§ The Secretary of State for Trade and Industry (Ms Patricia Hewitt)
The Budget reflects the fundamental values at the heart of the modern Labour party and the Labour Government: the belief that all human beings are of equal value; the conviction that we all deserve the opportunity to find and fulfil our potential; the belief that together we can achieve far more than we can alone; and the recognition that in our modern knowledge-driven economy, the policies that we need for social justice and equal opportunities are, at one and the same time, the policies that we also need to create a successful dynamic economy. This Budget, like the five earlier Budgets presented by my right hon. Friend the Chancellor of the Exchequer, is based fairly and squarely on our commitment to enterprise, prosperity and opportunity for all.
§ Mr. Michael Fallon (Sevenoaks)
Does the Secretary of State recall appearing with me on a programme called "Powerhouse" on 29 May during the general election campaign? At that time, she said:We"ve got no plans at all to raise that ceiling on National Insurance contributions … It is not going to happen.Can she explain why that has now happened?
§ Ms Hewitt
The hon. Gentleman will recall that reference had been made to Labour's 1992 shadow Budget in which we proposed the complete abolition of the national insurance ceiling and the imposition of full 26 national insurance contributions on all earnings above that ceiling. I remind him that we spent about a week of the election campaign making it clear in response to repeated charges by him and his hon. Friends that we had ruled out any increase in the standard rate and the upper rate of income tax, but that we would not commit ourselves in advance on the hundreds of other rates and allowances that operate within the tax system.
The priority in our first term was to create a strong and stable economy and to get more people into work. We succeeded in those aims to an extent that almost no one thought possible five years ago. Britain is enjoying the lowest inflation and interest rates for 40 years and the lowest public sector debt for 10 years. More than 1,250,000 more people are in work and there are 75,000 more businesses than there were five years ago.
The tough decisions that we made five years ago have been tested in tough times. Of course, we have not been able to cut ourselves off from the downturn in the rest of the world economy, which began with the collapse of the hi-tech sector in the USA. Our manufacturing industry, especially, has suffered with a fall in output of 7 per cent. over the past year, but other countries—our major competitors such as France, Germany, America and, worst of all, Japan—have all experienced the same or even worse difficulties and falls in output in their manufacturing sectors.
Now, we are seeing signs that manufacturing and the world economy as a whole are turning the corner. Indeed, last week the British Chambers of Commerce reported a sharp upturn in business confidence in the manufacturing sector.
The proof of our economic policy in these tough times is that at a time when Japan has been in recession and likewise America, and when the economy of the rest of Europe has hardly grown, Britain has been the fastest growing economy in the G7. Next year, the OECD, the IMF and the National Institute of Economic and Social Research all expect the United Kingdom to be the fastest growing major economy in Europe.
To create greater prosperity for all, we need to do two things. First, we must continue raising the level of employment. Secondly, we must improve the quality of those jobs by raising our productivity.
§ Sir Robert Smith (West Aberdeenshire and Kincardine)
The right hon. Lady talks of the need to raise the level of employment. Some of my constituents who work in the North sea oil industry have been made redundant, or are being made redundant, to make their industry more competitive, to attract inward investment, so that it might compete with other fields around the world. Will she explain to them how the Chancellor of the Exchequer taking more money out of that industry for the Treasury will make them more competitive?
§ Ms Hewitt
That sector and every other sector of our economy is under constant pressure to he and to remain competitive. The hon. Gentleman will be aware that profits are high in the North sea oil sector and we have been examining for years the fairest system of taxation for that sector. Alongside the increase in the special rate of corporation tax, my right hon. Friend the Chancellor of the Exchequer announced last week the introduction of 100 per cent. first-year capital allowances for investment 27 in North sea oil. After consultation, my right. hon Friend has set a date for abolishing royalty payments, which the hon. Gentleman will know are especially unpopular within the sector.
§ Ms Hewitt
No. I shall make some more progress.
Our achievement in delivering economic stability and rising employment must now be matched by a new achievement in narrowing and then closing the productivity gap.
We have many outstanding companies, both large and small. Our best manufacturers are among the best in the world. However, across the economy as a whole, we still lag behind. Every hour that is worked in Germany, France and America produces 25 per cent. more than an hour worked in Britain. That difference is not because British workers lack drive or determination. Indeed, working hours in the UK are longer than those for full-time workers in the rest of Europe. However, thanks to decades of underinvestment—the direct result of decades of economic instability—too many British workers have to do without the modern tools and technology that our competitors enjoy. Far too many lack even the basic skills that they need to succeed in the modern work force. Too many employees work in firms that are failing even to keep up with best practice in their sector, let alone to lead the way in new products and new production processes.
This productivity gap may sound like an abstraction but it directly affects us all every day of our lives. If we could create wealth as effectively as the US, we could grow our economy by an extra £6,000 a year for every man, woman and child. We could deliver a better standard of living, better public services and more leisure time. That is the scale of the productivity and prosperity challenge.
I shall refer to the Budget measures that seek to meet the challenge by promoting enterprise and innovation, which are the key drivers of productivity. I shall begin by focusing particularly on the impact of small firms; in terms of job creation, small and medium-sized enterprises are vital to our country.
Between 1995 and 1999, businesses created almost 2.5 million extra jobs. It was small and medium-sized businesses that created 85 per cent. of those new jobs. We can forecast quite confidently that in the next 10 years, it will be those small businesses—indeed, there will be almost 1 million more of them—that create the new jobs in our economy. That is why this Budget builds on what we have already done to encourage entrepreneurs and support start-up and small businesses. We are taking 150,000 small companies out of corporation tax altogether and cutting the starting rate of corporation tax from 10 per cent. to zero on the first £10,000 of profits. We are cutting tax for another 300,000 companies by reducing the small firms" rate of corporation tax, which is already the lowest in Europe, by another penny in the pound.
I know that it has been a real frustration for many small businesses—hon. Members will have spoken to them directly—that because they are not incorporated, they do not benefit from corporation tax cuts, although they are benefiting from other changes. That is why I shall announce later in this Session the Government's response 28 to the report of the company law review and its admirable recommendation of a complete overhaul of company law based on the principle of thinking small first. By removing the unnecessary costs and complexity of incorporation, we will help owner-managers to choose the right structure for their businesses and enable more businesses to benefit from those lower corporation tax rates.
§ Michael Fabricant (Lichfield)
I am grateful to the right hon. Lady for her good choice in selecting who to give way to. While she rightly mentions benefits to smaller businesses, she will be aware that in my part of the world, there are many manufacturers connected with the automotive industry that have profits of more than £1.5 million—an amount that sounds large, but is not a lot in terms of the capital that they employ. She will know that they will not benefit from cuts in corporation tax, but will suffer a 1 per cent. increase on employers" national insurance. What can she do to ensure that those firms, two of which have already gone out of business in Dagenham and Luton, can continue to thrive or at least survive in the west midlands?
§ Ms Hewitt
As the hon. Gentleman will he aware, about £3 billion of new investment has been going into the car industry in the past few years. We are seeing considerable success in many of our motor car companies, which feeds through to business in the supply chain. Many of the supplier companies are limited companies. The average small company will see its corporation tax bills reduced by £700 a year, almost matching the increase in national insurance contributions on the wage bill. I shall return to national insurance contributions in a moment.
§ Mr. Andrew Turner (Isle of Wight)
I thank the Secretary of State for giving way. She has answered one of the questions that I was about to ask by telling us that the national insurance increase will exceed any benefit from a reduction in corporation tax. Furthermore, is it not the case that corporation tax is payable only on profit, while national insurance has to be paid up front, whether or not a company makes a profit? That is what is damaging to the small business sector.
§ Geraint Davies (Croydon, Central)
My right hon. Friend will know that I have a particular interest in small business. Does she agree that one of the key drivers for improving the productivity of small business is the investment that we are putting into health? If there is one thing that keeps back a small company with a few people acting with enterprise within it is somebody being sick, 29 in pain and perhaps unable to get an operation. This strategic investment in the health service will boost enormously the productivity and output of small business in Britain.
§ Ms Hewitt
My hon. Friend is absolutely right. I know well that the decision of my right hon. Friend the Chancellor on employers" national insurance contributions came as an unwelcome surprise to many businesses. As I have just said, however, almost everyone—including almost every business person I have spoken to in the last week—agrees that, as a country, we need to put more investment into health care and to reform it. The British Chambers of Commerce, for instance, has estimated that more than 200 million working days are lost through illness every year in Britain. That is about 400 times more than the number of days lost to strikes last year. The Institute of Directors says that an efficient health care sector is as vital a part of the infrastructure for business to survive as education and transport. The CBI, reflecting the point that my hon. Friend the Member for Croydon, Central (Geraint Davies) has just made, has estimated that absence from work due to sickness costs British businesses nearly £11 billion a year.
Some Conservative Members have said that we should have looked instead at private insurance to fund increased health costs. If we look at the United States of America, what do we find? The average premium for private health insurance is £100 per family. That is an appalling imposition on businesses, when they have to pick up those costs, and people on very low wages or who are not in work at all get very poor-quality health care. Conservative Members have also said, "Let us have social insurance." When we look at France, which we are told is a model to emulate, we see employers paying 12.8 per cent. contributions for health care alone, never mind what they are paying for unemployment and pension provision. That represents an average of £60 per employee per week. That would be a real imposition on business. We are very clear that there is a strong business case for better health care, and that the best way to meet the long-term need for increased funding for the national health service is to have most of the NHS funded from general taxation and to have this additional funding, provided by a modest 1 per cent. increase in national contributions, paid by all contributors.
Regulation and administrative burdens are an issue for many who run small businesses, and a favourite theme of Conservative Members. This Budget includes measures that have been widely welcomed by business and by business organisations. By increasing the VAT threshold, for instance, we shall take another 4,000 smaller businesses out of the VAT system altogether. More importantly, the radical simplification of VAT that my right hon. Friend the Chancellor has introduced will benefit 700,000 businesses.
We are also acting to simplify payroll administration. The review by Patrick Carter concluded that electronic payroll filing was much the best way to cut through the difficulties faced by small employers in coping with the complexity of payrolls.
§ Mr. Mark Prisk (Hertford and Stortford)
Will the Secretary of State confirm that the Chancellor's response to the Carter report will simplify the payroll burden, but not reduce it by a single jot?
§ Ms Hewitt
I recommend that the hon. Gentleman has a look at electronic filing systems, including those available directly from the internet. The fact is that they will save hours of work for employers who currently use manual payroll systems. They will be able to concentrate on getting on with their business, instead of on administration. They will have greater certainty that the payroll has been calculated accurately, and they will face fewer inquiries from the Inland Revenue into their end-of-year returns. That will mean less administration, less time spent on form filling, and more time to run the business. We have also extended the time given to the smallest employers to comply with the proposals for electronic filing. Firms with fewer than 50 employees will have until 2009–10 to complete the move to electronic filing of their returns, although they will get the incentive payment of £250 from 2004–05 onwards.
§ Brian Cotter (Weston-super-Mare)
I hear what the Secretary of State is saying about payroll tax, and I agree with colleagues that she is not helping enormously. Will she consider the impact assessment of the Budget on small businesses? Most people in business say that it will add to bureaucracy and the red tape burden. Nothing significant has been taken away.
§ Ms Hewitt
Of course we shall publish a regulatory impact assessment for each measure and of course we have already consulted many small businesses on payroll administration. It is clear that effective software dealing with all the different parts of the payroll and contributions and taxes makes life much simpler.
On top of those measures, I shall shortly consult on a national strategy for business start-ups, including proposals to make it much easier for people who are setting up a business to find out exactly what help is available to them and exactly what the Government need from them.
The Budget also takes smaller combined heat and power generators out of the climate change levy—a measure that is particularly welcomed by many of my hon. Friends—and exempts the use of coal mine methane for electricity generation. Indeed, it freezes the levy itself.
§ Mr. Martin O'Neill (Ochil)
My right hon. Friend is arguing that the climate change levy may be ignored or set aside for energy generation that does not create greenhouse gases. Acting on that precedent, when will we get movement in the nuclear sector?
§ Ms Hewitt
The announcement that we made in the Budget was welcomed, not least by Corus, with which I spent last Friday morning. The tax treatment of nuclear energy is considered in the recent performance and innovation unit energy policy report and we shall examine it as we prepare the White Paper in response to that review.
As we support enterprise, so we must encourage innovation. Our country has an extraordinary history of innovation, invention and scientific success. We have 1 per cent. of the world's population, but we make nearly 5 per cent. of the world's investment in science and produce 8 per cent. of the world's scientific papers, 9 per cent. of citations and 10 per cent. of Nobel prize winners. Last Friday, with my hon. Friend the Member for Amber 31 Valley (Judy Mallaber), I saw the difference that effective innovation makes to the bottom line when we visited Denby Pottery, the Derbyshire ceramics company.
People are all too quick to write ceramics off as one of the traditional manufacturing industries that supposedly have no future. Denby Pottery has existed for almost 200 years, but half its revenue comes from products that did not exist four years ago. By investing in design, marketing and the creation of new products and by driving through production process efficiencies, it has pushed revenues up from £12 million 10 years ago, to £38 million last year and still growing.
Denby Pottery is a successful, innovative, profitable business, but we do not always put our innovative ability to such good effect. British manufacturers invest less in developing new products than manufacturers in competitor countries and we are in the bottom half of the European league for manufacturing turnover accounted for by new or improved products. We also lag behind our international counterparts in resources devoted to innovation.
Over the next three years, the science budget is to increase by an average of 7 per cent. a year in real terms, which will help to overcome the underfunding and neglect of our science infrastructure during the Conservative years. We have also multiplied threefold the commercial spin-offs from universities, turning "Invented in Britain" into "Made in Britain". As a result, we are beginning to see the signs of a brain gain rather than a brain drain.
The research and development tax credit that we introduced last year for small and medium-sized firms will be matched by the extension of that incentive to large companies—one of the most important recommendations made by the CBI and the TUC in their joint work on productivity.
§ Mr. Mark Todd (South Derbyshire)
Those measures are welcomed in particular by large companies such as Rolls-Royce, which employs many people in my constituency. However, they expect increased state research and development funding in areas in which they are most interested, as they must compete against competitor companies in the United States, Canada, Germany and France that receive such funding.
§ Ms Hewitt
My hon. Friend makes an important point. Indeed, I have been examining investment in R and D in the aerospace industry in the United States and in Canada. I hope that in next few years we will be able to increase direct Government support for R and D, as well as private sector investment.
§ Mr. Jim Cunningham (Coventry, South)
The Conservative Government discouraged research and development through a lack of incentives. Is my right hon. Friend aware that Governments such as the Canadian Government stepped in, and R and D moved from this country to Canada and other countries.
§ Ms Hewitt
I am certainly aware of the Conservative Government's neglect of the importance of research and development, and their complete contempt for the manufacturing sector. [Interruption.] It is true. Despite 32 incentives from Canada, we continue to have a higher rate of investment in R and D—just—than they have in Canada. We must increase that, and the new R and D tax credit for larger companies will make a real difference.
The way to greater prosperity for all of us is to create more jobs and to raise the quality of jobs that people have. A crucial part of the challenge facing us is to extend opportunities for enterprise and employment, especially to people in our most disadvantaged communities. Like many of my hon. Friends, I see in my constituency the devastating effect on people's lives of the disappearance of traditional manufacturing jobs. We all know of communities that have been blighted by long-term unemployment and poverty, by illness and family breakdown, by crime and drug taking, and by a shocking level of educational disadvantage. All of us, at least on the Labour Benches, know that it does not have to be like that.
I am particularly proud of what the Government have begun to achieve by investing in disadvantaged communities. With the new deal for communities, the single regeneration budget and programmes such as sure start, we are giving the real experts in disadvantaged communities—the people who actually live there—the resources to change things.
Above all, people living in the poorest communities need economic opportunities. They need skills, jobs and local businesses. That is why I warmly welcome my right hon. Friend's announcement in the Budget of further support for enterprise and investment in disadvantaged areas, the abolition of stamp duty on non-residential property transfers and the creation of a new community investment tax credit.
I am also delighted that my right hon. Friend has recognised the role that social enterprises can play in neighbourhood regeneration. He has made it clear that the tax credit will apply to co-operatives and community-owned enterprises as well as for-profit businesses.
Finally, I shall refer to our policies to make it easier for women and men to balance work and family, which, as my right hon. Friend said, is a crucial challenge in a world in which the work force have been transformed. Now, almost half the work force are women. In the past 10 years, men's employment rates have stayed much the same, whereas those of women, especially mothers, have grown rapidly. Indeed, in the past 10 years there has been an almost 10 per cent. growth rate in employment for all women, and the employment rate of women whose youngest child is under five has grown by a third over the same period. That is the biggest increase in the rate of women's employment in our country since wartime.
In an economy that depends above all on the skills and talents of our people, we must not allow old-fashioned ways of organising work to damage the potential for economic success. That is why we must make it much easier for parents to choose how they balance bringing up children with earning a living. We need to make it easier for parents who have been unable to find any work to start earning a living. We also need to make it easier for parents in work, especially those working long hours, to spend more time with their families. Perhaps all of us in the House who are parents should declare an interest in that issue.
We are therefore introducing a mentoring service for lone parents who want to return to work so that there is one person to offer them confidential support and advice 33 in finding a job. My right hon. Friend the Chancellor has ensured that a lone parent working part-time will have a guaranteed income of £179 a week and, on top, help with the cost of eligible child care.
Similarly, for mothers who want to stay at home, the working tax credit will give a guaranteed income to the family with children and only one earner. To ensure that the cost of child care does not deter parents from returning to work, there be will a new child tax credit from next year, available to families earning up to £58,000 a year.
We recognise that every family has different needs, and in recognition of the need of families to make choices we have extended the child care tax credit element of the working tax credit to those who use approved child care in their own home. That will especially help the parents of disabled children and parents who work outside conventional working hours.
The Budget is designed to extend prosperity and opportunity to men and women and to families and communities throughout our country. It will help to raise productivity and to bring greater prosperity for all of us. I commend it to the House.
§ Mr. John Whittingdale (Maldon and East Chelmsford)
As I listened to the Secretary of State, it appeared that she was talking about a completely different Budget from the one that was delivered by the Chancellor of the Exchequer last week. It was certainly not one that many people in the business community will recognise.
I begin by reminding the House of the Budget that the Chancellor delivered just over a year ago, in which he announced tax cuts of £3.6 billion for this financial year and of £4.1 billion for the next financial year. They were, he said,tax cuts we can afford".—[Official Report, 7 March 2001; Vol. 364, c. 308.]Just in case there was any doubt, on the following day the then Secretary of State for Trade and Industry said that the Budget contained "prudent tax cuts".
What happened between then and now? The answer, of course, is that the last Budget came a few months before a general election and the present one has come nine months after a general election. During that election Ministers repeatedly denied that they had any plans to put up tax. The Labour manifesto for that election stated that the basic and top rates of income tax would be left unchanged. It was an election during which, as my hon. Friend the Member for Sevenoaks (Mr. Fallon) has already reminded the House, the Secretary of State said that Labour had no plans to raise the ceiling on national insurance contributions; she said that it was not going to happen.
Nine months later, in the Chancellor's first Budget of this Parliament, he has raised taxes by more than £6 billion by adding 1 per cent. to the amount of tax paid by every person in a job. The president of the Chartered Institute of Taxation said thatthere is no getting away from the fact that we are going to have a 41 per cent top rate of tax from next year onwards.The Chartered Association of Certified Accountants said thathe has also effectively raised the top rate of income tax to 41 per cent and broken the Labour party election promise.34 That is the tax rise that, according to the Secretary of State, was not going to happen.
§ Michael Fabricant
Does my hon. Friend realise that the situation is worse than that? When the Chancellor of the Exchequer was asked whether there might be a further rise in national insurance, he said that he could neither confirm nor deny that that might happen.
§ Mr. Whittingdale
My hon. Friend is correct. We shall look forward with even greater trepidation to future Budgets under the Chancellor.
Given what has happened, it is no wonder that every poll shows that people think that Ministers have lied and that the Government are guilty of breaking their promises. Having broken their promise, we can no doubt expect further increases in the levy in future years, as my hon. Friend has just suggested. Having removed the upper earnings ceiling, it will be all too easy for the Government gradually to continue to increase the amount that will be charged. Normally, I would ask the Secretary of State to give an undertaking that that will not occur hut, given her track record on that issue, I see little point in doing so.
Of course, the Budget did contain some good news; indeed, the Budget speech consisted almost entirely of good news. Some 10 columns of Hansard are devoted to spending commitments and tax cuts, yet tax rises totalling more than £8.5 billion take up less than half a column. The Chancellor spent more time announcing a £15 million cut for microbreweries than he did on the freezing of personal allowances, which will cost taxpayers an extra £700 million. Even then, he got it wrong. The sales manager of the Crouch Vale brewery—its product is much enjoyed in my own constituency—said that,if we are expected to pass on the tax reduction to customers in time for the World Cup then he has misunderstood everything he has been told over the past fifteen years.Of course, there are some measures in this Budget that we support. The tax credit for research and development by large companies is welcome, even though this is the third time that it has been announced. The cut in corporation tax for small firms is also good news, even if it is of little use to those that happen not to be making a profit. Small firms have campaigned for a long time for a flat rate for calculating VAT payments, although they may be less enthusiastic when they discover that, initially, it will apply only to a limited number of businesses. The amount of red tape and form filling that it will save is already in some doubt. One commentator, writing in Accountancyweb, said:In practice, there is only one way to treat this new scheme, which is a bit of useless spin produced by people who have absolutely no idea of what they are talking about, and can't think from the requirements of one tax to another.The Chancellor also boasted in his speech about measures to boost the use of combined heat and power, and about his welcome decision to exempt CHP from the climate change levy. However, the Secretary of State, who has referred to those measures, will be aware that that will not be enough to put right the damage already done to CHP. In the past 18 months, investment in CHP has collapsed. Four major companies have pulled out of the industry and 1,500 jobs have been lost because of the way in which CHP is penalised under the new electricity trading arrangements. The Budget has not changed that, and until the problem is addressed there seems little likelihood that the Government's CHP targets will be met.
35 Although one part of the energy sector was indeed helped by the Budget, another was most certainly not. The decision to impose a new 10 per cent. tax on oil and gas companies" profits has caused horror throughout the industry. According to the Red Book, the cost to oil producers will rise to £600 million by 2004, but others have already estimated that the cost is likely to be far higher. According to a forecast by Wood Mackenzie, it will rise to more than £1 billion by 2005.
As has already been predicted, the tax increase will discourage investment. The United Kingdom Offshore Operators Association has said that many small companies considering recovery projects on mature oil fields may now have second thoughts. Moreover, the increase was almost entirely unexpected by the industry, and it undermines all the good work done through the pilot programme to establish long-term confidence in the industry. Indeed, I should be interested to know if the Secretary of State is willing to confirm that her Department learned of the proposed tax increase only the day before the Budget was announced. Yet again, it appears that the Department of Trade and Industry has no say in decisions affecting industry, which are taken in the Treasury.
As a sop to the industry, the Chancellor also promised to abolish North sea oil royalties, subject to consultation. However, it is not clear why consultation is necessary, given that the industry has unanimously called for abolition for a long time.
§ Sir Robert Smith
Interestingly, in choosing to trot out the same lines as the Chancellor, the Secretary of State failed to recognise that he is taking away revenue, which makes an operation more expensive. On royalties relief, where a particular project becomes difficult to proceed with, exemption can already be applied for.
§ Mr. Whittingdale
The hon. Gentleman, who represents a Scottish constituency that is bound to be extremely badly affected by this measure, is absolutely right. Those in the industry will be alarmed to hear that the Chancellor has been talking about consulting on abolishing royalty payments, but they will be even more alarmed when they read the Red Book because they will find that figures for receipts of royalty payments continue in the projected revenues until 2007. At best, that suggests that the Chancellor does not envisage that the consultation will be carried out very swiftly.
It seems pretty clear that the only reason for the consultation period is to provide an excuse to defer abolition. It is no wonder that those in the industry have reacted extremely badly; they feel that they have delivered their side of the bargain in terms of investment and that, in return, they have been clobbered by a totally unexpected 33 per cent. tax increase, which is bound to damage confidence, investment and jobs.
Not only the oil industry, but every employer in the land was clobbered in the Budget. For 50 minutes, they heard the Chancellor distribute favours in all directions. Then, in the last 10 minutes, they got hit with a tax increase of nearly £4 billion. Even before the Budget, industry was pointing to the damage done to our competitiveness by the tax increases that have taken place under this Government.
36 The Confederation of British Industry has calculated that the tax burden on business has increased by £29 billion as a result of the tax measures in the Chancellor's first five Budgets. It has said that, from having been one of the lowest taxed countries in Europe, the burden on business in the United Kingdom is now higher than that faced by most of our key competitors and that, of our five top trading countries, only France now imposes a bigger tax burden on business—and that was before the latest increase.
§ Dr. Stephen Ladyman (South Thanet)
If the Government have rendered such huge damage to industry, can the hon. Gentleman explain why we have the lowest unemployment in the developed world and why we were the only country to weather the last global slowdown and still manage to keep our economy growing?
§ Mr. Whittingdale
The hon. Gentleman refers to our unemployment record; I merely ask him whether he thinks a tax on the payroll—a tax on jobs—will help to improve our record on creating jobs and reducing unemployment.
§ Mr. Chris Bryant (Rhondda)
Can the hon. Gentleman also explain why the number of unemployed people in his constituency has fallen from 1,630 in 1997 to 720 now—a 55 per cent. cut? Does he not welcome the cut in unemployment in his constituency?
§ Mr. Whittingdale
Of course I welcome the cut in unemployment, especially in my constituency, but I shall also explain to my constituents and those of every other hon. Member that the Government have now put a direct tax on their jobs, which will make it more likely that they will lose them in future.
The CBI said before the Budget that the priority should be to cut business tax. Digby Jones, the director general of the CBI, said that the Budget would be a defining moment in the Chancellor's relationship with business, and he was absolutely right. Once again, the Chancellor has chosen to impose the single biggest tax increase on business and, moreover, he has done so in the most damaging way possible.
Instead of taxing profits, the Chancellor has chosen to tax jobs, by imposing an extra 1 per cent. in tax on the wages bill of every company in the land, and it does not matter whether the business is making a profit or a loss, or whether it is large or small. Even unincorporated businesses or simple one-man operations will have to pay more as a result of that measure. It is hard to think of a measure that will do more to damage industry's profitability and competitiveness.
§ Mr. Prisk
I am delighted to hear my hon. Friend mention the self-employed and unincorporated. Not one word about the self-employed—all 3 million of them—came from the Secretary of State or the Chancellor. Does my hon. Friend agree that that is a disgrace, especially for the Secretary of State for Trade and Industry?
§ Mr. Whittingdale
I entirely agree, and many self-employed people will think it particularly mean that they were also clobbered as a result of that measure. The self-employed have to bear ever-increasing burdens and none of the employment measures that go through the House helps them. They have had a steadily harder time 37 under the Government and the Budget will make things considerably worse, yet the Chancellor had the cheek to say that the Budget was about building a Britain of greater enterprise. So what did those who actually work in enterprise think of the Budget? The CBI said that there will be deep dismay at a tax burden that impacts directly on the cost of employing people at a time when UK competitiveness is being put to the test. The British Chambers of Commerce, which was quoted at least twice by the Secretary of State, called the measure a step backwards, and its head of policy has said:Is it a Budget for enterprise? No, it is not".The Federation of Small Businesses says it is a tragedy that the self-employed will also pay higher national insurance contributions, adding thatthis undermines any attempt the Chancellor has made to help the low paid.The Forum of Private Business calls the measure a£2 billion sickener for small firms that will destroy jobs.One analyst has calculated that company profits will be cut by as much as 4 per cent. A small firm employing 10 people will face an increased national insurance bill of about £25,000.
§ Mr. Whittingdale
I will give way to the hon. Member for Rhondda (Mr. Bryant) first, then to my hon. Friend.
§ Mr. Bryant
Such generosity—I thank the hon. Gentleman. Would any of those whom he is quoting prefer to pay for the national health service through American-style private insurance or French-style social insurance, which would probably be far more expensive for business? What does the hon. Gentleman himself think?
§ Mr. Whittingdale
Once again, the hon. Gentleman displays the wholly closed mind of Labour Members. They believe that the only way in which to put more money into the NHS is through general taxation. The reason why some other countries have better standards of health care and better standards of performance in their health services than us is that they spend more money on those services, but not money from the taxpayer. We have a lot to learn from such countries, and I shall not follow the Chancellor of the Exchequer by closing my mind and refusing to accept that anything could be improved.
§ Michael Fabricant
Does my hon. Friend realise that the national insurance premium is a double whammy? I am told by the leader of Lichfield district council that it will cost an additional £78,000 to employ people in that small district council. Such increases across the country will inevitably cause an increase in council tax payments.
§ Mr. Whittingdale
My hon. Friend is right. My local authority. Essex county council, estimates that the measure will add £4.5 million to its wages bill, which will inevitably lead to an increase in council tax next year. Council tax payers will pay twice as a result of the Budget. Of course, businesses and local authorities are not the only ones affected: the health service, police 38 authorities and local education authorities all face a huge increase in their wages bill as a result of the Budget, which will deprive the public services that the Chancellor claims he wants to help.
§ Ms Meg Munn (Sheffield, Heeley)
Has the hon. Gentleman read the Institute of Directors" comments on the Budget which describe it as having laudable aims and containing several worthwhile tax measures? The IOD is one of the organisations that he appears to have missed out.
§ Mr. Whittingdale
I do not disagree that the Budget has laudable aims; I just do not think that they will work. The IOD also says that without fundamental reform of the NHS, simply pouring in more public money will not lead to any improvement. On that point, I entirely agree with the IOD.
§ Mr. Kevan Jones (North Durham)
I agree that the reason why Germany and France have better health care is that they spend more money. How would the hon. Gentleman produce the extra resources that the health service and other public services require?
§ Mr. Whittingdale
The difference between this country and other European countries is that they spend more on their health services but the money does not come from the taxpayer. They have a far greater private sector and more private money going into their health services, with the result that they are able to spend more overall on health care. That is a model that we might do well to emulate.
§ Mr. Geoffrey Robinson (Coventry, North-West)
Where does the money for private insurance and health care come from if not from taxpayers?
§ Mr. Whittingdale
The difference is that the taxpayer chooses to pay it. No one is compelled to put money into private health insurance: people choose to do it. That is something I thoroughly commend.
Almost as bad news as what was in the Budget was what was not in it. There was nothing to help to relieve manufacturing industry from the burden of the climate change levy. Indeed, the Budget tore away the fig leaf that Ministers have used in the past to defend the levy—that it is overall revenue neutral due to a compensating cut of 0.3 per cent. in national insurance contributions. It was never revenue neutral for almost all manufacturing companies; now they will have to pay the levy as well as higher national insurance contributions.
No wonder the director general of the Engineering Employers Federation said:Did the Chancellor help manufacturing? He did the opposite. He has done something negative at the worst time. It is the wrong thing to do.Despite what the Secretary of State said, nor did the Budget do anything about the burden of red tape and regulation. On top of the £29 billion of extra tax that business now has to pay, the CBI has estimated that employment legislation alone has added another £12 billion. The latest red tape audit by the British Chambers of Commerce puts the total cost at more than £15 billion. Last week, I received a written answer stating that in 2001 the amount of time spent by businesses filling 39 in forms issued by the Office for National Statistics was estimated to be about 617,000 hours—and that takes no account of all the other forms issued by Customs and Excise, the Inland Revenue and all the other Government agencies.
The result is that our international competitiveness is being slowly eroded. Having been a low tax, lightly regulated economy, over the past five years we have steadily become a highly taxed, highly regulated economy. We are no longer automatically the first choice for investment and our position in the international league tables of competitiveness is slipping. In the table produced by the World Economic Forum we have fallen from fourth to twelfth, in the Heritage Foundation's table we have slipped from third to ninth, and in the Centre for Management Development's table we have fallen from ninth to nineteenth. The Budget will do nothing to change that; in fact, it will make the position much worse.
Last Wednesday, the Chancellor claimed that the Budget would help enterprise, and this afternoon the Secretary of State said that it demonstrated the Government's commitment to enterprise. I can do no better than quote the economics correspondent of The Sunday Times, who said:With a tax hike on business like that, Brown's sixth Budget was about as enterprise-friendly as Stalin's sixth five-year plan.The Budget represents a betrayal of industry and shows that the Government have learned nothing. They intend to go on pouring public money into the health service without undertaking the reforms that are vital if there is to be any chance of real improvement, and, yet again under this Government, it is business that has to pick up the tab.
§ Mr. Deputy Speaker (Sir Michael Lord)
Order. Before I call the next speaker, I remind the House that Mr. Speaker has placed a 10-minute limit on Back-Bench speeches in this debate, and that applies from now on.
§ Mr. Tom Clarke (Coatbridge and Chryston)
I suppose that it is inevitable and right that the debate on the Budget, certainly on the Labour Benches and among the public, has concentrated on the Chancellor's thinking on the crisis in the national health service and his proposals to deal with it.
Beyond the massive refinancing of the health service—the Chancellor's most welcome injection of £40 billion—lie other questions, which I should like to address in the short time that I have. I hope to be able to comment on the importance of training, on globalisation and on wealth and redistribution. I am sorry that the hon. Member for Maldon and East Chelmsford (Mr. Whittingdale) could not find time to cover any of those issues, but perhaps we shall hear Opposition Members" views in the course of the debate.
First, I want to deal with health. I realise that the hon. Member for Maldon and East Chelmsford is being disturbed by one of his colleagues, but as I am going to refer to him, and am even prepared in a 10-minute speech to give way to him, perhaps he could give me a few moments of his time.
40 I believe that Government's responsibility to industry and commerce is to set the climate for discharging responsibilities to the people of this country, including providing essential services such as the NHS. A healthy approach to the economy such as that taken by the Government means that we tackle the problems of manufacturing, consider the opportunities of a technological age, and take our chances in marketing to spread our products throughout Europe and the rest of the world. In doing that, we should give ourselves the opportunity to invest in the health service and other services in a way that has not been done previously.
Does the hon. Member for Maldon and East Chelmsford genuinely believe that large and small industrialists and companies, concerned—as we all are—about the health service, are so unfair and limited in their view that they ignore the Government's economic successes? Does he want to return to the days of high interest rates and inflation, when negative equity was a regular factor? That did not help anyone's health or British industry. He cited the CBI. I put it to him bluntly that he should consider the problem of absenteeism from which industry in Britain suffers. One newspaper today reported that it costs the country £23 billion a year.
The hon. Gentleman quoted Mr. Digby Jones of the CBI, and made his views on national insurance contributions clear. The country is entitled to know where the Conservative party stands. The hon. Gentleman and his colleagues have had time since the Budget to think about it. We know that they do not like it, but I will give way now if the hon. Gentleman answers a question. If the Conservative party forms a Government, will it repeal the measures in the Budget? There is no response; I shall explain why. He knows that not only the country but, according to the Sunday press, to which he referred, the vast majority of Conservative supporters support the Budget. There is therefore no incentive for him to repeal the Chancellor's measures.
Does the hon. Gentleman believe, even in the context of the comments of Mr. Digby Jones, that people do not notice that the Government have dealt with low income earners, for example, by introducing the minimum wage? But are the Opposition considering those in the top income brackets? There is not much sympathy for the fact that, for example, the principal of St. Andrews university, who earns £145,000 a year and will get a rise of 11.5 per cent., will be asked to pay a limited amount to help our health service. The hon. Gentleman, through his comments and his quotes from Mr. Digby Jones, showed that some people live in a time warp. It does not help to talk Britain down. The G7 nations would not be impressed with a member country that did not believe in investing in the health service, which is so vital to every aspect of our nation's welfare.
I want to deal briefly with globalisation and wealth distribution. How effectively is the United Kingdom being prepared to compete and prosper in globalised markets? How effectively is wealth being redistributed? I believe that the British people are fair-minded, and the answers to my questions tell us something about the economy and society that we are becoming.
I desperately want the Government to continue to challenge poverty at every level and for every group in society. That includes the poverty of ambition, which is why I want to focus on the crucial issue of training. I welcome the fact that there has been a growing and 41 intensifying recognition within Government of what the Secretary of State for Education and Skills has called the nation's long-term failure to raise skills.
Even after so many years of strong and focused regional policy in the United Kingdom—and I see this in my own county of Lanarkshire—it remains the case that not enough of tomorrow's skills are being put into the hands and the heads of tomorrow's work force. In some regions, only around 10 per cent. of the labour force have degree-level qualifications, while 20 per cent. have no formal qualifications at all. I do not see that as being competitive, so the Government are right to invest in education again and again.
As a matter of priority, the Government have to address what is now known, in the inevitable jargon of the times, as the low skill equilibrium. That is all the more true if we are to make a decision on the euro, and the Chancellor hinted at that in his Budget speech. One of the arguments about the benefits that could arise from that relates to the commitment to improve our skills and training. We would not gain the full benefit of harmonisation if we did not set ourselves that priority.
I welcome the initiatives in the Budget, and I am not alone in that, despite the views of the Opposition. Mike Brewer and Alissa Goodman of the Institute for Fiscal Studies said:If the Government had chosen to monitor a poverty line fixed at its 1996 level, instead of a relative one, it would now be able to claim that child poverty had fallen by around 1.3 million.That is a tremendous achievement. A lot more remains to be done, but on that and on many other aspects of his Budget and his policy, the Chancellor is entitled to be congratulated and we are entitled to feel proud. We are entitled to commend the Budget to the British people and, when we debate international development on Thursday, to examine the lessons that we offer, in our priorities, to the rest of the world.
§ Dr. Vincent Cable (Twickenham)
After five years, we know the Chancellor's style of Budget-giving. His Budgets are always delivered with great flair, eloquence and style. There is a lot of good news and the first impressions are always very good. It is only after looking at the small print that we begin to see the problems.
I want to try to strike a balance between the good news, which the Budget undoubtedly contained, and some of the negatives. The Budget contained important themes that Liberal Democrat Members have already acknowledged. We strongly support the increase in tax finance for the NHS, and we stick by that. We support the principle, which the Government have belatedly acknowledged, that personal taxation has to rise to some degree to pay for that. The Budget contained what is effectively a 1p rise in income tax, although the measure is not called that, and we have endorsed that.
It is also important to acknowledge that probably the most important single determinant of business behaviour is the overall macro-economic climate, and that is very good. There is low inflation and unemployment, and that is at least partly attributable to good monetary and fiscal stability. All that is good news, and we acknowledge it.
There was, however, major sleight of hand in the Budget. As soon as most of us opened the Red Book and saw the first big table, it was apparent where the money 42 was coming from. Of the £6 billion net increase in taxation, approximately £4 billion comes from business, almost all in the employers" national insurance charge. We need to be clear about what that tax is. It is not a tax on business men and women; it is not a tax on profits; it is not a tax on shareholders; and it is not a tax on wealth. It is a tax specifically on business costs and labour costs. It is a very bad and damaging tax that will have far-reaching consequences.
I have the luxury that the Conservative spokesman does not have of being able to suggest an alternative way of funding the Government's proposals. We suggested explicitly that the Government could have raised an equivalent amount of taxation by increasing the marginal rate of tax for people who earn more than £100,000 a year to 50 per cent. That, of course, would have taxed not merely salary incomes but investment incomes, which this Budget has not touched. I would be interested to hear why Labour Back Benchers regard that as inferior to taxing labour costs, which is essentially what this Budget entails.
The reaction to the Budget in the popular press and Parliament has been something of a phoney war. The argument has been that, through the Budget, the Government are taxing middle-income middle England. In some ways, I am reminded of a professional wrestling match in which one fighter gives the impression of a vicious kick at the head of his opponent, who pretends to writhe in agony on the ground—in practice, it has not happened. The Government have not launched a lethal blow to middle-income taxpayers, let alone upper-income taxpayers. They have launched a very severe tax burden on business costs.
It is important to think through logically what will happen. What are the effects of an increase in employers" national insurance contributions? Enterprises in the south-east of England that operate in a buoyant economy and do not compete internationally—most of the service trade—will pass on national insurance costs in higher prices, because they can shift the burden. In the overall economy, that will mean that prices will be a little higher than they would otherwise be. Consequently, when the Bank of England considers the inflation outlook, it will be less likely to cut interest rates and more likely to raise them, thereby making the problems of the exchange rate and the manufacturing sector worse than they would otherwise be. That is a very indirect consequence.
The most damaging consequence will be for manufacturing industry, because it operates in a traded environment with narrow margins and fierce price competition. Employers in the sector cannot pass on higher labour costs to their consumers: they have to absorb them, and they can do that in one of two ways. They can cut wages, so that a pay increase of 4 per cent. would become one of 3 per cent., resulting in lower real wages for their employees. Alternatively, and this is the more likely consequence, they can absorb them through higher redundancies. The main direct consequence of the Budget is that the increased tax on jobs, will cause higher rates of job displacement or job losses in the traded part of the economy—manufacturing—than would otherwise have been the case. That is the palpable conclusion.
§ Mr. Iain Luke (Dundee, East)
Will the hon. Gentleman take into account the growth in the economy predicted by the Chancellor? Instead of a shrinking 43 economy, in which such labour costs will have an impact, we will have an expanding economy, in which they can be contained by increased growth.
§ Dr. Cable
The logic is exactly the opposite. By making business less profitable and increasing its costs, the growth will be less than the Government have anticipated. One of the other sleights of hand in the Budget—to which I had not intended to refer, but the hon. Gentleman has prompted me—is the Government's assumption of a growth rate 0.5 per cent. higher than was otherwise the case. Much of the Budget arithmetic hinges on that very optimistic assumption. If one of the consequences of increasing taxation on business is to reduce investment and expansion of output in industry, it will wholly undermine the arithmetic on which the Budget is based.
§ Mr. Bill Tynan (Hamilton, South)
Does the hon. Gentleman accept that, last year, according to the Confederation of British Industry report, £11 billion was lost through days of sickness? Does he agree that improving the health service will dramatically reduce that burden on business, and that it could be a benefit to business if we succeed?
§ Dr. Cable
Of course we favour a better NHS and more health spending, as I made clear at the beginning of my speech. We entirely support that and have made suggestions about how it should be financed.
I sense from several interventions by Labour Members that they do not appreciate the fact that business already makes substantial direct contributions to the cost of funding public services, including the NHS. In international terms, there is already a relatively high national insurance charge on employers, who pay mandatory and voluntary sickness benefit. The business sector already makes a substantial contribution to the costs described by the hon. Member for Hamilton, South (Mr. Tynan). The Budget will have perverse consequences if it undermines the economy, creates more unemployment and weakens economic growth, which is why business groups have been critical of it.
I know that some hon. Members wince at the mention of the Confederation of British Industry, but in many respects it has been supportive of, and complimentary about, the Government. The old days when the CBI supported the Tories and the Trades Union Congress supported the Labour party are long gone. In many ways, the CBI has been indulgent of the Government; its anger on this occasion is genuine and, importantly, has been echoed by small business groups such as the Federation of Small Businesses. Two thirds of the increased revenue from the employers" national insurance charge will come from the small business sector and the self-employed, to whom reference has already been made. This is not a tax on big business, but very much a tax on small business.
The taxation on business does not involve only employers" national insurance charges, although they are by far the most important component. There are two more elements, one of which has been mentioned: taxation of the oil industry. My hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) knows much more about that than I do and I hope that, if he 44 catches your eye, Mr. Deputy Speaker, he will talk about it. However, I worked for some years in the oil industry, so I know something of the complexity of the problem.
The fundamental issue about oil taxation is that when oil prices are high—they are relatively high at the moment—the oil industry earns excess profit—that is, economic rent. It is reasonable that some of that excess profit in periods of high prices should go to the Exchequer; anybody in the oil or mining industry accepts that principle. However, how can that be accomplished sensibly to maintain incentives for new investment and exploration? The system should be transparent, clear and up front. When a retrospective windfall tax is imposed on the oil industry, incentives are damaged. If the industry knows in advance that it has to pay a percentage of its excess profits to the Treasury, it can factor that into its investment calculations. When decisions such as the one to impose a tax are made, the) only undermine confidence in the country.
I trust that the Department of Trade and Industry is now looking in detail at the final element of oil taxation. My understanding is that the new tax applies to existing fields, which are relatively high-cost in that the oil industry has to invest substantially, both in new technology and to get the oil out. We need to study the small print, but the tax may seriously undermine efforts to increase yields from declining fields in the North sea. The Government may unthinkingly have done quite a lot of damage to the economics of the North sea. I am sure that we shall hear more about that in Committee.
The other big tax change affecting the economy which has not been mentioned is the tax on foreign investments in branches of foreign companies. The measure is complex but, particularly in the banking sector, it is a major disincentive to inward investment. In the past year, there has been quite a lot of evidence that inward investment in the United Kingdom is slowing relative to that in other countries. There are many reasons for that. It may have something to do with the euro area, or other factors may be involved, but it is certainly happening and the tax will not help.
Germane to the argument about foreign investment is the relative level of tax in this country compared with that in other countries. For some years, the Government have been buoyed by the idea that Britain is highly business-friendly, but taxes have been imposed on the business sector when countries such as Germany are beginning to realise the disadvantages of a high-tax environment. If one adds together all the different business taxes as a share of gross domestic product, the burden in the UK is now higher than it is in Germany, let alone the United States. More and more companies will begin to take that factor into consideration when they make investment decisions.
§ Dr. Ladyman
Will the hon. Gentleman jog my memory? The famous 1p on income tax in the 1997 Liberal Democrat manifesto was not for the national health service but earmarked for education. The increase in spending that the Liberal Democrats then proposed for the health service was to be funded by a change in national insurance contributions. Why have they suddenly become such a bad thing?
§ Dr. Cable
The hon. Gentleman had an opportunity to think of that intervention about a quarter of an hour ago. 45 If he is asking how the Lib Dems would deal with the revenue implications of my remarks, which are about the revenue costs of foreign investment, I will tell him.
One of the undesirable consequences of the idea that it is possible to raise lots of revenue by plugging the loopholes in respect of foreign investment is that the investment flow simply slows down and corporation tax is reduced. Many of the supposed revenue-raising measures are nothing of the kind.
Let me finish on a slightly more positive note. There were elements of the Budget on the business side—we are discussing the business aspects of the Budget—that we welcome and which have been helpful. The research and development tax credit has been widely welcomed in the high-technology industries. One company that I consulted said that the Government had got it about 95 per cent. right and listened to representations that it should be volume based rather than affecting marginal R and D. In other words, the measure is based on the Canadian rather than the American model.
Several companies stressed that the 5 per cent. that the Government have not got right could be a serious problem. It relates to the Inland Revenue's definition of R and D. The Government must listen to representations made to them about the way in which, for example, the tax rules help new R and D, as in the drug industry, but do not help engineering companies, where much R and D is incremental and small scale. The Government, and particularly the Inland Revenue, must take note of the way in which innovation is supported, as opposed to scientific R and D further up the chain. Those issues can be pursued further in Committee.
I welcome the recognition of the burdens of red tape associated with the value added tax system. That is good news and I hope that it brings real benefit. The Federation of Small Businesses estimates that the savings that a small company makes from the new VAT rules will be wiped out by the national insurance charges, once a company has more than four employees. That puts the change in its modest context.
There are one or two other revenue measures that are positive. One admirable measure that has not yet been noted, let alone commented on, has nothing to do with economics, but much to do with ethics. For the first time, the Government are to outlaw bribery as a tax relief. The Liberal Democrats have argued for that and I am delighted to see it in the Budget. It appears in very small print and I hope that it survives the passage of the Finance Bill through Parliament.
The Budget contains several small but useful measures, but they are swamped by the negative effects of the increased national insurance surcharge on employers. That will be the lasting legacy of the Budget. It will do harm. It will not have an immediate effect on people's pockets, except for those who are made unemployed, but in the long term, it will act as a serious drag on the country, its growth and inward investment. We warn about the consequences of the measure.
§ 5.8 pm
§ Mr. Martin O'Neill (Ochil)
There has been much discussion this afternoon about the impact of what is, in effect, a payroll tax. I have two points to make. If the Government accept, as they do, that the funding of the NHS should be organised on the basis of national 46 insurance contributions and taxation, they have probably chosen the best way in which that can be done. There is never a right time for the imposition of any tax, but if there is to be a payroll tax, it is probably better to introduce it when unemployment is very low than when it is very high—a situation of which we had examples during the Tory years.
I well remember the lies and deceptions that were the hallmark of the 1992 election campaign, and the abuse that the late John Smith had to suffer when he was arguing for changes in national insurance contributions. For many of us, this measure is the completion of unfinished business—an expression that John used in another context, but which in this one is just as relevant.
In talking about the increase in expenditure on the NHS in a trade and industry debate, may I ask the Secretary of State to keep tabs on expenditure on equipment as a consequence of the added resource that the health trusts, hospitals and the health service generally will receive. It is vital that British manufacturing gets as big a share of that as possible. I am not suggesting some chauvinistic "Buy British" campaign, but there ought to be a unit available to the industry, supported by a plethora of interested organisations, to ensure that British business can best take advantage of the opportunities to which the largesse will give rise.
I am conscious of the remarks made by the hon. Member for Twickenham (Dr. Cable) about the North sea oil industry. I shall not cross swords with him because I know of his expertise in the matter. With characteristic modesty, he said that others in the House are more experienced than him. I should have thought that a former Shell economist had a little to teach some of us, but perhaps I could remind the hon. Gentleman of one or two significant points.
If a barrel of oil in the North sea costs $7 to $9, it is just about worth extracting. If it costs around $s11, a profit is made. If the figure is $13, it is worth the company investing. If it costs $15, the profits roll in. I was not one of those who argued two years ago, when the price of petrol at the pump was rising, that we should punish the oil companies, because there had been a prolonged period of low prices so there was not as much investment as there could have or should have been, and the upstream activities of a number of oil companies were suffering from losses.
However, the truth of the matter is that since June 1999, the monthly average price of oil has never been less than $17 a barrel. Indeed, throughout 2000, the price was $29 a barrel, and in 2001, it was $26 a barrel. Today, it is $26 a barrel. Is the hon. Gentleman suggesting that the oil and gas exploration industry will somehow be deterred by a windfall tax when the price is $26 a barrel? I think that these people are having us on. The hon. Gentleman will know that, like farmers, those in the oil industry are never in a good position—if parent companies are not hammered on the upstream, they are hammered on the downstream.
§ Dr. Cable
The arithmetic that the hon. Gentleman sketched out is absolutely right. He may recall that I said that I thought that it was entirely fair in principle to tax excess profits. Is not the logic of his argument that if the 47 price of oil fell below, say, $17 a barrel in the next two financial years, the Government would have to withdraw the measure?
§ Mr. O'Neill
I suspect that this measure has not been introduced in perpetuity. We are talking about it as we would a windfall tax, which should be levied only once or for one year. It would not be sensible to burden the industry if it became clear that the price of oil was falling. [Interruption.] Does the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) want to intervene? He is a big man, so when he is sitting down it looks as if he is on his feet and talking.
§ Sir Robert Smith
Does the hon. Gentleman not realise that there is therefore no planning horizon for those considering investing in the North sea, and that they would be better off investing in Angola, Azerbaijan, Venezuela or north-west Australia, where at least they might have some confidence in the Government knowing their plans from one year to the next?
§ Mr. O'Neill
I am sorry that I let the hon. Gentleman intervene, because that is the kind of repetitive claptrap that we hear from every industry when taxation is imposed on it. We are still talking about prices that are substantially higher than the minimums required to get a reasonable return. It is not unreasonable that the British taxpayer should in such a way get back some of the money that they have to pay at the pump. The fact is that the oil companies upstream have been doing extremely well for the past three years. However. I shall move on because I know that hon. Members have difficulty agreeing on that.
Much has been said about supporting industry through tax credits and the like. Many of us have argued for years that the microbrewery industry was one small business that was important to our constituencies. I accept that it is sometimes a lifestyle business. There are four such breweries in my constituency. They employ small numbers of people and have never been able to enjoy the economies of scale that have been available to even the medium-sized breweries. In many ways, they have been unfairly treated by the system and I am pleased to welcome the improved support for those businesses. Such help has been available in countries such as Germany for many years. The change is a classic example of a small business lobbying as a trade association for several years and eventually getting the Government's ear. It probably means that every small trade organisation will ride its hobby-horse into our surgeries over the next couple of years, but many of us are happy to deal with problems of that nature.
I welcome the Government's decision to sustain the winter fuel payment until the end of this Parliament, whenever that may be. However, people who are unfortunate enough to be born after the end of September in any calendar year do not receive the payment. There was a solid administrative reason for that: it was thought too difficult to provide the payment to everyone because no one knew what it would be. We now know from the Chancellor that it will be £200 for the next three years. So I hope that my hon. Friend the Paymaster General will 48 give us a positive indication that people whose birthdays are after the end of September will be entitled to get the winter fuel allowance.
If my arithmetic is right, only 75 per cent. of the possible new beneficiaries will receive the payment. There is nothing more galling than to be confronted by an irate woman—it is usually a woman—who, having just passed her 60th birthday, gives us hell in our surgeries on a Friday or Saturday because of the winter fuel allowance. We are asking for a wee bit of assistance on that because the payment is a great idea and reflects a tremendous expression of support by the Government for the elderly and disadvantaged. A number of people are denied that help, and by God do they feel bitter.
I hope that that is not seen as carping criticism. There is no reason for not extending the payment to everyone who is entitled to it. I like to think that the Government will address the issue in a spirit of largesse—perhaps not tonight, but certainly a little later on. I will write to the Minister about that because it is a problem that we need to consider. Although it is a small matter, we would make a sizeable number of people very happy were we to sort it out.
§ Mr. Michael Fallon (Sevenoaks)
I draw the attention of the House to the business interests recorded in the register.
The hon. Member for Ochil (Mr. O'Neill) did us one service: he gave the most honest description of the Budget that I have heard when he referred to it as the John Smith memorial Budget. We have certainly not heard members of the Government Front Bench calling it that, and it might have been more honest had the Chancellor cast it in those terms.
The Budget is based on a series of deceptions, the first of which is that the Government are responsible for the strength of the economy. Every time the Chancellor takes credit for the economy, I am reminded of that miners" grace from the Durham coalfield: -What we are about to receive has nowt to do with the Duke of Newcastle." The success and strength of 60 per cent. of the economy has nothing to do with the Chancellor; it has far more to do with the structural reforms that we carried through, which the Chancellor opposed night after night in the House when he voted against me throughout the 1980s, and with the guidance of the Monetary Policy Committee, which has managed to control inflation—a task that the right hon. Gentleman gave away when he came into office in 1997.
There are ways in which the Chancellor can help, but they are not to be found in the obsessive micro-tinkering that he is so good at. For example, he backed the film industry in 1998 and 1999, but in this Budget he is withdrawing and clamping down on the tax relief for films. He should concentrate his efforts instead on encouraging productivity and saving: Our productivity is not improving anything like fast enough; the manufacturing sector is clearly struggling; and we have the lowest savings ratio for a decade.
The second great deception behind the Budget is that the Government are somehow business-friendly. There has never really been any evidence for that. Of course, there is plenty of evidence that the Government are businessmen-friendly. It has been becoming pretty clear over the past few months that there is a process of 49 political serendipity whereby nice things seem to happen to Labour donors—but I shall not be drawn down that path. Any pretence that Labour backs business has now been blown away. It has now been clearly revealed that 80 per cent. of the new tax burden falls on business. Jobs will now be taxed more heavily than people. As the hon. Member for Twickenham (Dr. Cable) rightly said, the burden of the Budget will tall on jobs. The taxation increases will be paid by those in manufacturing, those who work for Corus, those in labour-intensive industries.
It is not enough for the Chancellor to talk about enterprise when he does so little to support it. We hear the right hon. Gentleman banging on time and time again about his admiration for entrepreneurship in the United States. He goes there, but it is not enough to be a political tourist and spend a couple of weeks playing tennis at Cape Cod. That is no substitute for understanding why the United States is so productive. It does not have our working practices. It does not have the TUPE regulations, the employment tribunals and all the other stuff that we have had to import from Brussels.
The US seems to have found the trick in the past 10 years of substituting capital for labour while having a growing work force and encouraging new jobs to be created. If the Chancellor were serious about backing enterprise, he would recognise that our economy is still much closer to the continental model than we would like to admit. If we really want to improve productivity in the UK, we must change the culture and the regulation of employment.
The third great deception is that we can improve public services by chucking money at them—that more people on the payroll necessarily means reform. The Government have a poor record in planning public spending. There was supposed to be a three-year cycle. We have had two comprehensive spending reviews, and I remind the House that just three weeks ago we entered only the second year of the CSR 2000, which began in April 2001. We are just three weeks into the second year of the three-year cycle, and suddenly we are told that none of it is sufficient. The plans have to be torn up and started again.
There were supposed to he targets. There were supposed to he public service agreements. First, there were 600 agreements; now there are only 60 or so. There were supposed to be penalties but there are none: if services do well, they get more money; if they do badly, they get more money and more interference. We have had endless reorganisation. Every year since I returned to the House in 1997, I have received papers saying that one trust is to merge with another, or that one health authority is to merge with another, or that one ambulance trust is to merge with another. Now we have primary care trusts. None of this endless reorganisation and tinkering with bureaucracy improves the lot of patients.
Public service managers are at the beck and call of Whitehall and of every initiative. They are now to be subsumed under layers of audit, inspection and accountability, instead of being given the freedom to manage, instead of being allowed better and stronger working practices, instead of being free to make more effective use of resources and to manage their own budgets properly.
I would like to see a clear commitment from the Chancellor that hospital managers, head teachers and area police commanders should be given freedom to manage 50 their own budgets and to manage their own people, so that they can respond effectively and locally to what their communities are asking. Instead, the Government are going down the route that a previous Labour Government bequeathed to the Thatcher Government, which was a series of public sector pay awards. This could be the son of Clegg—an explosion of public sector pay increases and jobs without necessary reforms in delivering the services that should have accompanied it.
The fourth and final deception is on tax. The Government claimed that they needed no increase in taxation. They did so not once, but twice, in 1997 and 2001. They claimed that they needed no increase in income tax, but national insurance is a tax on income. As I pointed out earlier, the Secretary of State for Trade and Industry, who shared a television studio with me at the time of the election, said that she had no plans to increase the ceiling, but they have increased it. Clearly, she cannot have been telling an untruth, Mr. Deputy Speaker, so it must have been a broken promise, although when I challenged her earlier, she failed to explain or apologise.
Indeed, one of the most dishonest sentences in the Red Book is this:Save for this 1 per cent. contribution, the ceiling of £30,420 will remain in place, and will he indexed in line with inflation to £30,940.The ceiling does not remain in place even until the end of the sentence. It has now been breached, and we learned this weekend that it could well be breached again. The national insurance increases will be borne not only by the higher paid, but by the lower paid as well, and by those who work in the national health service and for local government. Of course, they will be borne by the hard workers of middle England. We will have two different and increased tax rates: 33 per cent. for the basic rate and 41 per cent. for higher earners.
Those are very substantial increases in taxation and also in public spending. Public spending cannot indefinitely grow faster than the economy as a whole. It certainly cannot do so comfortably if the economy begins to slow. It would have been more honest of the Government to have spelt that out, but I have given up expecting honesty from them.
§ Mr. Geoffrey Robinson (Coventry, North-West)
Many hon. Members—most recently the hon. Member for Twickenham (Dr. Cable)—have paid tribute in our debates on the Budget to the remarkable economic success of this Labour Government. Only the hon. Member for Sevenoaks (Mr. Fallon) could seek to take that credit away from the Government.
Whichever way one looks at our time in office, one can see that it has been a period of the most remarkable and sustained success. We have now reached our sixth Budget, and it is clear that we can at last begin to reap some of the rewards of the very difficult decisions that had to be taken because of circumstances in 1997, which the hon. Member for Sevenoaks mentioned. They were caused by the Tories" reluctance to increase interest rates on the one hand, and their failure to reduce the national debt on the other. The hon. Gentleman was a member of the Opposition team at the time, so he will recall that they opposed every single measure that we had to take to rectify those two basic deficiencies with which the Tories 51 left us. Whether it was the windfall tax, getting rid of tax credits or advance corporation tax, they fought those measures tooth and nail, yet they were necessary to rectify the inherent imbalances in the economic situation that we inherited.
A raft of other such measures were introduced, but even while we were implementing them, we always had our eye on the need to create a more entrepreneurial set of measures to accompany them. It was in the same period—in those first three Labour Budgets—that we introduced our audacious reform of capital gains tax, which laid down the basis and took us further towards the measures announced last week by my right hon. Friend the Chancellor.
From the very beginning, the two strands of fairness and enterprise ran together. My right hon. Friend the Secretary of State for Trade and Industry spoke about them most effectively when she referred, among other measures, to the massive incentive that the Budget provides for research and development. That is important to Labour Members, because we know so well that, apart from problems in the general areas of investment in plant and machinery, it is also the underlying and continuing failure of British industry sufficiently to invest in R and D that has led to our falling progressively behind our major competitors.
Now, after five years of Labour Government, unemployment is right down and the minimum wage—so bitterly opposed by the Tories—is a proven success. Youth employment measures such as the new deal have been successful beyond any of our dreams. Interest rates and mortgage rates are the lowest for 40 years, and, as a result of what we have achieved in reducing the national debt, we can now ask what we can do to further the aim of rebuilding our public services in which there was under-investment during the long years of the Tory Government. That we are now able to do so is thanks in no small measure to the great, measured and mature judgment of the Chancellor and his chief economic adviser.
Two areas of social policy are of particular interest to the present team that shapes policy within the Treasury. These two issues are right at the heart of what the team cares about, and what the Labour movement cares deeply about. They are child poverty and the national health service. I do not want to get involved in the rather silly argument about whether 500,000 or 1.1 million children have been helped out of poverty. Everyone in the House knows in their heart that the measures that we have introduced, the increases in child benefit that we have put through, and the further benefits that will come from the integration of tax and benefit have made possible a massive improvement in the welfare of our children.
There is certainly more to come as the benefits of the integrated child and working families tax credits come through. They represent one of the most major changes in the way in which we tackle poverty and deal with those who are less well off in society that any Government have introduced since Lloyd George. That is how important and far-reaching they are, and all we ever hear from the Opposition is that the measures introduce an element of complexity. If that is the small price that we have to pay for something so far-reaching, effective and redistributive, I am sure that Labour Members are willing to accept it.
52 The national health service was clearly the centre point of the Budget. It has been a major issue since the first months of the Labour Government, when we decided—quite rightly, although it was a difficult decision—to stick to the spending figures that we had inherited from the Tories. I wish that we had then just taken that other £1.25 billion that the present Paymaster General may remember was available from the then Paymaster General's office to alleviate matters, but even if we had taken that money, it was clearly going to be an extremely difficult period.
Now, however, we are in a position to rectify that underspending. We commissioned an inquiry to determine the best way to do that. The Wanless inquiry was commissioned before the last election and reported after it. The report stated quite clearly that the present system of funding the national health service out of direct general taxation was the cheapest, fairest and most efficient one. The response of the Opposition was, of course, to set off on a series of quixotic travels in Europe, from which I do not suppose they will ever return with a decision or a judgment, as the Chancellor has remarked. They have ignored the considered report that has been put before them, on the basis of which the Government are now prepared to invest more heavily than has ever been done in the history of the national health service.
I hope that I will have the agreement of hon. Members on both sides of the House when I say that the one big danger relating to the money is not that we shall not get improvements; of course we shall. Nor is it that we shall waste huge amounts of it; we shall not. There is, however, this wretched preoccupation in the NHS and in its executive with always changing the organisation. We need, in the simplest way, to reduce that—particularly at the top—and to make sure that the money goes into hospitals as efficiently and directly as is intended. If we can make that happen—frankly, it cannot be that difficult to achieve and no major management feat will be involved if the objective is clearly established—we shall be able to say proudly that a Labour Government introduced the NHS and a Labour Government saved it.
§ Mr. David Ruffley (Bury St. Edmunds)
The Budget must be the most expensive job application in British political history, for it is a blatant attempt to play to the Labour MPs, and members of the union movement and the wider Labour movement who may vote in the next Labour leadership election. That tells us that the Budget is from a real Labour Chancellor—the tax-raiser general who is now unambiguously committed to high tax and high spend. But that explicit tax and spend agenda was not so clear during the general election campaign.
At that time the Labour party was much more coy about its tax intentions, and the Prime Minister told the Daily Express:We are not going to clobber people on higher incomes. We have not the slightest intention of hammering people on £30,000 and £35,000a year. Yet following the Budget, we know from the tax tables that a nurse consultant on about £34,000 a year will pay £24 a month more in national insurance and a police inspector on, for the sake of argument, £37,000 a year will pay £27 a month more in national insurance.
Buried away in the Red Book is box 2.1, which is entitled, with, I think, unintentional irony, "Informing households about tax and spending decisions". 53 Some electors might suppose that the information has come a year too late, because it was not flagged up in the election. The Government's reticence on tax last June probably reflected their lack of confidence that the public would buy such a Budget.
The Government have said clearly that the Budget has been well received, that the public are happy to pay more tax and that it will all work out okay in the end for the good old British taxpayer and, indeed, this Labour Government. However, disillusion will set in swiftly among Ministers, for two reasons.
First, the public will understand that the tax increases are simply not over. We have a 1 per cent. stealth tax for those over the top rate ceiling, but that is the beginning of a long series of increases—the thin end of the wedge—and the Chancellor has his foot in the door. The measure is a nice little earner for him, and perhaps his successor in this Parliament. It will raise more money from national insurance, which has always been his aim.
§ Mr. Ruffley
Time does not permit; the hon. Gentleman will understand.
The Chancellor wanted to jack up top rate income tax liability in 1997 and 2001, but the Prime Minister prevented him from doing so. He has had his way this time, but he will have to revisit his top rate national insurance measure, because the Wanless projections clearly imply that that is necessary. Assuming no increase in private medical insurance take-up, by 2022, in cash terms at today's prices, £154 billion a year will be spent on the health system. As the Financial Times said on 18 April,the issue will certainly have to be reopened … these tax rises are only the first in what will have to be a continuing series if Mr. Wanless's blueprint is to be followed.It is clear that this is not the end of the tax-raising escalator.
Never mind 2022, in 2006–07 and 2007–08 there will be big increases in funding for the health service, which will have to be covered by reining back non-health service expenditure. The Institute for Fiscal Studies has sensibly said that that implies tight control of other politically sensitive programmes, such as law and order and transport, to name but two. It is far from confident that, on past record, any Government, let alone this Government, will be able to rein in those demands. Given the projections for economic growth, it seems highly likely that in the short term, never mind the medium and long term, tax will have to rise.
The second reason why disillusion will set in is that the promised improvements in public services are unlikely to be delivered. The Chancellor has talked about reform, but we have heard that one before. Since 1997, the Government and the Chancellor have talked about injecting market disciplines and enterprise values into the school system and the NHS, but that has not come about. We were promised free enterprise incentives and penalties in the school system, but all that has happened is that troubled local education authorities have had their payroll administration and grass cutting privatised. That is not structural reform of the things that count.
54 We have also heard from my hon. Friend the Member for Sevenoaks (Mr. Fallon) about the shambles of public service agreements, which are not open even to an audit of their assumptions by the Audit Commission. They are often soft targets. Many of them that are not soft are missed. We were promised that performance against public service agreements right across the public services would result in good performers being rewarded and less good performers having sanctions imposed on them. Not one of those sanctions has been applied. I am afraid that on this, as on so much else, the Government are just talking without delivering anything of substance. We are on a pointless paper chase with all those structures and systems, and it simply will not wash.
I have counted more than 30 new quangos that regulate and oversee the national health service. We will now have the new and hastily cobbled together commission for healthcare audit and inspection, although we do not know when it will be up and running—probably towards the end of this Parliament, just in time to miss a general election I fancy.
What is most troubling about the NHS reforms is that there has been no serious, intellectually respectable, careful, detailed analysis of the alternatives to the 100 per cent. taxpayer-funded model. If we think that that model is adequate, we should consider the statistics. Since 1997, there has been a 40 per cent. increase in spend, but activity has gone up by barely 6 per cent. In 1999–2000 alone, there was a more than 9 per cent. increase in spend, but the number of cases dealt with increased by 1 per cent. There has to be something wrong with the system. It will not wash for the Government simply to say that they will reform it using means that are not clear in the Budget or from any of the debates that we have had so far.
We have heard criticisms about the expensiveness of alternative models in Germany, France and Australia. Those systems have at least two things in common: they deliver better outcomes—survival rates for coronary disease and cancer are much better—and they provide greater responsiveness to the patient. They are market led to an extent, but the results are what we should be most concerned about.
We have had lots of ducks, feints and dodging. The national insurance increases, which are tax increases, have been linked with the health service by calling the NHS the best insurance policy in the world, but there is no true element of insurance or responsiveness through insurance. The social insurance models that have been examined by my right hon. and hon. Friends on the Front Bench deserve serious analysis, not some half-baked report from the witless Wanless, who did not cover himself in glory in his previous job. The health service is too important to be entrusted to such a shoddy and shallow piece of work.
The Chancellor is moving closer to the European high tax, high regulation model. He is miles away from the American model he prates on about so assiduously. The reality is that the Budget gives us cause for hope in one respect, and we welcome it for that. It marks the end of banal, post-ideological politics. The battle lines are clearly drawn between the Conservative party, which stands for free enterprise, and Labour—
§ Mr. Nigel Beard (Bexleyheath and Crayford)
The financial consequences of meeting the ambition of this country to modernise and invest in a world-leading national health service were not dreamt up in a moment of emotional gush by someone with an urge to be philanthropic with other people's money. Mr. Derek Wanless was chief executive of the National Westminster bank. He is well known and respected in the City. His conclusion is that for a given level of health care, all other systems of finance are likely to be more expensive than funding through general taxation.
Why cannot the Conservative party accept that? It could be a golden moment: we could take the financing of the national health service out of political controversy. In those circumstances, many might be willing to forgive the Opposition for past mischief towards the national health service. However, they refuse to accept that escape route, because they are still addled by dogma.
We can see that in the vocabulary used by Opposition Front-Bench spokesmen to condemn the Government's plan. The national health service is a Stalinist organisation, they say. Despite the bureaucratic failure of the infamous internal market, the US experience of personal payment when need arises and the burden that would fall on employers from social insurance, the Opposition are toying with those ideas. Like the Bourbons, whom they resemble in so many ways, they have learned nothing and forgotten nothing.
The Conservatives are not the only people who are confused as to the logic of their position. Mr. Digby Jones, the director general of the CBI is a gentleman with a somewhat shaky grasp of arithmetic, judging from the unfailing way in which he seems to get things out of proportion. I say that in the true spirit of new Labour—more in sorrow than in anger. I know that CBI members will advise him to distinguish between what he says late at night in the bar of his golf club and what he pronounces as the settled view of the CBI.
This Sunday, in an article in The Observer, Mr. Jones had the grace to say:UK business has never had the macro-economic stability in which it currently operates, and the Chancellor has been a major contributor.Sadly, that followed his comment that theincrease in … NI contributions will be another body blow to the UK's global competitiveness".However, the UK has the lowest rate of corporation tax among OECD countries. It is enhancing competitiveness with the Competition Act 1998 and the Enterprise Bill that is currently going through Parliament.
Let us put that national insurance contribution increase in proportion. It is not 20 percentage points, nor 10, nor even five: to Digby Jones it is one percentage point—something that might have been conceded in the annual round of wage negotiations. It is hardly a body blow, unless the body is particularly puny, and Mr. Digby Jones appears far from puny.
Elsewhere in his article, Digby Jones states:We don't have the transport infrastructure, skills base or historical investment in industrial resources of our rivals.Well, you said it Digby; we are saying it, too. The only difference appears to be that Digby Jones does not want to pay for it, but we know that we must.
56 I do not want to be too solemn about Mr. Jones, but I wish that he and other spokesmen for business, and indeed business men generally, would recognise that we are all part of the same society. Business is not a separate caste that confers favours on society; it is part of society. In his article, Mr. Jones said thatthe Budget has seriously undermined the confidence that business has in the Government's genuine understanding of how business works".Too often, the pronouncements of business undermine the confidence of the rest of us in its genuine understanding of how modern society works. I promise that I will never again make fun of Mr. Digby Jones and the CBI if its members will recognise that they are not just business men—members of UK plc—but citizens of the United Kingdom, one of the most innovative, benevolent, free and fair societies that the world has ever known.
Let me turn to an issue that ought to concern the CBI, and which concerns many of its members, even though Digby Jones overlooked it. Productivity—the amount produced per person or per hour of employment—is a measure of the country's capacity to generate new wealth, and thus of its ability to pay for community services. Given that we are achieving high levels of employment, it is productivity that will determine the UK economy's ability to grow. There are two aspects to productivity: doing more efficiently what is already being done, with inducements to make necessary changes; and innovating in order to produce something useful that was not available previously. Having spent many years during my career promoting innovation, I should like to address that aspect of productivity.
In January 2000, the Select Committee on Science and Technology concluded its report on engineering and physical science-based innovation by saying that,if Britain is to remedy its declining capacity for science based innovations, large companies will play the major part.That is now recognised in this Budget. The report continues with this welcome statement:There is, therefore, a strong case for extending tax credits to them too. Market research and the provision of demonstrators of the final product are recognized as critical to innovative success. It would substantially reduce industry's risks and encourage innovation if the costs of market research, demonstrators and product launch were included in such an R&D tax credit.There is a very strong case for Ministers" taking that conclusion seriously. Through research councils, much Government support for science rightly goes to fundamental or early-stage research. However, if such inventions are to be converted into economic advantage, they must be developed into practical products and processes. Development is a painstaking process that ensures that products and processes operate reliably and consistently, and, above all, satisfy a market demand. That process is far more expensive than earlier research, and involves major risks. All evidence shows that, for those reasons, many inventions are abandoned at that stage—a stage that industry alone can carry out because it has an intimate understanding of the potential market.
However, in recent years the Department of Trade and Industry's R and D scoreboard has shown that business spending on research and development—as opposed to Government spending—is falling behind that of our international competitors. That decline must stop, because business is the only source of development. Unless development expenditure comes into line with research 57 expenditure, more and more good ideas discovered in the United Kingdom will be commercialised in the United States or Japan. I hope that the welcome new research and development credit for larger companies will be used as a lever to encourage persistence in development.
The modern Labour party is dedicated to the view that economic strength and social justice go hand in hand. This country does not prosper when one political party pursues economic strength to the exclusion of social justice, while another spends money on social justice without nurturing the economic development to pay for it. That zig-zag approach has put this country behind our international competitors, and as a result our public and social services are poorer than they should be. The policy of the third way is working. This Budget is distinct, not as a mythical return to tax and spend, but as a practical example of such a comprehensive approach to social and economic policy and life in Britain.
§ Mr. Robert Syms (Poole)
This Budget is just more talk, more taxes, no change and no difference, and the British people deserve better.
§ Mr. Syms
The hon. Gentleman will hear it again and again, because basically it is true. As some of my colleagues have suggested, we have witnessed a big change, in that politics is returning to tax and spend. People are happy to pay more tax if they feel that such spending will deliver better services, but the difficulty for this Government is that, although they have demanded substantially more money, they do not know how to make the NHS or other public services work better. In the past five years, taxes have risen but in many instances public services have got worse. Britain deserves world-class public services, but I am afraid that this Government seem to tax more, waste more and fail to deliver. Often, as they fail to deliver, they move the goalposts—they change the means of assessment—or introduce new targets and plans for 10 years or much longer. People will judge this Government in terms of delivery, and unless they seriously reconsider how they deliver many public services, I am confident that at the next election the British people will re-evaluate their support, and they may well determine that the Government have run their course.
I should have pointed out at the beginning of my speech that I am a director of a family building business that may be affected by Budget measures. That interest is declared in the Register of Members" Interests.
The national insurance surcharge will hit business hard. As many of my hon. Friends have pointed out, it will be paid by all businesses, regardless of whether they make a profit. Reduced rates on company taxation are somewhat hypothetical if, just to stay in business, the amount of money going out of a business has to go up. A figure of 1 per cent. may not sound much to Labour Members, but such an increase can sometimes determine whether a company stays in business. The Government have hit business hard through that increase.
The national insurance increase imposed on many of those in the public sector is also significant. A nurse consultant on £34,000 a year will be £24 a month 58 worse off; a police inspector on £37,000 a year will be £27 a month worse off; and an employee on £20,000 a year will he £13 a month worse off.
§ Mr. Syms
If the hon. Gentleman had listened in the first place, perhaps he would appreciate that hard-working people who are trying to deliver better public services are being taxed higher through this increase. Indeed, as my hon. Friend the Member for Maldon and East Chelmsford (Mr. Whittingdale) said, this Government have taken "29 billion off business. In terms of the economic outlook, they inherited a golden legacy from the previous Government, but if they continue to load taxation on business, this country's competitive position will prove much more difficult to sustain in the long term. When a downturn does occur—I do not believe that this Government have abolished the business cycle—the cost of keeping people in employment will prove substantially higher than is necessary, leading to high unemployment.
This Government seem to be in favour not only of higher taxes, but of more red tape. New regulations are introduced every 26 minutes of the working day. UK companies are spending more time filling in forms, and less time managing their business. Even before the Budget, £6 billion-worth of extra taxation was in the pipeline, along with extra regulations costing some £5 billion. Meanwhile our competitive position is declining. In 1997, Britain was ninth on the world competitiveness scoreboard, but this year we have fallen to nineteenth. Britain's productivity growth has slowed under Labour. Under the Conservatives, average growth in the UK was faster than in the US, but under Labour the reverse is true.
In the first four years of the Labour Government, the UK's economy grew at a rate slower than America's, and slower than during the last four years of the previous Conservative Government. Britain's share of world exports has fallen from 5.1 per cent. in 1997 to 4.5 per cent. in 2000. The Chancellor had little to say in his Budget speech about the appalling, and apparently growing, balance of payments deficit.
Research carried out by the Library also shows that 4,642 new regulations were introduced in 2001—the highest figure on record. Many of those regulations have to be implemented by the owners of small business, who spend more time form filling and less time managing their businesses. Despite the Government's protestations about what they are doing for manufacturing, 400,000 manufacturing jobs have been lost since 1997. The economy has kept growing, but that has concealed the fact that so many businesses and sectors of the economy have suffered.
The Conservative party believes in the ideals of the NHS, but I am afraid that we are moving further away from them as time goes by. Last year, 250,000 people without insurance paid for their own operations. I suspect that all hon. Members have seen people in their surgeries who have been faced with either waiting lists or mortgaging their homes to pay for an operation that may well ensure that they live longer. None of us who believes in a service free at the point of delivery can be complacent about that.
All that my hon. Friends and I are saying is that we ought to be a little bit open-minded about how we deliver health services. I believe that health care will be delivered 59 principally through the tax system in future, but that does not mean that we cannot consider the methods adopted in other countries—in particular, those on the continent—to discover whether there are other funding alternatives that will increase the pot so that we can deliver what we want: decent health care for our citizens.
The fact of the matter is that the national health service employs more than 1 million people. It is not an easy service to manage, so we should consider ways in which to ensure that the service is more creative in future, and many of those in the NHS to whom I have talked appreciate that. One of the biggest frustrations of working in the public sector is that those involved want to deliver a better service, but they sometimes feel that the system conspires against them. If we could unlock the potential of NHS staff, I am sure that we could deliver better health care outcomes for our citizens.
North sea oil has already been mentioned. The North sea oilfield is now moving towards maturity, so it is important to ensure that we get the most out of it by encouraging firms to maintain investment. It was widely thought that a stable tax regime had been agreed, so that people knew where they were and could invest in the future. But the Government are desperate to raise some money, so they have hit what they consider to be the soft option. Instead of one possibility of raising money from motorists, they have decided to go for the oil companies. As the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) said, the oil companies employ many people in his constituency and are going through a rough time at the moment, but they will go through a rougher time because of the decisions taken in relation to the North sea industry.
The restrictions on film industry tax relief were not mentioned in the Budget statement. The tax reliefs introduced under the last Conservative Government were greatly enhanced in the 1997 Budget and thereafter. Indeed, the Government improved the tax position of many of those in the film industry, but they have found that the policy has been so popular that it is costing them much more than they expected, mainly because television companies have taken advantage of the film tax regime, so the Government have cracked down.
As has been said, the Chancellor spent a lot of time mentioning the Budget's impact on microbreweries, but he did not mention the crackdown on the film industry tax regime. Although that change will raise only £15 million in the current year, it will raise £225 million and £295 million in the two years thereafter. Those large sums did not so much as rate a mention in the Chancellor's speech.
I would give the Chancellor more credit for providing tax relief for the climate change levy if he had not introduced it in the first place, because it did great damage to much of our heavy industry. It is one tax that our European competitors do not impose, and I am afraid that it impacts heavily on the United Kingdom and has a regressive effect on our competitiveness.
There is no doubt that the Budget will have an impact on local authorities. Poole borough council—
§ Mr. Deputy Speaker (Sir Alan Haselhurst)
Order. I am afraid that the hon. Gentleman has had his time.
§ 6.4 pm
§ Huw Irranca-Davies (Ogmore)
I venture to suspect that my hon. Friend the Member for Bexleyheath and Crayford (Mr. Beard) has been dropped from Digby Jones's Christmas card list, as I may well be at the end of my speech. We shall see.
As has been said, this is without doubt a defining moment, and there is now clear water between us and the Opposition. I am not sure whether it is blue or red water, but the simple fact is that there is now an ocean between us in our approach to remedying the ills of the NHS. Despite what Opposition Members have said, I am confident that, coupled with the record funding and the reforms that have already been put in place in the NHS, we will see the benefits. I suspect that Opposition Members will still be sitting in the same place in a few years" time and that they will have to make a good lunch of the words that they have just spoken.
People in any constituency often see headlines about job losses and company closures, but behind those headlines, we find the headline figures. In my constituency, there has been a 47 per cent. drop in unemployment since 1997. The decrease in long-term youth unemployment is even more significant at 62 per cent. Those figures are not to be sniffed at. We are talking about youngsters getting jobs through the new deal and having realistic expectations of long-term careers. That is to be welcomed. New business set-up and survival rates are improving. That stands in stark contrast to what we saw before 1997: boom-and-bust economics and a lack of the stability that employers want.
During my daily reading, I looked at the Financial Times the day after the Budget, just as many people in Ogmore do when they sit down to their breakfasts. I took exception to the fact that its editorial referred tothe idle poor who take their pleasure in bingo halls and clubs.I hope that that was said tongue in cheek, but I suspect that the Financial Times has now been removed from every working men's club throughout the Garw, Llynfi and Ogmore valleys.
The Financial Times also referred to the welcome news of the research and development initiative. Ian McCafferty, the CBI's chief economic adviser, and Rob Margetts, the former chairman of the Royal Academy of Engineering, welcomed the research and development tax credit. Peter Cotgreave of Save British Science said:UK firms invest less than their competitors in research.The Budget is designed to increase research, and I agree with my hon. Friend the Member for Bexleyheath and Crayford that that needs to happen.
We need to encourage more investment and innovation because that is the way to turn around areas such as my constituency. In contrast to what the Opposition parties are saying, Stephen Plender said:Competition policy has been an unexpected strength of new Labour.He made particular reference to the Enterprise Bill which is going through Parliament.
I welcome the measures for communities such as mine. The community investment tax credit is specifically geared towards disadvantaged areas. The disadvantaged areas stamp duty relief will provide us with more investment in premises. I also welcome the streamlining of the VAT regime for small firms.
61 Ogmore is almost a constituency of two halves. The M4 corridor has rightly received massive inward investment, but other areas have been left behind because the Conservative turned their back on them when they were in power. Labour Members welcome the investment in research and development and in deprived communities, and I hope that Opposition Members will welcome them as well.
Investors in People is to be encouraged for small firms. Small firms are important in places such as Ogmore because we have to turn back the culture that the Tories instilled in those communities. The Tories said that they were not worth it and that they could not live up to the expectations of other areas. We are clearly saying that we have confidence in people, so they will be able to turn their communities around, and we have put in place the economic measures that will allow them to do so. Small companies corporation tax has been reduced by 1 per cent. to 19 per cent. Those who quibble over 1 per cent. should remember that the starting rate has been cut from 10 per cent. to zero—not halved or reduced to 2 or 3 per cent., but cut all the way down to zero.
All that has been done on the basis of a Labour Government who have developed economic stability. No wonder people have totally lost faith in the Conservatives" ability to deliver on the economy—they have seen the Labour party do it 10 times or 100 times better. We have low inflation, stable interest rates and continuing economic growth. The distant nightmares of Tory boom and bust, of unemployment being a price worth paying in my communities, and of "on your bike" policies that forced people to travel away and turn their backs on where they were brought up are—please—long gone.
I mentioned that we have reached a pivotal point, and it is a seminal point not only for politics, but for the society in which we live and for business. Now comes the question that will get me struck off the CBI's Christmas card list. Would it not be nice to read in the headlines of the Financial Times, The Guardian and The Observer that the CBI had said, "We take responsibility for our stake in society as well. We are willing to put the money in as well, because the health of this nation goes hand in hand with the wealth of the nation."? The enterprise economy has nothing to do with cutting people off in the business jungle and saying, "Let them get on with it. It's a hard game out there. Let them do their own thing." Businesses have a stake in civic society, just as Labour Members of Parliament, the people back in Ogmore, and every citizen of this country do. Let every person play their part.
As for the 1 per cent., it will not break the back of every company in Britain. Let me tell hon. Members what it will do: it will help the Labour Government to turn the national health service around, invest properly in public services and build the sort of future for our communities that the Conservatives were never interested in.
§ Mr. Elfyn Llwyd (Meirionnydd Nant Conwy)
As we have heard from the hon. Member for Ogmore (Huw Irranca"Davies), the extra money raised is to be pumped into the national health service, and that is welcome, but I am sure that after such an increase in taxation, we will want to see some change fairly soon. Following all the hype surrounding the Budget and the promised injection of cash, change will now be expected, 62 and, for the sake of all our constituents, I sincerely hope that it happens. Unfortunately, according to many sources, unless there is root-and-branch reform, the increased investment will do little to improve the service but will merely limit further decline.
Because of Labour's election manifesto pledges, no rise in income tax could be allowed without—God forbid—the Government breaking a promise, so to raise enough income to cover all the promises that the Government have made, other appropriate means have to be used, one of which is national insurance. Despite the warnings given by the hon. Member for Twickenham (Dr. Cable) in his well-argued speech, I do not oppose that approach in principle. However, because of the relatively low ceiling on national insurance contributions, those on higher incomes do not pay proportionally as much as those on lower incomes.
In the days preceding the Budget, the press was full of speculation that the Chancellor would raise that ceiling significantly, but he did not. My party would have been happy if he had, as would many people outside, because now the net effect is that lower earners pay proportionally more in NICs than high earners. It can therefore be argued that the change is regressive. I refer hon. Members to the well-argued case made by the hon. Member for Twickenham, but continue to believe that raising NICs is a step in the right direction, subject to the caveat that I mentioned.
There is a problem, which is that the increase in national insurance will hit the public sector hard, almost with the effect of giving with one hand and taking with the other. It is estimated that the change will cost almost "1 billion per annum. Plaid Cymru believes that a more progressive system of taxation is needed in the United Kingdom. We think that the abolition of the national insurance ceiling would be helpful—
§ Mr. Llwyd
Not absolutely. It has been raised, not abolished.
Increasing the personal allowance for those on the lowest incomes, increasing by 1 p the standard rate of income tax, and setting a new 50 per cent. top rate for those earning more than £50,000 would have been more progressive. Such measures would have raised more than £20 billion throughout the UK, making an additional " 1 billion available for use in public services in Wales.
Hitherto, the Chancellor's tight economic policies have helped to drive up the value of the pound, boosted the booming service sector, and rewarded big business and those on higher incomes, but we in Wales know that there are problems. Welsh agriculture is badly squeezed, in part because of the strength of the pound, and manufacturing and tourism are suffering. The Chancellor's seeming infatuation with the service sector has put more traditional industries at risk. Again, he has failed to target incentives to help business in deprived areas.
Wales needs a strong and targeted regional economic policy. Lowering corporation tax and employers" national insurance contributions in objective 1 areas would boost investment. Wales stands at the door of probably the greatest opportunity for economic resurrection since the end of the coal era, but objective 1 funding is an unfortunate sign of how bad things really are. If the state 63 of Wales's economy were as good as Labour Members like to believe, it would not have been given objective 1 status.
Unfortunately, getting our hands on the money to take full advantage of that status has not been easy. To be fair, the Chancellor has awarded Wales extra money above the Barnett block in the current comprehensive spending review, but regardless of all the spin and reports, no match funding has yet been made available. Before 2000, grants from the European regional development fund were paid by the Scotland Office and the Wales Office out of the Barnett block, but no adjustment was made to the block to cover the extra cost. In effect, money from the ERDF was paid to the Treasury in London for projects in Wales but not passed on via the Barnett allocation. In other words, ERDF grants never reached Wales and the funding of all ERDF projects was at the expense of the core budget. I believe that the story is similar in Scotland.
§ Mr. Llwyd
No, I have only 10 minutes.
The practice was exposed in the National Assembly for Wales, and the subsequent comprehensive spending review allocated £421 million for the three years 2001 to 2004 in addition to Barnett, to cover part—but not all—of the European grants earmarked for projects in Wales. That allocation is a fixed amount that does not fully cover the European grants actually paid out by the National Assembly. That coverage could easily have been achieved by making the budget line an annual managed expenditure—thus passing on 100 per cent. of the money received from Europe for projects in Wales—rather than a departmental expenditure limit.
No contribution was made from the Treasury to public sector match funding, which increased substantially with the start of the objective 1 programme in January 2000. As a result, next year, £65 million of itemised expenditure will he taken out of the Assembly budget to supplement the match funding already in the system. As that money comes from the Barnett block, the budget available for core responsibilities such as health and education will have to be cut correspondingly. After 2004, it is predicted that the total match funding specified directly in the Assembly budget will increase to £90 million, and unless that increase is fully covered in the funding allocated to the National Assembly, further inroads will be made into the core budget for services such as health and education.
Although the Chancellor has cut corporation tax to record lows, those cuts are not targeted: they are not aimed at certain sectors or areas. Deprived areas need direct intervention to help to promote their businesses, entice investment and retain existing jobs. The Chancellor announced tax credits for businesses across the board—universal benefits for an uneven playing field. There is a two-speed economy in Britain: first, the booming south-east of England, and good luck to them; and, secondly, the rest of us. It might be more correct to say that there is only a one-speed economy, and the rest of the country is beginning to slip into reverse.
There is a strange dichotomy in the Chancellor's thinking. On the one hand he favours targeted tax credits in his social policy but on the other, he favours universal 64 benefits for companies. He is willing to target poorer families, but unwilling to target poorer regions. If the Government lowered corporation tax and national insurance contributions in objective 1 areas—the most deprived in the UK—businesses in those areas would have a slight advantage over those in more prosperous regions. That would entice more investment and make conditions more favourable for success. Tax cuts and credits should be aimed at the areas that need them most. That is where we have lost out. For example, research and development tax credits are welcome, but, regrettably, few companies in Wales will benefit from them.
Unfortunately, Wales lies at the bottom of the UK competitiveness index. Nine of the 20 lowest-paid areas are in Wales, and the highest average wage in Wales by constituency is still lower than the UK average. The gap between the south-east of England and the rest of the UK is still growing, and the Government have missed an opportunity to do something to alleviate that grave problem.
Since 1979, when the Barnett formula was introduced, Wales's gross domestic product has fallen from 88 per cent. of the UK average to 80 per cent. A new formula is needed to replace Barnett, but there is no time to discuss that now.
Wales faces further problems caused by long-term ill health and a particularly high proportion of senior citizens.
According to the figures, over the next five years, Wales will receive an extra £300 million a year for the NHS. That is most welcome. However, the British Medical Association in Wales estimates that Wales is short of approximately 100 doctors, and a recent survey shows a shortage of approximately 800 nurses. Waiting lists have shot up—there has been an increase of more than 900 per cent. in patients waiting for their first appointment with a consultant. According to the Library, it costs more than £250,000 to train a doctor, so training the necessary 100 doctors will cost £25 million. Training the necessary 800 nurses Will add an extra £28 million—
§ Dr. Stephen Ladyman (South Thanet)
This has been an interesting debate. I intend to focus a large part of my comments on research and innovation, so it is appropriate to begin by declaring an interest in that I am an unremunerated member of the Kent Innovation Centre, an organisation set up by Thanet district council to support innovative and knowledge-based start-up industries. That is an example of a Labour council working hand in hand with a Labour Government to ensure that we have industries for the future.
Listening to the debate, I wondered whether Conservative Members even understand why we have public services. I urge them to look at page 7 of a handy little Treasury document called "Budget 2002: a summary leaflet", which gives a breakdown of how taxpayers" money is spent. Having done a few sums, I discovered that the national health service costs about £1,200 a year per person—in other words, £100 a month. Do Conservative Members believe that a private or social insurance system could provide the benefits of the NHS for £100 a month? We have public services because they 65 leverage in benefits of scale, of fairness and of innovation, and that gives us more bang for our buck. They enable us to deliver services to the people who need them, as they need them. It is time that Conservative Members learned that lesson.
I was also interested to hear Conservative Members" comments about the state of the country in 1997. Frankly, I have to wonder which country they were living in. I became a Member of Parliament in 1997, and I remember the hon. Member for Sevenoaks (Mr. Fallon), who spoke earlier but is unfortunately no longer in his place, telling the House in the Budget debates of that Parliament about the mess that the Government were making of the economy by plunging it into recession and doing nothing to bring it out.
I remember Conservative Members opposing every one of the measures that the Government introduced to build the stable economy that we have today—the strongest economy in the world, and the only one in the developed world to avoid last year's global recession. We have the lowest interest rates for decades, the lowest unemployment in the developed world and the highest employment in UK history—and we are still a week or two short of the Government's fifth anniversary. By any stretch of the imagination, that is a catalogue of achievements of which the Chancellor, the Prime Minister, the Government and all Labour Members can be proud.
Conservative Members can take no credit for those achievements, because they opposed all the measures that were needed to implement them. When they said that the national insurance increase was a tax on jobs, I was reminded of the last time they used that phrase—when we were introducing the national minimum wage, and they kept telling us that it would create 1 million unemployed. In fact, 1 million jobs have been created since we introduced the minimum wage.
From the beginning of 1997, the Liberal Democrats demanded extra expenditure on everything. They wanted to start spending money that we did not have before we had earned it or were in any position to do so.
§ Mr. David Heath (Somerton and Frome)
Does the hon. Gentleman think that it would have been better to be in year five of the 10-year investment plan for the NHS, as we should be, or in year one, as we are?
§ Dr. Ladyman
I would agree with the hon. Gentleman if we had had the current economic position five years ago and it had been possible to begin this expenditure, but we have to start from where we are. In 1997, we inherited a country that was going into recession—as Conservative and Liberal Democrat Members said at the time—so we were not in a position to spend the money that we can spend today.
I remind Liberal Democrat Members of the pledge that they made in 1997—not to spend the sums on the NHS that we are about to spend, but to make a change to national insurance contributions that would have yielded precisely £250 million a year extra for the NHS. That was the total largesse that they would have provided. All the strength in the economy has been achieved since 1997. Every Budget since then has been opposed by Opposition Members and forced through by Labour Members. It is to our credit that we are in the position that we are in today.
66 I want to focus on how to maintain that position. The way forward must be through innovation, knowledge-based industries and science and research. The days when this country could compete against countries in the far east and the developing world on low unit costs are long gone. Businesses in sectors such as the pharmaceutical industry, in which I was employed before I entered the House, are key. Before the 1997 election, the chairman and chief executive of Pfizer, the company that I worked for, said that we were getting close to throwing away any advantage that we had in such innovative industries, because higher education was being allowed to erode, insufficient attention was being given to skills and training, and support was not being provided. A few weeks ago, I had lunch with the new chairman and chief executive of Pfizer, and he said that in his view Britain was once again the best country in the world for pharmaceutical investment. He did not mean that the situation was perfect, and he had some ideas about how it could be made even better. Nevertheless, we are now the best in the world, and we must maintain that position.
That is why the Roberts report commissioned by the Government is so important. The report identified a significant decrease in the number of students studying maths, engineering and physical sciences. It highlighted the negative image of science and engineering and the inadequate information in schools about careers in them. I especially condemn the anti-science attitudes of many hon. Members. They are a reason for people's lack of interest and the lack of respect for scientists.
The report underlined the difficulties of many students in applying their technical knowledge in the workplace and made recommendations to which we should pay special attention. We need to interest more kids in sciences, including maths, physics, engineering and all the technologies. We need in particular to interest girls and women in science and research and find ways in which to make that more practical. The Budget included measures to help get women back into the work force.
I especially welcome the volume- based credit for research companies. It will go a long way towards making investing in research more acceptable. However, if we do not accept the recommendations in the Roberts report, we will lose what we have: genuine opportunity to exploit technology and knowledge-based industries. We have always been good at that. We have created a base, and we can continue to expand it and make our living from those industries. The Budget does much to help that campaign, and the Chancellor should be congratulated on that. The comprehensive spending review, which will be completed shortly, should go even further. I hope that the spending review will accept and act on all the recommendations in the Roberts report.
The Government have done a tremendous job in difficult circumstances. They have built the strongest economy that we have ever had. We must make it sustainable and based on knowledge, innovation and high-tech industries. We are only starting the process; I hope that we shall go the rest of the way in the next three years.
§ Sir Robert Smith (West Aberdeenshire and Kincardine)
As hon. Members may have noticed from my interventions, I feel strongly about one aspect of the Budget 67 about which my constituents are concerned. First, I do not wish to incur the wrath of the hon. Member for Ochil (Mr. O'Neill), but I shall mention that my constituency depends not only on oil but on farming, tourism and other industries, and that in my view the value of the pound in relation to the euro is a growing problem that we need to sort out.
I want to concentrate on the aspect of the Budget that was a bombshell and shock to many of my constituents. Let me explain the reason for that. It is estimated that at least 40,000 jobs in Aberdeen and Aberdeenshire are in oil companies or companies that provide services that are directly related to oil production. That does not include all the spin-off jobs in the north-east that service the people who work in the oil industry. Some 250,000 jobs—a large number—in the United Kingdom stem from investment in North sea oil.
I want to stress the extent to which the oil industry is part of the fabric of north-east Scotland. I went to university in the late 1970s and early 1980s. Many of my contemporaries now work in the industry, and I pick up a lot from them and others who work in all parts of it. I hear not only from lobbyists and people in London, but from neighbours and the people I meet in church and in the pub. They work in the industry and I hear about all aspects of it. Jobs in the oil industry are challenging; people enjoy doing them, but they are risky and many fatalities have occurred. Those jobs involve a lot of hard work.
Not only do my constituency and others throughout the country benefit from jobs: security of supply for the United Kingdom is also important. Having energy that feeds into the national grid on our doorstep rather than buying it from abroad is comforting. We know that we can ensure that the lights go on and that gas comes out of the gas tap. Security of supply is a great benefit of maximising the potential of our resources.
The oil industry has contributed £175 billion in taxes since the 1960s. At the moment, £4 billion to £5 billion of taxes derive from activities in the North sea; £200 billion of investment has been made. There is more to come; that is crucial. There is as much oil and gas left in the North sea as has already been exploited. There is a long-term future if we get things right. I believed that the Government understood that, and that they were working to make the North sea a success story.
When the Chancellor first came to office, we heard terrifying stories of immediate windfall tax, but he engaged in dialogue. People, including me, praised the Government for setting an example to other sectors by engaging in dialogue, setting up a taskforce, establishing PILOT and working together. Department of Trade and Industry Ministers acknowledge the importance of getting it right. The Minister for Industry and Energy said in an interview with Holyrood magazine, which was published this week, that our main challengeis to slow the pace of declinein the North sea.
The North sea is an expensive place in which to operate. It is physically challenging because of the deep water and hostile climate. It requires leading technology, which is not cheap. It is important to acknowledge that there is cheaper competition elsewhere: it is cheaper to operate in the gulf 68 of Mexico, and many constituents commute to Azerbaijan. There are bigger fields in those countries, so they are more attractive places for investment.
The Chancellor had his eye on the North sea. It seems an easy hit to the casual, lay observer. The right hon. Gentleman appears to be hitting big London businesses that charge a lot for petrol at the filling station. In fact, however, he is not taxing big London companies, but the profits in the North sea, and only the North sea. As the hon. Member for Ochil said, when the companies are not making profits downstream, they make them upstream. Perhaps the Chancellor thought he could aim at that. But he is not taxing companies" profits from investing in the gulf of Mexico. He is taxing only those that decide to make profits in the North sea. He has charged a third extra on current taxation.
When will the tax start? The right hon. Gentleman gave no warning to enable people to plan for it. It began on Budget day, and no one can work round it. We live in an open, free market in which capital flows and looks for its best return. When the Chancellor decides to take increased revenues from a closed field such as the North sea, he makes it less competitive. He may have dressed things up in talk about future royalties, but that does not apply to the present; it does not affect the bottom line now.
The Chancellor is offering capital relief, which will be welcome, but he is taking extra revenue. Leaving aside the capital relief, imposing tax means that more money will come out of the North sea. He estimates that it will be £100 million this year and that the figure will increase to some £600 million a year. That is not only a breach of trust. Earlier in the debate, I made the point that some of my constituents face redundancy to make the industry more competitive. The industry is making people redundant to reduce the cost base. Their salaries are no longer paid to them, but are contributing towards making the industry more competitive. However, the Chancellor is now taking away people's salaries to help him collect his taxes.
The message to my constituents is depressing. It is also worrying for other industries that are considering investing in this country. When will the Government change the tax regime for them if they prove successful and the Government believe that they have captured them? I am worried about the short-termism of the Government's approach. If we get it right and encourage investment in the North sea, we will make more revenue in future. Every barrel of oil and every cubic metre of gas left in the North sea means revenue for future generations. It can pay for future health care, but it will be lost if the Chancellor does not get it right, work properly with the industry and acknowledge the need for investment.
The Budget was meant to be enterprising and fair. For those who have lost their jobs to make competitive an industry that the Chancellor, by taking tax out of it, is now making even more uncompetitive, it is neither enterprising nor fair.
§ Mr. Jim Cunningham (Coventry, South)
Obviously we welcome more money for the national health service, and it is interesting that two or three times tonight the Opposition have declined to say how they would fund it. We hear vague statements about other systems, but it is about time that their criticism became constructive and 69 they told us exactly which system they would use. I am certain that Members on both sides of the House want to make sure that NHS staff get their just rewards and receive their fair share of any extra money going to the NHS. That issue, I know, is likely to be the subject of negotiations; nevertheless it should be flagged up in the House.
Obviously we welcome the continuation of the £200 chill weather payments. Some of us who were in the House prior to 1997 know of the battles that used to be waged here on a Friday morning. The debate was not about £200 then; it was about an increase in the £10 allocation that had been made for several years. I am glad too that the Chancellor is doing a little more for pensioners—a subject to which I shall return.
Hon. Members have not touched on the fact that there is more money to tackle crime. I always thought that crime was a big priority, but the Chancellor has now allocated more money to the Home Office to fight the various facets of crime. We could all give the House a catalogue of statistics on crime. I do not want to do that, but I think that the debate should have been more concerned with crime.
Another issue that caused a great deal of controversy in the run-up to the general election—I am surprised that I have heard no one mention it tonight—is the freeze on fuel duty. Some hon. Members will remember blockades by road hauliers. At that time, I was a member of the Trade and Industry Committee, which took evidence from road hauliers. We should welcome the freeze on fuel duty because it demonstrates that the Government are listening. Whether they can always meet the demands that are made of them is another matter, but they have gone some way to address those grievances. Road hauliers also raised the question of lorries coming from abroad, which use our roads but make no tax contributions. There will be a charge for that. Anybody who knows anything about industry knows that haulage and transport are the biggest costs after research and development, and together they can build up to a considerable amount.
That leads me on to the next measure that I welcome. As somebody from an industrial background, I appreciate the fact that, as I said, the bulk of a company's expenditure goes on research and development. I therefore welcome the tax credit for research and development, based on volume. Obviously, I should like that measure to go further, but I know that it will certainly be welcomed by companies with which I have corresponded and whose delegations I have met. Before 1997, I used to accompany numerous delegations to meetings with Ministers of the then Tory Government, who were not very happy, to say the least, about the idea of giving any concessions on research and development. That issue was raised with us in meetings with the chairmen of various companies. There are a number of measures in the Budget that have not been touched on in the debate, and which I think are vital to the British economy.
It is well worth reminding the Conservatives that, before 1997, when there were arguments about whether taxes would go up, they indicated that there would be no increase in VAT on fuel, but we all know what happened. They demonstrated that it is not only on one side of politics that people are forced to do things that they do not want to do—it happens to every Government. We talk about the enterprise economy, and I am sure that people remember negative equity and the lives and businesses 70 that it wrecked. It would be interesting to compare the number of businesses that went bust under the previous Conservative Government with the number which it is alleged are going bust under this Government.
Not much has been said about the minimum wage. When it was introduced, the Opposition said that it would cost about 1 million jobs. Anyone from the pre-1997 Parliament could highlight cases—I certainly know of one—in which people were being paid £1 an hour, which is amazing. There was a lot of publicity about that. The Conservatives were never able to demonstrate that they were good managers of the economy, although if this Government have any success, the Opposition are the first to rush to claim it. I am sure that hon. Members remember when interest rates were between 17 and 20 per cent., and the Conservative Government had to pull out of the exchange rate mechanism.
The hon. Member for Sevenoaks (Mr. Fallon) mentioned the amalgamation of health authority trusts. That started under the Conservative Government. I have never been too happy about that, and some hon. Members will know that I introduced a ten-minute Bill on the subject. I wanted trusts to have patient representatives with sole responsibility for patients" interests, and that is an area that needs reform. There were a number of hospital closures under the Conservative Government. It is well worth reminding the Opposition of their record in government.
I welcome the move to do something about the thorny question of VAT for small businesses, which is a step in the right direction. For turnover below £100,000, businesses will be charged VAT at a flat rate. I am sure that in future Budgets the Government will want to do more about that.
No one has touched on the climate change levy. I welcome the fact that there will be certain exemptions from that for companies that take environmental issues into consideration. However, we must do more. I also welcome the 7 per cent. increase in the science budget. Anybody who talks to university chancellors and vice-chancellors knows that there is tremendous pressure on university budgets.
I want to draw the attention of Ministers, including the Minister for Pensions, to the fact that the pension schemes of companies such as Peugeot face problems with deficits caused by falling investment returns. Peugeot has a shortfall of about £85 million, and the people on the receiving end of that are the employees who make contributions, which Peugeot intends to raise by about 5 per cent. Some hon. Members may have read in the newspapers that a west midlands company called Caparo Group is to abolish its pension scheme, which could affect about 500 workers. I think that my right hon. Friend will be hearing a little bit more from us about those two issues.
I have already indicated that I welcome what the Government are doing for pensioners, but I still think that travel provision is patchy throughout the country. Pensioners in the west midlands can get free bus travel, but those in other parts of the country cannot. That issue will not go away, and nor will the question of pension payments. Most pensioners would rather be paid through the post office than through a bank. I am sure that Ministers will address those issues. Some pensioners who own their own home have difficulty getting a grant for repairs. We have debated those matters before, and I am sure that we will do so again.
71 Returning to the health service. I welcome some of the new measures, particularly on bed blocking, about which there is considerable concern throughout the country. I welcome the 6 per cent. increase in resources to tackle that. However, I suggest to my colleagues that, as with all the other resources that we are putting into the health service, we have to look at how that money will filter through. There is a structural difficulty concerning chief executives and local authorities, and I hope that Ministers will consider that because Coventry has had major problems with bed blocking.
I support the Budget, but we still have to take action on those areas that I have highlighted.
§ Mr. Peter Duncan (Galloway and Upper Nithsdale)
It gives me great pleasure to follow the hon. Member for Coventry, South (Mr. Cunningham) and the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith), which makes this a tripartite Scottish treble. I am the first Scottish Conservative to respond to a Budget proposal since 1997, and that represents both an honour and an opportunity to set this Budget in a Scottish perspective, and particularly to assess how it relates to the progress made since 1997.
The Scottish economy has always been driven by trade and commercial activity. My area of south-west Scotland is centred around Glasgow, which was the heartland of the Commonwealth, the trading capital and the second city for many years. Two snapshots of the Scottish economy, however, give the lie to many of the rose-tinted perspectives on the economy that we have heard from those on the Government Benches this afternoon.
Scottish unemployment is now rising. The International Labour Organisation rate is now 6.8 per cent. as opposed to 6.4 per cent. only a year ago. Suddenly, therefore, the great fiction of constantly reducing unemployment—which we have heard from numerous Labour Members today—is shown in perspective and, regrettably, it has some chance of being reversed. Scottish manufactured exports have fallen throughout 2001. The hon. Member for West Aberdeenshire and Kincardine knows only too well the importance of exports to the Scottish economy, hut the rate for the third quarter of 2001 is 5 per cent. below the rate only a year prior to that. There has been a collapse in its contributions in the UK. As has been mentioned, the UK economy has slipped, in terms of competitiveness, from ninth to nineteenth in the world, and the balance of trade—a figure that is quoted ever-decreasingly—has been in deficit in every quarter since the fourth quarter of 1998.
Scotland's progress is not looking terrific. Sadly, the "Silicon Glen" view of Scotland—the progress that we made in the 1980s—is part of history. We have an image of a fast-track economy, but over the past 30 years the Scottish economy has grown by an average of only 2.1 per cent. per annum compared with a UK average of 2.3 per cent. There is therefore a history of underperformance in the Scottish economy, but it has been deteriorating. It has not exceeded the UK rate in any quarter since 1997. We are falling further and further behind. Our GDP fell by 0.4 per cent. in the third quarter of 2001, while that of the UK increased. The Budget did 72 nothing to reverse the trends that are now emerging in the Scottish economy. Fuel tax continues to cripple residents north of the border, and, to take one tax proposal at random, the aggregates tax looms like a death knell on the horizon for many of our small economies.
I want to focus on the use of national insurance contributions to raise revenue for the public sector, particularly for the health service, as such contributions have a special effect in several ways. They are, without question, a tax on jobs and on employment opportunities. They are not a tax on savings or on investments; they are a tax on employing people. They cut in at a lower rate—those earning a low salary per week start paying national insurance before they start paying tax. They are top-limited—there is a level of earnings per week beyond which employees do not pay any more national insurance. Crucially, however—I want to concentrate on this—they are paid in increasing percentages by the struggling self-employed. This area has been totally ignored by the Government. The smaller the business, the greater the significance of this tax, particularly for those who are self-employed. Importantly, however, this is a very good public relations exercise. The Government quote a figure of 1 per cent., but it is actually 2 per cent.—1 per cent. levied on the employer, and 1 per cent. on the employee. As my hon. Friend the Member for Bury St. Edmunds (Mr. Ruffley)—who, sadly, is no longer present—mentioned, it is a stealth tax. My hon. Friend was queried by Labour Members, but it is a stealth tax, because 1 per cent. is actually 2 per cent. It is also a double whammy, because it has an effect on our public services. The increased cost of national insurance to the health service in Scotland is estimated at £100 million.
As I said, the increase in the national insurance contribution is an extra burden on the self-employed. The Government seem fixated on big business at the expense of small business. They forget that only 27 per cent. of businesses in Scotland arc incorporated. The average self-employed income in Scotland is £13,890. The average employed income is £21,800. People who are earning less are therefore paying more as a result of this Budget. There are 3 million self-employed people in the UK, and I suggest to Labour Members that this action will not be forgotten easily.
I welcome the review of company law to which the Secretary of State referred earlier. The matter requires consideration, and we should no longer penalise the smallest businesses—those who can afford it least. Since the Enterprise Bill has turned out to do nothing for enterprise, I hope that, when the company law Bill is introduced, it will deliver what is promised.
Clearly, the national insurance increase impacts significantly on small businesses in my constituency, particularly those struggling to cope with foot and mouth disease. Small farmers, most of whom are self-employed, are now paying national insurance at a higher rate than previously, even though their farm incomes are 70 per cent. less than in 1997. Tiny family businesses in the tourism sector, which have been given nothing in compensation for the losses that they faced last year, are now in an even worse situation than they were in a week ago.
73 It is no surprise that fewer businesses are being formed in Scotland. In the fourth quarter of 2001, the number was 3,856, which was down 3.8 per cent. on the year. It is no coincidence that Labour Governments are delivering fewer new company formations, more receiverships and a threat to Scotland's entrepreneurial history. Small firms are also in dismay at their new role in delivering the Government's welfare agenda. Changes to working families tax credit and children's tax credit are imposing new burdens in terms of red tape and the down time in managing businesses. Firms are delivering benefits when they should be earning money.
On e-filing, the Secretary of State made the incredible suggestion in her opening remarks that a form is not a form if it is e-filed. That is a ridiculous proposal. E-filing does nothing to reduce the burdens for small businesses. It only changes the method by which red tape is delivered to Government.
In the few minutes remaining to me, I want to flag up a double whammy that faces Scotland. We are paying the extra national insurance and the extra tax burden that has been levied on us by the Chancellor of the Exchequer. Who is to say, however, when tax is mentioned beside spend, and investment is mentioned beside innovation, that the reform in public services that is being promised south of the border will be delivered in Scotland? Taxpayers in Scotland are coughing up, but will they receive from the Scottish Executive the reforms that are being promised by a Secretary of State south of the border? So far, the indications are not promising. There is no requirement to spend the Barnett formula amount on health north of the border as there is south of the border.
More importantly, however, the Secretary of State for Health's reforms, limited though they are, are being rejected north of the border. Only 10 days ago, the Scottish First Minister was in Perth to sign a concordat with the unions and the health service, and to sign a memorandum of understanding, as if they did not understand each other well enough. North of the border, the Scottish Executive's idea of working with the private sector is to nationalise hospitals. It was announced on Budget day that negotiations are under way to buy the Health Care International hospital in Clydebank. The Scottish Executive's great idea about working with the private sector on health is to buy the hospital—its bricks and mortar—rather than to treat the patients who are there in the first place.
I conclude that this Budget will do nothing for Scotland's economy.
§ Mr. Mark Todd (South Derbyshire)
It is possible to exaggerate the benefits and disbenefits of a Budget; we have heard a fair array of such speeches this afternoon. In my business career, the key issue was the macroeconomic environment within which my business operated. Individual Budget measures, while interesting, challenging and requiring further thought, were as nothing compared with that environment. The main factors were low inflation and low interest rates; linked to that was a low public debt, because a high public debt tends to force up interest rates, and broadly predictable terms of trade.
I did business under Conservative Governments, and there were many times when I did not feel entirely happy with the environment in which I operated. The position 74 now is that most businesses know where they stand and can plan clearly into the future; they can judge investment decisions realistically and reduce the risks of those decisions. Those are critical factors in deciding whether the Budget continues the trend of a number of the Chancellor's Budgets to strengthen our country's business environment. It easily passes that test. There is limited fiscal tightening, which should be of some comfort to the Monetary Policy Committee in any judgment that it makes about raising interest rates in future; that benefit is modest, but of some value nevertheless. There are steps, in the short term at least, to reduce slightly the public debt in the next couple of years, as we would expect, although predictions of borrowing and spending by the Government and, for that matter, all previous Governments, are subject to large margins of error; that is stuff to which we will return later, with substantial amendment and correction to the Red Book. The key issue for me is whether the macro-economic environment within which business operates is satisfactory for planning into the future; it is.
There are useful supply side measures, including further support for training; in an intervention, I commented on research and development assistance, which is excellent and will help a number of companies in my constituency. There are lower tax rates for smaller businesses; lower compliance costs for dealing with VAT; a simplification of the regime of buying and selling businesses, which has not been referred to in our debate, but is of value to people who run small businesses and seek to trade in the skills that they have built up and the enterprise that they have created. Those are all positive changes.
The impact of increased national insurance on business costs has understandably been raised by Opposition Members, and I appreciate that it certainly falls into the category of challenges that I would have had to work out how to deal with if I were running a business. However, it is also fair to say—I do not necessarily offer this as an argument in favour of the change—that if one looks carefully at the Red Book, as well as this country's record on labour productivity and the low level of capital investment on which several Members have commented, the change will alter the balance between the employment of labour and the employment of capital in the economy. Whether that is good or bad is a matter of judgment; we shall no doubt return in future to the question whether it has had a positive impact on productivity. Nevertheless, people will grapple with that issue when deciding how to run their businesses in the future.
The first key risk for the Budget in the macro-economic environment is that the recovery of the United States, on which a fair number of assumptions have been based, may turn out to be not as fast or extensive as expected. Personally, I judge that to be a relatively low risk, but it is nevertheless significant because of our country's unusually large dependence on trade across the Atlantic. The second risk is that the disturbance and violence in the middle east will have an impact on oil prices, which will have an effect on the global economy. That is not something that we can predict accurately; everyone in the House prays that it is not the case, but none the less we can see that it is a possibility in the current climate. The third key risk, which has not been touched on, is the impact of convergence with the euro. A hidden benefit of the fall in the euro—certainly a well hidden benefit for any exporting business—is that a low euro supports low 75 inflation in this country. If the euro rises against sterling in future, as has been predicted for a number of years although it has not substantially proved to be the case, there will be an impact on inflation which will require the attention of the Monetary Policy Committee.
If we look ahead to the challenges, as opposed to risks, of the next year—all challenges, however, are risks if they fail to be met—the first, touched on in the Red Book, is the need for increased market and labour market liberalisation in Europe. In spite of grim warnings from the Opposition, we still have significant advantages in many sectors which cannot be fully exploited in the restricted marketplaces of the European Union, so any rapid progress on liberalising those markets and persuading some of our European partners to adopt reforms that we have already accepted here would be greatly to our benefit.
Secondly, we face the continuing challenge of skills improvement in this country. Under this Government, we have made significant progress in primary education, which needs to be driven right the way through the learning range—essentially, our whole working life—hut that process has only just begun. I very much welcome the fact that Derbyshire learning and skills council has been named as part of a pilot programme, allowing it to experiment with the best way of delivering training at work. We still have a great deal to learn about how best to develop skills in employment.
The third challenge on which I want to dwell in the last couple of minutes of my speech is public sector delivery. There is no doubt whatever that many people fully recognise that paying for a quality health service costs money. People are not fools; I met quite a lot of people at the weekend and no one suggested that improvement could be had for nothing or, as is commonly said, by saving a few bob on what we wasted on the dome. Most people recognised that big money was required. However, there is scepticism about whether that money will in fact deliver change. One difficulty is the confusion surrounding the word "modernisation", which, in relation to organisational change, is often cited with efficiency. It is essential to move away from damning the management and bureaucracy in some of our key public services and recognise that many of those people are required to deliver complicated change in extremely complex organisations; they need our assistance and support, rather than the backhanded criticism that we are used to handing out. There are therefore three messages: focus on a narrow range of objectives, thus reducing the number of goals in performance improvement, and empowering people closest to those goals to make sure that they deliver. I hope that those watchwords stay with the Ministers who have to deliver the objectives of the Budget.
§ 7.9 Pm
§ Mr. John Baron (Billericay)
Thank you, Mr. Deputy Speaker, for calling me to speak in this important debate. I refer hon. Members to my declaration of interests.
Unfortunately, the Budget will cause more harm than good over the longer term, for yet again taxes are being raised by a Government who believe that they know best how to spend our money. History suggests that that is not the case. Since 1997 every man, woman and child in the 76 United Kingdom is paying £30 a week extra in tax, yet Labour has failed to deliver improvements in our public services.
As we know, NHS waiting lists are rising again, with more than 100,000 people waiting to get on the waiting list. Teacher vacancies doubled last year and truancy has risen. Street crime and particularly violent crime are rising fast, with an increase of about 33 per cent. in Essex over the past three years.
§ Mr. Kevan Jones
Does the hon. Gentleman agree that according to the national crime statistics, under the present Government the level of overall crime has dropped, rather than doubling, as it did under the last Conservative Government?
§ Mr. Baron
What concerns people most as regards crime, certainly in my constituency, is the level of street crime and violent crime. There is no denying that that has risen significantly in the past few years. People are asking why, when they are paying more in tax.
In addition, our rail network is deteriorating, with train—
§ Mr. Baron
With respect to the hon. Gentleman, that figure is debatable. From the point of view of my constituents—I am in the House to represent my constituency—crime overall is increasing. If the hon. Gentleman does not believe that, I suggest that he comes and visits my constituency. Street crime, violent crime, burglaries and car crime are significantly on the up and are causing great consternation to my constituents.
One of the main reasons why improvements have not been forthcoming is that the Government believe that the state always knows best, so they legislate, regulate and interfere far too much. Such an approach makes for much waste, bureaucracy and red tape. That is perhaps no better illustrated than in the case of small businesses. When I speak to the owners of small business in the constituency and at Parliament, it is clear that their main concern is the rising burden of regulation and taxes.
I undertook a constituency-wide survey asking businesses their views before the Budget. The overriding wish was for less Government interference in the running of businesses. Indeed, 40 per cent. of the respondents spend between one and five days a month dealing with red tape and bureaucracy, and a further 20 per cent. spend one week or more doing so. That is time that could be spent chasing orders. And no wonder. Research shows that more than 4,600 new regulations were introduced in 2001. That is the highest figure on record and represents a 50 per cent. increase since 1997. The Budget does nothing to relieve the red tape and tax burdens on business, particularly small businesses.
The Chancellor made much of the fact that this was a Budget for small business—a Budget for enterprise. However, as we have heard, employers will not be impressed by the 1 per cent. rise in national insurance contributions, which is the equivalent of a 3 per cent. increase in corporation tax, once both measures are equated. That single tax increase more than negates all the Chancellor's other supposedly business-friendly measures.
77 As a business man myself, it seems to me that the Chancellor misunderstands the importance of cash flow, as opposed to profits, to a small business. By imposing a tax on jobs, the Government have made a mockery of a Budget that was aimed at enterprise. As Nick Goulding, chief executive of the Forum of Private Business, said immediately after the Budget:National insurance is a tax on jobs and comes straight out of the bottom line. This will be a further disadvantage to employers.
§ John Mann (Bassetlaw)
Does the Budget improve or worsen the cash flow position in relation to VAT?
§ Mr. Baron
If the hon. Gentleman will allow me, I must make progress.
In a letter to the Financial Times on Friday, the Foreign Banks and Securities Houses Association warned that the change to the tax treatment of UK branches of foreign bankswill result in business going abroad and short term gain and long term destruction of the best industry in the UK. Our competitor countries must be laughing with anticipation.There is already evidence to suggest that growing Government interference and taxes are beginning to damage our economy. We have heard statistics showing how we have slipped down the competitiveness league table from ninth to nineteenth since 1997, while our productivity growth has fallen. We are storing up problems for ourselves, and those chickens will come home to roost.
The subject is important to me because one of the main reasons why I sit on the Conservative Benches is that I believe that the relief of poverty should be one of the main priorities of politics. That can be better brought about if we foster personal freedoms within the rule of law, if we encourage enterprise and if we allow businesses, especially small businesses, to breathe and thrive. Such an approach will create a more prosperous economy and more wealth, from which the Government can take their rightful share in order to help the truly disadvantaged in society. That will not happen if the Government pile regulations, costs and taxes on to businesses, because that will hinder enterprise and eventually our ability to help those most in need.
Unfortunately, the Budget continues to make life difficult for entrepreneurs. To what end? Simply throwing money at the NHS, which in its present form suffers from too much bureaucracy and waste, and which is in need of great reform, is not responsible government. We know, for example, that for the first time in the history of the NHS, there are more bureaucrats than beds in the system. We also know from the NHS's own audit that about 15 per cent. of its budget—some £9 billion—is being wasted. In any other business, there would be a major restructuring if such figures came to light.
If money alone were the answer, Scotland, Wales and Northern Ireland should all have a better NHS than England, but they do not. In terms of total health spending 78 as a percentage of gross national product, all three countries spend more than England, but their health outcomes and system performances are in many cases worse than in England. For example, in terms of expenditure per person, whereas in England the figure is £740, in Northern Ireland it is £819 and in Wales £822, yet waiting lists there are worse than in England.
§ Mr. Baron
I do not see how that contradicts what I said. More money is spent per head of the population on health, yet waiting lists are longer. That is the simple fact.
Money alone is not the answer. Even in England, where spending on the NHS has been rising, as we well know, the system has not been getting better. Waiting lists are rising again; people are waiting longer in accident and emergency departments; there has been a 50-odd per cent. increase in cancelled operations since 1997; and the odds of surviving cancer in Britain are among the worst in Europe.
Contrary to the scaremongering of Labour Members, we Conservatives do believe in the ideals of the NHS—first-class health care available to all, regardless of the ability to pay. We have been looking with an open mind at the ways in which we can learn from abroad, for health care is better in other countries. That compares with a Chancellor who appears to have a closed mind on health care. He says that we have nothing to learn from other countries, despite the fact that, for example, Germany has no waiting lists, and in Denmark patients have a legal right to treatment within four weeks of seeing their GP. That is why the Budget is a wasted opportunity.
In conclusion, there is one thing for which we can be thankful with regard to the Budget. We now know what Labour stands for. The Government have reverted to the old habit of tax and spend. In many respects, Labour's intentions are clearer now than they have been for many years. The Chancellor is the first Labour Chancellor since the 1960s to raise taxes on income through conviction, rather than necessity.
Since 1997 we have never really known what Labour stood for, but now the issue has been resolved. By throwing money at the NHS, the Government have adopted a political approach more akin to the European social model than to US economic liberalism, despite all the evidence to suggest that European growth rates have been far lower and European unemployment far higher than in the US. That is why the Budget is bad news for this country, and why I cannot support it.
§ Mr. Skôn Simon (Birmingham, Erdington)
I am grateful for being called. I hope that you will bear with me, Mr. Deputy Speaker, if I start by noting the following. Although the Secretary of State and the Economic Secretary are not in their places, the Paymaster General is, and I could not help but observe that she makes the third member of the ministerial team from economic Departments on the Treasury Bench today who is a woman—unlike all the Front Benchers and Back Benchers of all the Opposition parties for at least the past several hours. It occurred to me what an excellent 79 example that was of the difference between the genuine commitment to real, constructive change among Labour Members, and the meaningless, empty rhetoric of Opposition Members, which is remarkably emblematic of debate on the Budget.
Somebody asked me this morning what I was going to talk about this afternoon
§ Mr. Simon
I was about to say that the question was handy because I had not quite decided. Having thought about it for a second or two, I said that I thought that I wanted to say something that was staunchly pro-business and equally staunchly anti-whingeing. Having heard the shameless splurge of special pleading, particularly from the Opposition Front Bench, I realise that that was a sound judgment, with which I am happy to continue.
The Prime Minister used to be well known for frequently offering the trade unions a principle for their edification. The very same principle could be equally soundly offered to Conservative Members and the business community: what they can and ought to expect from a Labour Government is fairness, which they are getting, but not favours. To listen to Conservative Members, one would think that the Budget contained revenue-raising measures targeted solely and exclusively on the business community that nobody else will pay and that are apocalyptic and unprecedented in their scale and style. The truth is that business will pay an extra 1 per cent. in national insurance contributions—and so will employees and the self-employed.
That reminds me that I was a little confused by the arithmetic of the hon. Member for Galloway and Upper Nithsdale (Mr. Duncan), who is the Scottish parliamentary Conservative party. He said that the increase was really 2 per cent. because it was 1 per cent. for employers and 1 per cent. for employees. If he adds the self-employed, that makes 3 per cent; if he takes account of the fact that I pay the extra I per cent., that makes 4 per cent; if he adds one of my hon. Friends, that makes 5 per cent. Before we know it, we have reached billions of per cent. That is very strange arithmetic.
It is equally amazingly strange to describe the national insurance increase as a stealth tax. It is a stealth tax only in the sense that a stranger in the street sticking a £50 note in somebody's ear is a stealthy gift, or another stranger dropping a fridge on somebody's head is a piece of stealthy refrigeration. Whatever tax or non-tax it is, it is certainly not a stealth tax£and nor is it a tax on jobs. It is a tax on employers and employees, and not a tax on those who do not work, as Opposition Members know perfectly well but choose not to recognise.
I heard somebody on the radio the other day whom one might describe as a business leader saying that it is not the responsibility of business to pay for health care. That pretty much underlies where Opposition Members have been coming from and, fundamentally, is not only not true but nonsense. What does that gentleman think his existing national insurance contributions go towards? What does he think happens to his corporation tax, business rates or the VAT that he helps to collect? The notion that business 80 is somehow separate from the services that the Government are charged with providing for the state is illiterate.
Since Germany began to follow what hon. Members will find Germans call the Blair model and instituted what the House will find the Germans call Blairite reforms, it may have overtaken Britain as the European country with the lowest business taxation. We are almost certainly second.
§ Mr. Simon
No, I will not because, fortunately, when I tried to intervene on the much more experienced and knowledgeable hon. Member for Bury St. Edmunds (Mr. Ruffley), he explained to me that there is no time on these occasions to take interventions. The hon. Member for Billericay (Mr. Baron) is not as experienced. A more experienced Tory showed me the way earlier. I can only take my lead from those who have been in this House longer and who doubtless know much more than I do.
We already have one of the very lowest business taxation environments in Europe. Both key rates of corporation tax have been cut. In addition—
§ Mr. Simon
No, I have just explained that I am not going to.
In addition, as has been extraordinarily resolutely ignored by Conservative Members, the business community in this country pays a massively lower contribution to the health care of its employees than business communities in comparable countries such as France, Germany and the United States. The hon. Member for Maldon and East Chelmsford (Mr. Whittingdale) refused to address that when hon. Members pressed him, and that is because there is no answer to it. Conservatives" arguments are special pleading, illiterate, self-interested and absurd.
§ Mr. Simon
That does not bear any response. [Interruption.] German unemployment is two and a half times that in the UK—and that is supposed to be a problem for Labour Members? I think not.
To continue with the specifics, as a former VAT-registered small business, I am perfectly well aware how naturally resentful many small business people are at being the unpaid and entirely unthanked collection agents for Her Majesty's Customs and Excise. There is no doubt that it is thankless and irritating. Ministers might do well to consider the point, which is rarely raised but has often occurred to me. In that context, a Budget that lifts 700,000 small businesses out of the VAT environment can only be welcome and positive.
I shall not go on at great length about all the other pro-business measures in the Budget, because others have done so and will do so. Suffice it to say that, as well as the things that I have mentioned, there are a volume-based research and development tax credit, an extra £30 million for training and development, a community investment tax credit, a community development venture fund, changes to the limits on non-residential stamp duty, 81 implementation of recommendations on e-filing, reform of the business incubation fund, and so on. Those are just the tightly defined, enterprise-specific elements of the innovations in this Budget alone.
The notion that we have had other than a business-friendly Budget from a business-friendly Government is nonsensical. The bottom line is that the best economic indicators for generations are the best thing for business in this country. That is what it really comes down to. They make far more difference than anything else, and are proof of a business-friendly Government. If we were not business-friendly, we would not be able to deliver such economic success. Economic success, as one would have thought Conservative Members might realise, derives from business.
§ Mr. David Laws (Yeovil)
I am grateful for the opportunity to participate in this important debate. Like my hon. Friend the Member for Twickenham (Dr. Cable), I welcome the main thrust of the Budget to increase investment in the national health service. Indeed, that can be no surprise because my party has campaigned for that for many years. The Red Book is entitled "The strength to make long-term decisions", and our only regret is that the Government did not have the strength and purpose to make these decisions earlier in their time in office.
Although I want to concentrate on NHS reform, I have two other issues to raise. The first relates to the Government's borrowing targets and projections. The second concerns the increasing tendency to complicate the tax system. The Chancellor said that he is trying to build in an additional measure of prudence in his projections for the public finances. As a consequence, he has raised his projection for the surplus that he will have for the next few years. However, when we consider the reasons for the increase in surplus on a current balance basis, we see that it is largely a result not of a fundamental improvement in the projection for the economy, but simply of the fact that the Government have decided unilaterally to revise up their forecast of the projected growth of the economy over the next few years. That development can hardly be described as prudent, especially in the light of their failure to make progress on their agenda to improve productivity. Although the National Audit Office has loyally done its usual job of rubber-stamping the changes in the assumptions in the Budget, it noted that the change to the growth forecast was less prudent than the previous projections.
We also notice that in spite of the fact that the European Union criticised the Government in January for their Budget projections—in particular, for projecting that they would borrow to fund their overall position during the next few years—they have moved further from achieving a balance. Specifically, they have increased the borrowing figures in 2005–06 and 2006–07 from £13 billion, which was set in the pre-Budget report, to £17 billion or £18 billion. The Chancellor still has work to do to persuade his colleagues in the EU that the growth and stability pact needs fundamental reform. There is no doubt that the Government are a considerable way from meeting the requirements of the pact. Indeed, they are moving in the wrong direction.
I support a reconfiguration of the growth and stability pact. It is wrong that it should limit our room for manoeuvre on fiscal policy, especially when we have a 82 strong budgetary position. The Government need to address that problem with our European partners if they are not to be cautioned yet again for their projections over the next few years.
The Chancellor is increasingly obsessed with complicating the tax system. He claimed once again that he was abolishing a tax in the Budget and referred to measures to reform betting duty. However, the thrust of the rest of the Government's tax policy since 1997 has been geared towards complicating, rather than simplifying, the tax system. It is easy for hon. Members to welcome each individual measure that the Government introduce to increase the number of allowances and reliefs in the tax system. For example, it is tempting to welcome the vaccines tax credit, the research and development tax credit, the small brewers tax reliefs, the film tax reliefs and the additional corporate gains tax loopholes that have been introduced over the years. What we perhaps fail to recognise when we welcome each of those measures is the way in which they not only make the tax system more complicated, but require higher levels of other taxes to fund them.
When we consider what has happened this year to one of the Chancellor's favourite wheezes, we see how such measures can go disastrously wrong. In 1997, the Government introduced tax reliefs for the British film industry, supposedly at a cost of £50 million a year. In 2001, further changes were made to that tax relief that were forecast to cost an extra £50 million. The annual cost of the measure is now forecast to be £360 million, an extraordinary increase since it was conceived, and the Chancellor expects us to give him credit for introducing measures to rein in the effects of that tax relief by reducing it by £295 million in the year ahead. I would prefer it if the Chancellor did not introduce greater reliefs and allowances, but concentrated his resources instead on taking people on the lowest incomes out of tax all together. I hope that that will be part of his agenda for future Budgets.
The Liberal Democrats welcome the Government's measures on the NHS. When Conservative Members talk about the failure of the NHS and the perceived inability of investment to make a difference, they should remember that the major problem for the Government in the last Parliament was that they stuck to the spending plans set by the Conservatives. There was little increase in NHS expenditure for the first two years and what there was was swamped entirely by the costs of increased pay, technology and dealing with an ageing population. Those are regular cost increases and it is clear that the NHS needs money that covers more than inflation for it just to stay as it is.
We have yet to try a properly funded health service. However, I would rather the investment announced by the Government than the policy described by the hon. Member for Billericay (Mr. Baron). He said that the Government were irresponsible to put money into the NHS. In the absence of a serious policy from the Conservative party either to reform or to invest in the NHS, my constituents would consider it far more irresponsible to stick with the existing funding of the NHS. Although many people have to wait excessively long times to receive treatment, and in some cases die before they get it, we cannot wait for the Conservative party to come up with a policy.
83 The Government should be conscious, however, that in giving an impression prior to the general election that they did not need to increase taxes and in attempting in the Budget statement to find mechanisms for raising revenue that do not involve breaching their promises on income tax, they have damaged their reputation with the electorate, who believe that promises on taxation have been broken. They have also been forced to introduce a mechanism—the increase in national insurance contributions—that is far less sensible than an increase in income tax. A day after the Budget, the editor of The Idler magazine—one of the people who the Secretary of State said praised the increase in national insurance contributions—commented that the move to tax employment rather than income wasa step forward on our mission to return nobility to pursuit of idleness".It is odd, as my hon. Friend the Member for Twickenham said, that the Government are determined to tax employment rather than income. The newspapers over the weekend reported some of the effects that that will have on those very rich people who will not pay the national insurance contributions and will, as a consequence, be better off when they should be making a bigger contribution through income tax.
Parliament should continue to debate the NHS and its funding. The Government should pay more attention to some of the measures included in a document issued by the Treasury. Although it did not receive much attention on Budget day, it compares various forms of health funding worldwide. We should consider measures such as social insurance when we think about how we fund the NHS beyond the current injection of finance. However, I infinitely prefer the concrete measures set out in the Budget to improve the NHS to the policy vacuum in the Conservative party.
§ Mr. Iain Luke (Dundee, East)
Over the long years of parliamentary history, the raising of taxes, the setting out of spending plans based on Government priorities and people's needs, and finding the financial means to tackle issues of public policy have provided many of the major issues of debate and controversy heard in the Chamber. It might be worth while saying that the onset of my contribution stems from the way in which the introduction of national insurance was fought tooth and nail by the Conservative party in 1909. It is not surprising that we find Conservative Members still battling against any increases in national insurance contributions, even if there is to be spend on the national health.
The Budget, the financial focus of the nation's public life, means many different things to different constituencies, communities, businesses and interest groups throughout the United Kingdom. We as Members all come to the debate with different demands and agendas. However, at the end of the day, if the many appetites seeking succour at this supper are to be satisfied, one underlying premise has to be met.
The overall health of the economy must be sound and capable of sustaining and satisfying the many credible claims made on the Treasury's chests. Whatever one's political persuasion, it is mischievous and misleading to 84 argue that the United Kingdom's economy is not sound at present or that the Government's economic management has not been a major factor in creating the unparalleled economic stability that we now enjoy.
All the economic indicators put the sophistry of the Conservative party to the sword—be they interest rates, inflation, employment, house prices, job creation or Britain's ability to cope with the global economic downturn. The Government and my right hon. Friend the Chancellor of the Exchequer have set a standard that has rarely been met by previous Governments in creating a macro-economic climate. It is one that has seldom been enjoyed by the inhabitants of these islands. This achievement has put in place the foundations that will enable Parliament to work with other organisations in civil society, including the trade unions, to build a society that will aim to achieve social justice and a better life for the many, rather than the privileged few.
Like many Labour Members, I have at the top of my agenda the need to ensure a more prosperous country for my constituents to share in. The mainstay of the prosperity enjoyed by so many so far during the Government's first term has been the creation of 1.5 million new jobs, and that job creation must be maintained. We must ensure that that prosperity is sustained. Job creation must bring a better future for many more citizens.
In the run-up to 17 April, I was looking for a better and more conducive tax regime to allow the smaller to medium-sized enterprises in my constituency to flourish, to create more growth and therefore, as a consequence, to create more employment. I believe that my right hon. Friend the Chancellor is doing that through his Budget.
Employment issues and the creation of jobs are an area of prime concern to the area that I serve, with its unemployment rate standing at 7.2 per cent., which is significantly higher than the national average. It is therefore vital that we create a financial structure that enables entrepreneurs and enterprise to establish themselves and to create new forms of economic activity. Given the measures that the Treasury are introducing, it is clear that for economic growth to mean anything it must be shared equally throughout the country.
I am happy to acknowledge the real economic benefits that will accrue to Dundee with the location of the new Department for Work and Pensions offices and the Inland Revenue's new call centre, which will bring in total 1,000 new jobs to the city. That will be much welcomed.
I hope that the Budget will help Dundee build on its considerable success in promoting itself and on its continuing efforts to capitalise on the academic endeavours of its two universities to bring new jobs into the market, especially biomedical research technology and computer games.
Only recently, my right hon. Friend the Prime Minister visited Glycocel Ltd. in Dundee, a new concern which is a good example of the fruits of a biomedical research programme that has flourished at Dundee university. Indeed, it has been encouraged to grow through a joint university/city council-promoted incubator project. It is providing a crucible for the promotion of economic production based on successful academic research.
The restructuring of the business incubation fund announced in the Budget should, I hope, enable further success in the vital restructuring of Dundee's economic base. I am glad that my right hon. Friend the Chancellor has introduced measures to assist manufacturing in general.
85 At a positive meeting in February, which I think the hon. Member for Galloway and Upper Nithsdale (Mr. Duncan) missed, the Scottish chamber of commerce at Dover house presented statistics that showed an encouraging snapshot of the Scottish economy during the last quarter of 2001. The statistics produced by the Fraser of Alexander institute clearly underlined the success of the Government's management of the economy, with the figures showing encouraging levels of consumer spending, increasing house prices and improving tourism figures.
There have always been the problems clearly identified in manufacturing—in Scotland, Wales and the United Kingdom generally. I welcome the proposal contained in my right hon. Friend's pre-Budget statement last year, and I applaud the steps that he has taken in the Budget to help British industry to become more competitive and more productive by reducing the tax burden, by promoting research and development and by encouraging training and a greater ability to invest in people. With the additional funding of £30 million being made available to small firms to help them in gaining Investors in People awards, this will be extremely helpful.
I hope that this will help British business to become more competitive and more productive, and as a result safeguard jobs.
I congratulate my right hon. Friend on the freezing of petrol and diesel duties. When the hon. Member for Poole (Mr. Syms) asked why we had not replaced the levy on oil in the North sea by increasing the tax on diesel and petrol he was being disingenuous in relation to the facts that pertained last year.
I argue that the freezing of petrol and diesel duties is welcome, not because it placates motorists in general but because fuel prices play a significant role in the cost of commodities produced at a distance from the market. Given the shambles of the rail freight industry, with the Railtrack debacle and the virtual blockade of the channel tunnel, which has seriously restricted Scotland's rail haulage contacts with the continent—in some instances it has been cut by 80 per cent. owing to the inactivity of the French authorities to police asylum seekers trying to gain access to the UK—road connections and transport costs are doubly important.
Given the proximity of the new ferry terminal at Rosyth to both our constituencies, I am sure that my right hon. Friend the Chancellor and I will welcome the beginning of the new direct ferry services from Scotland to the continent next month, and the benefits that that will bring to hauliers and other businesses throughout Scotland.
I am confident that the steps taken by my right hon. Friend are the right ones, and the ones that will continue to promote the economic health and growth of the UK. They will continue the Government's great record of creating new jobs. The steps outlined in my right hon. Friend's Budget last week will provide the conditions and stimulants that many were seeking to ensure that the problems facing manufacturing were tackled. Small to medium-sized businesses will be encouraged to grow, and the opportunity for new start-ups will be enhanced.
I especially welcome the proposals for the new community investment tax credit, and the £40 million of community development venture funding that will be put aside and launched in May. This is a treasure chest that I and those involved in the promotion of economic activity in Dundee will be seeking to raid before too long.
86 Certainly the national focus on strategy for new start-ups is long overdue, especially in the area that I represent. The Department of Trade and Industry should be encouraged to become more engaged in such areas to help growth and to provide advice and support for new and aspiring entrepreneurs. The new helpline proposals and starting packs will certainly aid in the process. I hope that the telephone numbers will be widely advertised and that the packs will be heavily promoted.
In presenting the Budget, my right hon. Friend the Chancellor of the Exchequer aptly referred to a discussion on the health service. He said that what we decide in this debatewill not only determine the conditions of our public service but define the character of our country."—[Official Report, 17 April 2002; Vol. 383, c. 589.]I strongly believe that the essence of this country's character should be a responsible and responsive nature, caring and providing compassionately for those in need—a nation with a shared and collective sense of duty and service, striving to recreate an enterprising and creative country in which access to economic and social opportunity and welfare is based on equality for all.
I believe that my right hon. Friend the Chancellor has taken the necessary measures in the Budget to ensure that the citizens of Dundee and the people of Britain will share both in that analysis and in the prosperity and economic well-being that they deserve, which will be produced by the Budget.
§ Mr. Mark Prisk (Hertford and Stortford)
In opening this debate, the Secretary of State for Trade and Industry claimed that this was a Budget for enterprise that provided opportunities for all. I should like to test that claim and consider in particular the impact of the Budget on two especially enterprising groups: the self-employed and small businesses. I do so as someone who was both director of a small firm and self-employed for the 12 years preceding my entry into the House.
The self-employed are vital to the economy, not least in Scotland, as my hon. Friend the Member for Galloway and Upper Nithsdale (Mr. Duncan) pointed out. They are often the leading innovators and are usually the ones who create the jobs and wealth in our local communities. Self-employment also provides an essential flexibility in the labour market, enabling businesses to respond quickly to changes in supply and demand. More importantly, however, self-employment epitomises an enterprise culture. It means that no matter who someone is, and whatever their background, if they have the skill, the will to work and the ambition, they can be their own boss and stand on their own two feet. So if the Budget were indeed about promoting enterprise and creating opportunities for all, it would have to tackle the needs, concerns and aspirations of the self-employed. It would have to cut their taxes, end any discrimination and slash the red tape that currently holds back budding entrepreneurs.
It is true that the Budget offers some tax cuts for small businesses, but many people fail to realise that those cuts are available solely to companies. That means that the self-employed, who are unincorporated and run two thirds of all small businesses, are specifically excluded from each of the tax cuts outlined by the Chancellor last Wednesday. They are excluded for no reason other than 87 their legal status. I therefore ask the Paymaster General why she has forgotten the self-employed and turned her back on the freelancer, family firm and local partnership. Are they not enterprising? Do they not merit the same tax cuts as their incorporated competitors?
It is fair to say that there was one tax change for which the self-employed were thought good enough. It is a change that affects their bottom line and which 85 per cent. of self-employed people specifically said they did not want. I refer, of course, to the substantial rise in national insurance contributions. For many self-employed people, the increase will mean a hike of anything between £250 and more than £1,000 in extra costs. No tax rise is welcome, but what a brilliant tax to choose to discourage the self-employed. If there is one Government charge that the self-employed particularly resent, it is national insurance. The reason why is that they pay twice: once through class 2 contributions for the benefits that they receive, and again through class 4 contributions, which most of them see as a tax on their enterprise. That is what self-employed people in my constituency tell me they feel about the Budget. Despite all the glossy reports and all the Minister's warm words, that is the culture that the Government are creating. They are a Government who have turned their back on so many of the entrepreneurs whom they claim to support.
I should like to turn now to the smaller businesses that are incorporated and consider how the regulatory changes in the Budget affect them. I welcome the significant increase in the VAT threshold, which will undoubtedly help and is welcome in that context. However, a minor change in the VAT regime is not enough. Before the Budget was announced, many people were expecting much more radical action. After all, manufacturing in the United Kingdom has now been in recession for more than a year. Although there are some glimmers of hope, manufacturing businesses needed real help in the Budget to reduce their costs and improve their profitability. They did not need a £3 billion hike in their costs. And it may even he £4 billion—who knows? As the director general of the Engineering Employers Federation said, £3 billion of extra costs is £3 billion less to invest.
One of the main complaints that businesses raise with me is that they now have to administer the Government"s social welfare programme through the pay-as-you-earn system. The payroll burden, which has been mentioned by one or two hon. Members, has grown substantially since 1997, ensuring that in addition to wages and non-wage costs, a business is required to spend its time and money running the complicated system of credits so loved by the Chancellor. That includes the working families tax credit, the stakeholder pension, student loans, attachment of earnings orders and child support tax credits. Together, those measures represent a serious drain on business resources. Of course, for small businesses, the burden is completely disproportionate. Even the Inland Revenue reckons that it costs a small business with up to about four employees £288 per person per year simply to administer the system, never mind wages or national insurance.
While I accept that the Chancellor acknowledged that problem in his Budget, I point out that he failed to act decisively. Instead of seeking to reduce the burden, the Government are planning merely to encourage firms to 88 file the same returns electronically, as the Secretary of State confirmed. Furthermore, the new tax credits, which are intended to be more responsive, will be more complicated and difficult to administer.
Will the Paymaster General please look again at the payroll burden, which is her direct responsibility? The system needs to be completely overhauled. Most important of all, the Government themselves and not business should now administer their social policies. Such an approach would have significant benefits, including reducing business costs, making Britain more competitive; cutting the cost of employing people without affecting their wages; and helping productivity by releasing people to do business rather than filling in forms—a special benefit for small businesses. Currently, the average small business spends up to 31 hours every month merely complying with Government regulations. Given that there are approximately 3.5 million small businesses, if such a change managed to reduce that time by only four hours a month, 21 million working days would be released back into the economy every single year. That could make a significant difference to the productivity about which the Chancellor claims to be concerned. I hope that the Paymaster General will respond positively to that point.
The Chancellor began his speech last Wednesday by promising a Budget that would create a culture for enterprise. Yet, as I have shown, he has excluded either by mistake or by intent the very entrepreneurs whom he praises from receiving the tax cuts, and then added insult to injury by raising the one tax that they all despise. Equally, the right hon. Gentleman"s acknowledgement of the burden on small businesses is contradicted by the heaping on of ever more bureaucracy and costs. Far from promoting enterprise, the Chancellor has taxed it; far from creating opportunity for all, he has excluded 3 million self-employed entrepreneurs. More talk, certainly, and more taxes, of course, but there is no real help in this Budget. That is the reality of this Budget for business, and that is what business will remember this Government for.
§ Dr. Hywel Francis (Aberavon)
I intend to speak about the importance of the principles of fairness and enterprise that are enshrined in the Budget for disabled people and their carers. I therefore wish to declare my membership of the Down"s Syndrome Association and the Iron and Steel Trades Confederation, the community union, which now includes the National League of the Blind and Disabled.
I warmly welcome the Budget as a major step forward for enterprise and fairness in Britain. As the TUC said recently, it isa defining moment in the future of the British health care system and the history of the present Government.The Budget is therefore a step change on a journey of hope for the British people. The Chancellor is right that our task is to address through reform three challenges: enterprise, family prosperity for all and the renewal of our public services. We all endorse those challenges. To borrow from Raymond Williams, they are journeys of hope. As he said, we need resources to sustain those journeys, and I believe that the Chancellor has provided us with the intellectual, political and fiscal resources that we need. We must now use and develop those resources 89 imaginatively and in a truly Bevanite way, with pessimism of the intellect, optimism of the will and a passion for social justice.
In that spirit, the challenge of enterprise needs to be accessible to all, as do family prosperity and improving public services. Too many people are still excluded from the full opportunities of enterprise: the homeless, ethnic minorities, school leavers without qualifications and disabled people. I would like to speak in the House on all those groups in the near future, but tonight I wish to focus on people with disabilities.
Many people with disabilities desire to go on that journey of hope from welfare to work. It is a precarious and difficult journey that requires learning and training opportunities as well as advocacy and professional support. If ever we needed to embed the enterprise culture in the culture of social justice, we need to do so with and for people with disabilities. I welcome the attention given to such people in the Red Book, in its commitment to helpthose who can and wish to work make a successful return to employment.That is an enabling statement, rather than a prescriptive one, and it underpins the new deal for disabled people. Can we, however, learn by listening to the "forgotten army" of disabled people, as they have recently been called? Listening to such admirable organisations as the National League of the Blind and Disabled, we learn that too little is currently allocated to sustaining and developing this excellent new scheme, which will address the needs of 3.3 million people of working age who are not currently working. The most startling statistic that I have come across recently is that only two out of five people with a learning disability can expect to work during their lifetime. What can the spirit of fairness and enterprise do for this forgotten army?
The Government have supported such bodies as the Shaw trust, which has done much in recent years to assist disabled people towards independent living and new learning opportunities. The trust believes, as I do, that disabled people who have been out of work for a long time need more than changes in the law and tax breaks, important though those may be. They need new learning opportunities—negotiated by them—professional support and advice, and an advocate to convince employers of their worth. The new deal for disabled people and the supported employment programme will provide a major start, but far more investment is needed in such schemes, particularly given that disabled people make up nearly half the total of economically inactive people of working age in the United Kingdom.
Recent research at the university of Nottingham has shown the real value of the personal adviser system in the new deal for disabled people. It has shown that it is really working, as is the supported placement scheme. Only last Friday in my constituency, I saw the work of such schemes at the opening of the Karten computer training, education and communication centre in Llandarcy, where young disabled people will gain confidence, self-worth and a new quality of life through new information and communications technology learning opportunities, and support and advice systems. All this should lead to quality work opportunities. That is a true example of synergy between fairness and enterprise in my constituency. More of this needs to be done across the country.
Dr. Kevin Fitzpatrick, the commissioner for disability rights in Wales, has emphasised many times that when a disabled person works, there is a significant reduction in 90 benefit take-up. There is a positive contribution from tax and national insurance, and a reduction in calls on health and social services. Carers can return to work. The disabled person has greater power as a consumer, becomes an equal and valued citizen, grows in confidence and—most importantly—contributes positively to the life of the community and the economy in new ways. All this has started to happen since the return of the Labour Government in 1997.
Labour Members agree that the first step change as a result of this Budget will be the rebuilding of the national health service. The next—before the next Budget, we hope—will be to ensure that disabled people have the opportunity to be at the heart of our new enterprise economy, and to provide substantial new learning, advisory and advocacy support for the millions who wish to work.
I welcome the Chancellor"s recent commitment that, in the coming spending review, education will receive the priority it requires to deliver further substantial improvements. I am sure that he had in mind a high priority for disabled people in general. When we begin to achieve all this through his present Budget and the next spending review, we shall provide the real resources necessary for that essential journey of hope towards an enterprising and fair society for all. We have made a great start with this great Budget.
§ 8.5 pm
§ Mr. Mark Hoban ( Fareham)
Before the Budget, I wrote to more than 1,000 businesses in my constituency to find out the issues that they faced, and the action that they wanted to see in the Budget. The overwhelming message that came back was about the burden of taxation—both in terms of the level of taxation and of the administrative burden. It was with that in mind that I listened to the Chancellor"s speech last Wednesday afternoon. Yes, there were measures in that speech that the businesses in my constituency might welcome. The optional flat rate for VAT is something that many businesses tackling VAT administration would wish to see. The lower corporation tax rate for smaller businesses was also a welcome change.
In a way, I welcome the money that the Government are providing for the electronic filing of Inland Revenue returns. It is a recognition of the problems imposed on business by the Government that they have had to introduce the payment of that money. The problems facing businesses include the administration of measures such as the working families tax credit, and the collection of repayments of student loans. Those are burdens that have been imposed by this Government. I welcome, therefore, their conversion to the recognition that businesses need help in this area, but it would have been better if the Government had tackled the causes, rather than the symptoms, of the work load that they have imposed on small businesses.
The Government"s failure to grasp the issues facing businesses was demonstrated by the imposition of the tax on jobs—the increase in national insurance contributions. That will hit the cost base of businesses and erode their profitability, and they will, of course, adjust their pattern of performance depending on how much they use labour. I am conscious that banks and supermarkets with very thin profit margins will be particularly impacted by the 91 increase in employers" national insurance costs, and will seek to restructure their organisations to bring about the shift from labour to capital that was mentioned earlier.
I am particularly concerned about the plight of small manufacturing companies. Many of those in my constituency exist because they have been able to target a niche market, perhaps one that requires a short lead time for production or short volumes. Because of the nature of the niche in which they operate and the techniques that they use, those businesses are dependent much more on labour and less on capital. I fear for the small manufacturing sector in this Budget, which was presented by the Chancellor as a Budget for enterprise. The effect that the increase in national insurance contributions will have on every employee, employer and self-employed business demonstrates that it is definitely not such a Budget.
The tax increases in the Budget were introduced to fuel the growth in public spending. I want to talk briefly about health and education. On education, the Chancellor announced that an increased amount of money was to go directly to schools. I do not know what strings are attached to that money, but it is very rare for this Government to give schools any money directly without specifying its purpose.
§ Mr. Hoban
I will not give way. I have only 10 minutes to speak.
Having talked to many of the head teachers in my constituency, I know that they are increasingly frustrated by the extent to which funds received from the Government are ring-fenced. A few weeks ago, I spoke to a head who was complaining that she had money in her capital budget, but nothing to spend it on. Meanwhile the resources that she received for the national grid for learning had almost been exhausted by the broadband access fees that she had been forced to pay. That epitomises the Government"s failure to trust heads to spend money wisely. They are for ever interfering with how heads spend money, forcing them to become either creative accountants—
§ Mr. Hoban
I am not giving way.
To spend the extra money wisely, we must consider public services reform, and no sector requires change more than the health service. The Science and Technology Committee, of which I am a member, reported last month on how money earmarked by the Government for cancer care is not reaching front-line services. That shows the need for change.
92 Parts of the Secretary of State for Health"s document "Delivering the NHS Plan" appear to have been written by right-wing think tanks, as they are full of covert references to free markets, choice and enterprise, cloaked in the language of partnership, diversity and pluralism. Reading the document shows the conversion that the Government have undergone. Chapter 6 refers to encouraging overseas profit-making health companies to come to this country to supplement NHS provision, which shows that the Government are embracing the market to an unexpected extent. We should welcome that.
I suspect that Labour Members and the trade unions will have an extensive debate with the Secretary of State about the conditions in which those private sector profit-making companies will operate and on what terms and conditions they will employ staff to provide services. Notwithstanding that, "Delivering the NHS Plan" shows that the NHS alone cannot deliver the health care that this country needs and that the Government recognise that the private sector"s role will grow.
The document also suggests that primary care trusts will have genuine commissioning power, but I suspect that the reality will be somewhat different. Paragraph 4.111 says that the Government willensure that adequate safeguards exist so that the system encourages appropriate activity growth.The autonomy of PCTs will perhaps be undermined by a Secretary of State who cannot resist the urge to meddle in the health service. If the Government want to devolve power to the front line as they say, they should trust PCTs to spend the money that they give them wisely. The reforms will fail if PCTs are not given the financial muscle to meet needs and deliver the health care that people in their area want.
That example shows that the Secretary of State has lost his nerve, and there are others. PCTs may buy services from acute hospital trusts on the basis of volume, quality and appropriateness, but no price competition will be allowed. I find that slightly surprising.
A couple of weeks ago, I was in the Chamber when the Secretary of State for Trade and Industry said that price fixing is against the interests of consumers because it inhibits efficiency, productivity and competition, but it seems that the Secretary of State for Health does not understand her message. I suggest that she remind the Secretary of State for Health that price competition is effective in delivering extra services. Another aspect of the failure to pursue the logic properly is that efficiency savings are to be retained by the hospitals and not passed back to PCTs, so how will PCTs gain the resources needed to commission the new services?
Although "Delivering the NHS Plan" is riddled with contradictions, it recognises the fact that, after five years of centralisation, power should be decentralised. However, the caveats and qualifications show that the Government have yet to grasp the full importance of change. Until they do so, the taxes raised in the Budget will not be spent wisely and we will not have the health care that Britain deserves.
§ Mark Tami (Alyn and Deeside)
Thank you, Mr. Deputy Speaker, for giving me the opportunity to contribute to this important debate. I welcome the Budget, which is probably the most significant since our election in 1997. It sets out and offers substantial year-on-year increases in investment in the NHS—investment that has been needed for many years and which was and is possible only because the Government have successfully managed the economy.
Much has been made of the 1 per cent. national insurance contribution increase for employees and employers. The Conservatives and some of their friends)n the media claim that it will be the end of the world for business and, in some strange way, a tax on jobs. We have heard it all before. I recall that the Conservatives said that the minimum wage would lead to massive rises in unemployment and drive companies out of business. Equally, they said that giving workers fair and decent rights in the workplace, not to mention paternity and maternity leave, would be a disaster. They were wrong then, and they are wrong now.
Some people may have short memories, but others have not forgotten the days of 15 per cent. interest rates and mass unemployment, which did not create a fertile climate in which business could grow. Those conditions made investment precarious, to say the least. Of course, those were the years of Tory government and Tory economic mismanagement.
In contrast, under this Labour Government there has been sustained growth, a stable and expanding economy, the lowest interest rates for more than 40 years, the highest employment of any major European country and the lowest inflation in Europe. The cycle of boom and bust, which typified the Tory years, has finally been broken by a Labour Government. In this economy, business can invest with confidence and prosper.
I represent a constituency that depends heavily on manufacturing industry, so I recognise that growth in that sector is important if we are to maximise the successful expansion of our economy. Manufacturing suffered terribly under the Tories—nearly 3 million jobs were lost and output fell. For manufacturing to succeed, it must be at the forefront of innovation and change. We must be able to respond to changing demands and pressures, but we must also add value to our products if we are to remain at the front of the field.
I welcome the Government"s recognition of the country"s productivity gap. The problem, which has been with us for many years, results from a failure to invest in new technology and, importantly, to invest in the ongoing training of our work force. Recognising that we have a problem is one thing; doing something about it is another. We must be honest—we have a large productivity gap to bridge if we are to catch up and ultimately surpass our main international competitors.
Closing the gap requires the Government to establish the right environment for industry and business. Equally, industry and business must recognise that, if they are to succeed, they too must invest, not only in machinery and equipment, but in people—the employees. Industry"s approach to training and retraining its work force has been woeful. It has too often considered training to be an avoidable cost rather than a necessary investment.
94 When a business hopes to expand, rather than use its own employees whom it had the forethought to train, it looks to poach from others. In essence, the management think, "Why waste money and time training our own staff when we can try elsewhere? Someone else will train them for us." Unfortunately, too many of our companies have taken that approach. Some old nationalised industries provided many trained people, but now that those companies are in the private sector they train considerably fewer.
In our expanding economy, we are all too quick to talk about how skill shortage inhibits growth and adds to our costs, but industry does little to address the problem. When times are difficult, we tend to make matters worse rather than better, but I applaud the sharply contrasting attitude of Airbus at Broughton in my constituency. Following the events of 11 September, it faced a major downturn in the industry and reduced aircraft orders, but in partnership with its employees—the trade unions—it approached the problem with a common goal in mind, which was to minimise job losses and secure the long-term future of the business.
As part of that approach, one of the company"s first actions was to write to all its hundreds of apprentices, including those yet to start their training, and guarantee their continued employment with the company. It is refreshing to see a company, even in a downturn, look to the future—the long term—rather than just deal with short-term considerations. If we are to succeed in manufacturing, we must follow that approach, which is in sharp contrast to the traditional approach of British industry. According to that, a letter would also have been written to the apprentices to say that they no longer had a job or a future with the company, as they were a cost and their removal would improve the bottom line.
If we are to bridge the gap in productivity, we need to address our deficit in training and to encourage innovation. I welcome the CBI-TUC productivity working groups, which have identified key areas that need to be tackled. Their support for Investors in People is particularly welcome.
The extension of the research and development tax credit to large companies is an extremely positive development. At a qualifying rate of 125 per cent. of all R and D expenditure offset against corporation tax, that should further encourage companies to invest for the future.
However, I ask the Secretary of State to consider the Treasury"s definition of R and D expenditure to ensure that it conforms to the realities of industrial investment. We must ensure that the incentives we provide are to the maximum benefit of our industry, especially industries such as aerospace. That is an important issue, and we must get it right if we are to deliver the maximum benefits that we all hope for.
For smaller and medium-sized businesses, the Budget offers further positive incentives, and shows Labour"s continued commitment to that sector. The reduction in the starting rate of corporation tax from 10 per cent. to zero will benefit more than 150,000 companies. It is the lowest rate of such tax in Europe. In addition, the reduction in the small companies" rate will benefit hundreds of thousands more businesses.
I am pleased that the VAT arrangements for small business have been simplified, because we must create the right environment for those businesses to prosper.
95 The problems associated with VAT returns are regularly raised with me by businesses in my area. I ask Ministers to consider the difficulties faced by small and medium-sized companies in applying for grant aid. We must simplify measures in that area to speed up the processing of applications. Time is vital, and delays to applications can sometimes lead to the collapse of the business before the grant has come through.
The Budget is a Budget for all sectors of our economy. The most important factor for any business is stability. The Budget continues to deliver that aim.
§ Michael Fabricant (Lichfield)
In her peroration, the Secretary of State said that new Labour means that all people should be treated equally. In the Budget, it did just that with the national insurance increase of 1 per cent. for every person and every employer.
§ Michael Fabricant
The hon. Member for Rhondda (Mr. Bryant) does not have a background in industry. If he did, he would know that that increase will cost jobs. I shall come back to that later.
§ Michael Fabricant
At one point in his life, the hon. Gentleman was a vicar. On his small income as a vicar, would he have wanted to pay a further 1 per cent? I suspect not. Can the Church of England afford to pay a further 1 per cent? I shall not dwell on that issue in too much detail.
My hon. Friend the Member for Maldon and East Chelmsford (Mr. Whittingdale) talked about the issues that were not addressed in the Chancellor"s speech, for example, the climate change levy. He said that nothing had been done to cut red tape, which costs firms between £1 2 billion and £5 billion each year. As a debutee—if not a debutante—of the use of the internet, I can certainly say that the suggestion made by the Secretary of State for Trade and Industry will not save much time for business.
Some 617,000 hours are spent filling in forms for the Government. Last year, new legislation was introduced every 26 minutes of the working day. That legislation must be understood by people working in industry. While they are trying to understand it and fill in the forms resulting from it, they are not out there getting the jobs and the business that we need to keep small firms running well.
I was disappointed that there were no new initiatives or incentives to improve the rollout of broadband. Much has been said about broadband. I have said many times in the Chamber that, when the Government speak about broadband, other Governments would say that they are comparatively narrow band. If broadband is to be 96 extended into rural areas—I know that the hon. Member for Rhondda is keen for that to happen in his constituency, and he is right—there need to he tax incentives. The Budget included nothing on that.
Nothing was said either about profit-related pay. Some 40,000 people are employed by the John Lewis Partnership. Time and again, year after year, the Labour party promised that it would restore profit-related pay for non-share options. The people who work for the John Lewis Partnership, Unipart and Baxi Boilers are real stakeholders. They are part of co-operatives, and one would think that the Labour party would welcome that, but not so. The word "socialism" is not allowed to be used any more. Labour is renowned for not keeping its promises, and it has not.
To return to the subject of national insurance, as I said in an intervention on my hon. Friend the Member for Maldon and East Chelmsford, the increase in national insurance will prove to be a double whammy—mark my words. From 2003, people will have to spend another 1 per cent. of their incomes on employees" national insurance, firms will have to pay a further I per cent. on employers" national insurance, and council tax will inevitably rise, because the vast expense incurred by councils is primarily on their wages bills. Even a small district council such as Lichfield will suffer a £78,000 rise in its wages bill, and the bill in Staffordshire will increase eightfold. That is a double whammy.
When council taxes go up, Labour Members with marginal seats—I am not referring to the hon. Member for Rhondda—will know why. It will be because of this Budget. In the first Budget of the last Parliament—I shall not dwell on this subject for long, Mr. Deputy Speaker, or I will be out of order—there was a huge windfall tax on pensions. Pensions have failed to reach their expected! target and suffered badly.
The care home sector is in crisis. Something in the order of 50,000 care beds have closed in the past couple of years, and I think that that number will increase. The care home sector is very labour intensive, and so it should be. The increase in national insurance contributions will be an additional I per cent. cost.
§ Michael Fabricant
It is far better to be in a care home than to be bed blocking. The Government set impractical guidelines without providing the financial resources to enable care homes to carry them out. That is why they are closing. The hon. Gentleman is wrong.
Another sector that is closing is the automotive industry. We have already seen the closure of the Dagenham car plant and the closure of Vauxhall in Luton. In the west midlands, where Lichfield lies, we have not only factories but many automotive suppliers. Yes, even 97 in the leafy lanes of Lichfield, people work in the automotive industry and they are operating on a knife edge. That additional 1 per cent. national insurance contribution will be a major extra burden.
I am waiting for some smart Alec to say, "Ah, but corporation tax has been cut," but that will not assist small Firms in the automotive industry that are not making a profit. As has already been said, a firm cannot pay corporation tax unless it makes a profit in the first place. Nor will anyone making more than £1.5 million gain; they will suffer and there will be a major crisis.
Furthermore, no one has actually worked out the cost lo the national health service of the extra 1 per cent. on the employer"s contribution—or, indeed, the cost to schools. They operate their own budgets and they, too, will have to find that extra 1 per cent. from their own funding. I am sure that all hon. Members have visited schools in their constituency, so they will know that employment costs comprise about 85 per cent.—perhaps even 90 per cent.—of the running costs of schools. Those costs will rise by 1 per cent., with no additional money promised by the Government.
Of course, the Government justify all that extra taxation. As the hon. Member for Birmingham, Erdington (Mr. Simon) rightly pointed out, it is not a stealth tax; it is so obviously an additional tax—we are so obviously going back to the tax and spend of old Labour days—that it is far from stealthy. The Government"s whole raison dôtre is to improve the national health service. Well, the acid test is: will Burntwood hospital remain open? Just before the last general election, the fact emerged—it certainly was not announced—that that hospital was to close. That was confirmed two days after the election. It is also likely that the maternity unit in Lichfield will close. There will be no more Dr. Johnsons and no more David Garricks born in Lichfield. Under a Labour Government nobody will be born in Lichfield because the maternity unit will close. We wait with great interest to see whether the NHS will reverse that decision, made under a Labour Government, but I know damn well that that will certainly not be the case.
Having had the third way, we have returned to the old ways of Labour and another tax and spend Labour Government. We have seen taxes go up and the standard of services fall. I would like to think that the NHS will improve as a consequence of the Budget, but watch this space! I do not think that it will. All that will happen is that although in the past the Government have managed to achieve reasonably low unemployment—that is also true in other parts of the EU—this Budget will mark the time when we see unemployment start to rise. The care homes sector, schools and the NHS will suffer as a consequence.
§ Mr. Wayne David (Caerphilly)
This Budget, based on promoting the proper funding and modernisation of the national health service, has been warmly received in my constituency and, indeed, across the whole of south Wales. In my constituency, we very much hope that it will help to bring a little closer the new hospital that we have wanted for many years.
I am sure that Aneurin Bevan would have warmly welcomed the Budget. He would certainly have welcomed the fact that major improvements in the health service are being paid for by increases in national insurance contributions.
98 As has been said many times, the Budget is about creating a fairer and more just Britain. It is also about creating a more enterprising Britain. It is important to remember that those two aims are not contradictory but complementary. That is shown clearly when we consider unemployment—or worklessness—which is one of the main causes of poverty and social exclusion in our country. It still blights the lives of far too many individuals, but it is also a major impediment to Britain"s economic growth and continuing prosperity.
We all know that unemployment has dropped dramatically: it is at an all-time low and is also low compared with many countries in the European Union. Above all else, it is worth remembering that in the mid-1980s about 350,000 young people had been unemployed for more than one year. At present, only 4,700 young people are in that position. By any standard, that is a profound and dramatic change. However, there are pockets of unemployment that is far too high—unacceptably so.
For example, there are areas of acute deprivation throughout the whole of south Wales. In my constituency, unemployment is unacceptably high in communities such as Graig y Rhacca, the Aber valley and Bargoed. The problem is especially acute further up the valleys: in the heads of the valleys, unemployment is a major social problem. That is why I am extremely pleased that the Budget includes specific measures to promote enterprise and encourage employability.
There are proposals to extend the new deal 25-plus to jobseekers who have been unemployed for 18 months, on an "off and on" basis, and to introduce a gateway to work process for all jobseekers on new deal 25-plus in four areas—London, Manchester, Dundee and Swansea. There are other measures to help unemployed people but those two schemes will make a positive and significant difference.
In the extension of new deal 25-plus, about 5,000 unemployed people who have difficulty in holding down a job—whether seasonal or other work—will be given real life chances. There will be tailor-made job preparation courses for those on new deal 25-plus in the four cities that I mentioned. At first, they will only be pilot schemes but I believe that they will be successful and will be extended to other parts of the country.
Those two measures offer a new approach to dealing with the problem of long-term unemployment. They are about empowerment. They are about giving responsibility to individuals. They are about helping to take people off benefit and putting them into work.
The measures outlined in the Budget, as well as other measures pursued by the Government, are extremely positive. They will give people new hope for the future and ensure that they have a real stake in our developing society. For example, I especially welcome, as a complement to the Budget proposals, the recent announcement of the extension of employment zones and the creation of Jobcentre Plus, which will bring the Employment Service and the Benefits Agency together in a new comprehensive support system.
Those measures will make a significant contribution to the creation of a fairer society and a more enterprising country. The Budget takes us much, much closer to the creation of a society based on full employment. That has 99 historically been a goal for the Labour movement; it is now close to becoming a tangible reality. For that reason, above all else, we should warmly welcome the Budget.
§ Rev. Martin Smyth (Belfast, South)
I appreciate the points that have been made, particularly those which certain Labour Members raised in respect of specific health issues. Some folk criticise the fact that Scotland and Northern Ireland have received more funding per capita than England. From another point of view, some also point out that the standard of health care that we would like is not being delivered. I share in that criticism, but I do not agree with those who think that funding can be reduced. We cannot think simply in per capita terms, because we have to deal with isolated communities and a high percentage of particular types of illnesses. We might blame some people for inflicting certain illnesses on themselves, but the given environment can also be a factor, and in my view the funding for Scotland and Northern Ireland is necessary. I welcome the fact that the Budget statement made no mention of a reduction in such funding, and I look forward to its full implementation. We should remember the Treasury"s sleight of hand over the years; additionality comes into play, and it tries to get back such money in other ways.
I am equally aware, however, that fault can be found with the way that the money has been used. Amazingly, when we were crying out for front-line funding in Northern Ireland, the Executive discovered £10 million in the health budget, which they had reallocated to other areas of government. I appreciate that that was their decision, but why was it not spent earlier where it was needed—on front-line health care?
On disability, I share completely the concerns expressed by the hon. Member for Aberavon (Dr. Francis), and I underscore the view—recently expressed in various places—that there is a tendency to ignore those with learning difficulties and argue instead that the funds are needed for others in mainstream education. I should like to think that we as a Parliament and as a country will never forget the need to look after the underprivileged, who need extra help to enable them to take their place in our society.
The hon. Member for Alyn and Deeside (Mark Tami) made an interesting point about apprentices and business. We are apt to blame one another, but it is interesting to note that trade unions had a part to play in the running down of the apprentice scheme. A tendency developed some years ago towards job protection, because it was felt that, if there were too many apprentices, sufficient jobs might not exist for other people. We must be careful to develop a long-term plan with some degree of understanding.
In that context, I turn to the failure of care homes to meet the required standards, to which reference has been made. I have visited small, family-type care homes in Northern Ireland which, because of the standard of care that they offered, went out of business when the new regulations came in. In private homes, fire precautions such as external escape routes are required. According to those standards, even in a home such as ours—in which we cared for a father, a mother and other family members—we should have had an external fire escape. 100 It is ridiculous to roll out a list of standards without considering the implications for those who prefer to be cared for in a smaller home as ordinary people. Larger homes may have many facilities, but they may not provide the care that some of these people really require.
I was interested to hear the Secretary of State for Health refer to less bureaucracy in the health service in defending the setting up of an independent audit body. However, as I listened I realised that, in fact, three bodies are being turned into one. In my years inside and outside Parliament, I have never discovered bureaucracy lessening; rather, it increases. Although I would like to believe those who say that a wonderful wand will be waved and bureaucracy will decrease, I do not. I discovered that, in one good hospital where a great deal of care is dispensed, it takes 24 days to get a message from one department to another. That is worse than Consignia and the Royal Mail. We must tighten up communication within the health service. Often, GPs do not get the speedy responses from hospitals that would enable them to treat their patients outwith. I would raise that issue especially when we talk of recruitment.
How long does it take to train a consultant? The Secretary of State for Health said that it takes at least 15 years, so the Government were right when they said that the Budget will not cure the health service, because we will not have all the staff that the health service requires during this Parliament or the next unless we import a high percentage of overseas health personnel into our country. Two things arise from that. First, there will he fewer job opportunities for those young people who want to serve in health care in future. Secondly, developing countries will be denuded of health personnel, even though regulations exist to stop people coming from the most under-developed countries. The policy will rob Peter to pay Paul, without serving our health service properly.
Finally, reference has been made to pensions. Age Concern has pleaded for simpler guidelines so that people can know what their pension entitlement might be. It has been suggested that businesses are doing the Government"s work, but they have been doing the Government"s work for decades. I want to tell the House about one of my constituents, Mr. McAuley, who has argued with the tax authorities and the Chancellor himself since the beginning of 2000, and he has found, as hon. Members do, that it takes a long time to get an answer. In his attempt to follow the Government"s guidelines to provide for his retirement, he put most of his money into long-term savings in his wife"s name because her income was too low to be taxable.
Mr. McAuley took the precaution of trying to get a fair return in the long term on his wife"s investments, but the bank and investment bodies have taken £500 to £800 a year more in direct taxation than she was required to pay. The law says that if someone"s income is £ 1 over the allowance, the whole sum is taxable. That tax can be reclaimed in due course, but I am not too sure how many hon. Members would like to pay out £500 or £800 before getting it back the next year. More importantly, the money was invested in high-yield stock and the income was reinvested in that stock, so that sum could not he reinvested ordinarily because it was already taken out of the investment. David McAuley is an individual, but perhaps his case represents others. Why should individuals suffer because it suits the tax man to allow business to do his work by taking money from people?
§ David Wright (Telford)
It is a pleasure to follow the hon. Member for Belfast, South (Rev. Martin Smyth). The key themes of this year"s Budget were rights and responsibilities. One of the alarming things that I have noted throughout this debate has been the attitude of Conservative Members, because the Budget is about rights and responsibilities not only for individuals and families but for businesses. We do not live in a world where each of those categories stands alone—we act together, as a society. Conservative Members think that business stands alone, outside society, and that it does not need to take any responsibility for what happens in society, but they are fundamentally wrong. That is the dividing line between us. As we focus on the Budget today, we have heard about the growing divide between the parties, and I shall return to that theme in a few moments.
It is difficult to make a speech after the Budget has already been debated for several hours. I shall focus on three key themes: first, the economic background against which the Budget is set; secondly, its impact on enterprise and investment in the UK economy; and, thirdly, the debate it prompts about the type of society in which we all want to live. Before tackling those themes, I shall comment on the way in which the Budget has altered the political debate in the UK, in my view, for the better.
The House will be reassured to learn that over the weekend I took a look at the Red Book—very exciting it is, too. I managed to get through the overview to concentrate, over my cocoa, on the introduction, which states:The Government"s objective is to build a stronger, more enterprising economy and a fairer society, extending economic opportunity and supporting those most in need to ensure that rising national prosperity is shared by all.That is motherhood and apple pie, and until I heard this afternoon"s debate, I thought that we could all sign up to it, but we have heard little of inclusivity from the Conservatives today; all we have heard is a lot of complaint. Labour Members can sign up to the political philosophy set out in the Red Book introduction, and I welcome the Budget that my right hon. Friend the Chancellor delivered last week.
Over the weekend, I was struck by the maturity of the debate on the Budget, and I pay a measure of tribute to the Opposition parties. Perhaps because of the Budget, our debates have reflected less of the hyperbole of British politics. We have exited the silly season, because this is the most serious Budget that has been presented to the country in 20 years of politics.
The nature of political debate in this country has changed radically in the past five years. For the first time, we are able to debate the structure of our public services and our collective responsibility to pay for them and modernise them. That was not the case 10 years ago. In the 1992 general election, Labour made a case for investing in public services, but the public rejected it. It has taken us 10 years to turn around the political environment to the point where the focus is now on how to Improve our public services. I welcome that change.
My first core theme is the background to the Budget. The Budget is built on a platform of economic stability—there is no denying that—and the programme targets child poverty and tackles much-needed investment in health. 102 All that was made possible by the approach we adopted during our first term in government. During that first term, we heard a lot of complaints from the Liberal Democrats about how we were not investing heavily; that complaint has been heard again this afternoon. However, we have laid the foundation for long-term investment and we will now build on that.
Last year, Britain"s was the fastest-growing economy in the G7, and growth forecasts remain extremely good. Long-term interest rates are low, inflation is low and unemployment is at its lowest since 1975. In Telford, unemployment has fallen by 21 per cent. since 1997, and youth unemployment has collapsed because of the new deal. The Opposition should take care not to talk Britain down. We have heard constant talking down of our country this afternoon, and we heard it from the shadow Chancellor at the last Conservative party conference. If they want investment in this country, if they want UK businesses to be successful, if they want more companies like the Japanese companies that come to invest in Telford because of the strength of our economy to come to this country, the Opposition should talk Britain up, not run it down at every opportunity.
This country"s borrowing and debt are under control, and I am proud of that. It is a reflection of the success of Labour"s first term. No wonder the Tories are envious of our economic record, given how appalling theirs was. When people look at the overall tax burden—the amount that they have to pay out—they do not forget the mortgage interest rates that they had to suffer under the Conservative Government. When people assemble their household budget and see how much they are paying in tax and how much they spend in other areas, most know that they are paying out less than they were under the Conservatives. That is due to the platform of stability that my right hon. Friend the Chancellor has created.
My second core theme is the topic of today"s debate: enterprise and investment. Some of the proposals command consensus between the CBI and the TUC, for example, the research and development tax credit, which will give a real boost to the economy. I want to comment briefly on the Investors in People scheme. We have put in £30 million of additional funding to help small firms to attain Investors in People status. Over the past 12 months, I have visited several companies in my constituency that have secured that status, which is a way of ensuring that their organisation is dynamic and effective and makes the best use of its people-based assets. I welcome that expenditure.
In total, more than 1,500 businesses in Telford will benefit from measures contained in the Budget, especially the changes to VAT for small businesses.
I shall now join my hon. Friend the Member for Ogmore (Huw Irranca-Davies), who is no longer in his seat, in ensuring that I do not get a Christmas card from Digby Jones of the CBI. I read his comments in yesterday"s edition of The Observer with interest. He said that by increasing national insurance contributions we are placing a tax on jobs. He should focus a little more on the impact of sickness at work. I asked the Library to dig me out a copy of the CBI"s report, "Pulling Together", its 103 2001 absence and labour turnover survey. The report reveals that in 2000 an average of 7.8 days per employee were lost through sickness. It states:The average direct cost of absence was estimated to be £434 per employee. This is broadly similar to last year"s figure of £438 per employee. If this figure were projected across the whole UK workforce, the cost to UK business would be £10.7 billion.Yet we heard nothing from Conservative Members about the impact of sickness absence. They should bear that in mind.
Investment in the NHS will have a direct impact on the performance of the economy, because it keeps people at work and boosts productivity. Digby Jones suggested that the only economic advantage that we now possess over our European neighbours is a low tax regime for business. I do not believe that that is true. Our main advantage is the innovative and energetic nature of the British people, who work extremely hard. The healthier they are, the stronger and more productive our economy will be. They will perform best if they are well cared for by a high-quality national health service.
The investment in the health service will prompt demand for goods in the economy. It is not very trendy these days to talk about Keynesian economics, but for as long as I am here hon. Members will hear about it. Spending on public assets in the health service will lead to growing demand in the economy, and I welcome that.
My final point concerns the type of society in which we want to live. The Budget has the capacity to strengthen the institution that epitomises all that is best in our country and in delivery by a Labour Government: the national health service. That strengthening involves the investment outlined by the Chancellor coupled with reform. Opposition Members claim that health service reforms will not be effective, but the Government have proposed a platform of investment and reform that is spelt out in great detail. I welcome it and hope that it will be implemented as quickly as possible.
Effective change will take time, but it never took place under the Tories.
§ John Mann (Bassetlaw)
I start by declaring an interest. Having been an entrepreneur for the past 10 years, I am a major beneficiary of the Chancellor"s recent Budgets. My dividend payments and those of my co-directors—mine are of course declared in the Register of Members" Interests—will be higher this year, directly owing to the cuts in small business corporation tax. The potential that I am sitting on in shareholding terms is now at its height, as three years have elapsed since the Chancellor introduced the changes in capital gains tax. Although those changes have not received the amount of public debate that is necessary to encourage other entrepreneurs, they have been powerful in benefiting those who take a risk through entrepreneurship. Indeed, it is fair to say that although the entrepreneurs once sat on the Conservative Benches, they now sit on the Labour Benches. Perhaps Conservative Chancellors could once 104 claim to be the voice of business, but now the true voice of business, entrepreneurship and innovation is heard on the Labour Benches.
On Friday, I ran a well-attended, positive and successful Budget briefing, during which I asked a small business consisting of three employees how much the extra national insurance charges would cost compared with taking out BUPA"s medical insurance for each person. Such insurance does not cover accidents, emergencies or GPs, but it apparently has some benefit. Can hon. Members imagine the difference between paying national insurance charges and those of BUPA? One would gather from listening to Conservative Members and reading the newspapers that the employers" national insurance payments were significantly higher than BUPA contributions. That is not the case. It would cost a three-person small business in my constituency more than £800 a year more to take out BUPA insurance than to pay the increased national insurance contributions. That puts them in proper perspective.
§ Michael Fabricant
On a point of order, Mr. Deputy Speaker. Perhaps it would be helpful if you named the speaker for the benefit of the Annunciator operators. The hon. Gentleman"s name does not appear on the screen.
§ John Mann
The phrase "five years in government" is often repeated. I therefore want to look back to 1984, when we had 2.5 million small businesses. Since the Government came to office, 1.3 million new businesses have been set up. That means that 55 per cent. more small businesses than existed in 1984 have been established since 1997. That is why employment and the economy are booming.
I asked the same business men in my constituency whether the cuts in corporation tax for small business more than outweighed the increase in national insurance. The profit account for this year alone shows that they do. There is a myth that small business has been continually hammered by red tape and taxes. That is not true. Hon. Members need not hear the message of small businesses in my constituency from me. Instead, let me quote Friday"s Worksop Guardian, in which Phil Sibson, chairman of the Worksop chamber of commerce, described the Budget asa fair budget for business".When I set up my business, I had sky high bank charges and interest rates. That hits cash flow, and it is why the same number of business start-ups and successful businesses and the same rate of employment in small businesses did not occur under the previous Government. We now have a stable economy with low interest rates. That stability is the engine of growth.
Let me give an example of the impact on small businesses of the changes in capital gains tax. Let us consider a small, family business, owned by two people—perhaps a husband and wife who work together—that retains profits of £20,000, which is not a massive figure. On the basis of the formula 5.5 x the worth of a business, the changes that the Chancellor has introduced in the past three years mean that the business will make a net £27,000 in tax savings alone on a turnover of £20,000. The small business does not have to be older than three 105 years to get that maximum benefit. That is a pretty good bet for entrepreneurs who want to invest in their future. It is good for audits and returns and unprecedented in any tax regime in this country.
Small business tax has been cut to such a low amount. Do hon. Members know what it was in 1984? For small businesses the entrance level was 30 per cent. and for large businesses it was 45 per cent. That shows the difference between the first five years of Conservative Government and our first five years in power.
The briefing that I held on Friday was attended by the chairman of the primary care trust. "With all the additional money going into the health service," he urged me, "don"t let anyone get away with missing how much extra the NHS has been given over the last four years." That means that in my constituency alone, irrespective of the current Budget, there are costed plans for three new health centres. Bassetlaw has never before seen such a rate of progress in the NHS.
Last Tuesday, on the eve of the Budget, I went to a business forum held by the chamber of commerce at which the chief executive of the Bassetlaw NHS trust gave her vision of 2010. She described how the trust is knocking down the prefabs that have existed since the hospital was built to create land in anticipation of continued growth in the hospital"s acute services, which will be funded by the state. Those are no longer pipe dreams as they were on Tuesday evening; they are real plans that can be brought to fruition for the benefit of my constituents. Bassetlaw hospital is improving and growing. It is a popular hospital and people use it. The beauty of the additional money is that it can be used to increase the range of services, specialisms and treatments that are provided.
I shall tell the House what else the money can do. Conservative Members talk of waste in the NHS. I am sick to death of people knocking Britain and its public services. Let me tell the House about waste. Waste is the postcode lottery, which means that people cannot get into Bassetlaw hospital.
§ John Mann
No, I will not.
Private sector solutions will never get rid of the postcode lottery. The solution is additional money for the NHS, and people in this country believe that. People who were brought up on the NHS are proud of it. They want treatment on the NHS; they want the drugs and the doctors to be the best available, and they want them paid for by the NHS.
Two or three days before my father died, the consultant asked him whether he wanted to go private—for the sake of a few flowers and a colour television. What my father said to him echoes the views of the overwhelming majority of my constituents. He said, "I was born and brought up on the NHS, I"ve lived on the NHS and I"ll die on the NHS." Nobody in my constituency should ever be given the option of going private to get better service than they would get by going public. We demand an NHS of which we can be proud. The Opposition offer a privatised alternative. We should let the people choose. The people will say, "It is our NHS. Invest in it. We applaud the decisions in this Budget."
§ 9.8 pm
§ Mr. Chris Bryant (Rhondda)
Today"s debate has been particularly revealing, not least because it has shown that the Conservative party is determined to prove to the nation that it has not changed and has learned nothing since the 1997 and 2001 elections. Above all, it has been particularly interesting to hear the manifest cynicism of Opposition Members. They reek of cynicism, if such a thing is possible, about the NHS. The words "Stalin" and "Stalinism" have been used time and again. It is as if the Opposition are determined to force their cynicism on the rest of the country.
It was particularly fascinating to hear the beginning of the debate, in which the Conservatives have been led by the hon. Member for Maldon and East Chelmsford (Mr. Whittingdale). He first showed his cynicism in his maiden speech on 6 July 1992. Then, of course, he was trying to persuade his Government, who had engineered one of the biggest recessions that this country has ever seen, to adopt his solution for getting out of the recession and mounting an economic recovery—we have not had to debate that under the Labour Government, because we have managed to run the economy well. He argued:The other essential requirement for recovery is continued control of public expenditure.A rather purple passage followed:It will require my right hon. Friend the Chief Secretary to the Treasury, like Ulysses, to lash himself to the mast"—it gets a bit worrying here—and to fill his colleagues" ears with wax so that they do not succumb to the siren voices in favour of higher public spending."—[Official Report, 6 July 1992; Vol. 211, c. 65.]The Conservatives have not changed a bit—it was the same old song in 1992. It would have been much better if they had listened to the voices of the Labour party in 1992. If they had listened to the Labour party then on public spending—on the national health service in particular—we would have more doctors, more consultants, more nurses and a better health service across the whole of the United Kingdom.
It is good to see that the Conservatives have not changed. They are still absolutely obsessed with lower public spending, whatever the need in society. It is interesting that they are still barely concerned about cutting unemployment; to them, unemployment still seems to be a price worth paying, as was mentioned earlier. I asked the hon. Member for Maldon and East Chelmsford whether he was pleased that unemployment in his constituency had fallen by 55.5 per cent. since the 1997 general election. He seemed to cast that aside as a mere bagatelle, yet his party was not able to achieve that in government.
The second interesting thing about today"s debate is that, basically, everyone has agreed that Labour has managed the economy extremely well since 1997. We have achieved low inflation. Again, it is interesting that, in his maiden speech, the hon. Member for Maldon and East Chelmsford said that, in staging an economic recovery, getting inflation down was perhaps the most important thing that a Government could do. A Labour Government have been doing that—we have been keeping inflation low for longer than any Government have managed in the last 30 years.
Equally, unemployment in my constituency is now at 4.2 per cent. Many hon. Members find it difficult to believe that, in the history of the Rhondda, there has never 107 been a time since 1850 when the unemployment figures there have been within spitting distance of those across the whole of the United Kingdom. It is a significant achievement that we are creating new jobs not only in the south-east of England or the M4 corridor in south Wales but in valleys constituencies such as mine.
The third interesting thing that has been revealed today is that the vast majority of Members have agreed that this is an excellent Budget for businesses, especially those in disadvantaged areas. The cut in corporation tax will undoubtedly benefit businesses in disadvantaged areas disproportionately compared with the rest of the country. The cut in VAT administration will also be very welcome to many small businesses, especially sole traders, in my constituency. As someone who was a sole trader for several years, I know that that is a complicated matter, and I am delighted that it is changing.
The company law review that was announced by the Secretary of State earlier is very welcome, as many businesses would like to consider more efficient ways of structuring themselves. The hon. Member for Meirionnydd Nant Conwy (Mr. Llwyd) mentioned that nothing had been done for disadvantaged areas. The stamp duty changes, however, will have a dramatic effect on disadvantaged areas, and they are very welcome. Above all, if changes to the national health service produce a more efficient system in which employees are able to see a doctor at a time of their choosing and swiftly, we will have a more productive work force, which, in the end, will be in the interests of business.
It has also been interesting to see that the Tories still want to lecture the Labour party about how to run the economy and about what is good for business. The history behind that is fascinating. In 1992, when the hon. Member for Maldon and East Chelmsford first came to the House, there were 62,767 business failures in this country; between 1992 and 1997 under a Tory Government, there was an average of 46,796 business failures a year. Under a Labour Government, the figure has fallen dramatically to 40,949. The Government do not need any lectures on business-friendly policies; they are business-friendly, unlike the Conservatives.
The Conservatives have said ad infinitum that the increase in national insurance will be a tax on jobs. They wheeled out precisely the same argument against the national minimum wage, saying that 1 million jobs would suddenly disappear if we introduced it. However. 1.5 million extra jobs have been created in the economy.
§ Mr. Bryant
I fear I have only a couple of minutes, so I shall not; I am sorry.
The Conservatives have argued that the national insurance employers" contribution will be far too expensive for employers. Let us face it; they have yet to come up with an alternative plan for funding any form of health service that will be cheaper for businesses. If every business had to start paying for a private health insurance scheme, the cost for industry would increase dramatically, not decrease. Even if we adopted the French model of social insurance, there would be at least a 1 or 2 per cent. 108 increase above the Budget proposal to provide the same service. I assure Opposition Members who want to look at the American model that many people in my constituency who can afford it have taken out private insurance. Funnily enough, the moment anything goes seriously wrong, private health companies suddenly say, "Oh no, you haven"t read clause 59, point 3, which means that if you are ever seriously ill we cannot fund your health care." The Chancellor is right; national insurance and taxation are the best way to pay for the NHS that we all want.
The hon. Member for Belfast, South (Rev. Martin Smyth) said that one of life"s lessons is that bureaucracy never decreases. In my experience, insurance premiums never decrease either. The hon. Member for Lichfield (Michael Fabncant) will be glad to learn that, as I worked for the Church of England for several years, I was insured for many years by Ecclesiastical Insurance—"Insurance you can believe in" was its slogan—although I have now moved because it is far too expensive, to Sterling Insurance. I suspect that I may have to change again after a referendum next year.
I shall conclude with a hope for coming years. When Peter Walker was Secretary of State for Wales he said:The problem with the Welsh economy is that there is no word in Welsh for "entrepreneur"."—[Interruption.]Hon. Members will catch up eventually. The Welsh economy is now vibrant. The other day, I met a constituent of mine, a young man called Jamie Rowland who set up his own company called the Bicycle Doctor with a £300 loan and a £500 grant. In his first year he expected a turnover of £15,000, but he achieved one of £100,000, which betokens something good for the economy of the Rhondda and shows that a strong entrepreneurial spirit is alive and well in Wales. I hope that we will make sure that "education, education, education" is still the future, because it is only with entrepreneurial spirit that we win.
§ Mr. Kevan Jones (North Durham)
I welcome the Budget on behalf of my constituents in North Durham. We have heard much from Conservative Members about the damage that the Budget will cause to jobs. However, my constituents have not forgotten that they went through some terrible times in the 1980s at the hands of the Conservative party. A once great mining industry arid manufacturing industry was decimated. Throughout that period, we did not hear a peep from Conservative Members in defence of industry and communities throughout North Durham which faced wholesale destruction. At that time villages were left to die. People and communities were left with no hope for the future of their children and grandchildren.
Since 1997, as my hon. Friend the Member for Rhondda (Mr. Bryant) reported is the case in his constituency, unemployment in North Durham has been at a record low. It has dropped by 44 per cent. The Conservatives tend to forget such facts. The reason why unemployment has fallen is that under a Labour Government we have had economic stability since 1997, with low interest rates and low inflation, which has allowed business in the north-east—or whatever business was left after the Conservatives had decimated it—to flourish. 109 I recognise the point made by my hon. Friend the Member for Caerphilly (Mr. David), who mentioned that there are pockets of high unemployment in his constituency, which doggedly defy those trends. Similar areas exist in North Durham, and they will take time to put right. That is down to the "couldn"t care less" attitude that we saw in the 1980s, when those communities were left to the whims of the market.
One of the great success stories in North Durham has been the eradication of the scourge of youth unemployment, thanks to the new deal. That was paid for by a windfall tax, which it was said would decimate industry. It clearly did not.
I welcome the exemption from stamp duty for businesses in deprived areas. In areas such as Stanley in my constituency and South Stanley, that will be warmly welcomed. The abolition last year of stamp duty on housing led to more development. I know that it is hard for some Conservative Members to accept, but it is difficult to bring about development and business starts in those areas. Any help such as relief from stamp duty is valuable.
A further legacy of the industrial past of North Durham is a large elderly population scarred by industrial disease. The measures announced this week for the health service will be warmly welcomed. The Conservative strategy is to talk the health service down, reiterating the fact that it will not work. They want to break up the health service and replace it with a system under which people will have to pay. That is insulting to many of my constituents who work in the health service and are proud to do so.
The scandal in my constituency is not that, starting in September, we are getting a new hospital in Chester-le-Street, but the fact that the old one was still there in 2001—it was an old workhouse. When the nurses moved into temporary accommodation two months ago, they said that that was better than the building that they had left. The new hospital will ensure better health care for my constituents.
We have heard tonight from Conservative Members that they want investment in public services and health, but not one contribution to the debate set out how they would fund it. All they tell us is why it cannot be funded in the way that the Government have determined.
On Saturday, I did what I do every second Saturday: I went out on the doorsteps of North Durham, on this occasion asking people what they thought of the Budget. I can tell Opposition Members that the Budget is popular with the constituents of North Durham, whether in working-class areas of Pelton or some of the more middle class suburbs of Chester-le-Street. The Budget offers them the improvements in health care that they want. I can tell my hon. Friends on the Government Front Bench that the key point reiterated by my constituents is that if they are to pay more tax, they want delivery. We must ensure that that happens.
I also visited two schools on Friday. The head teachers at both the infant school and the junior school at Sacriston in my constituency welcomed the extra money that they were being given directly to improve facilities and to enable them to decide what they wanted for their schools. The hon. Member for Fareham (Mr. Hoban) clearly did not understand that some of that money has already been put through and that extra money is being given directly to 110 schools with no strings attached so that head teachers can decide the priorities. I suggest that the hon. Gentleman reads up on what is happening in his constituency.
This Budget is good news for my constituency. It is part of the rebuilding of Britain. It is about rebuilding communities that were torn apart during the 1980s. It will go a long way to ensuring that the regeneration of and employment in North Durham continue.
§ Mr. Damian Green (Ashford)
This debate has been consistently fascinating and sporadically enlightening. Before dealing with the many contributions made to it from Members on both sides of the House, as shadow Education Secretary I would like to deal with the topic of the Budget and education.
I should point out one salient fact about these four days of debate on the Budget. For the first time since this Government came to office in 1997, they have failed to put up an Education Minister to speak about the Budget, although I should say that I am always delighted to debate with and listen to the Paymaster General. Those of us who have fond memories of proceedings on the Finance Bill in the early days of the previous Parliament are always nostalgic for them. Nevertheless, the absence of a day"s or even half a day"s debate on education speaks volumes for the Government"s current commitment to it. As ever with this Government, one should look at the actions and not the rhetoric. Either the Government cannot be bothered to discuss the Budget"s effect on helping our schools and universities, or they feel a little ashamed of how education has fallen down their agenda.
It is important to be fair. Education was mentioned by the Chancellor in a couple of cursory lines in his Budget statement, so it is worth investigating in some detail what was announced. He announced, for example, a payment of £87 million to help schools deal with pupils" bad behaviour. I must point out that that is not new money. Some of it was first announced as part of the £150 million of the children"s fund allocation in the report by the Department for Education and Skills last March. Some of it was first announced as part of the £420 million allocated to the Connexions service—announced first on 23 October 2000 and then again on 20 March 2001. In addition, the truancy measures announced as part of the Budget have already been announced twice: on 26 March 2001 and 28 November 2001.
Let us look at the wider announcements in the Budget. The centrepiece of the Chancellor"s claim to be helping schools was simply that he was giving more money directly to head teachers so that they could spend it as they like. Again, that bears a degree of investigation. The press release put out by the Department—indeed, what the Chancellor told the House—suggested that a typical secondary school would see a rise in such funding from —98,500 to £114,000.
As one head teacher who e-mailed me about the announcement pointed out, half the money had already been announced in last year"s Budget—a standard Government trick, as he said. He calculated that the extra income for his school was therefore £5,881. That in itself would of course be welcome, but, unfortunately, he has also calculated that the extra employer national insurance contributions that he will be making will cost his school £13,221— considerably more than the school is gaining from the Chancellor"s apparent largesse. 111 Let us consider schools throughout the country. The best local government estimate is that the total cost to our schools of the national insurance increase for both employers and employees will be something like £165 million. That is rather more than the Government say they have given to schools. Faced with that embarrassment and the fact that people are looking behind the press releases to the detailed figures of the Budget, the Government did what they always do: they leaked an announcement of jam tomorrow. So, in two of this morning"s newspapers, we saw what will come up in the comprehensive spending review.
Even these figures seem slightly hazy and depend on which newspaper one reads. According to the Daily Express, there will be a £20 million bonanza in the comprehensive spending review for schools and universities. According to the Daily Mirror, the figure will be £3 billion. I know that figures are not the Government"s strong suit, but it is slightly ridiculous that they cannot get their leaks straight. They are not sure whether they are going to give £20 million or £3 billion in the comprehensive spending review.
§ Mr. Tom Levitt (High Peak)
We are all pleased to hear that the hon. Gentleman can count to three. Does he not accept that the additional money that the Chancellor is giving to schools will go into their budgets this year and that the national insurance changes will affect them next year?
§ Mr. Green
And every year thereafter, as the hon. Gentleman well knows. Schools will be even worse off in the long term. I am happy to continue to talk about school spending if that is what the hon. Gentleman wants. In 1997, the Labour party promised that education would be its No. 1 priority. It said that it wouldincrease the share of national income spent on education as we decrease it on the bills of economic and social failure".However, spending on education as a proportion of gross domestic product in the 1997 to 2001 Parliament was 4.7 per cent. Under the last Conservative Government, between 1992 and 1997, the average figure was 5 per cent. So the Labour Government managed to reduce the proportion of GDP spent on education in their first term. If Labour Members find that difficult to believe, they do not have to take it from me. Professor Howard Glennerster of the London School of Economics said:Real-term spending per pupil … is only nowin 2001beginning to creep back up to the level of five years ago. It was not until … 2000 that real per pupil spending rose above the 1995–96 level in England … By no stretch of the term "priority" could it be said to have applied to state education spending in the first four years of the Labour Government. Even in 2003 planned … spending will only be back to the levels of 1994.So much for priorities.
It is worse than that, however. Even when the Chancellor announces in successive Budgets and comprehensive spending reviews that the Department for Education and Skills will receive more money, it does not necessarily spend it. The Department"s total underspend since the Government came to office totals more than £4 billion. In the past two years alone—2000 and 2001— 112 it underspent by £1.4 billion. From careful reading of the Budget figures, we have discovered that in the past year the Department managed to underspend by £800 million. The Department is so incompetent that even when the Chancellor pretends that he is being generous to it, it cannot spend the money on our schools and universities. It would have been helpful had an Education Minister spoken in the debate so that we could have probed why that is happening.
§ Mr. Green
I was coming to that. The hon. Gentleman should calm down.
The Prime Minister said in Prime Minister"s questions that our education system is now among the top eight in the world precisely because of the investment, but that ranking is precisely not because of that investment, as we have seen. There has not been as much investment as the Department thought and when it does get it, it cannot spend it.
I was struck by a memorable remark from the hon. Member for Birmingham, Erdington (Mr. Simon), who said that the Prime Minister used to have a principle. I can tell him that the Prime Minister still does have a principle: when in doubt, dissimulate. His complacency about education is breathtaking. I assume that the figure that puts us among the top eight in the world comes from the programme for international student assessment—the Pisa study—which recently reported on comparative education systems across western Europe.
I must explain to the Prime Minister and any other Minister who might want to quote that study that it is based on 15-year-olds in 2000. Education Ministers and, indeed, some of the more honest Members on the Labour Back Benches made it clear that the Government spent their first term dealing with the primary education sector and are only now moving on to the secondary education sector. Those who were 15 in 2000 did not attend primary school at all after 1997, so this Government can have done nothing that had a beneficial effect on the education of the cohort included in the Pisa study. If that shows an improvement in good standards in the basics of education, it is a tribute to the Conservative education reforms of the 1980s. I hope that the Government will recognise that what they have said is complacent and misleading, and that the real state of British education is one where truancy is rising, where discipline is falling, where teachers are leaving as never before and where the rise in standards that we have seen over the past 10 years has stalled. The Government cannot afford to be complacent about education, and the Budget has done nothing to help Britain"s schools.
Nor has the Budget done anything to help Britain"s hard-pressed universities. The Association of University Teachers said that the Chancellormissed the opportunity"—that is in the Budget—on Wednesday.It says:Serious recruitment and retention problems, rock-bottom morale and decaying buildings and teaching facilities join the cuts in research funding and under-recruitment of students as serious problems facing higher education.113 That seems enough to be going on with after five years of Labour Government. That is an indictment from one of the sectors that most welcomed the Labour Government in 1997; the university sector thought that its problems would be solved by the Labour Government, and it was cruelly misled.
§ Mr. Kevan Jones
Clearly the hon. Gentleman is attempting to talk down higher education. If no extra money is going into HE, who is paying for the brand-new campus at Consett for Derwentside college, which will be of great benefit to my constituency and to that of my right hon. Friend the Parliamentary Secretary to the Treasury?
§ Mr. Green
Many of the people paying for it will be the students. As we learned this morning, they are now on average £10,000 in debt, despite the fact that before the 1997 election the Government promised that they had no intention to introduce tuition fees. That was the precursor of all the betrayals on tax that the Government introduced later, not least in the Budget. Things in education will not become better as long as the Government remain committed to their centralising agenda.
My hon. Friend the Member for Fareham (Mr. Hoban) was right when he said that far too many heads are frustrated by the micro-management of their schools by the Department for Education and Skills. As teachers, heads and governors know, they are not being allowed to get on with their respective jobs. They will continue to become disillusioned and leave. That poses the greatest threat to long-term standards of education in our schools.
The Government have always claimed that education and training should be one essential underpinning a successful economy. I think that we all agree with that. However, breathtakingly, the Secretary of State for Trade and Industry, who opened the debate, seemed to suggest that the US model of a low-tax, low-regulation economy was another essential factor in a successful economy. The Opposition agree with that analysis, but the right hon. Lady does not seem to recognise that she was praising a Budget that moved decisively away from that model.
A number of Members talked about the general economic climate and specific sectors in the economy. The hon. Member for Twickenham (Dr. Cable) said that growth would be lower as a result of the Budget. I agree. My hon. Friend the Member for Sevenoaks (Mr. Fallon) made a similar point. All the economic numbers are put under threat by the Budget. It does nothing to help a savings ratio that is at its lowest for a decade. At a time when we are lagging behind many of our European partners it does nothing to encourage productivity. In particular, it does nothing effective for small business, as my hon. Friends the Members for Galloway and Upper Nithsdale (Mr. Duncan) and for Hertford and Stortford (Mr. Prisk) made clear.
Not content with the prospect of making small business and especially the self-employed suffer, the Government do not recognise that these sectors are essential for future prosperity and future job creation. Yet the Government have chosen to increase taxation through national insurance contributions, which is especially harmful to those sectors.
My hon. Friend the Member for Billericay (Mr. Baron) was right to say that attacking business in this way—an attack launched by many Labour Members, especially the hon. Member for Telford (David Wright)—will not create a climate that will result in a reduction in poverty.
114 My hon. Friend the Member for Bury St. Edmunds (Mr. Ruffley) was right when he called the Chancellor of the Exchequer the tax-raiser general. We have heard various quotes of what Ministers said, including the Prime Minister, during television interviews in the run-up to the election. I think that, as ever with new Labour, the briefings are more accurate than the on-the-record quotes. The briefings to journalists from the Chancellor of the Exchequer seem to be especially relevant in this context. On the BBC 6 o"clock news on 22 May, Mark Mardell said:Those close to Gordon Brown"—I think we know what that means—say it"s completely wrong to interpret this reluctance as meaning there is a plan to put up national insurance. They say that"s not his intention".Even further up the BBC hierarchy, Andrew Marr said on the same programme:What he is saying is that the simple, straightforward Conservative allegation that he was going to lift the lid on national insurance and therefore produce an effective 50 per cent. rise in income tax is untrue.No; it seems to be true. So the macro-economics of the Budget are damaging and not a little dishonest, and my hon. Friend the Member for Lichfield (Michael Fabricant) was right to raise fears about future tax rises, including in council tax, occurring as a direct result of the tax rises in this Budget.
The other half of the Budget lies in its attention to the NHS, about which we have heard fascinating contributions from those on the Labour Benches. I must say that I have a sneaking fondness for the hon. Member for Coventry, North-West (Mr. Robinson), mostly because of his sheer shamelessness. He said that the NHS funding method was decided on the basis of the Wanless report. Decided after what debate and over what period? How arrogant of the Treasury to take this decision in private over a period of six hours. At least the hon. Gentleman could never be accused of naivety.
Sadly, the hon. Member for Bexleyheath and Crayford (Mr. Beard) simply told us that Wanless had spoken and that we should therefore accept what the oracle said and stop thinking for ourselves about health care. Since when did Labour Back Benchers have such blind faith in retired bankers? It is not beyond argument that a 1948 model of funding and delivery is the only possible one. My hon. Friend the Member for Poole (Mr. Syms) was right: we must be open-minded as a nation about how best to promote better health care.
I am glad to observe that once again, my party is the truly internationalist party in this House. As many of my hon. Friends have made clear in this debate, we are attracted to a United States economic model without too many intrusive taxes and regulations, and we are also interested in many western European methods of delivering public services—especially health, education and transport. We are prepared to consider why these other European systems provide better health care, especially for the poor and disadvantaged. They may well also provide less bureaucracy, as the hon. Member for Belfast, South (Rev. Martin Smyth) pointed out. The contrast is that we want to combine the best of the US economic model with the best of the western European public services model, while perversely, the Government want the worst of the high-tax, high-regulation aspects of 115 the western European economic model, combined with the top-down centralist model of the old eastern European delivery of public services.
It is a standard cliché for Ministers—the hon. Member for Rhondda (Mr. Bryant) repeated it—to say that they will take no lessons from us. They have now reached the stage when they will take no lessons from anyone on anything. Apparently, every other country is out of step on health care: left-wing and right-wing Governments from Scandinavia to Australia are all wrong. On the future of British business, every business organisation is wrong. The CBI has consistently been abused by Labour Back Benchers, and I have to tell them that its members will have been listening. Whether it is the Institute of Directors or the Federation of Small Businesses, we are told that none of them has any knowledge about business, and that only those on the Labour Back Benches know best how to run a business. They will not learn even from other parts of the UK. They have seen the levels of health spending in Scotland and Wales, which are higher than those in England but provide worse health care outcomes. In the case of Scotland, those outcomes are getting worse by the year.
§ Mr. Peter Duncan
Does my hon. Friend accept that Scotland indeed provides the model justifying our position, which is that money in itself will not deliver better outcomes? Last year in Scotland, fewer patients were treated by fewer nurses in fewer beds after waiting longer.
§ Mr. Green
My hon. Friend and his constituents will know that very well.
With every day that passes since the Budget announcement, it is clearer that the Government"s case is unravelling. This is not a Budget for enterprise, but an assault on the hard-working businesses that provide jobs and prosperity as well as the revenue for our public services. It is not a Budget for fairness; instead, it ties ever more people into a complex and confusing web of taxes and benefits while keeping a resolutely closed mind on reforming our great public services. This Budget is an historic failure. It deserves to be opposed and we will oppose it.
§ The Paymaster General (Dawn Primarolo)
This has been a long, interesting debate, with more than 30 Members on both sides of the House contributing. Before I reply, I want to say to the hon. Member for Ashford (Mr. Green) that we will take no lectures from the Conservatives on under-investment in education, bearing in mind the neglect that we inherited from them in 1997. At that time, nearly half of all 11-year-olds were failing to learn the basics in maths and English. Primary school class sizes had risen every year from 1988 to 1997, and thousands of our children were being taught in crumbling classrooms.
The story so far, thanks to the extra investment in our education system by this Government, is that maths and English tests show an improvement of nearly 20 per cent. Ofsted reports rising standards, class sizes are down for five to seven-year-olds, 800 failing schools have been 116 turned round since 1997, and more than 12,500 new teachers have been appointed since January 1998. Spending on education is rising, thanks to a commitment from this Government.
§ Dawn Primarolo
I will not give way at this time. If the hon. Gentleman will allow me to get into the substance of my speech, I will give way to him later if time permits.
Five years ago, the Government"s first Budget set out our objectives and reforms, and the disciplines to achieve economic stability, high employment and sustainable prosperity. Britain has enjoyed the lowest inflation and interest rates for 40 years, and, for the first time in half a century, unemployment in Britain is lower than in America, Japan and Europe. In the year just ended. Britain had the highest growth of any of our major competitors. As many of my hon. Friends mentioned today, employment has increased by 1.3 million since 1997.
As my hon. Friends the Members for Caerphilly (Mr. David), for Dundee, East (Mr. Luke), for South Thanet (Dr. Ladyman), for Bexleyheath and Crayford (Mr. Beard), and for Coventry, North-West (Mr. Robinson) pointed out, every reform undertaken by this Government has been opposed by the Conservatives, be it the introduction of the national minimum wage, the windfall levy, the corporation tax reforms or even the objective of reaching full employment.
At the same time as we were achieving economic stability, net debt has been reduced. In the year to last April, the Government repaid £37 billion of debt. In 1996–97, debt represented 44 per cent. of Britain"s national income. Three years ago, we brought that down to 36 per cent., and last year to 31 per cent. In the United States, it is 41 per cent. of national income, in the euro area as a whole, it is 53 per cent., and in Japan, 59 per cent.
Debt interest payments were running at £29 billion a year when we came to power, and more money was being spent on debt interest than was being invested in all our schools. Yet the Conservatives have the cheek to tell us that we are not doing enough for education. Debt interest payments fell to £26 billion in 2000 and fell again in 2001 to £22 billion. We expect the figure to fall again this year to £21 billion, which is 2 per cent. of our national income. Debt interest payments consume a lower proportion of our national income than at any time since the first world war.
This Government are committed to building a fairer, more inclusive society in which everyone can contribute to and benefit from rising prosperity. That is more than the previous Conservative Administration ever managed to do in their 18 years. It means delivering excellent public services, supporting families and helping parents to balance work with their child care responsibilities. It also means ensuring that everyone has the opportunity to fulfil their potential in the workplace and in business, providing security for pensioners and ensuring that opportunity for all sits at the heart of our welfare reform agenda.
As my hon. Friend the Member for Aberavon (Dr. Francis) pointed out, supported by the hon. Member for Belfast, South (Rev. Martin Smyth), investment in measures to assist those with learning difficulties— 117 my hon. Friend called them the "forgotten army" in our communities—such as the new deal for disabled people and the supported placement scheme is a project that we must continue to press forward.
The Budget is built on the foundations of economic stability created over the past five years, which made Britain last year the fastest growing G7 economy. It takes action, doing what needs to be done to build a strong, fairer and more enterprising Britain.
Last week, the Chancellor said that the Budget isto make our NHS the best insurance policy in the world … Fairness and enterprise together."—[Official Report, 17 April 2002; Vol. 383, c. 592.]It demonstrates the need to raise revenues for essential public services, which is supported by about 76 per cent. of people in this country. Even 54 per cent. of Conservative voters support that principle. However, raising that investment in public services will not deflect the Government from the path that we laid out in previous years—encouraging enterprise, modernising the tax system and creating opportunities for business.
Through the changes to the national insurance system, we seek to achieve a balance that is as fair and equitable as possible. Our approach recognises the interconnected interests of business, the individual and the community, which is vital to making the proper investment in our health service. My hon. Friend the Member for Bexleyheath and Crayford vividly described the importance of investment in partnership, recognising as the CBI does that absence due to sickness costs business a phenomenal amount—some £23 billion a year. Tackling that issue is crucial if we are to make progress.
We have pressed on with modernising business tax to provide a fairer and better balanced system with fewer distortions and a structure that supports our productivity and enterprise agenda. We have introduced a new research and development tax credit to help innovation and to narrow the productivity gap with our major competitors. We have again cut corporation tax for small enterprises.
§ Dawn Primarolo
May I make progress? I shall come to the hon. Gentleman"s points in a moment.
We have made it clear that we shall continue our practice of consultation, even on issues where some decisions in principle have been taken in advance of Budget announcements. On major changes such as stamp duty reform, the treatment of overseas companies operating here through branches, face value vouchers and abolishing North sea royalty payments, we have a particular interest in ensuring that we consult with the industry.
§ Dawn Primarolo
I shall refer to the North sea in a moment.
We have also announced our intention to consult on the next stage of corporate tax reform following on from the changes introduced in the Budget on the sale of substantial shareholdings in respect of corporation tax and establishing a new coherent approach to taxing international property rights.
118 The hon. Member for Twickenham (Dr. Cable) and my hon. Friend the Member for Alyn and Deeside (Mark Tami) referred to the research and development tax credit and, in particular, asked whether the definition is too narrow. The definition set out in the Department of Trade and Industry guidelines is based on the Organisation for Economic Co-operation and Development definition of research and development. The same definition underpins the UK accounting definition of research and development and the tax definition used in most other countries with research and development tax incentives. The Government are working with the CBI to clarify the definition, including relevant case studies, to ensure certainty for business.
North sea taxation was raised by a number of my hon. Friends and Opposition Members. Changes to it will ensure that companies pay a fair share of tax on their profits from exploiting a national resource. For example, the Institute for Fiscal Studies says that that is a textbook case of tax on economic rent. In 2001, the UK continental shelf companies made a pre-tax rate of return of 34.3 per cent. compared with 11.2 per cent. for other non-fiscal companies.
Hon. Members are concerned to ensure that ours is not the highest taxing regime in the world. The UK regime, even with the changes that have been made today, is far fairer and far better than regimes of other countries, such as Norway at 88 per cent., the US Gulf of Mexico at 66 per cent., Canada at 70 per cent., Australia at 75 per cent., Angola at 80 per cent. and Brazil at 65 per cent. That shows that the UK has a low tax regime.
§ Sir Robert Smith
The hon. Lady does not seem to understand that what matters is the total costs across the operation. The North sea is an extremely expensive place to operate in physically, and those costs are the reason why the tax regime has been lower in the past to encourage investment. The Chancellor has recognised that in the past, but has now changed his mind. No classic textbook on taxing business says that the tax regime should be changed at midnight so that companies have no chance to plan for it, no chance to take it into account and no chance to incorporate it in their business plans.
§ Dawn Primarolo
As the hon. Gentleman knows, the announcements on allowances and future investment and the reform of royalties are part of a fair and balanced package for the North sea.
Many issues have been raised in the debate, but I want to deal specifically with the points that several hon. Members made about small businesses. They continued to confuse the number of statutory instruments and the number of regulations on businesses. They quote figures that are incorrect. More than 95 per cent. of statutory instruments have no impact on business. Many have only a local or temporary effect.
Opposition Members" obsession with regulation and statutory instruments leads them to confuse the debate. The hon. Member for Hertford and Stortford (Mr. Prisk) made a number of points about small businesses, the self-employed and unincorporated companies. He also dealt with national insurance, in particular class 2 and class 4 contributions. Class 2 for those earning below £4,025 a year is zero, as is class 4. For all other levels in 119 class 2, it is £2 a week. Only for those in class 4 whose earnings are between the lower and the upper profits limit does the charge rise to 7 per cent.
The comments about burdens on business, especially on the self-employed, from national insurance contributions failed to recognise the additional benefits that those in the self-employed sector get from the national insurance fund.
§ Dawn Primarolo
The hon. Gentleman should look again at the Budget and at the work that the Government have already done to see the benefits for unincorporated business, including the 40 per cent. first-year allowances, the 100 per cent. capital allowances, the over-indexation of the lop starting rate, the cut in the basic rate of tax and the changes to the quarterly payments for PAYE.
The hon. Gentleman should also consider what small businesses themselves are saying. Chris Thompson, the chief executive of Express Engineering Group, who employs 350 people in the north-east, said:It"s one of the best attempts I"ve seen to promote an enterprise culture. The reduction in capital gains tax on selling stakes certainly makes it worth starting a business.He went on to say that the benefits that his company will receive from the training and R and D tax credits vastly outweigh any other concerns.
The Budget has been about enterprise, fairness and investing in the national health service. Economic stability is the foundation for achieving a fairer and more inclusive society. As my hon. Friend the Member for Ogmore (Huw Irranca-Davies) said, the health of the nation goes hand in hand with the wealth of the nation. This is a Budget to 120 make our NHS the best insurance policy in the world, with fairness and enterprise together, and I commend it to the House.
§ Debate adjourned.—[Jim Fitzpatrick.]
§ Debate to be resumed tomorrow.