Pre-Budget Report

HL Deb 27 November 2001 vol 629 cc162-83

4.28 p.m.

Lord McIntosh of Haringey

My Lords, with the leave of the House, I shall now repeat the Pre-Budget Statement made by the Chancellor of the Exchequer. The Statement is as follows:

"The task of this Pre-Budget Report is to rise to the global economic challenge facing our country and to set out how, upon a foundation of stability and growth, we can, and will, build a stronger, fairer Britain even in an uncertain world.

"So I start with the state of the world economy. America is in recession, as is Japan, as are other Asian economies like Singapore, Taiwan and Hong Kong. The Euro area is slowing rapidly and world trade growth has slowed dramatically from its 12 per cent growth last year to only one per cent this year.

"Growth among the main G7 economies is expected to slow from 3.5 per cent last year to just one per cent this year. Indeed, for the first time for three decades each region of the world has slowed at one and the same time and more sharply than before, and independent forecasters expect the world downturn to be deeper and longer with economic growth in 2002 of just 1.5 per cent in the euro area, 0.7 per cent in the USA, and minus 0.6 per cent in Japan.

"No one country can insulate its economy from such a synchronised slowdown—and in addition no one can yet judge the full and final impact of the traumatic and tragic events of September 11th.

"These testing times demand decisive action. So in Britain interest rates have been cut seven times in nine months, and Britain's interest rates are now the lowest for nearly 40 years. And with public spending and public investment rising this year, our fiscal policy is—at the right time of the economic cycle—complementing and reinforcing monetary policy and thus stability and growth.

"In the past, when the main economies of the industrialised world have gone into a downturn, Britain has invariably come off worst. Indeed, in the past, in every major global slowdown since 1945, Britain has entered weaker, suffered longer, experienced higher inflation and endured higher unemployment. So it is at a time like this that our new monetary and fiscal regime—Bank of England independence, the symmetrical inflation target, our new fiscal rules and the tough decisions we have taken to reduce debt—is being tested.

"When the world turned down in 1998, decisive action by the newly independent Bank of England ensured the British economy sustained its growth. Throughout 2001 Britain has continued to grow. Monetary policy has played its full part. First, the Bank of England has been able to take pre-emptive action because British inflation has been at or near our target of 2.5 per cent for four years, in contrast to inflation rising to 10 per cent when the world economy slowed in 1990.

"Over the past two years, Britain has had the lowest annual inflation since 1963. Indeed, our average inflation has been lower than any other comparable country in Europe. Secondly, the symmetrical inflation target set in 1997 at 2.5 per cent means that inflation below that figure is as undesirable as inflation above it. Deflation is as unacceptable as inflation.

"So it is because in 1997 we put in place a symmetrical target—one that is pro-growth as well as anti-inflation—that, while at every other time since 1945 when the world faced a slowdown Britain was unable to act decisively or acted too late, this time the Bank of England has been able to adjust policy at the right time and in the right way to safeguard both economic stability and growth. That is why during this world slowdown our interest rates are now 4 per cent in contrast to British interest rates of 10 per cent—and for one whole year 15 per cent—during the boom and bust of a decade ago.

"I come to the forecasts for growth in an uncertain world economy. At the time of last year's Pre-Budget Report, independent forecasters said US growth in 2001 would be 3.4 per cent—they now expect it to be just 1 per cent. For Germany they expected growth of 3 per cent—now actual growth is expected to be 0.7 per cent. For Japan they expected growth of 2 per cent—now actual growth is expected to be minus 0.5 per cent.

"Last year we forecast British growth in 2001 would come in at a range from 2.25 to 2.75 per cent. And we based our public finance projections on 2.25 per cent. I can tell the House that our expected growth figure is exactly that; 2.25 per cent. So while some pre-Budget representations claimed Britain was worst placed of any country to withstand the global slowdown, the OECD and IMF have both forecast that Britain this year will have the highest growth of any of the G7 countries.

"In the period ahead there are of course real risks for both Britain and the world. But it is because of the decisive action we have taken on monetary and fiscal policy that I remain cautiously optimistic about the prospects for the British economy. While next year independent forecasts expect the United States to grow by just 0.7 per cent, the euro area to grow by 1.5 per cent and Japan to contract by 0.6 per cent, we now forecast British growth of from 2 to 2.5 per cent—and then rising in 2003 to 2.75 per cent and to 3.25 per cent as the economy returns to trend in 2004.

"While the British economy has been stable, it can and must be stronger. All countries are having to respond to unique economic circumstances: an overshoot and then collapse in US information technology investment and then IT production (both down 12 per cent); a downturn that contributed to failing industrial production as a whole (now down 4.3 per cent across the G7) and then to a dramatic slowdown in world trade in industrial goods (from 13 per cent growth last year down to almost zero now) along with a large increase in business uncertainty since September 11th.

"With manufacturing output having fallen across the world—by an estimated 5 per cent in the G7 countries—British manufacturing output has fallen over the same period by 2 per cent after rising by 2 per cent in 2000—and there have been consequent effects for both exports and imports and for business investment whose share of national income nonetheless continues near an all-time high. The challenge for Britain—for manufacturing and across the economy—is both to maintain our hard-won stability and to accelerate tile productivity improvements that will increase output, jobs and wealth.

"The global risks which demand continuing vigilance are both cyclical and structural in nature: downside risks if America takes longer to recover or if there is a long-term change in oil prices or a longer-term change in company or consumer behaviour after September 11th which would lead to a much more uncertain world economy in which Britain would have to work even harder to make productivity gains; and, further out, there are upside risks of inflationary pressures if, as a result of lower interest rates, consumer spending grows too quickly. But there is also an upside opportunity for growth if world recovery is accompanied by productivity improvements here in Britain.

"So, far from deferring our enterprise agenda, this is exactly the time to press ahead with supply-side reforms to encourage new investment and higher productivity and it is now right that we take forward the measures on enterprise on which we have been consulting. Further statements on manufacturing will be made in the days ahead by the Secretary of State for Trade and Industry, and on the reform of our planning laws by the Secretary of State for Transport, Local Government and the Regions with proposals to improve the flexibility, speed and responsiveness of the land use system.

"Today I can tell the House that we will proceed with four tax cuts for enterprise and the abolition of one further tax in its entirety. To help British business, and particularly manufacturers, to invest in the technologies of the future, I have decided (following our consultation) that in next year's Finance Bill we will legislate for a new research and development tax credit for large companies—a tax cut to boost innovation. To increase investment and reward entrepreneurship we will, from next April, make a second tax cut—a cut in capital gains tax to 20 per cent for business assets held for more than one year and 10 per cent for business assets held for two. Three-quarters of taxpayers with business assets will pay only a 10p rate; overall a capital gains tax regime more favourable to enterprise than that of the United States.

"To reward managers taking risks in new business ventures I now propose to double the reach of our share option scheme to all businesses with assets of up to £30 million—a tax incentive that I will introduce immediately. Because for small businesses I want to cut tax bills and red tape, I can confirm that the Budget will extend the 10p corporation tax band, cutting taxes for small companies, and that from April a new flat rate and simplified scheme for payment of VAT will cut form-filling and also save a typical small business up to £1,000 a year. There is a strong case for cash help for small firms to bring their payroll and tax systems on-line and I am publishing today and consulting on the Carter review.

"In each year since 1997 I have abolished at least one tax, most recently abolishing betting duty. For 54 years, since the 1947 Budget, tax has been levied on the football pools. I have agreed that the tax on pools companies will be 15 per cent of their gross profits and, after an agreement with the industry that guarantees the continuation of their funding of the Football Foundation and the Foundation for Sport and the Arts, I am abolishing football pools tax altogether. That change will take place from 1st April.

"So just as people no longer have to pay tax when they bet, they will no longer have to pay tax when they do the pools. Each charity or local sports club which runs pools-based competitions will see this tax liability abolished. The details of our consultation on the tax status of amateur sports clubs will be announced by the Financial Secretary and the Minister for Sport on Friday.

"I turn to jobs. Today, the Secretary of State for Trade and Industry and I are publishing our joint report on regional economic policy and the work of regional development agencies—set up by the Deputy Prime Minister—in tackling regional inequalities and achieving balanced economic growth across the United Kingdom. The key focus is on local innovation, indigenous investment and improved infrastructure and skills. And to complement the locally based venture capital funds that we are forming in every region of the country, we are today publishing our prospectus for a new £50 million fund to help small firms in every region access the risk capital they need—capital that is often not available from banks.

"New investment, new businesses and new jobs are the key to regenerating our high unemployment communities. A new community investment tax credit, on which I am publishing details today, will match every £100 million of private investment with £25 million of additional public investment. As a special measure to help the slowest growing and highest unemployment areas of Britain we shall in 2000 wards in constituencies throughout the country and for all property transactions for homes and business properties worth up to £150,000, abolish stamp duty from Friday. In the Budget I propose to legislate so we can take more business property transactions in these areas out of stamp duty.

"The Government will do all we can to fight unemployment in normal times and in times like these. I can report that Britain's unemployment this year is the lowest since the 1970s. For the first time in a century unemployment in Britain is lower than in Japan and lower than in America. Compared with Britain, the unemployment rate in the euro area is 50 per cent higher—the equivalent of I million more British people in work. Because we shall not retreat from our commitment to full employment, the Secretary of State for Work and Pensions will tomorrow announce new measures to help the newly redundant and expand the New Deal to help the long-term unemployed back to work.

"Because a third of the existing workforce lacks basic or Level 2 qualifications and because the old voluntaristic approach has not worked, we have been investigating the joint CBI and TUC proposals for a tax credit for in-work training. Following today's report from the Performance and Innovation Unit we shall, from September next year, pilot a new approach combining direct financial support for business, especially small business, with time off for training, under which employees, employers and government each accept their responsibilities.

"Because the skills of the future start in the schools of today, the Secretary of State for Education will be announcing further projects, funded from the Capital Modernisation Fund, as we meet our commitment to raise the share of national income spent on education. This is also a testing time for our fiscal regime.

"I now turn to the public finances. While in past downturns interest rates have come down too late, too little or, because of high inflation, not at all, so too excessive levels of debt or deficit can make it difficult for fiscal policy to play its proper role. When we came to power debt was too high and debt interest payments ran at 3.6 per cent of national income. So we maintained spending limits, took the necessary tax decisions and cut debt. We also set tough long-term fiscal rules—not for a year or even two but across the economic cycle: rules that demand fiscal discipline by a tighter approach in the best of times and allow the automatic stabilisers to work fully at a time like this, in both cases fiscal policy supporting monetary policy. And because

from 1997 we tightened fiscal policy by 4 per cent of national income, we have been able to reduce net debt below 40 per cent, not just in one year but across the economic cycle.

"I said in the Budget of 2000–01 that we would repay £34 billion pounds of the national debt. In fact, we were able by cautious budgeting to repay in the last year not £34 billion but a total of £37 billion. In total, since we came to power, we have now repaid £51 billion of the national debt. In 1996–97, debt was 44 per cent of the British national income. Two years ago we brought it down to 36 per cent. This year it has been brought down to 31 per cent. That is in contrast to nearly 40 per cent in the USA; 40 per cent in Germany; 41 per cent in France; 53 per cent in the euro area as a whole; 57 per cent in Japan and 95 per cent in Italy. Britain's debt is now the lowest share of national income in the G7 and the lowest of all our major European competitors.

"We had a choice last year: to use the mobile phone proceeds from the Spectrum option for current spending. In fact, by using the £22 billion for reducing our debt burden, we achieve a permanent saving of £1 billion a year in debt interest payments. That is £1 billion available not on a one-off basis but each year and every year.

"Let me give the House the full figures. Debt interest payments were running at £29 billion a year when we came to power—more was paid out in debt interest than all the money spent on all our schools. I can report that debt interest, which fell to £26 billion last year, will fall again to £22 billion this year and we expect it to fall next year to £21 billion—just two per cent of our national income.

"Just as last year we paid off more debt in one year than previous governments paid off in all of the previous half century, so this year debt interest payments will consume less of our national income than at any time in nearly a century since the time of the First World War. The Government's determination to keep a steady hand on the public finances and the economy is for a purpose. With debt and debt interest payments down it has been possible, even as corporate and other revenues have declined, to maintain our three-year spending plans for hospitals, schools and public services; to respond to the emergencies that have arisen and now to borrow at the right time for the economy to make essential investments in the national interest while still meeting the fiscal rules that we set over the economic cycle, even on cautious assumptions and even on the cautious case.

"Our cautious assumptions include deliberately cautious forecasts for equity prices, oil prices, interest rates and economic growth. I can report to the House that even while we project significantly lower tax revenues this year and next, we are still well within our first rule this year and every year—the golden rule that we balance the current budget over the economic cycle. The current budget is projected this year to be in surplus by £10 billion and in future years by £3 billion, £4 billion, £7 billion and £8 billion. Net public borrowing is projected to be £2.5 billion and in future years £12 billion, £15 billion, £13 billion and £13 billion. We are well within our sustainable investment rule: that debt be at or below 40 per cent of national income, with debt projected to be 31 per cent in every one of the next five years. Taken together, the monetary and fiscal figures I am publishing today show we are also well within the Maastricht criteria. Consistent with our policy on the euro, we are undertaking the preliminary and technical work necessary to allow our assessment of the five economic tests.

"Let me turn now to decisions on spending that have resulted from the terrible events of September 11th. I can report that for new equipment and immediate operational requirements, an additional £100 million has been made available to the Ministry of Defence. To cut off the supply of finance to terrorists and to fund other anti-terrorism measures, we have set aside extra resources of £20 million for this year alone.

"To fund the need for additional policing since September 11th, a further £30 million has been made available to the Met and other police forces. To fund humanitarian assistance to Afghanistan and elsewhere and to meet new international development obligations, Britain is contributing an extra £100 million. In addition to the extra responsibilities we have assumed since September 11th, we now expect tackling foot and mouth disease and supporting the recovery of rural areas to cost £2.7 billion.

"In this pre-Budget report we also prepare for the Budget and the coming spending round. As the Prime Minister has said, meeting our international development responsibilities is not an option but a duty. Out of the tragedy of September 11th a new sense of our obligations to each other has been born and a recognition that if globalisation is to work for all the people of the world, including the poor, then, as the Secretary of State for International Development is urging, a new deal for prosperity must be forged between the richest developed countries and the poorest developing countries.

"The UK Government will propose to the. Financing for Development Conference of the United Nations that to meet the world's agreed 2015 development goals—every child in primary school; a two-thirds reduction in child mortality; a halving of world poverty—the international community now establish a new international fund leveraged up to £50 billion a year to help achieve for the developing countries after 2001 what was achieved for Europe with the Marshall Plan after 1945. I can confirm that in the next spending round we shall not only raise significantly the amounts of our own overseas development aid but also raise its share in national income, a measure for which I hope there will be broad, all party support right across the House.

"The challenge of giving must be met by government on behalf of the people. But people too, encouraged by government, should he empowered to give more of themselves.

"For the first time, Gift Aid provides a 28 per cent addition to every donation by taxpayers to recognised charities, and this is now being widely used. Special end-of-year appeals to contribute foreign coins to charity can receive the 28 per cent addition. I have also asked the Inland Revenue to consult charities on an innovation that could take Gift Aid to a new level and allow taxpayers to donate directly to their designated charities on the annual tax form and to gain tax relief for doing so.

"The cause of the environment also reminds us how closely our lives are bound up by what happens elsewhere in the world. In the 21st century the global environment is the local environment. To stem the tide of global warming, the Deputy Prime Minister is leading the pressure for new international agreements.

"And because these issues are central to our Budget and Spending Review, we are consulting from today on a total of 10 environmental measures. They include additional tax relief for businesses investing in environmentally friendly technologies, and new tax incentives to encourage the fuels and the vehicles of the future. All of these measures reflect Britain's commitment to energy efficiency, innovation and conservation and to playing our part in safeguarding the environment.

"We are investing £180 billion over 10 years in transport. And so that foreign lorries pay some of the environmental and other costs of using British roads, we are also publishing today our consultation document on introducing a charging system under which non-British companies and lorries pay their fair share.

"I turn to the pre-Budget consultation on measures for families and pensioners. The old welfare state which we inherited too often paid out benefits without regard to individual circumstances or personal responsibility. Today, the working families' tax credit is making work pay for nearly 1.3 million families-400,000 more than family credit—with around 150,000 families getting help with childcare. Since 1997, lone parent employment has risen by 20 per cent and today 200,000 more lone parents in work are receiving the working families' tax credit.

"Building on that, later this week we shall introduce legislation for the next step: extending the principle of the working families' tax credit to make work pay for those without children as well. And the children's tax credit—the first recognition of children in the tax system in a generation—provides up to £520 extra a year for 5 million families. Later this week, we shall publish new legislation for our next step. On top of universal child benefit, we shall integrate into one payment all income-related support for children as we advance towards our goal of abolishing child poverty.

"For the first time, all support for children will now be paid to the main carer—usually the mother—as the best way to strengthen families.

"So our approach in modernising welfare is not to seek narrowly targeted benefits just for those at the bottom but the right help at the right time when it is needed for work and children for hard-working families, with over 5 million—85 per cent—now eligible for the working families' or children's tax credits.

"For the first time, through tax credits, the tax system is paying money to families rather than taking it, with tax rates now ranging from 40 per cent at the top to as low as minus 200 per cent for low-paid families. Tax credits are modernising the welfare state, encouraging work and helping families without stigmatising them.

"Today, the Secretary of State for Work and Pensions and I are announcing new measures to apply the same approach to pensions—more help to every pensioner in Britain with most to those who need it most. The guarantees that we propose not only tackle the poverty faced by the poorest, weakest and frailest but also reward rather than penalise the modest savings and occupational pensions of the majority. And they are backed up by a tax policy that is fair to those who have provided well for their own retirement.

"Upon the foundation of the basic state pension, we have already announced our first guarantee. No pensioner will have an income below £98 a week in April 2002 and £100 a week in April 2003, with no couples receiving less than £154 a week—at least £1,000 a year more than in 1997. That is a 24 per cent real-terms increase in the minimum income guarantee. Pensioner poverty is a reproach to us all. And the minimum income guarantee that is already benefiting 1.8 million households will rise in line with earnings for the whole of this Parliament.

"Today we are also setting aside new funds—£2 billion—to provide a second guarantee from 2003 for all pensioners in communities around the country whose hard work has secured a small occupational pension or modest savings but who have, in the past, been penalised for their thrift and savings. I can confirm that any pensioner whose income in retirement is below £135 a week, and any pensioner couple with income below £200, will see their hard-earned savings and occupational pensions rewarded with extra money, not penalised, as in the past, by losing all their benefits.

"For a single pensioner on the basic state pension with £1,000 a year in occupational pension, the pension credit will mean an additional £600 a year. For a pensioner couple with the basic state pension and an occupational pension of £1,500 a year, the pension credit will mean an extra £900 a year. Together, the minimum income guarantee and the pension credit will be available to half of all pensioner households—5.4 million pensioners in total. The Secretary of State for Work and Pensions will spell out the full details tomorrow.

"For those pensioners who pay tax, we offer a third guarantee. When the new system is introduced in 2003, we shall raise the pensioner's tax allowance at least in line with earnings for the rest of this Parliament.

"And for all Britain's 11 million pensioners I can announce a fourth guarantee. The Secretary of State for Work and Pensions and I have decided that the basic state pension will always rise by at least £100 a year for single pensioners and £160 for couples. In future, the state pension will rise by at least 2.5 per cent, or more if inflation is higher—at least £100 more every year. I can also confirm that I have set aside sufficient money so that the winter fuel allowance will be paid at £200 for each year of this entire Parliament.

"So these are our guarantees: for every pensioner, an increase of at least £100 a year every year in the basic state pension; for 5.4 million starting on the pension credit in 2003, up to an additional £100,000 per household; free TV licences for all pensioners over 75; for the poorest pensioners, a minimum income guarantee of £100 a week; and for every pensioner household, a £200 winter fuel allowance in each and every year of this Parliament. Every pensioner in Britain will be better off. We shall meet our obligations to those who, in peace and war, fought for, worked for, served and built their country all their lives.

"I turn now to the long-term funding of the National Health Service and the decisions we have to make for the 2002 Spending Review. Building the 20th century health service was among the greatest achievements of an earlier generation. Renewing the health service for the 21st century is among the great challenges for our generation.

"For decades, NHS funding was decided on a year-to-year basis with no certainty for professionals or patients. Having put the public finances in order and released extra resources in 1997, 1998 and 1999, the 2000 Spending Review provided an average real-terms increase of around 6 per cent a year for the NHS to 2004—significantly above the historic average of 3.3 per cent.

"And because we knew that money had to be matched with modernisation, the Ten Year NHS Plan is also implementing significant reforms: devolving 75 per cent of the NHS budget to primary care trusts; setting national service frameworks for the main diseases and conditions; reforming contracts for family doctors, consultants and nurses; and changing working practices with greater diversity of provision and patient choice.

"Within the framework of the Ten Year Plan, reporting to the Prime Minister and the Secretary of State for Health, further work is being done on management, accountability and incentives in a reformed NHS. Today we can support further NHS reform. Because of our prudence, debt is lower and debt interest payments are lower.

"I am able to announce that, even in these testing times, while meeting all our fiscal rules and even on cautious assumptions, we arc releasing for next year an extra £1 billion for the NHS. UK health spending in the corning year will now rise by £6 billion—9.6 per cent in cash terms; 7 per cent in real terms. The Secretary of State for Health and his Scottish, Welsh and Northern Ireland counterparts will announce how that extra money will be spent.

"Our resolve is to tackle the immediate, medium-term and long-term needs of our NHS. The pressures on the NHS, the vital place that it has in the fabric of Britain and the critical role that it plays for British people means that we must plan not just one to three years ahead but five, 10 and even 20 years ahead. So, in the Budget for March 2000–18 months ago—I said that to prepare for the next spending round an independent review should examine long-term NHS funding needs over the next 20 years. In the half-century history of the NHS, no such review has ever been carried out. Taking the long-term view means honestly facing the scale of the challenges ahead. The review is being conducted by Mr Derek Wanless, formerly of NatWest. Today he is publishing his interim report, a 220-page detailed examination of future trends in healthcare and future funding issues on which he will consult widely.

"But the first question he said he had to ask is whether a publicly funded tax-based health service could itself be a significant pressure on costs and whether a tax-funded NHS remained the best way forward. He has looked at other European and international methods of funding and finds all health systems face rising pressures. In systems that rely on private medical insurance, he concludes that, compared to the NHS, there is less cost control, more uneven coverage and many left out. And in systems that rely predominantly on social insurance. he found excessive administrative overheads, insufficient incentives for cost control and—for example, in France—large costs for employers and employees who pay charges for every GP and hospital visit, even after their social insurance premiums.

"Mr Wanless's interim report states: 'my conclusion is that there is no evidence that any alternative financing method to the UK's would deliver a given quality of healthcare at a lower cost to the economy. Indeed other systems seem likely to prove more costly. Nor do alternative balances of funding appear to offer scope to increase equity'. "So having examined whether a publicly funded NHS is itself a pressure on costs and thus whether it is sustainable, Mr Wanless's view is that the principle of an NHS publicly funded through taxation, available on the basis of clinical need and not ability to pay, remains both the fairest and most efficient system for this country.

"Mr Wanless has also examined in detail the cost pressures facing the service for the future. He concludes there will be significant pressure both from technological innovation and from rising public expectations but less pressure on the NHS than is commonly thought from an ageing population. He also highlights the potential long-term gains, building on the reforms of the NHS Plan, from a better use of workforce time and of resources generally, including the gains to be had from investment in information technology.

"Mr Wanless emphasises in particular a problem that goes back to the foundation of the NHS over decades: a history of under-investment over 50 years and a long-term lack of capacity. Comparing Britain to other European countries, such as France and Germany, his figures show a decisive difference in the area of finance despite some significant closing of the gap in the past couple of years and that these countries have, over decades, committed significantly more public resources as a share of national income to healthcare.

"The Wanless report is highlighting the difference it will make for patients if the NHS is put on a sustainable long-term footing and if we secure the best use of resources. Building on the 100 new hospitals, the 40 per cent increase in doctors, and the booked appointments of the Ten Year Plan—a majority of new beds in single rooms, swift access to the best drugs and treatment and greater patient choice—the goal is a world class health service that meets the needs of all people in Britain and puts patients first.

"Mr Wanless will publish his final conclusions next year in time to inform the 2002 Spending Review and will consult in the next few months with experts, patient groups, all interested members of the public and the doctors, nurses and all staff who work so hard and give so much of themselves to the NHS every day.

"The Spending Review will be the time for final decisions. What can be done will of course depend upon the economy and the public finances—and indeed over the past four years, through savings on debt interest, reallocating resources and economic growth, we have been able to do more for the NHS.

"I believe that as we plan to make our Budget and spending decisions next year and to fulfil all our commitments to economic prosperity and social justice, it will be right to devote a significantly higher share of national income to the National Health Service.

"The decisions we will be making are for a decade and more. And the way we make these decisions—whether we can forge a new consensus across parties and across Britain—will determine not only the long-term future of the health service but the character of our country.

"I believe out of this debate an enduring national consensus can he built around the two central conclusions at the heart of Mr Wanless's first report: that a publicly funded National Health Service is best for Britain, and a modernised National Health Service will need significantly greater capacity and significantly more long-term investment. With economic stability the foundation, and with a steady and prudent approach to the public finances, I believe that we will have the strength to take the right decisions and to build a stronger, fairer Britain. I commend this Statement to the House".

My Lords, that concludes the Statement.

5.5 p.m.

Lord Saatchi

My Lords, I thank the Minister for repeating the Chancellor's Statement. Speaking for myself, we should all be better off if the Minister was the Chancellor and the right honourable gentleman in another place was repeating the Minister's words.

Momentous events have occurred in the world. We have heard several times that the world is a different place since September 11th. However, the Chancellor carries on as if nothing has happened. When they call this the green Budget, they mean that one turns green at the sight of it. The Chancellor's previous pre-Budget report was twice as long as his first, and this one is even longer. It runs to 410 pages from the Treasury, and that excludes details of the tax and benefit changes that were announced in the Statement and any social security matters that will be announced tomorrow.

The Chancellor has today added even more to the mass of more than 250 complex tax allowances, reliefs, exemptions, credits, indexations, tapers, disregards and so on that taxpayers already have to navigate. The result is that about half of the increase to the Government's administrative costs over the next three years—on their own figures, that is about £1.8 billion—has been allocated to tax collection and benefit distribution.

Why does the Chancellor do it? Why this incessant, impenetrable tinkering of the sort that we have just heard about? That does not seem to help the very people whom the Chancellor's complex schemes are meant to help. For example, in the Statement the Chancellor offered new minimum income guarantees to pensioners and a new pension credit. However, for a pensioner to claim the Chancellor's previous version of the minimum income guarantee required the completion of a 40-page application form. Age Concern described it as, a massively complex system and endless form filling for pensioners". Of 500,000 eligible pensioners, only 82,000 attempted the feat of making a claim.

Might it be that such complication is the whole point of the Chancellor's approach? The charm of complexity, from the Chancellor's point of view, is that in 1998–99, between £2 billion and £4 billion of income-related benefits went unclaimed. Following the introduction of the children's tax credit and the pensions credit, it is estimated that a further £2.6 billion of budgeted expenditure will go unclaimed this year. For example, in a parliamentary Written Answer on 7th February, the Treasury confirmed that 2.1 million eligible families have not applied for the children's tax credit.

Perhaps noble Lords think that I am being too mean or too partisan. I think not. The editor of the Financial Times has commented on the Chancellor's pre-Budget report and the whole budgetary process. He said: Mr Brown has reduced budget transparency to a new low. Important tax changes have been omitted from the speech: statistics have rarely been quoted on a consistent basis. The budget documentation has been filled with political point-scoring rather than factual analysis. And there has been a continued tendency to classify the collection of revenue as anything other than taxation". No citizen, however intelligent, can match the massed ranks of No. 10, No. 11, the Treasury and Millbank—one man against the legions of Rome. Moreover, the people who are least able to defend themselves are the poorest in the country.

The Chancellor likes to wear his heart on his sleeve—he did so in his Statement today—with regard to caring for, the poorest, weakest and frailest". But, incredibly, the net effect of four years of his backbreaking efforts on behalf of the poorest is that they are paying the most in total tax. The top rate of 63 per cent relating to their income is up from 47 per cent, which applied when the Chancellor took over. The result of all of his "numerous little schemes"—I quote the OECD—is a mad world with the poor paying higher taxes than the rich.

Perhaps the Chancellor's revolutionary idea of soaking the poor is all in a good cause. Perhaps the poor with their tax payments are helping the Government to fulfil their duty to provide them with adequate public services, such as education, not mentioned in the Statement; health care; retirement provision and so forth. But what if the services are not being provided? Then, the government would not be fulfilling their duty. That seems to be what is happening.

While the Chancellor was penning his Statement on football pools tax, a hospital apologised to the family of a 79 year-old woman who had to wait 14 hours with a broken neck on a trolley in an accident and emergency department. While the Chancellor was devising his new research and development tax credit, Gladys Thomas from Stoke Bishop, Bristol, was taken to Southmead Hospital at 8.15 a.m. on 1st November. By mid-morning an X-ray showed that she had broken her neck.

While the Chancellor was thinking about the community investment tax credit, Mrs Thomas waited on a hospital trolley all day until just before 11 p.m. when she was admitted to a ward. North Bristol NHS Trust said that it apologised to Mrs Thomas and her family for what it called "the inconvenience". Behind his caring facade the Chancellor is supervising a grotesque and unjust system in which poor people who pay the most in tax receive in return the least in public services. That would be a shame and a disgrace for any government but most certainly for one which rose to power on the slogan, "24 hours to save the NHS".

Is the Chancellor aware that under his leadership there is a sharp rich/poor divide for the four main cancer killers in Britain? Is he aware that cancer sufferers in poorer areas are four times more likely than those in richer areas to be alive five years after their treatment? Is he also aware that the poorest areas are in the North and the healthiest cancer survival rates are in the South, including East Surrey, Kensington, Chelsea and here in Westminster? Poor patients in poor areas are missing out on early diagnosis and access to the latest drugs. They suffer a shortage of specialist cancer doctors and surgeons. They suffer delays in getting a diagnosis and further delays in getting treatment.

When people hear today from the Chancellor how upset he is about the state of the NHS and how he will spend more to bring us up to Euro levels, what do they think? I say, what a sham. In the Statement there is an extra £1 billion of health spending, yet Mr Wanless talked about the decisive difference between our health service and health services in other countries. He is right. Noble Lords will forgive me for taking, them through the figures, which are telling. Our health spending as a percentage of GDP is 6.7 per cent. France and Germany are at 10 per cent. The difference is 3 per cent of GDP. Taking UK GDP at around £1,000 billion—that is what it is—£30 billion more is needed each year to bring us up to those standards, not the trivial extra £1 billion mentioned in the Statement.

A poll conducted by MORI provides ample evidence that the public see through the self-satisfied hypocrisy of the Statement which pretends that the state will always provide. Fifty-six per cent of people think that most people or nearly everyone will soon pay for private health care. Fifty-nine per cent think that most people or nearly everyone will pay for private welfare insurance. Sixty-six per cent think that most people or nearly everyone will pay for private pensions.

Perhaps all that is still worth while. Perhaps it is a price worth paying for what was called the Chancellor's "steady hand on the public finances". keeping us on the straight and narrow in the black; but no. In what I believe was the most interesting part of the Statement, the Chancellor admitted that he is presiding over a 100 per cent turnaround in the UK public finances. In the Statement he expressed pride at his ability to repay debt and to lower debt interest payments.

However, I remind noble Lords that later in the Statement, disconnected from that pride, he told us that after the repayment of £51 billion, he now intends to borrow £2 billion; £12 billion; £15 billion; £13 billion and £13 billion over the next five years. That is a total of £55 billion. It is not prudent to repay £51 billion one day and borrow it again the next. Someone borrowing money at that rate needs to find some savings. That is why we were all touched in your Lordships' House to hear that the Chancellor planned to sell £100,000 worth of Treasury silver and to give the money to the health service. We thought, "What a man. He lays down his possessions for his NHS".

That sale did not go through, but not to worry. Here is another item which he could give up for the NHS. It is not worth £100,000 but £500 million. He will find it on page 202 of his own budget forecast. It is the increase in administration costs over the next four years of—noble Lords have guessed—the Chancellor's own departments.

5.15 p.m.

Lord Newby

My Lords, this is a complacent Statement from a complacent Chancellor. It is overoptimistic in its view of what is happening to the economy. The projections for growth used by the Chancellor for next year and the following year are at the top end of any projections elsewhere. For example, the projections by the European Commission for the next year suggested a growth rate of 1.75 per cent; not up to 2.5 per cent.

The Statement is certainly complacent about what is happening to investment. His own department, the Office for National Statistics, published figures within the past week which show that investment in the manufacturing sector has fallen to a seven-year low. Manufacturing investment was 13 per cent lower in real terms than in the second quarter. Investment in services fell by 3.9 per cent. The latest official figures show that manufacturing margins are at their lowest since 1992.

The Statement is complacent on performance to date. The endless lists of hospitals to be built, expenditure here and expenditure there, remind me of nothing so much as the Soviet five-year plan in which there were endless statistics about the numbers of tractors and combine harvesters. Yet people said, "If that is the case, why are we still so poor? Why is there still no food in the shops?". Their equivalent today are the poor patients referred to by the noble Lord, Lord Saatchi, who are left for hours in accident and emergency departments with no benefit from the alleged additional expenditure.

The Treasury and the Government have not even been successful in spending the money allocated to them in the past year. In the past financial year they underspent by £7 billion, which includes substantial amounts for health and education. Can the Minister tell us whether that money will he carried forward to this year and whether we can have a guarantee that it will be spent?

As regards health expenditure, the Chancellor quoted at length from the Wanless report, which clearly poses the big questions about how expenditure on a publicly-funded national health service can be brought up to standards which we consider acceptable. When will the Government give us the answer to the key questions that the Prime Minister posed a couple of years ago? When will we know that we shall reach the EU average expenditure? When will they admit that the only way that we shall be able to afford anything like the £30 billion extra per year mentioned by the noble Lord, Lord Saatchi, is by paying more taxes to fund the National Health Service? The Government or the Chancellor suggest that perhaps by the middle of next year we shall have a clue, but today's Statement completely ducks the issue.

The Chancellor is complacent about the exchange rate. We know that there is a two-tier economy, with manufacturing suffering greatly. There is nothing in the Statement to acknowledge the principle widely accepted by economists that the Government can play a part in lowering the value of the pound towards a more sustainable level by making clear their intentions in terms of membership of the euro. When they did so over a short period earlier in the summer the pound fell. The Prime Minister panicked and said, "No, we are not committing ourselves either to going in or to a timetable". The pound went up again. By committing themselves to a timetable and talking about the target levels for the pound the Government could today affect sterling in a direction which will be beneficial to manufacturing industry.

The Chancellor is amazingly complacent about the complications and complexity of the tax system. The numerous little schemes referred to by the noble Lord, Lord Saatchi, again make an appearance in the Statement. Last year the Finance Bill was some 600 pages long. Tolley's tax bible is now one-third longer than it was in 1997. The problem with this approach to taxation is that no one understands how the tax system works. Therefore, many of the wheezes simply cannot have the effect that the Chancellor expects because people do not understand how to take advantage of them. Many people are fearful that they will run foul of the tax authorities if they attempt to do so.

Finally, I think that the Chancellor is complacent about the tax credits. He is very proud of the tax credits. We have applauded him in his attempts to transfer more money to poorer families and to pensioners. But on the child tax credits there have been a number of years of increasing complexity with a messy system which involves child benefits, child care tax credits and the working families tax credit. The Statement today implies that there will be great simplification of that messy system. We look forward to it. But, given the Chancellor's past record on the children's tax credit system, we have our doubts.

We are even more doubtful about the plans for pensioner tax credits. Again we applaud the aim, but we doubt very much whether the proposals in today's Statement are the best way of using the available funding. The noble Lord, Lord Saatchi, mentioned some of the problems. It is complicated. It can be relatively easily fiddled. All the indications are that the take-up will be vast.

We have consistently argued for age-related pension top-ups which have the great advantage of being simple, easily understood and protected from tax fraud.

For all the Chancellor's fine words, the Government have presided over a health service which even their own Ministers accept now remains in crisis; a transport system which is the worse in the developed world; an exchange rate which is crippling our manufacturing sector; and a tax system which, frankly, no one understands. The Statement does nothing to address these issues. It is a great disappointment both to the House and to the country.

5.22 p.m.

Lord McIntosh of Haringey

My Lords, I find it fascinating that both noble Lords, in responding to the Statement, should not subject what is in it to any serious degree of analysis or criticism. I understand their difficulties. I have only seen it in the last few hours. They are responding to it in a much more restricted period, and I am entirely sympathetic about that. But the main outstanding themes of the Statement were subjected to no effective criticism whatever in the two speeches we have just heard.

The Chancellor has described in the Statement an economy which is surviving better than the other economies of G7 and what are admitted to be uncertain world circumstances. There was no recognition of that in the speeches that have been made. He has also described that within that economy the public finances of this country are in an exceptionally strong position relative to our leading competitors in the developed world.

Of course there are huge risks in all these things. But the record to date and the forecast—I shall come on to the issue of forecasts and independent forecasts in a minute—is the pay back for four-and-a-half years of stability and prudence—I am not afraid of using the word—in the management of our finances. That is now working. There was not a word of recognition of that in the speeches we have just heard. Instead we hear the complaint of those who have no interest in addressing the real issue; the complaint about the complexity of the tax system. I have never denied that the tax and the benefit systems are too complex. They are complex for reasons that are well known to both Opposition parties. They are complex because special interest groups, often with good justification, make pleas for exceptions to the general rule of taxation and of benefits.

Let me give one example because I am limited in time. It is an example of business assets. Some 10 years ago, when I sold the majority share of my business I paid capital gains tax on all of the proceeds of the sale of that business. The concept of business assets was then in its infancy and although I was selling a majority shareholding of a business that I had started myself 20 years previously I had not reached the age of 60 and therefore did not qualify for any of the business assets legislation.

Business assets legislation has grown up substantially over the past five years or so because tax lawyers and accountants and those who have the interests of enterprise and small business have demanded that. The extensions that have been made to it—in particular those made in this pre-Budget Statement—are at the request and at the demand of those who, often from Opposition Benches, demand that enterprise should be encouraged.

I apologise for complexity. But I do not apologise to the extent of saying that the kind of simplification which appears to be demanded by the Opposition would be of benefit or acceptable to the people of this country. The same is true to some extent, but not entirely, of the complexity of the credit system. What started with the pre-Budget Report of last year, gaining since in refinement and conviction, has been the simplification of the children's tax credit system. I admit that there is more than one system designed to help families with children avoid living in poverty. It is proposed that that should be simplified. The same will happen in respect of pensioners and pension credit.

These things do not happen immediately. The penalty with them all is that an announcement that is made one year cannot be realistically fulfilled within the 12-month period but almost certainly is fulfilled two years after the time of the first announcement. That is partly because of consultation and refinement of the proposals, but also because it is a huge tanker to turn around.

We should all like these benefits to be simpler and easier to understand. Both noble Lords are right to say that we should like to have a higher take-up of them. Of course it is not the same thing to say that one has a minimum income guarantee which eliminates poverty and then eliminate poverty. In order to achieve that, one has to increase the rate of take-up. All these things are true, but none of them detracts from the fundamental benefits and success story being described in this pre-Budget Statement.

The noble Lord, Lord Saatchi, says that, having reduced our debt, it is terrible to borrow over the next few years. First of all, borrowing is for investment purposes. The noble Lord failed to recognise that the Statement includes a doubling of public investment. That is in addition to any investment made in the form of private public partnerships. He did riot recognise that the size of our debt has gone down from 44 per cent of GDP in 1997 to just over 30 per cent now and for the next four years.

The noble Lord, Lord Newby, who is far more of an economist than I, complains about over-optimistic forecasts. All the forecasts being made now about this year—2001—are for growth of around 2 per cent. But we now have three quarters' figures in. They cannot be significantly different from 2.25 per cent growth; the probability is that it is too low. The independent forecasters have been wrong and are wrong in this case; we are right. There are some differences between our forecasts and those of some independent forecasters; there always will be. However, the Organisation for Economic Co-operation and Development thinks that we are right; I believe that the Confederation of British Industry thinks that we are right; and a large number of independent forecasters think that we are right.

The noble Lord Newby compares our policies with Stalinist five-year plans. There is a considerable difference between the management of a market and of a command economy, as, in his calmer moments, I think he would accept. The point is that, in contrast with the last years of the Conservative government, when Chancellor after Chancellor included over-optimistic forecasts in the Red Book for our fiscal state and the economy and then had to retract them the next year, this Chancellor, throughout his period of office, has given realistic forecasts that have proved to be accurate and for the benefit of this country. I do not apologise for any of that.

5.31 p.m.

Lord Desai

My Lords, in the 35 years that I have practised economics in this country, the British economy has genuinely never looked better. I rarely praise my own party and the Chancellor, but it is unusual that we have a low interest rate and the best growth record in the G7. I believe that the forecasts made for next year are prudent.

Does my noble friend agree that we now need to urge others to adopt a much better definition of financial prudence, especially in the stability and growth pact, than they have done so far? If such routes were adopted, the euro-zone would have better growth than it has so far.

Lord McIntosh of Haringey

My Lords, I think that I am being tempted beyond my capacity. I have gone as far as I can to defend my right honourable friend the Chancellor of the Exchequer and to praise his achievements. To start to criticise other countries' economies is further than I wish to go—although I am grateful for what my noble friend says about the Chancellor's achievements.

Lord Brooke of Sutton Mandeville

My Lords, why, when unemployment is claimed to be so low, is employment lower than in May 1997 in 267 parliamentary constituencies in this land?

Lord McIntosh of Haringey

My Lords, I do not know which are the 267 constituencies. Employment in the country as a whole is, of course, more than 1 million higher than it was in May 1997. If the noble Lord, Lord Brooke of Sutton Mandeville, is right to say that employment is lower in 267 constituencies; it must be much higher in the nearly 400 other constituencies. That is a statistical riddle that perhaps he and I should discuss outside the Chamber.

I suspect that that is because, despite the continuing difference between regions of this country and the difficulty that there has been reviving the regions, the economies of which were smashed by the Thatcher government in their destruction of the coal, steel and other industries, there is some recovery of equality throughout the country.

Lord Marlesford

My Lords, it was fascinating to hear the Statement. The Pre-Budget Statement has become more and more like a Budget. Perhaps the precedent created by giving us that long and interesting Statement means that we shall also hear the Budget Statement repeated on the same day. We should then have the opportunity to debate it immediately.

I agree with what my noble friend Lord Saatchi said about health. Indeed, I find it amazing that the Chancellor of the Exchequer should have gone into all that detail on the health service. Had I been the Secretary of State for Health, I should have been rather irritated. Having said that, I congratulate the Chancellor on five years of cautious and successful macro-economic management. I agree with the noble Lord, Lord Desai, that the economy is in a strong position.

I am sorry that the Minister was so uncharitable as not to recognise that the starting point for Mr Gordon Brown's economic management was the sound economic situation that the Labour Party inherited. Given the good present situation of the economy, he could have had the generosity to do that.

I found it especially encouraging in the Chancellor's Statement that he felt it a particularly suitable moment to embark on new supply-side policies. That is absolutely right. The Liberal Democrat spokesman talked about the need for higher taxes. I can think of few thinking politicians today—other than the noble Lord, Lord Hattersley, perhaps—who would agree.

The forecasts for the world economy are rather more gloomy than the Chancellor suggested. I hope that, if consumers stop consuming and tax revenues fall by as much as I think they may, the Chancellor will recognise that this is a time to borrow—even if that means abandoning his sustainable investment rule and the golden rule. Will the Minister comment on that?

Lord McIntosh of Haringey

My Lords, despite the distinction of my noble friend Lord Desai, compliments about macro-economic policy gain in credibility when they come from the Conservative Benches. I am grateful to the noble Lord, Lord Marlseford, for what he said.

The noble Lord asks whether the Statement is becoming more like a Budget Statement, and whether that means that we should debate the Budget Statement in this House. I know that the noble Lord, Lord Saatchi, would agree with that second proposition. But that is a matter for the House, rather than for me.

However, I should sound a note of warning. Various projections are included in the tables of the pre-Budget Report, which noble Lords will not have had time to study. They should not be taken as the equivalent of the projections based on calculations made for a Finance Bill. There are few firm commitments, other than consultation proposals, in the pre-Budget Report. Nothing that is not a firm commitment—such as the £1 billion for the health service or the guarantees for pensioners—is included in the tables. They are therefore not strictly comparable with the Red Book, or Budget Report.

I am sorry that we have returned to May 1997; I confess that I was tempted, and I fell. Of course, the last few years of the Conservative government showed, in particular, a steady decrease in unemployment that has continued under this Government. It would be churlish not to recognise that a number of macroeconomic indicators were improving under the chancellorship of Mr Kenneth Clarke. However, the Chancellor has today talked about the public finances and the unsustainable extent of public borrowing—the fact that we could not have sustained the golden rule or our borrowing principles if we had not spent a considerable time when we took office working within the spending constraints left by Mr Clarke. That made it possible for us to adhere to these rules. There are serious arguments to be made without too much parti pris.

However, the fact is that we are all Keynesians now. Even Mr Bush recognises that borrowing at this stage of the economic cycle, as proposed by the noble Lord, Lord Marlesford, is, it can be strongly argued, the right thing to do. Under the Government there has been a substantial increase in public investment which some of us believe does not go far enough to remedy the under-investment of the previous 20 years. Nevertheless, it is significant in its own terms and also significant in counter-cyclical policy.