Budget Resolutions and Economic Situation

HC Deb 23 March 2004 vol 419 cc681-803 12.43 pm

The Secretary of State for Work and Pensions (Mr. Andrew Smith)

This is a Budget built on stability I hat delivers for employment, pensioners, public services and sustained growth for the future. In each area, as I will show, there is the sharpest contrast between our record and prospects for the future and the alternatives put to us by the Opposition. That contrast presents a very clear choice for the country between continued investment and reform in public services and cuts in spending, and between continued economic stability and a return to boom and bust. We relish putting those choices before the country.

On the economy as a whole, we have today the lowest inflation for 30 years, the lowest interest rates for 40 years and more people in employment than ever before. Let us compare that with the situation under the previous Government: 3 million unemployed, double-digit inflation, and interest rates of more than 15 per cent. for over a year. This change in Britain's performance has not come about by accident. but because of the tough economic decisions that we have taken: making the Bank of England independent, sticking to tough fiscal rules and introducing measures such as the sanctions of the new deal. Those decisions have ensured that growth in Britain over the past four years has been higher than that in Japan, Italy and the United States. In 2004, our growth is expected to be double that of France and Germany.

It is right that with such hard-won stability, having accumulated surpluses at the start of the economic cycle, we continue investment and the big job of renewing the country's infrastructure, recognising that it is prudent to borrow to do so, in line with the fiscal rules. Unlike under the Conservative party, which let debt rise to 44 per cent. of gross domestic product, today it stands at just 33 per cent. Whereas the Conservatives borrowed 8 per cent. of GDP, we have reduced that to just 3.4 per cent.

As a result of the tough decisions that we have taken since 1997, we have been able to invest in active labour market policies— investment that is paying off. Employment has risen in every region of the country, and unemployment continues to fall most where previously it was highest. The UK now has one of the strongest labour markets in the world. We have the highest employment and the lowest unemployment of the major industrialised countries. More people are in jobs than ever before. We have tackled the legacy of long-term unemployment—the Tories "price worth paying"—so that long-term youth unemployment has been virtually eradicated.

The new deal is a world-class labour market policy; it has helped more than 1 million people get back to work. The new deal for young people has benefited the economy to the tune of £500 million a year. The shadow Chancellor may laugh at the success of the new deal and the role that it has played in transforming the lives of the young and long-term unemployed people in this country, but he should recognise that an independent study by the National Institute of Economic and Social Research showed that the new deal is saving the economy £500 million a year. The new deal for lone parents is saving the Exchequer £40 million a year. We have a succession of overseas visitors who are keen to emulate the success of the new deal and Jobcentre Plus. The only people who turn their backs on that success are those in the Conservative party.

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

Is my right hon. Friend aware that the UK's productivity in output per person of working age is higher than that in France and Germany, precisely because of our wonderful employment record?

Mr. Smith

My hon. Friend makes a very good point. Programmes such as the new deal and the benefits of our economic stability not only transform the lives of those who were cut out from opportunity and employment under the Conservative party, but benefit the whole economy in higher output and higher welfare for us all, as he suggests. The Conservatives call all that an expensive failure, but we know what was really the expensive failure: the 3 million unemployed under the Conservative party, whose leader, when he was masterminding employment policy, managed to increase unemployment by more than 1 million. Some 1,300 people were added to the claimant count every day, precisely because he did not invest in policies such as the new deal.

Mr. Alex Salmond (Banff and Buchan) (SNP)

The Tory economic record is fairly easy meat, but the Chancellor never talks these days about the balance of payments and the apparent structural balance of payments deficit that the Red Book shows continuing into the future. Does the Secretary of State think that that long-term balance of payments deficit has any implication? Is there any chance that the Government might be blown off course?

Mr. Smith

No, and I will take no lecture on deficits from the Scottish National party. Of course it is important that we continue to improve productivity, that we continue our infrastructural investment and that we invest in skills through the new deal for skills, as set out in the Budget book, so that we continue to improve our international competitiveness, which will result in improvements in our international trading policy. The hon. Gentleman and others should not talk down this country's success, whether in pharmaceuticals, aerospace, the automotive industry or financial services; nor should they ignore the fact that output in our manufacturing sector has been rising over the past four quarters.

Mr. Kenneth Clarke (Rushcliffe) (Con)

The question was about the current account deficit and the balance of trade. I understand the right hon. Gentleman saying that it does not matter, but did not quite catch why he said that it does not matter. It is the largest deficit for 300 years.

Mr. Smith

I did not say that it does not matter. I said that the measures that we have put in place in terms of economic stability, investment in infrastructure and skills, and ensuring that successful sectors thrive is the best way. We take no lectures from the right hon. and learned Gentleman, whose policies were responsible for getting us into the situation to which I have referred.

Mr. Salmond

If that is the case and the measures will bring improvements, why does the Red Book forecast that the balance of trade in goods and services over the next three years will deteriorate?

Mr. Smith

The Red Book forecasts also that imports and exports will rise at the same rate. It should be evident from my remarks that the situation will be better than it would have been had the Government not made the investment and improvements in skills and competitiveness that we have. The situation would be much worse if the cuts in public spending and investment that the Conservative party wants to implement were put into effect.

We will build on the success of our labour market and other policies, not dismantle them. By introducing the new deal for skills, we will equip people in and out of work with the training that they need to progress in the workplace and to lift themselves and their families out of poverty.

Mr. Lindsay Hoyle (Chorley) (Lab)

My right hon. Friend will be aware of the new deal's huge success in the north-west, and particularly in my constituency, where unemployment is at its lowest ever level—down to 1.9 per cent. It cannot get any better. Can we ensure that the skills found in traditional industries continue to be honed and that unemployment does not return to the levels of the 1980s?

Mr. Smith

Nobody wants a return to the unemployment of the 1980s and the disastrous policies responsible for it. As a consequence of our policies, and demanding though it may be, we might do even better in my hon. Friend's constituency and get unemployment still lower. His point about traditional industries is well made. All industries require investment in information technology and skills. It is no longer viable for smokestack industries to operate under outdated practices. Every industry and service must be high tech and Government policies will help my hon. Friend's constituents and others to succeed in competitively challenging world conditions.

We want to build on our success and to go further in tackling inactivity. We have made strong progress in helping to improve opportunities for lone parents since 1997; 250,000 have been helped into work thanks to the new deal. The lone parent employment rate is above 50 per cent. for the first time, but we want to do more. The biggest barrier facing parents in returning to work is affordable and trusted child care. The Budget will roll out the extended schools pilots to a further four areas, making better use of school facilities to provide child care in areas of high lone parent unemployment.

From October, we will pilot further ways to help lone parents find and stay in work. In eight areas, lone parents will get an extra £20 a week on top of their normal benefits, to cover the costs of more actively looking for work. When they start a job, we will also offer them £40 a week for the first year of employment in addition to other tax credits—making sure that it pays to look for and get a job.

For persons on incapacity benefits, we will extend the pathways to work approach. From next year, we will bring in extra work-focused interviews for persons who have been on incapacity benefit for longer periods, and a new job preparation payment to help people who are taking steps to get a job. Whereas Conservative Governments trebled the numbers on incapacity benefit, we are taking action and investing to help people who want to get back to work—providing opportunities for those written off in the past.

We have never shirked the tough challenge of modernising public services—challenges presented to us by years of under-investment by the previous Conservative Government. I pay tribute to staff throughout the country, who every day are responsible for the labour market successes that I have described—helping people to find work, getting extra money to pensioners and children, and delivering a valued service to the public.

We are investing £2.2 billion in transforming Jobcentre Plus to make it the best welfare to work service in the world. There are new offices, new information technology and 10,000 17 per cent.— more personal advisers on the front line helping more people into work. That investment and the 𠂣2.8 billion being spent on my Department's IT systems are modernising the way that we do business and the service that we provide to our clients.

Mr. Steve Webb (Northavon) (LD)

I echo the Secretary of State's praise for staff who do such a good job. Last week, the Chancellor gave the impression that his announcement about swingeing job cuts was news. How does the Secretary of State think his staff felt on turning on the television and hearing that they were going to be sacked?

Mr. Smith

News of staff reductions is bound to cause some uncertainty and anxiety. The investment to which I referred had already been set out in our departmental plans and announced. The Chancellor set out the total number, including a further 12,000 job reductions to 2008. To put that matter in context, mine is a big Department of some 130,000 staff. Implementation of the reforms will be spread over four years, and we will work closely with staff and trade unions in taking them forward. I hope that much can be achieved by natural turnover, which currently accounts for 9,000 staff each year leaving the Department.

The result of our investment and reform will be a leaner, more effective organisation offering a better service to the customer, better value to the taxpayer and more rewarding jobs for our employees as we shift the emphasis from back-office and clerical processing to front-line personal advisory work. A number of personal advisers have told me that that was the job that they wanted when they first joined the service—helping clients, face to face, to move forward in their lives.

Mr. Henry Bellingham (North-West Norfolk) (Con)

Having been to my local Jobcentre Plus, I endorse the right hon. Gentleman's comment that the staff do an excellent job. Is he aware, however, that the Government signed up to a European Union directive that insists on staff consultation in advance of announcements? Why has he breached that EU directive?

Mr. Smith

I thank the hon. Gentleman for his praise in recognition of the accomplishments of Jobcentre Plus. It is for him to take issue with his Front Benchers, who want to abolish so many of the policies that he praises. Before any staff are made redundant, whether voluntarily or even compulsorily if necessary—which I have not ruled out—there will of course be full consultation with staff, in conformity with all relevant agreements and regulations. That will happen not just because that is required but because it is the right thing to do. We have to carry our staff with us during a difficult process of transformation, albeit one that will bring real benefits to customers, taxpayers and staff working conditions and satisfaction.

The Chancellor also made important announcements for pensioners. We have taken action to tackle the inheritance of the last Conservative Government, under whom there were nearly 3 million pensioners in poverty, many of whom were expected to live on just £69 a week. The Conservatives increased the basic state pension once£and only because they simultaneously slammed value added tax on fuel. In contrast, we have increased the basic state pension by £5 for single pensioners and by £8 for couples in real terms; and we have introduced free TV licences for the over-75s, free eye tests, and a winter fuel payment that is worth £200 to every pensioner household and £300 for pensioners over age 80.

In this Budget, we went even further. Recognising the impact that council tax increases have on the fixed incomes of older people, we will pay all households with someone aged over 70 an extra £100 this year. Taken together with the winter fuel payment, households with someone aged over 70 will receive a total of £300 this year, rising to £400 for the over-80s. On top of that, we continue to make good progress in rolling out pension credit, which is now reaching more than 2.7 million people. The Budget extends the backdating period, and that means that any eligible pensioner making an application will have their credit backdated for up to a year. That is an important extra step to help ensure that pensioners get the money that is rightfully theirs.

As a result of our reforms, we will spend an extra £10 billion next year on pensioners compared with 1997. On average, pensioner households will be £1,350 a year better off in real terms— that is around £26 extra a week. The poorest third will be, on average, £1,750 a year better off, ensuring that more than 1.6 million pensioners have been lifted out of absolute poverty since 1997.

Whereas we have tackled pensioner poverty, the Tory proposals would ensure that the poorest fell further behind. We know that their policies are "wild and uncosted" and that there will have to be more painful cuts to make their sums add up, because the right hon. Member for West Dorset (Mr. Letwin) and the hon. Member for Havant (Mr. Willetts) have told us so. What they propose is unaffordable, unsustainable and above all unfair.

We will keep up our drive to raise the living standards of all pensioners while helping the poorest most of all. We will also carry forward our programme of pension reform, increasing the rewards for those pensioners who want to work beyond the normal state pension age. We will bring forward the increase in the rate of accrual on deferred state pensions. That means that someone who on retirement at 65 would be entitled to £100 a week will now get £160 if they defer for five years. For the first time from April next year, those who work beyond state pension age will be able to take their deferred state pension as a lump sum.

The forthcoming Finance Bill will also simplify the tax system on personal pension funds by replacing the eight tax regimes for pensions with a single lifetime allowance. That is a fundamental and radical reform that will be of enormous benefit to pension saving in this country. As my right hon. Friend the Chancellor said, we have listened to the concerns of employers who want to do more to support their employees in making decisions about their pensions. I am pleased that we are helping employers to make that advice available by making it tax free up to £150 per employee. That is a new incentive to strengthen the pension partnership.

To conclude on the whole Budget, as I imagine we are about to hear, the Conservatives are clambering about, straining to find some points of argument that they can hang on to because they have been comprehensively outmanoeuvred on the argument, just as they have been comprehensively outperformed economically on their record in government. The Conservative party is now in total confusion—on core public services, its plans are in chaos. The Conservatives contradict themselves on education, because they are unable to decide whether the derided pupil passports will apply to private school fees. On health, we learned yesterday that they are trying to ditch their private health care subsidy. The Tories' spending plans do not stack up, so they are forced to ditch their flagship policies. The party is in disarray and has nothing to offer the British people. In contrast, this Budget locks in the economic stability that we have created since 1997. With inflation, interest rates and unemployment low, we are able to invest for the future with more money for health, education and security. Our investment and reform are delivering better value to the taxpayer, better services to the public and an economy that is the envy of the world. I commend our Budget to the House.

1.4 pm

Mr. David Willetts (Havant) (Con)

I draw the House's attention to my interests that appear in the Register of Members' Interests. I shall begin by identifying issues on which I shall disappoint the Secretary of State by agreeing with some measures in the Budget. Let me take him through one or two of the measures that I welcome. In fact, I welcome some measures that he did not even refer to in his rather thin speech.

For example, I welcome the Chancellor's final abandonment of his obsession with delivering tax credits through the payroll. Five years ago, he believed that it was essential to deliver tax credits through the payroll to transform incentives to get people into jobs. He first abandoned that with the child tax credit, and in his Budget last week, he finally abandoned it with the working tax credit as well. All that metaphysical stuff about how it was essential that these benefits be delivered through the payroll has now been abandoned, and I very much welcome that.

There was something else in the Budget that I welcomed: the simplification of the pension tax regime is an improvement on the current regime. The Chancellor again made a significant concession, but did not want to admit to it. In the face of the protests about the £1.4 million cap and its potential effect on senior managers, he has increased the value of the cap significantly for people with defined benefit schemes. However, instead of doing that in the straightforward way, by increasing the capital sum, he has introduced an ingenious formula for converting the value of a defined benefit pension into a notional sum—the one in 20 formula. No one can actually convert their capital into a pension at a rate of one to 20, but for the purposes of his cap, the Chancellor will assume that they can. To get the sort of pension that would be covered by the scheme, the calculation is that the cap is now up to £2 million, if not more, for people in defined benefit schemes. It is, of course, worth much less for people with personal pensions and defined contribution schemes. Because the Chancellor did not want to make a concession in an open and honest way, he has created a new anomaly in which his provision is more generous for defined benefit than for defined contribution schemes.

Angela Eagle (Wallasey) (Lab)

I am grateful to the hon. Gentleman for giving way while he is on the theme of abandonment. Will he clarify a confusion that has arisen about the Conservative party's policy on tax relief for private medical insurance? In a speech last year, the leader of the Conservative party, the right hon. and learned Member for Folkestone and Hythe (Mr. Howard), said that it fully intended to give private tax relief for medical insurance to the tune of £1 billion. However, yesterday, the hon. Member for South Suffolk (Mr. Yeo) said: I can announce that it will not be the policy of the next Conservative Government to offer tax relief to people who take ow private medical insurance."—[Oficial Report, 22 March 2004; Vol. 419, c. 595.]

Which is right?

Mr. Willetts

It is not, and has not been, our policy to reinstate the tax relief for private medical insurance. I ant happy to place that on the record.

The hon. Lady interrupted me in my paean of praise for the Budget. There is a third item to which I was about to give a grudging welcome. I refer to the £100 for pensioners that, admittedly, is being provided to help them out of the mess of the Chancellor's own creating—the escalation in their council tax bills. That problem has been compounded yet again by the complexity of the means-tested benefit that is supposed to help pensioners.

The take-up of council tax benefit has been declining. and more than I million pensioners who are entitled to it do not receive it. In fact, when the Chancellor recognised in his Budget speech the failure of means-tested benefits to help pensioners with high council tax bills and introduced a universal payment for all pensioners over 70, I wondered whether he had recognised a wider strategic point. In the words of Help the Aged: There would be no need for gifts like this if the government was to review its fixation with means-testing.

Mr. Geoffrey Robinson (Coventry, North-West) (Lab)

While the hon. Gentleman is in the unusual mood of agreeing with the Government, does he agree with them, and me, that at this time of heightened terrorism in the world, we need maximum defences on all fronts to combat it? Does he agree with his own party, which has announced a freeze on defence expenditure in cash terms? If so, which element would he cut at this terrible time?

Mr. Willetts

The hon. Gentleman ought to be aware of the distinction between outputs and inputs. We are committed to efficiency in the public services—the Prime Minister used to talk about that in the old days. My right hon. Friend the Member for West Dorset (Mr. Letwin) has not made a specific statement on defence spending, but we are committed overall to ensuring the efficient delivery of public services.

My attempt to find common ground with the Government on the Budget does not seem have to have met much of a welcome.

Mr. Andrew Smith

rose—

Mr. Willetts

I was going to move on to some criticisms of the Budget, but of course I shall give way to the Secretary of State.

Mr. Smith

The hon. Gentleman made a point about inputs and outputs in response to my hon. Friend the Member for Coventry, North-West (Mr. Robinson), but will he give us a clear yes or no answer? Is it the policy of those on the Conservative Front Bench to keep defence spending flat in cash terms?

Mr. Willetts

My right hon. Friend the Member for West Dorset set out our public spending plans clearly in his statement a few weeks ago. He set out the areas in which we would be able to increase spending in real terms—on health and education and outlined an overall framework for total public expenditure. However, he did not make a statement specifically on the defence budget.

On pensions, I am afraid that I found the Budget sadly lacking. The Chancellor failed yet again to recognise the scale of the crisis in funded pensions. Just about everyone recognises that we cannot carry on with more and more pensioners on means-tested benefits, and the erosion of funded pensions. Everyone from the Adam Smith Institute to Mr. Alan Pickering recognises that the way forward is to reform benefits so as to reverse the spread of means-testing and to produce new incentives to save, so that people are encouraged to build up more funded occupational pensions. Under this Government, the country is heading in the opposite direction, with more means-testing and a decline in funded pension savings, and nothing in the Budget will reverse that trend.

The Chancellor is being optimistic in assuming that corporation tax receipts will increase to the extent suggested by table C8 of the Red Book—the light reading to which we have all been turning in the midnight hour. He assumes that corporation tax receipts will increase from £28.7 billion this year to £34.8 billion next year. It would be interesting to hear why he believes that there will be such an extraordinary recovery in corporation tax receipts, given that many companies will have to put more money into their pension funds to rescue them from the effects of the £5 billion tax that the Chancellor has imposed on them.

There was nothing in the Budget on wind-ups. We wanted it to include measures to tackle the problems facing the 60,000 people who had hoped that after the collapse of their pensions and the disappearance of their hopes for a decent retirement, the Government would examine ways of assisting them out of serious financial distress. Several rumours went round. For example, the Chancellor was reported to be interested in a proposal made by the right hon. Member for Birkenhead (Mr. Field), in which we have also been interested, to use some of the unclaimed assets held by building societies and banks to set up a fund to help people in such circumstances. We read that the Chancellor is targeting the unclaimed assets, but, sadly, not to help with the problem of pension wind-ups. There could be no better use of the unclaimed assets than in helping to tackle that problem, and it will be a great pity if the Chancellor takes money from the unclaimed assets but does not use it for that purpose.

James Purnell (Stalybridge and Hyde) (Lab)

I am worried that the hon. Gentleman might have inadvertently—I stress the word "inadvertently"—misled the House. I was looking at the Conservative party website last night—honestly, I am that sad—and the quote from the shadow Chancellor is very clear. He says that there would be increases in the budgets for health and education but that those of all other Departments would be frozen in cash terms for two years. He admits that that would mean tough decisions. Will the hon. Gentleman correct what he said if it turns out to be wrong?

Mr. Willetts

My right hon. Friend the Member for West Dorset was setting out an overall framework for those Departments. In his announcement on public spending the other week, he specifically stated that there would be scope for reallocating money among specific Departments. The hon. Gentleman would have been better occupied in studying the fine print in the Chancellor's Red Book than in making up such questions on the basis of our website.

Mr. Geoffrey Robinson

rose—

Mr. Willetts

I have given way to the hon. Gentleman once, but I am in a generous mood, so I shall give way to him once more.

Mr. Robinson

The hon. Gentleman is most generous. We are trying to get at some of the detail of what the Conservatives have in mind for defence. A copy of "Community News" put out by the Conservatives says that we should not have put as much money as we have—£ 20 billion—into the Eurofighter. I can make the article available to the hon. Gentleman. Would he scrap the Eurofighter? Would that be one of the specific cuts?

Mr. Willetts

Let me quote from the authoritative statement made by my right hon. Friend the Member for West Dorset to calm Labour Members' anxieties, given that, just for once, they are troubled about defence. He said: I recognise, moreover, that there will inevitably be cases in which particular programmes, or even the expenditure of whole departments, will need to rise at a rate faster than this. Those words are from his original statement. He set out an overall envelope, but he did not set figures for individual Departments.

I now turn to what the Government are doing to encourage saving, because not a word on that subject passed the Chancellor's lips throughout his statement. He has not referred to saving in his last two Budgets; in fact, he has been attacking saving. He has attacked the form of savings that many people have been using, and that the Secretary of State previously encouraged people to take out.

Let me quote what the Secretary of State said in a debate on the subject in 2002, when a Conservative Member asked him a question about individual savings accounts. Asked what vehicle he would recommend people to save with and how he would encourage people to save, he replied: The hon. Lady specifically asked what we could offer to younger people to ensure that they were saving, and I quite reasonably pointed to ISAs".

He recommended ISAs. He added: The answer is the ISA, a more flexible vehicle which is attracting more savings, especially from younger people."—[Official Report, 2 July 2002; Vol. 388, c. 103.]

The Budget, however, represents an attack on the ISA. There has been an abolition of tax credits on ISA dividends, and a cut in the size of equity ISAs from £7,000 to £5,000. The cash mini-ISA will also be cut from £3,000 to £1,000. Does the Secretary of State stand by the advice that he would have given a young person 18 months ago, in the light of the depredations that the Chancellor has made in the specific form of saving in which the right hon. Gentleman was trying to encourage people to participate?

Let me also ask the Secretary of State about his welfare-to-work initiatives. As he knows, when I am not reading the fine print of the Chancellor's Red Book, I plough through the Department for Work and Pensions' evaluations of its welfare-to-work schemes. Ministers always come to the House to announce new programmes, but they never admit to the House what their evaluations show about the performance of existing programmes. If Ministers take any account of what used to be called evidence-based policies—they used to be proud of those—why does the Secretary of State not explain the latest research report to the House?

The report, published last month, is entitled "Evaluation of Lone Parent Work Focused Interviews: Final findings from administrative data analysis"; it is a light read if ever there was one. It says on page 12: The introduction of Lone Parent Work Focused Interviews the Jobcentre Plus stuff that the Secretary of State has just been talking about again— brought no detectable change in exit rates from income support for eligible new or repeat claimants".

It has had no effect. Why does the Secretary of State keep on churning out new initiatives that endlessly require further extension of compulsory interviews, when his own evidence shows that most of them have had no discernable effect? That is the challenge to which he needs to respond.

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

The hon. Gentleman has just suggested that it is important to review recent documentation and assess it properly. Would he therefore care to review the statement by the shadow Chancellor on 16 February, in which he said that there should be a "zero per cent. growth" in the defence and Home Office budgets? Would he care to compare that with the view of the shadow Defence Secretary, who said that that would be a savage cut? Which is it? Is the shadow Chancellor going to cut the defence budget or the Home Office budget?

Mr. Willetts

I have already clearly explained what my right hon. Friend the shadow Chancellor said in his statement on our public expenditure plans. We can see from the Secretary of State's brief speech, and from interventions, that the Government do not have a programme to reform public services, to tackle the crisis in our pensions or to avert the tax rises that would be inevitable if they were in office for a third term. Instead, we have spin, spin, spin from the Government.

Mr. Webb

Before he was interrupted, the hon. Gentleman was saying that the Government's programmes to get lone parents off welfare to work had been unsuccessful. To fill the hole in his pensions policies he aims to save £400 million a year by getting lone parents with secondary school-age children back into work. What research evidence makes him think that he can raise £400 million by doing that?

Mr. Willetts

We have clear evidence that when lone parents are older and their children are of secondary school age, for them to go out to work is in the best interests of the children, as outcomes for them are better We know from the introduction of jobseeker's allowance that nothing beats a simple, clear requirement that people should actively seek work. The Government have skirted that issue ever since they took office, but we would address it directly with our reform. That is the difference, and it is an important one.

I turn to the main activity in which the Chancellor has been engaged in his Budget, and in which he has engaged again today—

Mr. Patrick McLoughlin (West Derbyshire) (Con)

Before my hon. Friend moves on, will he say something more about savings, the issue that he has just addressed? It is disturbing that people are not being encouraged to save. Why, despite all the words used by the Chancellor in I he past, are there no measures to encourage saving in the Budget?

Mr. Willetts

My hon. Friend is right. We have just about the lowest savings ratio on record, and the Red Book shows that there is no prospect of improvement. The Budget documents show the savings ratio as 5.25 per cent. in 2003, 5 per cent. in 2004 and 5.5 per cent. in 2005–06. Those are historically low levels.

Mr. Andrew Smith

Does the hon. Gentleman accept that in 1989 it was 4.9 per cent., which is the lowest level of all?

Mr. Willetts

The Secretary of State knows that the savings ratio under this Government has fallen from the 10 per cent. that they inherited from us to approximately 5 per cent. now. There are no measures in the Budget to do anything to reverse that. The average savings ratio since 1997 is lower than it was during our period in office, and that serious problem needs to be tackled.

I shall challenge the Chancellor on the new sport in which he is engaged—fox hunting. He wishes to shoot our fox; that was the spin put on the Budget. We were told that that was its purpose: it had nothing to do with improving the performance of the British economy or avoiding future tax increases, but was all to do with shooting our fox. The Chancellor is engaged in an activity more redolent of my hon. Friend the Member for Mid-Sussex (Mr. Soames) than of Labour Members, but they are all engaged in fox hunting.

Let us get on the trail and see whether, by suddenly discovering the importance of reducing the overhead costs of government, they have carried out the brilliant political manoeuvre that they think they have. For years, the Chancellor has denied that there is a problem with waste and inefficiency; it is Opposition Members who have pressed for action on the problem of waste and inefficiency in our public services. Now, the Chancellor takes great pride in turning up and announcing in the Budget that he has suddenly realised that there is a great problem with waste, overhead costs and excessive numbers of civil servants, which he is going to reduce.

Will the Secretary of State for Work and Pensions provide a little more information about the announcements that were made? On the day of the Budget, he announced that he would reduce the number of civil servants, and said on the radio: I haven't ruled out the possibility of some compulsory redundancies.

The Chancellor said in his Budget statement that the Secretary for Work and Pensions is announcing today for his Department a gross reduction of 40,000 staff posts, a redeployment of 10,000 posts to new priorities, and thus an overall reduction over four years of 30,000 posts."—[Official Report, 17 March 2004; Vol. 419, c. 331.]

That is what many civil servants heard on their radios, but we know what the Government think about such sudden announcements of redundancies, as the Secretary of State for Trade and Industry said: I am not prepared to have our workers hear on the radio that they will lose their jobs or find that they have already lost their jobs through a text message."—[Official Report, 14 January 2004; Vi 416, c. 822.]

The Secretary of State for Trade and Industry is so het up about such announcements that she will penalise employers who do such appalling things. The Government have introduced legislation to fine employers who announce redundancies without proper consultation, and she said: I want these changes to lead to a 'no surprise' culture"— the Chancellor has not caught up with that, has he?— where employers and employees discuss common ground and find solutions to mutual problems. I want to see an end to the climate where people only hear about job losses from the media over their breakfast. What, then, is the Chancellor up to, announcing redundancies in this way?

Mr. Stephen Pound (Ealing, North) (Lab)

Like many honest citizens, I was immensely impressed by a recent photo opportunity involving the Leader of the Opposition in which great phalanxes of cardboard cutouts wearing bowler hats symbolising imminently redundant civil servants were paraded for the cameras. Would the hon. Gentleman disassociate himself from that?

Mr. Willetts

That was a recruitment freeze. We know how to do these things properly, which is the point that we are making—but I am afraid that the Government do not. The Secretary of State for Work and Pensions has the defence that the announcement was not new. The Chancellor did not say so, but that is what we have discovered. I have been digging in the departmental spending plans, and in the latest annual report the Secretary of State said: The strategic aim is to reduce the Department's workforce from just 131,000 whole-time equivalents in post at April 2003"— the figure is about the same now— to around 112,000 by March 2006 as the benefits of a significant programme of change and modernisation are realised.

That is what the Government were going to do 18 months ago, but we now know that those plans date back as far as 2002, which is when savings were first announced. What have they been doing in the two years since they first announced that 18,000 jobs were to be cut? A departmental spokesman was asked how many of those 18,000 job losses had been implemented since 2002, and she replied: That 18,000 was only a proposal.

The cut was "only a proposal", so the Government have not done anything about it. The Secretary of State must tell us why we should believe him this time when he claims that he is going to do something about it. He says that the savings are all due to the miraculous use of IT, but I warn him that his Department's record on saving money and staff through the effortless and efficient introduction of IT system leaves something to be desired.

The new computers at the Child Support Agency are still not working. Are we going to save money in that way? Will we make savings with the computers that delivered the new child tax credits so smoothly? The national insurance recording system did not send out any notification to people telling them to pay their voluntary national insurance contributions. Will the superb efficiency of that IT system be the means by which money is saved? The Government do not know how they are going to save the money, which is why for the past two years they have been announcing 18,000 staff reductions, yet have not achieved a single one.

Mr. Salmond

I have been listening closely to this part of the hon. Gentleman's speech, and I am still not clear whether those on the Tory Front Bench think the Minister is sacking too few civil servants, or too many.

Mr. Willetts

We want an efficient civil service, and I believe that it is possible to reduce staff numbers in the Department for Work and Pensions. Let me tell the hon. Gentleman, and Ministers, how it can be done. The only real way is not through gimmicks, proposals from which no action follows, or empty hopes based on IT systems. The only way is to reform the benefits system. That is how to save money. I shall give the hon. Gentleman some figures.

The average weekly administrative cost of delivering a payment of income support—one of those complicated means-tested benefits that the Chancellor loves so much—is £4.20. The administrative cost of delivering the basic state pension per week is 55p. The cost is hardly more than one tenth, if instead of complicated means-tested benefits, straightforward and simple benefits are paid through the basic state pension. The reason why the Chancellor cannot deliver savings is that he is always making the benefits system more complicated and spreading means-tested benefits. If he reformed the benefits system as we propose, it would indeed be possible to make savings. One makes savings by making tough decisions on the reform of benefits.

Rob Marris

rose—

Mr. Tom Watson (West Bromwich, East) (Lab)

rose—

Mr. Willetts

No. I should like the Secretary of State to explain to the House why we should believe that this time, Ministers will be able to save money on the overhead costs of government, when we know from their own evidence how they have failed before. I have the targets that they set in 2000 for "modernising welfare delivery". The aim was to introduce an improved, integrated modern service for delivering benefits". Those were their 2000 objectives. What happened?

One target was to reduce the average cost of processing retirement pension claims and maintaining the caseload by 20 per cent.

The response was that the Department would not meet that target. Another target was to reduce the average cost of processing Minimum Income Guarantee claims".

The outcome was that the Department would not meet that target, either. The Department also aimed to ensure that 90 per cent. of MIG claims are processed within 13 days".

The outcome was that the Department would not meet that target.

The Government have failed to meet their targets in the past. There is no evidence that they have taken the measures necessary to deliver the targets they have now set. The only way to do that is by serious reform of benefits. The only way to save money on the overhead costs of government is to engage in a serious process of public service reform. There is nothing about that in the Budget. That is why the Budget fails to rise to the challenge of the growing costs of government. That is why the Opposition have the correct approach and Ministers do not.

James Purnell

On a point of order, Mr. Deputy Speaker. May I have your guidance'? If I believe the shadow spokesman inadvertently misled the House, and I have a quote that shows that, but he was not able to take an intervention from me during his speech, what recourse do I have to enable him to correct the record?

Mr. McLoughlin

Further to that point of order, Mr. Deputy Speaker. Would it be a good idea if the hon. Gentleman came to Prime Minister's questions, where we see that every week?

Mr. Deputy Speaker (Sir Michael Lord)

Let me respond to the first point of order. The point that the hon. Member for Stalybridge and Hyde (James Purnell) raises is largely a matter for debate. The words that an hon. Member chooses to use in the Chamber must be the ones that he decides to use, and he must take great care with those words.

1.33 pm

Mr. Geoffrey Robinson (Coventry, North-West) (Lab)

I congratulate the Government on yet another fine Budget in a long series, and I congratulate my right hon. Friend the Chancellor on his intellectual and sheer physical stamina as he completed his eighth Budget. I think that it is true to say that come July this year he will have overtaken Lloyd George in the office of Chancellor, and looking a little further ahead he might even have Gladstone in his sights, who under Lord Derby's Administration, I think, did seven years and succeeded him as Prime Minister in the eighth. I am not sure my right hon. Friend would wish me to pursue that scenario any further on this occasion, but it is already clear that the Chancellor is entering the record books for the length of his chancellorship.

The Chancellor's achievements are much more than that. This is the longest period of growth that we have had. We have stability, and all the benign aspects of the present economic situation—jobs, interest rates, growth, low inflation—are derived from that overriding objective. We have avoided stop-go, which is a particularly vicious form of economic development. It leads to lost output and makes for terrible inefficiency as businesses wind down when they have only just wound up with investment that can no longer be used. A third aspect of stop-go that is particularly pernicious is that in the stop phase, it is always the capital projects that bear the heaviest burden of the cut. That has led to the progressive decline in our infrastructure.

We tried to deal with that. Some of us remember—some of us were even in the House in the '60s and '70s—under successive Labour and Tory Administrations the Wilson attempt through planning and the Heath attempt through the dash for growth. Both tried to get away from stop-go and, sadly for the country, both failed to do so. Then came the '80s and the '90s and the abandonment of any pretence of credence in investment in the public sector. It was left to deteriorate, with the result that as we enter the new century we must pick up the pieces and try to put back together again not just British Rail, but the outdated infrastructure in our hospitals, our schools and all of our transport. Those are the three prime areas.

Uniquely now we have achieved stability. Uniquely now we have a forward programme. Judging by the Chancellor's Budget arithmetic, there is every chance that we can sustain it and make a real difference. That could not be done in the year or two since we got going. It is no good expecting that after two years of high spending in the health service, we will suddenly reach the European level, the French level or whatever is considered the optimum that we should reach, at least in terms of the service provided. That cannot be achieved so rapidly, but we seem to have the prospect of it.

Just as we are about to sustain that programme and get a national effort behind it—and get the CBI behind it, as well as the unions—the Opposition mount an attack on it. We have hardly got going, but already they want to prove it is not working. On the basis of some tentative, experimental and sometimes quite absurd analysis, they are trying to undermine the national programme of rejuvenation and reinvestment.

Rob Marris

My hon. Friend mentioned earlier his concerns about the Opposition's plans regarding defence spending. and my hon. Friend the Member for Stalybridge and Hyde (James Purnell) mentioned the Conservative party website. May I remind my hon. Friend briefly what that website says? The right hon. Member for West Dorset (Mr. Letwin) is quoted as saying: The fifth component of the Medium Term Expenditure Strategy relates to all programme expenditure covered by departmental expenditure limits outside the NHS and school budgets. I have agreed with my Shadow Cabinet colleagues that the baseline for spending across all of these departmental budgets will be 0 per cent. growth for the first two years".

He goes on: I fully accept that holding programme spending within departmental expenditure limits other than the NHS and schools to a zero increase for the first two years and to what amounts to a zero real terms increase thereafter is a tough constraint.

Is that what my hon. Friend was talking about as regards defence expenditure and the Opposition proposals for that?

Mr. Robinson

I am grateful to my hon. Friend for that telling and pertinent intervention. I tried in vain to get either of the Opposition spokesmen in today's debate to tell us what they meant. One of my hon. Friends pointed out that they were threatening to axe the Eurofighter project to save £20 billion. If only they would come clean with the House, we would know where they stood. I am less concerned about those proposals, however, because I do not think that the Conservatives are ever going to get the chance to implement them. They are muddled, contradictory and impractical, and I think that they will be exposed as such during the months leading up to the general election.

I am seriously concerned about the Conservatives' mentality: as soon as they see the Government's success in investing to restore our schools, hospitals and transport systems, they try to prove that because our approach involves the public sector, it will not work. What grounds do they cite for those criticisms? One is the Office for National Statistics report. Normally, an ONS report would be taken very seriously and checked, but this one was never intended to be such a document. It was put out to provide an experimental look at the issues—and it is correct that we should monitor expenditure programmes that involve huge sums. I agree that we should get value for money and ensure that we are achieving the targets on which our money is being spent.

Let me just point out a few aspects of the ONS report to which the hon. Member for Havant (Mr. Willetts) and the shadow Chancellor referred. The measurements used in the report are "new" and "experimental"— that suddenly seems to have become the holy gospel—and they use a measure of output which is absurd. The hon. Member for Havant mentioned measuring outputs instead of inputs, so he will agree with that. The measurements also invite us to equate success with having bigger class sizes, more fires and more disease. That seems to be the way it 'works. The suggestion is that that methodology is bound to work. In fairness, the hon. Gentleman was trying to make this point. Quality is not mentioned, but what could be more vital to all our public services than quality?

When the shadow Chancellor tries to suggest that the difference between the investment going in and the output is equivalent to an inflation rate five times the national rate, he is of course using the same flawed methodology to reach that conclusion. His argument therefore has no intellectual legitimacy whatever. I hope that a better effort will be made by Sir Tony Atkinson, who has rightly been appointed by the Chancellor to examine these issues. I look forward to his report being produced in the summer. Let us hope that we can make sensible progress in that direction. In yesterday's debate, my right hon. Friend the Secretary of State for Health made some telling points against those who were trying to suggest that the investment that we are making is much greater than any output that is being achieved. I shall not read out all the figures that my right hon. Friend gave to the House yesterday, but some are well worth repeating. He drew attention to the fact that there were 113,000 more cataract operations last year than in 1997—a 70 per cent. increase.—and 19,000 more knee operations—a 69 per cent. increase. There were 950,000 more planned hospital admissions last year than in 1997—a 22 per cent. increase—and 6,000 extra heart operations will have been carried out by April. All that seems to be a very good indicator of the improvements that are being made.

Let us forget what the precise objectives were—I hope that we can also get away from the distortions that they can lead to in clinical priorities and in the organisation of hospitals—and consider the increases that are being achieved, even without referring to the 6.3 million people dealt with by NHS Direct and the 400,000 operations. I speak anecdotally when I say that many people in my constituency and elsewhere are finding a great improvement in the promptness, cleanliness and up-to-dateness of NHS care, along with the new hospitals resulting from the record hospital break-in programme. So there is no need to listen to the Conservatives' rubbishing, pessimism and downright irresponsible criticism. All we need to do is go out, look at the hospitals, and talk to the nurses.

There is a problem with consultants and with the European working time directive, which I shall come to in a moment. First, however, I want to say a word demolishing the argument about the European Central Bank paper, of which the Leader of the Opposition made much and in respect of which he published a plea in a national newspaper for help in solving the £70 billion mystery. That seems like a waste of money to me, but Tory party funds are obviously being replenished at a rate of knots. I am not sure that I can help him in terms of the way he posed his question, but I can help him in a different way.

The European Central Bank study is not an official bank study; the bank publishes side papers such as these which are written by people who happen to work for the bank. In no sense does it carry the imprimatur—let alone the authority—of the World Bank. It shows, among other things, that the UK, compared with about 20 countries —all the major European ones, America and the rest—has the most efficient transport system. That must give us a resounding sense of confidence. It also states that we come third, in terms of public sector figures, in administration, health, education and infrastructure. If the Leader of the Opposition has identified a mystery surrounding £70 billion, let me tell him how to find a $700 billion one. If we take the conclusion of the report on transport and apply it to the United States, we discover that, if the US were as efficient as we are, there would be a $700 billion problem for the right hon. and learned Gentleman to go after. Why is it that we are so much more efficient, and why are the United States wasting resources that, on that basis, could be calculated at roughly $700 billion?

Those examples, the ONS and ECB reports, do not give any objective grounds at this stage for suggesting that the huge investment that we are putting into the three priority areas is not producing the results that it must produce. We all have a deep national and personal responsibility to see that those results are achieved. I hope that the Tory attitude to this will soon be exposed as irresponsible. However, I would say to my right hon. and hon. Friends on the Treasury Front Bench that, in terms of getting ahead with the proper analysis and monitoring of what we are getting for our public investment—now that it is on such a scale and can be sustained for a period that would really make an impact after the years of neglect—they should set up a small monitoring team in the Department, along the lines of whatever Tony Atkinson comes up with, to ensure that we have authoritative grounds to prove not only that the programme is delivering as we expect it to but to expose the hypocrisy and shallowness of the Tory Opposition towards this major national input.

I should like to put to my Front-Bench colleagues one final point on the health service. It was not mentioned yesterday, and I want to take the opportunity to raise it now. There is a problem with the European working time directive, in relation to junior doctors and to the earlier changes that were made, which will pose a great challenge to the health service that could result in a drop in the level of service that it can provide. I would like my right hon. Friend the Secretary of State for Health to consider the provisions that we have in place to meet the requirements of the working time directive in relation to junior doctors, the spread of the provision and the worry among many consultants about the speed at which the changes are happening following the earlier structural changes. It is possible that, despite the money going in, we shall not do as well as we could if we could find a way of minimising the effect of the working time directive. That is a major consideration, and a personal worry of mine. I have many friends who are surgeons who never stop lecturing me on it, so I hope I am allowed to lecture my right hon. and hon. Friends in turn.

I am very pleased that, for the first time since the war, we can look forward to a sustained programme to put things right that have been wrong for so long. The Government can take great pride in that, and I would simply say to them, "Hold your nerve, and make sure that everything is clearly explained and justified as we go forward."

1.49 pm

Mr. Steve Webb (Northavon) (LD)

When my hon. Friend the Member for Twickenham (Dr. Cable) responded to the Chancellor's Budget statement last week he began in characteristically generous fashion. I propose to do the same. He begin by saying that the Chancellor's finest hour came in his first week in office in 1997, when he made the Bank of England independent"—[Official Report, 17 March 2004; Vol. 419, c. 340.]

My hon. Friend is too much of a statesman to make the partisan point that that proposal came in the Liberal Democrat, not the Labour or Tory, manifesto, but I feel no such compunction. I am certainly happy to argue that the Chancellor's finest decision was taken from our manifesto, a lesson that all Departments would do well to learn from. I welcome aspects of the Budget that have had relatively little attention, including potential simplification of tax treatment of pensions. Sweeping away eight different tax treatments must in principle be right. We have quibbles about the detail, but the idea of a simple method of assessing tax relief for pensions is a step in the right direction. We welcome the proposal, for which Liberal Democrats have long pressed, that people should be able to draw a pension and carry on working for the same employer, perhaps part-time, with no penalty. That seems entirely right and is very much in the spirit of flexible retirement, whereby retirement is not a cliff edge but a process. Those are the sort of things that we have wanted for some time. That sort of change needs to be allied with action on age discrimination, which, yet again, is sadly lacking in the Government's programme this year. Even so, one out of two is not too bad.

I want to focus on what I used to think was a Labour value: fairness. If Budgets are about tax, a Labour Budget ought surely to be about fair tax, yet this one failed to do anything to redress the fact that the poorest people in our society pay higher and higher proportions of their income in tax, while the highest earners pay smaller proportions. People simply cannot believe that the poorest in our society pay a bigger proportion of their income in tax, and not merely more than the national average but more than the richest pay. What sort of tax system can possibly lead to that?

The Office for National Statistics has produced estimates of the proportion of income taken in tax from the poorest 10 per cent. in society. In 1996–97—these are the figures inherited by the Government—the poorest 10 per cent. paid 44 per cent. of their income in tax. That is astonishing. Who would have thought, however, that five years later, under a Labour Government, 44 per cent. would have risen to 53 per cent? That is incredible. What, meanwhile, has happened to the richest tenth? They paid 33 per cent. of their income in tax, and they still pay 33 per cent. The lowest income earners in society are therefore paying a bigger proportion of their income in tax. How can that be right?

The Chancellor put his finger on one reason for that in his Budget speech. He mentioned council tax and how unfair it is, and he said that he would do something about it. Liberal Democrats thought that he might actually do something about it—that he had heeded not only our warnings, at last, but those from other organisations, which say that it is time the council tax was replaced by a fair tax related to ability to pay. Local taxes make a major contribution to the heavy tax burden of the lowest paid and pensioners. Out of the 53 per cent. of their income that goes in tax, 12 per cent. goes in local tax after rebates: even after council tax benefit has been taken into account, the poorest people in our society pay 12 per cent. of their income in local taxes. How can that possibly be sensible?

In a Budget debate, it is appropriate to look at what has happened to our tax system over the longer term. Over the past couple of decades, direct taxes, which relate to people's ability to pay, have gone down. The standard rate of income tax was 33 per cent., I think. when Mrs. Thatcher came to power, and it has fallen by a third. National insurance rates have gone down and come back up again, and are broadly what they were about two decades ago. As a result, the overall balance is that direct taxes, which reflect what one can afford to pay, have gone down, but indirect taxes have shot up. VAT has more than doubled. The balance of the tax system has therefore shifted. Those on lower incomes pay more tax, while those on higher incomes pay less. Who in this Chamber thinks that that is fair?

Mrs. Patsy Calton (Cheadle) (LD)

Mr. Blair.

Mr. Webb

My hon. Friend suggests from a sedentary position that the Prime Minister might feel that it is.

The Budget was a missed opportunity to reduce the tax burden on those who are least able to pay. What did we get from the Chancellor? We got a pre-election bribe of £100. According to his spending plans, that £100 is not factored into any future spending plans. We can therefore assume only that it is intended to keep him going up to the next Budget. Britain's pensioners do not want to have to wait for the annual rabbit from the hat that the Chancellor produces at the end of his Budget to get headlines. Pensioners deserve more respect than is shown by their having to wait for the annual gimmick to get a decent income. They should have a decent income as of right, and we should have a fair local tax system, under which that £100 would not have been necessary.

Mr. Watson

Is that a different £100 to the £100 that the Liberal Democrats promised to cut off council tax bills at the recent Brent, East by-election?

Mr. Webb

The hon. Gentleman will find that the £100 proposed by the Liberal Democrats in our last alternative Budget was not just for pensioners but for all council tax payers, as part of the transition to a local income tax. If he is saying that he supports that transition to a fair local tax system, he and I are probably of one mind.

Mr. Watson

To clarify matters, I will send the hon. Gentleman the "Focus" leaflet from the Brent, East by-election, in which the Liberal Democrats said that they would cut council tax bills by £100. If that was not a bribe, what is?

Mr. Webb

I have just pointed out that the £ 100 from the Chancellor will not continue beyond one year. The departmental spending plans are for £475 million for one year, then a general election, then nothing. That looks a bit like a bribe. We want to cut the burden of local taxation on those least able to pay, every year, through moving to a local income tax system. That has been our consistent policy for a long time.

There was something odd about the way in which the Chancellor presented the argument for the £100. He was saying, "Because council tax is such a burden on pensioners and others, we will put in £100 this year." But this was the year in which we were told that the Government had given extra largesse to local authorities and in which increases in council tax would be far lower. Why, therefore, if the £100 is needed now, was it not given last year, when council tax went up far more than it did this year? Well, of course, the answer is that that was two years before the election, not one.

The Chancellor not only offered the £100 but planned a 7 per cent. council tax rise for next year. Is not that a classic example of giving with one hand and taking with the other? For someone paying council tax of about £1,000, the 7 per cent. will be about £70, so it will not be long before the increase that has just been given is taken away.

The Chief Secretary to the Treasury (Mr. Paul Boateng)

Will the hon. Gentleman tell the House how those least able to pay will benefit from the £934 average council tax per dwelling this year charged by Liberal Democrat councils, which compares with £818 for Labour councils and £1,008 for Conservative councils?

Mr. Webb

It is sad when a senior Treasury Minister must resort to such implausible comparisons. [HON. MEMBERS: "Answer."] I will answer the question. Council tax fills the difference between what councils spend and what they get from central Government, which determines about three quarters of the amount. We all know that the Government have reordered grant allocations to favour, as I recollect —I am a bit hazy—urban authorities or Labour authorities. As the National Audit Office found when it looked at last year's large council tax rises, when grants went up substantially, council taxes did not have to increase by so much.

Mr. Willetts

Does the hon. Gentleman agree that one reason why the Chief Secretary's figures were so misleading was that he did not allow for different bands and different composition of properties in different areas? If he looks at the average band D council tax in relation to control of different local authorities, he will get a rather different picture.

Mr. Webb

The hon. Gentleman is right. In my local authority area, the average house is in band B, but that is not reflected in the figures that are normally quoted, which can be used to support almost any argument. The truth is that council tax is an unfair tax. The Chancellor acknowledged that in coming up with a one-off gimmick at the end of his Budget statement. The real answer, though, is a decent pension for pensioners and a fair system of local taxation.

Let me say something about staff cuts at the Department for Work and Pensions. What has not been mentioned so far, although I think the hon. Member for Havant (Mr. Willetts) alluded to it, is that the Department employed 97,000 people in the Government's first year in office, whereas it will employ 130,000 in the current year. The number of staff has risen by a third, and we are expected to applaud the Department for making tough choices in reducing it by about a quarter. Why has staffing risen so much, given that the Department is always telling us that unemployment is down and fewer lone parents are on income support? Surely that should mean that the Department needs fewer people to administer all the benefit claims.

As the hon. Member for Havant said, the fact is that the Government have made the system so complicated that numerous people are needed to do all the sums. Moreover, the Government highlight the claimant count in relation to unemployment, while glossing over the fact that the number of people claiming disability-related benefits is on the increase. Many young people who are not included in the claimant count may not be in paid employment but are economically active in some other way. The Government claim that everything in the garden is rosy, but that does not translate into less administration for the Department because there are an awful lot of people on benefits to whom they do not refer.

Mr. Andrew Smith

I apologise for missing the first part of the hon. Gentleman's speech. I was called out of the Chamber. Does he accept that the rate of flow on to disability benefits has fallen by a quarter since the Government came to power? The total number of people on benefits has continued to rise, but it has done so at a diminishing rate because of the length of time for which people stay on those benefits. That is why our pathway to work proposals to help people out of inactivity and into work are so important.

Mr. Webb

It is always gratifying when the second derivative is raised in the House. When that happens, I feel that calculus was worth it after all. The Secretary of State is right in saying that the rate of inflow has slowed, but it is a question not of when people go on to benefits, but of how long they stay on them; the outflow rate is critical. I realise that the Government have a programme to tackle the difficulty of getting some of these folk off benefits, but successive Governments have experienced the problem of folk flowing on to incapacity benefit and its predecessors and then getting stuck. The Government are overselling what has happened, especially in the case of young people for whom sickness is less of an issue.

Mr. Willetts

As the hon. Gentleman knows, the Secretary of State's figures were misleading. The average time on incapacity benefit has increased since the so-called reform involving the introduction of means-testing for new claims. People are reluctant to go off the benefit, because they fear that if they start claiming it again, they will be means-tested. The Secretary of State mentioned the linking rules, but those must be applied for in advance, and many people do not do so.

Mr. Webb

The hon. Gentleman is right in every particular, although I seem to recall that he was very influential when means-testing was applied to what was then invalidity benefit, when company pensions were offset against invalidity pensions, so he is not entirely blameless on that front.

Mr. Willetts

I was trying to help the hon. Gentleman.

Mr. Webb

Yes, and that is all the thanks the hon. Gentleman gets.

The hon. Gentleman was entirely right when he spoke about the savings in staff numbers at the DWP that were supposed to have been made through technology. Excuse me, as my children say, but where are these efficient computer systems? Are they in the Child Support Agency, where even Ministers are beginning to despair of the system ever working?

Mr. Watson

Will the hon. Gentleman give way?

Mr. Webb

I have already given way twice to the hon. Gentleman. Are the efficient computer systems in the tax credit system, which was a complete shambles at the outset? I have not seen a single efficient computer system in the Department, yet the cost of tens of thousands of workers has supposedly been saved. Our principal concern is the welfare of those receiving benefits and pensions. They are entitled to an efficient service. If the Secretary of State plans staff cuts on the basis of efficient computers that do not exist, our constituents will suffer in terms of their pensions, benefits and tax credits.

Mark Tami (Alyn and Deeside) (Lab)

Is the hon. Gentleman really telling us that he would cut the n umbers by far more?

Mr. Webb

No. We are saying that we do not support cuts unless it can be demonstrated that efficiency has been delivered to our constituents. We do not support the idea of cutting staff when IT systems are not producing a more efficient service.

Our proposals for reform of tax and pension credit would reduce the need for bureaucracy. If we provided a better state pension and reduced dependence on means-testing, the administrative burden would be smaller. We propose to cut administration and bureaucracy, but we will make no hypothetical assumptions that computer systems will be improved.

Rob Marris

The hon. Gentleman implied that the number of DWP staff—97,000—had risen by 30 per cent. in three years. Since the Department has existed for only three years, perhaps he could clarify that. As for computerisation—my right hon. Friend the Secretary of State will correct me if I am wrong—I believe that the Department has 36 computerisation projects on the go, as well as those established since 1997. The hon. Gentleman mentioned two or three that have undoubtedly had problems—I speak as a member of the IT Sub-Committee of the Select Committee on Work and Pensions— but many DWP computer systems are working well. I suggest that the hon. Gentleman has not heard about those simply because they are working well.

Mr. Webb

As the hon. Gentleman is knowledgeable about these matters, I am sure he will agree that the computer projects that affect the vast majority of our constituents are the tax credit computer, which affects every family in the land, and the pension credit computer, which will probably affect every pensioner in the land if the Chancellor has his way and which affects half of them already. The Child Support Agency computer affects 1 million parents with care, and probably a further million. These are substantial computer systems, all of which have a track record of being a shambles. The national insurance recording system, which applies to every man, woman and child as well as several million dead people, is a shambles too. I am delighted to learn that another 30 systems may be working, but I think that the record is bad enough as it stands.

The hon. Gentleman asked about my statistics relating to staff numbers. According to table 6 of the DWP report, headed "Staff numbers 1997ߝ98 to 2005–06", which includes whole-time equivalents, the figure for 1997–98 is 97,000 and the one for the current year is 130,000.[Interruption.] Those figures are in the Department's own report. I do not know where the Department got the numbers from if they did not exist.

As the hon. Member for Havant observed, one thing that was mentioned only briefly in the Budget statement—we should probably be grateful that it was mentioned at all—was the Government's U-turn in deciding that paying the working families tax credit through the pay packet was a mistake. One of the first Bills whose progress through the House I followed was the one that introduced that credit in 1998 or thereabouts. The only difference between working families tax credit and family credit is payment through the pay packet. When we opposed that, we were patted on the head and told that we did not understand that people needed to learn a lesson. As the hon. Member for Havant says, that is a metaphysical argument. It was suggested that people were capable of understanding that work pays only if the money was in their pay packets. First child tax credit was taken out of the pay packet because the Government accepted our argument that mothers were the best recipients of benefit for their children. Then the Government finally accepted the "burden on business" argument that leaving the fag-end of tax credit in the pay packet—often £6 or £7 a week—was simply not worth it.

Business, families and parents would have been saved an awful lot of hassle if the Government had only listened to the Liberal Democrats in the first place—I am glad to see the hon. Member for Havant nodding at that—and to others who supported us.

The working families tax credit has been changed, but the child tax credit has received almost no attention. It was frozen in the Budget —the amounts for families and the thresholds were frozen. Will it he one of those things that is nibbled away every year so that families on middle incomes do not necessarily spot what is going on but realise, as time goes by, that their support is being eroded? Perhaps the Chief Secretary will tell us whether that is a deliberate policy. Is it the Government's policy to freeze the family element and thresholds indefinitely so that the tax credit is more heavily concentrated on families on lower incomes? That would not necessarily be a bad policy; it could provide a fairer structure However, the Government should be open and up front about it rather than simply forgetting to index the credit each year.

At the end of the financial year, our constituents will discover, if they have not done so already, that their family finances are on a rollercoaster. The Government will examine people's child tax credit assessment for 2003–04 and try to validate it. They will ask for income information in the following six months and check whether the amount paid in 2003–04 was right. Many people's circumstances will have changed since they filled in the form in January 2003, on the basis of their 2001–02 income. Many people will get a letter or a knock at the door and be told that they were paid the wrong amount in 2003–04, that the amount that they had started to receive in 2004ߝ05 was also wrong, because the figure continued at the same rate as for 2003–04 and that the overpayment for 2003–04 and the first part of 2004–05 will therefore be recovered. That will be so severe that families will probably face hardship. They can then claim a hardship payment that will reduce the clawback but leave a larger amount to be clawed back at the end of 2004–05. That will be carried over into the award for 2005–06, when circumstances will have changed and the fiasco will continue.

Incomes will go up and down, as if on a rollercoaster, and people will never have certainty. They will never know whether what they currently receive is theirs to spend without someone trying to claw it back. Assessment over a year means that every change of circumstances has the potential to affect the award. Both partners' incomes, the number of children, whether partners stay together or get different jobs, and suchlike changes must be documented and perhaps reported because they might affect the award. Has not bureaucracy gone too far? Is not it time to go back to fixed awards—possibly with some flexibility for extreme changes of circumstances—which would save massively on bureaucracy and have the great beauty of ensuring that our constituents knew where they stood? At the moment, they do not. I hope that the Chancellor and the Government will consider that.

In his introductory remarks last week, my hon. Friend the Member for Twickenham (Dr. Cable) mentioned imbalances in the economy, referring to personal debt and credit. He calculated that the personal sector owes a trillion pounds and that that equals the combined external debt of Africa, Asia and Latin America put together. That suggests the scale of the debt mountain, but we heard precious little from the Chancellor about tackling personal debt.

Let me give one example that has arisen today. My researcher approached me for a pay rise—a common experience for me. She had received a letter from Barclays bank—her bank—offering her a pre-approved loan of £20,700. The bank suggested that she might spend it on a holiday or a car. I grant that she has expensive tastes, but that would pay for a pretty nice holiday or car. Her bank, which knows how much she earns, pre-approved the loan. The monthly repayments would be £934. I shall not say what percentage of her take-home pay that is, but it is more than half.

Those who want to save money are confronted by bureaucracy. I recently wanted to put some money into a cash individual savings account. I had not contributed any money for a year and I had to fill in all sorts of forms to justify being allowed to save in that ISA. However, anyone who wants to borrow money simply waits until an offer lands on the doormat.

Mr. Salmond

I accept that the subject is serious, but I hope that the hon. Gentleman will not leave us hanging: did she get the pay rise?

Mr. Webb

We are still in negotiation.

The example highlights the absurdity of the position. Although I only employ staff who are discerning about financial matters, and my researcher will obviously reject the loan, the ready availability of such loans underlines the problem.

My hon. Friend the Member for Twickenham suggested a 10-point plan for tackling personal debt. I shall not go through it in detail—hon. Members have already heard it but I emphasise a few simple suggestions. Every year, the Government publish an assessment of the sustainability of Government debt. What about the sustainability of personal debt? Should not the debt bubble form part of the annual assessment? My hon. Friend suggested a curb on the tidal wave of unsolicited credit promotion and attaching some sort of credit health warning to offers such as that which I have described. That is a pretty good idea. He suggests that we should stop penalties for people who pay back their debts early. People who currently pay their debts early can effectively be fined for doing so.

The Budget should have dealt with such issues, which affect the long-term structure of the economy, but it did not. The Chancellor produced a rabbit from a hat instead of serious reform of local taxation. There was no action on the unfairness of the tax system overall, and a failure to tackle the fundamental imbalances of the economy. Liberal Democrats were, to say the least, disappointed with the Budget.

2.15 pm

Mr. Martin O'Neill (Ochil) (Lab)

I was unfortunately absent for the Chancellor's statement because I was in south-east Asia with the Select Committee on Trade and Industry. We all know that organising such events takes time and their dates tend to be set in concrete, so it is difficult to avoid missing occasions such as the Budget statement. From reading the debates and anticipating what would happen, it is fair to say that the Government got the expected response from those who support us, and expressions of frustration from those who oppose us because the Chancellor delivered so much of what he promised.

It is interesting to go abroad and talk to people about one's country's economy when the annual health check or MOT that constitutes the Budget is published. We visited Malaysia, Thailand and Singapore —the tiger economies, the sharpness of whose claws has been honed and which are now back in business in a big way. It was interesting to note that their agendas are similar to ours in several respects. They attempt to control public spending and use the money as wisely and effectively as possible. They spend money on knowledge-based industries and are committed to science. In this country, that is evidenced by the commendable agreement that the Chancellor reached with the Secretary of State for Education and Skills.

Mr. John Hayes (South Holland and The Deepings) (Con)

Such prudent spending of public money depends on its effectiveness being measured. It depends on a test of productivity. Does the hon. Gentleman acknowledge that that is singularly lacking in the Chancellor's analysis? The Chancellor made many statements about input but few about output. Surely it is productivity that really counts—bang for the bucks, one might say.

Mr. O'Neill

One of the problems that the Government experienced was that, at least for the first two years, they did riot spend nearly as much as we would have liked because they set themselves the priority of getting public finances under control. Since then, we have begun to spend more money. As has already been said, the performance and outputs in, for example, the health service are beginning to show consequent improvements. There have been considerable advances in primary education but the secondary sector and some aspects of higher education have yet to experience them. The jury is still out on several aspects of public expenditure and we have to work at greater efficiency. No Labour Member would deny that that was one of our priorities. Indeed, 10 years ago, when John Smith died and we were assessing his career, we remembered that one of the points that he repeatedly made was that economic efficiency and social justice must go hand in hand. They are two sides of the one coin, he said. Creating wealth in order that we can spend it on desirable and necessary social improvements is only part of it. The other part is ensuring, as we are doing, that we invest heavily over the next decade in science, science education and the application of science. That is the only way in which we can make the quantum leap from the kind of economy that we have now to the kind that we need to sustain ourselves.

I find no echo of that among Conservative Members. There is not much in the shadow Chancellor's controlled spending plans to encourage knowledge-based industries or to achieve improvements in areas that require substantial advances if we are to ensure that the economic growth that we have already achieved is sustained.

Mr. Hayes

The hon. Gentleman is right to say that economic success is the prerequisite of delivering social justice. A prosperous society can invest in improving the lot of all its people, but I hope that he is not suggesting that social justice, for which I share his enthusiasm, needs to be measured in economic terms. Social justice is about delivering far nobler objectives.

Mr. O'Neill

A number of my constituents are happy when social justice includes a bit of economic assistance and advance. When we had 20 per cent. unemployment in my constituency. it was a far less happy place than now, when unemployment is between 4 and 5 per cent. Labour Members argue that we cannot have economic efficiency unless we have a socially just society in which the divisions and difficulties are diminished. It is perhaps part of the fragility of some of the Asian economies that insufficient attention has been given to the move towards a more socially just society. It is clear that they are making tremendous advances in areas such as the development of the biotech industry, in respect of which we are in as good a position as any other country apart from the United States, and in a better position than most. That applies in a number of IT sectors as well, but we need more of that.

Equally, we need to ensure that, when we spend money on training, it does not merely get people into apprenticeships. One thing that Professor Porter identified in his studies is the need to look at the fact that, once people have tradesmen's qualifications and have completed the apprenticeships, there needs to be subsequent improvement in those skills across the work force. That is not happening. We are getting people out of university into what remains of manufacturing but we are not getting sufficient numbers of people trained beyond the basic requirements to do the job. If we are going to have the kind of investment that we want in new equipment and machinery, we have to have skilled, trained people who are capable of using it. That is one of the areas to which the Government will have to give more attention. We are making the necessary start and improving the position but we have to go further. We have continually and constantly to replenish the capabilities of the work force to meet the new challenges. It is through that that we will get quality improvements, and that is as applicable in the public services as in the private sector. If we are going to put new equipment, new scanners and new forms of clinical working into hospitals, we have to ensure that there are people there who are capable of utilising that equipment. If we are going to put computer systems into the Department for Work and Pensions, we have to ensure that they are the right ones and that people use them.

If one thing is evident, it is that across the United States and indeed in some parts of Britain, the introduction of computerisation to clerical working has resulted in massive increases in productivity. Indeed, it could be argued that the improvement in the American economy is in no small way due to the introduction of sophisticated IT systems. Not all of them work first time but they work eventually and, when they do, they make fantastic improvements, which can be seen not just in the output per worker but in the reduction in the need for many workers.

An incredible amount of worthwhile, important work is undertaken by low-paid civil servants. None the less, it is drudgery. It would be better if we could get them out of that drudgery into jobs that could better utilise their capabilities. I have no great problem with the reduction in the numbers of people that we are seeking in areas of the civil service. However, I want to ensure that that is done sensibly. I take the point that the hon. Member for Havant (Mr. Willetts) made about the need for proper systems, so that arrangements are in place and people can leave in a decent and orderly fashion. I am confident that, in most instances, those people will be able to secure employment elsewhere. The shift of resources from the public to the private will create the kind of job opportunities that those people will be able to pick up. However, I am a wee bit worried when I hear the old story that it will be all right, turnover will take care of it and there will be no compulsory redundancies. There is always a downside to no compulsory redundancies: we find that there are square pegs in round holes and that they are there merely because they are there.

Often, one finds that, when people hear that their jobs are going to go, the ambitious and effective ones leave and others hang on until the last minute because, perhaps correctly, they anticipate being able to secure reasonable redundancy arrangements, although I cannot imagine that the civil service redundancy arrangements will be particularly generous. I would like to think that they will be better than the state minimum but I am not sure that they will be much in excess of that.

There is no easy way of reducing staffing, but there is a danger in believing that if we do not make it compulsory it will be all right. We have seen in too many areas that the wrong people stay and sometimes the better people leave early. There is a danger there, but Ministers have raised the issue openly and transparently. Let us face it—there is a long way to go before the figures are achieved. I am happy that, with good will, we can deal with that issue. At the same time, the civil servants who perhaps need less attention paid to them than they have received already are those in Customs and Excise who have been suggesting the strip stamp scheme.

I represent a constituency in which, sadly, whisky is no longer produced. For many years, we distilled grain whisky there, which hon. Members will know is the rather less sexy constituent of a blend. It is actually not that potable without malt alongside it. I have had it and it is not the best alcoholic experience I have ever had. I think that one can say that grain whisky involved more of a chemical process. It is like vodka and other such drinks. One can produce it pretty easily in what is akin to a chemical plant.

In my area, we no longer distil but we produce virtually 60 per cent. of all the bottles into which the Scotch goes. About 65 per cent. of the whisky in cask storage in Scotland is in my constituency, so I have more than a passing interest in the matter. I also have the Diageo laboratories and a number of fascinating attendant parts of the whisky process. They depend on a healthy Scotch whisky industry, as do many workers across Scotland. At present, I am not convinced that the rejection of the Scotch Whisky Association's proposals is necessarily the best way of dealing with the leakage of duty from the warehouses. That is a serious problem: it is as if people were opening the bottles and pouring the whisky away, although they are not doing that but selling the bottles in dodgy places. There must be far greater security. The proposals put forward by the Scotch Whisky Association identified that issue and sought to deal with it by trying to create a more secure system for the warehousing of bottles.

Although the whisky industry is dominated by big players, it is also quite fragmented. Many bottling operations are conducted by firms that might not at the moment have the security facilities in place for the storing of strips, or that are perhaps not equipped to have the strips put on the bottles in the first place. I know that it has been suggested that money will be available, and one can only hope that it will be sufficient to fund the scheme, but I have my doubts. I do not think that there will be the backing that is needed.

What disturbs me is that the Chancellor, quite reasonably, issued a challenge to the industry in the autumn statement. The industry has come up with a scheme that has intrinsic attractions: it could be implemented relatively quickly, savings could be made quickly and it could be tested even before the Government's scheme is in place. It would have been more sensible for the Government to accept the Scotch Whisky Association's offer, to scrutinise its proposal and to screw it down. Even if they had made it as damn difficult as possible for that proposal to be introduced, they should nevertheless have given it a chance, and perhaps delayed the stamp scheme for another year.

I recognise that there is a problem that must be addressed, but the whisky industry's option should have been considered more seriously than it has been. It was rejected rather more quickly than I should have wished. I am not wedded to the association's proposals, nor do I necessarily think that we must never have strips, but if we do not need them, let us not have them. Another year's delay would have given both sides in this argument the chance to address the issues. I am disappointed, because a good rapport had been established. The Chief Secretary to the Treasury was instrumental in rejecting the strip scheme in a previous Parliament, so I am sorry that there has been a change in attitude, and particularly sorry that my right hon. Friend has handled the matter as he has. I thought that he handled it previously with considerable tact and diplomacy. He has been listening to people—this is the point with which I started—whose evidence to the Select Committee on Scottish Affairs was, to say the least, of unimpressive quality. I chair a Select Committee, and I know that when a Committee uses the word "unimpressive", it is usually talking about something that is awful with several other adjectives in front of it—although I put it no more strongly than that. My right hon. Friend has been sold a pup if he has accepted some of the evidence put before the Scottish Affairs Committee, and I hope that he will re-examine the issue between now and the introduction of the Finance Bill. I do not think that anyone was impressed by the strength of the arguments that certain people put before the Committee, and I would like to think that, as the reasonable man that he is, he might look at the matter again.

That is a relatively small complaint in the context of what has been—[Interruption.] The hon. Member for Banff and Buchan (Mr. Salmond) has nothing else to complain about in the Budget. That is the truth of the matter, although if he contributes later, I shall read his comments with interest.

Angus Robertson (Moray) (SNP)

rose—

Mr. O'Neill

I shall not give way because I have almost finished.

The Budget, which I heard about in headline form when I was out of the country and whose details I read when I returned, is evidence of the tremendous achievements of this Government and particularly of my right hon. Friend the Chancellor. With his grit and determination, he has refused to be deflected from his purpose. We know that he can be an awkward so-and-so at times, and he is certainly determined, but he has built up a foundation for the British economy that is envied across the world. It is certainly envied in Europe, and it has been built up on the basis of the shrewdness, grit and courage that we know that he and his colleagues posses.

I hope that next year, we will have the opportunity to have a Budget of a similar order. As I said earlier, it meets the challenges set down by John Smith of social justice and economic efficiency. If we can sustain that effort, we can sustain the unity of our people and our sense of purpose, and move towards the achievement of the knowledge-based economy that will ultimately be the cornerstone of Britain's future economic success.

2.35 pm

Mr. Kenneth Clarke (Rushcliffe) (Con)

I begin by referring the House to the register of my business interests, which I have placed in the Register of Members' Interests. My interests do not include the Scotch whisky industry, except as a satisfied consumer, and I wish the hon. Member for Ochil (Mr. O'Neill) well in looking after the best interests of that great British industry. However, I do not otherwise agree with him, and my judgment on the Budget contrasts rather starkly with his.

The Budget poses one overriding question to the British public and to this House: when will the Chancellor next raise taxation rates, as he will be forced to do if he and his party stay in office? The public and the House should also ask what the impact of the next stage in the raising of the tax burden and our tax rates would be on this country's medium and longer-term performance. Those questions are left open, and the Chancellor deliberately avoided them in his presentation to this House. Not only are we right to press the question of tax; recent opinion polls suggest that the public are realising that that is the big question facing the country after this Budget.

The Chancellor used all kinds of means to try to obfuscate that question, such as crazy attempts to open differences between the parties, suggesting that there would be a tremendous cornucopia of goodies for the public sector if he stayed in office and ruthless and appalling cuts if he did not. Those matters are not the issue at all. The question is how we should now address the problem in public finances, which, above all, is what a Budget should be concerned with. What is the responsible and prudent way of proceeding if we are to keep intact the long period of sustained growth with low inflation? The Chancellor is so proud to preside over the last two thirds of that achievement, although unless he is very careful, he will find that he is presiding over its smouldering embers.

The Chancellor has misrepresented the background. He is actually going in for the toughest spending round that new Labour has ever experienced, and has decided that the extraordinary rate of growth in public spending that we have seen since 2000 is not sustainable, as some of us on this side of the House have been repeatedly pointing out to him for the past few years. He is therefore slowing the rate of growth in public spending to a level that new Labour Ministers have never experienced before. He is, however, exempting health and education from that, largely because, in the case of health, he has already recklessly committed himself to enormous further increases for the period ahead; and, in the case of education, because he read an article, I think inThe Independent, that pointed out that he was in danger of reducing the share of gross domestic product spent on education unless he announced something rapidly in the Budget.

In my judgment, the Chancellor is going to find that there is blood all over the carpet in the Departments of Whitehall between now and this summer, when the House will hear his most important decisions about the allocation of priorities among the Departments. There is not a new Labour Minister in office who has any experience of having to restrain the demands of his Department or resist the more left-wing and compelling single-issue lobbies, but that is what many of them will now have to do. I see that the Chief Secretary to the Treasury is looking enigmatic, as Chief Secretaries always must at this stage of the operation.

To say that there is no problem on the Labour side but that there is a huge problem on ours is to create an artificial divide. The actual difference between us is that the Chancellor claims that it is good enough to reduce the public spending growth rate to about 3.2 per cent. a year in real terms, while my right hon. Friend the shadow Chancellor suggests that it is desirable to reduce the continued growth in public spending to a somewhat lower figure. Both methods pose certain difficulties.

Mr. Watson

Will the right hon. and learned Gentleman give way?

Mr. Clarke

In a moment.

If the current Chancellor were still a prudent Chancellor, and if he truly could not slow down the growth in public spending beyond his projection, he should—if he were behaving responsiblyߞhave increased taxes in this Budget. That is what the Finance Minister of a benign dictatorship would do—if he accepted the Chancellor's proposition that it is impossible to slow down the growth in public spending below his proposed envelope. Opposition Front Benchers say that the slowdown must go further, although even doing that will still not prevent public spending from growing. My right hon. Friend the shadow Chancellor, should he take office—I wish him well if he does—thereby hopes to avoid the tax increases that would otherwise inevitably be forced upon him by the current Chancellor's legacy.

What is not sustainable is the Chancellor's current position. He says that he can maintain the growth in spending, and simply denies that that poses any tax-raising problems. Let me be fair to him: he seems to believe what he says, and he has acquired from the Prime Minister the technique of firing himself up with—in his case—sincere passion. But I find it surprising that he believes what he says, which is why I say that the true question is: when will he face up to the fact that he is heading firmly on a course that will require further increases in the rate of taxation? I shall now give way to the hon. Member for West Bromwich, East (Mr. Watson), who has been waiting patiently.

Mr. Watson

I am grateful to the right hon. and learned Gentleman, for whose experience I have great admiration, for giving way. The shadow Chancellor said that he will match our spending commitments in respect of health and schools, but he also said: I have agreed with my Shadow Cabinet colleagues that the baseline for spending across all of these departmental budgets will be 0 per cent. growth for the first two years".

Can the right hon. and learned Gentleman interpret that sentence for me, and does he regard that commitment as a real-terms cash freeze?

Mr. Clarke

It is, and as I understand it, an envelope has been proposed that aims at a cash freeze. My right hon. Friend the Member for West Dorset (Mr. Letwin) was teased earlier about what such a cash freeze would mean for particular Departments. In my opinion, which is based on some experience of public spending rounds. one has to get below cash in some Departments in order to achieve real-terms growth in others. I do not know how far the current Chief Secretary will be allowed to go in the run-up to an election, but my personal preference—subject to the qualification that I have not seen the documents or heard the arguments advanced by the various Departments —would he to go straight to the Department of Trade and Industry, which is spending vast sums at little benefit to trade and industry. The £2 billion budgets—and rising—of the regional development agencies are of questionable value, and there are other parts of Whitehall that could benefit from a zero-based budget. They should be asked to begin by justifying why we are engaging in public expenditure on this scale in the first place. Instead, for next year we should return to those policies that appear to be achieving in practice a worthwhile and measurable benefit to the general public.

Mr. Oliver Letwin (West Dorset) (Con)

I hope that my right hon. and learned Friend will note that we shall seek his advice on these matters, and that the advice he is giving to the House is music to the ears of some of us.

Mr. Clarke

I look forward to my right hon. Friend and his colleagues having a go at a public spending round, because that will certainly be needed.

The reason why the Chancellor will not answer these questions is obvious. Not surprisingly, the Blair Government are following exactly the same course as the Bush Administration, albeit a few months behind. Both are allowing a somewhat unsustainable period of economic growth to run, with their fingers crossed. The Bush Administration are trusting that they will be reelected in November, and it is a matter for American politicians, rather than for me, as to how one then begins to sort out the fiscal mess.

In the Chancellor's Budget speech, this Government signalled more clearly than ever before that they hope that the economy will get them to May or June 2005, that they will still be being praised in the terms used by the hon. Member for Ochil, and that they will win the election. They hope then to sort out the mess, but I hope my right hon. Friend the Member for West Dorset will have the chance to do so, because mess there certainly will be as a result of such irresponsibility.

The Chancellor is very selective in his use of history, in that the only historical comparisons that he ever makes are with the late 1980s. That is his benchmark for everything, and he blames our party interminably for everything in that context. The entire history of economic policy since the war shows that once the public finances start to deteriorate—once we start sliding into debt that appears unsustainable—the longer one delays the necessary remedy, the more powerful the later consequences. That is exactly what this Chancellor is experiencing.

Total disaster has not hit the Chancellor because he got his economic growth forecasts right. I said that he would be lucky if he achieved them, and he has. As the Government keep their fingers crossed and move towards the finish line in June, it is a case of "So far, so good.? Growth has held up better than practically every independent expert in the country expected, but it is neither healthy nor sustainable growth. Although we have been doing quite well, such growth is still not as balanced as it ought to be.

Everybody in the House knows that we are sustaining our current level of economic growth because the consumer is still spending heavily. On average, consumers are increasing spending faster than their incomes are rising; indeed, real incomes have declined slightly recently, as a result of the increase in national insurance contributions. Household borrowing is reaching record-breaking levels that are quite unsustainable. As the Bank of England has confirmed, that needs gently to be slowed down.

Economic growth is also being sustained by the amazing increase in public expenditure. That is injecting a deal of growth in the short term, not least because most of it is being spent on increased payrolls and rising levels of public sector pay, which increases some people's consuming power. But one cannot base an economic recovery on that. The private sector in general, and manufacturing in particular, is not doing so well. As the Red Book shows, business investment actually fell by 1 per cent. last year. Our productivity record in the private service sector and the manufacturing sector is deplorable—indeed, it is worse in the public sector—and it certainly is not comparable with that of our chief private sector rivals. That is not a sustainable basis for recovery. Of course, the actual rate of growth will depend on unknown factors in respect of the global economy, which is currently being sustained by a pre-election boom in the United States and a bubble in China. Otherwise, there are some signs of healthy cyclical recovery, but there remains considerable risk.

One measure of this uncertainty was dismissed by the Secretary of State for Work and Pensions earlier today. He talked about the current account deficit, but I can remember the days—they were pretty mad days—when the political debate in this country was determined entirely by the balance of payments figures. The newspapers used to be full of them daily, and the Wilson Government fell, I am glad to say, in 1970 because of one month's balance of payments figures, which proved to be not that bad in retrospect—after the electorate had given their judgment. What we used to call our balance of payments—the balance of trade and the current account deficit—is at staggering, record-breaking levels. That matters because it shows how far our consumption is outrunning our capacity to produce, and to meet that consumption. Such a situation is totally unsustainable. It may be "so far, so good" on growth, but we should not rely on that.

The Chancellor left all those matters untouched in his Budget. He delivered his Budget speech with as much élan, self-confidence and robustness as he ever does, but I do not remember him or any other Chancellor delivering a speech with less content in terms of measures. I have never heard a Budget speech with so few tax changes of any significance to announce. The Chancellor filled up the available time, still managing to take up an hour—commendably brief by the standards of most Chancellors of the Exchequer—with a rant saying that he had been right all along and that because he was right on growth, there were no real problems with public expenditure.

In his conclusion, he returned to the political points to kill time, referring to a series of horrendous suggestions that had been made to him. It was not too subtly implied that they had been suggested by my right hon. Friend the shadow Chancellor and the Conservative party. None of it was true. The Chancellor said that it was his patriotic duty to reject all those outrageous solutions. In between all that, there was supposed to be a Budget, but long gone are the days when we used to hear about monetary aggregates and be told about tax changes. There were not many of them; they did not fill up much time.

What is important to me is the Chancellor's claim that he had no problems whatever. As I said, whatever party is in office after the next election—this is my key point—it will probably find itself having to deal with a fiscal crisis early in the next Parliament. That is the background that we should all have in the back of our minds, even if it is not in the forefront of our speeches when we seek to get re-elected. The country has had a more than 10-year run of growth with low inflation, but I believe that, unless we are either very lucky or adopt the right measures, it will come to an end in a traditional British fashion.

The Chancellor always boasts about that long run and his only reference to his predecessors is to what happened during the late 1980s and to the interest rates of 1990 before we went into the European monetary system. In fact, I was responsible for about a third of the period: I had four Budgets; the Chancellor has had eight. However, it is extremely reckless of Chancellors to claim credit for any of it. Much depends on what is going on in the world. The only duty of a Chancellor is to provide the stable and predictable circumstances in which other people deliver the wealth and jobs.

Much of the credit should go to Lord Lamont, whose reputation is less high than mine and—sometimes—the Chancellor's, because his introduction of inflation targeting in 1992 started the whole thing off and brought us back to a stable basis of policy: monetary policy based on achieving stable prices and low inflation, and fiscal policy based on achieving healthy public finances. The Chancellor's neglect of the latter is, in my opinion, the cause of our problems today.

Monetary policy worked well since Norman Lamont's inflation target setting, and the Chancellor has slightly improved the target. The Chancellor also reinforced it against all the political pressures from the social democrats around him in the Government by making the Bank of England independent and leaving it to carry on. At the moment, however, the Chancellor is not making the task of the present Governor of the Bank of England very easy, because I am sure that the Governor wants to set limits to how far he will have to put up interest rates, and that fiscal indiscipline will make the problems even worse.

The Chancellor has never had a consistent or sensible approach to fiscal policy—the tax and spending problems that he should tackle. At first he did nothing, saying that he was relying on my figures. As a result of doing nothing, he got carried to a balanced Budget very rapidly—within a couple of years. He overdid it on the spending front and by introducing many stealth taxes, including a shocking one that affected the tax treatment of pension funds. Quite unexpectedly and contrary to forecasts, he then began to run up massive surpluses in the public finances, which he now clings to like a life raft. He is trying to demonstrate that, because he did that in the past, he is entitled to run massive deficits now.

It all changed in the year 2000. Governments are ever-nervous running up towards elections, and the Prime Minister lost his head on the Frost programme, promising health spending up to the levels of European averages. Before we knew where they were, they had become an old tax-and-spend Government with vast outpourings of public expenditure across all Departments, with which we have had to live ever since. The Chancellor forecast how much it would cost and how it could be financed. From 2000–01 onwards, those forecasts have been consistently wrong. That is the problem we have to deal with now.

The Governor of the Bank of England is tackling his part of the problem responsibly, which means that interest rates are already rising—a background worth reflecting on. I know very few people who do not believe that interest rates are going to carry on rising. The more the markets react to what is perceived to be the irresponsibility of the Chancellor, the more the upward pressure on the monetary authorities. The current account deficit in our balance of payments might, if the markets suddenly panic about it, even cause a sharp fall in the value of sterling, which will drive interest rates up further. That much is already happening, but taxes will have to go up after an election as well.

I say to the public that they should reflect on the consequences of that sort of policy. When interest rates are going up because monetary policy is tightening, and when taxes are going up because fiscal policy is tightening, it leads to a severe slowdown in economic activity and growth—and the prospects for growth and jobs are undoubtedly damaged.

The Chancellor says that all that is wrong: he will not break his rules, because he is still a man of fiscal discipline with the golden rule and the debt rule, so all is well. I do not believe that. He produces yet more forecasts, but they have been wrong year in, year out. His forecasts for borrowing are £10 billion more than they were 12 months ago. In 2001, he was predicting that total borrowing between 2001 and 2006 would be £30 billion; but it now seems likely to be close to £150 billion. Many of my right hon. and hon. Friends have rightly suggested that his forecasts for further in the future are unreliable.

In fact, the Chancellor is already rejecting some of the discipline rules and saying that they do not matter. He entirely rejects my rule—he regards me as a fiscal conservative—of maintaining a balanced budget over the cycle. I accept that there are wobbly bits even to that rule; it is possible to move the cycle a bit, but I opted for a balanced budget over the cycle that is tougher than the present Chancellor's rule. He says that terrible things would happen if we did that, and that only wicked people like the International Monetary Fund recommend that approach to fiscal policy.

The Chancellor also rejects the Maastricht criteria. I am not going to debate the single currency—I shall avoid it like the plague—but I will use the Maastricht criteria as an example, because the Chancellor and I used to be in fond agreement on them. I used to defend the growth and stability pact as a Tory, even to my Eurosceptic friends, saying, leaving aside the single currency, no responsible Chancellor in the UK is going to want a deficit of more than 3 per cent. of gross domestic product in any one year. This Chancellor used to agree with me; he used to point out how he was complying with all that. Now, it is all wrong, but the only reason it is wrong is that the British Chancellor, in common with the French and German Finance Ministers, lacks the political clout, will and ability to hit the fiscal objectives to the rules.

The Chancellor relies on his own golden rule and he is apparently going to visit the continent to explain why it is the best approach to which all should move. His golden rule is not a golden rule, in my opinion, but merely gilded with a touch of EPNS about it. It all depends on what is defined as investment and it assumes that all public investment is essential and of high value so that future generations of taxpayers should be happy to pay for it. I regard public investment, unfortunately, as invariably less efficient—sometimes very much less efficient and valuable—than other forms. In any case, the Chancellor is now close to the golden rule. As many have pointed out, he has had slightly to redefine how the golden rule is calculated, to provide himself with a further tiny cushion.

I have the Red Book with me, so let me sum up how the Chancellor can claim that he can still hit the golden rule without tax increases. It is by making more implausible forecasts. The most implausible forecast is the Chancellor's estimate of revenue growth. His estimate of GDP growth as a whole remains as optimistic as ever, but he was right this year and might be right again. We shall see whether the global economy will continue to revive, but the forecast has to be right for the Chancellor to have any chance at all.

The revenue growth forecasts are quite implausible, however. I do not understand how corporation tax revenues are meant to rise faster than the growth of the economy as a whole. I do not think that that has ever happened. When briefing the newspapers about income tax returns, the Chancellor's unfortunate officials seem to have been reduced to pointing to recent City bonuses. The suggestion has been that they reinforce the notion that income tax returns are about to recover very rapidly. Because the Chancellor has had to deny that there will be any increase in tax rates, he has claimed that measures to tackle tax avoidance will produce —925 million a year. I do not believe that. In recent years, the thinking has been that a structural problem affected what Governments received from corporation tax and income tax. I therefore do not think that the Chancellor's proposals are at all plausible, or that he will hit his golden rule. I think that he is being irresponsible, and that he should raise taxes.

Not only is the Chancellor failing to control public spending, he will not even admit that the slowdown for which he is heading will have any effect on the Government's plans. He has suddenly discovered that it is necessary to try to make public spending more efficient. He chose to win headlines by saying that he would cut more than 50,000 civil service jobs, 40,000 of them in the Department for Work and Pensions. Sacking bureaucrats is supposed to ensure that more money goes to front-line services. I regard that as extremely lightweight and ridiculous politics.

We have a serious problem with the productivity and value for money achieved by the huge surge in public spending since 2000. Opposition. Members warned the Chancellor that sudden and massive public spending increases would not produce value for money. To get proper value from public spending, reform is essential. The reform that has been applied, belatedly, has been confined to matters such as foundation hospitals and top-up fees. Those policies have been so messed about by political campaigning that they are valueless, or worse.

The 40,000 civil servants are symbolic victims. By the most generous calculation, those staff reductions will save about £2 billion a year. The Chancellor assumes that he will save about £20 billion, and is silent about where the balance will come from. I would tell the civil servants not to fear: as my right hon. Friend the Member for West Dorset has said, we have heard the same thing many times before.

The Government do not have many targets these days. When the time comes to see whether any target was ever achieved, no one will remember. In three or four years' time, I have no doubt that some Minister will ask, "Did the 40,000 jobs go?" Sir Humphrey will say, "Oh, yes, Minister. The 40,000 jobs went." The Minister will then ask, "So why are there still so many people in the building?" The answer will be, "Minister, 38,000 of them have been moved to new tasks and new Government initiatives. They are no longer administrators, they are now deliverers."

At any rate, the people will still be there. That is not how to achieve the value for money in public expenditure that we need. Productivity in the public sector is difficult to measure, but it has been falling like a stone in recent years. The money that has been put in has gone largely on increased pay rates and on hugely increased payrolls. There are 500,000 more state employees than there were in 1997, yet many public servants have reduced work loads and the best job security and pension schemes in the country. In those circumstances, it is very difficult to drive up productivity.

We must reform the delivery of health care, education, social care and welfare benefits. In that way, productivity improvements can be achieved, but the Government's record in that respect is woeful.

Although I have celebrated the fact that there was no time limit on speeches on this final day of the Budget debate, I now come to my conclusion. Overall, the Chancellor's target that the state should take 42 per cent. of gross domestic product is too high. It is not healthy for the long-term good of the economy, even if the Chancellor were to succeed in stabilising the proportion taken at that level. The Opposition target is 40 per cent. of GDP, and that is undoubtedly the maximum that can be afforded over the next two or three years. I think that even that is a bit on the high side, but I am a little old fashioned. My target was 35 per cent. of GDP, and I managed to get the level down to 38 per cent.

When he was prudent, the present Chancellor took the level down to 37 per cent. He now tells us that the level can be 42 per cent., and that that is still prudent. What is actually happening is that the state is getting bigger and is consuming more wealth, while the private sector is getting smaller, as a proportion of the whole. Yet the private sector is what creates wealth, and it will be damaged by the Chancellor's policies. The Chancellor should have tackled some other long-term problems. He said nothing on savings, and that is a disgrace. Pensions will benefit from the simplification of the tax system. but nothing is being done to tackle the pensions crisis that all hon. Members know exists.

Our problems in the housing market stem from more than merely supply and demand: they have arisen because the British have gone back to believing that their houses are the only form of savings that they trust. People buy houses and borrow money on them for financial reasons, not just to meet accommodation needs. They think that their pensions will be worthless, they do not trust insurance companies and they do not want to go to the stock market. They have had enough of fund managers, and their individual savings accounts are losing their tax advantages. As a result, people have piled into property in a dangerous way.

Something must be done to boost other forms of saving. In an earlier exchange, the Minister claimed that the savings ratio was lower in 1988 than it is now. That is true, and it was one of the many problems that we faced in that disastrous year. Since the Government came to power, the savings ratio has halved. It was at 10 per cent. when the Chancellor took over in 1997, and it is a disgrace that the Budget contained no proposals on savings that would have addressed that problem.

The first duty of any Chancellor of the Exchequer is to provide the stable economic conditions in which entrepreneurs, managers and those who work in business and commerce at every level can create wealth for the nation. This Chancellor is failing in that duty. In my opinion, the proposals of my right hon. Friend the Member for West Dorset are the minimum necessary to get us back on course and to return the economy to growth. The Chancellor has shot none of my right hon. Friend's foxes, nor those of anyone else.

So far, the Chancellor has been lucky. He had a very good inheritance, and then lived through a period of American boom, when the dotcom nonsense and the concomitant bubble made the world economy grow to a staggering extent. He has got as far as he has by limping along on with his plans for public spending and for borrowing, while relying on a very dangerous bubble in private consumption and debt.

The bubble is coming to an end. If we are not very careful, we will enter a fiscal crisis, and this Chancellor is not being careful at all. I hope that the reckoning at the next election will be his: if he is not removed then, the reckoning will come thereafter, when a more responsible Government will have to sort out the mess that he is very likely to leave.

3.8 pm

Mr. Tom Clarke (Coatbridge and Chryston) (Lab)

It is always a pleasure to follow my namesake, the right hon. and learned Member for Rushcliffe (Mr. Clarke). He always makes entertaining speeches, and the longer he goes on, the more entertaining he becomes. However, I hope that he will forgive me when I say that I was not persuaded by his Cassandra-like predictions. We have heard them before—in 1997. The British people heard them too, and they made their judgment. I do not want to hurt the right hon. and learned Gentleman's feelings, but they made up their minds about his four Budgets, just as they are doing this week about the Budget that we are debating today. People who expected a counterblast to the Chancellor's Budget speech will be considerably disappointed by what Opposition Members have said.

It is fair to say that the most robust representations on behalf of the Scottish whisky industry were made by my hon. Friends the Members for Ochil (Mr. O'Neill) and for Dumbarton (Mr. McFall), the latter of whom is the chairman of the all-party Scotch whisky group. I agree with what they said. They accepted, as do I, that the Budget should be judged in context and in perspective, but they sought to encourage Treasury Ministers to listen to the representations that are being made. I shall do the same.

Just before I left for the Chamber, I heard from the Inver House distillery. It is in a neighbouring constituency, but many of my constituents work there. Such a good Budget would be all the better if my right hon. and hon. Friends on the Front Bench listened to our views on the Scottish whisky industry. If they did, we could have even greater celebrations than those already taking place on other aspects of the Budget.

When the rhetoric of the past few days of debate in the House is over and people examine what took place, they will conclude—as did my hon. Friend the Member for Ochil—that it was an impressive Budget. Its very impressiveness was one reason why the right hon. and learned Member for Rushcliffe managed to get himself into a lather. Few have really challenged the assertion that the Budget represents success. It is successful not only because my right hon. Friend the Chancellor has met his various targets, important though they are, but because of his unshakeable commitment to sustained economic growth—something that numerous Conservative Chancellors failed to achieve over 18 years, to the great cost of my constituents and many others.

The response to the Budget, especially from Opposition Front Benchers, was not a considered criticism of its main thrust. Indeed, we heard Opposition Members taking credit for some of the announcements in the Budget. I had not expected them to be joined by the right hon. and learned Member for Rushcliffe, a former Chancellor, in paying tribute to Lord Lamont. In my constituency, we still remember black Wednesday, and we have no desire to return to those days or to the negative equity, high unemployment and high inflation that we experienced under the previous Government but which have not been a feature of this Chancellor's stewardship.

Time after time, Opposition Members have tried to take credit for the Budget's contents. For example, the hon. Member for Havant (Mr. Willetts) complained that he was being interrupted during his paean of praise for the Budget. The hon. Member for Northavon (Mr. Webb) took credit, typically, for the fact that my right hon. Friend the Chancellor had the confidence to grant autonomy to the Bank of England, especially on interest rates. However, even those hon. Gentlemen were put in the shade by the hon. Member for Westmorland and Lonsdale (Mr. Collins), who said in the debate on education that he was welcoming all the wonderful things that the Government have accepted from Conservative suggestions.—[Official Report, 18 March 2004; Vol. 419, c. 466.] If wonderful things are happening, it cannot be such a bad Budget. That is why I want to be positive about it. The Budget is about success and real, tangible achievement. As my right hon. Friend the Secretary of State for Work and Pensions said earlier, the Chancellor's targets on employment, inflation, interest rates and—most importantly—economic growth are more accurate than those of his critics. They are more accurate than those of economists and financial journalists. To the credit of the latter, they have conceded that that is the case. In the spirit of reality, I remind the House that we are now seeing the benefits of the stability and economic growth to which my right hon. Friend has been committed. Unemployment now costs £3 billion a year less than in 1997. Debt interest payments cost £7 billion a year less. That is £10 billion a year saved, not by market forces or the use of a magic wand, but because the Chancellor set priorities and made sure that he stuck to them rigidly.

Economic growth has enabled the Government to encourage greater investment and the benefits have been felt in many areas, including jobs, training, skills, education, health and transport. I cannot be the only hon. Member who can say that I see the benefits of that investment bearing fruit day after day in my constituency, in a way that did not happen during the 18 years of the previous Government.

I welcome what my right hon. Friend the Secretary of State for Work and Pensions said about apprenticeship courses and skills. In my constituency, the number of people claiming jobseeker's allowance in 1997 was 2,375. Last year, the figure was 1,504—a more than 30 per cent. reduction. That might not matter in debates in the House, but it matters to the young people in my constituency who have found jobs. I welcome the Government's commitment to apprenticeship courses, and the marvellous work of the Department for Work and Pensions in my area. For example, North Lanarkshire council is embarking on the largest ever public investment programme to rebuild and refurbish every school in my constituency. We want apprenticeships that are demand led, so that local employers—small and large—can benefit.

I also welcome what the Department for Work and Pensions is doing for people with disabilities. As my good friend Bert Massie said, on behalf of the Disability Rights Commission, I hope that there will be a significant access dividend with increased resources contributing to a reduction in inequalities. But clear targets need to be set. Similarly the new deal for skills needs to be more focussed on closing the qualifications gap between disabled and non-disabled people.

I welcome his views, as will my hon. Friend the Minister for Disabled People, who has dealt so well with disability matters in her Department.

We have our concerns about the private sector, of course, despite the growth in jobs. The Chancellor was right to say that our belief is that British manufacturing and service industries will rise to the challenge? but there is one specific area of manufacturing where we have been let down. Companies such as Sheffield Forgemasters in my constituency have gone into liquidation, and former employees have no guarantee of receiving their full pension entitlement, even though some of them have worked for the same company for more than 30 years. Despite the Government's new Pensions Bill, which, of course, I very much welcome, I am not alone as a Member of Parliament in calling for more assistance to ensure that people who have worked all their lives and paid into their pension schemes receive their full pension entitlement.

The Chancellor seeks excellence in education, science and enterprise."—[Official Report, 17 March 2004; Vol. 419, c. 321-2.]

A very good example of that is the success of the new deal in my constituency. Our share of almost 500,000 young people finding jobs is nearly 2,000 in my constituency. I welcome the announcement last week that, for the first time ever, 16 and 17-year-olds will benefit from the minimum wage. The economic growth that we are seeing has also brought benefits such as pension credit, whereby 3,775 households in my constituency will gain. In all, 4,563 individuals will experience an average award of £41.50, which otherwise was simply not available.

In this Budget, the Chancellor has once again enhanced his reputation for challenging poverty at home and abroad. Having taken 1.5 million children out of poverty in Britain, it was with pride that Labour Members heard him say in his Budget statement: I can tell the House that in the spending review this Government will not freeze or cut international development aid, but we will increase it."—[Official Report, 17 March 2004; Vol. 419, c. 330.]

Whatever criticism might be made of the Government, it is to their eternal credit that they refused to live with the obscenity of 3 million unemployed people. We are now seeing the benefits in the economy, in our social fabric and in the regeneration of our communities, including opportunities for people to work and to exercise their skills. That is why the Chancellor was right to claim that we are nearer full employment than we have been for a generation, and why he was right to reflect, as I hope the House will today, on the words of William Beveridge: If full employment is not won and kept, no liberties are secure, for to many they will not seem worthwhile.?

3.23 pm

Mr. Alex Salmond (Banff and Buchan) (SNP)

After the last two speeches, I now have an embarrassment of riches about which Clarke to agree with. I will probably pursue my normal moderate course in carefully negotiating my way between their two positions. I am struck, however, by the lack of Labour Back-Bench support for the Chancellor's Budget. I recall that, a few years ago, when the right hon. Member for Monklands, East was trying to explain a particular by-election result when the Labour party did very badly and no one turned out, she said that it was sign of contentment with the Government's policies. I dare say that, in the same world of explanation, this vast expanse of empty green Benches is a sign of total contentment with the Chancellor's Budget.

Mr. Tom Clarke

I am grateful to the hon. Gentleman for giving way—I am glad that he, too, is showing such generosity of spirit—but for the record, may I remind him that he is, I believe, referring to my right hon. Friend the Member for Airdrie and Shotts (Mrs. Liddell)?

Mr. Salmond

I thank the right hon. Gentleman for the correction. Of course the constituency has changed—I had not caught up with that—but my point about the right hon. Lady's argument that if no one turns up, it means that hon. Members are content, remains valid. In some ways, that is a dangerous sign for the Chancellor and the Government. I would expect a bit more enthusiasm from Labour Members.

Whatever else we might say about the Budget, the shadow Chancellor's fox has been shot pretty devastatingly, in a Budget that was unremarkable for any great economic measures. It was pretty shrewd politically, in directing some hostile fire at the developing Conservative position. Incidentally, there is an object lesson for the shadow Chancellor: it is probably not the greatest idea in the world to unveil a complete economic plan a few weeks before a Budget. It allows the real Chancellor to make some adjustments to the Budget, making the shadow Chancellor's position look rather foolish. So I suspect that it is back to the drawing board for the shadow Chancellor.

As I said, I want to steer a careful course between the two previous speeches. I do not believe that a Budget deficit of 3.4 per cent. is unsustainable. I agree that it is high—it is, of course, above the Maastricht criteria—and that it is not what the Chancellor said in the past, but when compared internationally or even historically, it is not unsustainable. However, it all depends on whether a number of the Chancellor's forecasts will prove reasonable.

I want to talk about some of the risks and imbalances in those forecasts. I also want to talk about the international environment—and about something that the Chancellor is only now beginning to address after seven years in the job: the regional imbalances in the United Kingdom that represent a major constraint on growth. I also want to talk about the external account, about which I totally share the opinion of the right hon. and learned Member for Rushcliffe (Mr. Clarke). No one talks about that great subject any more, as if it were of no moment in a world of floating exchange rates, when the chickens do not come home to roost as quickly as they used to. None the less, they will come home to roost, and the fact that the present Chancellor never mentions the external account should be a substantial indication to others that it should be explored and examined very carefully.

Finally I shall turn to what I, unlike the hon. Member for Ochil (Mr. O'Neill), believe is a very important subject: tax stamps for whisky. After making some substantive points about his constituency and a crucial industry, the hon. Gentleman said that, given the overall Budget, such a tax was unimportant. On the contrary, it is symptomatic of what is becoming a pattern of behaviour for the Chancellor, who represents a Scottish constituency, towards some of Scotland's great industries, such as oil and whisky. Therefore, I shall speak about that important matter in the Budget debate.

I shall speak first about the international environment. The Chancellor's forecasts depend on optimistic estimates of continuing international growth. There is a currently a vigorous rebound in the world's economy, but it is subject to uncertainties. The red book anticipates high real growth in the G7 this year—3.75 per cent.—and a doubling of world trade growth to 7 per cent., which would be sustained at the high level of 8 per cent. next year. The UK's own export market growth of 6.25 per cent. this year is forecast to be almost double last year's figure.

Those ambitious forecasts are subject to great uncertainty. We hear daily of the incompetence and deception of the US Administration—including from the revelations of Mr. Richard Clarke, the former terrorism tsar, which explain the extraordinary diversion of international effort to the Iraq campaign over the past year. A little more than a year ago, a united world community focused on a campaign against terrorism. Today, we have a divided world community that is not focused, and a situation that is much more dangerous than previously. The economic impact can be felt in the forecasts.

The deception practised by the United States Administration was aided and abetted by the Prime Minister and supported by members of the Conservative Front-Bench team. Without question, the Foreign Secretary's forecast of almost a year ago that the world would be a safer place after the Iraq campaign has not come to fruition.A Bloomberg report published today says that The unadjusted confidence index fell to 97.2 per cent. after the Madrid bombings from 101.4 per cent before … More indications of slowing growth in Europe may come in a report from Belgium's central bank at 3 pm today. Belgium's business confidence index, regarded by some economists as a leading indicator for Europe, may have dropped to minus 6.5 from minus 5.9.

That may be the immediate impact of the Madrid atrocity, but it indicates that hopes and expectations of vigorous world growth have been overshadowed by the climate of enduring uncertainties that will affect the economy. The Chancellor's hopes of vigorous international growth and of sustained growth in the UK are subject to considerable doubt.

As for imbalances in the UK economy, I must not be too vigorous, because last year for the first time, the Chancellor pointed to an examination of the impact of differential growth throughout the UK—and we can find the outcome in the Budget. That investigation was not mentioned in the Budget speech, but if one looks hard enough in the documents, one finds the statement: These geographical economic disparities present a cost to the UK economy both in terms of efficiency and equity.

They do—but there is an absence of any policy measures to tackle the disparities identified. There is no substantial fiscal initiative for the regions of England or the nations of Scotland, Wales and Northern Ireland. There is no attempt at making monetary policy different. There is no great campaign to improve the infrastructure of the English regions or the other nations of the United Kingdom. Most of the major infrastructure projects are in the very area that is too congested—south-east England. Almost seven years into the Chancellor's tenure, an attempt is being made to undertake a major relocation of public sector, civil service jobs outwith London and the south-east—which strikes me as a belated effort to tackle one of the issues behind imbalances in growth.

Mr. Kenneth Clarke

The hon. Gentleman obviously follows regional and national matters closely, so he will recall that in the last Budget the Chancellor placed heavy emphasis on the end of national pay bargaining and the introduction of regional variations in public sector pay as an answer to regional imbalances and recruiting difficulties. The hon. Gentleman may be more up to date, but the Chancellor did not seem to mention that issue this year. Can he enlighten us as to whether that policy is progressing in Scotland?

Mr. Salmond

There is no formal, on-the-surface processing of that policy, although I suspect that it might be included in some of the anticipated savings mentioned by the Chancellor in respect of public sector workers in Scotland and the English regions. We are talking not about London weighting, but about differences in the basic rate for the job. Public sector workers would be wise to pay close attention to the emergence of that plan—not so much in the Chancellor's speeches but in relocation policy. I thank the right hon. and learned Gentleman for anticipating the next point that I was going to make.

Despite the mention in the Budget documents, and despite the acceptance that there is a problem—even if the Budget is totally devoid of a substantive approach to it—I resent the boastful, broad-brush claim that we have never had it so good for the past 200 years. There have been two technical recessions in Scotland in this Chancellor's term of office. I have to say to the right hon. Member for Coatbridge and Chryston (Mr. Clarke)—I have got the constituency name right this time—that to point to an overall growth forecast for the United Kingdom while apparently oblivious to the disappointing relative economic performance in Scotland over the past seven years does not seem to me to fulfil the duty that I would expect of a Scottish Member of Parliament.

Over the past few years, and for the first time in recent memory, a major earnings gap has opened between Scotland and the rest of the United Kingdom. In 1984 there was no difference in earnings between Scotland and the UK average. Now the difference stands at £2,000. The latest employment rate in Scotland is 74 per cent., which is substantially—almost a full percentage point—below the UK average. The unemployment rate in Scotland, which only a few years ago was in parity with that in the rest of the UK, is 5.7 per cent. compared with a UK average of 4.8 per cent. The Registrar General's forecast is for a decline of 10 per cent. in the Scottish population over the next 40 years, but the corresponding forecast for the UK is for a rise of 10 per cent. Last week, a health report said that in some areas of Glasgow, male life expectancy is actually less than that in Baghdad.

Against that background, there is no need for further pats on the back in addition to the pats that the Chancellor has already given himself when boasting of the growth record. Members from Scotland, Wales, Northern Ireland and the English regions should be looking at whether this attitude of "We've never had it so good in 200 years" is reflected in their constituencies. They should look at the lack of substantive measures from the Treasury team to tackle the major imbalance that is costing us all so much.

My third point is about the imbalances on the external account. When the Secretary of State introduced the debate, he waved this issue away; he was not going to mention it at all. When it was pointed out to him that we were running a deficit of £35 billion or £36 billion in trade in goods and services, he said that that would all be subject to improvements that were on the way as a result of the Chancellor's wise policies. However, the forecast for this year is a deficit of £35.75 billion, and next year will be the same. In 2006, the Red Book forecast increases to a £36.25 billion deficit in the balance of trade in goods and services.

I saw the Chancellor frenetically whispering to the Secretary of State, as he tends to do. He usually does it to the Prime Minister, but he was whispering to the Secretary of State as we spoke about Scotland and deficits. Let me quote the Red Book: The BCC survey for the final quarter of 2003 showed that every region except Yorkshire and Humberside recorded growth in export sales, with Scotland recording the strongest balance.

Even with the strong balance in Scotland and the continuing recovery of export sales from Scotland anticipated, the overall forecast is for an enduring deficit in the balance of trade in goods and services.

The historical performance of the UK economy was that normally in times of economic slowdown, the balance of trade in goods and services went into surplus. This time we went through a slowdown and it remained in deficit. If the Chancellor is correct in his forecast of continuing buoyant growth, we cannot expect the improvement that he is looking for. Indeed, despite what the Secretary of State said, that improvement is not even forecast in the Red Book documents.

These issues are important. They are a sign of a fundamental imbalance in the economy and of bills that sooner, rather than later, will have to be accounted for. It would be somewhat more honest and mature of the Treasury team if it addressed in detail the expected results of the great plans to address the fundamental imbalance in the external account.

Finally, I turn to the important issue of tax stamps for whisky. The Treasury team should reflect on the fact that the hon. Member for Ochil is a loyal Government Back Bencher—far too loyal, in my view. The right hon. Member for Coatbridge and Chryston is an informed speaker for whom I have enormous respect on a range of issues. They are not natural rebels, so if they choose to criticise the Government—even if they couch that within overall praise for the Budget—their points should be listened to in detail. The all-party view of the Select Committee on Scottish Affairs should also be listened to, because it thought that the Customs and Excise evidence in favour of tax stamps on whisky was fundamentally flawed.

There is an example of the Chancellor ignoring Scottish opinion on a major taxation issue affecting Scotland. Two years ago, the Finance Bill proposed a 10 per cent. increase in corporation tax on North sea companies. Warnings were given on an all-party basis that the measure might have a damaging effect on exploration and appraisal in the North sea. Two years later, the damaging effect has come to pass, and despite last year's welcome relief on certain aspects of the taxation and further relief this year, we are still faced with the fact that exploration and appraisal drilling in the North sea is at basement levels. That is despite the ironic fact that oil prices are high, as is the success rate from what little drilling goes on, which is exemplified by a further discovery this morning by Oilexco of a new field—the Brenda field—in the Moray firth, consisting of 150 million barrels or more. Although we should have a boom environment, the Chancellor has created a bust through the ill thought out tax measure that he introduced two years ago. He was warned against introducing it, but he chose to ignore the warning signs.

Angus Robertson

My hon. Friend will be aware that more than 50 per cent. of all Scotland's distilleries are in my constituency, and that many thousands of jobs in Moray depend on the success of the whisky industry. Is he aware that people from leading companies—small, medium and large—have already been to see me since the announcement? They say that the measure will have an impact on jobs and the competitiveness of their businesses. They do not understand why a Chancellor who represents a Scottish constituency would not even listen to the advice of the Labour Chair of the Scottish Affairs Committee on the Friday before the Budget when she said that bringing in the stamps would be "hasty and unwise". Does my hon. Friend agree that the Chancellor has indeed acted hastily and unwisely?

Mr. Salmond

Yes, and I know from speaking to the hon. Member for Paisley, North (Mrs. Adams) that she would have added a few more adjectives before the words that my hon. Friend mentioned.

The Treasury team should take on board the analogy that I am making with the oil industry. Having spoken to Ministers, I think that they would have approached the tax changes two years ago in a different way if they had their time again. The tax changes affecting oil and gas could have been introduced in a way that would not have damaged exploration and appraisal drilling yet would still have secured the Government the additional revenue that they wanted. They chose to ignore advice, and the consequence of that has been lost jobs, lost opportunities, and unnecessarily lost investment in the oil and gas industry.

We are in exactly the same position now. The unions, the companies and the whisky industry have put forward an alternative proposal, but it cannot have been subject to serious consideration, because it was made only recently. The evidence from Customs and Excise has been shot to pieces in front of a Select Committee of the House, and members of the Scottish Affairs Committee from every single party agree about deficiencies in the evidence presented. In those circumstances, why not take the wise advice, consider the matter again and at least try out the industry and union proposals before going on to introduce a measure that might damage investment and jobs in, and prospects for, another of Scotland's great industries, as happened with the oil and gas industry? As I said at the outset, there seems to he a pattern of behaviour. During the Chancellor's term in office, the oil industry has been responsible for some £30 billion of Government revenue. As we know, the whisky industry is a huge earner for the Government, and the revenue from it runs to many billions of pounds a year. Is the Chancellor trying to demonstrate—as he hopes for higher office in the years to come—that he will not be thirlled to his Scottish background nor show an unwanted pro-Scottish bias? If that is the case. I give a message to the Chancellor of the Exchequer: we accept that although he represents a Scottish constituency, the measures that he is introducing show no signs of Scottish bias. Relieved of that burden, perhaps the Treasury team will look again at the prospects for that major industry in Scotland and not inflict unnecessary damage on an industry that contributes so much to our economy and, like the oil industry, bankrolls the Chancellor of the Exchequer and the Treasury team.

3.45 pm

Mr. Edward Leigh (Gainsborough) (Con)

It is always a pleasure to follow the hon. Member for Banff and Buchan (Mr. Salmond). I may not always agree with him, but he is a noteworthy parliamentarian, and we always enjoy his speeches very much indeed.

A number of Budget announcements have a deep resonance with the Public Accounts Committee, which I have the honour of chairing. I want to highlight the relevance of our work in driving through the efficiency improvements that the Chancellor expects and that, indeed, the British people deserve. I also want to sound a warning note about the ability of Departments to achieve their objectives in making large planned increases in public expenditure. I shall say a few words about the Comptroller and Auditor General's work in auditing the Budget assumptions, and finally, I shall address ways in which we can promote private sector involvement and solutions for Government efficiency and economy.

The PAC is not political, but is concerned about achieving value for the taxpayer. It does not matter whether its members are Labour, Liberal or Conservative—in theory, at least, they should hate and detest waste. We have an important role to play in encouraging efficiency across Government. Most people, including the taxpayer and the man in street—the people who matter—agree that we are not getting full value for money at the moment. I would argue that rapid increases in spending in any country in any historical era always result in less economy and efficiency. A recent report by the independent National Audit Office, which does not have a political axe to grind, stated that there is a risk that if more money is put into public services, it will simply be wasted. Given that, we are told, there are fewer qualified nurses in the NHS than there are support staff and managers, that is a definite and worrying possibility.

Angus Robertson

The hon. Gentleman will certainly have seen the NAO report on Customs and Excise warnings about fraud on spirits. Will he confirm that it concluded that Customs and Excise statistics were unreliable and that it would not be right to introduce expensive and fraud-prone strip stamps on that basis?

Mr. Leigh

The NAO is careful not to come to any conclusion about whether a new tax is right or not, as that is a policy matter. However, it found that although the Customs and Excise assumptions were made in good faith, as were those of the Scotch Whisky Association, there was an enormous difference, ranging from £10 million to £1 billion. The hon. Gentleman is therefore right that the jury is out, and it is for the Government to make a policy decision.

Central Government administration costs have already increased from £14 billion to £21 billion in the past six years. It is not surprising that the NAO says that just a 1 per cent. improvement in the way in which money already voted by Parliament is spent over the next three years would give us £14.5 billion more for essential public services, which is why the battleground of politics is now how we can reduce waste, incompetence and inefficiency in the public services. The Public Accounts Committee and the National Audit Office have together published a wide range of reports making recommendations to secure greater efficiency, well over 90 per cent. of which have been accepted by the Government. It is true that improvements have been made following our recommendation, but there is still far more to be done. I could spend the next 10 minutes detailing examples of waste, incompetence and inefficiency in Government Departments.

Waste in government is legion. I shall give one or two well known examples. Forty brand-new Apache helicopters, worth more than £1.2 billion, are waiting around on Salisbury plain unused, costing the taxpayer £6 million, because the Ministry of Defence did not train enough new pilots. The Libra project—the national IT project for magistrates courts handled by the former Lord Chancellor's Department—has in four years more than doubled in cost to almost £400 million. The project management was a catalogue of disasters and, needless to say, the magistrates courts still do not have the IT system that they deserve. That is unacceptable.

We have heard a great deal about the Department for Work and Pensions, one of the worst offenders. No one has yet mentioned, though, that just one computer project£a failed project: the benefits payment card—cost more than £1 billion. The new Child Support Agency computer does not work properly. Unbelievably, the Department for Work and Pensions loses between £3 billion and £7 billion every year in fraud and error. Neither the Department nor the Committee has any idea whether the sum is £3 billion or £7 billion. The accounts have had to be qualified every year for the past 13 years.

Let us consider a future project: the plans for a new supreme court. How much will that cost the man in the street? Lord Woolf says it will cost about £50 million, which is already a great increase on the Government's estimate. I make one prediction—that the costs of the new supreme court, like the costs of the Scottish Parliament, will rise remorselessly.

That is as it may be. We all know that there is waste and incompetence in government, and there always has been. But the Chancellor, we are told, has set the agenda—5 per cent. real-terms cuts in departmental administration costs across the board by 2008—and we wish him well. Sir Peter Gershon is working to identify how new technology, changing working practices and better procurement could free up resources for the front line. We all eagerly await his report, which is due to be published in June. So far, we have had only leaks and a predictable furious reaction from the public service unions, which have spoken of it as a cut-and-paste job. One can dismiss that reaction as typical and obvious, but it does not say much for the ease with which the cuts can be carried out.

My Committee, supported by the NAO, has already identified many specific areas in which savings can be made, and it will continue to do so. Departments should take that into account in driving through efficiency measures. I shall take a few recent examples. The National Audit Office reported a fortnight ago on the work of the Office of Government Commerce to improve procurement in Whitehall. I am pleased to say that the OGC has had a beneficial impact. Since March 2003, savings have totalled £1.6 billion, well over the target of £1 billion set for that period. Indeed, the ease with which the target was exceeded makes one wonder whether the target was too easy.

Among other things, the OGC's guidance and advice has led to an increased emphasis on professional procurement skills and the development of framework agreements for purchasing goods and services. I will say one thing about Sir Peter Gershon, whom I have got to know reasonably well over the past two or three years: he is an object lesson in the new type of public servant that we need—someone brought in from the private sector who is willing and prepared to get a grip on a difficult problem. But much more can be done. The NAO has identified a possible £300 million in savings that could be generated quickly if there were greater take-up by Departments of the OGC's advice. When the PAC considers the subject next month, we will look hard at why some Departments are much better than others at making savings.

Under the Government's plans, the Department for Work and Pensions will be subject to the largest reduction in staff posts, as we know. In order to achieve that without affecting front-line services, it will be necessary to eliminate duplication and inefficiency in all the Department's work. I must sound a warning, however. History tells us that, to achieve such cuts, civil servants will inevitably push some of them on to front-line services. That will happen, as sure as night follows day, whatever the good intentions of Ministers.

Later this week, my Committee will highlight how greater reconsideration of benefits decisions could reduce the number of cases taken to appeal, with consequential administrative savings. That is all good solid work, but it is often on the margins, and we have to get to the root of the problem. For example, savings in one Department can often be achieved elsewhere. The NAO identified more than £3 million that could be saved by reducing the cost of processing application forms for driving licences and attendance allowance. Similar improvements across Departments could save hundreds of millions of pounds.

In his Budget speech, the Chancellor pointed to spending increases across a range of Departments and programmes, including continued and substantial increases in health, education and transport. The NAO recently published a progress report on preparations by those three Departments to spend that extra money. The NAO is, of course, completely independent, but I have always tried to encourage it in this area, which represents a valuable new part of its work.

Our Committee will hold a hearing on these issues in a month's time. Managing resources on this scale requires of Departments highly developed skills, robust systems and comprehensive, reliable information management. As the Committee has pointed out in many previous Administrations, if those are not in place, there is not only a risk but a certainty that waste and inefficiency will follow. I stress, as I did when I questioned the Prime Minister in the Liaison Committee a few weeks ago, that this is not a party political point. We must be confident that the extra money will make its way to front-line services and lead to better performance, and that it will not be consumed by extra bureaucracy or regulation, or by over-targeting, as has clearly happened in the past.

When I put those questions to the Prime Minister, it was interesting to hear him come out with the defence that we have employed so many more nurses, doctors and people in front-line services. We all accept that. Of course, if we spend an extra £61 billion, we are going to get more nurses, doctors and operations. Immediately, however, the Chairman of the Liaison Committee, who is not a member of my party, butted in on the Prime Minister and said, "We're not interested in what you have achieved, Prime Minister. We're interested in what you haven't achieved, given the amount of extra money that you are spending." I believe that that is the key battleground of politics.

Extra resources must be used to bring beneficial changes across the public service. The Chancellor said that 99 per cent. of cancer patients are now seen within two weeks of urgent referral to a specialist. That is excellent news, as early specialised care greatly improves chances of survival. However, not everyone with cancer is benefiting. A recent NAO survey of GPs showed that one third of those eventually diagnosed with cancer were referred "routinely", rather than urgently, and were therefore not seen so quickly.

Improvements in public services must be sustainable. Spending on early education and child care will continue to rise until 2007–08, and there is no doubt that that is leading to real improvements. How could it not, given the huge increases in spending on child care? I warned in February, however, that half the 600,000 additional places created since 1998 had subsequently closed. We have, therefore, created a huge amount of churning with this increased spending. Worse still, the children and families who have the greatest needs and the most to gain still have the worst access. There are too few child care places for children living in the most deprived areas of the UK, and too few services available to children with disabilities.

The Chancellor announced ambitious plans to reduce administration and to cut civil service jobs. He hopes that these proposals, together with other measures, will realise efficiency savings of £20 billion a year. That is his target, and it is very ambitious indeed. I believe that it will require a massive sea change in Whitehall of a kind that we have never seen before, either in wartime or in peacetime. I welcome the cuts, but they must reduce administrative bureaucracy, rather than cutting front-line staff such as doctors, nurses, teachers and policemen. Cuts in so-called back office administration, which has become a cliché, to which we all sign up, must not lead to poor performance and inadequate capacity in any one part of the delivery chain. The civil service will always have a tendency to make a political point to its political masters by passing on those cuts quickly to front-line services.

I want to draw the attention of the Treasury Bench to the work of my Committee and the NAO on Departments' management of resources and their capacity to spend. I hope that they will ensure that it is read widely in Whitehall. To avoid waste and inefficiency on the huge scale to which, sadly, we have already borne witness, the NAO should be free to conduct detailed and continuous audits of each and every Department. It should register staff numbers and efficiency levels, and the resultant information and recommendations should be freely available in a publication, including a league table format as is the case for local authorities. Departments should be rated for their work, as local authorities are, as poor, good or weak. Permanent secretaries should be held accountable to Parliament, as accounting officers, in the same way that directors are held accountable to shareholders. In the private sector, managers are given performance incentives, bonuses if they do well and the sack if they do badly. That still does not happen in the public sector.

I no longer believe, having been involved in this field for a few years, that mere ministerial instruction, however well intentioned, even with the backing of a huge majority in Parliament, will ever deliver fewer civil servants or a more effective civil service. There must be incentives on senior managers.

Mr. Geoffrey Clifton-Brown (Cotswold) (Con)

When I was a member of my hon. Friend's august Committee, before he was Chairman, I suggested that the promotion hierarchy for senior civil servants should be dependent on their ability to manage satisfactorily the budgets in their Department. Does my hon. Friend have any sympathy with that idea?

Mr. Leigh

Yes, I have enormous sympathy with that idea. Civil servants should be assessed on how they run projects. We must move away from a culture in the civil service whereby promotion has depended too much on one's ability to advise Ministers and deal with policy, and too little on running projects. Again and again, we see permanent secretaries—senior civil servants—who have never run a project in their lives, and never been assessed on that. That is simply not acceptable in the modern world.

I want to comment briefly on the Comptroller and Auditor General's budget assumption work. Under the Finance Act 1998, the National Audit Office audits those parts of the Budget for which the Chancellor sees fit—that is the important part. This year, one of the assumptions newly audited by the NAO related to the growth of the VAT gap. Mention has already been made of the different estimates on fraud and error used as part of a new method for forecasting VAT receipts, which is a vital part of the Chancellor's arithmetic and of how he informs us that he can keep to his golden rule.

The NAO found that the rate of growth in the VAT gap exceeds the historic average, and is therefore duly cautious. The NAO brings independence to its work and, clearly, expertise—not just financial, economic and statistical expertise but the expertise that comes from being able to do its core audit work across Departments. I use the VAT gap assumption as an example of precisely that. As we have been told, the NAO recently published a report on work by Customs and Excise to tackle VAT fraud and losses. It shows that Customs and Excise is stepping up its efforts against VAT fraudsters, but it is too early to be optimistic about the impact on the VAT gap. The important point, which I have not yet heard emphasised in this debate, is whether it can secure a sustained reduction in fraud and error, which currently run at a staggering £12 billion. The jury is still out on that. On those assumptions alone, we can see what a difference—billions of pounds—can be made in revenues coming into government.

As I said, the National Audit Office audits those parts of the Budget that the Chancellor sees fit for audit. Some assumptions have been audited in the past, others this year. A valid assumption made last year and audited as such will not necessarily be valid this year. The fact that something has been audited in the past does not make it right today or tomorrow.

I believe that we should assert, or rather reassert, the traditional independence of our auditor. He is, after all, our auditor. He reports to us—to Parliament—not to the Government. Surely it is time for the Treasury to consider amending the Finance Act to give the Comptroller and Auditor General the unfettered freedom—I emphasise those words—that he enjoys in all other aspects of his work, so that he rather than the Chancellor decides which assumptions to audit.

I am pleased to see both the shadow Chancellor and the Chief Secretary to the Treasury present. This is not a party political point, and I hope that both sides can agree that if the main parliamentary auditor is asked to audit something, he must have freedom to do the work that he wants to do. I believe that that—coupled with the implementation of my earlier suggestion that the NAO should conduct value-for-money audits of Departments—would produce more confidence, more transparency and more accountability. Surely we as parliamentarians are interested in confidence, transparency and accountability. We should at least be able to agree on the parameters of political debate. We can have an argument across the Chamber about a policy decision on whether to spend more or less on a particular aspect of government, but let us at least agree on the assumptions.

I am very cautious about the ability of any Government—I am thinking of historical examples—to reduce waste and incompetence in the public sector. I have no doubt that each month during the next 140 years—just as happened during the last 140 years—the NAO will produce a coruscating report on waste and incompetence in the public sector. I believe that we must ultimately move towards private sector solutions. I give the Government credit for having grasped the nettle, or bitten the bullet, in terms of the private finance initiative. That met with some opposition on their own Benches, but involving the private sector in the delivery of public sector solutions has enabled us to produce more hospitals and other buildings to budget and on time.

Mr. David Cameron (Witney) (Con)

Does my hon. Friend think that we are transferring as much risk from the public to the private sector as was originally intended through the PFI? Or is it too much of an exercise in trying to take finance off the Government's balance sheet?

Mr. Leigh

That is an interesting point. Some of my hon. Friends, in particular, believe that that is what lies behind it, which is worrying. A couple of weeks ago, I had an interesting conversation with the former Chief Secretary in the French Government. Members of that Government are coming to study what we are doing with the PFI. There is amazement throughout Europe that there is so little political debate about the fact that so much debt is being transferred to future generations. There is little understanding of that in Parliament, and we engage in little debate about the whole PFI issue, which I think should be a central element of financial debate. Our debates should be better informed so that we can resolve the issue one way or another.

I believe—it is a purely personal belief that we shall have to adopt more PFI-type solutions in other areas of public sector work, including the management of hospitals, schools, DWP projects and perhaps entire benefits systems. The debate on all that has hardly begun.

Mr. Clifton-Brown:

I am grateful to my hon. Friend for being so generous in giving way. Part of the purpose of the PFI was to transfer risk, but many companies involved in such schemes tell me that the risk is considerably reduced because their lawyers spend so much time trawling through contracts and including exceptions in them. Does my hon. Friend agree that the Government need to become much smarter in their specifications? Mr. Leigh: Yes. That is a good point on which to end. If we are to move towards more private sector involvement in delivering Government programmes, we must be much cannier, smarter and more ruthless when we deal with the private sector. Private companies take no prisoners. I do not blame them for that because they are there to make a profit. The Public Accounts Committee has witnessed too many examples of the risk not being transferred.

Let us consider only one such example-1 could cite numerous others. The Government decided to build an armouries museum in Leeds. Hugely over-optimistic assumptions were made, and it went bottom up. The Government immediately bailed it out. Did the private sector suffer? Of course not. It never suffers in such circumstances. That is why we must bring more private sector people into government so that they work for us.

Let us forget for a moment the normal party political divide and unite as the guardians of the taxpayer. We represent the taxpayers, who pay for everything in this Building, all PFI projects and everything that we do. Why do we allow so many instances of the private sector, which we want as a partner, taking us for a ride because it employs better lawyers and is more ruthless and vigorous in dealing with projects?

There was one recent example in a Committee hearing of a project that the Government delivered well. I believe that it was a new call centre in the NHS. I asked one question of the lady who ran it: "How long have you been in this job?" She replied that she had been running the project for five or six years. That was a unique example of somebody in the public sector who had not been moved from job to job but was there, on the ball, and had run a project for not just a few months or a year or two, but for five or six years. She had the expertise to run it and to deal with the private sector.

That is a good note on which to end. I hope that, at the end of the Budget debate, we can unite in trying to get the best deal for the taxpayer.

4 12 pm

Mr. Paul Goodman (Wycombe) (Con)

It is a pleasure to follow my hon. Friend the Member for Gainsborough (Mr. Leigh), who gave a persuasive exposition of the way in which it is possible to reduce the rate of increase in spending—he specifically referred to the Department for Work and Pensions—without cutting front-line services. I intend to draw on my experience as a member of the Select Committee on Work and Pensions to speak about poverty and the Budget.

I want to make three preliminary remarks. First, I am determined, in a moderate and irenic spirit of good will, to welcome something in the Budget. I shall therefore join my hon. Friend the Member for Havant (Mr. Willetts) in welcoming the £100 payment to pensioners. I am not sure that my constituents in High Wycombe and Buckinghamshire will be as generous-minded without expressing some reservations. The payment follows the transfer two years ago of some £11 million out of Buckinghamshire to other counties. The preceding year, my constituents paid an increase of more than 15 per cent. in the county council element of the council tax.

Mr. Cameron

I hope that my hon. Friend has read page 256 of the Red Book when studying the Budget. It states that the Chancellor is already planning an increase of 6 per cent.—three times the rate of inflation—in the council tax. For my hon. Friend's constituents in Buckinghamshire, will not the £100 be given with one hand while money is taken away with the other through the increase of 6 per cent. in their council tax bill, which is roughly £1,000? My hon. Friend should be careful to warn his constituents that what the Chancellor giveth, the Chancellor taketh away.

Mr. Goodman

My hon. Friend is right. I am several hundred pages behind him in my perusal of the Red Book.

Mr. Cameron

I skipped.

Mr. Goodman

My hon. Friend says that he skipped, but I was about to make the same point as he did. The 15 per cent. rise that I mentioned was followed by a 5 per cent. increase last year. Those increases have hit pensioners on fixed incomes who receive low annuity payments. That group of people has suffered real cuts in income in the past few years. As my hon. Friend the Member for Witney (Mr. Cameron), who looked ahead in the Red Book, said, what the Chancellor gives with one hand, he takes back with the other. Secondly, I want to make a brief point about Equitable Life.

Mr. Clifton-Brown

Does my hon. Friend agree that it was a mean payment with strings? As I understand it, the £100 payment will be only £100 per household, it will apply to pensioners only when they reach the age of 70 and it is a one-off payment, not an ongoing payment to meet the considerable increases in council tax.

Mr. Goodman

In the light of my hon. Friends' remarks, I am already beginning to regret my generosity to Government Front Benchers. My hon. Friend is, of course, absolutely right.

Mr. John Bercow (Buckingham) (Con)

I have warned my hon. Friend before, and now have reason to do so again, against the tendency towards excessive generosity to those on the Treasury Bench. I hope that he will hold it in check. Does he agree that, in addition to the depredations from which pensioners in Buckinghamshire have long suffered under this Government, there is real grievance at the failure to pay child tax credit to all too many people in our respective constituencies who are entitled to it but have been deprived of it on account of Government incompetence?

Mr. Goodman

My hon. Friend is absolutely right to warn me of excessive generosity to the Government. I must in turn warn him that when he says, as he often does, that it is important to combine social justice and economic efficiency, he, like me, must be wary of echoing too much the language used by Government Front Benchers, but the point that he made was right.

Secondly, on the subject of Equitable Life, those on the Treasury Front Bench will not be surprised to hear that many of my constituents have expressed dissatisfaction with the recent statement on that subject by the Financial Secretary to the Treasury. That is why I wish to commend on their behalf the early-day motion tabled by my right hon. Friend the Member for West Dorset (Mr. Letwin), the shadow Chancellor, which calls on the Government to find a way in which either the Parliamentary Ombudsman or Lord Penrose himself can now examine possible maladministration by the Government Actuary's Department and other regulatory bodies, in order to make recommendations on compensation.

I hope that those on the Treasury Bench will bear that in mind. I believe that such a move by the Government would have been an admirable feature of the Budget. Sadly, it was not to be.

Thirdly, I want to make some brief remarks about the Budget in relation to health spending. Many of my constituents in Buckinghamshire will be asking where all the money has gone. A consultation paper has been published in relation to children's services at Wycombe hospital and to other services. It is proposed that the children's ward, maternity services and the special baby care unit all be moved to Aylesbury. That is in the context of a £15 million deficit across health bodies in Buckinghamshire.

I realise that all health bodies and other bodies have to live within their budgets but there are some startling figures against which those proposals must be seen. Health spending in Bucks is some £400 a head. In Liverpool, for example, it is some £900 a head. It is legitimate to ask whether the assumption that we truly have a national health service is right because what the Government are effectively saying to my constituents in High Wycombe and Marlow is that, in health terms, they are worth less than half what the people of Liverpool are worth. It is in that context that we must see those plans.

I say to those on the Treasury Bench that, whatever the Chancellor may have said in his Budget statement about health care spending, we face a danger in Bucks. I want to put it no higher than this. It is possible that babies could die because of the extra length of the journey from the middle of High Wycombe, where deprivation is concentrated in the town, to Aylesbury. It is a deeply worrying prospect and I heard nothing in the Budget that will do anything to address that.

I turn to poverty in the light of my work on the Select Committee on Work and Pensions. At the risk of rousing the wrath of my hon. Friends, I point out that I have before in the House paid tribute to the Government's intentions in relation to poverty. I think that they are admirable and that it does no one in the House any good when political parties impugn each other's motives unfairly. I am, however, a little more critical and questioning of the means to be used. We now know that the Government are likely to meet their 2004 child poverty target, which is welcome, but like many of my hon. Friends I am a little dubious about the value of relative poverty measures, because they produce perverse results—a point that was not cleared up in the Budget. If there was a collapse in median incomes, we would have the perverse outcome that we could be said to have solved our poverty problem because incomes at the top had fallen. That is the difficulty with all relative poverty figures, so I have always been dubious about the measure on which the 2004 target is based.

The Government could have answered in the Budget several questions that surround the 2010 target. First, they say consistently that they are committed to eradicating child poverty, but I have never heard Treasury Ministers clearly explain what that noble objective means. Does it mean eradicating absolute poverty, eradicating severe or persistent poverty, or eradicating relative poverty? The latter is surely impossible without complete equality of outcome, a task that even old Labour would have found extremely ambitious.

Secondly, the Chancellor could have cleared up ambiguity in the new measure.

Mr. Webb

I am listening with care to the hon. Gentleman's comments. He says that to eliminate relative poverty we would need absolute equality. However—and this is not just a nit-picking point—the relative poverty line is generally at 60 per cent. of the median, whereas there are Scandinavian societies in which deviation from the median of greater than 40 per cent. is regarded as extreme. That sort of relative poverty is much narrower. Such a modern society is conceivable, even in the west, and does not require absolute equality.

Mr. Goodman

The hon. Gentleman is right to say that relative poverty can be interpreted in several ways, and it could be interpreted as it is in Scandinavia. However, I put it to him that if we spoke to the man or woman in the street, who perhaps does not study the arcana of these matters as he does, about the abolition of relative poverty, they might indeed believe that any Government who sought that were aiming at absolute equality of outcome.

Mr. Clifton-Brown

Again, my hon. Friend is being too kind to the Government in relation to child poverty. The number of families with children who are homeless continues to rise substantially and, in particular, the number of families with children living in bed-and-breakfast accommodation has almost doubled under the Government. For a family with children to be in such accommodation is a miserable way of living.

Mr. Goodman

I completely agree, and when I have finished my canter through the Government's rather dubious and undefined measures, I intend to come to such points; but I am grateful to my hon. Friend for making that point now.

Mr. Bercow

I agree with my hon. Friend that it is unwise to focus on relative conceptions of poverty. We are all familiar with W. G. Runciman's "Relative Deprivation and Social Justice", which is an interesting thesis but does not, I think, advance the cause. Is it not wiser to focus on absolute poverty and the significant number of people in our country today who still lack the basic essentials, to one of which my hon. Friend the Member for Cotswold (Mr. Clifton-Brown) alluded? It is that phenomenon with which the Government should principally be occupied.

Mr. Goodman

My hon. Friends are putting me to shame: my hon. Friend the Member for Witney is familiar with the Red Book and my hon. Friend the Member for Buckingham (Mr. Bercow) has read even more widely. He is absolutely right. That was the very point that I was about to make, because in relation to the 2010 target, the Government have replaced their single measure with a triple measure. They intend to measure relative low income, absolute low income and material deprivation and low income combined, and I join him in agreeing that the second and third of those measures are far better than the first. However, my point is that the Government have not made it clear in the Budget whether they will hit their target only if they move in the right direction on all three of those measures at once. The Chief Secretary might be able to tell us something about that later.

Mr. Tony McWalter (Hemel Hempstead) (Lab/Coop)

In a way, the hon. Gentleman has shot my fox, as I was about to say that the Government's measurements of poverty involve those three ingredients. The Library paper on child poverty makes it clear that that is the context for the Budget debate. As he might know, the paper begins by quoting a previous Conservative Chancellor of the Exchequer, who said that defining poverty was so hard that he was not going to bother. As a result, he certainly did nothing about it.

Mr. Goodman

All Governments are very wary of defining poverty, as our Select Committee discovered when we asked Ministers about this issue. The hon. Gentleman is right to draw attention to those measurements, and I hope that, like me, he wants to know more about how they will work in respect of the 2010 target.

I had hoped that the Chancellor would say something about housing costs. Previously, the Government have attempted to hit their target on the basis of incomes before and after housing costs. But we now know that, although they will continue to publish the "after housing costs" figure, they tend to make the calculation on a "before housing costs" basis. With due respect to the Government—many of my Labour colleagues on the Select Committee share this view—if one makes the calculation on a "before housing costs" basis in London and the south-east, where such costs are extremely high, one gets an artificially good result. So we need to be sure that the 2010 measurement is fair in that regard.

Neither the Chancellor nor the Secretary of State for Work and Pensions has taken the opportunity to say whether Northern Ireland, where child poverty is extraordinarily high, will be included in the figures in 2010. The Government did not have to hand—or so they tell us—the family resources survey information that they needed to include Northern Ireland in the measurements in 2004. But that information is to hand in such a way as to enable them to measure poverty in Northern Ireland, as well as elsewhere in the United Kingdom, for the 2010 target, so perhaps the Minister could make it clear whether the Government intend to do so.

It is important to look very closely at the figures on child poverty, but I hope that the House agrees that, in the end, measuring child poverty and poverty in general is not everything. What we really need to know—such information is not always to hand—is whether the money that the Government have put into reducing child poverty and the rise in the incomes of poorer people, which cannot be dissociated from worldwide economic growth, are actually improving life chances. On the basis of the evidence available, we seem not to know the answer. We cannot be sure that such income increases are boosting health and happiness, improving relationships and parenting, raising educational attainment, breaking the cycle of crime, and improving not just standards of living, but quality of life.

I want to conclude by considering three groups of people whose life chances were not improved by last week's Budget, the first of which is pensioners. The Government must now accept that they have a very deep problem with their pensions policy. From trawling voluntary groups. industry and business, it has become clear that only the Government support an approach that concentrates on means-testing as a way of relieving pensioner poverty. According to the most recent figures that I have seen. someone who draws the state second pension in full will not have enough money to float themselves off means-tested benefits. By 2025 and 2050, a huge proportion of pensioners will be entirely dependent on such benefits. That will damage savings and pensioners consider it an affront to their dignity. I have drawn attention before, in the context of Select Committee reports, to the extremely poor take-up figures. We knew in the days before the minimum income guarantee had been replaced with pension credit, that the non-take-up rate for the MIG was approximately a third. We now know that the non-take-up rate for pension credit is about half. That means that half of our poorest pensioners are gaining nothing whatever from pension credit, and nothing in the Budget or the Pensions Bill will put right the mis-structuring of the Government's pension policy.

Mr. Tom Harris (Glasgow, Cathcart) (Lab)

Does the hon. Gentleman accept that there is some benefit in targeting money on the less-well-off pensioner? Surely the Conservative policy of re-establishing the link between the basic state pension and earnings would simply give additional funds to every single pensioner in the country, including perhaps Baroness Thatcher and others like her who do not need it. Is it not better to target the money to where it will be most effective?

Mr. Goodman

I am not aghast in horror at the prospect of paying a higher state pension to Baroness Thatcher, but I put it to the hon. Gentleman that, among sections of Labour Back Benchers, our pensions policy is more popular than the Government's. The essential problem with the means-testing policy is the take-up. If the hon. Gentleman's constituency is typical, half the poorest pensioners living in it are not receiving pension credit. For reasons that I have already explained, that is wrong.

The second group who will not benefit from the Budget are people with disabilities who are out of work, and I have some new information to share with the House about them. We are familiar with some of the figures and we know that there are something like 2.7 million people on incapacity benefit and that about 1.3 million of them want to work if they can find it. We also know—the Secretary of State for Work and Pensions said it earlier—that the only group of people on incapacity benefit whose numbers are rising are those with mental health problems.

I tabled some questions to the Secretary of State to ascertain more information about that group. As I have said, I do not believe that the Budget will greatly help them. These are the figures on men with affective disorders who are drawing benefit. In 1997, there were approximately 150,000; there are now some 235,000 drawing incapacity benefit. Turning to those with neurotic and stress-related disorders, there were about 119,000 in 1997; last year it had risen to about 135,000.

For women, the overall figures have gone up. In 1997, there were 1,032,000; last year, staggeringly, there were 1,120,000. In 1997, there were about 145,000 women with mood affective disorders, in comparison with about 232,000 last year. In 1997, there were about 101,000 women with neurotic and stress-related disorders, in comparison with 114,000 last year. The group of people drawing incapacity benefit whose numbers are rising are those with mental disorders of one sort or another.

Our criticism of the new deal has always been that too much money has gone into helping people who are likely to get employment in the labour market anyway, and not enough into helping those who find it difficult to get work and then to keep it. I believe that the Budget provides nothing to help that particular group of people. If the Chancellor were more creatively and imaginatively minded, he would want to reflect on the proposals that we made in our last election manifesto for an incapacity benefit fundholder that could reach this hard-to-find group of people, help them into work and keep them there.

The final group is young mums who want child care choice. The Budget proposals on child care essentially built on last year's proposals, which helped working parents. We have to see those proposals in the context of another Government target—that of getting 17 per cent. of lone parents into work by 2010. However, some mothers and fathers want to stay at home and look after their children when they are very young. Naturally, they will receive no benefit from employer-related measures in respect of people who work.

That has been acknowlegded by no less a figure than the Secretary of State for Trade and Industry. An article inThe Daily Telegraph some months ago was excitingly headlined "We Failed Mothers Who Stay At Home, Admits Hewitt". In it, the right hon. Lady said: I do think we have given the impression that we think all mothers should be out to work.

I am therefore disappointed that the Chancellor did not build on the proposals in the recent report on child care by the Select Committee on Work and Pensions. The Committee is dominated by Labour Members, but its report set out a choice-based model.

Finally, it will not be possible to reduce poverty effectively in the long term if family life is not stable. There is far greater equality on the continent, but the paradox is that far more payments are made there to families on high incomes. In France, parents have choice, and in Denmark women are encouraged to enter the labour market, but the key is that payments are made much higher up the income scale. I am worried by two elements in the Budget—the freezing of the family element of the child tax credit, and the fact that child benefit will not be changed. In fact, that has not increased in real terms since 1999.

Child care is a key theme for the future. I am sorry that it was not approached in the Budget in the choice-based way that some Select Committee members would prefer. In conclusion, the Budget was political in nature, rather than financial. Many of my constituents will agree with me that it offers them very little.

4.36 pm

Ms Candy Atherton (Falmouth and Camborne) (Lab)

I apologise to you, Mr. Deputy Speaker, and to the House for not being present for the earlier speeches in today's debate. The Select Committee on Environment, Food and Rural Affairs, of which I am a member, has been taking evidence on gangmasters in relation to the Morecambe bay tragedy and is sitting later than normal.

I want to talk about those elements of the Budget that I consider to be good for Cornwall. The first of the specific matters that I want to raise is the reduction of VAT on heat pumps. That might seem obscure to many hon. Members, but my constituency delights in being home to the remains of the "hot rocks" project, which the House may recall was closed by Mrs. Thatcher in the 1980s. The project was a pioneering scheme that drew heat from the ground to provide what was effectively free heating for homes, buildings and factories. Although the scheme did not last, a number of pioneering firms that were committed to the technology carried the work on, in co-operation with the Camborne School of Mines.

One of the firms involved is called Geoscience, and is based near Falmouth. Heat pumps can produce five units of heat from one unit of energy derived by using the geothermal technology. The firm was concerned about the fact that it was paying VAT on heat pumps at the normal rate. I lobbied my hon. Friend the Economic Secretary about that, and I am glad to say that he listened. As a result, the rate was reduced in the Budget to 5 per cent. The people at Geoscience are delighted at that change. Although the Budget debate may seem fairly obscure to many, people in Cornwall who have a specific answer to the world's climate problems were listened to by Ministers, and I am very grateful for that.

The Economic Secretary to the Treasury (John Healey)

That is because they have a good MP.

Ms Atherton

My hon. Friend is very kind.

Another issue exercising many of my constituents also has to do with VAT—this time as it applies to church repairs. The saga has been a long one, and most hon. Members will have heard from constituents about it. The database that my office holds of constituents who have written to ask that the Government listen to their proposals about VAT on church repairs contains a list of names that runs into four figures. I suspect that that reflects Cornwall's strength of community feeling and its tradition of church attendance. People are very closely involved in their communities and parishes. The county has some fantastic churches, but they cost a huge amount of money to repair. They are a source of great pride to the community. They grew out of the mining communities and had to be big, because they had congregations of many thousands of people. Now they may serve only a few hundred people in each village, but they are still an important part of the community. I am grateful that Ministers listened on that point, too.

I also represent many pensioners. I was out in my constituency last weekend and an older pensioner said to me, "I want you to tell them up there that for the first time in my life I have some money left in my purse at the end of the week. Now we are going to have an extra £100 and I am absolutely delighted." Older pensioners are often women who did not have pension provision when they were younger. The extra help that they will get from the Government is welcomed. They do not want the extra added to their pension, as the Opposition propose. They like having a lump sum, whether in the form of the winter fuel payment or the extra £100 to address council tax rises, because it gives them flexibility. The extra £100 was warmly welcomed in my constituency. In a debate on my local radio station, pensioners said clearly that it was what they wanted.

Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)

Does the hon. Lady agree that pensioners are welcoming a payment that will be paid to them all, without any need to fill in any application forms? As the hon. Member for Wycombe (Mr. Goodman) pointed out, the problem with some Government pension policy is that many people—by—definition, the poorest pensioners, because they were the ones who were eligible for pension credit—do not claim pension credit and so miss out, whereas if the sum were part of their pension they would be guaranteed it.

Ms Atherton

That is the problem. There are two options. One either gives a small amount to everyone, or one targets the money on those pensioners who most need it. They must also be given the assistance they need to tackle the applications. In my area, a representative from Kerrier district council will visit pensioners' homes and fill in the forms with them. Pensioners can also apply by telephone. They do not have to stand around in front of other people in some building to fill in the form. The forms have also been significantly improved. One pensioner asked me, "Why does it ask me if I have children?" As I told her, I have a family friend who is 88 and has a 13-year-old daughter. We can debate whether 88 is the age to be charging around with a 13-year-old, but that is the reality. Our lifestyles have changed and many pensioners have child care responsibilities. The forms can be complicated, but assistance is available. Pensioners in my constituency are delighted with the Budget and I thank my Front-Bench colleagues for that.

The money for schools will also be warmly welcomed. The head of Penryn school, Marie Hunter, will use some of the extra money for her fantastic summer scheme for children in the Penryn area. Last year, hundreds of young people took part in the scheme, and as a result not one of them came to the attention of the police. She is very proud of that and it is fantastic that young people who might not otherwise have the opportunity get the chance to do things. Marie Hunter lobbied me for more money to be paid directly to schools and I am sure that she will use the extra to assist with the summer scheme.

We do have problems in Cornwall, and I must raise them with Ministers. They will know that Cornwall has achieved objective 1 status—the highest level of structural funds—to tackle its long-standing economic problems. Despite the fantastic work that has been done, we still have only 59 per cent of the European average for gross domestic product. That puts us on a par with Greek islands. We are the poorest region in northern Europe, and that is tragic. It is a challenge for all of us to tackle those longstanding problems.

I do not want give the impression that the Government have not been tackling those problems in Cornwall. We are tackling the infrastructure problems. The Government are dualling the A30 at Gossmoor. Any hon. Member who has ever come to Cornwall in the summer and has tried to go from east to west will know that that huge bottleneck has been a nightmare for many years. That work is being fast-tracked by the Highways Agency. Almost everyone except Swampy agrees that that is absolutely fantastic. The Government, through Social Research Associates, are dualling the A30, and we are using objective I funds to assist us in that. That work will decrease journey times by 30 minutes. That may not sound much to most hon. Members, but that makes a huge difference to a five or six-hour journey. We have the largest number of small and medium-sized businesses in the country. I often laugh when we talk about SMEs, given that when we talk about a small business, we may be talking about one person; that when we talk about a medium-sized business, we may mean a business that employs five people; and that, to some, a business with 30 employees is a large business. The definition of an SME depends on where you come from, but the money in the Budget to help small businesses will be welcomed.

As I say, we are doing a lot. We have the Eden project, which I hope many hon. Members have visited. The maritime museum in Falmouth has the small boats collection from Greenwich. What is happening with that museum, the Tate at St. Ives and our gardens is that people are coming to the county, not for the six weeks of the bucket-and-spade season, but all year round. One hotelier told a colleague, "I've got a bone to pick with you"—as every politician knows, people stand back when someone says that—"I have had to put central heating in my hotel because I've got visitors coming all year round." I think it is a real success when hoteliers have to put in central heating because tourists are visiting the country all year round.

My constituency has one of the few urban regeneration companies in the country. It is conserving the Camborne, Pool and Redruth community. The closure of the coal mines was pretty dramatic and, as result, there were dramatic responses from the Government. The situation with tin was very different. Tin mines closed over hundreds of years. There were times when the decline was sharp, but it was usually gradual and, as result, it slipped by—no one really noticed, except for people in Cornwall. As a result, there was never a sense that we had to tackle the problem, until now. In the Budget, we have money that will help the Camborne, Pool, Redruth urban regeneration company to make a difference to the lives of the people in that community.

We have the largest amount of derelict land in the country. When people think of Cornwall, the last thing they think of is derelict land. In fact, west Cornwall is full of derelict land. The money for housing in the Budget will really help us.

We are working hard in Cornwall. We are trying to tackle the problems that we have inherited. The people are committed to working for the county. The Government are working for the country. A lot of good things are happening. I ask the Government to help us with the next round of objective 1. We want quality jobs, quality homes and quality skills. There was more for us in that respect in the Budget. I thank the Government and ask them please to keep helping us.

4.48 pm

Mr. Tony McWalter (Hemel Hempstead) (Lab/Coop)

It is pleasure to follow my hon. Friend the Member for Falmouth and Camborne (Ms Atherton) in the debate, particularly as I had the pleasure of visiting the Eden project very recently. I commend that project to all hon. Members and, indeed, all members of the public, as a marvellous place to visit.

I rise to speak as a member of the Science and Technology Committee, so I shall concentrate on the Budget's implications for science. In doing so, I want to dwell on a general theme of whether the Budget will help to procure what might be called fair contracts between generations. Earlier, members of the Conservative Front Bench suggested that the Government have a tendency to profligacy and to consume the seed corn of future generations. The implication was that an unsustainable deficit today would have to be paid for by our children tomorrow.

The Budget's vision and long-term approach to science gives the lie to that accusation. It is no accident that the Chancellor used the word "science" 13 times in his speech. Investing now in science will not simply enhance the lifestyles of tomorrow but of generations to come. I worry about whether there is in Government sufficient understanding of science and enough of a scientific culture to get that investment right. Time after time, when the Science and Technology Committee seeks out the person in a Department who ought to know about mathematical models, understand a certain third world engineering project or appreciate all the other ways in which science impacts on government, it is often the case that no one can be found to deal with such matters. When the director general of the Natural Environment Research Council addressed the Committee last week, he stated that when he tried to find someone in Government to discuss matters that concerned him, he could not find anybody sensible to address.

The Government's emphasis on science is to be greatly welcomed—as is some collateral reconfiguration of the civil service. However, that must go hand in hand with intelligence, foresight and appropriate information—to retain the expertise needed in government to protect our country's productivity and affluence for generations to come.

What prospects are there of an enhanced science budget?The Committee is worried that there does not seem to be much of a vision of how energy is to be procured in decades ahead. Laudable targets for carbon reductions by the year 2020 are all very well but we must ensure that non-carboniferous energy generating systems are in place. The Committee found that the Government must take some real risks if they are to deliver a non-carboniferous or reduced carbon energy system, and thought that wave and tidal power offers the potential for an extraordinary payoff in meeting targets and reconfiguring energy systems in a non-carboniferous, non-nuclear way.

We began to get somewhere with the Department of Trade and Industry, but—truth to tell—we need the instruments for securing huge investment in a technology that is of dubious return and which perhaps involves building something a bit like the millennium dome but on its side and in the sea. For some strange reason, such a project did not appeal to people who were asked to put their hands in their pockets now for a dubious outcome in terms of a working project in, say, 2011. That money is difficult to raise through venture capital and the private system, but a Government with a vision of how we will generate energy in future really need to look at priming the pump of such enterprises. We are not talking here of the £5 million or £10 million that the Government have vouchsafed—that money is welcome—but of an awful lot more if such ideas are to go from trial to something like empirical proof. Apart from energy, the general issue with the science budget relates to the huge difficulties in the education system. One of the great strengths in the British economy has been the extraordinary extent to which we have been able to generate science graduates, particularly in those subjects that require a high degree of mathematical attainment. There has been an astonishing fall in the number of people doing advanced level maths and continuing to develop those skills. However, wherever one looks in the world of science, those skills have a premium. Indeed, some might say that those skills should have a higher premium in Parliament itself, and particularly in Budget debates.

Losing the trained people that we need in many sectors becomes an issue when we face a crisis, as we did with foot and mouth disease, and find that the mathematical models of disease spread are, unfortunately, ill developed and ill defined. I suppose that we have to make policy almost quite literally on the hoof. It is a bad day when this country lacks the capacity to invest in science and its future.

We have also asked the Government to consider following the Taylor report's recommendations on investment in two new nano-fabrication facilities that involve cutting-edge nanotechnology and materials that are 10-9 of a centimetre. The Taylor report says that many advanced industrial countries will make their living out of such technology for the next decade or two or more. We want the capacity for people to take an idea about a system that may, for example, replace ball bearings through to manufacture, test and experiment, to see whether it is possible to turn an idea into an industry that employs people and pays our way in the world.

I say with regret that, so far, there has been decided reticence on the part of the Government to back such initiatives, but I believe that the Budget signals, in its appraisal of science, a willingness to go beyond the hesitant pussyfooting that has sometimes characterised Government responses to recommendations such as those made by Taylor. Instead, it signals the potential to secure investment that might go wrong. After all, that is the nature of this business—things can go wrong, so one might invest and get a bloody nose. However, if several such investments are made, out of the experiments and initiatives come ideas and industries for the future. Many in our society do not give much thought to the energy supply in 2015, the industrial structure of 2015 or the extent to which global warming will damage our country in 2015, but it is nevertheless in their interests to invest now for that future.

One example of a possible investment that the inventors would wish me to mention is what is called Beagle 2A, although one might call it Beagle 3, because it will follow Beagle 2 as an effort to try to understand Mars—that is, the planet—by using robotic systems. Those systems involve tremendous ingenuity, and it is possible that they have the capacity to be developed on an industrial scale. For example, a small-scale spectrometer was an integral part of the Beagle 2 project. The new project cannot be called "Beagle 3", because someone has already appropriated the name with a view to using it as a marketing ploy. That situation illustrates in a microcosm the extent to which we can invent things in Britain and have fantastic ideas—even though it must be said that Professor Pilkington had enormous difficulty raising the £25 million that he needed to get Beagle 2 under way—but then seem to lack the capacity to move from the idea, or spark, and relatively modest investment toward a system in which there is a real programme to develop volume, workers and capacity.

I know of a nanotechnology project involving a company that remains pre-revenue after six years and is in danger of dying and being taken over by the United States because the last chunk of capital and support for its 15 workers is being denied. We must try to ensure that the tremendously welcome science budget is actually converted into projects that will be of real benefit for generations to come.

I began by saying that I would emphasise the science side of the Budget quite a lot, but I also said that I would comment on the contract between the generations. If the Budget is displaying long-sightedness about the extent to which we are trying to look after the interests of future generations, it is also vital that we look after the generation in the here and now. I did not agree with the hon. Member for Northavon (Mr. Webb) when he said that the £100 council tax contribution was a bribe. I wrote a letter to the Prime Minister before Christmas in which I said that the matter was one of the most vexatious issues in my constituency. I asked him to do. something, so I do not think that the measure is a bribe—it is sheer responsiveness. It shows that if the burden of council tax has reached a stage at which it is no longer seen as fair and manageable—

Angus Robertson

It is a backhander, not a bribe.

Mr. McWalter

The hon. Gentleman mutters about backhanders rather than bribes. What do Opposition Members want? Do they want us to say that we will not address the issue because if we do, people will think that we are doing so for awful motives? We should tackle it because that is the right thing to do.

Sir Robert Smith

The hon. Gentleman is right—at least the Government have, at the very last moment, recognised the seriousness of the problem that people have been telling them about for a considerable time. However, it is a sticking-plaster solution and it is only available this year—it is not promised for future years. Surely, the Government should promise to reform the way in which we fund local government and, in particular, make sure that taxation for local government is based on people's ability to pay.

Mr. McWalter

I agree with the hon. Gentleman, although I suspect that I disagree with him about the way in which those funds are to be procured. The most difficult issue in the Budget to address is ability to pay. The hon. Member for Wycombe (Mr. Goodman) made an excellent speech about the way in which we understand and deal with poverty, which is a problem in Wycombe and my constituency of Hemel Hempstead. I am constantly sounding off to the Chancellor about HIND—high income, none disposable—people. Some individuals do not have any disposable income because their housing costs are so high that de facto they are in poverty, even if on paper they do not appear to be. I dealt with a case in my constituency involving a single mum with two children. She drove a fairly new BMW 5 series, but in fact she had almost no disposable income, and her company required her to drive that car because it wanted her to portray a certain image to clients. The taxation that she paid on her income and the car meant that the family—and I visited their home—were in desperate straits. What constitutes poverty is therefore not always clear, and we must look at disposable income. I am not chastising the Government—it is a hugely difficult issue. My right hon. Friend the Secretary of State for Work and Pensions has pointed out in the past that it is difficult to make benefits sensitive to housing costs, which contribute to the problem of achieving a fair system. As those housing cost difficulties are addressed—and I welcome the emphasis in the Budget on the Barker report and the Miles report—the housing system will become more manageable and housing costs will bear down less harshly on people in Wycombe, Hemel Hempstead and other constituencies. The contract between generations, the emphasis on housing and the attempt to provide appropriate resources will be important in future and are integral virtues of the Budget.

I touched on the current difficulties facing the older generation when I spoke about relief on council tax, but it would not be right not to say something about the pensioners, particularly in my constituency, of the Dexion company who are victims of a measure that I call the "The Dangerous Dogs (Pensions) Act 1995". It came into force on 6 April 1997, less than a month before the Government took office, and established a system in which pensioners of companies that went bust got their pension if the fund could manage it. If, however, people were not quite pensioners, they would be at the end of the line and might well end up with nothing. That is a most extraordinary injustice.

I have a constituent who is a pensioner now but was not yet a pensioner at the time the company went into liquidation. He had paid for 38 years and was two days away from getting his pension when the foul Pensions Act 1995 bit him. Progress has been made on the issue and, as the debate continues, I hope people will see that just as we must do the right thing by future generations to protect their interests—I have suggested that there are various ways in which the Budget does that we must do the right thing also by the current generation who have been the victims of a major injustice.

I shall conclude by saying something about the resources that the Budget generates. I have spoken about science and welcomed the tremendous new initiative, but suggested that there should be close parliamentary monitoring to ascertain whether those resources are used wisely and well or foolishly and badly. The Opposition always assume that if we set out to raise money, that is the propaedia to throwing it all in the bin. We must ensure here in Parliament—all of us, Opposition, Back Benchers and Front Benchers—that the money is used wisely and well.

I welcome the Chancellor's emphasis on resource accounting, but I sometimes wonder whether we do it well enough. I am particularly worried about some of the things that are going on in the health service, and I hope that those on the Front Bench will take heed of the fact that a Labour Back Bencher sometimes worries about whether the money coming into the system is being spent as effectively as it might be. I have in mind the fact that the budget of my local strategic health authority is scheduled to go up from £900 million a year to £1.6 billion. That is a huge increase, which takes us out of a condition of deficit financing, to which the hon. Member for Wycombe referred—a condition of always being in debt and of people always making decisions based on the fact that the books do not quite balance and we must make more cuts. We are not in that position now, I am told. The debt-ridden health system should finally be a thing of the past and we should have the resources to tackle the recommendations of the Wanless report.

I very much welcome that, but the question is whether we are making the best use of the resources, the capital, the investment and the people we have. If we do the resource account badly, we could end up with the situation that we experienced at Hemel Hempstead hospital. For all I know, my right hon. Friend the Chief Secretary to the Treasury may have been born there. His mother still lives in Hemel Hempstead. The new maternity unit is nine years old and still sparkling new, with a wonderful special care baby unit. What did management do? They said, "Well, it's very nice and it cost us quite a bit of money, but unfortunately we're a bit debt ridden and it's very hard to get staff these days. It's an expensive part of the country and people always want to go somewhere else because their quality of life would be better, so sorry about this, but we are going to put the slammers on it. We're going to shut it."

If we have built up resources costing millions of pounds and we shut them early, that is as close to stupidity as policy making ever could be. We must ensure that, if we are going to do resource accounting, it is not merely a technical exercise that we do on a piece of paper with a quill but something that we do in practice by using the judgment of those who understand the bricks and mortar., who see the capacity, and who talk to the people involved. We also need active Members of Parliament and those who assist them to try to monitor all this expenditure, to ensure that it is used wisely and well.

On my own patch, I want to see the Wanless agenda introduced. I welcome the extra money because, once we get away from a deficit health system, the issues that are never addressed, such as mental health, geriatric help or dementia—issues that are always right down at the far end of the food chain under a deficit health system—can now be addressed. However, they will not be addressed if we do not do our resource accounting properly.

Mr. Mark Francois (Rayleigh) (Con)

Will the hon. Gentleman give way?

Mr. McWalter

I was just about to give up, but I would be happy to take the hon. Gentleman's intervention.

Mr. Francois

I thank the hon. Gentleman for giving way just before he sits down. Does he agree that a particular problem associated with NHS expenditure is the fact that private finance initiative projects are often so bureaucratic that it takes a long time for the system to spend the money, and that a great deal of that money is therefore wasted because of the time that it takes to get through it? Surely something can be done to make the system more efficient.

Mr. McWalter

I am amazed that the hon. Gentleman's intervention was so tame and tender. I agree with what he says, but there has also been a lot of talk from Members on his own Benches about how wonderful PFI is. In my local health trust, the local PFI outgoings for this year are zero, but it still has a huge problem managing its resource base. I hate to think what would happen in grandiose systems in which such outgoings were quite substantial. The problem of being in chronic debt would simply be regenerated all over again. I understand why the Government sometimes want these projects to be managed at so-called arm's length. The trouble is, however, that if the arms get too long, the projects end up out of sight of those who are committed to the process of parliamentary scrutiny. We must make very sure that that never happens.

I began by making certain points about science and about justice between the generations. This is a wise Budget, in that much of what it does seeks a balance of interest between the generations. I welcome the resources that it proposes and I look forward to the intensive process of scrutinising in great detail all the projects that will emerge from those extra resources.

5.18 pm

Mr. Geoffrey Clifton-Brown (Cotswold) (Con)

It is a pleasure to follow the hon. Member for Hemel Hempstead (Mr. McWalter). I was interested to hear that he was about to give up, as I am sure the Conservative prospective parliamentary candidate in his constituency, Mike Penning, will be interested. His comment was really just a confirmation of what the rest of the House, particularly Opposition Members, knew already.

It is a characteristic of Chancellors that they claim credit for everything that goes right and blame everyone else for everything that goes wrong. This Budget went in for fiscal tightening and monetary loosening, but that state of affairs cannot go on indefinitely. I suspect that it was arrived at bearing in mind the date at which the British people will be able to give their verdict on it. That is why it would be useful to point out to them why we believe that it is unsustainable in the long run.

Certain aspects of the Budget are to be warmly welcomed. I give the Chancellor credit for achieving his predicted growth rate this year—contrary to the predictions of many well informed economic commentators, and, indeed, to my own forecast. I suppose that it was that, alongside the relatively full employment of which the Chancellor made much, that allowed him to proceed with what I believe to be his unsustainable expenditure increases. Indeed, were it not for those two factors, I suspect that those expenditure increases would become reckless rather than unsustainable.

Other aspects of the Budget are to be welcomed. Many Members have paid tribute to the £100 one-off payment to pensioners, but it is a bit mean giving with one hand and taking more away with the other. We have all seen the considerable increases in council tax this year, and there were even bigger increases last year. I am sure that we have all had difficult cases in our surgeries. For example, a man told me in my surgery the other day that his small occupational pension takes his income above all benefit entitlements, but that the increase in his occupational pension and state pension this year is much less than the increase in the council tax. It is because of the increase in council tax, therefore, that his standard of living will be reduced. That is unsustainable and unsatisfactory, and we must consider how the money raised locally in council tax reflects more accurately local government functions. One main reason why council tax has got out of control is that the Government keep giving local authorities more and more duties and responsibilities without providing the proper funding.

I want to comment on the fiscal side of the Budget, and then on the monetary side. As I said, this is a fiscal-tightening Budget, which is due largely to not indexing the relief on most taxes, as table A3.1 on page 210 of the Red Book shows. As a result, we will have fiscal tightening of about £750 million which, taking into account enforcement and compliance, will total about £1 billion. Those are fairly small figures in historical terms for this Government, because the previous economic situation must be taken into account. They have already introduced 60 extra taxes, which is a doubling of the rate of tax take, costing the average family some £5,000. I am sure that, when it comes to the next general election, the British public will not be slow to take on board those tax increases.

The only exception to the indexing of relief was small: relief on inheritance tax was raised from £255,000 to £263,000. That is small beer for many families. In many cases, particularly in the south of England, and especially in a constituency such as mine, the value of the house alone will use up nearly all inheritance tax relief. Nevertheless, the rise was welcome.

That is completely overshadowed by the many other forms of relief that the Government have not indexed over seven years, such as stamp duty. When we left office in 1997, stamp duty raised a few hundred million pounds in revenue; today, it raises several billion pounds. That is because seven years ago the relief of £60,000 used to buy a reasonable, small house, but today, in most constituencies in the south of England, it would be impossible to buy much more than a box for £60,000. The stamp duty imposed by this Government is becoming a significant cost to many people who have to move house for their job.

I want to comment on strip stamps, which are not what some hon. Members might suppose, but are related to the fraud and evasion of tax on spirits. I declare an interest as the chairman of the all-party wine group. I have made a spirited speech on this subject in Westminster Hall. The Government—I spoke to the Economic Secretary last night on the subject, and I am grateful to him for offering to talk further to members of the trade—say that £600 million a year is lost in fraud, and that strip stamps, which are duty-paid stamps to be put over corks or caps of bottles of spirits, will cost only £50 million to introduce. That is an overestimate followed by an underestimate. The trade reckons that roughly £250 million in revenue is lost, and that the measure could cost as much as £150 million to implement. The Government therefore still have a lot of thinking to do on strip stamps.

Sir Robert Smith

It is clear from evidence given by Customs and Excise to the Scottish Affairs Committee that it has not got to grips with the current ways of trying to tackle fraud before imposing a bureaucratic nightmare that could, in fact, open the door to other forms of fraud.

Mr. Clifton-Brown

I agree. The all-party wine group went to Dover to observe the work of Her Majesty's Customs and Excise, and found that what I have called on the Government to do in the Finance Bill for seven years has now been done. Customs and Excise has installed a large machine that can X-ray an entire heavy goods vehicle in one go, and more customs officers have been employed. When the Government came to power, they said that they would cut the number of customs officers.

All those are helpful enforcement measures, but I think that the Government should consider all possible means of enforcement rather than imposing a bureaucratic burden on the spirits industry. I do not even think that it will necessarily work, because the strip stamp system is inherently open to fraud. It has not worked in Poland, or in other countries.

Let me now say something about the Government's monetary policy. Table C1 on page 244 of the Red Book shows that the Government are borrowing £37.5 billion this year, and the amount is rising. It also tells us that gross gilt sales this year will amount to £49.8 billion. If those amounts continue to rise, they will become unsustainable—and we should take into account not just the figures above the line, which are shown in the Red Book, but those accumulating below the line, which are not. I am thinking of, for example, the £20 billion debt accumulated by the Strategic Rail Authority. The Government hardly bought a rail, hardly opened a new station, to build up that debt. The money was largely spent on consultants and lawyers in the process of putting Railtrack into administration—a shocking mismanagement of Government funds.

There are several hundred billion pounds in the private finance initiative. My hon. Friend the Member for Gainsborough (Mr. Leigh) referred to the PFI, which we, the Conservative Government, introduced. It was an excellent idea, and the Government are taking great credit—the Chancellor did it again in the Budget statement—for building a tremendous number of new hospitals through it. The problem is that many of the contracts are let inadequately by the Government. My hon. Friend mentioned some of the problems, prompted by an intervention from me. The Government must become much smarter in letting those contracts and in wording them, so that some of the risk really is passed to the private sector. Otherwise they could borrow the money more cheaply themselves, and might as well fund projects directly.

On page 271 of the Red Book, the Government say all the right things. They say that the public sector contracts to buy services from the private sector so as to take advantage of private sector management skills incentivised by having private finance at risk. They go on to say, in the same paragraph, With PFI, the public sector defines what is required to meet public needs and ensures, by contract, delivery of the outputs it sets. It has rights under those contracts to change the output required from time to time.

The trouble is that it does not do that. There are so many exceptions in the contracts, and the private sector is so much smarter at negotiating the exceptions, that the contracts are often extremely weak, and in some cases could be funded more cheaply by the public purse.

As for the Government's so-called efficiency savings, there were great headlines in the press on Thursday morning suggesting that the Chancellor had somehow shot the Conservative fox. That was nonsense. The Government have taken on 390,000 civil servants, and will secure efficiency savings by making 40,000 redundant. They have been taking on civil servants at a rate of 511 a week for the past year. They are far too timid. They are doing too little too late. In any case, as always, they are adopting Conservative policies without having the necessary reasons or philosophy to follow them through.

In the past, the Government and indeed the Chancellor have made great play of public service agreements. The Chief Secretary grins; he may wish to consider this carefully, as he has negotiated public service agreements in the past. The Chancellor abolished 130 of them in the Budget. Having taken great trouble to negotiate with Secretaries of State for other Departments, he finds that they cannot live up to the agreements and has to abolish them. I praise the Government for at least beginning to think about efficiency savings. It is too little, too late, but perhaps it is a good start.

Others wish to speak, so I shall not take long. The Government are beginning at long last to consider outputs rather than inputs. Whenever the Prime Minister hears a criticism during Prime Minister's Question Time of the malfunction or dysfunction of any Department, his only answer is that the Government are spending so many more hundreds of millions or billions on the problem. He does not say that the money buys, for example, so many more operations. In recent years, expenditure on the health service has increased by 37.5 per cent., but in the same period, output in terms of operations has increased by only 4.8 per cent. Those figures clearly demonstrate that expenditure in Departments is not as good as it should be.

Let us consider the social security budget. We are spending approximately £60 billion to £70 billion on the NHS, but it is predicted that we shall spend £150 billion on social security by 2005—06. In 2000—01, that budget broke the £100 billion mark for the first time. It has increased by 50 per cent. in five years. One does not begrudge giving people a hand up rather than a handout when they need it, but we must ascertain whether the money is being spent wisely.

Until last week, I was a housing spokesman for our party. When in an official capacity, I join the ranks of the silent ones, but when I am on the Back Benches, I can make speeches. It is a shocking indictment of the Government—[Interruption.] If the Chief Secretary would listen to me instead of gesticulating amusingly, he might like to take account of this shocking statistic. After seven years of a Labour Government, the Select Committee on the Office of the Deputy Prime Minister has confirmed that we have the highest number of homeless families that the country has ever experienced. That is a shocking indictment of the Government. I intervened on my hon. Friend the Member for Wycombe (Mr. Goodman) to emphasise that the hard facts in those global statistics are that the number of homeless families with children has increased and the number of those living in bed-and-breakfast accommodation has more than doubled from 4,500 to more than 10,000. Putting people in bed and breakfast is a huge waste of human and financial resources. They have a miserable life.

We were building almost double the amount of social housing when we left office in 1997—some 35,000 houses compared with approximately 20,000 that the Government are building today. They are not building enough social and affordable houses. We have suggested extending the right to buy and using the proceeds to fund a considerable increase in affordable and social housing without any cost to the taxpayer.

Table C13 on page 269 of the Red Book shows that the ODPM's capital budget will increase from £1.5 billion to only £2.4 billion. How will the Government start to solve some of the housing problems, let alone fund the huge sustainable communities plans under which they have committed themselves to spending a great deal? The Prime Minister chairs the Cabinet Committee that deals with the Thames gateway community project. It is called Misc 22 and likes to remain secret because it produces neither a sustainable plan nor communities worthy of the name. It certainly has not managed to attract the very large amount of private finance that it will need to attract to build the infrastructure to accompany the 140,000 houses that are predicted for the Thames gateway over the next 12 to 14 years.

The Government have a problem with their housing policy. They have a problem with their communities plans. They are putting the wrong houses in the wrong places. We do not have joined-up government. They are not committing themselves to the infrastructure that is needed for the communities plans. There is much to be done. Although, as always with this Chancellor, the Budget glittered on the day, once one starts to get into the detail, one begins to see a number of black holes.

Several hon. Members

rose

Madam Deputy Speaker (Sylvia Heal)

Order. Several hon. Members are hoping to catch my eye. If contributions are brief, more may be successful in doing so.

5.35 pm

Ms Joan Walley (Stoke-on-Trent, North) (Lab)

I can agree with the hon. Member for Cotswold (Mr. Clifton-Brown) on one thing: we need to take action urgently on housing. In that respect, I am pleased that in Budget 2004 the Chancellor paid such regard to Kate Barker's report. Housing is featuring now, and will feature in future. I am particularly pleased about that. It means that in my constituency in north Staffordshire, there will be a £2 billion housing investment programme over 15 years, and we shall invest in housing as we need to do. Listening to the Budget debate, including the golden oldie that we heard from the former Chancellor of the Exchequer, the right hon. and learned Member for Rushcliffe (Mr. Clarke), about the golden rule, I was pleased that the current Chancellor has produced a Budget that will really deal with the economic situation and with investment in jobs, which we desperately need, especially in areas such as mine, where we have the huge legacy of Conservative Governments—the destruction of many of our traditional industries. We must now provide the employment opportunities.

The Budget commends itself to me because the Chancellor is genuinely dealing with environmental issues. Only months ago, we heard from the Government's chief adviser that the threat of global warming was as great as the threat of terrorism. It is important that the Chancellor is at last setting out ways to address global warming. We have environmental issues and we have the prospect at long last of action on energy efficiency. Those of us who have campaigned over many years can now see that there will be real improvement that will make a difference. Many environmental groups will welcome that move in the Budget.

My hon. Friend the Member for Ochil (Mr. O'Neill) talked about the Scotch Whisky Association, and that reminded me that Budgets in the past were often just about smoking and drinking. Whatever he might say about the changes that he would like for Scotch whisky, I have read the small print of the Budget and I am pleased. The Campaign for Real Ale has campaigned alongside the Titanic brewery in my constituency to extend the small breweries relief. It is good that we have a listening Chancellor who is looking at the issues in regional economies. It is important that we listen to what people are saying to us.

I see in his place my hon. Friend the Member for Leigh (Andy Burnham), who has done so much work on football. In the Budget there is at long last an undertaking to look at the role of football supporters trusts. Many of my hon. Friends, and Opposition Members, have had to deal with the prospect of football clubs going into administration. The Chancellor and the Inland Revenue needed to think about that issue, and there it is—a small welcome paragraph saying that the Chancellor will look at the work of football supporters trusts.

The Budget is about jobs, pensions and, more importantly, education. It recognises that, if we are to provide the boost to the economy that is desperately needed and to build on the success that the Chancellor has had so far, we need to concentrate on employment and ensuring that people have a proper, fair wage for the work that they do. That is why the improvements to the minimum wage, particularly for 16 and 17-year-olds, will be so welcomed in my constituency. No action is ever enough, but the Chancellor has shown that the Government care about people receiving a decent wage, work being made to pay, and local economies being boosted, so that we can have that sense of well-being that does so much to improve our areas.

One key aspect of the Budget is the huge investment in education. I have to say a word of thanks to the Chancellor, because Stoke-on-Trent is again to be at the forefront of the programme to allocate extra money to the rebuilding of secondary schools. We could never even have dreamt of such a programme under the Conservative Government.

The Government are not merely dealing with schools, but are starting with early years provision, and have given a commitment that every deprived ward will have a children's centre by 2008. Only last week my right hon. Friend the Minister for Children visited my constituency and saw how desperately we need a children's centre at Chell Heath. I must tell the Chancellor and my right hon. Friend the Chief Secretary that it is critical that the investment outlined in the Budget be made to work on the ground.

My right hon. Friend the Member for Coatbridge and Chryston (Mr. Clarke) mentioned people with disabilities. There are elements in the Budget that will make ours a fairer society for people with disabilities, which will be welcomed throughout the country.

Bearing in mind that you wish us to be brief in this closing part of the Budget debate, Madam Deputy Speaker, I shall concentrate on just one issue, which I hope the Chief Secretary will address when he replies to the debate. The Budget has given a real commitment to put into practice the findings of Sir Michael Lyons's review. if we are to build on all the investment in the economy, it is important to ensure that in any relocation, civil service jobs go not only to the larger "premiership" cities such as Liverpool, Manchester and Birmingham, but to other urban areas that have so far not had their fair share of Government jobs. I put in a particular plea for north Staffordshire to feature in the work that the Chancellor does in the coming months, so that new jobs will be brought to our area.

The two back-up reports for Sir Michael Lyons's review—undertaken by Evian and King Sturge—do not really take account of the extent of deprivation in areas such as north Staffordshire. They tend to see the benefits of taking jobs away from the south-east as flowing from possible synergy with investment that has already been made in certain other parts of the country—for example, in the health jobs already in Sheffield or the passport office already in Liverpool. In transferring those jobs, location is all-important: location, location, location. North Staffordshire should be one of those locations.

My colleagues who represent other north Staffordshire constituencies feel as strongly as the North Staffordshire chamber of commerce, the local authorities and I do that the jobs that are brought to north Staffordshire should not be just back-street jobs, but the professional and managerial jobs that will help to regenerate the area. The introduction of such jobs would sit side by side with the housing pathfinder work that is bringing in £2 billion over 15 years, and would match the investment in learning and skills spearheaded by our learning and skills council and by Advantage West Midlands in the north Staffordshire regeneration zone.

We have to make certain that when the Government tell us how they will proceed with the relocation of jobs, they have a transparent procedure. If the so-called consultants, who have looked at some 102 cities around the country, have not bothered to flag up north Staffordshire as an area that can benefit, I will want to know why. I want the Chief Secretary to get back to the people of north Staffordshire and start top-level talks to ensure that everything that we want to do on the ground will be reinforced by a proper relocation of jobs to the area.

I hope that the Government can take away that message from this debate. We in north Staffordshire are very keen and eager in that regard, and we want nothing more than to work as closely as possible with the Government to regenerate our economy not only nationally, but in north Staffordshire, where this issue matters so much.

5.46 pm

Mr. David Cameron (Witney) (Con)

It is a pleasure to follow the hon. Member for Stoke-on-Trent, North (Ms Walley), who spoke very powerfully for her constituents. I shall talk about whether the Labour tax and spend experiment of the past four years has actually worked, but first I want to make a couple of preliminary remarks. I start where my hon. Friend—and neighbour—the Member for Cotswold (Mr. Clifton-Brown) began, with the so-called shot fox of cost savings and waste in government. I suspect that he is not really in favour of shooting foxes in any event, but as far as I can see this fox is alive and well and living in Whitehall.

We Conservatives have been saying that there is a lot of Government waste and bad spending, and suddenly the Chancellor has said, "Yes, we're wasting £20 billion a year, and 40,000 jobs in the civil service are surplus to requirements." That is a big change in the terms of trade in the debate on tax and spend, because until now, we have been told that every pound that we attempt to save in public services is a pound off the nurses' pay bill, or a pound off front-line services. Now we know that, as we have been saying all along, it is possible to save money in central Government without hitting front-line services.

As I listened to the Budget speech, three points struck me straight away that bear repeating. First, the Budget was highly political. Almost all of it was about us: about Conservative policies that the Chancellor has rejected, and about others—those involving saving money—that he has accepted; he had very little of merit to say for himself. Secondly, he made that last point clear by repeatedly talking about tax rates that he had decided to freeze, as if such taxes normally went up every year and such a freeze somehow constituted generosity. He said that he was generously freezing inheritance tax, income tax and capital gains tax, which proves how little he had to say.

The third point that rang out from the Chancellor's speech is that tax is to come: if Labour gets in again, there will be third-term tax rises. The two figures that jumped out of the Budget speech were the £120 billion that the Chancellor plans to spend over the next five years, and the £140 billion that he plans to borrow.

Mr. Bercow

My hon. Friend is making a characteristically robust contribution. In the context of taxes, is he aware of the sage verdict of the noble Lord Hattersley? In an article inThe Guardian of 13 June 1995, he said that Labour could be either the party of higher taxes and proud of it, or the party of higher taxation that it is ashamed to describe, afraid to admit to and incapable of calculating with any accuracy.

Mr. Cameron

I am afraid that, as someone who writes a column forThe Guardian website, I take the view thatThe Guardian is something to write for rather than to read. So I did not read that article, but I shall look it up.

In the time remaining, I shall try to answer two questions: has most of the extra money spent by Labour on our public services been wasted, and if so, why? Those are the two most important questions in British politics today, and the answers to them will probably determine the outcome of the next general election.

Of course, no one would claim that all the money has been wasted, but the case for saying that tax and spend, as an approach to improving our public services, has failed is overwhelming. We know that tax revenue has increased from £271 billion in 1996–97 to £429 billion in the forthcoming year. That amounts to an extra £6,300 for every family in this country. It has not all gone on paying off debt, because Government spending has increased from £317 billion in 1997 to £488 in the forthcoming year—a similar increase. Of course, the Government can and do point to building projects either completed or under way, and some successes on outcomes. I grant that in some respects, notably for primary school results, but the overall picture, as we have heard from many Conservative Members, is pretty dire.

In our hospitals, there are a million people still on waiting lists, with mean and median waiting times for inpatient treatment up over the last four years. In our schools, truancy is up by a fifth since 1997, with 33,000 children leaving school each year without a GCSE. On our streets, violent crime is up by two-thirds, with gun crime doubled, yet the Home Office budget has increased by two-thirds over the Government's period of office.

I believe that anger against the Government has been sharpened by three distinct questions being formed in the public mind. The first is a question about price. When inflation is low and the price of some goods in the shops is falling, people are asking why the cost of government and the public services is rising so rapidly.

The second question is about quality. Families enjoy ever greater choice, and usually greater quality, in the areas of expenditure that they control, such as the family holiday or the family car. They are asking why the quality in the areas that they do not control—usually in the public sector—is often so poor.

The third question is about how the moneys to pay for Labour's tax and spend experiment have been raised. Put simply, the question people ask is why Labour never admitted to plans for a tax and spend programme before introducing one. Before the last election, we heard nothing about national insurance increases and nothing about council tax increases. There was never any admission that we were moving into a tax and spend era, yet we all know that there have been 60 tax rises.

For a while, the stealth tax approach of raising money through ever more ingenious routes actually worked. The raid on the pension funds was not felt immediately. The hikes in stamp duty were felt by those who moved house, but not by those who did not. It was the increase in council tax—up 70 per cent. since 1997—that affected every family in the country. Interestingly, opinion polls show that almost everyone accepts that the principal cause of the increases is central Government. The same goes for national insurance contributions, because people see the money coming out of their pay packets.

Conservative Members aim to prove that much of the extra money raised in taxes has been wasted. I would argue that when even the Chancellor himself admits that 40,000 jobs can be cut out of the public sector, and £20 billion saved, without cuts to front-line services, we are well on our way. I commend my right hon. Friend the shadow Chancellor for his work on those problems.

We also have to explain why the Chancellor has failed in his mission to transform public services through tax and spend. Such a "narrative", to use a new Labour term, is not important for presentational reasons alone; it should form an important part of winning the intellectual argument about how we would do things differently and why a different approach would work.

The Prime Minister's mantra about public services is "investment plus reform". He has a neat addendum when he says that Conservatives are against the investment, and that Liberal Democrats—and most of his own Back Benchers—are against reform. That is his neat mantra, but in order to explain why the money has been wasted, we have to prove that the reform has been a chimera and has not happened. I believe that it is easy to demonstrate that, which is exactly what I shall do in my remaining time.

A key part of the task is to explain the different stages of Labour's reform since 1997. The Opposition have not said nearly enough about that, but the fact is that since taking office, Labour has completely changed direction on public services. Stage one was ruthless centralisation, scrapping almost every area of Conservative devolution and choice: nursery vouchers, trust hospitals, fundholding GPs, the internal market and grant-maintained schools. Anything that devolved power in the public services went.

The second stage, which took place under the right hon. Member for Holborn and St. Pancras (Mr. Dobson) when he was Secretary of State for Health, and the current Home Secretary, who was then Secretary of State for Education and Employment, was rigorous centralisation and control from Whitehall. Stage three, now under way, is a complete reversal of stage two, with a new emphasis on decentralisation. The rhetoric accompanying that decentralisation was powerful. The Prime Minister's rhetoric is always extremely powerful, I find, but the reality is rather more flimsy. Foundation hospitals are a sort of return to trust hospitals, but the concept does not have much meaning. Financial flows are the new thing in the health service, but they are like a half-baked return to the internal market.

The best example of new Labour's lack of clear thinking on how to reform the public services is the Education Act 2002. The House will recall that that legislation was about earned autonomy—that is, giving successful schools the right to manage more of their affairs. We debated it for months: it was passed two years ago, but the earned autonomy powers have never been introduced. Apparently, the Government have decided to give all schools more autonomy, so earned autonomy has gone out of the window. Have schools got more autonomy now? Of course not.

Another element in explaining the Government's failure over public services is the web of bureaucracy on which their reforms rely. That is a subject that deserves more comment. Any major piece of new Labour reforming legislation has at its heart the requirement that plans and strategies be drawn up and published. Such plans include those for policing and for combating antisocial behaviour; indeed, local government now has more plans than Soviet Russia used to have. To rephrase the John Lewis slogan, local government is never knowingly underplanned.

Individually, the plans sound harmless, or even quite attractive. Taken together, however, they have spawned a culture of paperwork and bureaucracy in the public services. The best example is in policing, where every stop and search has to be recorded, and the paperwork involved in processing one arrest now takes up to five hours.

A third element in an explanation of why the waste has happened is more widely understood. It is the over extension of targets set by central Government. As my hon. Friend the Member for Cotswold said earlier, many of those targets and public service agreements have been scrapped. The Government are now in headlong retreat, scrapping the targets that they introduced with such fanfare only a few years ago. However, the damage has already been done: the Government set off in one direction, they are now heading in another, and the taxpayer has been wholly ripped off meanwhile.

A fourth and little noticed element in the story of waste, and of why Government reform has not worked, is the continuing strength of trade union influence. That may surprise people in this day and age. but anyone involved in the purchase or provision of private finance initiative projects will explain how schemes have been stalled while unions seek guarantees that they will be wholly staffed by public sector workers. I know one or two people in that area of work, and they tell me that rumours abound that the Chancellor tends to bend to such requests, in return for pledges of union support in a future Labour leadership contest. Who are we to question—

Mr. Watson

indicated dissent.

Mr. Cameron

I see that the hon. Member for West Bromwich, East (Mr. Watson) is chuckling at that. I believe that he has something of a trade union past. He probably knows more about it than I do.

Mr. Watson

I know that it is complete nonsense.

Mr. Cameron

My fifth point in explaining Labour waste, and why Government money has been wasted, is that an analysis of what I can only call "the new salariat" is needed. A vast new industry has been created, made up of regulatory bodies and agencies carved out of Government Departments. For instance, the Department for Environment, Food and Rural Affairs spawned the Food Standards Agency, the Department for Culture, Media and Sport produced Ofcom, and the Department of Transport gave birth to the Strategic Rail Authority. Those are three examples, but I am sure that Opposition Members could name another 33.

Andy Burnham (Leigh) (Lab)

Will the hon. Gentleman give way?

Mr. Cameron

Certainly, and I hope that the hon. Gentleman will give me another example of these new regulatory agencies in his intervention.

Andy Burnham

The hon. Gentleman used to work in broadcasting. How many bodies were merged to form Ofcom?

Mr. Cameron

A number of bodies were merged to form Ofcom, but what is interesting is the salaries paid to the people who work there. The new regulatory body industry is growing in size and scale all the time. Staff numbers and salary levels at all the agencies are on the increase, as is the incidence of "mission creep", yet none of the mother Departments—the Department for Culture, Media and Sport, the Department of Health or the Department of Trade and Industry, and so on—has ever seemed to get any smaller.

Most important of all is the fact that Labour's reforms have included no significant element of consumer choice. My right hon. Friend the Member for West Dorset (Mr. Letwin) is fond of making the point—and it is a good one—that introducing an element of consumer choice into the public services means that the people who work in those services will tend to look downwards at the customer, rather than upwards at the bureaucracy. That point is wholly lost on the members of the Treasury Bench.

Mr. Webb

I thought that the Conservatives had proposed that Ofcom's scope should be increased to take on the BBC as well.

Mr. Cameron

Certainly, and that would mean that the BBC would no longer regulate itself, which would be an improvement. My point is straightforward. All those Departments have spawned new agencies. The Department for Transport is the best example, with all the different regulatory bodies and now the Strategic Rail Authority, which does what the Department used to do. Is the Department for Transport now smaller? I bet it is not.

We have all read reports about the Labour party's support for freedom of choice, but virtually nothing has been done to introduce or extend it in the public sector. That is the real reason for the Government's failure to reform the public services adequately and for the waste of money that we have seen. That last part of the explanation for Labour's failure leads most clearly to our own prescription of choice and decentralisation. However, I urge my right hon. Friend the Member for West Dorset not to ignore the other parts. It may be a rather complex chain of interlocking arguments about changes in direction, waste, bureaucracy, unionisation, targets and central control, but it is the truth. In any event, it leads to a relatively simple conclusion that anyone can grasp: the Government have taken taxpayers' money and wasted it, and they have failed to tell the truth about that.

6.1 pm

Mr. Jim Cunningham (Coventry, South) (Lab)

I was interested in the analysis made by the hon. Member for Witney (Mr. Cameron) of the past six or seven years, but he did not say how he would solve some of the problems that he outlined. It is worth recalling what happened when his party was in power. He talked about money being wasted on the public services, but I remember hospital closures. I remember people having to lie on trolleys because they could not get a bed. That is the Conservative legacy, and the hon. Gentleman seems to want to take us back to those days. We do not want to go back.

People still remember school closures under the previous Administration and cuts in teacher numbers. No new schools were built. The hon. Gentleman wants to take us back to those days, in the name of what he calls waste, but there will always be an element of waste, as he well knows. To use that to justify taking the country back six or seven years is disgraceful. The hon. Gentleman should be honest and open and say that that is what he intends.

I remember the years when waiting lists were long. We have reduced them. I remember when few new doctors were trained, but we are producing thousands of new doctors. In the Tory years, the number of nurses fell, but under us, it has increased. That is what we should be talking about, and I am glad that the Budget will continue those trends. The hon. Gentleman said that 1 million people are on the waiting list, but under this Government the number is falling. Under the Conservatives' policies, there would be 2 million, 3 million or 4 million people on the waiting list, and we would have hospital closures.

The hon. Gentleman also mentioned the PFI, but the benefits of that initiative are debatable. It is like the Bible: everyone has a different view of it. I remind the hon. Gentleman that it was his party that introduced the PFI, and that was when the problems started, not in 1997. The Conservatives did not even manage to build a new hospital under the PFI, but they want to take the credit for the good aspects and none of the blame for the bad. They cannot rewrite history, no matter how often they try.

I welcome the Pensions Bill. I am not ashamed to say that I have been a trade unionist for many years, and we have campaigned for the Bill, which is now in Committee. It will be amended, but it is a good Bill. In Coventry, we have suffered the closure of Massey Ferguson, which saw people put on the scrapheap, and they did not get a decent occupational pension. The issue is going to the House of Lords, so we cannot say too much about it, but it is worth reminding the Opposition that they introduced the Pensions Act 1995, which created many of the present problems with occupational schemes. We do not need any lessons from them.

Mr. Letwin

Does the hon. Gentleman agree with us that unclaimed assets should be available to help to resolve those problems?

Mr. Cunningham

Before I agreed with the right hon. Gentleman, I would want to know the value of the unclaimed assets and how long it would take to realise them because we could be buying a pig in a poke if we listened to him. I would want to know the answer to that, what sums are involved and a bit more about what he is proposing.

Rob Marris

On the sums involved, some schemes, notably that proposed by Professor Ros Altmann, have been touted as costing ?100 million a year. I have corresponded with her by e-mail, and the total package that she proposes involves, on average, £100 million a year over 60 years—?6 billion of Government money.

Mr. Cunningham

I am glad that my hon. Friend has reminded me of that, and I am equally glad that I did not answer the right hon. Gentleman's question in the way that he wanted me to.

The increase in the minimum wage is another part of the Budget that I obviously welcome. Lots of my hon. Friends would like it to be a little higher, but any increase is bound to be welcome.

Mr. Letwin

I am most grateful to the hon. Gentleman for giving way again, as we seem to be having an interesting trilateral discussion. To handle the point made by the hon. Member for Wolverhampton, South-West (Rob Marris), if there were £6 billion of proved, unclaimed assets, would the hon. Gentleman agree to using that money for this purpose£

Mr. Cunningham

I am not going to answer hypothetical questions; I repeat that I have not seen the figures, so it is pointless trying to push that argument.

The business rate change is something else that I certainly welcome in the Budget. For the first time in many years, local authorities will be able to share out the rate, and they are bound to see that as being just. We must remember that the Conservative Government used the business rate to justify introducing the poll tax in the first place, but the business rate accounted for only 1.5 per cent. of any company's turnover.

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

My hon. Friend mentions the minimum wage. Does he recall the Conservative party's forecasts that the minimum wage would destroy jobs? Can he confirm that many jobs have been created in his constituency, as in mine, since the introduction of the minimum wage?

Mr. Cunningham

I can certainly confirm that. If my memory serves me correctly—I am sure that my hon. Friend would put me right if not—the Conservative party forecast that about 1 million jobs would be lost.

Mr. David Borrow (South Ribble) (Lab)

Does my hon. Friend agree that the advantages of the minimum wage and good wages for workers are that they encourage employers to invest in their work force, so we get away from a low-wage, low-skill economy, which is the last place that Britain needs to be in the 21st century?

Mr. Cunningham

I am glad that my hon. Friend raises that issue. I work in industry, and from time to time the House debates the lack of skills and, in some instances, people's lack of ability to acquire skills. Decent wages encourage people to take jobs in, for example, manufacturing. In the past, young people have not always seen manufacturing as a way forward and a secure future because of upturns and downturns in the economy. Decent wages always act as an incentive, and we are looking for incentives to get young people back into industry and to acquire the necessary skills. Again, they can use decent wages, with further education and ultimately university, as a stepping stone, so that their knowledge and quality of life are increased. It is welcome that the Government have introduced the minimum wage.

Opposition Members have talked about homelessness. I do not know the current homelessness figures, but I certainly remember that, under the Conservative Government, hon. Members did not have to walk very far from the House to find a lot of homeless people living in cardboard boxes. We do not see so much of that today. However, we must be concerned if a homeless problem is building up. It is worth reminding ourselves that councils were not allowed to build council houses under the previous Government. Opposition spokesmen say that that problem could be solved by allowing more council house sales and using the proceeds, but I seem to remember that local authorities were not allowed to use the proceeds. Once again, the Conservative party is back to the policies that it had when it was in government, and we know where that took us. Unemployment is now the lowest in our country's history, which says a lot about how to tackle poverty. High unemployment makes more demands on the National Health Service, benefits and other public services.

Once again, the Chancellor's forecasts of growth have been correct. All the pundits admitted that they got it wrong and that my right hon. Friend got it right, but then they said he might be proved wrong nine month down the road. Anyone who can forecast growth nine months ahead must be good. I am sure that most companies would agree.

Mr. Borrow

Over the past five or six years, businesses large and small in my constituency have appreciated the economic stability provided by Labour Governments, which allows them to plan and invest for the future, in contrast to 18 years of Conservative Government, under various Chancellors.

Mr. Cunningham

In an interview on Budget day or not long after, Digby Jones, director general of the Confederation of British Industry, welcomed the fact that businesses could plan their costs and wages. Anything in the Budget that stabilises, reinforces and encourages businesses, large or small, must be a good thing.

This is the second Budget in which the Chancellor has given extra impetus to the development of brownfield sites. In many inner cities, particularly in parts of Coventry, many brownfield sites that have been derelict for many years are now being developed. Equally, though, we must achieve a balance. If every brownfield site is developed, factories might be built on greenfield sites. As a movie fan, I also welcome the assistance to the film industry. Many of the special effects used in Hollywood movies have been developed by talents in the British industry.

Mr. Letwin

Does that mean that the hon. Gentleman regrets the passing of the film tax break, which threatened to cost the Treasury £1 billion a year, or does he welcome the Chancellor going back on his original scheme?

Mr. Cunningham

The right hon. Gentleman is entitled to his opinion, but I welcome the Chancellor's measures. Given the pre-Budget predictions by some pundits that all was gloom and doom for the British film industry, I am glad that step was taken.

I welcome the Chancellor's steady-as-she-goes Budget, which maintains investment in health, education and other public services, and I welcome the measures proposed on occupational pensions.

Rob Marris

From his long history of trade union activities, my hon. Friend will be well aware of the manufacturing sector, and he, like me, represents a west midlands constituency—a key manufacturing area. Certain measures in this year's Budget, as in last year's, assist manufacturing, although there is more to do. Will my hon. Friend say more about manufacturing, particularly in the west midlands, and ways in which the Budget will assist venture capital, research and development, and so on?

Mr. Cunningham

Research and development was underfunded in the past. When Rolls-Royce needed R and D aid, it was provided in the form of a loan—not a tax concession—that created many difficulties. Research and development also keeps universities on their toes. The universities of Warwick and Coventry are among many that undertake R and D for companies. R and D support also brings comfort to small employers with 10 to 20 staff, who have families and mortgages to pay and who want to sustain the standard of living that they have achieved through steady employment.

Mr. Desmond Swayne (New Forest, West) (Con)

Before the hon. Gentleman took the intervention, he mentioned the impact that the Budget would have on pensions. Can he see any impact that the Budget measures will have on the Government's declared target to have 60 per cent. of pensions fully funded by 2050?

Mr. Cunningham

I would not like to make any forecasts on the basis of that sort of question.

Mr. David Ruffley (Bury St. Edmunds) (Con)

I am surprised that the hon. Gentleman has not said anything about the £28 billion savings gap. Can he explain what the Budget does to close it?

Mr. Cunningham

We are all aware of the £28 billion savings gap, and the Chancellor certainly looked at that when he considered the tax situation. Many companies, particularly public utilities, were not reinvesting in their industries; they were taking the profits. They were encouraged to reinvest, and the hon. Gentleman can get an independent report on that issue from the House of Commons Library.

Mr. Bercow

Will the hon. Gentleman give way?

Mr. Cunningham

I will give way for the last time, but I must then move on.

Mr. Bercow

I am extremely grateful to the hon. Gentleman. Given his long-standing interest in the manufacturing sector and the extreme importance that all of us should attach to small and medium-sized enterprises within that sector, will he tell the House what assessment he has made of the Regulatory Flexibility Act 1980 and the Small Business Regulatory Enforcement Fairness Act 1996 in the United States?

Mr. Cunningham

The hon. Gentleman can do his own analysis of that; I am certainly not going to.

I welcome the Budget. It should be supported as it covers many of our concerns.

6.16 pm

Mr. Oliver Letwin (West Dorset) (Con)

I must begin with a tribute to the hon. Member for Coventry, South (Mr. Cunningham). He held the House magnificently for longer than one might have supposed.

This has been a most interesting debate, but I shall restrict myself to commenting on the speeches of Conservative Members. No doubt the Chief Secretary will comment on those made by Labour Members. My hon. Friend the Member for Havant (Mr. Willetts) illustrated brilliantly the impossibility of making administrative savings on a serious scale in the Department for Work and Pensions without simplifying the welfare system. My right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) identified with his customary clarity and mastery the key issue raised by the Budgetߞnamely Labour's third-term tax rises.[Interruption.] The Chancellor correctly identifies himself as the cause of that and enters the Chamber at the right moment.

My hon. Friend the Member for Gainsborough (Mr. Leigh), from his lofty position as Chairman of the Public Accounts Committee, told the House about the horror stories of wasted money and made enormously valuable suggestions about how to reduce that waste. My hon. Friend the Member for Wycombe (Mr. Goodman) exposed with extreme lucidity the deficiencies of the Government's well-intentioned but misguided policies on poverty. My hon. Friend the Member for Cotswold (Mr. Clifton-Brown) surprised the House, because he made clear the remarkable fact that, although official borrowing this year is £37.5 billion, the Government are actually programmed to borrow £44 billion of cash. I owe him a profound debt for pointing that out. My hon. Friend the Member for Witney (Mr. Cameron) accurately pinpointed the causes why so much money has been wasted. Today and on previous days, the Chancellor's Budget has been described as very political and very clever. It was certainly very political. Indeed, so far as I am aware, it is the first time in recent memory that the Chancellor has used his Budget speech almost entirely to respond to a speech by the shadow Chancellor. Perhaps further historical research in the Treasury will show that it was the most political Budget for more than 200 years. I doubt whether, in a few months' time, it will look very clever.

Andy Burnham

The right hon. Gentleman began by commending his colleague the hon. Member for Havant (Mr. Willetts), who, I believe, began the debate by saying that the right hon. Gentleman had not made any specific statements on the defence budget but that the Opposition were committed overall to ensuring the efficient delivery of public services. That is how the hon. Gentleman began. Does the right hon. Gentleman agree that, only a few weeks ago, he said: I have agreed with my Shadow Cabinet colleagues that the baseline for spending?

Madam Deputy Speaker

Order. Interventions should be brief.

Andy Burnham

The right hon. Gentleman said that the baseline spending across all of these departmental?—

Madam Deputy Speaker

Order. I call Mr. Letwin.

Mr. Letwin

I am grateful to you, Madam Deputy Speaker, but I wish that the hon. Gentleman had finishing reading that out. I did indeed say that, and I went on to say something else. If he had been in the Chamber during the debate, he would have heard this being read out, too: I recognise, moreover, that there will inevitably be cases in which particular programmes, or even the expenditure of whole departments, will need to rise at a rate faster than this. To fund such increases beyond the baseline, specific savings against the baseline will need to be found elsewhere within the non-NHS and non-schools departmental expenditure limits.

I do not know whether he has had the experience in his household budget of having to save money somewhere to spend it on something else. Believe me, if the Chancellor is re-elected, he will have that experience after taxes have gone up.

The Budget was founded on a startling admission. For the first time in new Labour's brief and so far, I fear, rasher inglorious history, the Chancellor admitted that he and his colleagues have been happily wasting £20 billion a year of people's money. In 1998, he said that he was determined to get value for every penny we spend?.

He now tells us that 2 trillion of the pennies that he has been spending each year are valueless. In 2001, the Prime Minister toldThe Guardian that it was impossible to save that sort of money without taking it out of the schools and hospital programme. Will the Chancellor tell us whether the Prime Minister was wrong then or whether he himself is wrong now?[Interruption.] I thought that he might not, Madam Deputy Speaker.

Rob Marris

I venture to suggest that I might be able to help the right hon. Gentleman on that point. The Chancellor made it clear in his Budget that the savings from moving staff from the back office to the front office would come because of the Government's investment in information technology. That investment had not been made in 2001, and it had not been put in place by the Conservatives in 1997; that is the situation that we inherited.

Mr. Letwin

I hope desperately that the hon. Gentleman will be given a job because he certainly will not get one as a spin doctor. I assure him that the Chancellor's purported savings have nothing to do wit h investment.

Parts of the Chancellor's savings are meant to come from cutting the civil service by 40,000 between now and 2008. I understand that the Chancellor's spin doctors—not the hon. Member for Wolverhampton, South-West (Rob Marris), but his genuine spin doctors—have been busy explaining that it was with that very reduction in mind that he increased civil service numbers by 52,361 over the past four years. That sounds enormously clever, does it not? One increases the civil service by 50,000 precisely so that one can reduce it by 40,000. If Labour Members have difficulty identifying the logic behind the strategy, or even if there are hesitations in some quarters about the reduction in civil service numbers, let me reassure them. They do not need to worry because under a Labour Government, there may well be no net reduction whatsoever in civil service numbers.

The Chancellor intends to remove 40,000 from the civil service between now and 2008, but at the present rate of hiring the Government, if re-elected, will add 65,450 civil servants over the same period. The Chancellor's policy on the civil service is admirably clear. His aim is to hire people in order to sack them, just as long as he hires a few more than he sacks. I hope that his spin doctors will have a fine time explaining that proposition over the coming months. [HON. MEMBERS: "Balls!"] Let us not worry about who, or what, the name may be.

The Chancellor's cleverness is not, of course, meant to reside only in the brilliance of his plans for the civil service. It is also meant to be demonstrated by his new-found attachment to 2.5 per cent. per year efficiency savings throughout the public sector. The savings certainly cannot come from reducing numbers of public sector employees, because the Gershon report states clearly that the number of people employed in the public sector as a whole is meant to rise by 300,000 during the next few years. The efficiency savings, which the Chancellor said in 1998 would not be needed and the Prime Minister said in 2001 could not be achieved, will be brought about by adding more than 300,000 new public sector workers. I have to admit that if that can be done, it is very clever indeed. I doubt that a combination of Newton and Einstein could match it for cleverness.

Mr. Watson

There is no point in the right hon. Gentleman spluttering out his speech while he is surrounded by his laughing boys. Will he confirm that he intends to freeze in real terms the defence budget and the law and order budget for the United Kingdom? If not, where are the rest of the cuts going to come from?

Mr. Letwin

Oh dear, I do not know whether the hon. Gentleman has been in the Chamber. I thought that he was, but it may have been a shadow of him. A moment ago, I read a passage that made it perfectly clear that I have made no such commitment and have no intention of doing so.

I fear that the nation will not gain much from efficiencies that never take place, and in which neither the Prime Minister nor the Chancellor had the slightest belief or interest until the Opposition pointed out the colossal and shameful waste that is currently taking place. However, I remind my hon. Friends that there is one large advantage in the Chancellor's admission that he is wasting £20 billion a year and in his new-found belief that he can make 2.5 per cent. efficiency savings a year. If there is waste on that scale and if efficiencies of 2.5 per cent. a year are possible, a Conservative Government who believe in cutting waste could do so without affecting front-line services.

James Purnell

Will the right hon. Gentleman give way?

Mr. Letwin

No, the hon. Gentleman should listen so that he understands a bit of the logic even if his hon. Friends cannot.

A Conservative Government who plan a gross recruitment freeze to cut the civil service by 100,000 with genuine net reductions rather than fiddled figures, and who are not shackled by a commitment to increase the public sector by more than 300,000, can truly make the savings that the Chancellor just wants to talk about. By the logic of the Chancellor's own admission, a Conservative Government can do so without touching front-line services. I do not want to stretch the arithmetical capacities of Government Members, but they will surely see that if a departmental budget of ?100 is possible this year, and there is inflation of 2.5 per cent. and offsetting efficiency savings of 2.5 per cent., it is possible to have a departmental budget next year of ?100 without a real-terms cut in front-line services. The Treasury Bench have not yet realised that, but by allowing himself to be trapped into admitting £20 billion a year of waste and by allowing himself to admit the potential for 2.5 per cent. efficiency savings a year, the Chancellor has removed completely any slight credibility from his much loved attack on so-called Conservative cuts. If a 2.5 per cent. a year efficiency saving is possible, a cash freeze with no real-terms cuts whatsoever in front-line services is possible.

Once people begin to accept the force of that argument they will stop thinking that the Chancellor's Budget was so very clever, but will not stop thinking it was political. It was very political in every sense. It was political because it was aimed solely at scoring a short-term political point; it contained no measures whatsoever to deal with the massive and growing economic imbalances to which the Chancellor's misguided policies have given rise. I want to do something unusual and pay tribute to our friends on the Liberal Benches, who rightly alluded to those economic imbalances—[Interruption.] My right hon. and learned Friend the Leader of the Opposition says, "Steady", but I pay tribute where it is due. I wish that I could pay tribute to the Chancellor's measures to address those imbalances in the Budget, but I cannot. There was nothing to tackle the problem of household indebtedness, which now stands at almost £1 trillion. There was nothing to tackle the problem of the decline in savings—the savings ratio has halved, and the Chancellor proposes to do nothing whatsoever about it. There was nothing to tackle the problem of productivity—the productivity growth rate has halved, and the Chancellor proposes to do nothing whatsoever about it. Most of all, however, the Budget was political because it aimed to hide the Chancellor's rising taxes from the British public.

The Budget provides for the nation's tax bill to rise by almost 8 per cent. next year, and again by almost 8 per cent. the year after. That is what the Chancellor, in a resort to the definitions of the economists, called "fiscal neutrality", but I doubt that the families and businesses who are paying that 8 per cent. increase in tax will regard it as neutral. The Budget locks in huge increases in the burden of tax under Labour. Taxes have increased by £5,000 per household per year since 1997. The Red Book now projects a tax burden in 2008—I hope that my hon. Friends will go to the country and tell people this—that will be the highest for a quarter of a century. Almost no one except the Chancellor himself doubts that tax rates need to rise to fill the Treasury's coffers in the way that his plans demand.

Mr. Wayne David (Caerphilly) (Lab)

I have been listening carefully to the right hon. Gentleman. Is he aware that the director general of the CBI said that he commends the Chancellor on producing a Budget that protects economic stability and curbs waste?

Mr. Letwin

The director general of the CBI correctly points out that the Chancellor did no damage in a Budget that did nothing at all about business. It is the first time in many years that that can be said. Unfortunately, however, the tax rises that the Budget augurs will be tax rises for businesses as much as for everybody else. They have been to date and they will be again.

James Purnell

Will the right hon. Gentleman give way?

Mr. Letwin

No, I will not give way again.

Almost no one except the Chancellor doubts that there will be tax rises if Labour is re-elected. It took just 24 hours for the Institute for Fiscal Studies to calculate that the Budget sets us on course for Labour's third-term tax rises, and that only Conservative plans would avoid those tax rises. It took just 72 hours for the Ernst and Young ITEM Club to confirm that this is a borrow now, tax later Budget. The Chancellor, who prides himself on his forecasts with huge self-confidence, has miscalculated his own borrowing on six successive occasions over three years. He is now predicting borrowing of more than £140 billion over the next five years, despite the fact that he is predicting economic growth at or above trend in each of those years. He knows as well as the rest of us, as well as the Institute for Fiscal Studies and as well as the ITEM Club, that if he borrows that much on the nation's credit card, he will have to raise taxes.

The Chancellor's plan is clear. Up to the election he proceeds entirely by stealth. There are, in fact, six extra stealth taxes in the Budget—the new small business tax, the new company vans tax, the new tax on trusts, the new tax on red diesel and the new tax on other road fuels. That brines the number of stealth taxes to 66. We have before us the clickety-click Chancellor. After the election, if Labour wins, it will all be different. The layers of stealth technology will be swept away in one glorious efficiency saving. The new taxes will be there for all of us to see—£10 billion or £15 billion a year of them, to judge by the independent forecasts, gleaming new taxes that families and businesses will be called upon to pay as a tribute to the Chancellor's great cleverness. Perhaps if the people of this country see that happening to them, they will indeed think it clever, but I suspect it is more likely that they will think it too clever by half.

6.12 pm

The Chief Secretary to the Treasury (Mr. Paul Boateng)

This has been a good debate, during which a range of varied opinions has been expressed in all parts of the House, as one would expect. Over the different days of the debate, Members across the House have reflected a range of specific interests and areas of expertise.

There is one issue that I wish to deal with at the outset. I know it is a matter of concern to hon. Members in all parts of the House because they have raised it with met—the issue of whisky, alcohol and tax stamps. Whisky and alcohol are matters of interest in all parts of the House, but tax stamps are a serious matter. I undertake to reply in person to all those who raised specific issues relating to tax stamps, and to pass their views on to my hon. Friend the Economic Secretary, who I know takes these matters very seriously.

Angus Robertson

Scotland's First Minister Jack McConnell is well known for following the orders of London Labour. Is he right to say that he was disappointed by the Chancellor's announcement on strip stamps?

Mr. Boateng

I am sorry that the hon. Gentleman makes such an overtly party political point. He knows that the Government have sought at every stage to involve the industry and that we have set aside some £3 million in a fund for assistance with capital investment targeted at the smallest firms, in order to cover up-front costs. Of course there is a range of opinions about tax stamps and we seek to respond and take them on board, as is appropriate.

Mr. O'Neill

I wonder whether my right hon. Friend can help us. It is not that long ago since he rejected proposals for strip stamps, but he has now changed his mind. What is the reason for this Damascene conversion?

Mr. Boateng

We had to take into account the findings of the Rogues committee and the evidence of increasing fraud and evasion. Of course I respect the views of my hon. Friend and others on both sides of the House who have genuine concerns about this issue. However, I should point out that by 2005–06, as a result of the duty freeze announced by my right hon. Friend the Chancellor, the tax on a standard bottle of spirits will be 36p a bottle lower in real terms than now, and £1.33 lower in real terms than if the duty had risen in line wit h expected inflation since 1997. That is a record that the Conservatives never matched when they were in government.

I shall move on to the main substance of the Budget, and I would like to address a number of the concerns raised by my right hon. and hon. Friends. First, however, let me make a passing reference to some of the points made by Opposition Members. It would be true to say that they set a number of hares running. It would also be true to say that they sought to revive some dead foxes. To say that they added anything to the substance of today's debate, however, would be false. They said absolutely nothing of value about the real issues confronting the British people.

That brings to mind the record of the Conservatives when they were in government. The Leader of the Opposition was Employment Secretary when unemployment doubled—[Interruption.] He laughs. The Conservatives do not like to hear about their own record. He was Environment Secretary when the poll tax was introduced. And who was the man who dreamed up the poll tax in his eyrie at No. 10? It was the right hon. Member for West Dorset (Mr. Letwin), the shadow Chancellor. That is the Conservatives' record.

The fact is that the Tory Front Bench has not changed since those days. The personalities have not changed; they have just got bigger, one way or another, and so have their mistakes. There is a real difference between them and us, and this Budget demonstrates that fact. Only a Labour Government are capable of taking the hard decisions, the right decisions, on the economy and public services. Only this Government are up to the challenge of building on our hard-won record of economic stability and our enviable record of growth. That is the difference between them and us. Only this Government are going to do what we have to do to secure and maintain the stability and growth of the economy, and to invest in the education, skills, science and innovation that will drive the growth and prosperity of our nation.

My hon. Friend the Member for Falmouth and Camborne (Ms Atherton) was right to raise Cornwall's interests. My hon. Friend the Member for Hemel Hempstead (Mr. McWalter) was right to raise the issue of science and innovation. Only this party can be guaranteed to invest in those areas, and to meet the needs of the people of Cornwall.

James Purnell

On that point about science and innovation, did my right hon. Friend hear the shadow Chancellor say that he was going to cut by more than zero per cent.—[interruption.] He is going to cut in cash terms all budgets other than those in schools and hospitals. Those cuts could involve science, home affairs or defence.

Mr. Boateng

We will come in due course to analyse the pledges made by the shadow Chancellor.

Only the Labour party in government can be relied on to invest in our vital health service, our housing and transport infrastructure. That was the very point made by my hon. Friend the Member for Stoke-on-Trent, North (Ms Walley) when she spoke movingly of the housing needs of her constituents and the need to make sure that we invest in the economy of Stoke-on-Trent. In an uncertain world, we must also invest in law and order, security and defence, to protect our citizens at home and our interests abroad. And we must meet our global responsibilities to others by investing in international development and the achievement of the millennium development goals. In that regard, I think particularly of my right hon. Friend the Member for Coatbridge and Chryston (Mr. Clarke) and his distinguished record on matters related to overseas development.

Not only could the Conservative party not deliver the economic stability to match our investments: it does not even have the desire to do so. It is a party driven by commitment to cuts in public services and lower investment as a matter of blind dogma—[Interruption.] I was not listening, and I will tell the House what to.

Last month, the shadow Chancellor announced a two-year cash freeze in spending —he can deny it at any time. That is a 5 per cent. real terms cut in 2005–06 and 2006–07, with immediate implementation of £18 billion worth of real terms cuts. There was much gnashing of teeth by his disgruntled colleagues, and much wringing of hands, but the policy of the shadow Chancellor and his party is clear—to cut investment at the very time in the economic cycle when it is right to invest, and yet to continue to make spending pledges that simply cannot be funded. In that, they share a great deal with the Liberal Democrats.

Mr. Cameron

Will the Chief Secretary give way?

Mr. Boateng

Not at the moment.

That, of course, left the shadow Chancellor's shadow Cabinet colleagues in a state of abject disarray.

Mr. Cameron

Will the Chief Secretary give way?

Mr. Boateng

I was hoping that the hon. Member for Buckingham (Mr. Bercow), who sits strangely silent in front of the hon. Gentleman, would defend those cuts at this stage. Apparently not, however, so I will give way to the hon. Member for Witney (Mr. Cameron).

Mr. Cameron

If inflation is at 2.5 per cent., and efficiency gains are at 2.5 per cent., how can a freeze be a cut?

Mr. Boateng

Well, the hon. Gentleman should tell that—[HON. MEMBERS: "Answer."] 1 will. What the Conservatives have promised is a cash cut. That is why the hon. Member for Mid-Sussex (Mr. Soames), who, sadly, is not in his place, said of that cut: It is outrageous. You cannot possibly go into an election with this pledge.?

The shadow International Development Secretary, the hon. Member for Buckingham, said: If we are to be taken seriously as a party of government which cares about the most vulnerable people on the planet, there has to be a public spending commitment.

I see that he is nodding. But the promise is not a commitment; it is a cut.

Rob Marris

Will my right hon. Friend note that the mathematics of the shadow Chancellor and the hon. Member for Witney, who taunted Labour Members for their mathematics, are faulty— If we have growth from 100—to use the figure used by the shadow Chancellor—with inflation, to 102.5, and we then cut that by 2.5 per cent., we will end up with a figure of less than 100. That is a cut, and that is the mathematics.

Mr. Boateng

Well, the reality is that it is all down in black—

Mr. Letwin

Will the right hon. Gentleman give way?

Mr. Boateng

Of course.

Mr. Letwin

I am delighted that the Chief Secretary has given way. Will he return to the question asked by my hon. Friend the Member for Witney (Mr. Cameron), which is very simple? Given that the Chancellor believes that efficiency cuts amounting to 2½ per cent. are being made, how can a freeze of a departmental budget at 100 conceivably constitute a real-terms cut in front-line services? The Chief Secretary has to answer that, because the Chancellor has made him answer it.

Mr. Boateng

What the right hon. Gentleman has offered is a cash freeze. This is what he said: I have agreed with my Shadow Cabinet colleagues that the baseline for spending across all of these departmental budgets will be 0 per cent. growth for the first two years.? I fully accept that holding programme spending within departmental expenditure limits other than the NHS and schools to a zero increase for the first two years and to what amounts to a zero real terms increase thereafter is a tough constraint.?

You bet it is a tough constraint. That is why they were squealing and whining when they heard about it.

Mr. Letwin

I am most grateful to the Chief Secretary for giving way again. It is a tough constraint. The Chancellor said that he had tough choices to make; so have we. We can have his tax rises, or our constraint. Will the Chief Secretary answer the question? If you have 2½ per cent. efficiency and 2½ per cent. inflation, do you or do you not have to make real-terms cuts in front-line services? Yes or no?

Mr. Boateng

Let the right hon. Member tell that to the shadow Secretaries of State for Defence, International Development and Transport. Or let us return to the quotation—[Interruption.]

Mr. Speaker

Order. I cannot hear the Minister. It is no fault of his; there is a lot of shouting.

Mr. Boateng

What the Conservatives would do is freeze expenditure The Chancellor of the Exchequer (Mr. Gordon Brown): In each of their Departments.

Mr. Boateng

In each of their Departments. If that is not what the Conservatives are going to do, let the right hon. Gentleman say so. Answer comes there none. This Labour Government—[Interruption.]

Mr. Speaker

Order. I cannot hear the Chief Secretary. The Chief Secretary is addressing the Chair.

Mr. Boateng

In contrast, this Labour Government are in a position to invest more, not less, and they will do so in areas that will enable the United Kingdom to grow and prosper in the global economy of the future. In this Budget the Government reject the approach of our political opponents. who, faced with tough choices, have consistently shirked them. Let me take them through those choices. The right hon. Gentleman can rise and protest if I misrepresent his position.

We recognise that international terrorism puts additional pressures on law and order, so to keep the country safe and secure the Government are making real-terms increases in spending on our police and other forms of security at home. Will the right hon. Gentleman do likewise? That is the answer that the British people will be waiting for, and the answer that they will note. In contrast. our party has seen the provision of an additional 11,000 police officers. If the Conservatives had their way they would impose cuts amounting to £669 million, the equivalent of 13,000 police officers—and theirs is the party under which crime doubled. There is no commitment from the Opposition to increase expenditure on the police or on all the priorities that are those of the British people.

Let us consider defence. That will give the Opposition another opportunity to clarify their position. We recognise the pressures that are caused by commitments in Kosovo, Afghanistan and Iraq and in the wider fight against terrorism. We will not leave our troops ill equipped or unsupported and we have therefore allocated real-terms increases in defence spending. Will the Opposition do likewise? [HON. MEMBERS: "Answer."] We are entitled to know the Conservative defence policy. Opposition Members would freeze spending on defence and that would amount to cuts of £1.5 billion by 2008—the equivalent of 40,000 personnel. If that is not true, let them now say so. [HON. MEMBERS: "Answer."] Furthermore, the Government intend to sustain real-terms increases in spending on international development while the Opposition advocate a spending freeze.[Interruption.] One Conservative Front-Bench Member says, "Absolutely" and another says, "No.? Such a freeze would mean a real-terms cut of £229 million in the first two years—the equivalent of eliminating the United Kingdom's programmes for Sudan, Sierra Leone and Ethiopia. If that is not true, let Conservative Members now say so. [HON. MEMBERS: "Answer."]

At the heart of this year's Budget, as enunciated by my right hon. Friend the Chancellor, was the announcement of resources for education, skills, science and technology. They are vital for business, as the CBI recognised, and will drive our future prosperity. It is imperative that we invest in them now. That is why my right hon. Friend announced an extra £8.5 billion for UK education in 2007–08 compared with 2005–06—an average annual increase of 4.4 per cent. across the 2004 spending review period. Are the Opposition prepared to match that?

The reality is that, in contrast to the spending freeze that the Opposition propose, we intend to ensure that we maintain progress in education and children's services. We intend to spend approximately £900 million on children's services. If the Opposition had their way, there would be £900 million of cuts. That would mean 36,000 fewer social workers working with the most vulnerable children. That would be the result of their spending plans.

Huw Irranca-Davies (Ogmore) (Lab)

My right hon. Friend is cruelly taunting the Opposition, which is highly enjoyable. Perhaps one figure could succour them. How many years does my right hon. Friend believe that it will take for the electorate to forget the Conservative party's record of sheer economic incompetence?

Mr. Boateng

They will never forget it and we will never allow them to forget it.

I want to give the Opposition the opportunity to explain the patient's passport. We have heard many different stories about what it is. What is their commitment? Is it, as we believe, to subsidise private medicine? Does not the patient's passport, as the Opposition describe it, mean taking money out of the NHS and giving it to BUPA? They would prefer one extra patient to be treated by BUPA than tens of thousands of patients to be treated by the NHS.

What exactly is the pupil's passport? On 22 February, the shadow Chancellor said that the pupil's passport could be topped up and used for cheap private schools—St. Trinian's and St. Cuthbert's rather than Eton and Roedean. On 6 March, the Conservative website confirmed that but on 7 March, it claimed that the statement on 6 March was an error and that parents could not top up the pupil's passport. Is the pupils passport on or off? What is the Conservatives' policy on education? The truth is that they simply have not yet worked it out. On health, employment and welfare—

Mr. Kenneth Clarke

As the Chief Secretary seems to be getting a bit lost in this political diatribe, may I remind him that he is about to embark on what will be the most difficult public spending round that the Government have faced since they came to office, because they are seeking to slow the growth of public spending. When one of his colleagues tells him that a particular service needs 2.5 per cent. growth, will he tell him that that can be achieved by 2.5 per cent. efficiency savings with no increase in the cash settlement?

Mr. Boateng

Of course I would because we have made it clear where our priorities are. They are on education.

Mr. Eric Forth (Bromley and Chislehurst) (Con)

On a point of order, Mr. Speaker. Can you confirm that, even at this stage of the debate, you are allowed to call a different Member on the Government Front Bench to speak? The Chancellor is constantly prompting the Chief Secretary, who is obviously completely lost. Can you call the Chancellor instead, so that we can get a proper version of the Government's policies instead of a second-hand one?

Mr. Speaker

Chancellors are entitled to prod—[Interruption.] Order. I would not dream of stopping the Chancellor from doing that.

Mr. Boateng

It is called teamwork. When we listen to the dissonant voices of right hon. and hon. Members in the Opposition, we realise that, until they start to act like a team, they will never be fit for Government.

The reality is, as the Secretary of State for Work and Pensions outlined, that the Budget delivers proposals to tackle unemployment and inactivity. It builds on the success of the new deal, which has already enabled 1 million people to get back into work since 1997. What is the proposal of Conservative Members in relation to the new deal? It is to scrap it. It is to fly in the face of the reality of their constituents and our constituents who have been helped back into gainful employment as a result of the new deal. When the Conservatives last had stewardship of the economy, unemployment topped 3 million. We have created 1.7 million new jobs and we continue to create new jobs. That is good news. That is the difference between them—[Interruption.]

Mr. Speaker

Order. Mr. Bercow, I have told you before about getting too excited. I will not allow it.

Mr. Boateng

That is the difference between the Conservatives and us. We care about jobs. We care about people. We are delivering to people. We are delivering jobs. Business recognises that it is Labour that works and it will be a disaster were the Tories ever again to get stewardship of the economy. To support our spending plans, the public sector will be seeking— we are entitled to expect it and we will deliver it—value for money to maximise efficiency and to minimise waste.

The choice is clear. In the Budget statement, the Chancellor explained how our hard-won economic stability and sustained growth allow the Government to commit more investment in the areas that matter to the country, not less, as the Conservative party would have it. The dividing lines between the Conservatives and us are clear. The choice of two futures for Britain is plain: sustained economic stability, or a return to boom and bust, stop and go and deep recession; investment and reform in health, education, transport and tackling crime, or cuts, charges and privatisation; expansion of the new deal, or its abolition; investment in science, or a failure to invest in science. We condemn the cuts and commend the Budget.

Question put and agreed to.

Resolved,

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. SPEAKER

then, pursuant to Standing Order No. 51(3) (Ways and Means Motions), put forthwith the Questions necessary to dispose of the further motions