§ [Relevant document: European Community Document No. 9002/96, concerning the Council Recommendation to the United Kingdom with a view to bringing an end to the situation of an excessive government deficit in the United Kingdom, prepared in accordance with Article 104c(7) of the Treaty establishing the European Community.]4.12 pm
§ The Secretary of State for Health (Mr. Stephen Dorrell)
I welcome the fact that I am debating this afternoon with the right hon. Member for Derby, South (Mrs. Beckett). It is quite like old times: she was the first of the three shadow Health Secretaries whom I have faced in my time as Secretary of State for Health. I shall spend some of my speech dealing with issues for which she is now responsible, but before moving on to them, it is worth reflecting on the fact that the Opposition plan to spend the whole Budget debate without putting in the shadow Health Secretary to speak on an issue at the very foundation of the financing of the health service—the decisions taken by the Chancellor of the Exchequer on health service funding.
I think it extraordinary that the Labour party should not see fit to field the shadow Health Secretary in the course of the Budget debate. Perhaps that is being done to protect him from the need to produce answers to questions about Labour's intentions—if it ever took office—with respect to financing the health service. This debate would have been an ideal moment for the shadow Health Secretary to answer the questions that he has thus far avoided—
§ Mr. Dorrell
The right hon. Lady seems keen to answer them, so I give way to her with anticipation.
§ Mrs. Beckett
As we debated the health service only last week in Opposition time, we find it extraordinary that 682 the Government have not chosen to debate the creation of wealth on which funding for the health service and everything else depends.
§ Mr. Dorrell
The right hon. Lady need not worry about that, because I am coming to the financing of the health service, industry and the economic base. She should have been here last week if she thinks that the shadow Health Secretary answered the questions on the financing of the health service during that debate.
I shall begin with the Budget announcements that my right hon. and learned Friend the Chancellor made on the national health service. Last week's Budget shows clearly the Government's commitment to the NHS. In the context of a public spending round in which the Government faced difficult choices and decisions, they identified three priorities for public expenditure: education; law enforcement; and the national health service.
The biggest growth in this year's Budget—[Interruption.] I am pleased to welcome the hon. Member for Islington, South and Finsbury (Mr. Smith). I was bemoaning the fact that his party had not given him the opportunity to answer the questions that he promised to answer about Labour's plans for financing the health service.
The Government plan to spend £1.6 billion extra on patient services in the next financial year. That is a 2.9 per cent. real terms increase in resources available for patient care—£930 million of real growth available to the NHS. It is £930 million extra for patient care, over and above the amount necessary to compensate for inflation. That substantial growth allowed me to make several announcements last week, targeting new money at the priorities facing the NHS. First, £100 million will be spent on developing primary care.
§ Mr. Simon Hughes (Southwark and Bermondsey)
As the Secretary of State knows, I welcome the new money. Before we get on to the details, however, will he clarify the basis of the calculation? First, will he confirm that it is based on a 2 per cent. inflation rate and that inflation is currently at 2.7 per cent? Secondly, will he confirm that it excludes any extra NHS inflation, whereas for every year of his Administration there has been extra inflation in the NHS—it is currently about 1 per cent.—which has not been included? Thirdly, will he confirm that, according to his figures, after last week's Budget, the health service budget will increase by 0.9 per cent. in real terms, although if we take account of NHS inflation and the higher inflation rate, it will increase by considerably less?
§ Mr. Dorrell
I do not acknowledge the last figures that the hon. Gentleman quoted, but it is true to say that the gross domestic product deflator underlying the real terms calculation is 2 per cent. Independent of all that, however, is the fact that £1.6 billion extra will be made available for patient services in the next financial year. If the hon. Gentleman wants to feed in different inflation indicators and assumptions, that is up to him.
A cash increase of £1.6 billion in the funds for patient care will be made available next year compared with this year, which is why I can allocate £100 million of development money to the primary care sector. That will allow us to continue to build on our record, which has 683 seen a transformation of primary care in the national health service during the past 17 years. The Government have set out clearly our plans for the future of primary care, particularly general practice and general medical services within primary care.
There are three legs to our plans: we shall continue to develop GP fundholding; we shall introduce more flexible contracting on a pilot basis through the Bill that is currently in another place; and we shall provide £100 million of extra cash from the Budget announced by my right hon. and learned Friend last week.
§ Mr. Kevin Hughes (Doncaster, North)
When the Secretary of State goes through that long list, will he tell us about the extra charges that he will impose on sick people, particularly the extra 15p on prescription charges? Since the Government came into office in 1979, prescriptions have risen by about 1,000 per cent. in real terms.
§ Mr. Dorrell
Prescription charges have gone up by exactly the rate of inflation. I assume that, had I used the calculation of the hon. Member for Southwark and Bermondsey (Mr. Hughes), they would have gone up rather more.
The Government's way forward for primary care is a three-legged stool: GP fundholding; more flexible contracts on a pilot basis; and extra cash from this year's Budget. We need to hear what Labour's alternative would be. The hon. Member for Islington, South and Finsbury has been telling the press for some days that he is to make a major speech tomorrow on the future of GP fundholding under the Labour party. He cannot contain his excitement and wants to share the good news well ahead of the speech. By the end of last week, he was already briefing journalists. In the Daily Express I read:Tony Blair has ordered a new U-turn over Labour's health policy. He has vetoed plans"—[Interruption.] The right hon. Member for Derby, South should hear this, as she was so keen on the abolition of fundholding. We are led to believe that her leaderhas vetoed plans to scrap the Government's fundholding scheme … Next Tuesday Shadow Health Secretary Chris Smith will announce that a Blair government would allow family doctors to carry on buying care for their patients.
§ Mr. Dorrell
We have not yet heard the detail. We shall study the speech of the hon. Member for Islington, South and Finsbury with great care tomorrow. We want to know whether GPs who currently have the right to decide, on behalf of their patients, where those patients' interests lie in the national health service will retain that right to decide. That is the first test for the hon. Gentleman.
The second test for the hon. Gentleman is whether he would close the list to every new GP coming forward, so that under his proposals new GPs with new ideas would be prevented from trying them out for the benefit of their patients.
Those are the tests that the hon. Gentleman's proposals must pass: who decides, and is the list open? If he fails on either question, he is abolishing fundholding. The right hon. Member for Derby, South will like that, but the 684 almost 60 per cent. of GPs in Britain who have opted for fundholding because they think that it offers the best scope for their patients will not like it.
That is the first leg of the Government's health policy, reinforced by the decisions that my right hon. and learned Friend the Chancellor announced in the Budget. The second leg is a £100 million increase in the resources targeted at two particular pressures in the hospital service. I was pleased to announce a programme whereby £24 million would be targeted at improving the provision of intensive care and high dependency beds in our hospitals, and £76 million would be targeted at easing bed blocking so that people are not kept in hospital unnecessarily.
Those two projects respond to known pressures, and the health service can start developing those proposals in the current year, as the Government have announced an extra £20 million this year to allow those programmes to get under way immediately. We have asked health authorities to submit bids targeted at those specific objectives by 23 December.
The third specific targeted increase that I announced last week was an extra £50 million for mental health. One of the first things that I did when I became Secretary of State for Health was to launch an audit of our mental health plans. The audit was led by my hon. Friend the Minister for Health and was designed to ensure that every health authority is aware of the need to deliver a full spectrum of care for those who are mentally ill. We allocated £90 million of growth money in the current year to the achievement of that objective. Next year's budget allows me to allocate a further £50 million, together with the further increase in the mental illness specific grant to local authorities. That reflects the importance that the Government attach to the development of mental health.
Finally, of the targeted funds, £64 million is allocated to expand our commitment to training the doctors and nurses of the future, to ensure that we have the qualified and professional staff the health service needs.
Those are the central priorities to which I allocated specific money last week. In addition to that, the average purchasing power of health authorities in England will rise next year by 2.4 per cent. in real terms—a minimum increase in any health authority of 1.4 per cent. in real terms. All that is made possible by the Government's commitment to real extra cash for the national health service.
That represents the 19th successive real terms increase in health service budgets since 1979. There has been an average increase of 3 per cent. above the rate of inflation in every one of the 18 years that the Government have been in office, and it will continue into the first year of the next Parliament. Health service funding has increased by three quarters in real terms since 1979 and by 30 per cent. since 1992.
The challenge facing the hon. Member for Islington, South and Finsbury is that the Government will not stop there. My right hon. Friend the Prime Minister has made it clear that there will be real terms increases year on year under the next Conservative Government and throughout the next Parliament. It is set out in the Red Book: that is the Government's commitment and that is what we will deliver. By the end of the next Parliament, Conservative Governments will have delivered nearly a quarter of a 685 century of real terms uninterrupted growth. That is our commitment and Opposition Front-Bench Members have so far refused to match it.
§ Mr. Thomas McAvoy (Glasgow, Rutherglen)
It is easy for the Secretary of State to make Red Book promises when he knows full well that he will not be in a position to honour them. Returning to the Secretary of State's claims about the state of the national health service, if it is so good, why has Mr. James Johnson of the British Medical Association consultants committee voiced his fear that the NHS hospital service will collapse this winter?
§ Mr. Dorrell
I do not base my case purely on the Red Book—although I shall examine the contrast between our commitments and those of the Opposition. I base my case on 17 years of delivered growth plus our commitment to ensure that it continues. I am happy to give way to the hon. Member for Darlington (Mr. Milburn) to allow him to quiz me on the figures in the Red Book, which underline clearly the Government's continuing commitment to real terms growth, year by year. I am also pleased to give the hon. Gentleman the opportunity to refer to other issues.
§ Mr. Alan Milburn (Darlington)
Will the Secretary of State explain why page 124 of the Red Book shows that health spending will be frozen between 1998–99 and the turn of the century?
§ Mr. Dorrell
I will indeed. The note to that table makes it clear that the figures are subject to rounding. I refer the hon. Gentleman to the cash allocation in year 3, which is provided on page 123. If he gets out his calculator, he will find that £35.89 billion is a 2.1 per cent. increase on £35.15 billion. In other words, there is a real terms increase in year 3—precisely as the Government have stated. Would the hon. Gentleman care to return to the Dispatch Box to argue the point? If he does not, I shall assume that he agrees with me.
§ Mr. Milburn
I am happy to do so. The press release issued by the Department of Health to coincide with the Budget statement—we are debating the same figures—showed that there would be minimal growth in the year of the general election, but that there would be a fall in the year after the general election.
§ Mr. Dorrell
The hon. Gentleman has shifted his ground and he is wrong on both counts. Opposition Front Benchers have sought to use two arguments. I have the press release and it shows at table 3 that the Department of Health budget will decrease in year 2—not in year 3, as the hon. Gentleman claimed; I had always assumed that he could read. The note makes it precisely clear that it will fall in year 2 because the Department of Health budget in year 1 includes a grant to local authorities that will not be paid in year 2 because the money will be provided direct to the Department of the Environment. Would the hon. Gentleman care to return to the Dispatch Box? I should like to hear his views.
§ Mr. Chris Smith (Islington, South and Finsbury)
Would the Secretary of State care to read out the figures 686 for the Department of the Environment, which show a cut in precisely the same year? Therefore, there is a cut in the figures of both the Department of Health and the Department of the Environment.
§ Mr. Dorrell
If the hon. Gentleman is interested in substantiating the facts of the issue rather than playing party points, perhaps he will table a question to my right hon. Friend the Secretary of State for the Environment to ask him what provision is made in year 2 of his public expenditure survey settlement for the transfer of community care responsibilities. Let him table that question. If he does so, he will find that my right hon. Friend's budget has been increased in year 2 by £325 million. That is the fact. Would the hon. Gentleman—[Interruption.] There is a confab taking place on the Opposition Front Bench. I am happy to talk while the occupants of the Opposition Front Bench sort out their next question.
§ Mr. Dorrell
I shall give way to the hon. Gentleman, who is being loyal to his Front-Bench colleagues. We shall have a private discussion while they sort out what the answer is.
§ Mr. Spearing
If there is to be an increase in resources this year and in future, will the Secretary of State explain to the people of east London why East London and The City health authority—this was shown on a BBC programme last Thursday—is having to cut its budget for next year by £18 million? How has that happened when the right hon. Gentleman provides the money?
§ Mr. Dorrell
That authority secured an increase of £8.9 million over and above inflation in the settlement that I announced last week. That is an increase of 2.5 per cent. in real terms. The authority also has bids for other funds, which are currently being considered. As I said when I made the allocations, they are initial allocations. East London and The City health authority benefits from other allocations as well.
Now, have those on the Opposition Front Bench sorted out what the answer is? The reality is that the Government are committed to real terms growth in health expenditure. The Opposition have made two attempts to demonstrate that that is not true and both have been demonstrated to be wrongly based. They should—[Interruption.] It is no good sitting on the Opposition Front Bench and pointing at the Red Book. Let them come to the Dispatch Box to advance the argument. But the argument has been demolished. If the hon. Member for Islington, South and Finsbury wishes to return to the Dispatch Box, I shall happily give way. Let him come back and advance the argument. Is he trying to make an argument?
§ Mrs. Beckett
The Secretary of State is wasting time deliberately. It is not true that he has made his case. His case is false, and he knows it. The Red Book shows that the budget of the Department of Health is cut. It shows also that the budget of the Department of the Environment is cut. Probably the best that the right hon. Gentleman can do is to claim that councils will have to increase rates 687 even more in future to pay for this funding. Let us stop this nonsense. The Red Book proves that the Secretary of State is misleading the House, or trying to.
§ Mr. Dorrell
The right hon. Lady is too much of an optimist. We are certainly not stopping this argument, which demonstrates the difference between the parties on the national health service. The Conservative party is committed to real terms growth in the NHS budget. The Labour party refuses to give the commitment. Let Opposition Members come to the Dispatch Box. I shall give way again. If any of them—perhaps the shadow Chief Secretary or the Opposition Whip—would like to give the commitment that a Labour Government, if elected, would give a real terms increase to health expenditure, I shall give way. It is a simple question. The right hon. Lady is a former deputy leader of the Labour party, and pro tem leader of the party. Let her use her authority. Let her commit the Labour party to the real terms growth of the NHS if the Labour party were ever elected.
The fact is that Opposition Members cannot and will not give that pledge. The hon. Member for Islington, South and Finsbury is all the time full of soft words and empty rhetoric and reassurances. He was at it again in his interview with Pulse this week. A journalist from Pulse wrote:On cost Mr Smith would not be too specific.He can say that again. The interview continued:he argued that Labour had no need to counter the Conservatives pledge to increase NHS spending year-on-year.Presumably he means by that that Labour is complacent on the health service. We know now what Labour's position is on health expenditure. As the hon. Gentleman said to Pulse:I'll fight my corner for NHS funding".That is what the NHS is expected to accept from the hon. Gentleman. That is just like his ability to deliver his right hon. Friend the Member for Dunfermline, East (Mr. Brown) when he last went into a Labour economic commission, when he was unable to get any of his proposals through. If the hon. Gentleman cannot deliver the right hon. Member for Dunfermline, East, he has small chance against the International Monetary Fund, which would be the real negotiating party once the Labour party was in power. Although the hon. Gentleman likes to go round saying that he will fight his corner, and, "Don't worry, it will be all right under us," we know from its private paperwork that the Labour party, including the hon. Gentleman, does not believe that that is an adequate answer. We know that the hon. Member for York (Mr. Bayley) told the Fabian Society:Labour's health policy will not look credible at the general election if we do not commit ourselves to matching the rate of growth delivered by the Conservatives in recent years.He is right. [HON. MEMBERS: "Where is he?"] Indeed. Where is he?
It is not only the hon. Member for York. I have some minutes that may interest the House. These are the minutes of the parliamentary Labour party health committee meeting, held on 29 October 1996. The hon. Member for Morley and Leeds, South (Mr. Gunnell) was there. He was talking to Labour Back Benchers about Labour's health policy. He said that the Government are talking about additional money for the health service. He 688 is quite right. We are. He said that Labour had to make an effective response. He made it absolutely clear that he does not believe that Labour has an effective response to the Government's additional pledge. [Interruption.] Let me read another bit of the minutes, which the hon. Member for Leeds, West (Mr. Battle) might recognise if he had been at the meeting. I am not sure that he was, but I can tell him. [Interruption.] No, he was not, so I shall tell him what transpired.
The hon. Member for Morley and Leeds, South recognised that there were problems in the health service that could not be met through the "Pledge"—the word has a capital P, so important is the pledge on health service funding in the mind of the secretary of the committee, the hon. Member for Morley and Leeds, South—that the Labour party had made.
The hon. Member for Islington, South and Finsbury is known to be unhappy with the position in which the hon. Member for Edinburgh, Central (Mr. Darling), the shadow Chief Secretary, and the right hon. Member for Dunfermline, East, the shadow Chancellor, have put him. He is shifting slightly and offering a little friendly advice to the right hon. Member for Derby, South. The right hon. Lady will not have a better position than the hon. Gentleman, because they cannot get the shadow Chancellor to agree to match the Prime Minister's pledge to real terms growth in NHS funding. [Interruption.]
If, during my speech, the hon. Gentleman's mind turns and he concludes that he can pledge real terms growth in NHS funding under a Labour Government, I shall give way to him, but he knows that he cannot do that.
The hon. Gentleman also faces a more immediate challenge of his own making. It is not just his failure to deliver the shadow Chancellor on real terms growth. The hon. Gentleman has twice—on 12 October and 4 November—committed himself to making a specific response once the Government's Budget figures were published. On 12 October, when asked about Labour's plans for health service funding, he said:What I am going to do is wait until we see the actual figures … At that time we will make a very specific response about what we will do.That was not just a slip of the tongue. On 4 November—I was in the studio on that occasion—he said again:As soon as we see precisely what they are going to do, then of course we can make a precise response.We told the House and the hon. Gentleman six days ago precisely what we shall do. We are waiting.
§ Mr. Spearing
We are talking about precision in the next financial year. The Secretary of State says that more resources will be available, but in view of the fact that the accumulated deficit is at least £125 million—it could be as much as £200 million—is it possible that the budget may not be greater? The Chancellor may provide more money, but because of the deficit, actual delivery may be the same or even less. Is not that the precise nature of the problem?
§ Mr. Dorrell
The hon. Gentleman tabled a question about the expected deficit of health authorities at the end of this financial year. He was given the figure of just over £100 million, but he now doubles that to £200 million. An increase in the national health service's budget next year of £1.6 billion may go some way towards covering a deficit of £100 million.
689 Labour's health policy remains a vacuum—an empty space that is incapable of sustaining intelligent life. Nye Bevan must be turning in his grave. The true scandal is that not only the Labour party's health policy is in disarray, but the whole of the economic base on which, as the right hon. Member for Derby, South rightly said, its capacity to deliver rising living standards and improving public services will depend. The Labour party cannot agree either about its health policy or about almost anything else.
The taxation of utilities is in the right hon. Lady's current sphere of activity. That tax was first proposed four years ago. We are told that it will be the cornerstone of a Brown Budget, if such a thing ever comes into existence. It was a subject of some interest in this week's New Statesman, which devotes two pages to the tax that dare not speak its name. They are headed:Labour's first-term fiscal policy is largely dependent on the windfall tax. So why can't the party's leaders agree on what form it will take?The article asks some pretty basic questions, to which we look forward to hearing answers from the right hon. Lady, if she can speak on behalf of the shadow Treasury team.
The first and most basic question about any tax is who will pay it. There seems to be considerable uncertainty about that. In July, in the "Road to the Manifesto", we were told to expecta one-off windfall levy on the excess profits of the privatised utilities".By the time the Leader of the Opposition talked to the Labour party conference, that had changed. It was now a tax on monopoly utilities. Will it be a tax on all privatised utilities, or on the monopoly utilities?
§ Mr. Dorrell
The right hon. Lady tells us to wait and see. We cannot go into an election on the basis that we have to wait and see about the cornerstone of a Brown Budget. Does the right hon. Lady expect the British people to put up with that? We must wait and see about the cornerstone of the first Brown Budget. In an earlier interview with New Statesman, the right hon. Member for Dunfermline, East said that that tax would be the basis on which he would rebuild the welfare state—and we are asked to wait and see.
§ Mrs. Beckett
I gently remind the Secretary of State that the Budget requires us to wait and see, because it depends on closing tax loopholes that last year the Chancellor said did not exist.
§ Mr. Dorrell
The right hon. Lady avoids the issue. In a few months' time, she will ask the British people to vote for a party whose first Budget will be built on a cornerstone about which she invites them to wait and see. There is uncertainty about whether the tax applies to monopoly utilities.
§ Mr. Dorrell
I am on the windfall tax, too.
690 Does the windfall tax apply to monopoly utilities or to any privatised utility? On 16 November, the right hon. Lady's scope was broader. She said:We don't rule out any of the privatised companies.She does not even limit it to the utilities. Does she include British Airways? Will British Airways be subject to Labour's utilities tax? What about Rolls-Royce? What about the Rover Group—will Labour go to BMW and say, "You're very welcome to invest in the west midlands, and we shall impose a windfall tax"? Is that what the right hon. Lady has in mind? I shall be happy to give way to her if she can clarify that point. This is turning into an opportunity for her to clarify Labour's tax policy.
Will the windfall tax apply to privatised utilities, as the policy document says, to monopoly privatised utilities, as the leader of the Labour party and Mr. Alastair Campbell say, or to any privatised company, as the right hon. Lady says? Which is it to be? We are entitled to know. More particularly, the people charged with running those companies are entitled to know.
§ Mr. Kevin Hughes
Will the Secretary of State confirm that when the Government imposed a windfall tax on banks in 1981, no one knew which banks were involved and how much the tax would be until they had made their decision and published it? What is the difference between the Labour party's proposal and what the Government did in 1981? The answer is that there is no difference.
§ Mr. Dorrell
With respect to the hon. Gentleman, the difference is well understood by the banks and by the potential subjects of the undisclosed taxing ambition of Labour Front-Bench Members. The difference is that the windfall tax on banks applied to a discrete group of five banks, which knew from the day that it was announced that it applied to them. The windfall tax that the Labour party is threatening is an indistinct tax. Every time the right hon. Lady answers questions about it, she throws the net, and therefore the threat, wider.
As New Statesman makes clear, we do not know how the tax will be levied. Will it be on pre-tax profits, after-tax profits or, as some people say, on market capitalisation on turnover? What will it be used for? We are told that the deputy leader of the Labour partyhas been campaigning inside the shadow cabinet for his view that some regional utilities should be given concessions on the tax in return for expanding their training and job-creation plans… Other shadow cabinet members"—we should know whether the right hon. Lady and the hon. Member for Islington, South and Finsbury are among them—have simply sought to re-assure local companies … that the tax is not intended to hurt them.The right hon. Lady may go round Derby saying that it does not apply to the electricity and gas companies that serve her constituents. Does it apply to Derby, but not to Islington? Which shadow Cabinet members have given their local interests an exemption from that tax? We need to know.
Most of all, we need to know how much the shadow Chancellor anticipates that that tax will raise. In 1994, he put a figure on it: he said £3 billion. Now he says that it is £5 billion, and he does not contradict people who say that it could be £10 billion. We do not know whether it is a one-off tax or a tax that will be imposed year after year.
691 There is only one certainty about the Labour party's plans for a windfall tax: the certainty that the consumers will end up paying. As John Kay said in his description of the British tax system:There is no such thing as a tax on firms: the effective incidence of all taxes is ultimately on individuals.The amount of money that. Labour Front-Bench Members want for their spending ambitions must come from higher prices, lower investment or lower returns to savers. People want to know whom the Labour party is targeting. It has an ambition to spend, and it proposes an indistinct tax, the scope and incidence of which is unclear. Most important, it is unclear who would end up paying the tax.
The right hon. Member for Dunfermline, East is embarrassed by the fact that what he thought was a nice little earner has now rebounded on him. It is not the fat cats who will pay; it is the pensioners, the wage earners and the families of Britain who will pay Labour's taxes, as they always do.
Not a week goes by when the Labour Front Bench does not make another pledge to increase Government borrowing. The shadow Chancellor says that he will increase it by cutting VAT on fuel bills, which is a cool £500 million. Then he says that he will increase public borrowing by cutting the starting rate of tax to 10p, which is a cool £8 billion. This weekend, we were asked to believe that the Labour party has suddenly taken an interest in the middle classes and will raise the threshold for upper-rate tax to £30,000. My right hon. and hon. Friends will be pleased to hear that that would cost £1.4 billion. Those spending pledges should be coupled with the £30 billion that the Labour party is already committed to spending, which my right hon. Friend the Chief Secretary has itemised. Labour's Front-Bench spokesmen are committed to £40 billion of extra borrowing and there is not a penny for the growth of NHS patient care. Labour has no intention at all of cutting tax. It is utterly incapable of the spending discipline that is a necessary precondition for that.
As the weeks go by, the choice becomes ever clearer. New Labour offers an old and familiar cocktail. Spending would rise as it has risen in the town halls. Borrowing would rise and, belatedly, tax would rise. But that is not all, because as borrowing rose, inflationary pressures would rise and we would be back into that familiar cycle. Most damaging of all, Labour would impose extra costs on British business through the minimum wage and the social chapter—importing everything that is wrong in many of the European economies. The Government offer measures that are decisively different.
Over the past 18 years, this country has been translated from being a lame duck in Europe to a role model. Since 1982, only Japan among the G7 countries has had larger growth in income per head than Britain. Both the Organisation for Economic Co-operation and Development and the IMF expect Britain to be the fastest growing economy this year and next. The United Kingdom has a higher proportion of its working-age population in work than any major European country. Unemployment in Britain is lower than in any major European country and is falling while it is rising elsewhere.
692 That is the record of success on which the Government are determined to build, and it makes possible the decisions in the Budget. There was £875 million for education; £450 million for law enforcement; and £1.6 billion for patient care.
§ Mr. Jacques Arnold (Gravesham)
My constituents would not want my right hon. Friend to finish his speech before they, through me, expressed their gratitude for his decision last week to confirm the private finance initiative proposal for a new district general hospital at Darenth Park. That was in the teeth of opposition by the Labour party and is one of my right hon. Friend's commitments.
§ Mr. Dorrell
I am grateful to my hon. Friend. I recognise the importance of that project to his constituents and to people in neighbouring constituencies. It is one of many hospital projects that are being eased by the introduction of the private finance initiative.
Improvements in public services have been made possible because of the economic success that has been created by the Government. More important, that economic success has also allowed the improvement of living standards for average families in Britain. Since 1992, a family on average earnings has become better off by £20 a week or £1,100 a year in today's terms. Since 1979, the same family has become £100 a week or £5,000 a year better off in today's terms.
The reaction to the Budget shows that Labour has learnt nothing. It remains unwilling to control spending or to raise tax. In short, it is unwilling to face the responsibilities of office. By contrast, my right hon. and learned Friend the Chancellor presented a Budget that is not for five months but for five years. It builds on success and I commend it to the House.
§ Mrs. Margaret Beckett (Derby, South)
The Government have chosen this last full day of the debate—tomorrow being the day for summarising the process—to highlight in particular their claim that the health service is safe in their hands. However, they have not made time, and despite his promises the Secretary of State did not make time, to examine the issue on which their claim not just for the health service but for education and their whole programme depends—what the Budget tells us about Britain's capacity for wealth creation and whether we are making the investment that is required to equip Britain for future success.
I presume that the Government chose to focus on health today because they think that their promises on health are the nearest things to good news in the Budget. They hope to persuade the public that they can be trusted on health, and the implicit message to be conveyed is that they can also be trusted on tax and on the economy. Nobody, apart from Conservative Members, and not all of them, believes that the health service is safe in the Government's hands, and the good and simple reason for that is that we, the British people, are all users of the health service and we see it falling apart in the Government's hands.
Anyone who has so completely forgotten the deceit of the previous pre-election Budget and is again minded to give the Government the benefit of the doubt and believe their promises on health care should look at the Red Book, because it blows the gaff. The Government have set yet 693 another record—the fastest broken promise in history. The Chancellor's claim to be delivering what the Prime Minister promised at the Tory party conference—a real terms increase in health spending year on year—was shown to be false by the figures in his own Red Book, which was published the same day. They show that, when the election is safely over, the Government plan a real terms cut in health capital spending and, at best, a standstill in current spending. The Secretary of State for Health spent an enormous amount of time pretending—
§ Mrs. Beckett
I shall give way in a moment if the Secretary of State still wishes to intervene.
The Secretary of State spent a great deal of time pretending that the Red Book shows an increase in real terms spending on health year on year. It does not show that. He said that the cash tables showed some sort of increase, but he knows that those cash tables and judgments on them depend on judgments about the GDP deflator. He also knows that the real terms tables in the Red Book do not show a real terms increase in health spending year on year. There is no point in the Secretary of State shaking his head. Repeating the same thing does not make it true.
§ Mr. Dorrell
Merely continuing to assert statements that I have demonstrated to be untrue does not advance the argument. The right hon. Lady just made a different statement, again untrue, by saying that the capital budget for years 2 and 3 did not show growth. The capital budget for year 2 shows 1.7 per cent. real terms growth and the one for year 3 shows 5.1 per cent. growth in real terms. The right hon. Lady is wrong about that, too.
§ Mrs. Beckett
That is on top of a cut of a third in the previous year. The Secretary of State has wasted his time. No one except those around him believes what he said about the real terms increase in health spending, because that is not what the Chancellor promised or showed in his Red Book. The Secretary of State said that he based his claim not just on the Red Book, but it is not at all based on the Red Book. When we challenged his claims on the matter, he referred us to the Department of the Environment budget. He was not prepared to answer the point himself but told us to refer to the Secretary of State for the Environment if we doubted his explanation on the freeze in spending. As I understand it, the Department of the Environment budget also shows a real terms cut.
The top and bottom of the matter is that the Red Book does not show a commitment of the kind that the Secretary of State claims to demonstrate. He said that, even if we did not believe him because of what is shown in the Red Book, we should believe him because of the Government's overall record on health spending. He spoke about 3 per cent. a year in hushed tones, as if that were a record that no other Government had achieved. It is, of course, less good than the record of the last Labour Government. [Interruption.] No, it is not exactly the same. There is no doubt that our record showed a 694 commitment to an increase in health service spending of the kind that the Secretary of State claims solely for the Government.
§ Mrs. Beckett
I have dealt with the matter and do not want to spend much time on it. [Interruption.] I am not the least bit frightened of the hon. Gentleman and I am happy to give way.
§ Mrs. Beckett
As the Government have not made such a commitment, the issue falls— [Interruption.] No; the Prime Minister has made such a commitment, but the Chancellor has dishonoured it in the Budget. That is a simple fact.
The Government claim that their capital spending cuts will be made up for by the private finance initiative. But we know that they have not raised the money—£165 million—that, last year, they claimed that they would raise through the PFI, and they have been forced to admit that the estimate was some £100 million too high. Last year, they promised that, under the PFI, there would be a new hospital every month this year. Far from 12 new hospitals materialising under the PFI—perhaps the hon. Member for Gravesham (Mr. Arnold) should not hold his breath for his—only one has been agreed, and it has been suggested that the full deal has not been settled even for that one. My hon. Friend the shadow Secretary of State for Health likens the current progress of that project to claiming that one has bought a house when one has not even arranged a mortgage. Does the hon. Member for Gravesham wish to put in a further pitch for his hospital to the next Government?
§ Mr. Jacques Arnold
The right hon. Lady may be interested to know that I do not need to put in a further pitch to the next Government—a Conservative Government, in their fifth term—or even to a Government including her. Will she remind the House that the hon. Member for Peckham (Ms Harman), when speaking on health matters for the Labour party, opposed the PFI and specifically scoffed at the Darenth Park project, which she claimed—drawing on so-called "leaked" documents—was in a "list B" of PFI projects? That project is now not only well ahead of any "list A" projects, but—thanks to the intervention of my right hon. Friend the Secretary of State—it has already been agreed. Is the right hon. Lady honestly able to say that that hospital in my constituency would have been possible without the PFI?
§ Mrs. Beckett
That was a very long intervention, presumably to disguise the fact that the hospital in the hon. Gentleman's constituency has not materialised, and—judging from the Government's overall PFI record—there is very little likelihood that it ever will. I remind the hon. Gentleman that, one year ago, the Government promised that there would be 12 new hospitals now, whereas, so far, we do not have even one.
695 Given the total failure of the Government's promise last year on the PFI and hospitals, how can we possibly believe what they have said this year? It all gives a new spin to the Chancellor's dismissal of all the broken promises on tax. He said:No one should take too seriously off-the-cuff remarks made on a wet Wednesday evening in Dudley, in the heat of a general election campaign",which was a refreshingly candid admission that we should never trust what the Tories say about tax, the economy or health.
We should also not take too seriously anything that the Prime Minister says to get a cheer at the Tory party conference. Ultimately, the blunt truth is that the Government cannot be trusted with the health service, because their ultimate goal is to privatise it. Although the Secretary of State claims not to share what everyone knows is the aim of many in his party, only recently one of the Government's own advisers spelled out with crystal clarity the view that everyone should be forced to take out private health insurance, which would be in addition to the higher tax and national insurance contributions that the Government are already charging—in flat contradiction to all their promises. Time and again, they repeat their promises, and not only on wet Wednesdays at any location, but at the Dispatch Box and at every general election press conference.
§ Mr. Simon Hughes
I am as sceptical of the PFI as the right hon. Lady, but her criticism is entirely flawed unless she and her colleagues will give a commitment—we are within months of a general election—not only to revenue funding of the health service but to capital funding, which she says should not come from the private sector. Four months before the general election, why has no such commitment been made on either matter? What are the minimum amounts that the Labour party would provide for revenue funding, for capital funding, or for both?
§ Mrs. Beckett
I am sorry to have to fall out with the hon. Gentleman, but it is typical of the Liberal party's irresponsibility for it to think that we should do what the Government would prefer us to do—pluck figures out of the air, on the assumption that we can believe the basic case made by the Government in their Budget. We are not prepared to do that now, as we have not been prepared to do it previously in this Parliament. I shall, however, return to the hon. Gentleman's point later in my speech.
The basic message of this Budget package and of this debate is, "Thanks to our wise Government, our problems have all been overcome. We have economic success that is unprecedented in Britain's post-war history, and unparalleled in Europe"—the Secretary of State said that we are a "role model" in Europe—"which only a change of Government or a change of course can place in jeopardy." They said precisely the same thing from the Dispatch Box in the pre-election Budget of 1992, and, unfortunately, the British people gave them the benefit of the doubt.
§ Mrs. Beckett
The Secretary of State says that that message was true; that is very interesting.
There was, however, no change of Government, and there was no change of course. The Government were given the same mandate that they seek today—a mandate 696 to deliver on their promises. "Vote Tory today," said the Prime Minister on election day, "and the recovery continues tomorrow." They promised a three-card trick—lower taxes, higher public spending and cuts in public borrowing—and here it is all over again.
The Government claimed then that—because of their skilful and prudent economic management, even with tax cuts and improvements in public services—the public sector borrowing requirement would be down to £6 billion by this year, 1996. But even after tax increases, which so far have brought in an extra £17 billion, this year the PSBR is nearer to £27 billion—four and a half times what they predicted before the election.
The Chancellor said in the Budget debate:We need more of this Government's determination to get government borrowing down."—[Official Report, 26 November 1996; Vol. 286, c. 154.]There has been £17 billion in extra tax, but there is still a PSBR of £27 billion.
Despite the Government's explicit and repeated promises—the Secretary of State made promises on health today—that there would be no increase in value added tax, no widening of the scope of VAT, no increase in national insurance contributions and no new taxes and charges, they did the lot. However much we may accuse them of deceit—which we do—no one can say that they were not thorough. They even took the one action that no one had predicted: to increase income tax by freezing or cutting allowances. I suppose that we may imagine the Chancellor saying, "May as well be hanged for a sheep as for a lamb."
Today, adding insult to injury—which the Government have made something of an art form—they claim not only that people are better off today than at the most recent general election, but that that is the Government's doing. I heard the Chief Secretary make that claim in last Wednesday's debate. He said:the average family will be about £20 a week better off next year than at the time of the last general election."—[Official Report, 27 November 1996; Vol. 286, c. 384.]The Secretary of State for Health made the same claim today, and he explicitly stated that it is the Government's achievement.
§ Mrs. Beckett
Yes, I agree that that was a horrible speech.
I should like to share with the House the experience of a friend who works for a small local builder—[Interruption.] The hon. Member for Teignbridge (Mr. Nicholls) will be interested in this comparison.
§ Mrs. Beckett
Not now; I am about to tell this story.
It was a large local builder, but a few more years of the Government's "unprecedented economic record" made it a small local builder. Recently, the friend found some old wage slips. He is currently working exactly the same hours as he was then. Because of the conditions in the building trade, he is working at exactly the same hourly rate, but he takes home £4 a week less. That is the 697 Government's doing, and that is the impact of their tax increases on disposable income. But there is more—more VAT; more new taxes and charges, such as those on insurance; and higher council tax—to pay out of that reduced income.
The Government cannot be trusted on tax or on health care because, as they proved in 1992, they cannot be trusted on the economy.
§ Mr. John Townend (Bridlington)
Does the right hon. Lady agree that businesses want certainty? I have read that this "windfall tax" may not apply only to privatised industries. Will she tell us how that tax will be defined and which companies will have to pay, or will she give a categoric undertaking that it will apply only to privatised industries?
§ Mrs. Beckett
The Government have already provided a whole day for a debate on the windfall tax; if they want to provide another one, no doubt they will do so. I do not have the slightest intention of trying to prejudge any Budget that my right hon. Friend the shadow Chancellor may bring to the House; I am discussing the Budget that the current Chancellor presented last week and, indeed, the Budget on which the hon. Gentleman and all this other shower fought the previous election.
As I was saying, in 1992 the Conservatives proved, in their election address and the way in which it was falsified, that they cannot be trusted on the economy. But, of course, that was not the first time. In fact, it was the third time, and the Government are trying with this year's Budget to make it the fourth.
In 1983, the Government cut taxes a month before the election and cut spending a month after. In 1987, they cut taxes before the election and the spending that they promised never materialised. In 1992, of course, they promised to cut taxes and to cut the tax burden but reneged on that promise more comprehensively and more thoroughly than any Government in British history. Just as they told half-truths, if not downright untruths, on tax, so almost everything they said about the economy then, like everything they say about the economy today, is either half-true or untrue. They never look at both sides of the coin or of the balance sheet and never present the whole picture of where Britain actually stands.
The Government boast that exports have risen—the Chief Secretary did so again on Wednesday—but the Chancellor's Red Book shows just how poor their performance has been. Yes, exports are up—for example, in September by an excellent 2.4 per cent., taking us to a record of £14.2 billion—but imports are up even more, by a not so excellent 4.6 per cent. As a result, Britain has a deficit on the nation's current account, a deficit that has persisted for 10 years of the Government's economic stewardship. The Chancellor said, with his usual cheerful complacency, that that account was almost in balance—but we are supposed to be, as he claimed in the Budget speech, five years into a recovery, and we still have a deficit.
Our deficit on international trade is even worse and has endured for 13 years. As the Red Book acknowledges:The deficit on trade on non-oil goods widened a little last year … The overall deficit is forecast to widen a little in 1997"—698 that is presumably a little further. In fact, the non-oil deficit is forecast to be a massive £18 billion in 1997.
Although manufacturing provides two thirds of our export earnings, the Government are always happy to highlight our surplus in services, without which, of course, the current account would be nowhere near balance. Unfortunately, that, too, is forecast to fall in 1996 from its level in 1995. As a consequence, the near balance that the Chancellor mentioned on the current account is itself set to deteriorate in 1997 and to deteriorate still further in 1998.
Even in the one area of some good news—the balance of payments current account—the forecast of improvement in 1996 will not be sustained. It will get worse in 1997 and worse still, according to the Red Book, in 1988. "Widen a little" is the euphemism—the forecast is that it will almost double from £2¼ billion in 1996 to £.4¼ billion in 1997.
These are all alarming figures. To put them in the context of the Government's many claims to be doing better than others in Europe—to be, as the Secretary of State claimed, a role model—let me remind the House of another Government claim in which there is some substance but much misdirection. [Interruption.] Substance in the improvement, misdirection in the actual achievement.
In 1991, 1992, 1993 and 1994, Britain had the worst trade deficit of the EU Twelve but—I must be fair—there has been some improvement. Last year, we had only the second worst deficit of the EU Twelve—so much for the best prospects for a generation.
§ The Chief Secretary to the Treasury (Mr. William Waldegrave)
As the right hon. Lady is talking about trade, and I am sure that she wants to be fair, will she confirm that the 1980s were the first decade in many decades—the first since the war, I think, although I am not certain about that—in which Britain held its share of world trade and that that record was matched by no Labour Government?
§ Mrs. Beckett
I have not had a chance to scrutinise the figures that the Chief Secretary gave in the recent debate, but I shall certainly do so. He is arguing that we have stood still while others have continued to improve. What he says does not alter the facts—we had the worst trade deficit of the EU Twelve and last year we had only the second worst deficit.
The problem is that our manufacturing base is small. Output is flat—there has been no increase in the past 12 months. In November last year the Chancellor was, as ever, optimistic. He said:Manufacturing investment"—it is certainly the seedcorn of growth—is forecast to increase by over 10 per cent. both this year and in 1996.In fact, it rose in 1995 by a far more modest 5 per cent. Even in the Red Book the Chancellor is forced to admit that manufacturing investmentfell from the fourth quarter of 1995 to the second quarter of 1996.It did not increase by 10 per cent. last year as the Chancellor predicted it would. We do not yet have the full figures for this year; but, far from the forecast rise of another 10 per cent., on the most recent figures, it fell by 699 14 per cent. in the last quarter compared to the same quarter a year ago. In fact, manufacturing investment is still, in real terms, below the level it reached in 1979 and probably below replacement levels.
The Government ignore the alarming figures, preferring to boast of high levels of inward investment which can be welcome, although it is wise to remember that not all inward investment creates new plant and employment in this country. A United States utility buying a British utility also counts as inward investment. The Government boast of a greater growth in productivity than in the countries with which we compete—again, we welcome that greater productivity—but they rarely mention that we still have a long way to go to catch up.
It is on the basis of such half-truths that the Government rest the claim that Britain is the enterprise centre of Europe and all the rubbish about Britain being a role model—if only we were fit to be a role model. The whole picture—the whole record of 17 years—shows that Britain is not even in the top three in Europe for growth, investment or even job creation. It is not even in the top half of the league tables.
The Government so dislike having these facts, and they are facts, spelled out to the British people that, as happens with any criticism of their record, they accuse those of us who dare to point them out—the Secretary of State did so a moment ago, sotto voce—of running Britain down. But it is this Government, with their lamentable record of failure, who are running Britain down. Our argument is as different from running Britain down as it is simple to understand. We argue simply that Britain can do better than this.
The Government say that the future belongs to those who prepare for it. Investment is the key to equipping Britain to meet the challenges of the future. That is not only our view but that of the Confederation of British Industry, the Engineering Employers Federation, the Institute of Directors, the British chambers of commerce and the Trades Union Congress, all of which called on the Chancellor in this Budget, as they have in successive Budgets, to protect and, as a priority, to enhance investment in education and training and in the transport infrastructure and to work to make a success of the private finance initiative, but not to use it as an excuse for further cuts in the Government's own capital programmes. All that advice has fallen on deaf ears.
In fact, this Budget is characteristic of much in the Government's general approach. They do not listen but continue to put the short-term interests of their party above the long-term interests of the country. Nowhere is that more evident than in their approach to the Europe Union—an approach, incidentally, which itself threatens the inward investment of which they boast. Inward investors tell me of their worry that decisions on Europe taken by the Conservative party are damaging Britain's interests there and that if we left Europe, they would leave us.
§ Mr. Rowe
I was wondering whether we are edging towards an implied outline of the windfall tax. It is clear 700 from what the right hon. Lady is saying that, provided companies promise that they will continue their investment, they will not be subject to a windfall tax. Her argument is that no damage to investment should be caused by any taxes.
§ Mrs. Beckett
That was a good try, but I am sorry, I was not edging towards anything. I am not identifying the windfall tax, nor am I discussing it. As the hon. Gentleman may have noticed, I am discussing this year's Budget, which is the subject of the debate, and the Government's lamentable record.
At the Conservative party conference, the Prime Minister declared that Britain had to take part in talks about the handling of moves towards economic and monetary union and that our national interest required a British presence in those negotiations and discussions. I agree. However, that is just as true about an issue on which the Prime Minister does not make the same point—the social chapter. There is a genuine discussion to be had about the social chapter, but it is not the discussion that we are having in Britain, or the discussion that the Conservative party seeks to foster, which is more like Grimm's fairy tales to frighten the children.
There is as little truth in what the Government say about the social chapter as in what they say about tax. Only two issues are covered by the social chapter today: a directive on unpaid parental leave, which was voluntarily agreed by employers and trade unions across Europe, and a directive on works councils, which applies only to large companies that operate in several member states. Although we are not in the social chapter, 99 British companies, from Vauxhall to Guinness—which would have to set up a works council if we were in it—have set one up anyway. We are affected by what is decided under the social chapter, but we have no say in it.
The social chapter excludes industrial relations, despite the Prime Minister's claim to the contrary. It excludes discussion of pay, including the issue of a national minimum wage. It includes a condition that everything that might in future be discussed must be examined with special care for its impact on small and medium-sized businesses. That is all the opposite of what the Government are telling businesses.
§ Mrs. Beckett
If the Secretary of State will forgive me, I want to finish this passage. It may answer the question that I suspect is in his mind.
Although no one has ever proposed using the social chapter or any other mechanism to import the social security system of another member state—it is hard to imagine that anyone ever would, because each country has a different system, relating to its different history and social and industrial traditions—Britain retains a veto. My right hon. Friend the Leader of the Opposition has made it plain that Labour would exercise that veto in the extremely unlikely event of such a proposal being made.
§ Mr. Dorrell
The right hon. Lady's next paragraph did not cover my point. She said that the social chapter contained only two directives at the moment. It is true that the powers contained in the social chapter have been used so far to pass only two new pieces of legislation, but the 701 key point is that the social chapter is an empowering provision, setting out the rules for approving new regulations by qualified majority vote. That is why Labour Front Benchers are wrong to imply that Britain would have a choice on which regulations to adopt if we signed the social chapter. Will the right hon. Lady confirm that the social chapter sets out provisions that can be approved by qualified majority voting? Is that right or wrong?
§ Mrs. Beckett
I am happy to confirm that the reason why the social chapter contains a provision for change by qualified majority voting is that the Government accepted that in negotiations. It is not the result of any action by the Labour party or a Labour Government.
§ Mrs. Beckett
The Secretary of State is entirely right. This Government gave up the veto and brought in the procedures for qualified majority voting.
§ Mrs. Beckett
I am answering the Secretary of State's point.
It is also true that the social chapter is one area to which qualified majority voting applies. However, the social chapter currently contains nothing but those two directives. Of course further proposals could be brought in under it in future, but in the meantime, as a result of the Government's opt-out, Britain has no say in any further proposals that might come forward. We are affect by the social chapter, but we do not have a voice.
§ Mr. Dorrell
I am pleased that the right hon. Lady has confirmed the key point. The social chapter allows the introduction of new legislation by qualified majority voting. Why does the Leader of the Opposition appear not to know that when he implies that we can pick and choose?
§ Mrs. Beckett
This is the deal that the right hon. Gentleman's Government did. They decided to agree to qualified majority voting and brought in the Maastricht treaty. It was not the Labour party. My right hon. Friend the Leader of the Opposition has never said that he does not recognise and accept—
§ Mrs. Beckett
I heard the speech to which the Secretary of State is mistakenly referring. My right hon. Friend did not make the statements that the Secretary of State suggests. My right hon. Friend has always made our position on the social chapter crystal clear, including making a commitment—which, if I recall correctly, the Prime Minister has not made—that he would veto any proposal to change our social security system through the mechanism of the social chapter.
On the social chapter, the minimum wage and the farcical mess over the 48-hour directive—described untruthfully yet again by the Government as preventing 702 people from doing overtime, when it does no such thing—the revealing feature is that the Government's policy is for Britain to aim low, to be the cheapest and to undercut the worst. In contrast, we want Britain to be the best.
We believe that our only future lies in supplying goods and services of high quality, not of low quality. We must use the skills, talent and potential of our people to the full. That is why we want to develop and build on programmes such as technology foresight and enhance the work of business links—proposed in our most recent manifesto, not that of the Conservative party—which promote the use of new technology and give the best advice for marketing, for design and for the development of export potential.
We regret the Government's failure to reform competition policy for the good of all or to strengthen regulation of the utilities, as we would do, so that their duty to the consumer is secure. In their legislative programme and in the Budget, the Government have ceased to govern to secure Britain's interests, seeking only to hang on to power until the last gasp in the hope of securing their own interests.
In his response to the Budget, my right hon. Friend the Leader of the Opposition referred to the Prime Minister's interview in Los Angeles a year after the last election, in which he revealingly admitted that, despite all the claims of recovery made during the campaign, he had expected a catastrophic drop in popularity within a year. The Prime Minister said, with his customary modesty, that he had been remarkably prescient. I say that that is because he knew that he and his party had been remarkably dishonest.
The 1992 pre-election Budget was designed to obscure the true state of Britain's economy after 13 years of Tory rule. This one is designed to obscure the failure and fraudulence of that one. The intention is to try to persuade the British people to forget the Government's record and again to place their faith in the Government's promises.
For the Government to be awarded a fifth term of office would be a vote of confidence unprecedented in British political history. It is for the people to decide whether they have earned such a vote of confidence.
§ Mrs. Beckett
—but the risks of a fifth Tory term. I do not know why the hon. Member for Beaconsfield (Mr. Smith) is shouting so much. He was in the Chamber when we debated the 1992 Budget. Every promise that he and his right hon. and hon. Friends made on that day has proved false. Has he gone back to apologise to his electorate for those false promises?
§ Mrs. Beckett
Is the hon. Gentleman saying that he told lies to the British people at three successive general elections and got away with it, so he hopes that he will again? That seems to be the purport of what he is saying. The Government promised tax cuts and public spending increases in 1983 and they did not deliver them. They did the same in 1987 and did not deliver them. In 1992, they promised massive—massive—cuts in taxation.
§ Mrs. Beckett
Blame the people? I blame the Government. How dare the Secretary of State say that. The Government told the people a pack of lies and they now blame the people for believing them.
§ Mr. Dorrell
The right hon. Lady is saying that the people got it wrong. Until Labour Members understand that it was not the people who got it wrong but Labour, they will stay on the Opposition Benches.
§ Mrs. Beckett
The Secretary of State is admitting that Labour told the truth at the last election and he regards that as a mistake. We have never blamed the British people. The British people have every right to expect that any political party coming before them at election time will place before them promises and pledges that have some credibility.
The Secretary of State clearly has no shame. The British people were entitled to believe that there must be some truth in what the Government told them. The people had that belief and placed their confidence in the Government. They were betrayed on every promise and pledge. It would be an unprecedented vote of confidence if the Government were returned—
§ Mrs. Beckett
Yes, I have and it remains true—just as I have already said on many occasions, and am happy to repeat, that the hon. Gentleman and the Conservative party placed a false prospectus before the British people at the last election. Does the hon. Gentleman want to confirm that?
§ Mr. Nicholls
It would also be an unprecedented vote of confidence in the British people if the right hon. Lady would clarify what she said about the utility tax on 16 November. She said then:We do not rule out any of the privatised companies. You cannot rule out any section of the privatised companies.Will she tell us which companies will be covered by that tax?
§ Mrs. Beckett
As I was saying, the British people—[HON. MEMBERS: "Answer him."] I am not going to bother with the hon. Gentleman. He is not worth it.
At the next general election, the British people will have to weigh up not only the Government's promises and record but the risks of a fifth Tory term. If the 704 Government were re-elected, they would believe, with some justice and as they have made it plain that they almost believe already, that they had carte blanche—a licence to do precisely as they pleased.
Apart from the Government's initial record, given what we know of their pledges to abolish inheritance tax and capital gains tax, if they were re-elected it would mean the end of the welfare state that my generation has taken for granted. People would be reliant solely on their personal employment and earnings record to enable them to insure against unemployment and ill health, to educate their children or to provide an income in retirement. All that at a time when there is no such thing as a safe job or a secure profession.
Of course, we shall be told that all this is scaremongering or even, as the Government said in a special campaign guide at the last general election, "disgraceful scaremongering". That was said of our prediction that, given the state of the economy, if re-elected the Tories would raise or spread value added tax or national insurance contributions, or invent new taxes and charges. We were telling the truth then and we are telling the truth now.
I referred to the Prime Minister's interview in the Los Angeles Times, in which he also said:We have been here for 15 years,—there is no one else to blame for anything that has gone wrong.The Government make claims for success unprecedented in Britain and unparalleled in Europe, yet they have had opportunities unprecedented in Britain and unparalleled in Europe. From the North sea alone, they have had revenues equivalent in today's money of £22 million every day for 16 years. Privatisation—selling the nation's silver, Harold Macmillan called it—has brought in revenues equivalent to £13 million every day for 16 years. From those two sources alone, the Government have had the equivalent in today's money of £35 million every day of the week for a solid 16 years.
Britain should be the enterprise centre of Europe. The fact that we are not and, that we are outsold by our competitors, and the state of our transport infrastructure, hospitals, houses and schools, must all lie at the door of this Government, with their unprecedented record and their unparalleled opportunities.
Britain could not afford the deceit practised on the British people at the last general election, still less can it afford to offer the Government the chance to betray our people again.
§ Mr. Michael Alison (Selby)
In the last sections of her speech, the right hon. Member for Derby, South (Mrs. Beckett) made a great deal of promise, pledge and fulfilment in successive elections. I hope that she recognises the real measure of internal contradiction in the Labour party's approach to the national health service, which was what my right hon. Friend the Secretary of State for Health emphasised most. The right hon. Lady and the Labour party are probably right to say that health is the overriding concern of most electors at a general election, but she combines that proposition with the view that only the Labour party can be trusted to deliver on the national health service.
That was the twin proposition put forward in 1979. In that general election, the electorate gave the Conservative party the benefit of the doubt, so the Labour party 705 repeated the proposition in 1983—that health was the issue that people cared most about at a general election and that, guess what, only the Labour party could be trusted to deliver on health care. By that time, however, we had had a Parliament run by the Conservatives, so the proposition was rejected. After a Parliament of health care under Conservatism, the Conservative party was massively returned in 1983.
The Labour party did the same again in 1987—it had become almost a Freudian tic. By this time, the argument was wearing thin. In 1987, there was a massive return for the Conservative party on the basis that health was the most important topic, but people were beginning to think that the Conservative party could be trusted on health. By 1992, the Labour party was getting desperate. It was still convinced that health care was the most important issue in politics, but could hardly go on saying that only the Labour party could be trusted to deliver on it, so it produced a lot of hare-brained, sad cases of things that had gone wrong in hospital or in surgery. We remember the case of the child whose operation on her ear had gone sadly wrong. That is what Labour turned to in an effort to show that the Conservative party could not be trusted to run the national health service. The result in that election was the biggest popular vote for a political party in post-war history.
So, the thesis has run a bit thin. It is rather like trying to persuade people, after a headline about a bad aircraft crash, that it is not safe to fly. One cannot persuade people that it is not safe to fly and one cannot now persuade people that the national health service is not safe in the hands of the Conservative party. That is undemonstrable after four elections and there is to be a fifth election in which that manifest and self-evident truth is to be demonstrated yet again.
My right hon. Friend the Secretary of State vividly demonstrated the case—in the figures that he gave for the next tranche of investment in health care—that the public believe that the national health service is safe in the Conservative party's hands. They have no reason to believe that the same argument applies as applied in 1979 when this circus started.
§ Ms Jean Corston (Bristol, East)
The right hon. Gentleman says that the national health service is safe in the Government's hands. What does he have to say to my constituents, who find that only two dentists in my constituency now provide national health treatment, while all the others provide some sort of insurance plan? Is that the sort of success that he is trumpeting?
§ Mr. Alison
The hon. Lady will find that in any period in which the Conservative party has been in power since 1979 she or her colleagues could have pointed out some deficiency or defect in the national health service that we would all have liked to have put right. To return to the flying analogy, occasionally something goes wrong, but one cannot persuade people that it is not safe to fly and by producing that sort of individual example, one cannot persuade people that the national health service is not massively efficient and effective. It is appreciated by between 80 per cent. and 90 per cent. of all those who go into a surgery or hospital. They know that it is an admirable service and that has been demonstrated in four successive elections.
706 Without testing the patience of my colleagues too far, I should like to dwell on one particular aspect of the Budget that is not directly related to health care, although that comes into it. I want to press the Government to push open even further a door that I am extremely glad to say they have opened ajar. The topic I refer to is the married couple's allowance. That allowance is manifestly a recognition in our taxation system that the married state is uniquely significant and calls for some unique efforts and features to support it.
I believe that that special recognition is well founded because marriage is after all society's established and recognised customary framework for providing a stable, enduring and committed environment for raising children. Recent research has confirmed that children whose parents separate are more likely to have problems relating to education, health and behaviour than those in families where the parents stay together. There is also evidence that children in lone-parent families do less well educationally. In response to the claim that cohabitation can deliver the claimed special advantages of marriage just as effectively, research as well as common sense show that a good deal more is involved in the commitment of marriage than in cohabitation. Marriage involves public vows of lifelong commitment and entails a legal change in the status of the partners.
Evidence from the British household panel study shows that married couples are far more likely to stay together than cohabiting ones, even when children are part of the latter relationship. The further perceived advantages of marriage include public expenditure, when a child or children are brought up within, for example, a single-earner family, where mum stays at home to look after the children—judged in a context in which support for lone parents, without the normal family environment, cost about £10 billion last year. The Chancellor had to find that money.
Another spin-off from marriage is extended family care, especially of elderly relatives, parents or some other dependant. Marriage also seems to improve a couple's health.
Against that background, it is not surprising that some powerful voices have spoken up in favour of marriage. Cardinal Hume has said:A comprehensive family policy is needed to ensure that a range of Government policies, including … the tax and benefit system gives better help and proper recognition to parents who wish to look after their own children at home.The Leader of the Opposition said recently:it should be the job of any government to strengthen and nurture families, and to include in the assessment of any policies the impact they will have upon the family.My right hon. Friend the Prime Minister has said:The Government believe that married couples should receive recognition through the tax system.John Habgood, who used to be a constituent of mine and who lately retired as Archbishop of York, has said:If we are to signal the importance of marriage, especially as a stable environment to raise children, society needs to recognise this through the tax system.707 Last but not least I am happy to say that my right hon. and learned Friend the Chancellor of the Exchequer said in his Budget speech:The tax system does recognise marriage, contrary to popular belief."—[Official Report, 26 November 1996; Vol. 286, c. 171.]This year's Budget gave expression to that, and I want to pay tribute to my right hon. and learned Friend not only for uttering those words about marriage but for putting his money, modestly, where his mouth is. He has further improved the married couple's allowance for the second year running and it has risen from £1,790 to £1,840 for the tax year 1997–98, although its value is, sadly, restricted to 15 per cent. only of that new figure.
It would certainly be churlish, indeed impolitic, not to recognise the significance of the trend that my right hon. and learned Friend has now clearly established to pay more than lip service to the married couple's allowance and to begin its revalorisation—or to continue it as he did last year. I hope that my right hon. and learned Friend and the Economic Secretary, who is listening to the debate in his absence, recognise what a long distance they have to travel to make the married couple's allowance something of significance and weight in our taxation system.
The married couple's allowance had been frozen for five years since it was introduced in 1990 at £1,720. It has now gone up to £1,840. The £1,720 was given in 1990 at the taxpayers' marginal rate, then either 25 per cent. or 40 per cent. From then until 1995 the amount of the married couple's allowance remained unchanged and the rate at which it was given was reduced, first to 20 per cent. and then to 15 per cent., its current level, even though other tax allowances were increased in real terms and the 20 per cent. lower rate band was introduced. As a result there was a marked switch in the tax burden—continuing a trend that has gone on for between 20 and 30 years under the administration of all parties—away from single people without children on to married couples with or without children. Married couples were paying more than £2 billion a year more in tax, an average of £3.30 a week each, than they would have been paying if those earlier changes since 1990 to which I have referred had not been introduced. There has been a decisive shift in the burden of taxation from single people on to the shoulders of married couples.
I should like to cite an example supplied by Mr. Charles Colchester, chief executive of the charity CARE—Christian Action Research and Education. Let us consider a couple, who this year, under the new regime introduced by the Chancellor, are earning £15,000 a year. A cohabiting couple without children will benefit by £288 in total. Meanwhile a married couple, where one partner stays at home to look after the children or an elderly or dependent relative, will benefit by just £150. Similarly, a lone parent will also benefit by just £150.
It is sad to note that despite the revalorisation of the married couple's allowance which my right hon. and learned Friend has tackled in the past two years, one is still better off as a cohabiting couple under our present arrangements than one is as a married couple, especially where there is a single earner and the other partner looks after the children at home.
I hope very much that my right hon. and learned Friend and the Economic Secretary will focus on that anomalous undermining, almost betrayal, of the approbation and support that everybody gives to marriage. Somehow that support is not properly validated and endorsed by the tax figures.
708 This year my right hon. and learned Friend has once again reduced the basic rate of income tax—from 24 to 23 per cent. Perhaps next year he will seek to reduce it from 23 to 22 per cent., on track for the 20 per cent. rate. If he is tempted next year to reduce the basic rate to 22 per cent., he should remember that if the married couple's allowance was raised to £2,000—instead of the £1,840 to which it has been raised this year—it would be worth significantly more to a married couple. It would be worth much more to a married couple—a single-earning unit—with or without children at home than a reduction in the basic rate by another 1p in the pound.
I hope that my hon. Friend the Economic Secretary to the Treasury will convey to my right hon. and learned Friend the Chancellor the desirability and necessity of extending yet further the help that we seek to give to married couples. It is one of the options that my right hon. and learned Friend should consider next year alongside a further reduction in the standard rate. The married couple's allowance delivers more help and support where it is most needed than any other instrument that we can devise within the limits and constraints of this year's, and probably next year's, Budget.
§ Mr. Clive Betts (Sheffield, Attercliffe)
I want to deal with two major aspects of the Budget. I shall first consider the Government's claim to have found a miracle cure for the ills of the British economy. I believe that the economic recovery is based on shifting sand—far from being a miracle cure, the recovery of the past few years has not been even marginally satisfactory. Secondly, I wish to show that the Budget simply repeats the broken election promises that have littered the Government's record during the past five years.
The recovery that we are now seeing in this country is very fragile. The Government's forecast shows that it is based wholly on growth in consumer expenditure, not on a fundamental improvement in the economy's long-term prospects. I still have some manufacturing and engineering industries left in my constituency—
§ Mr. Betts
As my hon. Friend says, I am lucky. In many parts of the country, the manufacturing sector was largely wiped out in the 1980s. Manufacturing output in this country is slightly less than 2 per cent. higher than it was in 1990—before the recession. That is not a recovery.
Even worse, and even more alarmingly, manufacturing investment has fallen by 14 per cent. in the past year. Far from a recovery led by investment—the base for long-term continual improvement that we should have—the current growth in consumer expenditure could quickly lead to overheating in the economy and the Government having to take measures to deal with it.
All of us with manufacturing industries in our constituencies that should be encouraged to develop are worried about the fragile nature of any consumer boom that the Government may be stoking up. The fragility of the economy also worries consumers, who want higher living standards, but not if they are based on an increasing trade gap as we suck in imports because we cannot produce the goods at home.
709 A couple of years ago, firms in my constituency pointed out that, as exporters, their markets were growing—many of them have done relatively well, which is to be welcomed. But the problem was that the growth in exports was based almost wholly on the fact that the Government's economic policy, on which they set so much store at the last general election, collapsed within a few months, when there was a massive devaluation of sterling. That was why our exporters started to do relatively well.
It is also a matter of great concern that, as the pound starts to rise—only a few days ago in the House, the Chancellor was talking up the value of the pound—it will make life much more difficult for our exporters in the months ahead. There is almost certain to be a rise in interest rates to reflect the concerns of the market, both about increasing consumer expenditure and about the unsustainability of that rise. An interest rate rise will have an effect on home owners and a long-term impact on our exporters. The improvements that exporters have seen in the past few years may prove to be short-term and unsustainable.
§ Mr. Alan Duncan (Rutland and Melton)
If a high exchange rate is detrimental to our exports, why has Germany been such a successful exporting country over the past 40 years?
§ Mr. Betts
That depends on which way round it occurs. The deutschmark has been strong because Germany has had a successful economy. If the hon. Gentleman were to consider the issue that way round, he would answer his own question.
Conservative Members like frequently to refer to Britain as the enterprise centre of Europe, but none of them can seriously doubt that Germany's economy is fundamentally much stronger than this country's. It is simply not good enough for Conservative Members to talk about this country being the enterprise centre of Europe, as though saying it makes it true. It is not true. One only has to consider Britain's place in the international skills table—it dropped to 42nd in 1996—or in the world prosperity league—it has dropped to 18th—to show the true position that it has attained under this Government.
We do not simply have to be concerned about the Budget, its impact and the fact that it does nothing to deal with the problems of manufacturing investment. It has had a bad effect on investment in the public sector.
At the last election, the Government promised to make Britain the best housed country in Europe. That is a sick joke for those in this country who live in appalling housing conditions—the 1.5 million people who live in unfit homes, and the homeless families who visit their local authorities every day to ask for housing. Germany has a bigger gross domestic product per head than this country, but we spend less than half of what Germany does on housing. Despite the fact that, since the last general election, the Government have cut by half the public expenditure on capital investment in housing, the Budget included a further cut of more than £500 million.
We know that the Government do not like local authorities or local authority housing. If they were honest, they would presumably say in their next election 710 manifesto that they intend to get rid of local authority housing. They used to believe in the provision of housing through housing associations, but even that seems to have gone by the board. The housing association movement will suffer most from the reduction in housing capital expenditure contained in the Budget.
Next year, housing associations will be allowed to start fewer than 30,000 new homes. In the same week as the Budget was announced, the Secretary of State for the Environment came to the House with new projections showing how many new homes needed to be built in this country. He broadly accepted the recommendations of the Select Committee on the Environment, which said that this country needed about 250,000 new homes each year, of which 100,000 should be in the social rented sector.
There will therefore be a gap of more than 70,000 between the Select Committee's projections of what is needed in the social rented sector and what the Government are prepared to allow. The Government are not making available the necessary funds for housing associations to build new homes.
That is why it is right that the Opposition have made a commitment to release the set-aside capital receipts from the sale of council houses that total about £5 billion. Those receipts are with local authorities, and they are willing to spend them. The Government gave that commitment when they introduced the right-to-buy legislation in 1980. The present Deputy Prime Minister gave a clear commitment that those funds would be made available for local authorities to spend. A future Labour Government will honour that commitment.
§ Mr. Duncan
Is the hon. Gentleman happy to say that it is Labour party policy immediately to add that £5 billion to the public sector borrowing requirement as a result of releasing those council house receipts?
§ Mr. Betts
The hon. Gentleman should be aware of accounting conventions, which are the same as those that existed when his right hon. and hon. Friends in government promised to do exactly that with the capital receipts when the right-to-buy legislation was introduced—they promised to allow local authorities to spend them.
Only three years ago, the then Chancellor had a moratorium on the freezing of capital receipts, and allowed local authorities to spend them for a period of 18 months. We have clearly stated that those receipts will be released on a phased basis, so that the construction industry can cope with the increased demand. They will be released, in terms of current accounting conventions, to deal with this country's housing problems, which he and the Government he supports have done nothing to tackle.
§ Mr. Betts
I shall not give way again to the hon. Gentleman—I have done so twice already.
The other issue relating to public investment is the private finance initiative, which is now merely a device. The Government originally introduced it as a means of adding to public investment, but it is now simply a substitution for investment programmes that were 711 previously in the Red Book and have now been taken out. A cut of £2 billion was made in a previous Budget, and that has been continued in this Budget.
§ Mr. Graham Riddick (Colne Valley)
Will the hon. Gentleman explain why, when he was leader of Sheffield council, he decided to spend millions of pounds on the world student games rather than on building new houses, as he is now saying he wants to do?
§ Mr. Betts
It is interesting that the hon. Gentleman asks that question. In fact, the money was spent not on the world student games, but on infrastructure and investment for new leisure facilities. One million people each year use Sheffield's international swimming pool as a public service. The arena is a major attraction and forms part of the economic regeneration of the Don valley area of Sheffield.
At the same time as we were doing that, Sheffield city council entered into an arrangement with Nationwide building society and various banks and housing associations to create a housing partnership scheme which built more than 2,000 new homes in Sheffield. After we signed that deal, the Government specifically brought in regulations to stop other councils doing the same thing, because we in Sheffield were so successful at building new homes by those methods. I hope that that answers the hon. Gentleman's point.
The PFI is now a substitution—but not an effective substitution—for the cuts in public investment that the Government have previously planned. Go and talk to anyone in the private sector—or, indeed, the public sector—and they will talk about the bureaucracy and delays; the one hospital instead of the 12 that should have been delivered; and the fact that the Government have been unable to deal with the transfer of risk problems on so many schemes. In fact, there is a real problem m the health service related to the transfer and privatisation of clinical responsibilities.
If the Government ever get their plans off the ground, they will be establishing a massive problem of deferred expenditure, with no proper monitoring system—especially in the Department of Health—for accounting for future expenditure commitments. Financing is more costly—at least 2 per cent. more than direct public borrowing. The Treasury accepted, in a note to the Select Committee on the Treasury earlier this year, that there is no difference, in macro-economic terms, between borrowing through the PFI and borrowing directly through the public sector.
Finally, the public finances as presented by the Chancellor are in an appalling state. The Chancellor now says that his aim is to get the public sector borrowing requirement balanced by 2000–01; but every year the Chancellor makes that promise, he moves on by another year the date by which it is to be achieved. Achievement of the target gets no closer as each Budget comes and goes.
The PSBR forecast this year is £26 billion. At the time of the last election, the forecast for this year was £6 billion. That £26 billion figure is £4 billion more than the Chancellor forecast in last year's Budget. Even the forecasts we have contain three elements that are not necessarily sustainable. First, there is the PFI forecast, which has enabled the Chancellor to cut forecasts for 712 direct public investment. Is that sustainable, or will we simply not have certain public services if the PFI fails to get off the ground?
Secondly, we have the Government's commitment to deal with tax loopholes, but there is no direct comparison between the money that the Government say they will spend and the money that they say they will save. That calls to mind the "Alice in Wonderland" joke that the Chancellor threw back at my right hon. Friend the Member for Dunfermline, East (Mr. Brown) only a few months ago. The Government are assuming £12 billion in saved revenues over three years, but nobody is quite sure how that will be done.
Finally, we have the sleight of hand in respect of unemployment forecasts for benefits. This is the first time ever that a Government have produced unemployment forecasts—if only hidden ones—so that they can project a reduction in benefit payment costs. That has never been done before: the convention has always been that the Government have based forecasts on unemployment as it stands, not on future reductions that they believe will happen. Such assumptions have never before been made when making forecasts for public finances. That demonstrates the precarious nature of the public finances that the Government are leaving for their successor to deal with.
I have one further issue to deal with—broken promises on taxes and education. Whether the Government promised at the last election to reduce tax year by year, over the lifetime of a Parliament, or overall, or whether they promised to reduce direct taxation, does not really matter, because they have broken all four of those promises, and have done nothing to redeem them in this Budget.
My right hon. Friend the Member for Sedgefield (Mr. Blair) said immediately that, over the lifetime of this Parliament, the average family will have paid more than £2,000 in additional taxation. The increase is clear in terms of the percentage of gross domestic product that is paid in taxation: at the last election, that was 34.25 per cent., but at the next election it will be 36.25 per cent.—an increase of 2 per cent. of GDP.
All that the Government can say in their own defence is that we should be making comparisons with the tax year 1991–92, instead of 1992–93. The Government should face the fact that the last election took place in the tax year 1992–93. That is when they went to the public and made their promises, so it is against the base of that tax year that they should be judged.
On Saturday, The Guardian published an independent analysis of the tax implications of the Budget produced by Coopers and Lybrand—I doubt that the company is a paid-up member of the Labour party. Every salary group—whether single people, married couples or couples with children—paid more tax under this Government. They would all pay more tax in the next tax year than they had paid in the tax year in which the last general election was held. [Interruption.] One or two Conservative Members are muttering, but few people are now willing to challenge the assertion that the Government have broken their promises on taxation, and that people will be paying more in tax at the time of next general election than they were at the last election.
Let us now turn to education. The pretence that there is more money for education in the Budget is a confidence trick played on schools, parents and pupils. The 713 Government's statement that standard spending assessments have risen by 3.4 per cent. or £591 million does not produce any new money for education. The SSA system is simply a means of distributing grant among local authorities. In terms of what local authorities can spend in total, the reality is that the spending limits of English counties with education responsibility will, on average, rise by a maximum of 2.2 per cent., and those of the metropolitan districts by 1.8 per cent.
My own authority, Sheffield, will have its capping level increased by only 1 per cent. If the authority decided to spend 3.4 per cent. more on education, it would have to cut all other services—including services to the elderly, libraries and refuse collection—by between 4 and 5 per cent. in real terms. An increase of 3.4 per cent. is roughly what schools need to stand still, all other things being equal, because of rising pupil numbers. That is not a possibility for Sheffield and most other authorities.
The Government therefore have not produced new money. They have told local authorities that they can go ahead and spend more on schools, but they have not mentioned that the price will be cuts in all other services, including social services.
In addition, the Government have held down grant allocations to local authorities to an average of 1.5 per cent. Given that the average capping level rise is only 2 per cent, to provide increases of 3.4 per cent. in education, authorities will have to make cuts in other services. Authorities will also have to impose council tax increases of 6 per cent. to compensate for the inadequate increase in total Government grant.
The Budget headlines are a trick of mirrors or sleight of hand to try to make people believe that there is more money for education, but that those wicked local authorities—of which the Tories now control so few—are preventing the money from getting through to schools.
During Prime Minister's Question Time recently, the hon. Member for Sheffield, Hallam (Sir I. Patnick) claimed that Sheffield, as an authority, was somehow holding back far more than other authorities in terms of central services for education. He got the figures wrong: he quoted a figure of £350 per child for administration in Sheffield's education service, and that is totally untrue.
The £350 figure includes expenditure on items such as supply teaching, psychiatric and welfare services and other important services. The primary head teachers in Sheffield have said that they would rather the local authority provides those services, because the schools get a better deal that way. The actual cost per child of administration in Sheffield is £39. It is £1 above the average—nothing like what the hon. Member for Hallam said, and nothing like the difference that could allow more resources to be released into schools if only the local authority wished.
There is little in the Budget for the unemployed. The Government promised to reduce and eventually abolish capital gains tax and inheritance tax. That will benefit a few richer people. On the other hand, the unemployed and the poor suffer cuts in the training and enterprise council budget and in benefit entitlements.
The Budget does nothing to tackle the economy's underlying failings. It does nothing to repair, or even effectively disguise, the broken promises on tax, housing 714 and education, for which the Government are responsible. The electorate will hold the Government accountable for those economic failures and broken promises as soon as they are prepared to put their record to the test of a general election.
§ 6.9 pm
§ Mr. John Greenway (Ryedale)
In the past couple of hours, questions about honesty have been bandied about. If there is any justified criticism of the Government whom I have supported for the past five or six years, and continue to support, it is that we have sometimes made conflicting promises, but at the previous general election we promised to keep up the value of old-age pensions and child benefit, and we have done so. That is a proud record, which we should sing more than we do.
No doubt, during the next general election campaign, the argument that took place during the previous general election campaign will be repeated. Anyone taking a dispassionate view of the arguments as to which party is most likely to spend and tax more, would conclude that it is the Labour party.
I find it difficult to stomach hearing speech after speech—as we do from Labour Members week after week in the House—about the level of taxation when everyone knows that, had Labour won the previous general election, taxation would have increased dramatically and we should not have had the economic recovery of the past five years.
The Budget was good because it was like last year's Budget, which was also a good Budget. It had the right key priorities and struck a balance.
What should be the Government's first priority? The last time that I spoke on these matters in the House, just before the previous Budget, I said that Conservative voters, especially, want the Government to do the right thing by our hospitals, the police and our schools. The Government did so and have done so again. As the hon. Member for Sheffield, Attercliffe (Mr. Betts) said, some of the cost of that must be met by council tax payers, but I believe that parents and local communities want schools to be properly resourced and I am sure that they are willing to pay for that as long as local authorities are prudent and sensible in their expenditure plans.
What should be the Government's second priority? The Budget has further reduced public spending as a percentage of gross domestic product. That percentage has not come down as fast as I know that my hon. Friend the Economic Secretary to the Treasury and her colleagues in the Treasury would have liked, and nor has the public sector borrowing requirement, but a Government must take decisions that ensure that front-line services continue to be properly funded while creating a tax structure that encourages enterprise and produces economic results, and we have done so. Things are on a much better footing than I suspect some people, even Labour Members, thought likely a year or two ago.
What should be the Government's third priority? Another reason why I welcome the Budget is that the Government have introduced further changes in the income tax regime, not only to meet obligations on tax allowances and thresholds and to match inflation but to bring nearer a 20p basic tax rate. The most significant statistic about tax—one that we should bring to the public's attention much more forcibly than we do—is that now about a quarter of all taxpayers pay tax at only 715 20 per cent. That is especially important for families and households on relatively low incomes, especially those working in the rural economy. In the context of tax promises, I shall be proud to draw to the attention of voters in my constituency the fact that more of them now pay tax at only 20p in the pound. We must continue that process.
Time has shown last year's Budget to be a success. A year from now, we shall look back and see that last week the Chancellor introduced a sensible package to meet all those priorities. We may look forward to a continuing improvement in our economic performance, but we should not lose sight of some comparisons.
Our position relative to Germany has been mentioned. Germany is a strong economy, but at the moment the indicators are moving in the wrong direction, as they are for many other countries on the continent. Last week, the French Government caved in to union power. It may be a bit of a pun to say that many other people will jump on the bandwagon, but many more people in industries in France will seek a retirement age of 55 and pay increases of up to 12 per cent. They will see, as we can see, a deterioration in the economy of that great country.
The comparison between what is happening in this country and what is happening in other member states of the European Union enables the Government to say with conviction that not only are we doing well, but we are doing so against a background in which others are not doing anything like as well as they were. Their economies are moving in the wrong direction in terms of unemployment, output and so on.
I shall briefly discuss some specific changes that were introduced in the Budget and one or two matters that should have been mentioned.
The decision to freeze the uniform business rate for many small businesses is excellent news. We need to establish quickly who will be eligible. The announcement does not enable us to ascertain which businesses in our constituencies will benefit from that welcome decision. I want to be in a position to do so as soon as possible because, in the past four or five years, despite the Government's best efforts in introducing the UBR to protect businesses from local authority spending, many smaller businesses—in the service sector especially—have had to pay a business rate that has increased as a proportion of their costs.
We need a longer-term solution than the freeze that the Chancellor announced last week. That announcement is welcome recognition that there is a problem, especially for small service sector industries, and I want us to take an increasing number of those businesses out of the business rate altogether, or to introduce it in a way that links what they pay to their turnover and profitability instead of to the value of their property. In many rural villages, where property values are again increasing, business rate valuations have no relevance to the ability to pay of the small business.
As for excise duties, the drinks trade has lobbied long and hard about the problems caused by cross-channel shopping. The duty on Scotch whisky has again been reduced, I note, and no doubt the industry welcomes that, but we in the north are concerned about the beer industry. Freezing beer duty is certainly a welcome step, but I believe that the Government must adopt a broader perspective. Freezing duty so as to make it less attractive 716 to pop over to Calais with a van and bring back huge consignments of beer is one thing, but there is still no resolution to the proposed merger of Bass and Carlsberg Tetley. If that does not go ahead, the brewing industry in the north of England will face serious structural difficulties.
I shall deal now with the duty on fuel for transport. Although the proposals to help the road transport industry become more environmentally friendly are welcome and imaginative, they remain medium to long-term proposals. Their effects will not be felt immediately, and it will take quite some time for many small haulage contractors to take advantage of them. In the meantime, their costs are set to rise again—costs which they cannot always pass on to the customers whose goods they move around the country.
The increased price of fuel poses a real problem for businesses in rural areas. It is my privilege to represent thousands of square miles of north Yorkshire, where we cannot move goods around in any way except by road. You, Madam Deputy Speaker, will know from your experience of the west country that if duty on road transport fuel continues to rise, in the long run our rural economies, where long distances are involved, are bound to suffer.
On behalf of my hill farmers, I should like to thank the Government for the increase in the hill livestock compensatory allowances for beef cattle. Doubtless we shall have other opportunities to discuss that; but the increase has been extremely well received and was certainly necessary.
I want to mention two disappointing aspects of the Budget as well. The first is that the Chancellor felt unable further to reduce betting tax or pool betting duty. I declare my interest as president of York City football club and as chairman of the all-party racing committee. The football club is very worried about the falling revenues received by the Football Trust and by the Foundation for Sport and the Arts, owing to the significant reduction in pools income and hence the money available to the pools companies. In spite of everyone's best efforts, including efforts by the Government, to bring about an increase in the levy paid to the horse racing industry to promote and sustain the sport, that levy is declining because betting shop turnover is declining and betting shops are closing. About 900 of them have closed in the past year.
If this continues, the law of diminishing returns will apply. I know that Treasury Ministers recognise the problem. The difficulties are, of course, being experienced because of the lottery's success. Now there is to be a midweek draw as well, which will only make matters worse. All this has left the rest of the betting industry and the parts of the sporting world which depend on income from the pools or from the horse racing levy with the feeling that the lottery is being greedy by introducing a second draw. That may or may not be true, but it is clear that we need to sit down and take a careful look at betting tax, the pools betting duty and tax on the lottery. I hope that in the months ahead we shall have a chance to do that with Treasury Ministers. The Treasury has a clear interest in the continuing profitability of horse racing. The yield from the horse racing betting tax in the past 12 months was about £365 million. Taxes and VAT on the racing industry bring the Exchequer considerable revenue.
717 My second disappointment was caused by the Chancellor's decision to increase insurance premium tax to 4 per cent. Here I declare a real interest, having worked in the insurance industry for 25 years and holding, as I do, many insurance industry interests. The decision was greeted with mixed feelings. There was disappointment with the increase, but there was also relief that the industry's worst expectation—that the tax might rise to 6 per cent.—was not realised. It seems that our representations to Ministers were not wholly wasted.
The 17.5 per cent. rate for essential warranties and some travel insurance will create additional complications. I do not want to outline how to resolve them this evening—except to say that when IPT was first introduced, the industry found Customs and Excise and Treasury officials extremely co-operative and helpful in finding ways of implementing the intentions practically and sensibly. We should like to make representations this time once the position is somewhat clearer.
The problem arises because it seems that if people buy a policy through one channel, they will be taxed at 4 per cent. but if they buy one through another channel, they will pay tax at 17.5 per cent. That is a recipe for further abuse and chaos, so it needs reconsidering. I can understand why the Chancellor wanted to stop people evading a charge of 17.5 per cent. VAT on purchases by distributing the price paid as between the warranty price and the price for the goods themselves. Such methods are of course helpful to those who sell the goods, but I am not entirely sure that what is proposed will act to prevent only that—there could be other consequences.
There is some truth in the Chancellor's point that there is no real evidence to show that the 2.5 per cent. rate has had an adverse effect on the purchasing of insurance by the public—at any rate on what we call the personal lines: house contents, cars and so on. The fact is, though, that the tax was imposed at a time when rates have been extremely competitive in any case. Now I see no chance of absorbing the extra 1.5 per cent., which will pose a serious difficulty for big corporate risk insurance and for trade and credit insurance. The increase will have some impact on insurance purchasing habits.
Here again we need to sit down with the Treasury and work out a way forward. Had I been Chancellor—fat chance of that—I am not sure whether I would have described this increase as a temptation I could not resist, but it would be wrong of any Treasury Ministers, in this Government or the next—please God we shall have the same team—to think that they could tweak up the tax another 1 or 2 per cent. every year or so, regarding the insurance industry as a milch cow for raising a few hundred million pounds whenever the Budget sums looked a bit tight. I hope that that second temptation to which the Chancellor succumbed will be the last one for insurance premium tax.
§ Mr. Simon Hughes (Southwark and Bermondsey)
A hundred years ago, the Health Visitors Association was created. Its headquarters is in Southwark street, just over the bridge in my constituency. It is competent at observing and reporting on the state of public health, particularly in urban Britain. Before any Government 718 introduce a Budget and establish their priorities, they must consider which social ills need to be cured, which social needs need to be met, and how much the balance between tax and spend can achieve that.
The director of the Health Visitors Association has observed that social conditions in Britain are now returning to those of the previous century. She said:It is a tragedy that as we now approach the end of the 20th century, the many improvements in health and welfare are being undermined by the effects of desperate poverty on a national scale.My constituency reflects that growing divide in Britain. We have affluent second and third homes along the river and rundown council and other estates elsewhere, with many people in poor-quality private accommodation. Some people have done very well—some of Thatcher's children have done very nicely, thank you—but, with a few exceptions, the gap between the rich and the poor has widened and social equity has therefore been reduced.
Budgets must be judged not just by how they bring about the basis for general economic recovery, but by how fairly they distribute the profits and benefits of that recovery for the community as a whole, and how much everybody stands to gain. A good test of that is whether we can adequately fund one of the great equalisers in our society—the national health service—and put it on a secure and firm footing for future generations.
I do not intend this to be a canter-round-the-course debate about the health service, because we have adequate opportunity to do that, but there can be no disputing the fact that the health service is patchy. Every week, the King's Fund, an objective reporter on health matters, publishes Health News, in which it reviews the week's health news. Ten days ago, it reported stories that had appeared in the space of a week with headlines as varied as these: "Hospital calls halt for operations not paid for by fundholders"—that was the famous Norfolk and Norwich hospital, which we heard about in last week's Budget statement; "Fears over pill safety lead to 3,000 more abortions"; "Parents sue after baby's death in 'dirty ward'"; "Air pollution soars above danger levels"; "Hospital drug error may have damaged baby's brain"; "Aids virus on the increase in cities"; and "Hospitals warn of worst funds crisis for years".
Towards the end of that section of the publication, there is a report by the annual British social attitudes survey, which came out a few days ago. As the right hon. Member for Selby (Mr. Alison) implied in his speech, it showed that most of the public would be prepared to pay higher taxes to improve the NHS.
§ Mr. Nicholls
The hon. Gentleman may recall spending part of his summer holiday coming down to my constituency—without doing me the usual courtesy of telling me that he was coming—and terrifying people in Dawlish by saying that their hospital—[Interruption.] The hon. Gentleman thinks that this is funny, but he terrified frail and vulnerable people in Dawlish by telling them that the private finance initiative would never deliver their hospital. Had he picked up the telephone or written to me, I could have told him that a decision—probably favourable—was expected by October or November. That 719 happened in the end, so the hon. Gentleman should get rid of his smirking veneer of sincerity towards frail and vulnerable people within the national health service and take this opportunity to apologise to some of my people for the gross deception that he practised upon them.
§ Mr. Hughes
First, I am sure that they are not the hon. Gentleman's people any more than they are anybody else's. Secondly, I informed myself on the basis of information from the Department of Health, which I regard as more reliable than the hon. Gentleman. Thirdly, it was "the hon. Gentleman's people", including the chair of the Friends of the Hospital—
§ Mr. Hughes
As it happens, it was a man. The chair of the Friends of the Hospital expressed concern that, like so many PFI projects, that project had been continuously delayed.
§ Mr. Hughes
It had been delayed. The hon. Member for Teignbridge (Mr. Nicholls) knew no more about it when it was to be announced than anybody else.
§ Mr. Hughes
I shall not give way again. The hon. Gentleman knows that I was given my information by the Department of Health—[Interruption.]
§ Mr. Gerald Bermingham (St. Helens, South)
On a point of order, Madam Deputy Speaker. The word "dishonest" was just used by the hon. Member for Teignbridge (Mr. Nicholls). That word should not be used under the rules of the House.
§ Madam Deputy Speaker (Dame Janet Fookes)
I heard the word but did not think that it was a reference to the hon. Member for Southwark and Bermondsey (Mr. Hughes) personally. Will the hon. Member for Teignbridge (Mr. Nicholls) clarify that?
§ Mr. Nicholls
I meant that the intellectual exercise that leads to performances of that sort—disobeying Madam Speaker's recommendation to tell Members of Parliament when one intends to intervene in their constituencies—is dishonest. Of course, the hon. Gentleman is an honourable Member and he, personally, is not dishonest.
§ Mr. Hughes
The people of Dawlish believe what they see and at last they have some good news about the rebuilding of their long-awaited and delayed local district general hospital in that small town. I am glad about that, but there is no question but that everybody was becoming so frustrated by the PFI process and by the Government that the whole exercise will have done the hon. Gentleman and his party no favours.
People are still concerned about the problems in the health service, which have led to a report in today's The Daily Telegraph that John Radcliffe hospital, Oxford 720 provides a two-tier service: patients of fundholding GPs are told that they can have their operations, and patients of non-fundholding GPs are told thatno non-urgent cardiac surgery will be conducted during December".We still have a long way to go before we provide fair and adequate resources for our health service. In a moment, I shall suggest what we should have done in addition to what the Government have done. I also wish to comment on other parts of the Budget.
I share with the hon. Member for Sheffield, Attercliffe (Mr. Betts) the concern that we shall worsen poverty and bad health if we keep cutting the housing budget. Many people—about 30 per cent. of the population—still live in rented accommodation or are waiting for decent accommodation. Every year that we cut back the housing budget, we build up a legacy of repairs and poorer health. People will suffer greatly because of the changes to housing benefit that have been announced. When we discussed the Housing Bill in 1988, the Government said that all increased rents would be met by housing benefit. We knew that that would not be true then and it is proving not to be true now.
As the hon. Member for Vauxhall (Miss Hoey), my parliamentary neighbour, argued in this place a couple of weeks ago, other groups in society are not being looked after adequately. Asylum seekers are allowed to be here while their appeals are heard, but they now find that many of them will not be funded at all. Neither are they allowed to work, even they are willing to do so.
Although it has been doing so well, London Transport, which is important not just for London but for the functioning of the capital city and therefore of the economy as a whole, has had its budget considerably reduced. London Transport has a huge amount of work that it wants to do; it simply wants the controls over how it can borrow and invest lifted. Had that been done, and had London Transport been given decent investment, it could have gone ahead with the renewal of the capital city that we all want.
Unlike the Labour party, my colleagues and I have set out our alternative Budget and costed it. We have said that one of the prerequisites is to take significant numbers of people out of poverty by removing 700,000 people from the taxpaying group and paying for that by introducing a higher rate of income tax of 50 per cent. on higher earners. We have set out a programme of proposals that would maximise the number of people in employment: the more people in employment, the fewer who would be dependent on social security. That must be a national priority.
§ Mr. Hughes
I will not give way, only because other hon. Members want to speak.
We have set out, as the Secretary of State acknowledges, a commitment to the health service—as have the Government—to a considerably greater extent than the Labour party. I was tempted to intervene a second time during the introductory speech by the Secretary of State, when he was teasing the Labour party, rightly, about when, if ever, we shall get a Labour health policy. I gather that tomorrow at the Queen Elizabeth II conference centre there will be an opportunity for people to tell the 721 Labour party what its policy should be, as it clearly has not decided yet. If the Secretary of State and I have some spare time, perhaps we could go along and offer our suggestions. It is a disgrace that the party of Nye Bevan and of the foundation of the health service is willing to commit so little.
The health service must be funded at least to keep pace with inflation—not just national inflation, but inflation in the NHS—and to make up for underfunding in the past. Tomorrow night my colleagues and I shall vote against the cut in income tax, as we did last year, because we believe that the Government cannot con the public that they can both cut taxes and increase investment adequately in the public services. Neither the Government nor the Labour party are convincing when they try to argue that. Presumably, Labour Members will again refuse to join us in the Lobby, and will support the Government or sit on their hands. If that is the case, all I can say to Labour Members is that their argument that they will adequately fund the health service, as well as the education and housing services, falls flat—on the last occasion before the general election when they have the opportunity to put their votes where their words and public commitments are.
§ Mr. McAvoy
On the subject of politicians putting their votes where their words are, would the hon. Gentleman care to comment on the local Liberal party in my constituency, which supported a Tory Government and a Tory Secretary of State for Scotland in turning over to a private company an NHS hospital for geriatric patients? Does the hon. Gentleman support that?
§ Mr. Hughes
The hon. Gentleman raises a matter of which I have no knowledge, so I shall not comment. I shall consult my colleague who speaks on Scottish affairs—as the hon. Gentleman knows, the health service in Scotland is run through the Scottish Office—and my colleague will no doubt give him an honest and accurate answer. In my view, the Government are not engaged in an exercise to privatise the health service, but as a by-product of their policies, more people are turning to private health care. That is unsatisfactory and shows that the Government lack a persuasive fundamental commitment to the NHS.
The figures have been analysed time and again. Last week the Secretary of State and the Chancellor made their much heralded announcement of an extra £1.6 billion for patient services. I accept that that is a true cash figure, but what it means in real terms entirely depends on the level of inflation in general and in the health service. I accept that, for capital and revenue spend, there is likely to be a small increase in the budget next year. There is a relatively large budget in revenue spend, but a reduction in capital spend. The overall figure shows a 0.9 per cent. net increase in budget. In the view of independent commentators, that is at best extremely tight, and may not be sufficient to meet the demands of the NHS.
I shall make two other comments, which make it clear that, to understand the figures, we must consider, first, inflation in the economy as a whole—whether it is likely to be 2 per cent., as the Government calculate, or more likely to be 2.7 per cent., which it is now—and secondly, 722 whether there is additional inflation in the health service. The Chancellor accepted last week that there was, and that has been the case until now.
In its commentary, which I do not regard as the most impartial, The Guardian last week under the heading, "Ken's economy with the truth", quoted the Chancellor as saying:'For next year, we will increase current spending on patient care services by £1.6 billion, or 2.9 per cent. in real terms—,and commented:True, but not the full story. Most of the increase comes from cuts elsewhere. Projected NHS investment has been slashed in real terms by 10 per cent. in 1997–98. The Budget assumes that the Private Finance Initiative will plug the gap, but only one new hospital deal has been signed so far. Only £470 million of new money has been allocated to the NHS next year, on top of the zero growth planned last year.I commend to colleagues, although I do not propose to read it into the record, the Budget special in the Health Service Journal this week, which makes it clear that after deducting all the sums needed for inflation, growth in the number of elderly and so on, about £436 million is left, which has been taken over from personal social services, and about £97 million in the pot as real new money for this year. The most striking feature is that for the second year running, there has been such a significant cut in the capital budget—16.4 per cent. last year and 16.9 per cent. this year—a one-third reduction in Government-funded capital spend in the NHS. That takes place against a background of £2 billion—according to a Government answer a couple of weeks ago—of arrears in funding in the repair bill facing the NHS.
It was interesting that the Secretary of State said so little about the private finance initiative. Perhaps we shall have to return to the matter. The PFI always promises much, but delivers much less. Of all the approved projects, few have been signed up—so few that the Chancellor found only one example to give in his Budget speech. The figures last year showed £100 million committed by April 1995, £250 million in the pipeline and £1 billion by the end of next year.
It was noticeable that in this year's Budget statement, the figure projected over three years was less than that, and it is noticeable that the amount coming through in the PFI is decreasing in relative terms all the time. That is not surprising, because many contractors say that, without insurance, it is not worth their tendering.
The effect of the cut in personal social services looks extremely worrying. Hon. Members on both sides of the House will feel the impact on community care and social care out there in all our constituencies. The figures suggest a real needs increase per year of 12 per cent. since 1992–93, but a real fact increase this year of only 1.8 per cent. Local councils will be asked to pick up the tab, but many will not be able to do so, because of the effect of the Budget decisions announced last week on the Department of the Environment and local government spend.
I welcome—as I hope do all hon. Members—the fact that we are moving towards accurate, weighted capitation in the health service. Unfortunately, the Budget does not yet reflect the needs of all health authorities across the country. Although I am glad of the significant cash injection of £18 million in my health authority area, which brings us much closer to our target—I shall argue about 723 the details later—some colleagues in outer London may argue that their health budgets are falling short and that local authorities will face considerable difficulties next year.
Some factors did not feature in the Secretary of State's list of priority areas. All the four specific, top-sliced areas are important and I am grateful that they will receive more money. Obviously, everyone would like to see more than has been allocated, but I think that extra funding is going to the right areas: mental health, mentally disordered offenders, primary care, and training for people in the health service.
However, we are yet to hear how quickly the Government plan to deal with the scandal of mixed-bed wards. We need to know when the Government will address the problem of recruiting and retaining staff in many areas. It does not matter whether they come from Finland, Hackney or the Caribbean: we first need the staff. Their genesis is a secondary issue. We still face enormous staff shortages. I heard only this morning that one department at Guy's lacks a senior sister and that two others have unfilled posts. It is sad that there appears to be a reduction, in relative terms, in funding for campaigns—let only cures—for conditions such as HIV and AIDS. I say that in the knowledge that yesterday was World AIDS Day and that tomorrow the Secretary of State will address the all-party AIDS group.
Three questions remain unanswered by the Government: first, what criteria do the Government use when plucking an arbitrary figure for efficiency savings, which many feel is completely without justification; secondly, why have we still not moved to three-year contracts in the health service rather than one-year negotiations, which would save much money; and, thirdly, why have the Government not given up the silly idea that pay must be negotiated locally? That takes up too much time and uses more money and health resources than national pay negotiations.
I believe that, in the circumstances, the health settlement is relatively generous and that the health service should be grateful for it. Some problems remain: the funding is not enough. The Government must devote more money to the health service as a percentage of gross domestic product and as a percentage of the annual allocated taxpayers' cake. My colleagues do not believe that that will be achieved by cutting taxes. I believe that people would have forgone the tax cut in favour of an extra allocation to public services.
Despite those reservations, I am grateful that the Government have realised, as the right hon. Member for Selby said, that health is the nation's priority area of concern. I am glad that the Secretary of State and his colleagues have ensured that next year's expenditure increase will be greater than this year's increase. We wait—with some frustration, impatience and disbelief—to see whether, between now and the eve of the general election, the Labour party will come near to matching the commitments of, surprisingly, the Government or my own party to the NHS.
§ Madam Deputy Speaker
Before I call the next hon. Member, it is abundantly clear that a number of hon. Members wish to contribute to the debate. Unless speeches are considerably shorter than they have been, I fear that many hon. Members will be disappointed.
§ Sir David Madel (South-West Bedfordshire)
I shall follow your advice, Madam Deputy Speaker, and get a move on. I noted the qualified support of the hon. Member for Southwark and Bermondsey (Mr. Hughes) for next year's health expenditure, but I shall not dwell on it. I shall refer to the forecasts of my right hon. and learned Friend the Chancellor and to two items of Government expenditure that are always tied to the Budget.
In referring to the economic situation, my right hon. and learned Friend said correctly that we needed another five years to fulfil the Government's commitment to raising the wealth-creating potential of the British economy. In other words, we need more industrial expansion and greater industrial innovation. That is the only way that we can fulfil his wish for unemployment todrop through the 2 million mark.He added:But that is too high. I want it to go on falling and I expect it to go on falling.That is welcome encouragement for Conservative Members.
My right hon. and learned Friend referred also to the need for inflation to stay low, which is another encouraging sign. He said:We are on course to get underlying inflation down to our target of 2½ per cent. or less".Persistent low inflation points to three-year wage and salary deals becoming the norm in industry, with resulting industrial peace. If we move to three-year deals, we should concentrate on achieving single-union deals and no-strike clauses through voluntary agreements. That will assist industry—and the Government should remember that they are still an employer in several important sectors.
My right hon. and learned Friend also said that he would pay particular attention to industry's views when considering his interest rate policy. I share his optimism when he says:Any risk to this recovery from inflationary pressures re-emerging remains a good way off."—[Official Report, 26 November 1996: Vol. 286, c. 156.]That is encouraging. Slightly less encouraging is the November quarterly inflation report from the Bank of England, which states:To ensure this outcome, i.e. inflation staying low, some further rise in interest rates is likely to become necessary in due course.I hope that the Bank of England will have less anxiety about interest rates and more faith in the Chancellor's correct interest rate policy. He has listened more attentively to the voice of industry than to those at the Bank of England, who are almost invariably pessimistic.
As to state spending, I welcome the increased expenditure for schools and universities—particularly the extra £20 million for science equipment. In his Budget speech, the Chancellor referred to student loans and who will manage the debt. I think that it will take time for the student loans policy to fit comfortably with the arrangements for financing the cost of higher education. Whatever the Dearing committee recommends next year, surely this country can afford to maintain the present tuition fee arrangements—if Government spending 725 priorities must be rearranged, so be it. Referring to his attempts to change student debt and push it to the private sector, my right hon. and learned Friend said:I emphasise that the sale will have no effect on the terms on which students can get loans".—[Official Report, 26 November 1996; Vol. 286. c. 159.]That is very reassuring for students in the higher education system and for those who will enter it next year.
As we have a merged Budget and spending programme—I am glad of that fact—I turn to the roads programme, the car industry and the general manufacturing industry. We need to have a much more sharply focused debate on which roads can be afforded and what is needed. I do not think that anyone advocates the everlasting widening of motorways: our priority should be strategically situated bypasses. There should be bypasses in certain towns that need a boost to industry and bypasses around other towns and villages that are choked by traffic. That should be the Government's priority for roads spending.
We should worry less about the increase in car ownership in this country. I have long felt that a mobile work force is much more efficient than one that is not. We should remember that the continued growth in car ownership is caused in part by the increasing number of women in paid employment who make a major contribution to the country's wealth. No amount of propaganda by anti-motor car groups will convince me or my constituents that somehow the private car can be replaced by a mass of buses or by railways that cover the country. That is simply not practical. Of course, there is an onus on Government to improve public transport—particularly in the London area—but the best way to get people out of cars and on to tubes or buses is by ensuring that industrial peace, which was at last attained on the tubes in autumn, is here to stay.
The Government need to examine their regional policy. A fresh look should be taken at the way in which regional grants are made available, as it should at travel-to-work areas. The Government should pay special attention to infrastructure and to the grants that are given for manufacturing in the south-east. It is 50 years since we started a policy of London overspill into the home counties. People were moved out of London not just to live in the home counties, but with the prospect—it was fulfilled—of having jobs near where they lived. A huge transfer of population did not take place merely to ensure that people had to commute all the way back into London to work.
There has been a tilt in regional grants to areas away from the south-east for so many years that there is no longer a level playing field. Now is the time for the Government to take a fresh look at regional grants and make the necessary changes. They should remember especially that it is the road systems in certain south-east towns that need attending to critically if we are to keep competitive industries in the region.
Linked with the Budget—we had a statement the next day—is the revenue support grant settlement. It is relevant to ask for how much longer capping on local authority expenditure should continue. Of course, no tax is popular. Taxation has never been popular, and it never will be. The council tax, however, has proved far more acceptable to 726 the public than ever rates or the poll tax did. When we introduced council tax, of course, we separated out the question of taxation for businesses.
There would be a difference this year if we were to lift the caps on shire county expenditure. There is an automatic braking system—the local elections on I May. In shire county halls, all three parties are jockeying for position. In my view, however, nothing concentrates their minds more carefully than the fact that all three parties must face local elections on I May. It is for them to justify what level of expenditure there should be and on what they will spend that money. In my view, the change should be phased, because not every authority has an election next year.
I think that we can now safely start to move powers back from Whitehall to local government, but not in one fell swoop. Let us base that movement on the proximity of elections, when the people locally can decide whether they approve or disapprove of what has been carried out.
All Budgets are balancing acts for Chancellors. They become more and more difficult every year, given the intense pressure for a higher level of state spending, and this year is no exception. What stands out in this Budget, in my view, is the commitment of my right hon. and learned Friend the Chancellor of the Exchequer to keep inflation low and to continue policies that reduce unemployment. With that economic background, as long as we talk nicely and politely to the electorate, the governing party, the Conservative party, can still see the general election there for the winning.
§ 7.3 pm
§ Mr. Brian H. Donohoe (Cunninghame, South)
I, too, will be brief. Somebody once said—the comment may well have been made by an official in the Treasury—that there werelies, damned lies and statistics.Given the Chancellor's Budget statement last week, we are now in a position to say that there are lies, damned lies, statistics and—courtesy of the Chancellor—pre-election Budgets.
There is no doubt that the calculations contained in the Budget would do justice to accountants who ruthlessly exploit tax loopholes and whose activities the Chancellor now seems to see the merit in clamping down upon. Why has that recognition taken so long?
The political dust has now settled on the Budget statement and millions of voters who will determine the result of the next general election have had an opportunity to assess the impact—or rather lack of impact—of the Chancellor's measures on them and their families.
The business sector—the driving force of the economy, so we are told—has also had an opportunity to consider the measures announced by the Chancellor. Its response so far has been one of deep distrust of the direction in which the Government are taking the country.
My constituency contains Irvine new town—a new town that is still haunted by the old problem of high unemployment—and has been hit hard over the past three years by a series of job loss announcements and factory closures. We have also had to put up with staff cuts in local hospitals, the Ayrshire Central hospital, where there were major cuts, and the Crosshouse hospital, where there were even deeper cuts over the past year. Yet we heard 727 this afternoon from the Secretary of State for Health that we are supposed to believe that there has been an increase in the moneys available to health trusts. In my constituency, the opposite has occurred. About 200 people have lost their jobs because of the cuts that the Government have created.
There have been direct job losses and it has become more difficult for the smaller companies to survive that supplied larger companies on a subcontracting basis. We have seen Unitex, Amkor Anam, Connor Peripherals, ICI and Escom disappear or announce major job losses in my constituency. The list seems almost endless. However, the constituency is supposed to be in a hot spot for jobs.
I am talking of companies that took hundreds of jobs with them when they folded or cut production as a result of the Government's discredited economic policies. However, despite closure announcements—most recently of the Robert Wilson and Sons canning factory in Kilwinning, with the loss of 285 jobs—the Government's response to the business sector's problems has been minimal, if there has been anything worth while at all.
Last week's Budget continued the trend of Government inaction, with business people in my constituency deeply concerned that the Chancellor has put the short-term political interests of the Tory party, and its need to win the general election next year, ahead of the country's long-term interests.
Business people want to see tax cuts, but they also know that, if their own business is to succeed, they need a highly trained work force, and they need the Government to invest in the industrial and transport infrastructure to allow them to compete. Most of that money has gone amiss in my constituency. In Ayrshire, we still lack a major road link to the national motorway network; indeed, the best road out of Ayrshire is still a B road. That is rather strange in an area that is supposed to be a developing part of the country.
Business wants to see a low-taxation economy, but not at the expense of the overall well-being of the economy. Tax cuts as pre-election bribes do not fool those in the business sector, who do not believe the Chancellor's claims about increases in expenditure on education. They welcome relief from increases in business rates, but they will not forget that it was the Government who increased business rates in the first place.
The experience of the business community in my constituency—be it large employers or small businesses—is that, despite the Conservatives' claim to be the party of business, their policies have made it more difficult to get on with doing business in a way that benefits their companies and creates jobs and wealth. Business in my constituency is surviving not because of the Government, the Chancellor or his Budget statement but despite them.
Last Tuesday, the Chancellor had an opportunity of trying to get the economy and the country back on track by taking decisions that would have supported business. Instead, he chose to try to win the Tory party another general election, secure in the knowledge that, if he failed, he would not be faced with having to take the difficult decisions that will be caused by his cavalier approach to public finances.
The Chancellor said last week at the start of his Budget statement that he was not going to play Santa Claus or, at the other extreme, Scrooge. At the Dispatch Box last Tuesday, he was not so much a Scrooge or Santa Claus 728 Chancellor as a wild west gambler, with a glass of Scotch by his side and a cigar hanging from his mouth, playing a game of high-stakes economic poker at the last chance saloon. As the reaction of voters over the past seven days has demonstrated, his Budget bluff has not worked at all. Voters have not forgotten the 22 Tory tax rises that the Conservative Government have introduced; nor have businesses forgotten the economic recession that was caused the last time the Tories played fast and loose with the public purse in the run-up to the 1992 general election.
The Chancellor's Budget was bad for the millions who are unemployed, particularly the young and long-term jobless, who still have no real hope of a job. It was bad for taxpayers on low and average incomes, who are still paying the price of previous Tory tax rises. It was bad for British business, which needs investment to support it, not short-term decision making in the interests of the Tory party. It was bad for everyone, it seems, except the Tory party, which will have to wait only six months until the next general election before electors vote to evict it from office.
§ Mr. Graham Riddick (Colne Valley)
I join my hon. Friend the Member for Ryedale (Mr. Greenway) in welcoming the freeze on business rates that will apply to hundreds of thousands of small businesses throughout the country, many of which are in my constituency. They will very much welcome that move.
I am sorry that my right hon. Friend the Secretary of State for Health is not in the House at the moment, because I congratulate him on his excellent speech and performance. He wiped the floor with Opposition Front Benchers. It was a very impressive performance. In response, the right hon. Member for Derby, South (Mrs. Beckett) said that the national health service was falling apart. Perhaps she should come to Huddersfield to see the £10 million that has been invested in the Huddersfield NHS trust over the past 18 months. We have seen a new urology department, a new A and E unit, and a host of other developments that have taken place in recent months and years. I receive many more complaints about my local Labour-controlled council than about the local national health service.
I have heard the Labour party refer to the so-called 22 Tory tax rises so many times now. We just heard the same claim made by the hon. Member for Cunninghame, South (Mr. Donohoe). What are these 22 Tory tax rises? Yes, it is fair to say that, during the recession, tax revenues fell and it was necessary to increase some taxes at that time. But what are the 22 tax rises? I had a look and discovered that, within the 22, the Labour party has incorporated four fuel duty increases over the past few years, as though no Government would have increased fuel duty. Of course a Labour Government would have done so, as indeed would any other Government, so it is somewhat facile propaganda.
Looking a little further down the list, I notice that the Labour party has included the insurance tax, not once but four times, because the insurance tax applies to more than one item. That is like me saying that when the previous Labour Government increased income tax, there were 100 new taxes, because income tax applied to dustmen, solicitors, Members of Parliament and a host of others. That would be a ludicrous thing to say, yet the Labour party keeps peddling that nonsense in the hope that if it says it often enough people will believe it.
729 The truth is that the Labour party believes in high spending and high tax. My hon. Friend the Member for Dover (Mr. Shaw) asked an interesting question in the last Parliament about tax under previous Governments. The answer that he received revealed that every Labour Government in history—with the exception of the first Labour Government, in 1924, who were in power for only nine months and therefore did not have time to do this—have left office with tax at a higher rate than when they came to power. It does no harm to remind people of the income tax that the previous Labour Government forced people to pay. People paid income tax at 50 per cent. on an income of £9,000 a year, and at 75 per cent. on incomes of £15,000 a year.
Those incomes were worth more in real terms in those days than they are today, but we are talking about very high levels of income tax, and, as we all know, the top rate of tax was a massive 97 per cent. I have no doubt that if Labour manages somehow to win the next election, nothing will change. We would see exactly the same thing happen again. A Labour Government would increase taxes as they always have in the past.
We should congratulate my right hon. Friend the Chief Secretary on his investigation into the Labour party's spending plans. As always, the Labour party intends to spend much more of taxpayers' hard-earned incomes. Indeed, the Labour party has made 89 firm policy pledges involving increases in public spending. The total cost came to some £30 billion. Those pledges are contained in this excellent document. I challenge any Opposition Member to deny that a Labour Government would seek to increase overseas aid, rejoin UNESCO, establish regional business development agencies in England, establish a business development bank, restore public ownership of the railways, increase spending on house building—about which we heard from the hon. Member for Sheffield, Attercliffe (Mr. Betts)—end council tax capping, establish a network of women's refuges. The list goes on and on, and I have no doubt that if Labour came to power, we would see those commitments put into place. They would, of course, cost the taxpayer a fortune.
I shall look at the wider issues of the Budget. There are a number of challenges and objectives that the Chancellor had to fulfil, but his overriding task was to do nothing to undermine the stability of the economy or the economic growth that the country is currently enjoying. Governments can do all sorts of things. They can spend money—always other people's money of course. They can raise taxes, to ludicrous levels, as we saw when Labour was last in power. They can pass laws through Parliament, and no one should underestimate our ability to introduce disruption and change through passing laws. The one thing that Governments cannot do is to create and generate wealth. Only companies, entrepreneurs and the people who work for them can do that. Only wealth creators can generate the revenues that Governments are only too ready to spend. Only wealth creators can produce the prosperity that we all want to see enjoyed by the people of this country.
Despite the tremendous strides in job creation that the Government have made in recent years, there are still too many people out of work. Despite the significant increase in the standard of living over the past 17 years, too many of my constituents are on low wages. That is why it was 730 crucial that the Chancellor did nothing to upset the equilibrium of the economy, and in that objective he was successful. He has done nothing to threaten higher inflation. Public spending is firmly under control, and he has achieved that while increasing spending on the key public services of health, education and law and order. I very much welcome that. The Chancellor has done nothing to increase the risk of an interest rate rise.
However, I am concerned about one matter. A consensus seems to be developing in the City that inflation will start up again, and that interest rates will have to be increased. I am suspicious of such a consensus. The last time that there was a consensus, it was on the need to join the exchange rate mechanism. The Treasury, the Foreign Office, the Confederation of British Industry, the Trades Union Congress and all the political parties said that it would be a jolly good idea to go into the ERM, and we all know what a disaster that was. It cost hundreds of thousands of jobs in this country.
The Red Book reports that most commodity prices have levelled off, and many have fallen in recent months. Wage pressures are subdued. The latest CBI survey suggests that inflationary pressures in manufacturing remain subdued, and that producer-output prices are low, with little pressure for increases. It is important that we watch the monetary indicators. It is interesting that that arch monetarist, Professor Patrick Minford of Liverpool university, who has so often been right in the past few years, believes that the City has got it wrong. I support his view. It may have got it wrong on this occasion, because many people underestimate the extraordinary structural transformation that the Government have achieved.
The labour market has been deregulated, labour costs have reduced, and we have made crucial trade union reforms. The old nationalised industries used to put their prices up at the drop of a hat. Many of the large price increases of the 1970s and early 1980s were pushed through by the nationalised industries. We have now privatised them, and they are rejuvenating themselves. They are subject to more competition. If they are monopolies, their prices are regulated. The City consensus has underestimated the marked increase in competition, not just in the United Kingdom but from overseas.
The trend growth could now be higher than it has been in the past because of the structural changes and improvements that have been made. My message to the Chancellor is that, although he has to keep a watchful eye on inflation, he should not be hurried into premature interest rate rises.
Our overall economic outlook is bright. Growth is strong and unemployment is falling. Indeed, unemployment is lower in the United Kingdom than it is in all our major European competitor countries. It will shortly be below 2 million, while in Germany the figure is 4 million and rising, and in France it is 3 million and rising. In my constituency it has fallen by 640 since the beginning of the year.
However, two dark clouds on the horizon are casting a shadow over our success. First, Conservative Members cannot, sadly, dismiss out of hand the possibility of the Labour party winning the next election. Secondly, we face growing meddlesome interference by the European Union, and the danger that this country may be involved in a 731 single European currency. The two are intertwined, because the Labour party seems prepared to swallow most, if not all, of the rubbish that comes out of Brussels.
Last week, the Chancellor said that it was a happy coincidence that the United Kingdom will meet the convergence criteria, and will thus qualify to join a single currency. That is the one area on which I do not agree with him. It is an unhappy coincidence that we may meet the convergence criteria, because if we did not, there would be no chance of us entering a single currency.
That issue is proving to be highly divisive in the European Union. I dread to think what it would be like if the single currency came into being. Other countries have massaged the convergence criteria. If we were in a single currency, the United Kingdom would lose control of its monetary policy, and ultimately of its tax policy arid its economy. Our experience of the ERM shows us that monetary policy would not necessarily be run in accordance with the needs of the British economy. My constituents do not want a single currency; nor do I. I will do what I can, as a Back-Bench Member, to prevent the United Kingdom from scrapping the pound and adopting a single currency.
You asked, Madam Deputy Speaker, for short speeches, so I shall draw mine to a conclusion. The Budget has done nothing to damage the enterprise economy that the Conservative Government are developing, which is yielding higher economic growth and lower unemployment than in all our major European competitors. It is crucial that we do not allow the European Union or the Labour party to ruin that enterprise economy.
§ Mr. Bill Etherington (Sunderland, North)
The hon. Member for Colne Valley (Mr. Riddick) has proved to me beyond any doubt that we are no more likely to get brevity from Conservative Members than succinctness—both are unobtainable.
I admit that I suffered the misfortune of being ill on the day of the Budget speech. I am not sure whether that was a misfortune or a bit of good fortune. As I listened to the speech on the radio, although I was depressed to begin with, it made me feel even more depressed. In line with all Chancellors' speeches since 1979, it followed the common pattern. To make it appear presentable, the Chancellor took money away from the less well-off and gave it to the better-off. Every Tory Chancellor since 1979 has consistently done that. The facts and figures are available, and eventually it will be proved beyond all doubt to the general population, who will vote accordingly whenever the election is held. I have no doubt about that.
A reduction of 1p in income tax means that the person earning £100,000 a year has 10 times the advantage of the person earning £10,000 a year. That 1p must be paid for. It is interesting to examine some of the smaller measures in the Chancellor's Budget that did not catch the headlines. Instead of going up by the rate of inflation, the threshold for inheritance tax went up by 7.5 per cent. No doubt that will help to continue the trend that has led to a reduction in inheritance tax claims from 49,000 in 1979 to only 14,000 now. We are losing revenue from people who do not really need the money. I accept that the people who are dying do not gain an advantage—whatever the rate of inheritance tax—because it is the people who follow them who are expected to pay.
732 A similar tale applies to capital gains tax. Conservative Members would like that to be abolished. Capital gains tax takes from the better-off for the benefit of the worse-off. Conservative Members are vehemently opposed to that, because they have shown time and again that they do not believe that anything should be done for the poorer members of society. It is interesting to note that, in 1989, £2.3 billion was raised in capital gains tax from 150,000 people. That has now been reduced to £900 million from 90,000 people. That is another valuable contribution lost.
I also take note that the Chancellor has reduced by approximately 2 per cent. employers' liability for national insurance payments. It would be interesting to know the actual percentage now paid by employers into the national insurance scheme. It was originally envisaged that they would pay a little more than employees. I am not aware that the current figures have been published. Since 1979, employees' contributions to the scheme have increased by more than 50 per cent. That is probably one of the 22 hidden taxes that the hon. Member for Colne Valley mentioned.
I should like to refer to tobacco tax. I have no interest to declare: I have no great feelings one way or the other. I accept that it would be better if people could be persuaded to smoke less. Although tobacco tax went up last year, there has been an increase in tobacco smuggling and in the number of young people and children who smoke. The argument that increasing tobacco tax deters people from smoking does not seem to be borne out. There seems to be no research on the subject: an increase in the tax is just a knee-jerk reaction. If the Government are really concerned about people's health and want to reduce smoking, why do they not consider decent health education? I do not see much sign of that. They could also consider the way that the industry advertises because that might do more good in the long term.
Another matter in which I am involved is the fluoridation of water. There is no proof that it does any good, but it takes people's minds from the real issue, which is the importance of parents properly instructing their children to look after their teeth. That is the real answer. In terms of deterrence, a tobacco tax is about as much use as is fluoride for improving dental conditions.
I did not think that I could say about a Conservative Budget that there is one measure in it that I welcome, and that is the proposed phasing out of tax-free profit-related pay. First, all disposable income should be properly and fairly taxed regardless of source. Secondly, employers have ruthlessly used that measure to ensure that their employees are paid less. Although employees benefit from profit-related pay, the population in general suffer. The removal of the scam is welcome. The airport departure tax has been increased, but I shall certainly be willing to pay my share when the Government depart in April or May. The sooner the better.
Possibly the worst aspect of the Budget ties in with what I have said so far about the Government's paranoic hatred of the less well-off. Single-parents are being targeted for vicious treatment. Their income will be reduced by about £6.40 a week, over the next two years. I do not suppose that that strikes the Government as particularly noteworthy, but I shall try to show why it is wrong. Some 40 per cent. of single-parent families have disposable incomes of less than £100 a week—but only 4 per cent. of two-parent families are in the same 733 circumstances. Once again people who have little to start with are being targeted and the Government will ensure that those people have even less.
Overseas aid has been reduced for the second year running although we are told that the economy is booming and that our successful economy is the flagship of Europe. There are not too many signs of that in terms of overseas aid. I am pleased to see that Scotch whisky is being favourably treated because there are problems about smuggling and employment. However, I do not understand why the Chancellor did not treat the beer industry in the same way. It has a terrible problem with smuggling. Last year, cider makers were discriminated against and this year the Scotch whisky industry is getting preferential treatment compared with the beer industry. I regret that and I hope that in future the matter will be examined rather more realistically.
The problem that concerns me more than any other is that of housing, which is getting worse year by year. Some interesting statistics have been provided. I declare an unpaid interest in that I am a member of a housing association which is also an alms house. I do not receive payment but on a good day I get a cup of tea and perhaps a biscuit when I attend a meeting, and that is about it. It is depressing to have to make the same remarks year after year. There has been a 72 per cent. reduction in housing association finance since 1992–93. There will be fewer than 22,000 housing starts by housing associations this year compared with more than twice that number last year. The Government are failing to reach their 60,000 a year target. The Secretary of State for the Environment thinks that another 4.4 million houses will be required by 2016, but it seems that we shall fall a long way short of that.
The National Association of Housing Federations estimates that 90,000 homes would need to be built in the social sector each year to reach that target and we will be nowhere near that. Whatever is said, the situation is getting worse year upon year. That term was used by the Secretary of State for Health in a different context, but it also applies to housing. The condition of the housing stock will worsen because less money is being made available. We often hear about a ticking time bomb. There have been riots because of poor housing and if the trend of the past four or five years continues, I fear that in the not too distant future there could be more riots. Any Government must first ensure that their citizens are properly and adequately housed. I am afraid that the Government are not doing that.
§ Mr. Douglas French (Gloucester)
I am not sure which was the more formidable contribution—the opening demolition by the Secretary of State for Health of Labour's totally untenable position on NHS funding and his exposure of its ambiguity over the utilities tax, or the way in which the Chancellor presented his Budget.
The Budget was well received by individuals, by businesses and by the markets, but not by some Labour Members; and the Budget speech was widely respected for its excellent judgments. Those who had decided in advance to dislike the Budget and reject it naturally presented their objections, but it was interesting to note the extent to which those objections seemed to be pre-packaged and orchestrated.
734 Like my hon. Friend the Member for Colne Valley (Mr. Riddick), I have lost count of the number of times in the past week that I have heard Opposition Members talk about the 22 tax rises. My hon. Friend was right to give more details of his research into what those 22 tax rises are said to be. They plainly include minor adjustments, technical amendments and changes in duty on tobacco and drink. In one or two cases, full indexation on allowances may not have been given. There has been no attempt by the Opposition to acknowledge the net position after tax decreases or the scale of tax decreases. They emphasise the number, but the scale is much more important.
The Opposition do not recognise that tax rises increase revenue, which is then spent on headings that are close to the hearts of hon. Members in all parts of the House—such as education, health and law and order. If Labour Members are so determined to claim that they have no sympathy with these tax increases, they must explain what decreases in expenditure they would make, having forgone the revenue from those tax increases.
In the past week, I have lost count of the number of times the Opposition have spoken about the average family having to pay an extra £2,120 in tax between the last general election and the next one. That was mentioned in the reply to the Budget by the right hon. Member for Sedgefield (Mr. Blair) and by the hon. Members for Bristol, South (Ms Primarolo) and for North Warwickshire (Mr. O'Brien) and many others. However, as far as I could see, there was no attempt to acknowledge that, when average earnings go up in real terms, it is obvious that the cash take goes up as well. If there had been no change whatsoever in the tax percentage taken from the average family, the tax take would be bound, when expressed in cash terms, to reflect the substantial rise in average earnings. The Opposition should stop making that claim.
The right hon. Member for Derby, South (Mrs. Beckett)—echoed by the hon. Member for Sheffield, Attercliffe (Mr. Betts)—attempted to criticise the use of the private finance initiative to fund hospitals. We have been told that, so far, only one hospital project has proceeded, and there was some dispute about whether the proposed hospital in Gravesham will materialise. In my constituency, we have been expecting an excellent new hospital to be financed through the PFI. I would be the first to acknowledge that progress on the project has been slow, but the only reason for the delay is that the Labour-controlled city council has found every reason to block it.
The council has been objecting to the project on planning grounds, whereas its real objection is that the PFI somehow offends its left-wing, doctrinaire attitude that the PFI and the NHS should not fit together. That is the reason why the excellent new hospital—which I very much hope the residents of Gloucester will have—has been delayed. The sooner the council changes its attitude on that matter, the better it will be for the residents of Gloucester.
Rather the same pre-packaged, anticipated and predictable reaction has come from Labour councils on the issue of expenditure. Earlier in the debate, an hon. Member mentioned "broken promises". I can mention broken promises by the Labour-controlled Gloucestershire county council. Every year for the past five years, upon hearing the Budget statement—or before hearing it—the 735 council has promised that it would be forced to close libraries or to sack teachers. After more careful reflection on the Budget, it has discovered that it would not be forced into keeping the "promises" that it was so determined to make.
A very similar situation is occurring in the Labour-controlled Gloucester city council. It reacted to the local government settlement by immediately stating that it would be forced to make expenditure cuts amounting to £600,000. Incidentally, it is a Labour-controlled council in which £1 million uncollected rent is outstanding, which recently decided to pay £10,000 to a firm of consultants to tell it whether its committee structure was right, and which paid £15,000 to a public relations firm to tell it what local residents wanted done with the home of Rose and Fred West, in Cromwell street.
It is also a Labour-controlled city council that gives more than 10 per cent. of its £10 million budget in charitable donations. Some of those donations support very worthy causes, but, sadly, some of them are made to quasi-charitable organisations, whose real purpose in life is to stir up political and not charitable activity.
This is the first Budget for quite a long time that has not had a savings package. Although there has been some clarification of the position on guaranteed income bonds, and there is a consultative document on life policy taxation—to distinguish between life and savings products—there is no savings package in the Budget. I regret that omission. I recall that, in the first half of the 1980s, the watchword in the savings market was "fiscal neutrality". That approach led to the abolition of, for example, life assurance premium relief, so that preferential treatment was not given to certain savings vehicles.
Thinking changed in the second half of the 1980s. A desire to encourage equity investment resulted in the introduction of personal equity plans and deposit-based savings schemes with preferential treatment, such as tax-exempt special savings accounts. It is now evident that TESSAs that are reaching maturity are providing many savers with a pot of gold for luxury purposes. I know of many examples in which maturing TESSAs are used for the holiday of a lifetime, for the purchase of a new car or for other luxuries. I have always thought that, if one planned to provide that type of fiscal incentive, it would be far better if it was for a very specific purpose.
I am very much reminded of the current debate—in which my right hon. Friend the Secretary of State has been so involved—on long-term care. His proposals have yet to be finalised, but the difficulty in doing so lies in making the cost of cover match the benefits. One of the difficulties is that a would-be policyholder will not always know whether he wants long-term care, permanent health insurance, critical health insurance, whole life cover or something else. So he has to take a gamble on which cover he should take out. I very much believe that it would be far better if there were some form of universal cover that included all those risks.
When one goes to the experts and suggests such cover, however, their answer is that it would be far too expensive unless it were taken out very early in one's career. That is why I should very much like to see the type of tax incentive that is currently given to TESSAs directed instead to a universal policy in which the arithmetic would add up if the policy was started early enough. I should 736 like it to be directed towards an age relief at the front end of a person's career, so that the concession would be available, for example, to someone below the age of 35, but not to those who are older.
Another way in which to move in that direction would be to bring closer together the tax treatment of different types of pensions. I should like to declare an interest as an adviser to the consulting actuaries, Alexander Clay. The tax treatment of money purchase, final salary and personal pensions should be brought closer together. That would provide a savings vehicle that could be used to cover the different type of risks that I have described, including long-term care provision.
I should like to deal with the points on insurance premium tax made by my hon. Friend the Member for Ryedale (Mr. Greenway). The insurance industry clearly dislikes the tax, and it anticipated that it would be increased. Admittedly, the increase was less than expected, but it was still unwelcome. In many ways, it is not surprising that the industry would be hostile to IPT, because it makes business more difficult. Moreover, the industry foresees the chance of an inexorable rise in IPT for many years ahead, and that is unwelcome. Some would argue that it might be better not to have a separate IPT, but to incorporate it into the value added tax system, so that it would at least he possible for costs to be recoverable.
There have been many cries that the IPT increase will result in more people being uninsured, and, in particular, that they will not take out household and possibly motor and other types of insurance. That reaction is less than justified. I cannot recall that, when insurance premiums increased for non-tax, operational reasons, any spokesman for the insurance industry said that it was more likely that people would stop taking out insurance. One heard then that, notwithstanding the price increase, insurance cover remained a very good value product.
I do not think that it is tenable to argue that the customer's perception of a price increase—regardless of its origin—will cause him not to take out insurance that he might otherwise have taken out. On motor insurance, there are other ways to deal with the problem. The prediction I saw was that the average comprehensive policy might, as a result of IPT, increase by perhaps f5 a year. That amount, and far more, could be saved if the insurance industry would grasp the nettle of introducing insurance windscreen disks, as I have advocated for a very long time.
I applaud my right hon. and learned Friend the Chancellor for grasping the nettle of guarantee warranty insurances. There is absolutely no doubt that there was a loophole. The price of some electrical goods in particular was made artificially low when the goods were combined with an insurance guarantee in order to shift the balance from the 17.5 per cent. VAT applicable to the goods to the 2.5 per cent. insurance premium tax applicable to the warranty.
The Chancellor was right to tackle the problem, but, like my hon. Friend the Member for Ryedale, I very much doubt whether the proposed formula will work satisfactorily. It appears to mean that the cover for the electrical goods, for example, will bear a different rate of tax—either 17.5 per cent. or 4 per cent. IPT—depending on where it is bought and whether it is bought in conjunction with the product to which it applies. That 737 seems administratively difficult to handle, and I strongly urge my right hon. and learned Friend to re-examine the matter.
Unlike the hon. Member for Sunderland, North (Mr. Etherington), I would not necessarily urge the abolition of or a reduction in capital gains tax, but I would strongly urge a simplification of the way it is worked out. It does not seem right that, although a tax may be relevant only to comparatively few people, it is virtually impossible for those people to work out their liabilities for themselves, and they have to go to an accountant.
The problem originated in the decision taken in the 1980s to index capital gains tax at a time when it was necessary to do so for inflationary reasons. Now that inflation is down to between 2 and 3 per cent., there is not the same need to compensate in the gain for any inflation. I would prefer a much simpler solution.
I do not subscribe for one moment to what I understand is the Labour party's recommendation, which is that there should be a short-term and a long-term rate of capital gains tax. That was tried before, but it did not work. The difficulty with that solution is that it encourages a sub-culture of advisers who try to convert what would normally be capital gain into income—or income into gain; it could work either way—and to avoid the long-term capital gain. Also, their judgments are distorted because the tax considerations become more important than the market considerations of the sale of whatever the asset is.
We must avoid renewed attempts to escape liability by presenting it as either a gain or an income in order to benefit from the lower tax regime. I hope that the matter will find a place in a future Budget, but I emphasise that simplifying the system is more important than abolishing the tax.
I greatly applaud the "spend to save" measures introduced by the Chancellor. On Customs and Excise, he has estimated that £88 million of expenditure is likely to produce £2.25 billion of savings from otherwise lost duties. That appears an extremely commendable step. It was probably not taken previously when there was so much pressure to reduce the number of civil servants, regardless of what they were doing. Now it seems absolutely the right step to take.
I know for certain that the news will be welcomed at the VAT office at Elmbridge court in Gloucester, where people's jobs have been under threat. They were dismayed, because they knew that they could collect revenue if they remained in their jobs, but they were told that the operation was being slimmed down. Now, I hope, they will be able to stay in their jobs and pay for themselves by bringing in revenue far in excess of their salaries. Such an approach is commendable, and the news will be well received.
I also congratulate my right hon. and learned Friend on his announcement that he is to go ahead with the plan to rewrite tax legislation in plain English. That was the brainchild of Lord Howe of Aberavon many years ago. I am pleased that he is proposing to play a part in the 738 exercise, and I am confident that, as a result, we shall have much greater simplicity than we have had up to now.
§ Mr. Thomas McAvoy (Glasgow, Rutherglen)
It is notable that Opposition Members took to heart Madam Deputy Speaker's request that, in order to enable all hon. Members to speak, speeches should be kept reasonably brief. I fear that the hon. Member for Gloucester (Mr. French) may have deprived some of his colleagues of the opportunity to speak, bearing it in mind that I and my hon. Friend the Member for Dudley, West (Mr. Pearson) are the only Opposition Back Benchers left to speak—I know that my hon. Friend will certainly bear in mind Madam Deputy Speaker's remarks about the allocation of time.
Several hon. Members have mentioned the Government's attack on motorists and roads. Motorists have been hit by a number of tax increases—once again, they will be paying fuel duty—but the increases also affect industry and commerce. As has been said, it is from industry and commerce that we get the revenue from which all else flows. To attack road users through fuel and excise duties and the insurance premium tax damages industry as well as domestic motorists.
Scotland, Northern Ireland and, indeed, the furthermost regions of England are peripheral communities in the sense that one has to travel a long way to reach them. That is especially true of the Scottish highlands and Northern Ireland. Such communities will have to bear the brunt of increased motoring costs. The Chancellor has paid little regard to the Budget's impact on them.
The increased cost of petrol and fuel will also damage the tourist industry in Scotland, in which I have a particular interest, and in Northern Ireland. Northern Ireland is trying to get away from violence, to encourage employment and establish a more secure industrial and commercial base. Tourism has terrific potential in Northern Ireland, but, sadly, the Province will be able to take no comfort from the extra charges to be levied on motoring.
I agree with the hon. Member for Ryedale (Mr. Greenway) about greyhound racing. It provides jobs and entertainment, and is part of the leisure industry, but there is to be no relief for it this year. That is a poor move by the Chancellor.
It always comes as a surprise to Conservatives when Labour Members express this point of view, but I am not that fond of motorways—I can take them or leave them, depending on the need for them. However, the roads programme has been slashed, even though some of the proposed bypasses would be useful and it would be common sense to complete some existing schemes.
The roads programme was costed at approximately £20 billion in 1989, but now stands at £6 billion. It has become an easy target in the fight to save capital. Cutting the roads programme betrays a short-term approach, because traffic will snarl up, and industry and commerce will be affected. The road haulage industry is still the most important distributor for industry and commerce in the United Kingdom, but it is being damaged.
739In my constituency, we are waiting for the M74 extension. The motorway currently comes to a sudden end and the traffic piles on to Cambuslang main street in Rutherglen, causing all sorts of environmental damage and costs for industry. That is just plain daft.
§ The Financial Secretary to the Treasury (Mr. Michael Jack)
Will the hon. Gentleman clarify a point for me? He criticised my right hon. and learned Friend the Chancellor for raising fuel duty, and he has now gone on to talk about the roads programme. Has he received any assurances from his right hon. Friend the Member for Dunfermline, West—
§ Mr. Jack
Has he received any assurances from his right hon. Friend the Member for Dunfermline, East (Mr. Brown) that, in the event of him ever having his hands on the Treasury till, he would reverse the changes that my right hon. and learned Friend has made, and provide more money for the road programmes that are near to the hon. Gentleman's heart? Will he give a straight answer on that?
§ Mr. McAvoy
The Minister is asking me to do homework, but he cannot even do his homework on the name of the constituency of my right hon. Friend. [Interruption.] The Minister asked his question in his way; I shall answer in my way.
I remember watching—not from here, but on television—Lord Howe, who was then Chancellor, being asked to make a projection for the future. He rightly and sensibly said that he would not be daft enough to make predictions without knowing the full facts. How are we supposed to make predictions without possession of the full facts, particularly bearing in mind the way in which the Government have fiddled the books, as well as the Red Book? The Minister's question is bogus. Conservative Members would not give answers without knowing the full facts. When we open the books in six months, Conservative Members will get their answers.
§ Mr. McAvoy
I am coming to the Red Book. I am sure that Conservative Members are delighted that all the Minister's interventions are increasing the time that I shall spend on my feet.
The hon. Members for Gloucester and for Colne Valley (Mr. Riddick) have said that it is a fallacy that the Tories have increased tax. Conservative Members have not mentioned the honesty—or near-honesty—of the Chief Secretary to the Treasury on television. He clearly said that the Conservatives have increased tax. Will the Minister tell the House who speaks for the Government on such matters; is it the Deputy Prime Minister, who denied that tax has gone up, or is it the Chief Secretary to the Treasury, who admitted it? Before he is too critical of those on the Labour Front Bench, the Minister should put his own house in order.
The Budget is a tax-raising Budget that hurts ordinary families. The tax burden has increased since the 1992 election. The Conservatives pose as good managers of the economy, but borrowing is up and the Budget has left the public and business unimpressed.
740 For my constituency, which still has some manufacturing industry left, the big failure of the Conservative Government is the lack of investment. Investment in 1995 was still 11 per cent. below the level of 1989. In that six-year period, investment has taken an ever smaller proportion of national income—down from 23 per cent. to 17 per cent. That is short-sighted. The Government should be the driving force of investment, and they have not been. They have not even encouraged private sector investment, which is only 9 per cent. higher than it was in the depths of the recession. At the same point during the last recovery, it was about 30 per cent. higher.
The Conservatives may be sick of hearing it, but the facts of life are that a typical family is paying a higher proportion of its income in tax than it was at the last election—33.7 per cent. of gross income compared with 32.7 per cent. in 1992.
§ Mr. McAvoy
I was going to deal with the integrity and reputation of the current Red Book later, but since the Minister has mentioned it twice, I shall bring forward my remarks.
My hon. Friend the Member for Sheffield, Attercliffe (Mr. Betts) pointed out that the Government factored into the Red Book figures calculations on the level of employment or unemployment. There is a convention—it is not a rule, but it is a convention—that the Chancellor does not do that in the Budget. That is a breach of the normal rules for the integrity of the Red Book.
Others far better qualified than me have passed an opinion on the integrity of the Red Book. Adam Cole, an economist at the brokers James Capel, or is it pronounced Capell—[HON. MEMBERS: "Capel."] I accept the expertise of Conservative Members. Adam Cole said of the Red Book:It incorporates fiddles that would make the French blush.He is not a raving left-wing socialist, but a member of the financial world, who I imagine has some independence.
The Red Book has been fiddled. It is riddled with calculations made here, guesses there and estimates somewhere else to ensure that the best possible gloss is put on it in the run-up to an election. We have a Flash Harry Chancellor who is chancing his luck. He knows full well that his eye is more on an internal election in the Tory party in six months than on the general election. He is doing his best to give himself as good a chance as possible of winning.
I should like to turn quickly—well, perhaps not too quickly—to considerations of health and local government finance in Scotland. For Scotland, the Budget is for the short term, not the long term. It does Scotland no good overall. The Chancellor is thinking only of the next few desperate months rather than the long-term prosperity of the country. Despite last week's cut in income tax, the fact remains that there have been 22 tax rises since the last election. Conservative Members do not like hearing that, but it is a fact of life.
741 The Tories are in control of the national finances, but we hear nothing about taking action on VAT on fuel. Labour has made a clear commitment to reduce it to the minimum of 5 per cent. VAT on fuel is a pernicious tax, particularly in Scotland, because of the colder weather.
§ Mr. McAvoy
The Minister scoffs, but his Government accept that the colder weather in Scotland justifies having certain mechanisms brought into play when the temperature reaches a certain level. The Minister should not scoff at what his Government practise.
I make no bones about the fact that the Secretary of State for Scotland has been very clever—time will tell whether he has been successful—in portraying the cash settlement for the Scottish Office as a success, despite the fact that, according to the Government's figures, total Scottish Office spending will fall in real terms by £522 million next year, and by a further £359 million in the two years after that. Spending will therefore be cut by £881 million in real terms over the next three years. That is a 6 per cent. cut. Again, there is a suspicion that those future cuts are being projected to get tax cuts now to help the Tories at the election.
The nastiest aspect of the Conservatives' treatment of local government in Scotland has been laying the burden of community care on Scottish local authorities. Because people are living longer and there are real problems with senile dementia and Alzheimer's, many people are looking for places for the elderly in local authority homes, and the authorities cannot supply those places.
It is despicable that elderly people in that position are left trying to put pressure on the local authority when it has not been allocated the funds by central Government to provide those places. That is a mounting problem in Scotland, as it will be elsewhere in the UK, and it is completely wrong.
None of these measures will work. The Government can talk as cleverly as they want about the Red Book, and can quote all sorts of percentages, agreements and projections, but the facts of life are that no one believes them. Within six months, they will find that out.
§ 8.9 pm
§ Mr. Alan Duncan (Rutland and Melton)
The beginning of the debate was enlivened by the barnstorming performance of my right hon. Friend the Secretary of State for Health and I congratulate him on routing his opponent.
The danger of any debate on the Budget is that one tends to go goggle-eyed on the details. It is important not merely to bandy figures about, but to remember the direction in which we want to go and to ask whether the Budget fits in with that. As I have always argued in Budget debates, in the long term I want a smaller state, with less Government spending and lower tax. That is inevitably a gradual process, but we are getting there and it is essential for economic prosperity that we should do so.
I came into politics because, during the 1960s and 1970s, I was angered by this country's continuing economic decline. If it were not for successive 742 Conservative Governments, we would be declining still. The Thatcher years did much to arrest and, indeed, to reverse that decline and the early 1980s saw the building of solid foundations.
As I have said before, in the late 1980s we made some mistakes. We shadowed the deutschmark and lost control of the money supply at the same time as we deregulated the City. The boom that followed, when added to the problems caused by the world recession, turned into bust. At every stage, the Labour party's demands would have made the situation worse and compounded the difficulties. Nevertheless, we made some mistakes. It is abundantly clear that we have learned from them and I applaud the Chancellor's policy that we shall have no return to boom and bust.
Our economy is better than that of Germany. The hon. Member for Sheffield, Attercliffe (Mr. Betts) referred to that fact, but refused to admit it. That is what we have been striving to achieve since the war and the risk is that it all could be thrown away. The issue is: just when the policy is right, will democracy support it? In the past, Governments have been tempted to buy votes and debase the coinage to do so, but we are not doing that and at this crucial stage, we deserve support and recognition.
The only problem is that the Labour party has debased the debate. The Opposition double-pledge everything, talking about financing mass unemployment as if stopping unemployment pay would suddenly put everyone in a job. They talk about stopping assisted places and raising standards in primary schools, forgetting that those pupils in assisted places would have to be educated in the state sector. They talk about a windfall tax as a one-off tax that would have to support payments for a continuing flow of services. One of the first lessons that one learns in economics is the difference between stocks and flows. In contrast, this Budget deserves support because it is virtuous.
Good Budgets are rarely exciting. Removing Labour's excessive taxes in the 1980s was exciting. Removing exchange controls was exciting. Most Budgets, however, are boring accountancy and, like grandmother's footsteps, they just edge forward.
I confess that there is one excitement that I should like to have seen in the Budget—the total abolition of inheritance tax for 1998–99. The hon. Member for Sunderland, North (Mr. Etherington) said that only 14,000 people pay inheritance tax. The rich do not pay it because they have schemes to help them escape it and the poor do not pay it because they do not break through the threshold. Only middle England, middle-income earners and the middle classes pay the tax. It is inequitable and has become archaic and I look forward to the day when the Government can deliver on their policy and abolish it.
The main parts of the Budget were measured steps forward: income tax down to 23p, fine; thresholds raised above the rate of inflation to help the lower-income earner, fine; and borrowing continuing its measured decline, fine. I particularly welcome the fact that we are aiming towards a figure of below 40 per cent. of gross domestic product for spending.
The structure of the Budget is a fairly fine judgment call. On the macro side, there is a risk of some pressure on interest rates in the months ahead, but not because of the price of sterling, as it is rising. House prices in the 743 south-east increased by 6 per cent. in the last quarter, so certain pressures are working through and we must beware an excessive consumer boom.
On the micro side, we have done some things that will help people. The rent-a-room allowance has increased from £3,500 to £4,500 and that is an especially good measure for the increased number of students in higher education who are looking for accommodation during term time. The single parent allowance has been removed. My right hon. Friend the Member for Selby (Mr. Alison) welcomed that. Increasingly, the maintenance payments of the Child Support Agency have taken on the purpose of that allowance.
We have made a significant change in the taxation of long-life assets. Instead of giving a 25 per cent. break, assets that will last more than 25 years are now given only 6 per cent. That has effectively introduced a new tax regime for the utilities, which are a completely new industrial sector that was previously nationalised. The change is not retroactive, but looks only forward and is, therefore, fair. It makes the Opposition's windfall tax an absolute impossibility, however. The shadow Chancellor will have to come up with new schemes, explanations and, perhaps for the first time, some real figures to explain what that tax would really mean.
I approve of the private finance initiative. I like the idea of private industry financing extra projects that the state would not perhaps want to take on. I have one slight word of caution. We have to watch its scope. Where the Government remain the long-term source of revenue for a privately funded project, it is more of a mortgage than a new source of finance.
I looked with some puzzlement at the plans to turn half of the Treasury building into office or hotel accommodation. I am slightly puzzled by the economics and I hope that I will be allowed to retain a scrutiny reserve on those plans.
I am tempted to speak at some length and in some depth about the convergence criteria, but I will resist the temptation. Suffice it to say that they are a good thing because they are orthodox and sensible economic discipline. I welcome them for that reason, but that reason alone.
I studied carefully and watched and listened to Opposition Members speaking in the debate. The Leader of the Opposition said:The Chancellor mentioned welfare dependency, but the Government have doubled welfare dependency in this country. That is their failure.That was a fatuous observation. The right hon. Gentleman offered no solutions. He pretends to want to cut welfare spending, but implies to interest groups that he would spend more on them. Of course, the more that one spends, the more people become dependent on what one spends.
The remark compares with those of the right hon. Member for Yeovil (Mr. Ashdown), the leader of the Liberal Democrats, who said:We have to raise the level of the tax debate above the silly, puerile battle of insults … The Conservatives won the last election by lying about tax … Labour appears to have decided to join them … This is a Budget of slick tricks.That strikes me as being a part of the battle of insults. We have all become tired of the Liberal Democrat leader setting rules and standards for others that he is not prepared to meet himself.
744 The hon. Member for Newport, East (Mr. Hughes) said2.75 million men are economically inactive in this country today and excluded from the unemployment figures."—[Official Report, 26 November 1996; Vol. 286, c. 178–90.]I assume that he was talking just about men, but even if he were talking about men and women, it was an interesting observation, because I have asked the Opposition spokesmen whether the Labour party would revise the method of calculating the number of unemployed. If the hon. Member for Bolsover (Mr. Skinner) says that there are 4 million people unemployed, are we to take it that if a Labour Government came to power, they would immediately announce that there were 4 million unemployed people in Britain? I doubt it somehow, but unless they said that they would do that, their charge is inconsistent with their own thinking.
The hon. Member for Falkirk, West (Mr. Canavan) said that he wanted spending on education to go up from 5.1 per cent. of gross national product to 5.4 per cent. He said that it was 5.4 per cent. under the previous Labour Government. At least the current education budget is 5.1 per cent. of a growing economy; in 1978, 5.4 per cent. of a collapsing economy was not up to very much. As Alan Fisher, a Trades Union Congress leader once said at a TUC conference during a debate on pay norms for the low-paid:Comrades"—they used that word then—5 per cent. of nothing is"—damn—all".In fact, he did not say "damn", but I will spare your blushes, Mr. Deputy Speaker. The fact is that a smaller share of a bigger cake can amount to a lot more than a bigger share of a smaller cake.
The hon. Member for Bradford, South (Mr. Sutcliffe) said that he wanted to spend money on regional development agencies. He complained about cuts in the road programme and called for a minimum increase of £2.3 billion to local authorities. He also called for greater spending on community care. The hon. Member for Alyn and Deeside (Mr. Jones) wanted more money for county councils in Wales and called for more spending on the construction industry and on council houses. The hon. Member for Birmingham, Selly Oak (Dr. Jones) said that she wanted more spending—she used the word "investment" but spending it is—on health, education and law and order. The hon. Member for York (Mr. Bayley) wanted spending to be directed to school security, not assisted places. As I have said already, and someone ought to tell him, the shadow Chancellor has already spent the money that will be saved from assisted places. In fact, he has already spent it twice, so now the Labour party is spending a budget not twice, but three times.
The hon. Member for Coventry, South-East (Mr. Cunningham) implied that more should be spent on the universal state pension and he demanded what he called "new money" for schools. At least the hon. Member for Walthamstow (Mr. Gerrard) was honest when he said:The right hon. Member for Wells (Mr. Heathcoat-Amory) said that he was in favour of cutting public expenditure. I understand that attitude, although I do not agree with it.—[Official Report, 27 November 1996; Vol. 286, c. 403.]745 At last some honesty from a Labour Member.
The hon. Member for Newham, North-East (Mr. Timms) wanted to restore the budget for public sector capital investment. I have a long list of spending demands made by Labour Members simply in the course of the past three days' Budget debate. They were made by the hon. Members for Bristol, South (Ms Primarolo), for Peckham (Ms Harman), for Norwich, South (Mr. Garrett), for Wallasey (Ms Eagle), for Glasgow, Maryhill (Mrs. Fyfe) and for Stratford-on-Avon (Mr. Howarth). All of those Labour Members have demanded more spending, and they claim to be responsible on tax.
In the course of this Parliament, we have priced spending pledges and spending demands made by the Labour party at £30 billion.
§ Mr. Duncan
I was about to say that, based on what we have heard, £30 billion is an underestimate and I am perfectly happy to accept the hon. Gentleman's suggestion of £40 billion. It is quite clear that the Opposition's promises on tax amount to nothing. The key point is not just that our figures are right, or as the Opposition put it, may be right, but that most of those in the Opposition hope that our figures are right. If they were ever in government, however, they would demand that their tax commitments and spending demands were met in full.
I do not make demands for more spending in my constituency and I am happy to accept what the Government deem to be a fair standard spending assessment for local government. I must, however, take issue with the manner in which some of the pledged spending appears to have been apportioned because the county councils in the constituencies of some of my hon. Friends now have in their area unitary councils and they appear to have done their best to bring about a scorched earth policy for those unitary authorities that come into being next April. I make no demands for increased total spending, but I ask Ministers to look for equity in the way in which it is intended that the existing and proposed budget will be apportioned between the various parts of existing counties.
The councillors in the little county of Rutland are telling me, and I have yet to look at the figures in detail, that the amount apportioned to them appears to be less than it should be. The same applies to my borough council of Melton Mowbray. It is not a unitary authority, but its councillors feel that some cuts have been made. If I find that there has not been equity in the distribution of the funds, I hope that the Financial Secretary will allow me to take to him a delegation so that my councillors can argue their case.
Overall, I welcome the Budget. It continues our policy of growth and prosperity, which thankfully, given the measures we have put into place, will be for keeps.
§ Mr. Ian Pearson (Dudley, West)
This is a tax-raising Budget that hurts ordinary families. No amount of protestations from Conservative Members can disguise 746 the plain fact that the Government will go into the next election as tax raisers, not tax cutters. A typical family will have paid more than £2,000 extra in tax since the 1992 election as a result of tax increases introduced since then. While the Chancellor has given basic rate tax cuts with one hand, he has taken money away with the other through higher insurance tax, higher airport tax, higher council taxes, cuts in profit-related pay, higher duties and higher charges for basic essentials.
The Budget means that the typical family is worse off, and does little or nothing to help the vast majority of people and businesses in the west midlands. In the west midlands, just one in two working people are in full-time employment according to Government statistics, and 914,000 of them have experienced a period of unemployment since the general election. Yet there is nothing in the Budget to fund the welfare-to-work programme. There is nothing in it to tackle the major manifest problem of the interaction of the social security system with the tax system.
In the west midlands, 24,000 people earn less than £1.50 an hour and 87,000 earn less than £2.50 an hour, yet there is nothing in the Budget to deal with the problems of poverty pay. The average house in the west midlands is still worth £6,000 less than when the right hon. Member for Huntingdon (Mr. Major) became Prime Minister in 1990. In the west midlands, 12,000 home owners are still trapped in negative equity despite the current fragile recovery in the housing market there. Yet today at least three building societies have put up their interest rates, while most respectable economic forecasters predict further rises in interest rates in the coming months, and there is nothing in the Budget to help our hard-pressed home owners.
There is also nothing in the Budget that will bridge the growing gap between the poor and the rich. Since 1979, the bottom tenth of the population has become 18 per cent. worse off in absolute terms, according to the Department of Social Security's own figures on households below average income. Figures from the Audit Commission show that the proportion of children growing up in families below the poverty line has trebled from one in 10 in 1979 to one in three. According to Equifax Europe's survey conducted in the middle of this year, 13.5 per cent. of households in my constituency have county court judgments against them, yet there is precious little in the Budget to help some of the poorest and most vulnerable sections of the community. They stand to lose out, as the ordinary man and woman in the street will lose out as a result of the Budget.
Businesses in the west midlands have something to welcome in the Budget, but from talking to a number of business people, I have found that they are still far from satisfied. The west midlands competes head to head as a region with areas such as Baden-Württemberg in Germany and Emilia Romagna in Italy. Yet when we consider the European regional prosperity league and the figures produced by Eurostat, we see that while Baden-Württemberg is in ninth place and Emilia Romagna is in 11th place, the west midlands comes a lowly 56th—that is not good enough. In terms of regional gross domestic product per head, based on the latest figures available from Eurostat, our living standards are 40 per cent. lower than those of the two regions with which we compete directly. That gap has widened over the past 17 years.
747 Dudley is twinned with Bremen in Germany—there are close and traditional links and many similarities between the two. The average income per head in Dudley is £11,234 per annum, compared with £19,056 in Bremen. People in Bremen earn, on average, 75 per cent. more than those in Dudley, its twin town. We are falling further and further behind in the European prosperity league. Unless there is a change of Government and attitude, we run the serious risk of raising the first generation of people in the west midlands who can expect to have a lower standard of living in future than their parents.
One reason why the gap in prosperity is widening and why Britain is falling further behind is the size of Britain's manufacturing industry. Size is important. In the west midlands, there has been a slight increase in GDP volume—from £11.88 billion to £12.44 billion between 1979 and 1996. After 17 years of Tory government, we have had, at best, a 2 per cent. increase in the volume of manufacturing business, at today's prices.
Nationally, the figures show that manufacturing in 1979 accounted for 30 per cent. of national output and employed more than 7 million people. By 1995, it had fallen to 20 per cent. and, according to the Office for National Statistics, employed only 4 million people. In the west midlands, employment in manufacturing has declined from more than 900,000 to just over 400,000. Productivity has increased, but at the expense of a 44 per cent. cut in the work force.
It is easy to cut jobs and raise productivity; it is more difficult to raise output and bring in new business. That factor is recognised on both sides of the House, and the Minister should stop trying to quote figures on productivity and say something about what is happening in the real economy.
The best regional companies in the west midlands are some of the best to be found anywhere in the world. We are not afraid to shout about the performance of some of the world-class companies that exist in the region. But as the Government office for the west midlands admits in its most recent report "Competing to Win", the region hasa large number of companies which perform poorly when compared with the national average and international competitors.The "head" of the west midlands companies is doing well—there are world-class companies. It is as if the west midlands economy was a dinosaur, with a small head, a long neck, an enormously long body and an incredibly huge tail—a Diplodocus. Much work needs to be done with the industrial base in the west midlands if it is ever to be able to move closer to Baden-Württemberg, Emilia Romagna and Bremen in terms of income per head.
Most of the Chancellor's economic advisers forecast that interest rates should be 7 per cent. now or by the middle of next year—an increase of 1 per cent. The interest futures market suggests that interest rates will rise substantially over the next few months, which will be incredibly bad news for west midlands businesses.
Members of the Confederation of British Industry see no sign that inflation is a worry; they see no need to dampen down demand in the west midlands economy. They report that input prices are down 2 per cent. on this time last year. With that background and with pressure on margins as a result of the appreciating pound, the CBI sees no grounds for interest rate rises. The CBI's members believe that interest rate rises will be crippling at a time 748 when they are trying to get off the ground after what has been a fairly difficult 12-month trading period for any company exporting into western Europe.
A major problem is that interest rates and the needs of manufacturing companies in the west midlands are an a collision path. Once again, it looks as if manufacturing will be the loser. The Government look set—or might have to be dragged screaming—to raise interest rates to meet the overheating in London and the south-east, but they are not going to do anything for the west midlands, which has still to feel the benefits in terms of house prices or business volume increases.
The Budget does nothing to equip the British economy for the future. Tomorrow's company needs a well-educated and highly skilled work force, yet the United Kingdom has a lower proportion of young people entering full-time higher education than any other western European country except Turkey. We have half as many students in full-time education at 18 as Germany or France and one third of our adults have no qualifications to their name. In addition, 58 per cent. of those leaving education are qualified to a basic NVQ level 2. The corresponding figures for Germany and France are 78 per cent. and 66 per cent. respectively—those are the Government's own figures, from their skills audit. They show the scale of the task required if we are to become truly competitive.
The Budget will place increasing pressures on education and social services in Dudley metropolitan borough, which includes the constituency that I represent. The capping rules will allow Dudley council to increase spending by only 1.5 per cent. at a time when general inflation is 3.2 per cent. and there is an increasing demand for local services. It is estimated that there is a funding gap of between £10 million and £12 million in Dudley metropolitan borough. That comes on top of the £25 million cuts in the past four years. Dudley is, and traditionally has been, an efficient and low-spending authority. Its services have already been cut to the bone. It delegates more than 97 per cent. of its local education authority budget directly to schools—one of the highest figures in the country. Yet school governors face the prospect of having no money for school books for the third year running and of having to make teachers redundant.
Although there has been a national 3.4 per cent. increase in education standard spending assessments, Dudley's is up by only 3.1 per cent. It has been calculated that simply to maintain existing funding levels in real terms—to cope with the growing population in the borough of Dudley as well as retail price inflation—would require an increase of 5 per cent. That could be achieved only by massive cuts in services, which is totally unsatisfactory.
My best guess is that Dudley's council tax payers are likely to face a high single-digit council tax increase in the coming financial year, which can be laid directly at the Government's door. Make no mistake, Dudley's parents are not convinced and will not be convinced that any increase in council tax and the problems of education in the Dudley borough are the local authority's fault. One of the benefits of local management of schools is that it has led to greater knowledge about funding systems among local people, and the blame is now being pinned on those responsible—the Government.
749 We needed a Budget that equipped Britain for the future—a Budget for stability that was prudent and created a platform for a sustainable economy. We needed a Budget for investment, to tackle the investment and technology gap between ourselves—both in the west midlands and nationally—and our competitors. We did not get it. We needed a Budget that helped people to move from welfare to work by shifting resources from welfare to education. We did not get it. We needed a Budget for fairness—a Budget whose priority was to cut tax on VAT on fuel, not to increase inheritance tax allowance. We did not get it.
Instead, we have a Budget that closes tax loopholes a year too late. The Government should have closed the loophole on special dividends and share buy-backs in last year's Budget. I estimate that the cost of not doing so is almost the equivalent of 1p off the basic rate of income tax. The Government were incredibly negligent in not announcing that decision until—conveniently enough—the week of this year's Conservative party conference. People in the business press and elsewhere had been urging them to close that loophole sooner, yet they prevaricated and did nothing until it was far too late.
We have a Budget that inks in savings before they are achieved, which is completely imprudent—I understand that the hon. Member for Beaconsfield (Mr. Smith) is an accountant, so he should be the first to recognise that. "Spend to save" projects savings of £6.7 billion over a four-year period, yet nowhere do the Government explain how those savings will be achieved. They have also changed the accounting treatment by, for the first time, forecasting unemployment figures in a deliberate attempt to massage the public sector borrowing requirement down by cutting spending on the social security budget.
The Government are as guilty of creative accountancy as the French Government, who—rightly in my opinion—were lambasted by our Government for manipulating their figures for the partial privatisation of France Telecom. The Government are doing the same in trying to reduce the PSBR by £1 billion by privatising the student loan book, raising an additional £700,000 through selling off defence personnel married quarters, and raising about £2 billion in privatisation proceeds. Coincidentally, the figures are very similar—£4 billion from the privatisation of France Telecom and £4 billion from the Government's funding wheezes.
This is not an honest Budget that helps ordinary working people and ordinary families. It is an unfair Budget that favours the few, not the many. It does not strengthen the economy or equip Britain with the skills and investment that we need for the future. The Tories have broken their promises on taxes and spending. In a few weeks, they will learn again how the people of Dudley feel about a Government who break their promises.
§ Mr. Patrick Nicholls (Teignbridge)
From the closing moments of his speech, I got the impression that the hon. Member for Dudley, West (Mr. Pearson) did not like the Budget. He is obviously a man who likes quotations, so I shall give one back to him:Don't you just love it? Within the constraints he has had to operate, this was a well-judged and well-delivered piece, just what the City wanted and difficult to attack politically.750 That was from the well-known, right-wing rag, The Guardian.
It will not do his political career any good, but I have to admit that I greatly like the hon. Gentleman. Despite his soaring oratory, he was unable to make many inroads into the Budget. Nevertheless, he has done a good job and perhaps, in 20 or 30 years' time when the Labour party gets back into government, he will make Under-Secretary of State. It is no fault of his that his speech was not the most devastating critique of the Budget—the Budget is not subject to such treatment because it is virtuous, it does not try to bribe people and it satisfies all the criteria. As my hon. Friend the Member for Rutland and Melton (Mr. Duncan) said, it is boring and responsible. Such a Budget does not lay itself open to the sort of treatment that the hon. Member for Dudley, West tried to dish out.
There are several things in the Budget on which, was there time to do so, I would dwell at some length—of course, some hon. Members did so and the Conservative Members started it. I should have liked to talk about the reform of the rating system and the freezing of business rates for small businesses. That was a good thing and it obviously stemmed directly from the representations that hon. Members made to the Government. I should like to think that it foretells a day when business rates will be related in some way to the turnover of businesses. Perhaps I am looking too far into the future, but the reform was a start in recognising that, for some small businesses, the burden of business rates is out of all proportion to any public policy of raising money from them.
Ideally, more might have been done in respect of betting duty, because the betting industry has been hit hard by the lottery. I would expand on that, if only there was time for me to make a longer speech.
The importance that the Government attached to education last year was reflected in this year's settlement as well.
In the few minutes available to me, I shall concentrate on the two central attacks that the Labour party has made. That is a legitimate thing to do, because most people approach politics thinking, "The trouble is that one of the parties is going to get in," and they try to spot which one will cause less damage than the other. We do not accept that approach to politics, otherwise we would not have the gall to be here, but it seems to me that, every now and then, one should try to join voters in their assessment of such matters.
The Labour party has said two things about our taxation policy. The first—which is pure Goebbels—is to tell a whopping great lie and hope that it will stick. Opposition Members say that the Conservatives broke their promises because we raised tax, despite saying that we would not. I remember fighting the previous election on the basis of the manifesto, and I am pretty sure that I can remember what was in it. We did not say that we would never raise taxes; we said that we had no plans to raise them. Let us be fair—if we had had any plans to raise taxes, they would have been leaked. The idea that this or any Government could have kept such a secret is farcical.
What we did say, and it was repeated throughout the manifesto, was that we would run the economy prudently. We have done that since 1979. That means that we have to strike a balance between taxation and borrowing, and do so in relation to looking after those matters that the state should look after. That is the balance that we have 751 to achieve in order to run the economy responsibly. No one could have foretold how deep the recession would bite, but it bit deep and we faced a temporary problem, which was how to raise the money that was needed to look after those who—temporarily, we hoped, and that is the way the figures are panning out—were unable to look after themselves.
Opposition Members turn round and say, "You suddenly raised taxes," but what would they have had us do? Should we have said to the unemployed, "Sorry, but because we cannot raise taxes, we are not going to maintain you and we are not going to borrow sufficient money to do so—you will just have to starve"? It is a ridiculous idea. We said that we would run the economy responsibly and that is what we did. We had to put taxation up temporarily and we are now in the process of lowering it.
The second great lie—or, as far as the House is concerned, the second great untenable argument—that the Labour party has been peddling is to go on and on about the idea that more tax is being paid now. Of course it is. Even a moron understands that, and we have heard several speeches from Opposition Members today that prove that very point. If we were not raising more tax now than we were in 1979, we would be in a parlous state. Unemployment is falling, so more people are available to make a contribution to the total tax take, instead of having to take money out of the system because they are out of work.
Let us consider the multiplier on average salaries since 1979. A person who was earning £5,000 then would be earning the equivalent of £24,000 today, so there is obviously more money there to pay tax on. But there is a difference. In 1979, a person who was earning started paying income tax at 33p in the pound and could quite soon start paying 40p, 50p, 60p or 70p in the pound, up to a tax take of 87 per cent. By the time that investment income surcharge was added, a person could pay 98 per cent.
One amazing and glorious year, a Labour Chancellor of the Exchequer imposed a special levy—presumably to persuade the International Monetary Fund not to come to the airport that particular day—and in one glorious year the top rate of tax was 103 per cent. With the best will in the world, when one compares the situation that pertains now with that which pertained then, it is nonsense to say that the whole story is that more tax is now being paid.
What has the Labour party told us about its tax plans, to enable my constituents to exercise choice? The idea that the basic rate of tax will come down to 10p in the pound is nonsense. It is cloud cuckoo land; it is brazen, even for politicians.
For a really good laugh, look at yesterday's The Sunday Times. It says that the Labour party will ensure that the middle classes no longer make themselves liable for higher-rate tax—absolute piffle. It is almost as if the Government could credibly ensure that there was a headline in The Sunday Times saying, "Conservative party to go unilateral", or "Conservative party to abolish nuclear weapons", or "Conservative party to renationalise everything", and expect to be regarded as credible. To some extent, it is a measure of the success of telling the big lie that one can see a headline in that and that people, other than those who are cerebrally challenged beyond rescue, could believe for a moment that there might be something in it.
752 What are Labour's genuine tax plans? Who can say? But every now and again, a little light breaks through the chink in the armour, giving hints. The speech that I enjoyed most was that by the hon. Member for Sunderland, North (Mr. Etherington). It was the type of speech that, once upon a time, would have been set to martial music and howls from the barricades as the guillotines fell on the guilty rich—which basically means anyone who earns rather less than a Member of Parliament. That is the way that some people think about these things.
Once upon a time, that would have been a soaring, martial speech; it is now reduced to a radical whinge on a thin night in the House of Commons, but it was at least honest, because it struck all the things that really matter to the Labour party. Tax the rich. The fact that the figures show beyond doubt that, when one reduces the tax rate on the rich, they make an increased contribution to the tax take, does not matter; the thing is not to generate tax revenue to help people, but to punish them for having the money in the first place.
I say to the hon. Member for Sunderland, North—who has probably gone off to telephone his stockbroker—that his speech, although searingly honest, will not propel him into government if everything goes pear-shaped on 1 May, but it was at least honest.
Some Labour Front-Bench spokesmen have now and again let one or two pearls drop to suggest what life under a Labour Government might be like. The hon. Member for Birmingham, Ladywood (Ms Short) has said that she thinks that people like her could afford to pay more tax and should do—and that was when she was earning a miserable £32,000 a year, before many of our colleagues voted for a substantial pay rise. That shows her attitude to such things.
The national lottery has been an outstanding success. What attitude to it has the Labour party expressed this very day? Give it to a body that does not make a profit. The fact that it is outstandingly successful does not matter two hoots; give it away to someone so that a profit cannot be made.
I do not mind fighting on our record. When, as they have done several times tonight, Opposition Members talk about the general election that will come in the spring, I remember the winter of 1979. I remember what it was like when we could not bury the dead, refuse was piled in the streets and cancer patients queued in the snow because there was no one to take them to hospital. That was the winter before the 1979 general election. I tell you this, Mr. Deputy Speaker: we shall not have that sort of winter before we go to the country in May 1997.
§ Mr. Nicholas Budgen (Wolverhampton, South-West)
I want to make only one point, about the importance of monetary policy, and to invite the Chancellor to give us a better, more detailed explanation of his monetary policy.
Tonight, we have very reasonably heard many pleas for better treatment. The hon. Member for Dudley, West (Mr Pearson) believes—as no doubt do many members of the Labour party—that the state is the great provider of economic prosperity. He believes that, provided he can 753 promise something to the local branch of the Confederation of British Industry, the activities of private individuals are relatively unimportant.
§ Mr. Pearson
I believe that the state does have a role to play in ensuring the necessary conditions in which companies can compete in a modern economy. I do not pretend to say that the state should do everything; it patently should not.
§ Mr. Budgen
I am glad that the hon. Gentleman has modified his position, because it seemed to me that, every time he mentioned an activity, he suggested that it could move from poverty to prosperity as a result of state action.
We all know that the role of the state, although much enlarged—many of us believe that it should be diminished—is not the primary factor in deciding this country's prosperity. That is decided by the energy and ingenuity of our fellow citizens.
When we study the overall effect of the Budget and ask how much it decides our future prosperity, we appreciate that the Budget changes are relatively insignificant. The Chancellor tells us that he has taken £1.8 billion out of the economy. That, he says, is a tight Budget, which will mean that it will not, or may not, be necessary to increase interest rates in future.
I wish to emphasise the importance of monetary policy, not only because I believe that it is better that monetary policy should be decided in this country rather than in an enlarged Bundesbank, but because it has an enormous effect on the British economy. As I demonstrated, the effect of the Budget changes is equivalent to a tiny reduction in demand but, as my hon. Friend the Member for Rutland and Melton (Mr. Duncan) said, we are already witnessing considerable increases in asset prices.
In the past 18 months or so, the general level of the value of stocks and shares has increased by 27 per cent. In the past quarter, there has been a 6 per cent. increase in the value of housing in the south-east. In a recent short period, consumer spending has increased by 28 per cent. That means that, when monetary policy is lax, there can be as much as a £2 billion increase in consumer demand in any one month. Lax monetary policy can easily produce a £24 billion increase in demand in a year. The great mistake of the Barber boom and of the Lawson boom was to allow monetary policy to become too lax.
When monetary policy is too lax, it is extremely pleasant for everyone—in the initial period. Asset prices rise; everyone feels richer; the feel-good factor returns; inflation is low; and everything seems lovely. Then it is possible to talk proudly of an economic miracle. It is only later, when interest rates have to be put up—often very high—that we realise the importance of monetary policy.
I say all this because it seems to me that the Chancellor's account of his monetary policy was cursory to the extent of being non-existent. At column 156 in the Official Report on 26 November, he makes a joke about Eddie keeping him steady, saying that he intends to "continue to be canny"; but thanks to the new arrangements between the Chancellor and the Governor of the Bank of England, we can read the continuing dialogue between them. The Bank has said many times that it is concerned about the rate at which the money supply is 754 increasing. I dare say that, even if my right hon. and learned Friend had not wanted to include a description of monetary policy in his statement, his officials would have obliged him to do so; but on pages 46 and 47 of the Red Book we do find such a description. Page 47 clearly shows that both important monetary indicators are miles over their targets.
It is therefore not enough, I respectfully suggest, to make a joke about the dialogue between the Chancellor and Eddie; it is necessary for the Chancellor to tell us whether he is a monetarist. He certainly never was one before. I have had many conversations with him over the past 30 years. He was an unrepentant supporter of the Barber and Lawson booms. We should like to know whether he has learnt from those mistakes, whether he now believes that monetary policy is important and whether he believes that it should continue to be controlled from this country and by the House.
I suggest that the Chancellor's cursory discussion of monetary policy in his Budget statement is highly damaging to him. We want to know whether he is serious about those money supply targets. We want to know whether he has a monetarist view of controlling the economy. I repeat: in deciding the prosperity of this country, monetary policy is often far more important in volume terms than the relatively small changes that can be made in any Budget.
§ 9 pm
§ Mr. Tim Smith (Beaconsfield)
Looking back 10 or 15 years to past Budget statements, we find that Chancellors of the Exchequer did preface their remarks with long descriptions of the state of the world's economy and of what had happened to the United Kingdom economy over the previous 12 months. They often included a great deal of detailed information about monetary policy, too. Not only were the public bored—so were Members of the House of Commons. The fact that the Chancellor referred only briefly to monetary policy in his Budget statement does not mean that he does not take the issue seriously. Indeed, the fact that he has taken the trouble to publish the minutes of his meetings with the Governor of the Bank every six weeks is a sign of how seriously he takes monetary policy.
I have said before in the House—my view is confirmed by this latest Budget—that I think we have in our present Chancellor one of the most successful Chancellors since the second world war, in terms of the judgments that he has had to make. He has had to make some finely balanced judgments, and he continues to make them. My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) referred to a number of factors which suggest inflationary pressures in the economy, but my hon. Friend the Member for Colne Valley (Mr. Riddick) referred to other factors suggesting that inflationary pressures are not as great as some would claim. In the minutes of the Chancellor's meetings with the Governor, these various factors are set out. In the end, someone has to weigh them up and judge whether it is necessary to increase interest rates. It is thus not true to say that my right hon. and learned Friend is unconcerned about monetary policy.
This was an excellent Budget. I also thought that the Secretary of State for Health made an outstanding speech this afternoon, in which he explained that the 755 Government—I fully agree—attached the highest importance to three areas of public spending: health, education, and law and order. He said that the Government have committed themselves to increased real terms spending on health year in, year out. Why will no Labour Front Bencher make the same commitment? My right hon. Friend was right to expose the Labour party's inadequacies in this respect.
The Budget gives priority to target areas of public spending. It also reduces public borrowing and, to some extent, taxation. The Financial Secretary knows that I have campaigned long and hard for tax simplification, so I was pleased to hear in the Budget statement that the Inland Revenue is set to take the tax law rewrite programme forward. I welcome the fact that my noble Friend Lord Howe will chair the committee that will oversee that programme. Finance Bills have become far too big and complicated and at last something will be done about that.
I have always favoured the idea of a broad tax base and low tax rates. If we are to achieve those, we cannot afford to have leakage, and clearly there has been leakage. The Chancellor was right to place new emphasis on securing the tax base through a number of measures that appear in the Budget, such as phasing out profit-related pay and introducing 6 per cent. capital allowances for long-life assets.
The Opposition have suggested that the Chancellor does not care about people on lower incomes. However, the Red Book shows how the reductions in income tax have been allocated. Whereas the cost of reducing the basic rate of income tax to 23p is £1,250 million on a non-indexed base, the cost of increasing personal allowances by £200 over indexation is more than that, at £1,290 million. More money has been devoted to taking people out of the tax net altogether than to lowering the standard rate. That is the same balance as in last year's Budget. The Chancellor could have reduced the standard rate by 2p in the pound, but he chose not to do so. He reached a sensible balance, which benefits all taxpayers, but which greatly benefits taxpayers who pay relatively small sums in tax and takes quite a few people out of the tax net altogether.
Like my hon. Friend the Member for Teignbridge (Mr. Nicholls), I read the story in The Sunday Times yesterday with incredulity. Every time we buy a Sunday newspaper, we read a new story about Labour's tax plans. One week, we read that there will be a 10p starting rate; yesterday, we read that everybody on up to £35,000 a year will benefit from a huge increase in the higher rate threshold from about £30,000 to £35,000, at a cost of £1.4 billion. From where will all the money come? We already know that the Labour party has tremendous spending commitments of £30 billion, and we now have all those tax promises on top—another £10 billion, making £40 billion in all. It is incredible.
If anyone wants to know what is really likely to happen if we ever have the misfortune to have a Labour Government, I remind him of what happened last time Labour was elected. On the first Budget day in 1974, Tuesday 26 March, Mr. Healey—
§ Mr. Smith
He is Lord Healey now, but he was plain Dennis Healey then.
756 Mr. Healey announced that all income tax rates would be increased by 3p, taking the basic rate to 33p, except for the top rate, which was increased from 75p to 83p in the pound. National insurance charges were increased for both employers and employees. He said that VAT at 10 per cent. was to be charged on petrol, taking the typical price of a gallon of four-star from 50p to 55p. VAT was also to be applied to previously exempt sweets, ice creams, crisps and soft drinks. In 1975, Mr. Healey added another 2p to income tax, taking it to 35 per cent.
As one of my hon. Friends said, there has never been a Labour Government who have not increased the standard rate of income tax. Anybody who wants to know what is likely to happen if we have the misfortune to have another Labour Government can simply look back at the appalling record: Labour Governments always increase taxes.
§ 9.8 pm
§ Mr. Edward Leigh (Gainsborough and Horncastle)
As time is short, I shall simply say that, naturally, I congratulate my right hon. and learned Friend the Chancellor on a prudent Budget at this stage in the cycle. I fully support my hon. Friends in their attacks on the Labour party. Perhaps their comments can be read into my speech so that I do not detain the House.
In the few minutes available, I want to deal with the married couple's allowance, with which my right hon. Friend the Member for Selby (Mr. Alison) dealt earlier in the debate. During his Budget speech, my right hon. and learned Friend the Chancellor said:The tax system does recognise marriage, contrary to popular belief."—[Official Report, 26 November 1996; Vol. 286, c. 171.]It is true that the tax system recognises marriage, but it is a fairly grudging recognition. The cash value of the married couple's allowance is to be raised from £268.50 to £274.50, an increase of £6 a year or 11.5p a week. That, by any measure, is a very small increase indeed.
I do not want to be churlish. At least the Chancellor has reversed the freeze on the married couple's allowance that existed for five years. He has reversed that policy, and my only purpose in making this speech is to encourage him in his next Budget to go further and to ensure that the married couple's allowance is fully uprated.
An increase of £6 a year is not enough to convince the nation that we want to reward marriage in the tax system. Every study on the subject proves the value of marriage in raising children. I do not need to quote all of them. Professor Halsey, a well-known member of the Labour party and author of "English Ethical Socialism", has written:children of parents who do not follow the traditional norm … are thereby disadvantaged in many major aspects of their chances of living a successful life. On the evidence available such children tend to die earlier, to have more illness, to do less well at school, to exist at a lower level of nutrition, comfort and conviviality".Those are the words of Professor Halsey, a well-known socialist.
Everyone who writes on the subject accepts that we should use the tax and benefits system to encourage marriage, but over the past 30 years, as the former deputy chairman of the board of Inland Revenue, Leonard Beighton, has made clear, the tax system has gradually shifted away from the recognition of marriage. He writes: 757In broad terms the combined effect of the changes has been to increase the tax burden on married couples and others with family responsibilities, particularly single earner couples and to reduce—in relative if not absolute terms—the burden on single people including cohabiting couples without children".It is necessary to give examples to prove that the tax system disadvantages marriage. A married couple with two children and gross earnings of £250 a week will take home just under £200 a week; a single person with no children on the same gross pay takes home just over £180; but a lone parent with two children on £250 gross pay takes home almost £209—over £9 more than the married couple. The married couple with two children will therefore have £9 a week less than the lone parent to support four people rather than three, and just over £19 a week more than a single person to support four people instead of one. Whichever way one looks at it—in replying to the debate the Minister may by all means answer this point—the evidence is clear that the tax system discriminates against marriage.
In his 1993 Budget speech, my right hon. and learned Friend the Chancellor described the married couple's allowance as "something of an anomaly". I am glad that he has changed his mind. He is a successful politician and it is right that he has changed his mind.
It is disturbing, however, that the Labour party does not seem to have changed its mind on the married couple's allowance. A Labour spokesman can reply on this point. The Commission on Social Justice appointed by Labour called for the married couple's allowance to be scrapped for those under 55. It calculated that £2.5 billion could be raised by abolishing the MCA, and the money could be used to extend nursery education or increase child benefit by £5 a week. The logic of increasing child benefit in that way is perverse and profoundly anti-marriage. Married couples would be taxed so that child benefit could be raised; the only net gainers would presumably be cohabiting couples and lone parents. I hope that, in framing its plans for the general election, Labour will scrap the proposal advanced by its commission.
Both parties should ensure that we right the fundamental injustices in the present tax system. We should ensure that the tax system does not discriminate against married couples and does not provide financial disincentives for the wife who wants to stay at home. The way to achieve that is through transferable allowances. At present, a wife's personal allowance can be used only if claimed against income. If the wife wants to stay at home and raise a family, the state treats that as a matter of personal choice. The state's financial incentives are for a woman to go out to work. At present, there is no way in which a personal allowance can be transferred and shared between husband and wife; nor can a husband and wife have joint assessment.
Transferable allowances are a perfectly sensible idea. They operate in Denmark, Iceland and Italy. Joint assessments operate in Germany, Spain, Ireland and the United States of America. Many countries operate systems that are much more favourable to marriage than our system. Ultimately, there is no reason why we should 758 not move to transferable tax allowances, and I urge my right hon. Friends on the Government Front Bench to consider them.
§ Mr. Jacques Arnold (Gravesham)
My right hon. and learned Friend the Chancellor of the Exchequer set out his Budget at the beginning of the debate against the best economic background that we have seen in this country for decades. We have the lowest inflation for 50 years, the longest period of low interest rates for 30 years, high growth—the highest in Europe—and, in contrast with the remainder of Europe, falling unemployment. In my constituency of Gravesham, unemployment is at its lowest level since early 1991 and is continuing to fall.
Why has that come about? It is because Britain has had to set its own economic policies since "white Wednesday" in autumn 1992. After all, that is what we were elected to do—we were not elected to pass the buck. We have had to grasp the nettle, and it has been extremely painful for people and for business. Our local government councillors have paid a fearful electoral price for that process, but we have put in place Tory policies that have brought Tory successes.
This Budget builds on those successes. We now have a 23p in the pound standard tax rate, which is the lowest level for 60 years and is 10p lower than the 33p in the pound rate under the last Labour Government. The Budget extends basic allowances by 3.5 times inflation and the 20 per cent. band has been extended by twice the rate of inflation and is double its limit at the last general election.
The Budget favours particularly the working men and women of Britain. Its overall impact is: "Steady as we go." It is not the razzmatazz of soundbites that are understood by Labour spin doctors, but it is an election Budget. Basically, the British people are not fools. They know that Budgets give absolutely nothing: Budgets take. They take in tax in order to pay the Government's bills.
What affects the British people is the economy, because strong growth, low inflation and falling unemployment mean better incomes for all. This Budget underwrites that. It reduces pressure on interest rates, which is good for industry and jobs and for mortgage borrowers. A significant increase in interest rates would not only be bad for those sectors but put upward pressure on the pound. That would be bad for exporters, for industry and for jobs. My verdict is, "Well done, canny Ken." I hope that my right hon. and learned Friend will continue to exercise his fabled judgment in his meetings with the Governor of the Bank of England.
In some ways, the Budget is a first instalment of what I would like to see: a Budget for the family. The measures that I mentioned earlier are good for the working man of this country and for his family. We have indexed the married couple's allowance for the second year—although, as my hon. Friend the Member for Gainsborough and Horncastle (Mr. Leigh) pointed out, it is only a small amount. I ask my right hon. Friends on the Front Bench to consider their next Budget, when strong growth should give more scope for tax reductions. I hope that that Budget will facilitate the transfer of personal allowances of non-earning mothers of young children to working fathers. That would cost some £1 billion, but the impact on those families could be enormous—£1,200 per year.
759 Almost all newly wed couples work in this day and age. However, when their first child arrives, they face the considerable costs of coping with the child and the loss of the wife's income together with her personal allowance. In too many cases—particularly at the lower earning levels—the wife returns to work. That is not the best way to nurture the next generation of young people in this country. It leads to child-minders and to latchkey children, with all the associated problems. Young children need the full-time attention of their mothers—that is better for a child's development. Giving mothers the incentives and opportunities to stay at home with their children would have the side effect of releasing jobs to the many unemployed young males who would benefit from an earned income and from increased self-esteem, which is lacking in far too many cases. It would strengthen the family. Indeed, I remind my hon. Friends that Benjamin Disraeli identified the Conservative working man as the chap who led a decent working life and cared for his family, its well-being and its future. We in the Conservative party should take up the challenge of our inheritance and back the Conservative working man.
Earlier, my right hon. Friend the Secretary of State for Health spoke of the private finance initiative and the pioneering of new hospitals. I welcome the fact that Darenth Park hospital, which will serve my constituents, is in the forefront of the programme with its £102 million project. I noted, as I am sure my constituents will, the hostility of the right hon. Member for Derby, South (Mrs. Beckett) towards the PFI and, indeed, towards Darenth Park hospital. The right hon. Lady spoke for real Labour. I noted also that she made no commitments to the funding of my constituents' hospital.
I welcome especially the measures that have been announced for small business. Small companies' rate of corporation tax will fall from 24p to 23p. I welcome another cut in employers' national insurance contributions and the increase in the threshold for VAT registrations. Above all, I welcome the freeze on rates bills for 1.25 million smaller properties, including 400,000 small shops. The measure will be especially welcome in the town centre of Gravesend.
I offer one word of caution to the Minister, my hon. Friend the Member for Fylde (Mr. Jack). I ask him to examine carefully his "spend to save" programme. It will be wonderful if he gets a factor of eight to the cost involved, but I hope that he will ensure that the Inland Revenue and Customs and Excise inspectors do not drive millions of legitimate business men mad by interfering in their businesses.
The Budget's message is that we are doing well. When a Conservative Government run the nation's economic policies and take responsibility, we make an impact. The lessons of the recent past are perhaps that the Government have tried to pass responsibility to others. In the 1980s, our economy was anchored to the deutschmark. We then joined the exchange rate mechanism. Both those policies had disastrous effects on our economy and caused a massive downturn, which has done so much damage.
There is now the threat of that sorry story being repeated. The sirens of Europe are luring Britain back into an ERM and, inevitably, into a euro currency. For my part, I would much rather Britain be a small rowing boat with our hands on the oars than be looking for some mythical safety in a large galley in which we are chained to our particular oar to row. It may be a larger vessel but 760 we are entirely reliant on that chap upstairs. If he makes a mess of it, we are in dead trouble, being chained to our rowing position. I would prefer Britain to continue with its solo rowing in the difficult, stormy seas of the world economy. The Government have shown that they are worthy oarsmen.
§ Mr. Alan Milburn (Darlington)
It has been a good debate. It has put the Budget to the test and has found the Budget to be wanting. Indeed, hardly had the Chancellor of the Exchequer resumed his place from his stint at the Dispatch Box last Tuesday than his Budget began to unravel.
First, it was said that the right hon. and learned Gentleman had introduced a tax-cutting Budget. It is now clear that it was a Budget to raise taxes. One of the noticeable features of the debate was the virtual absence of references to tax by Conservative Members.
We were then told that it was a prudent Budget. It is now clear, however, that it was a Budget that failed to make amends for the past and failed to equip our country for the future. Conservative Members' final defence was that, if nothing else, the Budget increased spending on essential services, but it is now clear that it was a Budget of cuts, not investment. My hon. Friends' probing during the debate has unearthed the truth: it is a Budget of broken promises from a Government of broken promises.
We heard much about the health service earlier in the debate. The Budget promises to increase spending year on year above the rate of inflation. Indeed, it is the Prime Minister's pledge. The Budget detail, however, gives the game away. In the year after the general election, overall health spending will be cut by 0.7 per cent.
§ Mr. Dorrell
Every time that Labour repeats that untruth, somebody on the Conservative Benches will rise to challenge it. It is not true to say that the Government plan to cut NHS expenditure in year 2 of the public expenditure survey. That is why the Red Book sets out clearly a growing budget for the national health service—in year 1 of PES, in year 2 of PES, and in year 3 of PES. That gives expression to the Prime Minister's commitment that that will happen year on year under a continuing Conservative Government.
§ Mr. Milburn
The Health Secretary says that he is not guilty. He claims to have found a new alibi. He said as much earlier in the debate—transferring community care funding from his Department to the Department of the Environment. The problem is that his defence does not stand up to examination. Department of the Environment figures for the same year—the year after the general election—also show an overall cut in funding, and we have no details about how allocations within its budget are to be spent.
§ Mr. Dorrell
Will the hon. Gentleman confirm that the Red Book has a quite specific line for the national health service, and its spending figure shows a growth in years 2 and 3?
§ Mr. Milburn
The only remaining defence that the Secretary of State for Health has is trust. He asks us to 761 trust him. A plea for trust is all that he has to fall back on. How can we trust this Government—of all Governments—on health?
§ Mr. Dorrell
I am simply asking the hon. Gentleman to read the figures in the Red Book from which he is quoting, on page 123, under the heading "Health" and the line below, which says "of which NHS". Our commitment is to increase the resources available to the national health service. It is a commitment that we have always delivered and will continue to deliver.
§ Mr. Milburn
It was hardly worth my while giving way, and I shall not do so again.
I have read what the Red Book says, and the truth is that nobody will believe the Secretary of State for Health. We have heard what he and the Government have to say on health. The Government promised that the introduction of the market into the national health service would make the NHS leaner and fitter. It is not. It is fatter with bureaucracy. There are 20,000 more managers and 50,000 fewer nurses. That is his legacy to the national health service.
The Government promised last year—just as they promise this year—to make good the planned cuts in public capital spending through increased private finance initiative spending. I well remember what was said last year. In the Budget debate, Ministers, the Chancellor of the Exchequer and the Health Secretary announced a £35 million PFI deal to modernise two hospitals for the South Buckinghamshire NHS trust. A year later, that deal has still not been signed. Indeed, we are still waiting for the first brick to be laid on any major PFI new hospital project.
Meanwhile, NHS capital spending has been slashed by almost £500 million in the past two Budgets. Even when account is taken of PFI projected growth in expenditure, capital spending overall in the national health service is being cut by £150 million in the year of the general election. The Government's promise of more cash for new hospitals is illusory, and their own figures prove that. This is not a Budget for the national health service. It undermines the national health service. The public will be right to conclude that the Tories cannot be trusted on the health service.
As my hon. Friends the Members for Glasgow, Rutherglen (Mr. McAvoy) and for Dudley, West (Mr. Pearson) rightly said, the Tories cannot be trusted on tax either. The Budget promised to cut tax, but instead it has raised tax. It may have given a little with one hand, but it has taken away more with the other.
There are extra taxes on the family—on insurance, on air travel and on petrol. A family's council tax bill will increase. The Budget even takes from the sick by increasing prescription charges. By the time of the next general election, a typical family will have paid an extra £2,120 in tax since the last general election. I know that Conservative Members are fed up hearing that, but they will hear it endlessly—day in, day out, until the general election—to remind them of their broken promises. As my hon. Friend the Member for Sunderland, North (Mr. Etherington) rightly said, typical families are paying more of their income in tax than they were in 1992.
762 The agony is not yet over. The Red Book confirms that the Tories plan to increase the tax burden year on year—every year—until at least 2002. That is the future Tory tax bombshell for decent, hard-working families. All of this from a Prime Minister who promised tax cuts, but then increased taxes 22 times. He told the House on 28 January 1992 that he had no plans to raise the level of national insurance contributions, but two years later did just that. He said that he had no plans to increase VAT or to extend its scope, but then slapped VAT on heating bills. All that from a party that made tax the key economic issue facing Britain.
We will judge the Tories on their record. The Conservative party is not the party that cuts taxes; it is the party that raises taxes. We should not forget that only Labour prevented the Conservatives from extending VAT on gas and electricity to 17.5 per cent. The Tories still harbour ambitions of doubling VAT on heating, whereas Labour is pledged to cut it to 5 per cent. That should have been done in this Budget: it will be left to Labour to do so in our first Budget. We will do that, because it is the fairest tax cut of them all.
It is no surprise that the Tories are in retreat on tax. They have given up arguing that they have lowered the overall tax burden in 17 years. That argument is lost. The Red Book makes it clear that, as a percentage of national income, taxes will have risen from 34.25 per cent. in 1979 to 36.25 per cent. next year. They now seek refuge in a new argument—a new defence—which was best expressed by the Prime Minister at the Dispatch Box last Thursday. In reply to my right hon. Friend the Leader of the Opposition, he said:We have kept direct tax down".—[Official Report, 28 November 1996; Vol. 286, c. 459.]The Conservative party's latest campaign poster also features the Prime Minister. He is billed as honest John saying, "As promised—lower income taxes." That argument holds no more water than any other Tory argument on tax. Even if we leave aside all the hikes in indirect taxes and the cuts in mortgage interest relief at source that the Conservatives have introduced in recent years, typical families still pay more in taxes on income—direct taxes—than they paid in 1992, at the time of the last general election.
Figures supplied to me last week by the House of Commons Library show that a typical family on average earnings will pay more of their income in direct taxes in 1997–98 than they paid in 1992–93. Typical families in every income group will pay more in direct tax. I refer Conservative Members who do not believe me or the House of Commons Library to what the Chief Secretary to the Treasury said on the Jonathan Dimbleby programme this weekend. I have the transcript. Mr. Dimbleby asked the Chief Secretary whether he conceded what was in that day's newspapers and confirmed by the Treasury, that on income tax, apart from overall tax, a person on average earnings was now £50 worse off than he was in 1992. The Chief Secretary replied:I think that's broadly right. You have to, I think, include national insurance contributions because we had to put them up in, I think, it was 1994.At least he was right about the year, but what an astonishing admission. The Chief Secretary to the Treasury has blown the gaffe on what the Prime Minister 763 has been telling the nation in the Chamber and on the posters. Direct taxes are going up, not coming down. Those Tory posters should come down and the Conservative party should apologise to the British people for its dishonesty on tax. The last defences of the Tory party on tax are shot through with holes. They are not defences at all because the Tories have no defence. There is no defence for a party that promises to cut taxes but repeatedly raises them. Its only answer to broken promises has been to make more promises. [Interruption.]
§ Several hon. Members rose—
§ Madam Deputy Speaker
Order. Hon. Members know the rule when the hon. Member on his feet does not give way.
§ Mr. Milburn
Over the hullabaloo I said that the Conservatives' only answer to broken promises has been to make more promises. The problem for Conservative Members is that they will not be believed because they are not trusted, and they are not trusted because they have landed Britain with the biggest tax hike in its peacetime history. Above all, they are not trusted because they have not delivered on their economic promises.
At the last general election the Prime Minister promised that if people voted Tory on Thursday the recovery would begin on Friday. But since then almost 10 million people have experienced at least one spell of unemployment as insecurity became the new scourge of the 1990s. My hon. Friend the Member for Cunninghame, South (Mr. Donohoe) made that point about his constituency. The Tories promised that they would balance the nation's books, but by the end of this financial year they will have borrowed £66 billion more in the five years of this Parliament than they said would be needed in the Budget immediately preceding the last general election.
Taxes and borrowing have been at record levels for one simple reason. They have risen because of the Government's failure on the economy. Now, of course, they say that everything is well, that everything in the garden is rosy. It is strange, is it not, that in Britain under the Tories our country is always on the verge of a new economic golden age. The economy, they say, is poised for an unprecedented period of growth. They say that Britain is the enterprise centre of Europe, thanks to their policies. We have heard the soundbite repeated endlessly during the debate. High growth, falling unemployment, low inflation and Britain leading the world would certainly be welcome, but the Tories have neither delivered such a record in the past nor are they capable of delivering it in the future.
§ Mr. Milburn
Let us look at unemployment, which the Government say is falling fast. Let us ignore the fact that it is still double the 1979 rate and disregard the Government's 30 fiddles of the unemployment count.
Instead, let us consider the labour force survey—a Government survey. The picture is not quite so rosy when we consider that survey, is it? No one is earning a wage in one of five households of working age in Great Britain, and the percentage is one in four households in London, Strathclyde, Tyne and Wear, Merseyside and Glamorgan. There are 1.5 million children growing up in families in which there is no breadwinner.
764 The Tories have made dependency a way of life for millions, and now the Budget proposal to abolish the child benefit top-up for working lone parents will trap even more people on benefit, when all they want to do is to go out to work and earn a wage. The proposal will result in more young people being dragged down, when they should be helped up.
Taxpayers can no longer afford the cost of unemployment. They needed—as the unemployed needed—this Budget to deliver Labour's programme to move people from welfare into work. The Budget failed that test. It will be for Labour to introduce a windfall levy on the excess profits of the privatised utilities, to get 250,000 of our young people back to work. It does not matter an inch how much Conservative Members yell, it does not matter how much the utilities lobby and it does not matter how often the Conservative party sponsors debates in the House about the privatised utilities, there will be a windfall tax on the excess profits of the privatised utilities.
Unless we move people off welfare and into work, we will not have a sustainable recovery and a strong economy. Inflation and investment are already heading in the wrong direction, and the cracks are already appearing in the so-called "second Tory economic miracle in 10 years".
Last month, there was the biggest monthly increase in inflation in six years, and millions of homeowners are already feeling the pinch because of higher interest rates. Those rises mean that Britain is now only 11th out of 15 European countries for inflation and interest rates. But one economic indicator is falling—it is falling fast—and the Financial Secretary should pay attention to it, because it is the investment level. It is falling, but it should be rising. Since 1979, the Tories have given Britain the worst average investment record of any nation in the Organisation for Economic Co-operation and Development. Moreover, investment is growing more slowly than in any recovery this century, as my hon. Friend the Member for Sheffield, Attercliffe (Mr. Betts) said.
§ Mr. Milburn
I am winding up.
In the past quarter, manufacturing investment recorded the biggest yearly fall for 15 years. The truth is that there was nothing in this Budget to help equip Britain for the challenges that lie ahead, in an increasingly competitive global market, and the Government's failure to equip our country for the future is the real reason why this recovery is built on sand. We should be the enterprise centre of Europe, but we are not. National income in France and Germany in a downturn is higher than it is in Britain in a supposed upturn.
The Conservatives have betrayed all their promises. There are higher taxes, greater insecurity and fewer jobs since the Prime Minister took over in 1990. They have failed to equip our country for the future, and they should be judged on that record.
§ The Financial Secretary to the Treasury (Mr. Michael Jack)
I had planned on extending to the hon. Member for Darlington (Mr. Milburn) the courtesies 765 that one extends to someone coming to the Dispatch Box for the first time in a Budget debate. However, I shall have to delete the word "debate", because so many of my hon. Friends wanted to ask sensible and probing questions of the Opposition, but Opposition Members would not give way and answer.
The only thing in which the hon. Member for Darlington took pride was his party's absolute commitment that were the Labour party—God forbid—ever to form a Government, it would increase taxes. The only thing to which he is committed is a windfall tax—a raid on the value of the pension funds which hold the shares of our utilities and an attack on the employment and investment of those great enterprises. The hon. Gentleman was proud of that boast.
What does the hon. Gentleman think is fuelling what is now the fastest growing major economy in western Europe? The answer is investment, which is up 6 per cent. on last year. The projected total investment is predicted to be up nearly 10 per cent. for next year. The hon. Gentleman should examine my right hon. and learned Friend the Chancellor's proposals.
The trouble is that Opposition Members have been through a cloning process, a form of brainwashing. They get an idea in their head—never mind the facts—and keep churning it out, but eventually the battery will run down. My right hon. Friend the Secretary of State for Health made it extremely clear that our pledge of a real terms increase in spending on health year on year is well met. He proved it conclusively, using the figures in the Red Book.
I remind the hon. Member for Darlington, who now seems more concerned with his pile of papers than with the facts, that there is £1.6 billion extra for patient care next year. That is a real terms increase. The shadow Chief Secretary to the Treasury may shake his head, but last Thursday night he almost admitted something about Labour's plans for health. When I challenged him on "Question Time", he could not make up his mind about whether Labour's proposals were a pledge, a promise or yet more waffle. He retreated rapidly, just as the hon. Member for Darlington has done, except on the windfall tax. We know why—it is because he has secretly signed up to £30 billion-worth of spending pledges and he knows where the money has to come from. Labour will need not £3 billion or £5 billion but £10 billion from the windfall tax. It is not telling us the truth.
There was some sanity in today's debate. Not only did we have a superb opening speech from my right hon. Friend the Secretary of State for Health but my right hon. Friend the Member for Selby (Mr. Alison) and my hon. Friend the Member for Gainsborough and Horncastle (Mr. Leigh) reminded us of the importance of the family in our Budget considerations. I shall say more about that in a moment.
My hon. Friend the Member for Rutland and Melton (Mr. Duncan) drew our attention to an important point—the falling proportion of Government spending in terms of gross domestic product—which is one of the Chancellor's major achievements. My hon. Friend the Member for Colne Valley (Mr. Riddick) rightly reminded us of how strong the overall economy is. He sagely pointed out that, although the Opposition are claiming that there have been 766 22 changes in tax, we can top it because 25 is a bigger number than 22 and that is the number of tax reductions that we have introduced.
I congratulate my hon. Friend the Member for Beaconsfield (Mr. Smith) on his continued support for our plans to simplify tax. He reminded us of Labour's appalling record in government. It is indeed the party of high tax; we see that locally. The only tax that it is prepared to talk about tonight is the windfall tax, which confirms its position as the party of high tax.
My hon. Friend the Member for Teignbridge (Mr. Nicholls) drew our attention to recent newspaper reports about Labour's further ideas on tax, to which I shall return in a moment. The newspapers must have got those ideas from somewhere.
My hon. Friend the Member for Gloucester (Mr. French) took up the theme of health and mentioned long-term care. I shall study carefully what he had to say. My hon. Friends the Members for Ryedale (Mr. Greenway) and for South-West Bedfordshire (Sir D. Madel) also drew our attention to the local government settlement and the whingeing that we have come to expect from Labour authorities and their apologists in the House. They will know of the millions of pounds of uncollected council tax and the £1.2 billion of borrowing in Manchester—so much for proper finances. I see that the hon. Member for Sheffield, Attercliffe (Mr. Betts) is here, but I shall not embarrass him too much by repeating facts about Sheffield and its finances. The voices off about the council tax will come from the same councils that need to put their own financial houses in order.
My hon. Friend the Member for Gravesham (Mr. Arnold)—
§ Mr. Jack
I want to deal with the point raised by my hon. Friend the Member for Gravesham. We have heard enough from the hon. Member for Dudley, West (Mr. Pearson) for one evening.
I congratulate my hon. Friend the Member for Gravesham on his stalwart campaigning for the Darenth Park hospital. I am glad that he was able to speak in glowing and positive terms about the progress that has been made. He was right to remind the House that it was further down the list of priorities for private finance initiative projects. It has made excellent progress and is now coming rapidly towards the finishing line, just like the Norfolk and Norwich hospital. How can the Opposition deride a hospital programme worth nearly £200 million that will bring better patient care to hundreds and thousands of people in Norfolk? They just rubbish it. That is their commitment to the NHS. We provide progress; they provide criticism.
Let us look at what others have said about our Budget. I remind Opposition Members that the chairman of ICI said that this was a Budgetfor economic growth, which is essential in today's world.The chairman of the Siebe engineering group said:I rejoice for our UK employees, as it will put a bit more money in their pockets.The chairman of GKN said: 767This is an appropriately prudent Budget which is good news for business.The lack of business experience among Labour Members tells. They cannot see what is good for business because so many of them have never been in business.
The inescapable statistics that the Opposition cannot run away from are those relating to the effect on living standards. Whatever dust storms or dubious tax statistics they put up, they cannot run away from the fact that the tax cuts in the Budget are worth £120 a year to the average family, taking all direct and indirect taxes into account. The average family on average earnings will be another £370 a year better off—£7 a week—taking into account all taxes and inflation. We have heard so many spurious statistics because the Opposition are plain embarrassed at what we have done. That builds on the fact that we are now £20 a week better off since the last election and £100 a week better off since 1979. What was the record of the last Labour Government? The best that they could manage was £1 a week.
§ Mr. Pearson
On the issue of being embarrassed, I thank the Minister for his reply to me, due on 7 November, which he finally got round to giving me late this evening. He admits that his failure to close the tax loophole involving special dividends and share buy-backs cost the Exchequer £400 million last year. I thank him very much for that admission, but he has still got his sums wrong. Will he go back and do them again? He will find that far more taxpayers' money is wasted.
§ Mr. Jack
Is that the best that the hon. Gentleman can do when we have taken action to block tax loopholes? That goes along with the rest of Labour's claims that we have dismissed this evening.
My hon. Friend the Member for Teignbridge drew our attention to some interesting comments in the newspapers. We read in The Sunday Times that Labour is to cut taxes for middle classes—another uncosted pledge by the Opposition. Where is the money to come from? As with the £8 billion or £10 billion for the 10p starting rate, we do not know. They accuse us of dishonesty, but they are playing with the emotions of the British people.
Looking at some of the finer print in the article, we begin to see a hidden agenda that builds on an existing Labour pledge to remove the tax relief on private medical care. The article tells us that Labour will look for what is described as a hit list. What will be on the hit list? I invite Labour Members to remove the air of mystery. I suppose that the 4.5 million people with TESSAs, the 2 million people with PEPs and the 2 million stakeholders, of whom we hear much from Labour Members, are in line for the removal of their reliefs. That is what it says.
A further article in the Daily Express on 2 December is headed:Labour wrapping tax cuts in a mystery.Finally on this revelation, The Guardian, which I thought was on Labour's side, tells us:Last night some shadow cabinet ministers viewed the tax plans with alarm".I am not surprised. I have already totted up that about 6 million people are going to be up in arms at this dawn raid on their sensible tax reliefs.
The hon. Member for Darlington was not very nice to my right hon. Friend the Chief Secretary to the Treasury. Because of that scurrilous attack, I want to clarify what 768 my right hon. Friend said. Yesterday, he put out a statement to make entirely clear the points that he was making. He said:When people earn more they pay more tax"—that point has rather escaped the Opposition. Our stewardship of the economy, by putting more people back to work, increasing the opportunities for tax, tightening tax loopholes and making the tax system work better, brings in more tax revenue, but perhaps the Opposition had not observed that. My right hon. Friend went on to say:and that is what I confirmed yesterday. But the fact is —the hon. Member for Darlington should listen to this, because he is in for a lesson—that next year a family on average earnings will pay £88 less in direct taxes than if the Government had simply left the tax system unchanged since 1991/92.He went on to reiterate the points that I put before the House about rising living standards.
I shall say a little more about where some of our increased revenue is coming from in the "spend to save" package, which many of my hon. Friends have supported. It is not just a package based on what the Inland Revenue is producing. Its corporate technical review and analysis of avoidance, income tax compliance and action on the shadow economy will produce just short of £2 billion of the £6.7 billion scheduled.
The work by Customs and Excise on compliance and avoidance and on fraud and evasion, particularly in the context of the single market, is scheduled to yield about £2.2 billion. The work by the Department of Social Security on fraud and ensuring that benefit claims are appropriately and properly made will yield another £2.2 billion. Also the Foreign and Commonwealth Office, the Home Office and other Government Departments are playing their parts in that "spend to save" package.
Some of the tax loopholes that we plan to close will also make their contribution: stopping abuse in terms of foreign tax credits; the artificial recovery of value added tax on property transactions; and closing the loopholes on finance leasing. Some of those are new schemes and it has taken time to track them down and deal with them, but that is what we are doing.
In terms of yield, the figures are realistic. The Inland Revenue compliance work cost £270 million last year, but yielded £5.2 billion, which is nearly 20:1 in terms of return. The "spend to save" package gives a yield of about 8:1, so it is an entirely realistic area for us to be aiming at.
In spite of the fact that we have one of the strongest economies in western Europe, with one of the most flexible labour forces—not burdened by the social contract—and are the No. 1 for inward investment in Europe, we heard no praise for the contribution of people who have worked hard in this country, for example, the contribution of Rolls-Royce, which is in the constituency of the right hon. Member for Derby, South (Mrs. Beckett). There was not a mention—no pat on the back for the hard work that they have undertaken there. There was no reflection of the fact that it is not merely the Government who are predicting higher levels of investment. The Confederation of British Industry is predicting a 7.5 per cent. increase in manufacturing investment in 1997. We heard nothing of that from the right hon. Lady. We also 769 heard nothing about the efforts that my right hon. and learned Friend the Chancellor of the Exchequer is making to reduce the public sector borrowing requirement. All those things are positive.
We certainly did not hear anything about the interview with the right hon. Member for Derby, South on the windfall tax. Any privatised company is now fair game in Labour's attempts on the windfall tax.
What we did hear was a lot of bleating on the subject of local authorities. It is worth just reflecting for a moment on the state of some of Britain's local authorities. For example, Southwark is owed £26 million in rent arrears; Birmingham is owed £25 million in council tax; Manchester is in debt to the tune of £1.2 billion; Hackney spends £377 per head just to service its debt; and dear old Islington is in debt by almost £5,000 per head. That is the track record of Labour in government—high-spending and high-taxing local authorities—yet the Opposition have the nerve to attack us about local government.
This has been a Budget for the next five years, not the next five months. It will secure the long-term growth of the British economy and it will continue to put more people back into work. It will sustain lower inflation and maintain vital spending on our public services, on schools and education; and, as my right hon. Friend the Secretary of State for Health has said, it will provide a real terms increase in spending on the health service.
§ It being Ten o'clock, the debate stood adjourned.
§ Debate to be resumed tomorrow.