the Government will make it easier for citizens advice bureaux to advise their clients without being subject to Financial Services Authority regulation. So, that is good news. After seven years, we finally have a specific proposal for deregulation. The Government must start to get serious about this matter.

The Treasury Committee is conducting an inquiry into the compliance costs of tax and regulation, and I should like to share with the House the fruits of part of that inquiry. We went to Holland, which has a programme of reducing regulation and legislation. In the Dutch Finance Ministry, we met the "director of legislative burden", who had a staff of 17 people and a mandate from his Government to reduce the burden by 25 per cent. over four years. That is a Government who would appear to be serious about reducing the regulatory burden. As I have emphasised, that burden applies as much to the public sector as to the business sector.

We have had seven years of regulating, spending, borrowing and taxing, and the Chancellor has come almost to a full stop. He has spent more without getting real reform, he has borrowed more without securing real improvements in our infrastructure, and he has taxed more without making our public services more efficient. This is a dead-end Budget from a dead-end Chancellor.

4.57 pm

Mr. James Plaskitt (Warwick and Leamington) (Lab)

The real and important background to the Budget is that we start from the position of being better placed than any other economy in the G7. The International Monetary Fund delivered that verdict in its article 4 report, which states that the United Kingdom has weathered the global slowdown well". There are two fundamental reasons why we start in that favourable position, one of which is the growth in our economy. The Chancellor's forecasts, given at the time of the last Budget and much derided by the then Leader of the Opposition, turned out to be exactly correct. Not only are we enjoying growth of more than 2 per cent. this year, but the Chancellor is adhering to his forecast of growth of between 3 and 3.5 per cent. in each of the next two years. We are therefore in a stronger position than any other G7 country in respect of the rate of growth.

The second factor that contributes to our strong starting position is the degree of stability in the economy. Between 1997 and 2004, the growth range has been between 1.7 and 3.7 per cent.—in other words, a range of no more than two percentage points. That contrasts sharply with the years between 1989 and 1997, under the previous Administration, when the growth rate fluctuated from -1.4 to 5 per cent.—a six percentage point growth range. We are now seeing more balanced growth in the economy, which is a key contributor to our current stability. One of the fruits of that is the recovery in manufacturing output. We also have a strong construction sector, and service sector growth is steadier. In fact, the overall profile of growth looks much more stable than it has for some years.

Such stability is also evident in employment. Again, our situation contrasts very favourably with that in other G7 countries. We have the lowest unemployment for 30 years and 1.8 million new jobs have been created—1.3 million in the private sector. We have a healthy level of new business creation as well as sharp growth in self-employment.

We also see stability reflected in inflation. Since 1997, inflation has not moved outside its target, set by the Chancellor way back then, of one percentage point variation either way. It has never got to the limits of that target. Contrast that with the variation in inflation rates over the previous eight years under the previous Government, when the range was seven percentage points. There was no sign of stability in the economy then. Moreover, we now enjoy interest rate stability, with a range since 1997 of four percentage points. Contrast that with a range of six and a half percentage points under the previous Administration: not only is the range smaller, but the trend is steadily downwards.

What matters now—this is how we have to assess the Budget—is the extent to which that stability is confirmed and secured going forward. Since 1997, we have moved from having the highest unemployment in Europe, under the previous Administration, to having the lowest, and we have the longest period of continuous economic growth in over two centuries. The prize is to lock that in to banish the boom-and-bust failure of the past, but are there any risks to the growth and the stability that have been secured?

The Opposition think, apparently, that there are some risks. The first that they emphasised—certainly, the Leader of the Opposition did so in his reply to my right hon. Friend the Chancellor—is the public finances. I am interested to see the Opposition much excited about whether the Chancellor will meet the golden rule. That is an interesting preoccupation for the party that doubled the national debt while in office and that in one year alone clocked up a deficit equivalent to 8 per cent. of GDP.

Of course, the Conservatives never had a golden rule. That is just as well, because they would have come nowhere near meeting it. They remind me of drivers who have been caught doing 100 mph. They have had their licence taken away and been banned, which is why they are sitting on the other side of the Chamber, but now they are greatly excited because we have been caught doing 31 mph in a 30 mph limit.

The first part of the golden rule requires that net debt be held under 40 per cent. of GDP. I should remind the Opposition that we inherited net debt of 43.7 per cent. It is down to 33 per cent., thanks to our disciplined approach to handling the Government's finances. It is forecast to grow from that, rising to 36.4 per cent. in 2009, but that is still substantially below what we inherited. As the Institute for Fiscal Studies said in its green budget: The government's debt remains modest by international and historic standards. That provides the context for the second aspect of the golden rule—balancing the figures across the cycle. As has been said many times during the debate, borrowing is higher than originally predicted. As a percentage of GDP, it has gone just beyond the 3 per cent. margin, but I think that every Member would acknowledge that forecasting those figures is tricky as it involves the difference between two very large numbers.

A small variation in performance can have a big impact on the bottom line and just a 1 per cent. change either way in the spending or income figures has a £12 billion consequence. It has always been difficult to forecast those figures with complete accuracy; it was difficult under the previous Administration, whose borrowing and spending forecasts also often ended up way off their original mark.

The right hon. Member for Charnwood (Mr. Dorrell) reminded us that we can look back over Red Books and see a forecast total surplus over the cycle of £100 billion, which of course is now down to the much lower figure of £14 billion. That, too, has caused a fair degree of excitement among Opposition Members. Again, they need to bear in mind what the Institute for Fiscal Studies said: Aiming to overachieve the golden rule by a large amount early in the cycle might be regarded as prudent, given the considerable uncertainties in forecasting the path of public finances over a number of years. It continued: It is reasonable that the forecast overachievement should decline as the end of the cycle draws nearer. Therefore, the fact is that both aspects of the golden rule will be met in the present cycle and in the next. I would therefore dismiss the Conservative party's concern about the "closeness" of meeting the golden rule, because had it been wise enough to impose such a constraint on itself, it would have had no chance whatever of meeting it.

The second issue that has been suggested as posing a possible threat to this hard-won stability is debt. The hon. Member for Sevenoaks (Mr. Fallon) made that a feature of his speech a few moments ago, when he drew our attention to household debt. It is easy enough to find initial information that fuels lurid headlines, such as an annual rise in household debt of 14 per cent. and a ratio of household debt to income of 130 per cent. It is easy to infer from those figures that there might be a real issue. It is important to go further than those headline figures, however. The figures are largely a story of what has been happening to house prices. The fact is that the value of household net wealth has increased by 50 per cent. since 1997. That is the other side of the household debt story about which we keep hearing. In fact, the ratio of household debt to total wealth since 1997 has been absolutely stable. It is true that mortgage equity withdrawal is up—it is now 7 per cent. of post-tax income—but that is exactly the level that it reached in 1989–90, which was the last time house price inflation peaked. Untapped equity in houses is now 75 per cent. of total housing wealth. Low and permanently low interest rates mean that debt servicing costs have fallen, so it is no surprise that the total stock of debt has risen to balance that.

Back in 1990, 27 per cent. of disposable income was going to finance mortgages. The figure now is 16 per cent. Similarly, back in 1990. the proportion of disposable income going on debt servicing was 15 per cent., whereas now it is 7 per cent. Furthermore, most consumer borrowing is secured, which is where growth has risen to 14 per cent. The rate of growth of unsecured debt over the same period, however, has slowed from 16 per cent. to 13 per cent., and unsecured debt is only 18 per cent. of the total.

I do not therefore think that there is a consumer debt crisis. Most homeowners are actually acting quite rationally and prudently. The risk of instability, about which the hon. Member for Sevenoaks was concerned, would be present were there a risk of a sharp downward correction in house prices. I suggest to him and other Members, however, that a soft landing is far more likely, precisely because of the stability in the monetary climate and lower interest rates.

Nor do I accept the argument put by the Leader of the Opposition when he replied to my right hon. Friend the Chancellor that there is a savings crisis. Many Conservative Members who have spoken this afternoon have made great play of the fact that the savings ratio stands at 5 or 6 per cent. That, too, needs to be set against the net household wealth picture, which, as I just indicated, is very healthy. The savings ratio also moves in relation to inflation, and it has been at exactly this same level during previous periods of sustained low inflation. It responds to house prices. and in that regard is doing exactly the same as it did in the 1980s. When house price inflation last reached 20 per cent., the savings ratio declined to 6 per cent. While there are undoubtedly some individual horror stories about debt—including some particularly tragic ones recently—it would be an exaggeration to infer from them that there is an overall debt crisis in the economy.

The Conservatives have also suggested that a threat may be posed to our hard-won stability by the tax burden. Many of them have made much of the fact that the Chancellor's revenue stream has increased by 50 per cent. since 1997. They should bear it in mind that during their 18 years in government their revenue stream increased by 300 per cent.

There is another way of measuring the tax burden. It currently stands at 35.9 per cent. of GDP, which is lower than the level achieved during most of the 1980s. I remind Conservative Members that it averaged 36 per cent. throughout their 18 years of office. In one year, 1984–85, it was as high as 39 per cent. It is projected—in the Red Book—to rise, but only to 38 per cent. It is also worth bearing it in mind that the level is four percentage points lower here than the average across the Organisation for Economic Co-operation and Development.

There is a further way of measuring the burden. The Office for National Statistics assesses it as a percentage of gross income. Back in 1996–97, direct taxes were equivalent to 20 per cent. of household gross income. Today's figure is the same. In 1996–97, the indirect tax burden was 16 per cent. of household gross income; it is now 15 per cent.

There is yet another way of looking at the burden. I refer Members to the excellent tables produced by our Library relating to hypothetical households. Back in 1996–97, a household on 75 per cent. of median earnings with two children paid 10 per cent. of its earnings in direct tax. Today the figure is minus 6 per cent.

Mr. Laws

I can confirm those figures in the round, but the same tables—showing how the total tax burden has changed since 1996–97—reveal that the two groups who have lost out particularly, in terms of paying more tax, are the poorest two deciles. That is because the Government have tended to raise indirect taxes, which are more aggressive than direct taxes.

Mr. Plaskitt

The hon. Gentleman should also look at the tables that show the impact of direct tax changes, and the introduction of tax credit in particular. He will then see that the distribution of benefit resulting from my right hon. Friend's eight Budgets has been more advantageous to the lower deciles than to any other group.

Back in 1996–97, a family on exactly median earnings with two children paid 17.8 per cent. of their income in direct tax. That has fallen to 12.9 per cent. Even for those on double average earnings, the figure was 24.6 per cent. That figure remains the same.

Despite all those different ways of assessing the tax burden, it is very difficult to produce evidence that it has increased as much as the Conservatives suggest.

Public services benefit most from the economic stability that the Government have secured. Here we see the stability dividend—the chance, at last, to invest properly in our public services and to sustain that investment.

The national indicators on the NHS show what we are getting for the 7 per cent. a year real terms growth in investment: a record hospital-building programme; NHS Direct; improved heart and cancer care; an increase of 20 per cent. in admissions; 50 per cent. more heart operations; 200,000 people off the hospital waiting lists; and those waiting more than a year down from 30,000 to just 36.

That is also borne out locally in my constituency. Maximum waiting times in my local district hospital in Warwick have come down from 18 months to nine, and are on course to be six months next year. Average waiting times are already down to three months, and outpatient average waiting times down from 39 to 17 weeks. That has all been achieved by the additional investment that has given us 169 more nurses and 47 more doctors and consultants, and a 39 per cent. increase in activity levels.

The same is true in education. Again, the national picture is confirmed locally. We now have 3,000 more nursery places in Warwickshire than back in 1997, with improved results at every key stage throughout the county. Five good GCSEs were achieved by 45 per cent. in Warwickshire in 1997. The figure is now 54 per cent. In my constituency alone, £10 million has been invested in our local schools over the past seven years. Spending per pupil in Warwickshire has risen from £1,770 to £2,840.

That is all evidence of the stability dividend. We now have one of the best economies in the world, steadily rising living standards and the means to invest in improving public services. All of that can happen only because we have a platform of economic stability, sound finances, low inflation and sensible fiscal and monetary rules. The Chancellor has strengthened that platform today, and I commend the Budget to the House.

5.17 pm

Mr. Andrew Mitchell (Sutton Coldfield) (Con)

It is a pleasure to follow the hon. Member for Warwick and Leamington (Mr. Plaskitt), whose constituency is at least in the same region as mine. It is also a pleasure to catch your eye, Mr. Deputy Speaker, on the first day of the Budget debate. I was fortunate enough to do so last year, and I see waiting to catch your eye two other habitual contributors on the first day, the hon. Members for Wolverhampton, South-West (Rob Marris) and for Nottingham, South (Alan Simpson). I am sure that they will make original contributions, which will be a refreshing change from the hon. Member for Brent, North (Mr. Gardiner), who did his traditional imitation of a Government Whips Office glove puppet.

On this first day, we have the opportunity to consider the Budget before we have studied the small print. With this Chancellor, it is always advisable to examine that in great detail, because it normally changes the way in which the Budget is perceived within 24 hours.

In the interests of unity, let me list the points on which I agree with the Budget, which is a good one in a number of limited respects, but before I do so, I draw attention to my entry in the Register of Members' Interests.

What the Chancellor continues to do in respect of third-world poverty and debt relief is advantageous and important. He is always good enough to make it clear that he is continuing a tradition started by one of his predecessors, John Major. The Government have done laudable work in that respect.

It may not come as a surprise to the hon. Member for Wolverhampton, South-West that I praise the fact of the limit of £1.5 million for the lifetime amount going into a pension and the increase to £1.8 million. That is a good thing. In most areas, I have nothing but horror to register at the Government's pensions policy, but on this specific matter, they have found an elegant way of cutting through the appalling complexity governing pension arrangements for people who increasingly change jobs during their lifetime of work. In that regard, the Government's decision was a very good one indeed. The making of direct payments to schools is also an extremely good idea. Such an approach should be more beneficial to schools than the previous arrangements.

Some of my hon. Friends may be surprised to discover that I want to register my support for what the Chancellor said about tax avoidance. He is absolutely right on this issue, and I want to explain why. It is clearly the right of all citizens to organise their affairs in a tax-efficient way, and I hope that none of us would quibble with that. But in recent years, certain obscene schemes that should not be allowed have been peddled, by Ernst and Young, for example. Indeed, I tabled some questions to the Prime Minister on this issue last year. I hope that today's announcement by the Chancellor will presage an end to such schemes.

One such scheme, which was peddled around a number of banks in the City, was designed to avoid paying any employer's national insurance, and to enable employees to reduce their level of taxation from 40 to 25 per cent. It is disgraceful that anyone should try to perpetrate such a scheme. These people should pay the right amount of employer's national insurance. Individuals from other parts of the world who earn their living in London and who may need to use our emergency services—if they are unfortunate enough to have a heart attack, for example—should pay national insurance and tax at the same rate as others. The peddling of such schemes is morally corrosive, and one effect is that if one or two institutions accept them, great pressure is put on other, competitor institutions to go down the same route. We all have hard-working doctors and lawyers, for example, in our constituencies who pay their 40 per cent. tax on the nail. It is wrong that others should get away with not doing so.

Other developments are also welcome, as some hon. Members have pointed out. I listened with great care and interest to what was said about Kate Barker's report on the housing market, and I was pleased to learn that the Deputy Prime Minister will consult on the issue. However, I was alarmed to discover that each region will have a body responsible for planning, and I hope that we can tease out the details during the consultation. This is an extremely important issue to my constituents, because a place such as Sutton Coldfield depends greatly on the quality of its local environment and its attractive features. People aspire to live there, and once they have arrived they want to stay.

There has, however, been a distressing trend in recent years. When widows or widowers, for example, move from large houses with mature gardens, developers buy such properties and blocks of flats are put up in their place. Technically, such developments take place on brownfield land. None of us would regard a delightful house with a mature garden as a property on brownfield land, but such houses do fall within that definition. Indeed, blocks of 32 or more flats are being built where only one house stood before. Such developments might not have a significant impact individually, but Members will realise their effect when taken together: one wakes up one morning to discover that the whole area has changed. The impact on the footfall to doctors' surgeries and schools, and on parking and the number of cars, can change such an area out of all recognition.

The Government's view that we should increase the number of houses being built each year from the current figure of 175,000 is admirable, but I hope that we will proceed with the greatest possible care. Areas such as mine are peculiarly vulnerable to a development and planning system that does not recognise the need for much more significant input from local residents in order to stop vexatious developments.

Mr. David Drew (Stroud) (Lab/Co-op)

I concur with the hon. Gentleman that the Government must be very careful about how they define brownfield land, but does he agree that part of the problem is that we are now getting unbalanced development? The market towns in semi-rural areas such as mine are the areas where the real pressure is coming from. We need much more balanced development across the country, and we must make the developers more accountable to the local population. That is where the biggest problems lie.

Mr. Mitchell

I agree with the hon. Gentleman that we must make the planning system more accountable to local people living in an area who are most affected by planning decisions. I hope that we can make some progress on that. He is also right that we need a more careful series of developments across the country, and I hope that the consultation process will allow for that. I have asked the Minister for Housing and Planning to come with me on a journey from Sutton Coldfield to the middle of Birmingham. If he does, he will see what we regard as brownfield sites, which should not be confused with the areas that I described earlier.

I want to make some specific points about the Budget. I thought that one of the most revealing statements made by the Chancellor today was when he said that the success of some of his policies had been the result of "difficult decisions" that were taken in 1997. That is indeed a revealing statement, because one of those difficult decisions was to stand by the spending plans of the previous Chancellor, my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke).

Many Conservative Members would say that if the present Chancellor had stuck to those spending plans and other measures put in place by my right hon. and learned Friend, we would not need to divide up his chancellorship—as so many of us do—between the first two or three years and the rest. In the earlier period, his very sensible achievements included granting independence to the Bank of England Monetary Policy Committee to fix interest rates, controlling public expenditure and the degree of prudence—a word of which the Chancellor remains fond—that he displayed. Sadly, in the following three or four years, the position has been very different.

I judge today's Budget against the background of a business survey that I carried out in my constituency—as other hon. Members do—to find out what local business people think. My extensive survey was widely responded to and the most important finding was the strong and rising resentment of tax increases in Sutton Coldfield. It is also strongly felt that the money raised is not being well spent. That shows the generous spirit of my constituents who do not necessarily mind the increases so long as the money is well spent, but they do not believe that it is. There is an increasing feeling that they are overtaxed and they worry about the growth of regulation. That is what emerged from my survey and I agree with those responses. Having listened to the Budget speech today, it seems to me that they remain the most important areas of concern.

I am pleased at the growing trend towards companies publishing in their report and accounts the full extent of the tax that they pay. When the Royal Bank of Scotland announced its very significant profits, it made clear the extent to which they have been earned overseas. It published exactly how much tax it had paid—through its employees' PAYE and as a company—and it was possible to see the contribution that that enormous amount of tax had made towards the building of hospitals and the funding of education. It is right that people can see the massive contribution that such companies make.

As some of my hon. Friends have already observed, the extent of the tax rises is truly extraordinary. The figures speak for themselves. In 2002, tax receipts at £350 billion were up £90 billion from 1997 levels, and represented a rate of £1,500 for every man, woman and child in the country. More and more people are being drawn into tax, as has been noted already. There has been an increase in national insurance contributions, and a massive rise of about 60 per cent. for band D council tax payers. The hon. Member for Twickenham (Dr. Cable) was quick to criticise the council tax system, yet the problem is not the structure of local tax but the increasing burdens that central Government impose on local government. Those burdens are not covered by central Government subvention. No local government tax will ever be popular or easy, and the present structure is probably as good as we are going to get. However, it clearly creaks at the seams when the amount that people have to pay rises as much as has been the case under this Government.

The Government have reached the point where everything that can be taxed is taxed. They do not focus on how little they can take away from hard-working families, but on how much they can get away with as they fund inflexible and ever rising expenditure totals. I understand that tax freedom day will fall on 7 June this year: next year, it will fall on 9 June.

The counterpart to high taxation is the level of borrowing, which has been much discussed this afternoon. As my right hon. and learned Friend the Leader of the Opposition said, we started off with a target of £30 billion. That has risen to £72 billion, and then to £140 billion—five times as much as the Chancellor originally forecast. The figures underline our lack of confidence in his forecasts.

Mr. Fallon

The Chancellor keeps getting them wrong.

Mr. Mitchell

As my hon. Friend says, the Chancellor keeps getting them wrong.

Given the ferocious increase in the amount of tax taken, what do we get for the subsequent expenditure? In Sutton Coldfield, only 4 per cent. of those who responded to my business survey considered that their taxes were being spent well. That figure was substantially lower than was the case last year, when the figures also showed a decrease on the year before.

We have heard today that an expenditure increase of around 40 per cent. in the NHS has been matched by an increase in patient episodes of only 5 per cent. The Government often talk the right language about reforming the NHS, but what happened with the Bill to introduce foundation hospitals is typical. To win the support of Back-Bench Labour Members, it had to be watered down so much that many of the potential gains that it promised have not been realised. The same thing has happened with other legislative proposals and, as a result, the original purpose has not been achieved.

I do not oppose the principle of tax credits. I think that John Nott was going to introduce them during the 1970 to 1974 Conservative Government, but I warn the Government that the pension credit, with its massive increase in means-testing, will come back to haunt them. Soon, nearly 80 per cent. of pensioners will be means-tested, yet recent figures from the Department for Work and Pensions show that the pension credit is not getting through to anything like enough of the poorest pensioners—that is, those who account for the bottom 20 per cent. in income terms. The pension credit is proving to be a very inefficient way of dealing with poverty. I turn now to savings. I had hoped that the Budget would make a real contribution in that regard, but I was staggered when the hon. Member for Warwick and Leamington (Mr. Plaskitt) said that there was no savings crisis in this country. The newspapers every day show just how big that crisis is. The savings ratio has halved since 1997, but private saving levels and the privately funded pensions sector have also both declined.

Although raids on the sector of £5 billion per annum have not helped, the situation has been made worse by the fact that the Government have not made it a priority to ensure the stability that allows independent financial advisers to give good advice. I cannot imagine how an independent financial adviser can advise someone on average wages on how they should save for their old age. I was amazed that there was nothing in the Budget about ISAs or stakeholder pensions to give further encouragement to an area to which, sadly, the Government pay lip service but on which they do not deliver. It would have been easy to reverse the reduction to £5,000 per annum for ISAs that will take effect from April next year, but the Government did not even announce that, let alone an improvement to stakeholder pensions.

I want to say a word or two about red tape and regulations. Small businesses are the engine of our economy and do not have the capacity to handle extra red tape and regulation. Nothing could more clearly demonstrate the lip service that the Government pay to enterprise than the Chancellor of the Exchequer's belief that if one sets up a conference on enterprise one is somehow doing something to help. An enterprise conference with loads of waffle from well-meaning people about the importance of fostering enterprise is not the way to foster enterprise. Enterprise is fostered by low tax and minimal regulation.

I was interested to see thatThe Sunday Times business section asked a cross-section of business men how they thought that the Government were doing on regulation and, more generally, in supporting business. One of the respondents stated: Far from making life easier for entrepreneurs, Brown has been strangling enterprise. Revealingly, another businessman said: My company employs 120 people and we have had to add the equivalent of one full-time person to deal with the plethora of demands for reports, returns, health and safety issues and so on.

These measures were identified as being among the worst that the Government have introduced: the working time regulations, which cost business £1.1 billion between 1999 and 2004: the data protection rules, which cost business £4.6 billion over the same period; IR35, which is blamed for many IT specialists either heading off overseas or having their services hired from overseas; the cost to business of administering the provisions of the Tax Credits Act 1999; the cost of setting up stakeholder pensions, which most employees have not taken up; and the flexible working regulations. All those individual regulations may of themselves have something to commend them, but when the Government bring them to bear on business, the effect is to smother business and enterprise and to make life enormously difficult for our small business sector.

The result is that we are now prejudicing many of the supply side reforms and gains of the Thatcher years. In 2003 alone, there were 4,000 new regulations. During the six years of this Labour Government, there have been nearly 23,500 new regulations at a cost of around £30 billion. The British Chambers of Commerce summed up the situation very well, saying: The bottom line is that the sheer quantity of red tape on business is damaging our economy and stifling enterprise, job creation and economic growth.

The Budget will increase tax burdens, and there will be further rapid growth in public spending and a developing black hole in public finances that must be paid for. I fear that it presages the continuation of the inefficient use of resources and means that public services continue to deliver below their potential. Alas, we have heard nothing to suggest that our constituents can expect any real change before the next election.

5.38 pm

Rob Marris (Wolverhampton, South-West) (Lab)

I shall begin by counterpoising the phrases used by my right hon. Friend the Chancellor and the Leader of the Opposition—they both used their catch phrases twice. The Chancellor of the Exchequer referred to "a Budget for excellence in education, science and enterprise". The Leader of the Opposition characterised the Budget in what he obviously thought would be a suitable soundbite—I have not seen the media, so perhaps he succeeded—as "a borrow now, tax later Budget from a borrow now, tax later Chancellor". What a negative way to look at things. One can counterpoise the positive approach of the Chancellor and the negative approach of the Leader of the Opposition. Since the Molineux stadium in Wolverhampton became all-seater, I have attended football matches there on a season ticket. Before that I just used to go along with my mates. A gang of us all sit together, but some of them are like Opposition Members. On those rare occasions when Wolves go ahead in a Premiership match—

Alan Simpson

Very rare.

Rob Marris

Well, it's not so bad at home. On those rare occasions, I think, "Oh great, we are 1-0 up, we can win this." Some of the other supporters are in fits of gloom. They think, "Oh dear, now we have something to lose." When we go two ahead, it is even worse for them. It is extraordinary to me, but many football fans are like that, and that is the attitude of several Conservative Members who have spoken today. They characterise the economic performance of my right hon. Friend the Chancellor and the Government as football fans would. They say, "Things can't be so good. We must look for the holes in the Budget." I appreciate that the role of the Opposition is to look for the negative as well as the positive, and indeed some of the remarks from the hon. Member for Sutton Coldfield (Mr. Mitchell) were positive. He balanced his speech by mentioning some of the positive aspects before he went on to the negative aspects. That is a mature way in which to conduct a public debate about our economy. It is also how he and I used to conduct debate when we were on the Work and Pensions Committee together, and we had an enjoyable time before he was elevated and had to leave the Committee.

Attitudes to any Chancellor or Government should be like attitudes to the stock market—informed by warnings that past performance does not guarantee future results. Although there is no crystal ball, past performance does provide some indication. I shall try not to fill my speech with statistics because I am not an economist. I picked up an economics A-level many years ago, although I did not do very well—and those who know me well will understand why. Statistics can be very dry. They are important for our country, but for politicians like me economics and the Budget are about people. Some of the borrowing statistics none the less repay examination.

The Leader of the Opposition talked about a borrow now, tax later Budget. But what was the performance of the Conservative Government in their 18 years in office? They doubled the national debt. It went up to 44 per cent. of GDP, and that was a poor performance. They now criticise my right hon. Friend the Chancellor for the national debt rising somewhat over a few years. However, the economic cycle is balanced and even. On my right hon. Friend's figures, the national debt will not be more than 36 per cent. of GDP. Borrowing by this Government will, for one year, go above 3.4 per cent. on the forecast between now and 2008–09. By then it will be 1.6 per cent. It is not only the Chancellor who says so. Barclays' economic briefing gives a handy little graph, in which all the big bits above the line were under the Tories and the bits under the line—showing the public finances in surplus—were under a Labour Government. The briefing states: However, public borrowing was much higher in the last cycle ... we are not facing a crisis. Its predictions up to 2008–09 for the deficit as a percentage of GDP are below my right hon. Friend's. Commentators outside the House do not, therefore, uniformly take issue with my right hon. Friend on where the economy is going.

I do not wish to get bogged down in statistics because for me the Budget is about people, and one of its themes was education. The amount spent per pupil in schools in England—the figures for Scotland, Wales and Northern Ireland are issued separately—for the 11-year period between 1997 and 2008 will go up from £2,500 per annum to £5,500. Some of that increase needs to be adjusted for inflation, but that is a massive increase. It is also a massive increase in the quality of people's lives, not only while they are still at school but in their whole life experience, because they have had a better start in life. For me, that is what economics and figures are about.

The Chancellor announced support for a new deal for skills. It is vital that we continue to upskill, not only for economic performance, important as it is—no one in this country should be starving and people should have a good standard of living—but also for quality of life. Whether people exercise their skills to make a living or as a hobby, having skills will enhance the quality of life for many of them. Investing in skills is certainly vital for the economy, but it is also vital for the quality of life in our society; it is a people thing.

The arguments are similar on science. The amount for NHS-associated research and development will be £1.2 billion. That is important not only in economic terms, but because the NHS has an effect on the quality of life; for some people, NHS research and development or the new medical research funding announced in the Budget will affect whether they live or die. That is not just dry economics. I referred earlier to what commentators are saying about the state of the economy and its relationship to past performance, and I want to quote from some of those outside observers to discuss where the initiatives on enterprise announced by the Chancellor are likely to take us. In February, NTC Research, an economics research outfit based in Henley, stated that its leading indicator, which provides a pointer to growth over the next nine months, rose in January 2004 to its highest level since March 1997. That is pretty positive. That indicator had enjoyed its fourth successive monthly improvement.

Kate Barker has understandably been cited today in relation to the housing report. She has also been a member of the Bank of England Monetary Policy Committee for the past three years. When the housing report was announced, she said that the last time there had been as much optimism on economic outlook was in 1995.

In January, the CBI's quarterly distributive trades survey of retailers reported that business was above average for that time of year. The CBI's chief economic adviser said that consumer spending remained resilient. That is not just dry economic statistics; people with the traditional pound in their pocket are spending it on goods that they can use, and although that will not necessarily increase the quality of their lives, it is likely to do so.

Earlier this month, the Chartered Institute of Purchasing and Supply said that its activity index was a substantial 59.5 in February, marginally lower than the 59.8 of a month earlier. Any reading over 50 indicates growth. Those figures are well above 50, so that indicates optimism about growth in the economy. Thirty per cent. of the institute's survey panel had experienced an increase in business activity: "Panel firms … remain optimistic".

The economy is buoyant in many sectors, but, as was said earlier, there are difficulties for productivity—again, it is a people thing. I think the right hon. Member for Fylde (Mr. Jack) quoted from box 3.1 on page 49 of the Red Book; uncharacteristically, from my experience of the right hon. Gentleman in the last two Finance Bill Committees, he was quoting somewhat selectively from that section of the Red Book—a point on which my hon. Friend the Member for Warwick and Leamington (Mr. Plaskitt) picked him up.

You will tell me if I go too far, Mr. Deputy Speaker, but with your indulgence I shall quote some of the points about productivity from the Red Book, because of the people angle. It notes that UK workers on average produce as much as German workers, and the productivity gap with France has fallen by seven percentage points". Some of the figures are good and some are bad; it all depends on the country with which we are comparing the United Kingdom. The box on page 49 also includes a chart showing the output per person of working age. That is vital, because economics should not be merely about growth figures and who is making a profit, but about the quality of people's lives. As for the output per person of working age, the UK is ahead of France and Germany and behind the US. Box 3.1 states: This measure indicates how effectively an economy includes all of its potential workers in productive employment. It shows that UK performance is significantly better than Germany, at a similar level to France, and around 25 per cent behind the US. That is important, but not only in terms of the dry statistics and the dry economics. It is to do with people's lives. It relates to 1.8 million more people having a job than had a job when the Government took office in 1997. From memory, I believe that 1.3 million of those jobs are in the private sector. There has not simply been huge growth in the public sector.

These statistics are important because of the quality of people's lives. In my experience, most people—I would not say everybody; indeed I could not say that—are happier when they have a job. I accept that that is not always the position. For example, some people may have a job that they do not like. However, employment is to do with dignity, self-respect and looking after one's family. Most people tend to be happier in those circumstances. It is a significant achievement that the Government, led in this area by my right hon. Friend the Chancellor and the Treasury team, have enabled so many more people to be in work.

We forget at our peril that there were 3 million, 4 million and, on some measures, 5 million people unemployed under the previous Conservative Government. We should not forget the human misery that that led to for those involved—regardless of whether it was the fault of the Conservative Government or the result of a macro-economic global cycle. Personally, I think the Conservative Government had much to answer for, but I leave those politics aside. There was a great deal of misery, and there is less misery now. That is a significant advance for our society. My right hon. Friend the Chancellor deserves quite a bit of credit for that. It was not just a happenstance. It was not serendipitous. It happened because of tough economic decisions, taken by the Chancellor, that led to 1.8 million more people being in employment. We are talking of record numbers of people in employment.

I think the hon. Member for Sevenoaks (Mr. Fallon) talked about the report on NHS productivity. Again, this is a people thing. By getting bogged down in dry statistics, there is a tendency to overlook the quality-of-life argument—the people argument. If, for example, a GP decides that he or she will spend eight minutes with each patient instead of six minutes, on the face of it productivity will decrease by 25 per cent. However, many Members, particularly Labour Members, would see it as it a good thing if a doctor could do that.

If hard-pressed workers in the NHS did not have to rush as much and nurses and auxiliary nurses, for example—they do a wonderful job—could spend a bit more time with patients to reassure them, and so on, it could be said that on a scale productivity would be shown to have decreased. The nurses would not be looking after so many patients. However, the quality of life of those patients—the public service offered—might well have increased. There may be dry economic-type figures about what has happened to productivity in the NHS, and we should not overlook them. We need to be aware of the figures and they must be monitored, but they do not tell the whole story about the bang for the buck that the taxpayer is getting in terms of the money that is going into the NHS. We must have regard to the experience of the individual who needs NHS treatment and help. Those factors must come into the equation. Like the hon. Member for Sutton Coldfield (Mr. Mitchell), I am a west midlands Member. Manufacturing is the lifeblood of the west midlands. Indeed, it represents 30 per cent. of the economy in the region, as against 18 or 19 per cent. in the rest of the United Kingdom.

We have a real difficulty with manufacturing. If we were all to be honest on both sides of the House, I think that we would find that no one knows what to do about manufacturing. I certainly do not. We should pay more attention to manufacturing, and it is to the Government's credit that in the past two or three years they have started to do so. That was a bit of a long time coming. Manufacturing is a huge problem in the western world, but the problem is greater in the United Kingdom because of what has happened in terms of our export markets, for example. For all the criticisms about regulations and the European Union, for example, and for all the alleged rigidities and inflexibilities of manufacturing in Germany, Italy or France, the manufacturing sectors of those economies trade at a surplus whereas ours do not.

I am a member of the Transport and General Workers Union, which is affiliated to the TUC. I am grateful for the pre-Budget briefing provided by the TUC, in which it points out that in the past year … investment across engineering fell by 36 per cent. in real terms. If we interpret the 1999 figure for manufacturing investment as 100 on an index of 100, in the third quarter of 2003 that index stood at 67.4, which is a huge drop. The net return on capital in the same period dropped from 9.4 per cent. to 7.4 per cent. I do not want to get sucked into the statistics, but there is a significant problem in manufacturing in the United Kingdom. I am not sure, however, that people know what to do about it.

One difficulty is persuading people with capital to invest in manufacturing on the basis that they will get an adequate return. Historically, that is a long-term problem in the United Kingdom, and has not just developed under this Government or the previous one. A number of world-beating inventions have originated in the United Kingdom, but we have not been able to develop innovations such as fibre optics or magnetic resonance imaging scanners, which were invented in Leicester. We cannot market them profitably, so people in other countries start to do so and make money from them. We have a great background of science and invention. The hon. Member for Sutton Coldfield will be interested to learn that, a few years ago, I read that the majority of patents in the United Kingdom are taken out by people with an address within a 35-mile radius of Birmingham city centre, which covers both our constituencies.

The west midlands is arguably the centre of innovation in the United Kingdom, but we are not as good at getting the stuff to market. I am not sure that, despite all the help that the Chancellor has offered in this Budget and previous Budgets with research and development tax credits—initially incentives such as the 125 per cent. write-off applied to small businesses but were extended to larger businesses last year—we have done as much as we can to bolster manufacturing and encourage investment. The Department of Trade and Industry has just produced a report on innovation, and I went to a talk on the subject yesterday, but it did not address the problem of how to move from innovation to the marketplace. I am not suggesting that we always fail to tackle the issue. The bloke who invented Dyson vacuum cleaners, for example, also invented the little wheelbarrow with the ball on the front instead of a wheel—the Financial Secretary is too young to remember that, but perhaps you do, Mr. Deputy Speaker. Dyson made a fortune out of that invention when he was based in Corsham near Bath. There are people who have brought their inventions to market in the United Kingdom and made money out of them, but in general the Government need to do more to encourage investment in manufacturing.

Positive steps have been taken in the past two years, both by the DTI and the Chancellor, but no one is sure what else to do about manufacturing, which leaves me wringing my hands in frustration. As a Member of Parliament I might be described as self-opinionated—if I was not, I would not stand for election—but I often have bright ideas that may be completely wrong. I do not have many bright ideas about manufacturing, and do not encounter many people who do or who say, "If only we did this there would be a revival in British manufacturing and we could stop the haemorrhaging of jobs, restore investment and get innovations to market. We would all be making more money and we would all be happier." Above all, we should be careful in economics not to overlook people and their happiness.

5.59 pm

Mr. Nick Gibb (Bognor Regis and Littlehampton) (Con)

It is a pleasure to follow the hon. Member for Wolverhampton, South-West (Rob Marris), who seems to have the right approach to the conduct of political debate. However, he overestimates the problem with manufacturing.

Britain is a huge overseas investor. British entrepreneurs have billions of pounds of manufacturing assets around the world. The hon. Gentleman mentioned one of those entrepreneurs, Mr. Dyson, who has moved his factory to the far east. That is not necessarily a devastating decision, because the profits from those factories will come to the UK, the entrepreneurial activity will take place in the UK, and the design of new products will take place in the UK, so many metal-bashing jobs will be replaced by warm, comfortable, higher paid jobs in offices and design studios. The figures from the TUC that the hon. Gentleman quotes will not include the masses of manufacturing that takes place under the aegis of British entrepreneurs all around the world.

The hon. Gentleman underestimates the problem with Government borrowing. The debt figures, to which many of my hon. Friends have referred, have been revised a number of times. In last year's Red Book, for example, the net borrowing for 2004–05 was set at £24 billion. In the pre-Budget report, the figure was revised upwards to £31 billion, and today the Chancellor revised the figure yet again to £33 billion. He did not mention in his speech the inexorable upward shift of private finance initiative commitments, which now stand at about £6.5 billion every year. Those are like credit card payments, which we must pay, and £6.5 billion a year is the minimum payment. It is the Government's hidden debt. It would represent a huge quantum of debt if one could turn it into the actual capital figure that was spent.

I shall concentrate my remarks on tax avoidance. I am one of the few Members on the Conservative Benches who is not a former Financial Secretary, but I spent 13 years of my career, prior to entering the House, as a tax adviser in one of the big four accounting firms, so I have a real concern about corporate tax avoidance. I have a particular concern—I share the view of my hon. Friend the Member for Sutton Coldfield (Mr. Mitchell) on this—about aggressive corporate tax avoidance schemes, but I am still against a general anti-avoidance rule. I welcome the fact that the Chancellor has, for the moment, ruled out the introduction of such a rule.

I welcome the public and open move by Gus O'Donnell to call in the heads of tax of the big four accounting firms to tell them to stop marketing aggressive tax avoidance schemes. Those outrageous schemes are designed to use loopholes in the tax code to reduce a company's or a wealthy individual's tax bill—loopholes that were not designed to give that tax relief—for example, paying a City trader his bonus by lending him a substantial sum in the currency of an inflation-wracked country. The trader takes the currency and converts it immediately to sterling. A year later, once the foreign currency has substantially declined in value against sterling, he converts back into the foreign currency enough sterling to repay the debt. Of course, it requires significantly less sterling to repay the debt, and that gain, which is a foreign currency gain, is essentially tax-free. That loophole has been closed, but the question I ask—which my hon. Friend also asked, in a sense—is why the banks that used the scheme thought it was right for a City trader to receive his bonus in that tax-efficient way.

For most people, every penny they earn is taxed. In my judgment, it is taxed too highly. Even £10 of interest on a non-ISA building society account is taxed. Why does it become acceptable for some people with very large incomes not to pay tax on every penny of their income? What I find particularly galling about large companies that buy and demand aggressive tax avoidance schemes from their accountants—incidentally, it is only the large corporations that can afford to buy and implement those schemes, because they are very expensive—is that while they exploit those tax schemes, they continually lobby and complain about the increasing complexity of tax legislation that has become complex simply because the Inland Revenue is trying to close the loopholes that those companies have prised open.

Mr. Laws

I have a great deal of sympathy with the points the hon. Gentleman is making. Does he agree that many tax loopholes—for example, the film industry tax relief and the 0 per cent. corporation tax rate that caused so many businesses to incorporate—have been opened by the Government, not simply exploited by business?

Mr. Gibb

I do not regard those as loopholes. They are specific tax incentives introduced by the Government in order to encourage certain investment or activity. I find nothing wrong with companies or businesses deliberately deciding to take advantage of such concessions and therefore investing in films or incorporating small businesses into corporations to take advantage of the 0 per cent. rate. However, I do find it irritating that companies will try to exploit tax loopholes that do not have such objectives.

The large corporations that take advantage of those loopholes trumpet their involvement in corporate responsibility activities. They put people on the Cadbury and Greenbury committees looking into corporate governance, while complaining at board meetings about the high tax charge in the accounts and asking why the finance director has not done more to reduce it. They send employees off to inner cities to engage in worthy pro bono activities, while avoiding millions of pounds in tax that they should be paying, the shortfall from which has to be made up by ordinary taxpayers or from public spending in those very inner cities.

That all gives the impression that corporate responsibility is just a veneer. If a company genuinely believes in corporate responsibility, it should pay the tax that Parliament has decided it should pay. It should honour the spirit of the law, not just the wording, particularly if the legislation has been poorly drafted, which increasingly it tends to be.

Mr. Andrew Mitchell

Does my hon. Friend agree that companies should be encouraged to make it much clearer in their annual report and accounts how much tax they, and in particular their employees through PAYE, pay? First, it would demonstrate the important contribution that business and companies make to building hospitals, funding schools, and so on, and, secondly, where they do not make payments because they indulge in these schemes, it would be clear to all of us.

Mr. Gibb

I am grateful to my hon. Friend for making that point. It is a point that he made in his speech with regard to the Royal Bank of Scotland trumpeting the fact that it had paid huge sums of tax that was being used to fund hospitals and schools. He is right in the comment that he makes. We are talking about a minority of plcs that are engaged in such activities, so it would be useful for shareholders and others to try to expose companies that are not being corporately responsible and fulfilling their obligations to society.

Let us not forget that the companies that use such schemes are not fledgling, struggling businesses, with the owners' homes on the line because of the money that they owe the banks; nor are we in an era of 98 per cent. tax rates, as we were in the 1970s when tax avoidance was almost inevitable, and almost understandable because of the very high corporate and income tax rates. We are talking about plcs, well-known household names, some of which are headed by multi-millionaires.

I raise this because it is part of a wider issue. It is about people in positions of responsibility asking "Is this right?" Corporate responsibility is not just about asking "Is this legal?" or "Is this within the wording of the legislation?"; it is about asking "Is this right?" That question should dominate board meetings. Large businesses cannot have it both ways. They cannot complain about increasing amounts of legislation if all they do when assessing a proposition is to ask "Is this legal?" If morality extends only up to ensuring that an activity is within the law, it becomes the responsibility of the legislators to ask "Is this right?", to fill the moral vacuum and to create new laws to cover every eventuality and new development.

If the view of some of those who run the major corporate enterprises of this country is that any activity is justified provided that it is within the law and that they have no responsibility beyond that, and no responsibility to ask whether something is right even though it is legal, they cannot complain when the laws are continually extended. Make Warburton, of the accounting firm Grant Thornton, summed up that corporate view when he said: Tax advisers have a duty to minimise their clients' tax. Indeed they can be sued for not doing so. Of course accountants should advise their clients on all the legitimate tax concessions that Parliament has introduced, but that does not extend to schemes designed to exploit the tax code in ways that were not intended.

As a Conservative, I abhor increasing amounts of regulation and laws. They are costly to enforce, read and understand and they distort and hamper free enterprise. However, if we want, as I do, to live in a low regulated society, it is imperative that its leading members take upon themselves a sense of responsibility so that they behave responsibly without the need for such rules and regulations. In essence, they must ask the question, "Is this right?" If the answer is no, they should not proceed.

Was it right for Merrill Lynch to advise unsuspecting savers to invest in companies that it knew to be junk? Did someone on the board in New York ask, "Is this right?" Was it right in the 1980s for companies to borrow off balance sheet to deceive bondholders or circumvent their rights? Was it right for Rank Xerox to boost its profit figures in its accounts by recognising now profits to be earned in future years? Did the advisers to Enron ask whether it was right to deceive investors and creditors by pushing swathes of debt off balance sheet in special purpose vehicles?

The problem with the position that we have reached is that it has been spawned partly by excessive regulations. The more burdensome and extensive the regulation, the more people feel that complying with it somehow fulfils their moral obligations. That is similar to high taxes. The higher the tax, the more people feel that their responsibility to others is fulfilled when they sign the cheque to the Inland Revenue.

Rob Morris

The hon. Gentleman is making an extremely thoughtful speech. He posed what was al most a chicken-and-egg question about whether regulation led to a decline in moral standards, to use my words, or vice versa. It strikes me that a series of outrageous manoeuvres—he has referred to some of them; another is Chester Street Holdings, formerly Iron Trades Holdings, which was an insurance scam that was legal under employers' liability legislation—led to regulation rather than regulation spawning the manoeuvres. Of course, a vicious circle ensues.

Mr. Gibb

The hon. Gentleman is partly right, but there are other incentives and motivations for Governments to introduce regulation. Political ideology, sometimes inegalitarian ideology, often determines such matters. The working time directive is an example of that. It adds to regulation. In opposing legislation on corporate responsibility, the Cadbury report stated: Statutory measures would impose a minimum standard and there would be a greater risk of boards complying with the letter, rather than the spirit of their requirements. That is the essence of the issue. The more rules that exist, the more people believe that any amount of underhand behaviour is permissible provided that there is no rule against it.

How do we break out of that vicious cycle? The onus must be on those in senior positions in society to accept a wider responsibility. The Government, too, can play a role in ending the vicious cycle by engaging seriously in simplifying the tax systems. My right hon. Friend the Member for Fylde (Mr. Jack) also called for that. Complexity provides scope for the sort of schemes that we are considering. Complexity and consequent lack of transparency appear to lend acceptability to measures that are designed to avoid the scope of the tax system. A simpler, more transparent tax system would reinforce responsibility and enable people to have faith in its integrity.

Some critics will say that that is all naïve nonsense, but I do not believe that it is. In this information age, people want—and will ultimately get—authenticity and truth. Reputation for honesty and integrity in business is becoming the most valuable of a company's intangible assets. A company that neglects such an asset is destined to go the way of Arthur Andersen, whoever that was.

As Onora O'Neill said in her Reith lecture on trust in 2002: Citizens, it is said, no longer trust governments, or politicians, or Ministers, or the police, or the courts, or the prison service. Consumers, it is said, no longer trust business, especially big business, or their products. None of us, it is said, trusts banks, or insurers, or pension providers. Patients no longer trust doctors and in particular no longer trust hospitals or hospital consultants. It is therefore in the self-interest of business, politicians and political parties to protect and nurture their reputations for scrupulous adherence to truth and authenticity. Consumers do not want to be ripped off by business, and the public do not want to be conned by politicians. That is not a naïve view, but a statement of the obvious.

I am against a general anti-avoidance rule, and I am grateful that the Chancellor has ruled it out for the moment. It would be a cumbersome and costly mechanism, and it would create uncertainty. We already have extensive anti-avoidance case law, but to introduce a general legislative anti-avoidance provision would hand to the Inland Revenue too much discretionary power to tax in a way that would be capricious and non-rules based. However, it is up to those in senior positions in business to convince the public by their behaviour that no such rule will ultimately become necessary.

6.15 pm

Alan Simpson (Nottingham, South) (Lab)

I am very pleased to be called to speak on the first day of the Budget debate, and I begin by paying a couple of tributes, the first of which is to the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) for an extremely principled analysis and denunciation of tax avoidance, and where it takes us as a society. I urge Members not currently in the Chamber to read his remarks carefully and reflect on them.

I also pay tribute to the hon. Member for Sutton Coldfield (Mr. Mitchell), who made extremely thoughtful and honest comments on the pensions dilemma, and on some of the ways in which we shall have to address problems of housing provision in the years ahead. He pointed out the real difficulties of removing regulation to the point at which developers not only are allowed to determine housing density on land on which they have freedom and permission to develop, but leave behind social consequences in the communities that contain the developments, once they have left with the moneys that they have made out of them. Again, it would be helpful for us all to reflect on his comments.

I welcome the generous comments that the hon. Member for Sutton Coldfield made on the Budget's good points, and I wish only that the Leader of the Opposition had not been so disparaging in his comments. It was extremely disappointing that he was unable to recognise and comment positively on the stability and economic growth that this Chancellor has delivered, and which was always out of the reach of the Conservatives when they were in government. It is unhelpful to retreat into a knocking copy analysis that is waylaid by arguments that any taxation is bad taxation, and that less taxation must be good. That in no way engages with the nature and challenges of the society in which we live.

The same may be said of commitments to knock the Chancellor's decisions on when in the economic cycle to borrow, and for what purposes. Anyone who runs on claims that their only commitments are to reduce taxation and borrowing is left with fairly spurious spending promises that are impossible to deliver. A further issue is the duplicity of the positions taken on debt. I have not heard Members in the House denounce households' decisions to take on mortgages. Those decisions to take on family debt are seen as responsible, because the family make them in the knowledge that they will get a solid, secure asset that will have lasting and, they hope, increasing value. However, when some Members discuss Government decisions to borrow for infrastructure investment, although that also involves assets that will accrue in value, they suddenly call those decisions morally reprehensible, and denounce the Government for making them. That duplicity and inconsistency does no credit to the debates that must be held in the House.

I want to focus on three issues. They are observations on, rather than criticisms of, how the Chancellor has brought us to this point, but they involve challenges that we have yet properly to address. My plea to the House is for a grown-up discussion of the difficult issues that lie ahead of us, and I want to focus on three of them. They are: first, what we should do about pensions; secondly, how we should deal with infrastructure investment; and, thirdly, the question of the environment. Whatever party is in power, we must recognise that it is a biological rather than a political reality that, as we live longer and expect to spend less of our lives in work and more in retirement, we shall have to ask ourselves how we are to pay for that change in the balance of our live. The only way to pay for it properly is to recognise that we shall have to pay more in our working years for the length and quality of our retirement years. That is not a politically contentious thing to say; it is simply a biological fact of life. The real debate that needs to take place is on how we can best do that, rather than on whet her we do it at all.

We are told that we are not saving enough. This weekend, Sandy Crombie, the chief executive of Standard Life, wrote a useful summary inThe Observer. In the opening paragraph of his article, he said: This country is facing an enormous challenge. People are living longer and the trend has been for them to spend less of their lifetime working. They need to save more, but they are not. The Government estimates that 3 million workers are not saving for retirement at all, and another 5 million to 10 million are not saving enough. According to some estimates, half of all UK workers are saving less than they should. What can we do about this? If we try to take this message out to young people, we learn the salutary lesson that we have virtually lost the argument before we start. Many young people say, "Save for retirement? You're mad! You must be absolutely stark staring bonkers! Look at the people we are working alongside. Many of them have saved throughout their entire working lives in works pension schemes, yet they are being told that all the savings that have gone into those schemes are now worthless. The company schemes have gone bust, the money has disappeared, and what people thought of as their savings for retirement have been frittered away somewhere. The system is not going to safeguard the money that I put into it; it's going to run off with it. The money will disappear. Do you think that's what I want to do? Absolutely not!" This crisis of confidence for those people who would not even dream of putting money into a pension scheme has to be addressed.

I would like the Government to recognise that we have to come up with measures to address the restoration of pension entitlements to those who have saved throughout their working lives and who believe that their pensions have been stolen from them. I would have liked to see such measures in today's Budget, but they will be welcome whenever they are introduced. No amount of new pensions provision will be credible if it does not address the theft of the pension entitlements of those who have been told that their pensions have now gone.

In other debates in the House, Members have drawn attention to the amounts that are currently sitting in various pots in what are called orphan funds, held by banks, solicitors and different sections of the financial services industry. Estimates of the amount in those fund are as much as £50 billion. The highest estimate of what it would cost to meet the needs of the 60,000 pensioners who have been told that they have lost the value of their pension savings ranges up to a maximum figure of £450 million a year. If the Government were to require the industry to put that £50 billion aside, we could comfortably pay that £450 million a year simply out of the interest that would be earned on it. The important thing, however, is that we honour a debt—a contract entered into honestly by workers who, through their lives, contributed to their works pension schemes.

In part, the credibility of the schemes and exhortations that come from the Government must be considered in the sense in which we honour the commitments made by those generations. It does not have to be the Chancellor who puts his hand in his pocket, or other people's pockets, but he does have to say to the financial services industry, "Those orphaned funds are not your money anyway. This is still other people's money that you're sitting on, and every now and again you have a little scoop out of that pot." That is to meet the company's needs, not the needs of those whose pension entitlements have been taken from them.

If we were to go down that path we would go a long way towards restoring the credibility of exhortations to save for the pension years, but it would not be enough. We also must reflect on the obsession, which the Labour Government inherited, with the desire to go in for means-testing. I will not go through this in detail, but I urge Members of the House to read the document recently produced by the Pensions Policy Institute entitled "Citizen's Pension: Lessons from New Zealand".

The institute's approach turns its back on the obsession with means-testing. It goes in for a much simpler system, which is to deliver a flat-rate universal pension payable to all people over the age of 65. It is popularly referred to as the "65 at 65" pension, because the pensioner couple will receive between them 65 per cent. of the average wage at the point at which they retire. This is a generous pension that provides a platform beyond which people can have their works or second pension and their other income streams, all of which should be subject to normal rules of taxation. However, it removes the sense of contradiction in an increasingly complex means-tested system.

The reality, as everyone who has looked at pensions will say, is that it is always the contradictions at the margin that are greatest and most unfair. The clawback on those at the margins of eligibility is where the greatest sense of unfairness appears to lie. This approach is a helpful way out on an important issue that this and subsequent Parliaments will have to face.

The Pensions Policy Institute paper is modest, as it makes proposals that would deliver a citizen's pension in the UK of about 22 to 25 per cent. of national average earnings. It states: This level of benefits is not generous, but it would mean that hardly any pensioners need to be means-tested for their basic income. We must be willing to go down that path if we are to try to make all other pension savings exhortations credible, because many of those in work are saying to us on the doorstep, "We must have been daft to have been putting money aside." Those who have put savings aside through their working lives find themselves in a means-tested system and being penalised in terms of their eligibilities while those who have put nothing aside get the full benefit of provision. We have to look at ways of removing those disincentives within the system.

In relation to second pensions, however, I would make a further point. If we had doubled the savings rate rather than halved it, and if that money had gone substantially as an increase in pension funds, whether works or occupational, would that have made today's position any easier? The answer is no, because the crash was driven by an excess of capital in pursuit of shares whose value was being driven speculatively through the roof. All that we would have done is to have thrown twice the amount of money at the same number of shares, share values would have rocketed, and the crash would have been even more dramatic.

A year ago, I did some work with two other people that attempted to examine a different approach to pensions, which I make no apologies for commending to the House. Richard Murphy, Colin Hines and I wrote a document entitled "People's Pensions", which looked at the fact that the £250 billion that had been wiped off the value of UK pension fund holdings in the previous year largely reflected the change in balance of where pension fund contributions were going. Forty years ago, more than half of pension fund savings were going into Government bonds, which were by and large focused on infrastructure investments and assets that were not going to disappear. In the last year for which we could get figures, however, 71 per cent. of pension fund contributions went into shares, and only 17 per cent. into Government bonds. That was backed up by public sector investment that was increasingly driven by dependence on private finance initiative schemes and the approach to off-balance-sheet accounting that seems to be in vogue at the moment.

When we considered a different approach to pension funds and pension schemes, one of the most obvious issues was that hospitals, schools and local authorities involved in PFI schemes were being charged an interest rate of 16.6 per cent. Local hospital trusts are already hitting budgeting crises as the annual repayment costs of PFI schemes start to cut into the costs of other direct patient services. We pointed out that if no more than half the £50 billion a year that workers currently put into their pension schemes were channelled through the people's pensions vehicles that we proposed into direct public infrastructure investments, even at a rate of 5 per cent. to 6 per cent., that would be a quarter of the rate being charged by PFI providers. It would also deliver tangible assets that provided real improvements in quality of life and the access to services on which people relied—we would get an improvement in service, a tangible asset and something that would not disappear in the bursting of a dotcom bubble.

The challenge facing us is how to break from a fascination with an approach to financing the future that is driven by the short-term demands and requirements of the financial services industry. We must set down different ethical or legal requirements for the way in which that sector of the economy works in relation to the needs of the whole economy.

The House needs to reflect on where our current infrastructure dependence on PFI schemes is taking us. If we consider tables C16, C17, C18 and C19 in the Red Book, we see that if we put together the signed bid and preferred bidder stages of PFI schemes, we are currently looking at getting about £7.3 billion a year as income. We are having to support PFI contracts with payments averaging £6 billion a year, for the next 12 to 15 years. Even if that is matched by the direct Government investment to which the Chancellor referred, great chunks of the investment will have to he underpinned by the asset sales he mentioned—also running at £6 billion a year—if fresh investment is to be made.

All that leaves us with real problems to do with the assets that we no longer own and the liabilities that we shall still have to honour. I can think of so many better ways in which we as a society, and we as a Labour Government, could try to safeguard the contributions that people are currently making to their pension schemes, and direct them more effectively into the public infrastructure investments that society needs so badly. We must go further, however. We have got into the habit of making freedom to invest publicly conditional on a willingness to dispose of public assets. If we want a level playing field, we should argue for open and accountable democracy. If local government wants to invest in the improvement of its housing stock, let it borrow in the way that we say we are making it free to borrow, but not on the basis that it can sell out one set of council tenants to meet the housing needs of another set. Trading in people—trading in people's lives—is not an activity for which a Labour Government will be thanked.

I welcome the Chancellor's specific references to the environment, but I feel that an opportunity has been missed. He came up with some useful proposals for incentives to make people shift towards less polluting fuels, but the right hon. Member for Fylde (Mr. Jack) was right about biofuels. The Environment, Food and Rural Affairs Committee received numerous representations from the energy industry, describing the various levels of financial incentive that would enable the industry to act ethically and produce non-polluting fuels. Increasingly, members of the Committee responded by asking, "Why don't we just give you an obligation to do that?" If the cost were spread across all fuel types and fuel sales, the consumer would experience minimal change.

Why should the Government try to find cash incentives to pay the industry to act in a less polluting way? Surely it is much more sensible to tell the industry that that is its duty. If the costs are absorbed within the industry as a whole, as long as we specify the rate at which we want polluting fuels to be replaced by less polluting fuels, let the industry get on with it.

Another opportunity was sadly missed when no duty was imposed on aviation fuel. Like every other Member, no doubt, I take advantage of the low-cost flights that are currently available. Can I justify that on environmental grounds? Absolutely not.

If we are considering the real challenges and choices, we should not say that we must support a proposal because we are locked irrevocably into a globalised economy. The real challenge is, in fact, the other way round. Like Joseph Stiglitz, a former member of the World Bank board, I am a disbeliever in globlisation: I think it is rapidly reaching its sell-by date. The one thing that is here to stay for the rest of our lives is the reality of climate change, which will turn everything upside down. We will have to revise the whole way in which we think about sustainable international economics if we are to survive the century in a civilised fashion. I want the Chancellor—I know that he can do it—to come up with a new raft of policies that promote a sustainable environment rather than an exploited one, promoting sustainable trade rather than a global free-for-all, and favouring the reduction of product miles rather than the explosion of pollution costs that comes front goods in global transit. Other countries in Europe haw policies that tax-favour the restoration of localised and regionalised economic systems. That is low-impact economics that will be in the interests of all and provide employment and sustainable lifestyles for all. That is the challenge that every Government in this country will face for the entirety of my lifetime.

We have to meet our Kyoto targets. One way of doing that relates to an issue that I have droned on about in the House more than I should have: ending fuel poverty. The Chancellor mentioned the commitment to new social house building. That is important, but we must recognise that the majority of families will live in the housing stock that is available today. The reality for those who are fuel-poor today is that they will live in the housing that is fuel-poor tomorrow. We must focus our attention on that housing stock.

Through the Fuel Poverty Advisory Committee, the Government were given a stark warning about a fortnight ago that we simply will not meet our legal undertakings to end fuel poverty unless there is a 50 per cent increase in the Budget commitment to eradicate fuel poverty in social housing alone. That does not even take us into the challenges of how we do so in private rented houses, and especially houses in multiple occupation. We have to create a shift in the resources. I look forward to the day when the Chancellor introduces a framework of environmental commitments that will bring to an end the human and environmental misery of fuel poverty.

This was a good Budget. It was not an election Budget. It was a Budget for education and science. It was a Budget to reassure, but not yet to inspire. I was disappointed that the Leader of the Opposition struggled to address the issues even of the last century. I hope that it will be within the grasp of a Labour Government—only a Labour Government will do this—to set out our stall to address the issues of the century that we have entered, rather than following the Opposition into the century that we have left.

6.43 pm

Mr. John Baron ( Billericay) (Con)

I congratulate the hon. Member for Nottingham, South (Alan Simpson) on a thoughtful contribution in relation to pensions. and my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) on his thoughts on tax avoidance.

No Budget is all good or all bad. There are aspects of this Budget that I warmly welcome, including the increased spending on our armed forces and the tax incentives for investment in very small start-up businesses. However, it was said earlier that Budgets are essentially about people, and I want to concentrate on two key failings in the Budget that will directly affect my constituents. The first will impact on the small business community in my constituency. The Government will not be surprised to learn that a recent business survey clearly showed that small businesses in my constituency were fed up to the back teeth with the amount of regulation and extra red tape that the Government have introduced in recent years.

Independent analysis has shown that, on average, Just under 4,000 new regulations have been introduced each year since 1997. No one is arguing that regulations are new under this Government and that they did not occur before, but there has been an increase of more than 50 per cent. compared with the level under the previous Conservative Administration. Frankly, businesses are getting tired of this. It is no wonder thatThe Economist stated: Labour is losing the battle for the hearts and minds of British business. Responses to my constituency survey revealed that businesses are spending a lot more time on red tape and regulation, and that these extra regulations serve only to slow growth or to make it harder to run businesses in general.

We could talk in some detail about the increase in national insurance contributions. Understandably, many businesses consider it a tax on employment. It has led directly to redundancies, a slow-down in recruitment and a reduction in profits. To an extent, it has affected staff morale and made it more difficult to run businesses in general.

Various independent statistics seem to confirm these findings. I shall not give a long list of figures, but I shall mention those provided by two independent bodies. The Institute of Chartered Accountants and the Institute of Directors both claim that the cost to UK businesses of implementing new legislation is running at an extra £6 billion a year. Those might be abstract figures but they illustrate a growing problem: we are suffering from decreasing competitiveness. This Government tend to forget that the burden of red tape always falls disproportionately on small firms, which is particularly worrying as they are often the lifeblood of our local economies. Small companies simply do not have the personnel to deal with an ever-increasing number of regulations. Figures from the Institute of Chartered Accountants confirm that the cost to small businesses of new legislation has more than doubled in recent years.

It is often the entrepreneur who ends up dealing with this increase in paperwork, when he or she would be better employed running their business and creating wealth. For me, this is the central point. Budgets should be about trying to maximise the country's economic potential; that way, we are in a far better position to help those who need it. But that can be better brought about if we foster personal freedoms within the rule of law, encourage enterprise and allow businesses—particularly small businesses—to breathe and thrive. Such an approach, all things being equal, would lead to a more prosperous economy, from which the Government could take their rightful share in order to help the truly disadvantaged in society, and fund essential public services. That will not happen if they continue to pile regulation and red tape on to businesses. In the longer term, that will hinder enterprise and, in turn, our ability to help those most in need. Yet since 1997, this Government have continued to make life difficult for entrepreneurs. This Budget does little to put that right.

It is not just small businesses in my constituency that will be disappointed with this Budget; so will the many taxpayers who have seen tax increases under this Government, but very little in return. We all know that when in opposition in 1995, the current Prime Minister said: We've no plans to increase tax at all". Most independent forecasters accept—and the general public certainly seem to—that we have had a welter of tax increases since 1997; indeed, some put the figure as high as 60. Some suggest that a typical couple on average full-time earnings is now paying an extra £500 a year or more in tax under this Government. It is no surprise that the Government's tax revenue has risen by some 50 per cent. since 1997.

My constituents are asking these simple questions. Given that they have paid all these taxes, why is violent crime rising so fast, why are detection rates so low and why are there so few police on our streets? Patients in the constituency are asking why accident and emergency waiting times are so bad, why we are so short of GPs and why average waiting times have either not improved or are getting worse. Parents are rightly asking why teacher vacancies have increased so significantly under the Government and why it is so difficult to get their children into local schools. Commuters are asking why there has been so little investment in our roads, and residents are asking why the Government have done so little to combat the illegal development of our green belt and why so little progress has been made on waste recycling in comparison with our European neighbours.

In short, my constituents are rightly concerned about why such a large increase in taxation has produced so few results. The conclusion can only be that a large element of Government spending has been wasted. What is doubly concerning about this Budget is that, with projected borrowing forecast to rise to about £140 billion over the next five years, further tax increases are inevitable, should Labour win a third term of office.

In conclusion, Budgets should be about maximising the economic potential of the country to raise living standards for all, but this Budget does not achieve that goal. We have seen an increasing tendency for the Government to tax and spend—to tax the wealth creators in our society and then spend the proceeds in a way that, to this point at least, has had little effect. If anything, the Budget reinforces the view that "government knows best".

There is no doubt that the vast majority of hon. Members, regardless of party, are here because they want to improve society. We differ on the method of achieving that goal. Conservative Members have greater faith in the individual than the state, believing that politicians can sometimes be the problem, not the solution. That is so whether we are talking about freeing entrepreneurs from stifling regulation or costs, allowing local communities to take their own decisions about green belt development, giving local police forces more say in how they police their local communities, or allowing our local doctors and nurses and our governors and teachers more say in the running of their hospitals and schools. We must guard against an over-powerful Government who encroach on the personal rights and freedoms of individuals, and instead encourage individual initiative and enterprise, which will benefit society as a whole. We must also guard against Budgets that reinforce the centralist tendency. That is why I cannot support the Budget today.

Debate adjourned.—[Joan Ryan.]

Debate to be resumed tomorrow.