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Finance Bill

Volume 404: debated on Tuesday 6 May 2003

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Order for Second Reading read.

[Relevant Document: Minutes of Evidence from the Treasury Committee, Session 2002–03, on the 2003 Budget, HC 652-i to -iii.]

I inform the House that I have selected the amendment in the name of the Leader of the Opposition.

3.39 pm

I beg to move, That the Bill be now read a Second time.

The Finance Bill is about enterprise and fairness—meeting our responsibilities to business, taxpayers, the environment, the international community and the most vulnerable members of our society. The context of this Bill is one of continued economic uncertainty around the globe. In the past two years, many of our strongest competitors—notably, the United States, Germany and Japan—have experienced recession. We have recognised that the global slow-down has brought challenging times for businesses. It is a sign of the strength of the economic framework that the Government have put in place over the past six years that the economy has remained stable and has continued to grow, unlike those of our major competitors and in contrast to the recessions of the past.

Despite the economic uncertainty around the world, we are able to meet our military responsibilities, and we have met the requirements of the golden rule and the sustainable investment rule year on year, with the public finances strongly in surplus over the current economic cycle. We do not intend to be diverted from our priorities of record investment in public services, achieving full employment and tackling child and pensioner poverty—building a Britain of economic strength and social justice.

In the past, in less severe world downturns, as a consequence of the short-termism and economic mismanagement that, I fear, characterised the economic stewardship of the Conservative party—[HoN. MEMBERS: "Oh no."] Ah, yes—Britain was first into recession, last to come out and suffered a deeper depression than other countries.[Interruption.]Conservative Members do not like hearing that.

Does not the Minister accept that these 448 pages are designed to sandbag the British people with more taxes than have ever been imposed in the past? This is bumper, record taxation to smash enterprise in this economy.

I recognise no such thing, and I well remember when the right hon. Gentleman himself wielded the cosh, and taxation represented a burden on the ordinary taxpayer that it has not represented under this Government.

Today, when 20 other countries have been in recession, Britain has had a record 43 consecutive quarters of growth—a record not achieved by the Opposition—and the longest period of continued growth for half a century. We are predicted to outpace our European competitors in growth next year.

Perhaps the Chief Secretary can explain why the British stock market has been outperformed by the American and French stock markets?

Taken from its peak, that, as the hon. Gentleman knows, is simply not the case. He knows that global equity markets have suffered in the current downturn. and he would not expect the United Kingdom to be immune from that. However, the fact is that, in the early 1990s, when the hon. Gentleman peddled his wares as a researcher and Conservative party activist—we have got a note of his record on that matter, and it should be made more widely known—inflation reached almost 10 per cent. He well remembers the time. Today, we have inflation at its lowest level for 30 years—averaging just 2.3 per cent. since 1997. Under the Conservatives, interest rates hit 15 per cent. [HoN. MEMBERS: "Oh no."] Oh yes, and none of them is getting up now to defend a 15 per cent. interest rate. Today, at 3.75 per cent., the interest rate is at its lowest level for 50 years.

In the past, under the Conservatives, unemployment was rising above 3 million, and Opposition Members will remember that. Today, Britain has more people in work than ever before. Almost 250,000 jobs have been created this year and, for the first time in 50 years, unemployment is lower than in Europe, Japan and America simultaneously.

The Chief Secretary is painting a rosy picture of the economy. Can he tell my constituents and others who are very concerned about their pension deficits why, if everything is so wonderful, many pension schemes are in such serious trouble?

The hon. Gentleman knows well why pensions inevitably cannot be immune from downturns in equities. He also knows, however, that in the long term, equities represent an important part of any pension portfolio, as he will be the first person to recognise.

May I remind my right hon. Friend to tell Conservative Members that more than 3,000 pensioners in my constituency will welcome the extra £100 a year that they will all receive? In addition, many miners who were retired and pensioned off as a result of political malice by the Conservative party will very much welcome the new pension credit—as they have so far had to pay tax on their well earned income—and other things that the Government have done for pensioners.

I am grateful to my hon. Friend for mentioning the pension credit, nor least because all Members will want to play their part in ensuring maximum take-up. I know that my right hon. Friend the Paymaster General, working with the Inland Revenue, has made sure that a range of material is available to ensure that that is the case. Right hon. and hon. Members on both sides of the House will want to make sure that they take up the cause of the pension credit, as that can only benefit pensioners in all our constituencies.

I agree with the need to encourage take-up, as I did in relation to the minimum income guarantee campaign. Will the right hon. Gentleman assure the House, however, that if we encourage people to take up tax credits, this time, the computer system will be able to cope with the influx of applications that may be generated from such a campaign, and that people will not be left waiting for the payments should they decide to take them up?

My right hon. Friend the Paymaster General has that situation well in hand, and the computer systems are currently coping with the demand. To be fair, the hon. Gentleman will recall his party's predictions of doom and gloom in terms of take-up, and I welcome his commitment to increasing it. I hope that he will have the grace to admit, however, that the predictions of the Liberal Democrats that take-up for these credits would be low have proved to be lamentably wrong.

Before we leave the subject of pensions, will the Chief Secretary accept that the imposition by this Government of a £5 billion a year tax on pensions, coupled with the increased regulations that have surrounded pensions, the introduction of disincentives to pension saving, and the failure to deal with all those disincentives, means that pensions in this country are now thoroughly discredited in the view of most of the population?

I accept no such thing. The hon. Gentleman has sufficient experience of the House and more than sufficient experience of this subject to know that his party first put up advance corporation tax. He knows as well as I do that the pension system in this country bears examination and comparison with that of the rest of Europe, where the pension system is putting those countries' economies into some considerable difficulty. I hope that he will give us credit for that, and for the measures that we have taken to preserve it.

Before my right hon. Friend moves off the issue of pensions altogether, will he assure me that, should the Government change pensions regulations, they will inform people of the effects of the changes, unlike what happened under the previous Conservative Government when a change was made to inherited SERPS but they did not tell the people who would suffer from it? That was another mess that this Government had to sort out on coming to power.

My hon. Friend is absolutely right to point that out, and he is charitable in not pointing out, too, the mis-selling that occurred when the Conservative party had stewardship of these matters.

The fact is that, with additional jobs, we now have lower unemployment than Europe, Japan and America simultaneously, and our hard-won economic stability has been the key to sustainable growth and to promoting employment and opportunity for all. Since early 1997, 1.5 million more jobs have been created, over half of which are in the private sector and almost 70 per cent. of which are full-time. In the past year alone, as I have indicated, 250,000 more jobs were created, almost half of which were in the private sector. It is important to get the balance between public and private sectors right.

I am grateful to the right hon. Gentleman for giving way on that point, because he said earlier that we had experienced 43 quarters without recession—virtually 11 years. Does he accept that Governments do not add to recession and do not bring us out of it, and that we should pay tribute to the manufacturing sector and the workers of our country?

:The hon. Gentleman is absolutely right to point out the importance of both manufacturing and wealth creation. From my frequent visits to Northern Ireland, I know of people's concerns to ensure that they retain their competitiveness and that jobs are created there, too. Northern Ireland Members of all parties play an active part in ensuring that that is the case.

The Chief Secretary is quite right to talk about wealth creation and manufacturing, and I am grateful for the support that he has given to small businesses over the years. Will he give the House the cost of the small business package in the Budget? Does he know the global total of the cost to small businesses—companies employing fewer than 50 people—of the national insurance increases that kicked in on 1April?

I shall certainly write to the hon. Gentleman about the cost because I do not want to give him figures that might be misleading. He will know that tens of thousands of firms have been taken outside the scope of value added tax as a result of measures in the Budget. Many more firms will pay less tax and will benefit from our measures to reduce the burden of regulation on small businesses. He is right to point out that there is never any room for complacency about regulation and its impact on small businesses—that applies to successive Governments. The right hon. and learned Member for Rushcliffe (Mr. Clarke) pointed out the problems faced by the past Conservative Administration as a result of that, which is why we are determined that the Better Regulation Task Force and the measures announced by my right hon. Friend the Chancellor in the Budget should maintain our momentum to reduce the burden on business.

Does my right hon. Friend accept that investment in health from national insurance contributions is reducing the average time that a small business must wait before employees come back to work? At the same time, the tax credit system means that the average salary paid by many small businesses is a lot lower. In a sense, the working families tax credit was a subsidy for small businesses, and if the measures are taken together they provide one explanation for the rapid growth of the success of small businesses throughout Britain.

My hon. Friend makes an important point about the cost incurred by business due to sickness, and I shall talk about that in some detail later in my speech.

My right hon. Friend will know that seaside communities such as Scarborough and Whitby have probably experienced the most dramatic improvement to their employment potential since 1997. More than 40 per cent. more of my constituents—1,400 people—are now in work than was the case before. What further help will he give to encourage small businesses, especially in areas such as mine and around the coast, to ensure that we build on the solid foundations laid during the past six years?

The consultation document on equity finance that we published should assist small businesses in my hon. Friend's constituency, as should the development of enterprise areas and the advantages accrued by small businesses that start up and purchase commercial properties in such areas. It is important to recognise and understand clearly the problems faced in seaside and coastal towns. My hon. Friend has been a champion of that cause. It is largely as a result of work carried out by him and other Labour Members who represent seaside constituencies—

I hear the hon. Gentleman. There is no doubt that his constituency has a coast, but I do not think of it as a seaside town constituency—

Not at all. I have crossed swords with the hon. Member for Buckingham (Mr. Bercow) for many years, since he was in short trousers—although that was, of course, quite recently. No discourtesy is intended. I hope that all hon. Members who represent seaside constituencies will accept the Treasury's invitation to attend a seminar on the issues that affect such constituencies.

I look forward to that. We need a clearer understanding of what we can do to improve seaside constituencies.

As someone who also represents a seaside constituency, I am pleased to hear the Minister's comments. This is the second Budget in a row in which the Government have changed corporation tax and trumpeted that as a help for small businesses, but does he recognise that many small businesses, which are the backbone of economies in constituencies such as mine, are self-employed partnerships that pay income tax rather than corporation tax? They are receiving no help. Will the Government stop their thrust towards corporations and incorporation and help the self-employed in partnerships?

That is not a fair or accurate analysis. Allowances are available to the self-employed in partnerships, and those are of assistance. The package of reforms to improve small business access to finance, the consultation on the scope for introducing small business investment companies in the UK, the improvement to the research and development tax credits and the package of deregulatory reform for small businesses have all benefited small businesses. Although there is no room for complacency, small businesses have probably been helped more than anything by low interest rates and the stability that has resulted from the policies adopted by my right hon. Friend the Chancellor. All that would be put at stake were some of the wilder fantasies of the nationalists given their head. However, the signs from recent elections are that that will not happen.

At a conference in west Yorkshire on Friday attended by representatives of the regional development agency and employers' confederations, employers made it clear that, although stability is key to their development, and notwithstanding the low interest rates, they still encounter the problem of unco-operative banks, especially when it comes to small businesses. I direct my right hon. Friend to the Select Committee report that highlighted that banking problem. Will he look again at what can be done to make it easier for small businesses to access finance?

I well remember that report and my hon. Friend's contribution to it as a Committee member. I am sure that her contribution is missed by her colleagues on the Committee, as it is by everyone. As a result of the Committee's work and a robust dialogue between business and the Treasury, the good news is that the banks are increasingly aware of their responsibilities to small business and of the opportunities for good business that arise from meeting their needs. That is why we have introduced a package of reforms to increase and improve access to finance for small business, and why the work of the Phoenix fund, the role of venture capital in this area and the consultation on the scope for introducing small business investment companies is important.

For business, it is not just about delivering, as we have done, the monetary and fiscal frameworks that have kept the economy stable and growing in the good times, and indeed in difficult times. Reforms to the competition authorities, corporation tax, investment, innovation and skills are the prior conditions for the creation of a dynamic, enterprising and productive Britain.

I should like to make a little headway, but I look forward very much to the right hon. Gentleman's speech, as he always makes interesting contributions to these debates.

International comparisons show that we have a law-tax environment that is friendly to entrepreneurship—the UN's trade and development commission ranked the UK second in the world in attracting inward investment in a report published only last September. The Organisation for Economic Co-operation and Development has said that the UK is the best place to start out and succeed in business, and its latest figures show that our corporate income taxes plus employer social security contributions as a percentage of gross domestic product in 2000 were the third lowest in the EU, lower than those of France, Germany and Italy. That is a record that the right hon. Gentleman should give us credit for, and I hope that he will now do so.

I am always delighted when the Government follow the trend set by the previous Conservative Government in lowering marginal tax rates both at the personal and business level—it is nice that a good idea has been recognised. However, in the context of the Government's continuing consultation on reforms to corporation tax, will the Chief Secretary explain to the House what benefit will accrue to British business from the abolition of tax relief for allowances under the present arrangements for corporation tax and its replacement with allowances against the rate at which assets depreciate?

The right hon. Gentleman knows that the Government have a continuing programme of reform and rationalisation of corporation tax, which has enabled us to reduce the burden of taxation on companies and is widely welcomed. One is always concerned about anything that increases complexity, but I have not heard it being seriously suggested that on balance we have not got it right and that our record does not compare favourably with the stewardship of corporate taxation when he was Financial Secretary. He is not one to blow his own trumpet—well, not much—but he should give us some credit for the reforms that we have introduced in this field. No doubt, during the consideration of the Bill in Committee—I hope that he will again grace us with his presence this year, as that Committee would not be the same without him—we will have an opportunity to explore these matters in a little more depth.

We are not complacent. We are working to make the process easier still, and have identified more than 500 regulations introduced by previous Governments for reform or abolition. Our changes have already helped small businesses to employ almost 400,000 more people than they did in 1997, which tells us something about whether the Government are getting it right in relation to small businesses. I would argue that we are, and that the Opposition did not.

This Budget and Finance Bill mark the next stage of reform to give greater flexibility in capital markets, product markets, housing and planning, and the labour market. Clause 136 provides support for people who regularly work at home under flexible working arrangements. Employers will be able to meet some or all of the incidental household costs incurred by employees who work at home without giving rise to a tax charge. The Bill provides necessary recognition of changing patterns of business, making sure that the tax system does not bear down unfairly as an inhibitor on people who choose flexible working.

Perhaps I may be permitted briefly to return to the subject of macro-economics. Given the interdependence of fiscal and monetary policy and the favourable intra-European comparisons that the right hon. Gentleman made a few moments ago, what assessment has he made as Chief Secretary to the Treasury of the merits or demerits of the proposed changes to the voting procedures of the European Central Bank?

I am interested in the subject, but it would be quite untrue to say that I have made an assessment of it. One watches the development of the European Central Bank with interest, as all hon. Members would expect. I celebrate the fact that it was this Government who had the good sense to make the Bank of England independent, which the Opposition opposed and would never have had the guts to do. One would hope that at least one of them would have the good grace to stand up and congratulate us on the steps that we have taken.

No, the hon. Gentleman has much too much form for us to believe that he is about to stand up to congratulate us on allowing our central bank the independence that was its due and that has so benefited the economy.

I am delighted to hear the hon. Gentleman congratulate us, albeit from a sedentary position, on the measures that we have taken.

Not at the moment. I want to make some progress.

Clauses 132 to 134 freeze corporation tax rates. At 30 per cent., the main rate is lower than in any other major industrialised country, and the 0 per cent. starting rate means that 150,000 companies pay no corporation tax whatever.

Clause 164 extends the 100 per cent. first-year allowance available to small businesses for spending on information and communications technology for a further year to March 2004.

Clauses 158 to 161 contain a package of measures to simplify the capital gains tax system, including an extension of business assets taper relief to improve access to let property for unincorporated traders. I hope that the hon. Member for Angus (Mr. Weir), who understandably expresses concern for unincorporated traders, recognises the step that that represents.

Clauses 138 to 140 simplify employee share schemes to make them easier for companies to administer, give employees in such schemes more flexibility, remove anomalies and provide a statutory corporation tax deduction for contributions to those schemes.

Following feedback from businesses, the Finance Bill improves the way in which the research and development tax credit works, allowing more businesses, particularly small and medium-sized enterprises, and more types of expenditure to qualify, and helping to take us toward the American spend on research and development of around 2.8 per cent. of GDP. Any comparison between ourselves and the United States in the area of productivity—we still have a way to go to catch up with its success—recognises the need for us to address the issue of spend on research and development, and we shall continue to consult.

I am grateful to my right hon. Friend for saying that, and for the action that the Government are taking, but does he share my concern that in the frontier technologies, in biotech and software development—a growth market—with its high-value, high-paid and high-skilled jobs, Europe still lags well behind the United States? With specific reference to the electronics sector, what message can I take back to my constituents, many of whom are employed in that sector, to show that the Government are aware of the issue and are addressing the need for research and development in the frontier technologies?

One of the reasons why we have been considering the definition of research and development is precisely to ensure that the tax system recognises the very fast pace of development in the area to which my hon. Friend refers. A few months ago, I visited a company in Scotland that was looking at lasers and crystal technology. One of the messages that it gave to me—I have received the same message from others working in the area, not least in technologies that have been developed as a result of space research—was that continuing dialogue is vital. I know that my right hon. Friend the Paymaster General is anxious about developing dialogue between the Inland Revenue and industry, as well as with academia, to ensure that we get the definition right. My message to my hon. Friend's constituents is that we are absolutely determined to do just that.

The Bill seeks to build on the steps that we have already taken and on the messages delivered to us by business, which said that it wanted the minimum spending requirement to be reduced from £25,000 to £10,000 to help small firms to qualify. Business also wanted us to simplify the rules for apportioning staff costs to ensure that staff doing small amounts of R and D are not excluded, and to extend coverage to agency staff, as smaller companies may need to buy in expertise to take them to the next stage. We wanted to ensure that that issue was recognised in the tax credits that are available, as it is very important for projects of limited duration.

The right hon. Gentleman has been most generous in giving way. By way of recompense for his giving way to me now and on another occasion, may I congratulate him on the extension of taper relief to unincorporated traders? The anomaly was long overdue for correction and that move is very welcome. However, will he say something about the justification for excluding the same level of taper relief in respect of quoted companies, many of which are smaller than some relatively large unquoted companies and some unincorporated traders?

One of the greatest challenges facing any Chancellor in coming to a judgment on such issues is considering the balance across the whole tax system. As those of us who have form in respect of the Finance Bill—I am afraid that I do, as has the hon. Gentleman in his time—know, getting that balance right is important; indeed, my right hon. Friend the Paymaster General is constantly extolling its virtues. The judgment has to be made and my right hon. Friend the Chancellor has made it. I have no doubt that, given the opportunity, others would arrive at a different judgment, but on balance I think that he has got it right, and hon. Members would not expect me to say anything else.

All the reforms have been designed for business and with business. We have listened to businesses of all sizes and in all sectors, and to the CBI, the Institute of Directors, the British Chambers of Commerce and the TUC, which has been at the forefront in calling for improvements to the R and D system. All those organisations have made their voice known and have had an important contribution to make—a contribution that has been reflected in the Budget.

I should like to say a few words about public services. Economic dynamism goes hand in hand with social justice. The Budget and the Finance Bill take forward our policies for enterprise and innovation, but not at the price of fairness. They take forward the agenda that we are promulgating, but underwrite it with fairness. To reduce the cost to business of locating and investing in disadvantaged areas, and to support the regeneration of brownfield sites, we announced in the Budget the removal of stamp duty from all non-residential property transactions in the 2,000 enterprise areas. That measure, which is covered by clause 57, is part of a package of measures to encourage business investment in our most disadvantaged communities—measures to encourage enterprise that complement, not conflict with, our priorities of full employment, tackling child and pensioner poverty and delivering high-quality public services through investment and reform. The 2002 spending review set out our plans for an extra £61 billion of spending on public services by 2005–06, with three quarters of the additional spending going towards health, education, transport, housing and the fight against crime.

The hon. Member for Arundel and South Downs (Mr. Flight), who is in his place, urged us to cut that investment by 20 per cent.—a call that was never denied and that was confirmed by the Leader of the Opposition.

Is my right hon. Friend aware that in the Budget debate the right hon. Member for Wokingham (Mr. Redwood) called not only for a 20 per cent. cut, but for a cut of up to 100 per cent.?

That is a very alarming prospect, but nothing surprises me in relation to the right hon. Member for Wokingham.

The hon. Member for Edmonton (Mr. Love) might have said that I was talking about cutting 100 per cent. of waste and unnecessary expenditure in order to spend more on teachers, nurses and doctors.

My right hon. Friend was talking about the fact that there are more hospital administrators than beds.

I have here a quote from the Leader of the Opposition, which makes it clear that Conservative Members were not talking about cutting hospital administrators, but about cutting costs across the board, rejecting extra NHS staff who do not deliver and so-called wasted expenditure on consultants. We look forward to hearing about more areas where they are going to make those 20 per cent. cuts.

Does my right hon. Friend agree that the 20 per cent. cut in public expenditure would not only be a mean and misguided policy, but would bring about the demise of public services? Just as 200 years ago doctors thought that they had to bleed all the blood out of people to make them well, cutting that amount of money from the health service would bring about the death of the whole system. We must absolutely reject that ridiculous option offered by the Conservatives.

My hon. Friend is absolutely right. The cuts would mean losing £13.6 billion from the NHS budget.

Can the right hon. Gentleman confirm that since 1997, when his party came to office, the cost of running central Government has increased by £3.5 billion; and can he tell us what percentage increase that represents?

The hon. Gentleman would not expect me to accept his figures. He knows that it is grossly irresponsible for Conservative Members to call for cuts of 20 per cent. and maintain that no doctors, nurses or police officers would consequently lose their jobs. That would be the effect of the Flight plan.

Has my right hon. Friend noticed that although many Conservative Members have leaped to their feet to change the subject, the hon. Member for Arundel and South Downs (Mr. Flight) has not been tempted from his seat? Should he not defend himself against the accusation of proposing cuts of 20 per cent. instead of simply sitting there?

I suspect that he will defend himself at some length, not only here but Upstairs in Committee. However, he will not deny his words:

"I am digging through current spending, finding opportunities for cuts. It's too early to say how much but it could be up to 20 per cent."
It was later confirmed that that would apply across the board. The hon. Gentleman went further and became more specific about the NHS. He said:
"The reforms, which we will be proposing, will end the NHS monopoly and will entail those who can afford it making some payment for healthcare services."
Charges and cuts are Conservative Members' prescriptions. They cannot deny that because I have their words in black and white, and such a policy would be implemented it they were ever given stewardship of the economy again.

I point out that I was a civil servant when civil service jobs were perceived as throwaway items and unemployment rose to 3 million. I also want to endorse my right hon. Friend's point about investing in areas of social exclusion. At Moor End high school in my constituency, only 28 per cent. of pupils achieved five GCSEs at grades A to C. The figure has now increased to 58 per cent. Does not that show the true price of investing in public services? It makes things better for people.

:My hon. Friend is right. That should be celebrated by hon. Members of all parties.

:No. I have given way many times and the hon. Gentleman will have his chance. I shall come back to him.

A healthy, skilled work force in strong communities are essential to maintaining economic stability and building the foundations of future innovation and prosperity on which we depend. The Budget confirmed that that would continue to be our policy. The 1 per cent. increase in national insurance that was announced last year and will be paid from April will go entirely and directly to the NHS. Consequently, by 2008, there will be 80,000 more nurses and 25,000 more doctors than in 1997.

The shadow Chancellor described the increase in national insurance contributions as a tax on jobs. [HON. MEMBERS: "Hear, hear."] They say, "Hear, hear", but he used the same argument against another policy that was abhorrent to the Conservative party: the national minimum wage. The right hon. and learned Gentleman described that as an axe on jobs. He is well known for his play on words, but however one plays on the words the policy was no such thing. We created 1.5 million more jobs. That was the measure of our success, which the Opposition could not hope to replicate.

Everyone benefits from a national health service that is free at the point of need, so everyone who can contribute to its long-term financial future should do that. The Opposition claim that the rise in national insurance is a burden on business, but it means that employers will pay approximately £10.50 a week for an employee on average earnings compared with £30 in Germany and £60 in France. The hon. Member for Arundel and South Downs said in his infamous memo that the Conservative party should consider France and Germany. Yet employers pay £30 a week in Germany and £60 in France. Does anyone seriously suggest that that is a better way to fund the NHS than the measures that we have introduced? The answer to that can only be no.

Will the Chief Secretary now answer the question that he ducked 22 days ago at the conclusion of the Budget debate? Given that the increased expenditure on the national health service has not been matched by a commensurate increase in clinical activity, and that the Government say that they favour reforms, will he name three that will make a difference?

It simply is not true to say that there has not been an increase in clinical activity.

Well, it depends what the hon. Gentleman means by "commensurate". I suspect that he and I will have different definitions of the word. There are now more operations, and more treatments being given outside in the community, closer to people's homes. There are better treatments for cancer, and better dispensation of drugs. All those things are happening, as well as there being additional nurses, doctors and people working in radiography and on the front line to improve people's health. By any count, on any indices, the NHS has improved, and to say otherwise is, quite frankly, an absolute travesty of the truth.

It is unfair when the burden of tax falls on businesses or individuals who play by the rules and who pay their fair share, while tax cheats distort competition and push up the tax rates that the rest of us have to pay to make up the difference. That is not fair, and taxpayers rightly expect the Government to close tax loopholes and to tackle tax fraud so that the burden is not unfairly placed on normal taxpayers because a minority abuse the system. I suspect that we shall spend much time in our deliberations on these clauses Upstairs. Of course we need to get it right, but I hope that it will be possible for Members on both sides of the House to welcome the measures to close tax loopholes that my right hon. Friend the Paymaster General will be taking us through in detail.

This year's Budget announced a compliance and enforcement package to enable the Inland Revenue to counter direct tax avoidance and to contribute an additional £1.6 billion of revenue over three years. The Finance Bill includes a wider package of measures to ensure a level playing field for taxpayers who fulfil their obligations.

In respect of tax avoidance, and of the loopholes that the Chief Secretary says that he is now closing, what action have he and the Chancellor taken since the Treasury Committee looked into the issue of tax avoidance by the Inland Revenue and Customs and Excise in respect of the Mapeley STEPS—strategic transfer of the estate to the private sector—transaction?

We replied to the Treasury Committee on Friday, and it will want to consider carefully what is outlined in that memorandum. The hon. Gentleman might wish to return to that issue when the Committee has had an opportunity to reflect on it.

We are introducing measures to tackle VAT fraud and avoidance—in particular missing trader fraud, which costs us billions and makes billions in profit for organised crime—and measures to close down other schemes that a minority of businesses and individuals had been using to avoid paying their fair share of tax. All those important measures are contained in the Bill and I think that they will all be welcomed. We are also taking action to prevent tax avoidance through manipulating share schemes, coupled with giving support to companies that want to implement employee share schemes in line with the legislation. We have also included clarifications because we have listened to business; it has said that it wants greater clarity in this area so that it can implement such schemes to give people a sense of ownership and a stake in the success of their company.

There is action to counter capital gains tax avoidance through offshore trusts and second-hand life insurance policies, and action to close a loophole in the controlled foreign company rules allowing some companies to escape UK tax on profits from extended warranties and credit protection insurance. Those measures follow the Budget announcement of a compliance and enforcement package to enable the Inland Revenue to counter direct tax avoidance and thus contribute an additional £1.6 billion over three years. There is also a comprehensive modernisation of stamp duty to counter widespread tax avoidance, which distorts the commercial property market and business decision making, and has given rise to contracts and artificial vehicles for the transfer of property.

I do not think that any of the activities I have described could be justified by any reasonable person.

The Chief Secretary said that consultation with business is extremely important, which indeed it is. He has now mentioned the new land tax—or, at any rate, what he describes as a modernisation. Can he explain why Ministers instructed the Revenue on 21 January to end all consultations? Elements of the Bill have not been mentioned, were not consulted on, and do not have the support of business.

No such instruction was made known to me, or to my right hon. Friend the Paymaster General. In modernising stamp duty we want to ensure that it is better targeted. We are taking comprehensive powers to address widespread tax avoidance. We are reducing the burden on smaller businesses, and reforming and modernising the framework of tax, bringing it into line with other modern taxes. The modernised charge will be mandatory, and there will be new enforcement and compliance powers. We are levelling the playing field across different types of transaction, which can only increase fairness. We are clamping down on the avoidance of stamp duty, while removing duty on property other than land, interests in partnerships and shares, and securities. All those measures emanate from consultation and listening, and I believe that they will be widely welcomed by business.

Do not the proposals relating to VAT fraud and Customs and Excise come too late? As is shown by recent cases, the Government have failed to crack down adequately on fraud, which has led to the loss of hundreds of millions of pounds in VAT, and have failed to control Customs and Excise as well.

That is not true. Over the years, Customs and Excise has learned from what some of those cases have brought to light. I believe that Customs and Excise in this country is widely recognised as a world leader in the field. When I went abroad as Financial Secretary I encountered nothing but admiration for it, not least in the Customs community, and I know that the current Economic Secretary is finding the same. We should be very careful before doing down the hard-working men and women involved in law enforcement in Customs and Excise, who take great risks on behalf of the Revenue. They should be congratulated on their vigilance and determination.

Not at this point.

We want to create that level playing field, and to end the highly complex artificial arrangements into which some people enter to avoid paying. In the long term, the modernisation of stamp duty will facilitate electronic commerce and electronic conveyancing. It will allow fairer treatment of house purchases funded by certain types of alternative mortgage product. The double charge on so-called Islamic mortgages, for instance, will be removed.

Not at this point.

By raising a fair share of tax from large commercial deals, we shall further the interests of small businesses and give them more protection. The proposed £150,000 threshold for commercial transactions will eliminate the charge on about—

The hon. Gentleman shouts that out, but he really ought to reflect on his own Government's record in this area. The fact is that when the Conservatives had the opportunity, they did absolutely nothing at all to ensure modernisation and reform of stamp duty.[Interruption] It is no use their wittering on about this being a new tax; the fact is that they ought to have seen the need for reform. Simply to dismiss this as a new tax or a new burden does no service at all to the impulse for reform that existed for many years before this Government took office, but to which the Conservatives singularly failed to respond. This new proposed threshold, which will exempt 35,000 small business transactions a year from tax, certainly does not constitute peanuts; it is something to be welcomed. The removal altogether of stamp duty on non-residential properties in 2,000 enterprise areas will be widely welcomed by small businesses throughout the country, including in the constituencies of many of my right hon. and hon. Friends.

We are meeting our responsibilities to the environment in terms of the sustainable use of resources. This Finance Bill contains carefully calibrated tax and economic incentives that will encourage this, while not undermining the competitiveness of British business. There are new duty differentials for sulphur-free fuels and bioethanol, and a new, low-carbon band of vehicle excise duty for the lowest CO2 emission cars, which will allow motorists to save up to £110 per year by choosing such vehicles. We are listening to the calls for an increase in the landfill tax rate of £1 per tonne for this year and next, to provide business certainty.[Interruption] Conservative Members mock the notion that we have listened, but the fact is that right hon. and hon. Members on both sides of the House have been calling—not least through the good offices of the Environmental Audit Select Committee—for such an increase for many years. We have listened, and now we have it.

We are demonstrating through this Budget a commitment to fairness, a commitment to flexibility, a commitment to public services and a commitment to ensuring that we meet the needs of these times, whereby we deliver where successive Conservative Governments have failed to deliver, recognise and meet the needs of small and medium-sized enterprises, and move forward with investment in public services, tackling poverty and social exclusion despite the global slow-down. As such, I commend this Bill to the House.

4.38 pm

I beg to move, To leave out from "That" to the end of the Question, and to add instead thereof:

"That this House declines to give a Second Reading to the Finance Bill because the provisions contained in its two volumes of 447 pages increase the burden of taxation on the economy, fail to take account of the effects of inflation and will lead to a further decline in the competitiveness and relative attractiveness of the UK as a location for investment."
Notwithstanding the Chancellor's absence today, may I add my personal congratulations to him and his wife on their recent announcement? I am sure that the whole House wishes that all goes well for them. I also hope that the experience of the costs of raising a family will in due course convert the right hon. Gentleman to the merits of a lower-tax economy. I should also like to draw attention to my declaration in the Register of Members' Interests.

I want briefly to mention the programme motion, which we will reach later. It provides a guillotine for the Committee stage to finish on 12 June, leaving only seven sitting days to debate a complex, if not very constructive, Finance Bill. I suspect that that will not allow sufficient time for a full discussion in territory that is, candidly, not particularly party political, so we will oppose the programme motion.

After the Chief Secretary's interesting speech this afternoon, I am sure that the whole House will feel relieved to have been spared a repeat of the rant in his winding-up speech to the Budget debate. The Chief Secretary will be disappointed by the local election results, particularly by the fact that his and his party's attempt to misrepresent and smear what I said about the scope for reducing waste and cutting non-productive bureaucratic costs failed to affect the outcome. It was a pathetic attempt by the Labour party to divert attention from the Chancellor's economic failures.

I remind the Chief Secretary of Labour's 1997 general election promise to root out
"waste and inefficiency in public spending"
and to
"conduct a central spending review and departmental reviews to assess how to use resources better".
Rather than misrepresenting what I said, the Chief Secretary would do better to get on with precisely that. I also remind him of the debate earlier this year on the Public Accounts Committee reports, which had identified more than £20 billion of waste in public spending in the period that was assessed.

The hon. Gentleman knows that action against the waste identified by the Public Accounts Committee has, along with 90 per cent. of its recommendations, already been implemented. He is calling for a further 20 per cent. reduction in overall public expenditure. Where specifically will those cuts be made—out of thin air, or is he talking rubbish?

I get rather fed up with Labour Members misquoting what I said. Some items in the Public Accounts Committee recommendations, particularly VAT fraud, are beginning to be dealt with, but it is pathetic that the Government have been in power for seven years and done so little to address waste and fraud. They have enormously increased the costs of bureaucracy—by £3.5 billion on central Government. They have wasted more than £1 billion a year on information technology systems that have gone wrong. They have failed to address effective procurement in the public sector, wasting approximately £4 billion a year. In short, they have been completely hopeless at securing good value for taxpayers' money. If the hon. Member for Croydon, Central (Geraint Davies) bothered to read the interview, he would find that I was not talking about reducing expenditure on health or education. Indeed, I was talking about realising resources to increase effective online delivery. It is time that the hon. Gentleman ceased to misrepresent what I said.

Will the hon. Gentleman confirm that, in a memo dated 12 November 2001—predating his interview by some time—he said to the shadow Chancellor:

"The reforms, which we will be proposing, will end the NHS monopoly and will entail those who can afford it making some payment for healthcare services"?
Does not that amount to charges, or does he deny those words?

The Chief Secretary refers to a confidential memo that the Labour party intercepted improperly, which had nothing to do with the interview about cutting waste. Had the Chief Secretary been party to the entire discussion, he would know that we were talking about how to make the best use of the French system in this country. We were not talking about any programme—for which it would not be my responsibility—to levy charges in the health service. If the Labour party plays dirty by intercepting electronic mail, as in this case, it may find that it gets only half the story. The issue is this: why have the Government not addressed the reduction in waste much more effectively?

I am afraid that the Chief Secretary has had more than sufficient time to lie and to misrepresent what I have said.

Order. I must invite the hon. Gentleman to withdraw one of the allegations that he has just made.

I withdraw with pleasure anything improper that I have said, but my right hon. and learned Friend the shadow Chancellor pointed out in this Chamber that Labour party suggestions that the Conservatives had a programme to cut expenditure on health and education were lies. It was that to which I referred.

Order. I am sure that the hon. Gentleman would contribute beneficially to the progress of the debate if he specifically withdrew the allegations that a right hon. Member lied.

I am happy to withdraw an allegation that the right hon. Gentleman lied and say that I wish he would cease playing the game of misrepresentation.

The Bill—likely to be the Chancellor's last Finance Bill is a rather poor and lop—sided effort.

Has not my hon. Friend nailed the ridiculous and absurd idea peddled by the Labour party that the shadow Treasury team wants to cut 20 per cent. across the board? Should not the Government desist from making such accusations?

My right hon. and learned Friend the shadow Chancellor made the position clear, and the electorate were not in any way impressed by the Chief Secretary or the Labour party's misrepresentations. In fact, they gave Labour a thoroughly negative vote, with the Conservatives gaining more than 550 seats. Even the BBC—the Government's propaganda organ—expressed surprise that the Conservatives had done better than expected.

Did my hon. Friend, like me, experience many doorstep conversations in which people asked where all the money had gone? They have not seen it go to teachers, nurses or doctors, or for more operations. They are as upset as my hon. Friend about the waste and the nonsense from the Government, who rip us off but do not provide the service.

That is precisely the point. The public want to know where the 50 per cent. increase in taxes raised has gone, because it has certainly not gone on improved delivery of public services.

Let us focus on the Bill; 447 pages, 214 clauses and 43 schedules. Strangely, more than 50 per cent.—51.5 per cent. by volume, or 230 pages—deals with just two territories. The first is the new stamp duty tax and the introduction of the lease duty, and comprises 139 pages. The second is the issue of employee share schemes and the major changes to the law on employee share acquisition, and amounts to 91 pages. Both of those are massively complex proposals and reflect similar problems. The Government have endeavoured to increase tax takes substantially but have failed to draft effective legislation. On stamp duty, there is the issue of the favoured enterprise areas, where stamp duty does not apply. The Government are surprised that businesses react to that by endeavouring to minimise their stamp duty liabilities elsewhere. Similarly, in the area of employee share arrangements, the attractions of the business taper, with capital gains tax coming down to 10 per cent., have, not surprisingly, served as a motivation to others to construct share schemes that reduce their tax liabilities.

The proposals on lease duty were not included in the draft legislation on the reform of stamp duty. They amount to a major new stealth tax, and not the promised reform of stamp duty. The new tax should be called the land transfer tax. We believe that the Chancellor should have referred to it as a new tax in the Budget.

The hon. Gentleman knows that the Government raise tax so that the money can be spent on public services such as health, hospitals and new schools. The hon. Gentleman criticises individual tax rises in the Bill. What other elements in the Bill would allow us to raise the money for that expenditure in a different way, or is he simply looking for ways to finance his cuts to public services?

I would not want to prejudge what the Standing Committee will do, but we have objected to taxes being raised that are not being spent effectively. The hon. Gentleman seems to miss the point that no benefit is achieved if taxation is raised yet public services are not improved. That is our criticism of the Government's return to Labour's old tax-and-spend policies. It is the same old failure that has been evident throughout most of my lifetime.

In a moment. I want to make some points about the new tax.

Ministers promised reform, but then broke off consultations arbitrarily and without warning last February. That has been regarded as a breach of faith, and the Government have not explained their actions. The Government have missed the opportunity to reform stamp duty for home owners, and also to remove some of the iniquities in the market and the high rates of marginal taxation. Indeed, the new tax has some of the same iniquities as the old stamp duty. It retains some of the arbitrary price bands, and the new stamp duty lease tax applied to value added tax is a double tax—a tax upon a tax.

Because it includes leases, the new tax will hit many more people, especially many small and medium-sized businesses, and charities. Their tax burden could be between four and 10 times higher than at present. The new tax will serve to shorten leases, and thus could often reduce capital investment, which would not be economic on a shorter lease. All of that comes at the wrong time, in the wake of the national insurance contribution increases and with business rates and liability insurance costs rising dramatically.

What estimates have the Government made in respect of small business? Will the Chief Secretary say how many firms and jobs will be affected?

The hon. Gentleman has criticised the Government's fiscal stance, and denied what was said earlier about his proposals for Government spending. Will he therefore say what he considers to be the appropriate proportion of gross domestic product that the Government should devote to public expenditure?

It is interesting that the hon. Gentleman should ask that. He will know that the Treasury Committee spent a considerable amount of time asking the Chancellor the same question, and he refused to give any answer. If the Chancellor refuses to answer that question, I do not see why I should answer it.

No Labour Member can possibly be satisfied with the extent to which the Government have raised taxes. Taxes have gone up 50 per cent. since the Government came to power, yet there has been a complete failure to deliver improvements in services. The electorate gave the Government the benefit of the doubt at the last general election, but I suggest that the local election results made it clear that the population is fed up with more and more tax and no delivery. The new stamp duty tax occupies about one third of the Bill, and the compliance costs are likely to be high and to add to already high UK property costs, reducing our international competitiveness. How will that help inward investment? In our view, the proposals are the wrong way to tackle tax avoidance. What is needed is genuine reform and a collaborative approach to business.

The Chartered Institute of Taxation is dismayed by the abrupt termination of the consultation process without effective explanation at a time when several major issues require further consultation. The institute believes that any decision to go ahead without further discussions and to implement in December could produce unworkable legislation that might adversely affect the property market. The particular worry is the impact on smaller and middle-sized companies. The tenants of pubs may find themselves facing up-front bills for £6,000. A modest London-based service business leasing 4,000 sq ft in the Victoria area would be likely to face an increase from £3,000 to more than £12,000 under the new tax proposals. The measure will have damaging effects, particularly on small and medium-sized service businesses.

If what the hon. Gentleman has just said is true, why did Bill Moyes, director general of the British Retail Consortium, describe the measures as especially good news for small retail businesses? Why did he also say:

"It is good to know that the Treasury have listened to the retail sector."?

I suggest that the Chief Secretary to the Treasury awaits further evidence at the Committee stage. He will find that there has been some major misunderstanding about what the Government propose.

Perhaps the Chief Secretary is unaware of the comments made by the director general of the CBI, who said:

"It is clear that these proposals will seriously increase the cost of leased business properties for many companies … could be devastating for high street businesses."

I gently advise the Chief Secretary, who is commenting from a sedentary position, not to indulge in such complacency. The arithmetic, as he knows, is such that tax applies on the present value of leases above the figure of £150,000, and not on the value per annum. When the Chancellor first made his announcement, in language that was not entirely clear, a number of people misunderstood what he was saying. Most reaction since has been similar to the example that I quoted a moment ago, to the effect that the tax will bear hard on smaller and medium-sized businesses.

May I assist my hon. Friend in answering the comments made by Mr. Moyes by saying that many members of the British Retail Consortium, of which Mr. Moyes is chairman, are deeply unhappy and dissatisfied with those comments?

1 thank my hon. Friend for that.

My final quotation on the proposals comes from the head of stamp tax at Deloitte and Touche:

"I wonder if the Chancellor is using the new lease duty to recapture the revenue he is going to be losing in enterprise areas."
Schedule 22, made effective by clause 139, is the second major lump of this lop-sided Bill, with 72 pages that completely rewrite the law on employee share acquisition. We welcome attempts to stem avoidance, but the Government should examine why avoidance is happening. In this case, it is because national insurance contributions have been increased and capital gains tax reduced to a level where the incentive to arbitrage has been rendered that much greater. Like other schemes that the Labour Government have introduced, the 10 per cent. business asset capital gains tax rate is welcomed by those who benefit, but it inevitably risks incentivising distortions in behaviour.

It is not sufficient for the Minister to say that the Government wish to stem avoidance; a clear statement of policy is needed. When is a share gain capital and when is it to be taxed as income? What about equity incentives, which are given in management buy-outs or venture capital transactions and which typically feature performance-related enhancement to management's share rights? We have, in aggregate, 82 pages of legislation, published a week after some of it has come into effect, without any warning or consultation, which is widely regarded as unacceptable unless, first, there is a major revenue loss, and secondly, legislation can deal with the problem unambiguously. Neither of those two tests has been passed.

The rushed and unsatisfactory nature of the Bill is illustrated by the fact that I have spotted yet another mistake in the Treasury's advice. In at least one instance, the explanatory notes contain a contradiction. On page 281, new section 446L(6) refers to non-commercial increases; the explanatory notes refer to noncommercial reductions.

I asked the leading lawyer on employee share schemes to comment on schedule 22. He said it is massively complicated and impossible to explain, even to a highly sophisticated person. He said that it is scandalous that schedule 22, in all its Technicolor complexity, is being introduced without any consultation or draft legislation. He also said that it imposes many new charges and burdens, some of which are retrospective. Those two lumps of legislation make up over half of this unsatisfactory Finance Bill.

There are, of course, some welcome items in the Bill. We welcome the fact that, at last, the Government are making some attempts to crack down on VAT fraud and missing trader fraud. We welcome the anti-avoidance VAT measures dealing with property, although we understand that the loophole of which the Labour party made use in respect of its party headquarters has not yet been addressed, but perhaps there will be an opportunity to tackle that in Committee.

We welcome the reduction in the minimum expenditure threshold for research and development tax credits to £10,000, but this country is fast becoming uncompetitive in the area of R and D incentives. The UK regime is already materially less favourable than those of Spain, Portugal, Australia and Canada.

We welcome the increase in the qualifying threshold ceiling for capital allowances for small and medium enterprises up to £20 million, and we welcome the increase in the VAT exemption ceiling on turnover up to £56,000, although, as others have pointed out, the Government persist in their unwise anomaly of having a nil corporation tax rate for small businesses that are incorporated but no matching or evened-out arrangements for unincorporated businesses. The Government are then surprised when that leads to a massive and unnecessary incorporation of small traders trying to benefit from that anomaly.

We welcome the abolition of petroleum revenue tax on new business contracts involving third-party use of pipelines in the North sea, which will apply from next January, but we remain of the view, as expressed in debates on the previous Finance Bill, that petroleum revenue tax will have a net negative effect in terms of overall revenues and costs and will severely damage the continuing exploitation of North sea reserves.

We welcome the clarification of tax relief for adopters and foster parents and we welcome the climate change levy exemptions. Finally, we welcome the fact that National Savings is about to introduce cards to facilitate withdrawals and deposits—arrangements for savers who have lost their passbooks have hitherto been highly unsatisfactory.

What has happened to the child trust fund—one of the stars of the Chancellor's announcement? There is nothing about it in the Finance Bill and no announcement has been made about when legislation will be introduced. There has been a statement to the effect that something will be said in the summer, but will the Paymaster General kindly let the House know when such legislation is likely to be introduced and when citizens will be able to avail themselves of the child trust fund? I understand that the fund may not now go live until early 2005, so precisely what has happened?

The reality is that the Finance Bill adds as much additional stealth tax as the Chancellor dares without risking pushing the economy into recession. The Chancellor's growth forecasts have been branded as wildly optimistic by the much-revered ITEM Club think-tank, which uses the Treasury's model. This year, ITEM forecasts 1.9 per cent. growth, whereas the Chancellor forecasts growth of 2 to 2.5 per cent. ITEM forecasts 2.6 per cent. growth next year, whereas the Chancellor forecasts growth of 3 to 3.5 per cent., and it expects the Chancellor to be forced to raise £10 billion a year more in tax until 2006.

This is the first year for 20 years in which real household disposable incomes will fall. Indeed, the UK's growth potential and the UK's productivity growth potential are both declining, with the transfer of resources to the public sector, where productivity growth is now negative.

Extra public sector spending is not delivering extra output. At least the Office for National Statistics now measures real output, not just increases in public sector employees. The 2002 ONS figures showed inflation in the public sector rising to more than 5 per cent., and on a rising trend. The ONS figures for the last quarter of last year—the latest available—showed public spending up 9.2 per cent., but net public sector output up only 0.2 per cent. Last year, a 22 per cent. increase in health spending produced only a 1.6 per cent. increase in hospital cases treated. Indeed, public sector inflation is running at nearly twice the Government's targeted figure.

The Government's spin on the Finance Bill and the Budget was that they would build a stronger and more flexible enterprise economy. Ernst and Young's 2003 survey revealed that entrepreneurs' view of the Government and Whitehall is at rock bottom. Since 1997, there has been a continuing run-down—a managed decline—in the UK economy's growth and productivity growth.

Once again, my hon. Friend pertinently highlights the disparity between increased investment in public services and the failure to achieve a commensurate rise in activity. Given that the responsibility for public service delivery ultimately rests with the Treasury, does he agree that it is a matter of very considerable concern that the Chief Secretary, when challenged to identify the structural reforms that will improve service delivery, was singularly unable, for the second time in succession, to do so?

I thank my hon. Friend for his comments. I am not sure whether the Chief Secretary even understood his question, but the Chief Secretary seems also to be remarkably complacent, as I commented earlier, about his commitment to reduce waste in public spending. All he can do is laugh about that, so it seems.

On that very point, can my hon. Friend tell me what advantages commuters from his part of the world have got from the £15 billion so far wasted by the Government on "Notwork" Rail? In my constituency, there has been no improvement whatsoever from Network or "Notwork" Rail, and it is £15 billion down the drain.

My right hon. Friend makes an interesting intervention. I am afraid to say that my constituents' trains either get cancelled or do not even stop. There is a desperate need for infrastructure investment on the Brighton line, for which the Strategic Rail Authority has no money. The lease that the SRA has granted to the operator is too short; as a result, the operator will not make the necessary investment. The service is declining dramatically, much to the fury of those who live in the area and commute to London.

I asked a well-known economist, who has participated in the deliberations of the Bank of England, for an opinion on the Finance Bill. The comment that I received was that the micro-measures in the Finance Bill were typical of the economic distortions that third world economies pursue, of which it is the job of the International Monetary Fund and the World Bank to get rid. [HON. MEMBERS: "Who was it?"] The Government sought accolades for a number of minor measures that will simply interfere with the economic process.

The Finance Bill adds to the measures taken last year, together with the council tax stealth tax, to raise taxes this year by a staggering £26.5 billion—by 7.1 per cent., as set out in the Red Book. Last year, the tax increase was 1.9 per cent.—a mere £6.8 billion—so this year's tax increase is nearly four times last year's total. The major burden of the extra taxation will fall on individuals, £19 billion of which will come from increases in income tax and national insurance. Of that, £8.8 billion will come from income tax, which is 7.8 per cent. up, helped by the freezing of personal allowances, which are worth £700 million. Furthermore, we must bear in mind the wider knock-on effect, with nurses and policemen now finding themselves in the 40 per cent. tax bracket. The council tax stealth tax will raise £2 billion. Stamp duty is forecast to yield 4 per cent. More—up to nearly £8 billion—and it has doubled in the past three years. The national insurance yield is to increase by 16 per cent. to£10.2 billion, and the VAT yield will go up by 4.8 per cent. to £3 billion—the one positive measure, as most of that is forecast to come from getting rid of VAT fraud.

Is the hon. Gentleman seriously asking the House to accept that people's increased earnings, and the commensurate increase in tax payments, is somehow undesirable?

I am sure that those whose earnings have increased, particularly those in the public sector, where increases are running at twice the level of the private sector, will be very Pleased with those increases. Of course, if people's earnings increase, their tax goes up. I am talking about a far greater increase, however: an increase in taxation four times the increase in the year that has just finished, and an increase of nearly 8 per cent. in the tax take in a single year. If the hon. Lady is not surprised by that, and is not worried by what might be the economic effects, I suggest that she spend a little more time looking through the Red Book to see where those effects will bite.

Vehicle fuel and excise duty are to increase by £1.1 billion. That reflects a mixture of vehicle excise duty increasing by more than inflation, and the 38 per cent. increase in red diesel. Landfill tax revenue is to go up by 40 per cent., with rates rising to 14 per cent., 15 per cent. and 16 per cent. in the coming years.

The hon. Member for Colne Valley(Kali Mountford) referred to fiscal drag, but the Institute for Fiscal Studies pointed out that two thirds of the tax increases cannot be attributed to fiscal drag but are caused by measures, which is exactly what my hon. Friend is pointing out from the Dispatch Box.

I thank my hon. Friend for his comments. My point was that last year's tax increases were roughly in line with fiscal drag, whereas this year's increases are enormously higher.

The Chancellor claimed virtue from the freeze on the rate of insurance premium tax, although it will yield a further £325 million this year. That is a windfall increase as a result of the massive ratcheting up of employers' liability insurance premiums. Chambers of commerce believe that the Government have missed the opportunity to use the windfall to relieve serious problems that they said they would address. Indeed, a review by the Department for Work and Pensions was due this spring, but it has so far failed to appear, and nothing in the Bill will address the problem. Clause 191 will merely block the use of protected cell companies to avoid the higher rate of insurance premium tax. A recent survey showed that a s many as 210,000 small and medium-sized businesses operate without cover. I hope that in her winding-up speech the Paymaster General will say how the Government propose to address that serious problem.

The hon. Gentleman has produced a litany of so-called tax increases, although many of them lie outside the scope of the Budget. If he opposes the increases, his alternatives are either to allow borrowing to rise, which I assume he would condemn, or to cut public expenditure. Where would he make those cuts?

For the third or fourth time, our criticism is about the failure to deliver. If delivery had succeeded, the financial arithmetic would look much better.

I want to make a further point because the more one digs the more one finds little stealth taxes. The Inland Revenue is reversing a decision on changes to the corporation tax treatment of depreciation in stocks following a Hong Kong court case. That will lead to a further £25 million to £30 million bill for the Scottish spirits and distilling industry because corporation tax will effectively have to be paid at the time of production rather than the time of maturity.

In response to the intervention made by the hon. Member for Edmonton (Mr. Love), surely it is true that a low-tax economy is also a buoyant economy with successful businesses, which causes tax revenue to flow to the Government.

That is what makes an economy successful, and we need only compare the poor performance of continental Europe with the performance of the UK over the past 10 years for proof of that.

The reality is that there has been a 50 per cent. increase in taxation since 1997. The tax take has risen from £270 billion per annum to £403 billion, which equates to £5,500 per household per annum. The rise has not been matched by anything like a similar improvement in the delivery of public services. Those who will be hurt most by the Chancellor's increased taxes will be the savers of today, who are the pensioners of tomorrow. The Government do not seem to be concerned that people who retire today will receive half the pension that they would have received in 1997, despite the fact they saved the same amount for the same time.

The Labour Government are losing hearts and minds among British business. As Digby Jones said,

"we are bearing witness to a continual erosion of our competitive position. If the Government wants a low-tax, flexible economy, we are not heading in the right direction."
Last April the Chancellor predicted that he would have to borrow £13 billion this year, but we all know that that has more than doubled to £27 billion. Just two Budgets ago the Chancellor told the House that he would need to borrow £35 billion between 2002 and 2006. He has now admitted that: that has increased to £98 billion. The deterioration in Britain's finances has been worse than that in the moribund EU economies. We are swinging from a 1.5 per cent. surplus to a 2.5 per cent. deficit; the eurozone average is moving from a 1 per cent. deficit to a 2.5 per deficit. The UK has also increased taxes as a proportion of gross domestic product by more than any other EU country since 1997.


The reality is more taxes, more spending, more borrowing, more promises, more failure, more excuses and no delivery. The Chancellor's micro-economic policies are taking Britain back whence it came, to high taxes, high public spending and third-rate public services.

5.21 pm

I refer hon. Members to my entry in the Register of Members' Interests.

As I believe that the Budget is right for the country, the Finance Bill must also be right for the country. It continues to give fiscal support to a stable economy, low unemployment and low inflation. Those targets cannot be met in our competitors' economies. France, Germany and the United States have higher unemployment and higher inflation. The stable policies that the Government set in motion six years ago are reinforced by the Bill and should be given the full support of the House.

I must enter one caveat, however. I have reservations about the expenditure that the Bill raises for the war on Iraq. I consider that to be mistaken and misplaced. I would have preferred it to be spent on our hospitals and schools and in the Ministry of Defence so that it could provide better equipment and conditions to enable our forces to defend this country's interests when they are called on to do so. I know, however, that you, Mr. Deputy Speaker, would not want me to go further down that road. Tempted as I am, I shall concentrate on other matters.

I want to address the way in which the Bill and Government economic policy tackle regional economic and social inequality. Some of the Bill's direct measures make a good start on that. The size of the Bill has been commented on—it is pretty thick—and I am not claiming to have identified every golden nugget on regional assistance in its two volumes, but I draw hon. Members' attention to clauses 163 to 167, which will help regional development.

Clause 163 extends capital allowances for small business. Clause 164 extends first-year allowances for information and communications technology expenditure by small companies. Clause 165 provides tax consideration for software sub-licensing and clause 166 extends first-year allowances for expenditure on environmentally beneficial plant or machinery. Clause 167 extends support for research and development.

It could be argued that those things affect economic activities outside the regional development areas. Of course they do, but they also benefit economic activity in areas undergoing regional development. Relatively underdeveloped regions, such as my own in the northeast of England, are heavily dependent on companies that rely more on such measures than the average company. Manufacturing is a more important economic activity in the north-east than, for instance, along the M4 corridor, so such measures help us disproportionately. Two thirds of research and development assistance goes to the manufacturing sector, so the provision and the accompanying measures certainly help regional economies such as that in the north-east. Measures on stamp duty, including relief on stamp duty in the regeneration areas, again help some areas disproportionately. They help some deprived areas in London with the same economic problems as regions in the north of England, but help disproportionately areas in my city of Newcastle, as well as Liverpool and other areas where there is an incentive to provide such assistance.

Accompanying the fiscal measures in the Bill was the Chancellor's announcement that about 20,000 civil services should be dispersed from areas of congestion to areas of relative underdevelopment, which I very much support. I should have liked more direct measures in the Bill to reinforce that announcement, as I know what sometimes happens with Government announcements, especially when they involve civil servants. However, I am sure that my right hon. Friend the Chief Secretary will keep his eye on other opportunities to reinforce the announcement with fiscal measures. I do not think that the proposal will work if it rests purely on the stick of Westminster we need a carrot for the development regions as well. Local authorities, private developers and regional development agencies need incentives to persuade central Government that X number of additional civil servants should be based within their territories. My right hon. Friend may well consider tabling an amendment in Committee to achieve that and reinforce the Chancellor's desire to accomplish change.

The core of my contribution concerns the need for such a change. There have been regional development policies in this country for well over 70 years, dating from the Macmillan committee of inquiry and what flowed from that in, I think, 1933 with a measure on special areas. Measures continued to be introduced in the late 1940s, the 1960s, and the 1970s, and included schemes for grants, loans, regeneration areas and development areas. There is no doubt that all those measures have had some effect. Employment in Wallsend would be very much depleted without the DSS or, as it is now called, the Department for Work and Pensions, which is located at Longbenton, where 3,000 or 4,000 people are employed.

Many regional economic development policies have been successful to some extent. I do not believe that the Government can do everything, but what has been more effective than many measures has been the dispersal of Government activity to the regions. Governments drawn from Conservative and Labour parties have accepted the arguments for that. The Labour Government of the 1960s began the process of dispersal, which also took place in the private sector. There were incentives for private companies to move out of London, and penalties for those that expanded in certain employment areas in London. The Heath Government of the early 1970s and, indeed, the Thatcher Government of 1979 accepted the arguments for the dispersal of a number of civil service sites, with the Thatcher Government implementing measures to achieve that in 1980 and 1981. There has therefore been cross-party support for the economic arguments for dispersal.

Some people would say that none of that works because if it is not economic engineering, it is social engineering. In fact, it is neither. The Bill and the Chancellor's statement—I hope that future Bills will contain further fiscal support—are a catalyst to market forces.

My hon. Friend may be interested to know that manufacturers are moving out of my area of Croydon to lower cost areas in the north. Will he support the Chancellor's strategy of flexible labour markets on a regional basis, both in the public and private sectors, in order to achieve full employment, as I do?

I very much agree with my hon. Friend. As I said earlier, the Government cannot do everything. Private sector initiative and investment is equally important. Companies making such decisions should have the Government's full support.

I think that all will accept that the south of England is overcongested. It is probably the most overcongested area in Europe. It is certainly as overcongested as anything in the United States, save perhaps the Los Angeles area. All the economic diseconomies flow from that. People do not have the same quality of life. Leisure pursuits cost more in the south than in the north. Housing is so overpriced that many public sector, and indeed private sector, employers, especially in central London, cannot attract the staff that they would be able to elsewhere. Staff turnover is extremely high in various economic activities, especially in London and some other areas in the south-east. I remember from my period at the Ministry of Defence how difficult it was to obtain certain categories of staff, and once they were obtained they left quickly for better opportunities elsewhere. Many other Departments will have similar difficulties.

Does my hon. Friend therefore agree that there is an urgent need for a review of London weighting for public servants, particularly as in the private sector there is an average mark up of about 40 per cent. in London? If we are to recruit enough public servants, such as nurses and teachers, we need a proper balance that reflects the supply and demand and costs in different regions.

I am not sure that I totally agree with my hon. Friend on that. A strong economic argument could be made that the public expenditure that would be involved in that would be better spent on attracting staff to the regions. A little more research on that is necessary.

Transferring civil servants directly creates jobs in areas such as the north-east. About two thirds of staff in a typical Department do not move when the Department moves, so the Department has to recruit locally in the regions. It can usually obtain a good supply of labour and skill programmes can be put in place before dispersal. Most employers would accept that the quality of labour is certainly as high in the regions as in London and the south-east, and arguably better.

This issue addresses the staff shortages that become a critical problem when the country is in full employment, as we essentially are or very near it at the moment. But the dispersal of Departments has other benefits. The most obvious benefit is that it boosts the local economy. If 3,000 people are working at Longbenton in Wallsend, the money that they spend largely benefits the economy in Longbenton rather than the economy in an already overcongested central London. It makes the task of whoever is responsible for macro-economic policy easier in the future because they will not have to take measures to take the steam out of an economy to the same extent in the south, which is often damaging to some of the economic situations in the north, in places such as Newcastle.

There are other efficiencies to be made. Land is clearly much cheaper and often of a higher quality, allowing staff to move into a better location.

Organisational improvements can also increase efficiency. An interesting study was conducted in 1990, when social security benefit centres were dispersed from central London locations to Glasgow, Belfast and Wigan. The centres had been spread over 21 locations in central London because of accommodation difficulties, but moving them to three locations clearly improved efficiency.

The Chancellor and other Treasury Ministers have a difficult task ahead of them. It will not be easy to persuade civil service departments or civil servants to move from the south to the north. Sir Humphreys will not always prefer Sevenoaks to Sunderland, but I think that they will generally do so. Of course, scope for such dispersal does not exist in all civil service departments. There is a perception throughout the country that armies of civil servants work in London, but about 35 per cent. or 40 per cent. of them work in their current locations because they are dealing with a population-related activity. The staff of the Department for Work and Pensions certainly need to work on that basis, and the Inland Revenue claims that the same is true of its employees. There is certainly some validity in the assertion that Inland Revenue advice has to be available where people need to seek it. Together, the Department for Work and Pensions and the Inland Revenue account for about 35 per cent. of civil service employment, and I do not think that they will have great scope for much more dispersal.

One must therefore consider which parts of the civil service can be dispersed in line with the proposed policy, which I hope will receive broad support in the House. I have identified five areas in which I think that such dispersal is possible. The Home Office currently employs 12,000 of its 17,000 staff in England and Wales in London and the south-east; the Lord Chancellor's Department employs 5,500 out of 10,000 staff in London and the south-east; and the Department for Transport employs 5,000 out of 10,000 staff in London and the south-east. Customs and Excise employs 9,500 out of 21,000 staff in the United Kingdom in London and south-east.

The main candidate for dispersal, however, may be the Ministry of Defence, which employs 90,000 people. Scotland and Wales get a proportionate share of that employment, but other areas do not. In the Ministry of Defence, 26,000 staff out of 67,000 in England and Wales are located in London and the south-east. That excludes the south-west, where about 20 per cent. of its staff are located —and some of the locations involved are pretty near London and the south—east. However, these are the telling statistics: only 470 Ministry of Defence civil servants are located in the north-east; only 2,000 are located in the north-west; and only 750 are located on Merseyside.

A similar pattern emerges in the armed forces. There are about 200,000 members of the armed forces in this country. Only about three quarters of armed forces personnel are based in the United Kingdom, while others are based in Germany and so on. Some 20.9 per cent. of those based in the United Kingdom are located in the south-west; 29.2 per cent. are located in the southeast; and 11 per cent. are located in the east of the country, which is generally a prosperous area. That compares with the following: 0.8 per cent. of personnel are located in north-east England and 0.9 per cent. are located in the north-west.

The Ministry of Defence used to argue that its staff had to be based near the armed forces because of strategic considerations. I do not think that that is now a valid assumption, because of new technology and all the rest of it. There is not even very much of an argument for the strategic location of the majority of our armed forces in the south-west, the south-east and London. They now tend to be deployed overseas. If somebody is travelling to Bosnia or Iraq, it does not make any difference whether they fly out of Newcastle or Newquay. The time difference to Iraq, or to wherever one is going, is more or less negligible. Defending the cliffs of Dover is no longer a priority in the sense that it was in 1945, when people had to be located near to the part of the country where there was a danger to our national security. Nowadays, the mobility of the armed forces means that few of those arguments apply. There is a strong argument for persuading the Ministry of Defence to devolve the location not only of forces personnel, but of civilian personnel. It will be extremely difficult for the Chancellor to meet his targets if he does not take on that reallocation as part of the task that he faces.

There is a strong case for tackling regional inequality at this time of relatively high employment and over-congestion in the south-east, because those characteristics do not apply in my region, the north-east, and the same is true in the north-west and on Merseyside. That makes not only social sense, but economic sense. The task is to identify and prioritise appropriate Departments; that means facing up to the opposition of certain vested interests. I do not believe that staff in the civil service are a vested opposition: they can be persuaded to co-operate by policies of incentive that give them a better deal in the north than they would get in the south. The measure in the Chancellor's statement is sound in terms of policy design. I hope that the Government will make it a reality and that the House will support them in doing so.

5.41 pm

It would be difficult to pretend that we are discussing one of the great Budgets of the past 10 or 20 years. Despite the amount of time that we have taken in doing so, the truth is that most economists and independent commentators will consider it one of the thinner Budgets of the period, at least in terms of its policy content and the effect that it will have on particular groups in society. Indeed, among the evidence that was given to the Treasury Committee, John Whiting of PricewaterhouseCoopers said, when asked who were the notable winners from the Budget, that he could think only of

"young couples, with a new child on the way, non-smoking, whisky drinking, with a grandmother over the age of 80 who plays a lot of bingo."
That is verified by the serious figures from the Institute for Fiscal Studies on the effects on particular income groups. The Budget has not had the substantive effect on income distribution of even the last few of the Chancellor's Budgets.

Even those in the category that the hon. Gentleman describes will be disappointed, because the new bingo taxation is not what it appears to be. There is a hidden stealth tax in that both the bingo tax and VAT are payable.

The shadow Chief Secretary is right to note that a measure that the Chancellor sought to pass off as a tax reduction will be significantly amended or neutralised when the new taxation for all forms of gambling is introduced.

Although this was a thin Budget in terms of its content, it was yet again a thick Budget in terms of the size of the Finance Bill and the amount of legislation and bureaucracy that it will lead to. Several hon. Members alluded to the fact that this is the fourth-largest Finance Bill on record, with 447 pages. Perhaps less noted is the fact that the Red Book that accompanies the Budget has also swollen to its largest-ever size, with 293 pages, compared with 250 in 2002 and 225 in 2001. The fear must be that, in spite of the Budget's rather insubstantial measures, we need again to remind the Chancellor and Treasury Ministers of the need to try to simplify the tax system to reduce the amount of bureaucracy for firms and for individuals, and not to seek to micro-manage the tax system and other parts of the national finances in ways that usually do not work but serve simply to introduce incentives that are economically inefficient.

I strongly agree with the hon. Gentleman's previous point. Does he agree that it is incongruous and reflects the lack of joined-up thinking in Government that the Paymaster General will wind up tonight's debate? She will celebrate a lengthy and complicated measure, although she commended to hon. Members the tax law rewrite project and the ostensible benefit of simplification that it would confer.

I agree. Ministers tend to speak the language of simplification and reduction of bureaucracy and complexity, but it is difficult to find where that has been achieved here or in preceding Finance Bills.

Before examining specific clauses and major provisions that we will debate in Committee in the next few weeks, I should like briefly to consider the Budget's macro-economic context, especially as it is traditional at this stage of our deliberations to refer to the hearings of the Treasury Committee on the Budget. It is usual to consider the high-quality report that the Committee compiles over time. Last year, the report to which we contributed was widely commented on. It is a pity that, this year, we do not have the Committee's final report to consider alongside the Bill. The reason for that must be the time constraints that this year's late Budget placed on the Committee and its overlap with the parliamentary recess.

The Treasury should accept the Select Committee's recent recommendation that Budget statements should be programmed and timetabled not days and weeks but months beforehand In a fiscal framework that the Government claim is about transparency and honesty, there is no good reason for the Chancellor to pick Budget dates out of thin air and shift them backwards and forwards, as happened this year, without bothering to provide an explanation.

It is fortunate that we have the evidence from this year's Treasury Committee hearings, which shed much light on the macro-economic if not the tax issues that we must debate, and that are central to the Chancellor's Budget statement. We also have some interesting exchanges between the Chancellor and Labour Members on foundation hospitals. You would not want me to stray on to that subject, Mr. Deputy Speaker, given that it will be debated later this week. Nevertheless, they shed some interesting light on the divisions in the governing party on public services.

I congratulate the Treasury Committee on its comprehensive job of examining the macro-economic background to the Budget and the Bill. It sets the context for the changes in the tax rates. As the Treasury Committee has accurately identified, the context is the forecast increases in public sector borrowing, which the Budget included this year and the pre-Budget report and the Budget contained last year.

The forecast for net borrowing in the current fiscal year has been revised up from some £10 billion in the 2001 Budget to £27 billion in this year's Budget. We can tell that the Government are getting nervous about that, because the Red Book used to include the table that compares borrowing in successive Budgets on page 5 or 6, and it was labelled table 1.1, but this year it has been demoted to page 246. I suspect that that is no accident. Watching the tables that are given priority in the Red Book is rather like watching old pictures of those who stood on the Politburo platform during parades. One could tell who was in and who was out by their distance from the Soviet leader. We can tell which measures are in or out, and which ones the Government are more or less embarrassed abcut, by their position in the Red Book—or, in some years, by whether they appear at all.

I would be delighted to give way to my former colleague on the Select Committee.

Will the hon. Gentleman enlighten the House by giving the page on which those charts on borrowing appeared under the Tory Administration, given that, even with the rising borrowing that we have now, their borrowing exceeded Labour borrowing? Where does he think that such charts would appear under any prospective Liberal proposals? Would they be on page 1?

I am certainly not going to account for the Budget documents produced by the Conservative party when it was in power. They were considerably shorter than the current ones, although I acknowledge that they did not always contain all the information that they should have. The hon. Lady will have to wait for the imminent arrival of the Liberal Democrat Government to see where we place such tables, but I can assure her that they will be right up there near the front of the Red Book, and not on page 246.

In one of the two Red Books that bears my signature, the answer to the question about where the borrowing figures appeared is page 7. In those days, the document was only 160 pages long.

I am grateful to the right hon. Gentleman for that insight. He might also take the credit for the fact that the Red Books were considerably cheaper in those days, although public borrowing as a percentage of gross domestic product was then considerably higher even than it is today.

So far as framing the fiscal context for this Budget is concerned, the Treasury Committee looked at a number of major macro-economic issues. The first was the growth forecasts that the Chancellor has adopted. We have already discussed that in some detail in the previous Budget debate, but it is still noteworthy that the growth forecasts that he has chosen to make, particularly for 2004, are considerably in excess of those made by independent commentators. He appears to be taking a punt either on a continuing strong performance by the consumer sector—which might be unlikely given the slowdown in the housing market—or on a sudden expansion of exports.

Her Majesty's Treasury seems to be basing its forecasts on those factors, and the Chancellor claimed, in front of the Select Committee, to be very optimistic that the forecasts will prove accurate. We shall find out when we return to this matter in the autumn and in next year's Budget whether he has adopted forecasts that are not only much rosier than those of most independent commentators but have proved to be inaccurate. If that is the case, it will lead to a further upward revision of the borrowing forecasts, which will undoubtedly cause the Government some problems as they come up to the next general election.

Perhaps more seriously, even if the Chancellor is right in predicting that growth will be stronger than the average of independent forecasts, the main problem identified by the experts who gave evidence to the Treasury Committee this year relating to the structural financial position is that it would still be possible, in those circumstances, for the Government to have a significant problem with their projections for public borrowing, simply because they are assuming a recovery in certain taxation receipts that is way in excess of the amount that most independent commentators think likely.

Robert Chote of the Institute for Fiscal Studies gave evidence to the Treasury Committee on 14 April. He said that his judgment
"that taxes will be more likely to have to go up than not is based essentially on a structural view, and not on a view about growth."
I hope that the Financial Secretary will be able to comment on that, and to say how optimistic she is that some of the growth of revenue forecasts will be sustainable in practice, and in particular the forecast that corporation tax as a percentage of GDP will bounce back from the current level of some 2.5 per cent. to 2.9 per cent. next year, and then to 3.4 per cent. That forecast has been greeted with great scepticism by most independent commentators, and the Institute for Fiscal Studies believes that it is extremely optimistic.

When we discuss the Budget each year, we inevitably look back on some of the experiences and mistakes of previous years. I do not think that the right hon. Member for Fylde (Mr. Jack) was at the Treasury in 1990, at the time of Norman Lamont, but if he looks back at the Budget statement for that year, he will see Lord Lamont's optimism about borrowing going down again and the economy turning up again. Then, too, we were involved in a war with Iraq, and having a major debate about local authority taxes and our relationship with Europe. There are many similarities between then and now, and the Chancellor must hope that the Budget that we had a couple of weeks ago, which was not significant in terms of its substance, will not be significant when we look back on it in terms of his career and of the mistakes that he might have made through complacency about growth forecasts and about the revenue coming in.

One of the interesting debates in the Treasury Committee this year was on whether and how we could introduce more transparency and credibility into the Budget process and the process of fiscal policy, so that they might stand alongside the monetary policy framework in the UK, which is now regarded by most independent commentators as very credible and a model of its kind. There was a discussion between the Chancellor and a number of members of the Committee, including the hon. Member for Chichester (Mr. Tyrie)— who is obviously in the Chamber today—about whether there should be more independent scrutiny of the assumptions that the Chancellor makes in each Budget.

While we give credit to the Chancellor for introducing some measure of scrutiny since Labour came to power in 1997, by involving the National Audit Office in scrutinising some assumptions in the Budget, it is clear that that does not go far enough. It is also entirely unsatisfactory that it is the Chancellor himself who determines which aspects of the Budget assumptions are to be audited. What serious auditing process in the private sector would tolerate a situation in which the entity that was being audited was able to point out which areas it wished to have audited, and to brush under the carpet or into the bottom drawer those sensitive or embarrassing assumptions that might prove unable to stand up to the audit process? I hope that, however difficult it is to do so, the Treasury will grasp the possibility raised in the Treasury Committee—and, I hope, in its report—of bringing in more independent scrutiny, possibly through the National Audit Office, of the Budget assumptions. Although that might lead to some uncomfortable decisions and conclusions in the short term, it should improve fiscal credibility and performance in the longer term.

Before I move on to the major clauses in the Bill, and to consider in outline some of the big issues that we shall examine in Committee, I want to touch on some of the issues that the Chancellor covered in the Budget, in the hope that the Financial Secretary might be able to shed some light on the concerns that have arisen since then. One such concern was raised by the shadow Chief Secretary and relates to the major issue of the child trust fund, for which children who were born in or after September 2002 will qualify. It seems possible that we shall not find out what the rules and regulations for the trust fund are until later this year, or possibly even until 2004 or 2005.

Given the very thin Budget that the Government have produced this year, one can understand their wishing to rush the announcement of the trust fund out for publicity purposes. Is there not, however, a real danger that many people will wonder why they have announced such a proposal without thinking it through? What mechanisms will there be to compensate those individuals who, in theory, have a child trust fund that started in September 2002, but whose parents will not have the ability to invest that money until such time as the Government make a decision. Will the Minister confirm that there will be some form of compensation for those affected, between the setting up of the child trust fund in September 2002 and the time when the Government put some flesh on the bones of this proposal?

The Chancellor made an announcement about pensions for those who remain in hospital for more than a set number of weeks. The impression given was that the measure would be effective from Budget day, which I think was 9 April. However, I am told by a constituent whose relative, sadly, is in hospital now and has been since January that the pension will continue to be deducted for the current time in hospital, at least until the end of May. Can the Financial Secretary tell me whether that is true, whether it is Treasury policy, and whether there will be compensation for such people dating back to Budget day?

Will the Financial Secretary say a little more about the assumptions relating to higher council tax over the next two years—an increase of 13 per cent.? Why has the Treasury come up with such extraordinarily high projections? How can a Government who profess to be trying to make the tax system more progressive sign up to a rise in a local tax that hits many elderly people particularly hard, and takes some 7 per cent. of the income of the poorest decile compared with only 1.5 or 1.6 per cent. of that of the upper decile?

Perhaps the Financial Secretary can tell us when the review of local government finance—which we understand is in the worrying hands, the unreliable hands, the somewhat shaky hands of the Deputy Prime Minister—will produce a report. Will the Treasury be directly involved, and does it take any view on whether the current means of financing local expenditure—through a very regressive tax—is satisfactory and should be continued?

During the local elections, Liberal Democrats in many parts of the country offered £100 off, signed by the leader of the Liberal Democrats for the time being. Is the hon. Gentleman tabling amendments to guarantee the £100 off, and how much extra income tax will a family have to pay to qualify for this apparent bonanza?

As the right hon. Gentleman will know, that was not hidden under the carpet. It was raised directly by the Liberal Democrat Treasury spokesman in a debate just a couple of weeks ago, and published as part of our alternative Budget proposals. I do not think there can be any doubt that this is our policy, and that it is clearly on record. Of course there will be all the necessary follow-through to ensure that we have an opportunity to debate the issue still further, and I hope we shall discover the Conservatives' position then.

The shadow Chancellor is not here today. I suspect that he is nursing his bruises from the result of the elections in Shepway. I am afraid that when, a few weeks ago, he was asked by none other thanThe Daily Telegraph what he would do about the increase in council taxes this year, he said, "I do not know." At least the Liberal Democrats have a policy on the issue. It is disappointing that the Conservatives have yet to develop one.

We shall have a good deal of time to debate the specific tax measures in the Budget in Committee, both on the Floor of the House next week and in Standing Committee subsequently, but I should like to touch on some today. One of the big issues that we shall need to debate this year is, I suspect, tobacco and alcohol duty, along with the implications of the differential between this country and the European Union in relation to smuggling. The Government have had to grapple with that issue, as is shown by this year's figures from the National Audit Office. It is clear that they have had to change their assumptions about the amount of tobacco revenue they will receive.

For many years our party believed, especially in respect of tobacco taxation, that there was an argument for the escalator that has operated. We argued some time ago that the extra finances should be earmarked for the health service, and a number of years ago the Chancellor did that, at least in theory. In a single European market, however, it is increasingly difficult to construct barriers; attempts to do so have been overturned in the courts, as we saw last year in respect of limits on non-dutiable goods brought back from the continent. It is becoming harder to maintain the duty differentials. That is a consequence of the tax competition that I would welcome—in contrast to a deliberate attempt to harmonise taxes, which I think neither necessary nor desirable.

According to the Government's own figures, even given their current measures to reduce tobacco and alcohol fraud and smuggling, some 20 per cent. of the tobacco market consists of smuggled tobacco. The figure is extraordinarily high for hand-rolled tobacco, which seems almost to constitute a majority of the tobacco consumed in this country. If we add that to legitimate cross-border shopping, we find that some 28 per cent. of tobacco consumed here—not far short of 30 per cent.—comes from the continent, with no duty paid.

I do not think that the case for a reduction in tobacco duty has yet been made. It is clear that any resulting upturn in consumption would prompt significant health concerns—although such concerns must be moderated by the fact that a huge amount of consumption takes place already, at very low prices, because so much tobacco is smuggled. It is certainly time that the Treasury engaged in a serious debate in the House, and an analysis of the costs of persisting with the current large duty differentials. We should be able to discuss what gains could be made if those differentials were reduced, at least to an extent that might make smuggling less attractive. I hope that those in all parts of the House would engage in that debate, not least because the Treasury—stuffed full of economists as it obviously is—should be sceptical about any system that, in a single market, involves two such different tax rates, creating huge incentives for smuggling.

Perhaps we can learn something from other continental countries, as the Conservative party has allegedly tried to do. Perhaps we should be learning something about the deliberation that is under way in EU countries, including Denmark, which I understand voted for a fair-sized reduction in tobacco duties to become effective later this year. I hope we shall table amendments in order to elicit a debate, and to encourage more consideration of the costs and potential benefits of such a policy change.

When considering cost implications, we should take account of parts of Europe where there is far more cirrhosis of the liver and lung cancer than there is in this country. We should consider treatment costs, and the human cost. We cannot discuss only the differential between duty rates in the debate that the hon. Gentleman suggests.

Those are precisely the issues that need to be considered, but if the hon. Lady looks at figures comparing duty rates across Europe with the amount of illness caused by alcohol and tobacco she will find that there is far from a one-to-one relationship. Alcohol abuse in particular seems to be related not just to price but to other social factors, which need to be considered.

Since the days when our Treasury spokesman represented Gordon, in Scotland, it has been traditional to touch on issues relating to spirits. Such issues are relevant not just to cross-channel smuggling, but to some of the measures in this Bill and last year's that affect the Scotch whisky industry. The Financial Secretary probably knows of the industry's representations on changes in the corporation tax treatment of stock depreciation; if she does not, she may have to by the time the Bill is enacted. I understand that the treatment that was introduced last year will have a particularly damaging effect on this business. Stock has to be held until it can mature, before being passed on to the market and consumed. This could cost the industry up to £30 million.

The next issue—it was raised by some of my colleagues in another place, and several hon. Members have touched on it today—is stamp duty land tax and relief on commercial property in deprived areas. As usual with most of the Chancellor's well-motivated measures, it sounds like a good idea. However, the issue that we need to debate in Committee is its practical impact: whether it will have the beneficial effects that the Chancellor claims, and whether the cost that he anticipates—some £90 million—will prove realistic. As my colleagues in another place have shown, the 2,000 most deprived wards contain not only residents and businesses that are experiencing great deprivation and pressure on profits but large regional shopping centres such as Lakeside, and big property developments such as Canary Wharf; indeed, the latter is in one of the 50 most deprived wards. I wonder whether the fact that such developments and their owners may benefit from this measure is entirely in line with the Treasury's desires, and whether the resulting economic effects will match the Treasury's wishes in all cases.

Who will monitor the cost of this measure and assess its benefits? This House has discussed many times the film tax relief that the Chancellor introduced to much fanfare several Budgets ago. It was supposed to cost in the region of £15 million to £20 million, but it had to be curtailed severely one or two Budgets later, when it was discovered that it threatened to cost a couple of hundred million pounds, because individual episodes of "Crossroads", "Emmerdale" and other programmes were being reclassified as films. The fear exists that other such well-intentioned measures may have precisely that effect.

The final issue relating specifically to the clauses is VAT fraud. Abuse and avoidance of the tax system is clearly a major problem, particularly in respect of missing trader VAT fraud, which continues to cost the Government billions of pounds. As the shadow Chief Secretary has said, it is of course right that we seek to close such loopholes. However, I understand that clause 18, on
"joint and several liability for unpaid VAT of another trader",
will allow the Treasury to take action against suppliers and recipients of certain specified commodities, even in cases where they are potentially innocent parties. In the explanatory notes, the Government say that they will take steps to ensure that innocent businesses are not caught up in these new measures, and I hope that the Financial Secretary can say a little more today to reassure us that businesses that are trading perfectly legally and legitimately should have nothing to fear from them.

This was a very thin Budget in terms of substance, but a fat one in terms of the new regulations and complications that it introduced. As my right hon. Friend the leader of the Liberal Democrats said, it was a "hope for the best" Budget—a crossed-fingers Budget—the results of which will not be seen until later on this year and next. I fear that the Chancellor will have to return to the House to revise up his Budget forecasts yet again. He has got away with excuses for a long time because of the strength of the consumer sector—a temporary boom in the housing and retail markets, which now seems to be coming to an end. I suspect that we will look back on the Budget of 2003 as a significant one not because of what was in it but because it may mark a turning point in the Chancellor's and the Government's reputation for economic management.

6.14 pm

It is a major achievement of this Budget that an unprecedented programme of investment in our public services has been maintained, despite Britain's being in the trough of the economic cycle, and despite a synchronised world recession. The Government's economic strategy has been stress-tested at home and abroad in the past year and has come through unscathed.

The hon. Members for Arundel and South Downs (Mr. Flight) and for Yeovil (Mr. Laws) raised the issue of increased borrowing, and during this financial year borrowing will indeed stand at £27 billion, compared with a budget surplus two years ago. But public borrowing when the economy is in the recessionary phase of the economic cycle is part of the strategy, subject to two conditions; first, that borrowing can be paid off as the economy expands again; and secondly, that the total interest to be paid on public debt is not so large as to be unsustainable. Those are the Chancellor's two fiscal rules. They have been met, and they will be met in years to come.

By reducing debt two or three years ago, when the economy was at a peak and taxes were rolling in, the ground was prepared for safe borrowing in the trough of the economic cycle, when it would prevent the economy from sinking into recession. The Opposition may not be familiar with that basic concept—it is called foresight. We should contrast that with the Conservatives' strategy over 18 years. When times were good and taxes came rolling in, they gave tax relief to the better-off. That money was spent, the economy overheated and it promptly went bust. In the following recession, when taxes no longer covered public spending, the Conservatives cut public spending and deepened recession. Thus did they convert the undulation of the economic cycle into the big-dipper ride of boom and bust that we must never forget.

If the hon. Gentleman opposes the income tax cuts made by Conservative Governments in the 1980s and 1990s, would he like the level of income tax to be raised?

As the hon. Gentleman heard me say, I was opposed to the process of balancing the budget in the trough of the cycle by cutting public spending because that deepens recession. That is exactly what the Governments of the hon. Gentleman's persuasion did, creating two very severe busts during that period, and that is what they will be ever remembered for.

Today, the Conservatives' strategy is to cut public spending by 20 per cent. whatever the circumstances, so they probably have changed. They are not quite like the Bourbons, who learned nothing and forgot nothing; by the sound of it, they would abolish the boom so that the economy would be permanently bust. The Government's economic strategy—

The hon. Gentleman is a reasonable guy—we serve on a Select Committee together—so, in his heart of hearts, does he really believe that the Conservative party has ever advocated 20 per cent. cuts in public spending? Does he not think it possible—indeed, probably likely—that the interpretation placed on those remarks by the shadow Chief Secretary today is accurate?

No—the shadow Chancellor has endorsed those figures. I agree with the hon. Gentleman that they are preposterous, but I have heard no adequate refutation of them. Nor have I heard—this is the issue that I am getting at—how they fit into any rational macro—economic strategy, but perhaps all will be revealed when the hon. Gentleman speaks.

We on the Labour Benches must not let the intellectual incoherence of the Opposition lull us into any complacency. Harold Wilson's Government of the 1960s was blown off-course by international financial speculation, and the Callaghan Government of the 1970s had to trim policy to accommodate the International Monetary Fund.[Interruption.] Before the hon. Member for Tatton (Mr. Osborne) grins too widely, I should point out that in the 1980s, the pound almost reached parity with the dollar, destroying a swathe of manufacturing industry in the process. And of course, we should not forget Black Wednesday, in 1992, from which the Conservative party may never recover.

Surely the fall of sterling to near parity with the dollar was encouraging, not discouraging, for the economy. It was the brief rise of the dollar to $2.48 against the pound in the early 1980s that caused the problem.

I doubt whether the people who had to join the pool of the unemployed enjoyed their bathe. Great structural damage was done to the UK economy and much of our manufacturing industry was wiped out in that period. The hon. Gentleman is certainly wearing rose-tinted spectacles in assessing that period.

Among the developed countries, Britain's economic health is uniquely affected by the ebb and flow of international trade and the maverick forces of international finance We are coming through the most recent downturn in international trade very well, but it would be foolish to believe that, on that basis, we could be permanently unaffected by international economic conditions.

In economic and monetary union, we have the prospect of reducing the effects of the international economic weather on Britain. Conversely, if we are not in the euro, there is a danger of the economic weather becoming much rougher—and very rough indeed—as Britain sits between the euro and the dollar.

The Treasury Select Committee, of which I am proud to be a member, recently published an all-party report on the UK and the euro—

Indeed. It is in the nature of such a report that it sets out the issues to be taken into account rather than drawing a conclusion. Nevertheless, the wealth of evidence accumulated over recent months gives a strong lead on the answers to the five tests that the Treasury wants satisfied before recommending that Britain should join the economic and monetary union.

The first test asks whether the UK economy has converged with those of the eurozone. Essentially, it has converged, though for Germany special problems arose from reunification when 20 million people living in a derelict economic infrastructure were added to a population of 60 million. For Britain, however, any further adjustment after joining the euro would be far less difficult than it was for present EMU members after they joined—and none of them experienced unmanageable problems.

There may be claims that the decision should be delayed until economists have drilled further and further down into the detail, but it is doubtful whether that would add anything to the assessment of the salient issues. We would end up better informed, but none the wiser. That road leads too easily to analysis paralysis, because there is always another beguiling bit of research that could be done before taking a decision. The judgment required now is whether the present degree of convergence is sufficient, which is a political rather than an economic question.

Flexibility is the second test—it is necessary so that the economy can absorb any shocks without damage. It is clear that the UK economy is the most flexible in the European Union and so the most capable of absorbing shocks and minimising economic damage

. Would joining EMU create the conditions for firms to make long-term investments in Britain? That is the third test. Overwhelmingly, major companies such as Alsthom, Siemens, Nissan and Unilever, which have given evidence to the Select Committee, have answered yes. The only doubtful companies are those whose business is unaffected by the exchange rate. All the major companies that we heard from say that, if Britain remains outside the eurozone, they will reduce investment in Britain in favour of the continent. The reason is that they want to avoid fluctuations in the pound-euro exchange rate. When avoiding exchange rate risk is so manifestly in their business interest, it is dangerous to assume that those companies do not mean what they say.

If manufacturing in Britain is to have the confidence to innovate, invest and improve productivity, it needs a lower exchange rate than has prevailed for the last six years. The rise in the value of the euro in the last two years now gives a real prospect of negotiating an entry rate that is equitable to manufacturers in the United Kingdom and to those in the eurozone.

Financial services and the City, whose competitive position constitutes the fourth test, have consistently told the Select Committee that they can operate internationally with ease whether or not Britain joins the euro. They are therefore neutral on the question.

The fifth test asks whether joining EMU will promote growth, stability and jobs. It relates to a central point of the Budget and Finance Bill—measures to improve Britain's productivity. Productivity is to a healthy economy what fitness is to a healthy athlete. Strategy will not compensate for an athlete who is unfit, nor will it compensate for an economy that is weak on productivity. Strategy can ensure that the full potential is reached, but fitness and productivity determine how good that potential really is.

The Chancellor has mastered macro-economic strategy, but UK productivity is still substantially poorer than that of the USA, France and Germany. The continued evolution of the Chancellor's strategy of economic strength, public service investment and social justice beyond the next five years depends on improving the productivity of the United Kingdom. Micro-economic measures to improve productivity are useful, but to have a major lasting effect we need to change the economic climate within which British business operates. For that, it is essential that the United Kingdom joins EMU.

If the Government's conclusion were to be "not yet", they must face the question "if not now, when?" Waiting could mean losing opportunities to establish a leading position in an expanding European Union and to influence the way in which the operations of the European Central Bank and the stability and growth pact are reshaped. Those changes are widely recognised as necessary by other members of the European Union, but Britain can influence them only from inside the eurozone. The technicalities are certainly not reason enough to stay outside the eurozone.

The decision depends on comparing Britain in EMU, not with Britain today, but with Britain outside EMU in a rapidly evolving world. There will never be any certainties. If we wait in vain for certainties, opportunities for Britain could move out of reach. The evidence examined by the Treasury Select Committee provides no justification for leaving Britain in that limbo.

6.28 pm

I have declared my interests in the register.

This debate is about the biggest tax bill in history ever presented to Parliament and the British people. The Government have the audacity to bring before us today a claim for an extra £26 billion of taxation this year in comparison with last year. They have the audacity to field the Chief Secretary to the Treasury, who made a speech as if he were presenting a tax-cutting Budget by highlighting two or three morsels from a table that had otherwise been denuded of good dishes, for which a huge bill had been sent to the starving diners in the private sector. The Government have perfected the art of rip-off government and found 100 new ways to pillage the purses, tills and wallets of the nation, but still found it impossible to hire the teachers necessary to secure the improvements in schools, and the nurses and doctors necessary to get operations done, that we all so desperately want.

The background to the debate is a teaching profession in uproar and against the Government. I had always thought that many teachers were sympathetic to the Labour and Liberal Democrat view. It is fascinating to see that Ministers are now unable to face a teachers' conference and unable to answer criticisms coming from the teaching profession. Ministers must know that they have bungled it and that so much of the extra £26 billion that we are asked to approve in the Bill is going walkabout and being wasted. It has not gone to hospital operating theatres or classrooms where it is needed and could be better used.

This mighty Bill includes so many tax increases that the Government wished the Opposition and others had not teased out. Most people have understood the massive hit on national insurance rates, which was heralded many months ago, but we are still to count the costs. The Government told us that the shadow Chancellor was wrong to dub it a tax on jobs. We will see, but I support my right hon. and learned Friend; it is undoubtedly a tax on jobs. It is a simple rule of economics—one that even this Government cannot duck—that if one increases the price of something, the quantities that can be bought decline. In this case, the Government have deliberately increased the cost of labour by a swingeing increase in employers' and employees' national insurance. The result will be job losses and fewer people employed.

Exactly the same argument was used about the national minimum wage. We were told that it would increase costs, yet employment has increased since the introduction of the national minimum wage. How does the right hon. Gentleman explain that?

The forecasts that I and others made about the national minimum wage were absolutely spot on. We said that it would have a particularly damaging impact on low-paid work in manufacturing, the sector most likely to be exposed to its impact. It was in that sector where the world market was highly competitive and where there were some people on too little money in terms of the income paid by their employer who were then exposed by the national minimum wage to job loss. We recommended not that we should leave people with inadequate sums of money for their family needs, but that we should carry on with the benefits top-up system for those in work so that jobs would not be destroyed and families had a reasonable income to live on.

The Government decided that they knew better. As a result, under this Government, there have been 600,000 job losses in manufacturing industry. It is a disgrace. The Chief Secretary regaled the House with a story, he said, of economic success. He did not mention the tragedy of manufacturing. He told the House that the Government had not yet presided over a recession. He failed to tell the House that the Government have already presided over three manufacturing recessions; boom and bust, boom and bust and now bust and bust for manufacturing. We cannot see how manufacturing can be lifted out of the mire and the gloom. Day after day, we see factory closures and job losses, statements from companies that cannot pay the bills and the transfer of massive numbers of jobs to cheaper labour markets.

The right hon. Gentleman is correct in terms of textiles and steel, where there has been a definite slow-down, but does he really want to compare that with any period of Tory government, when it was not a question of thousands of jobs going, but millions? For example, the city of Sheffield faced almost total collapse and in one year lost more jobs than the coal industry did under the Conservative Administration. Textiles fell into almost complete disarray under his Government. Would he really like to compare the records?

It is not our task to compare the records of Governments, but if the hon. Lady wishes to draw me in that direction she would be right to say that there was one short but unpleasant period under the Conservatives, when too many jobs were lost. Let me remind the House why that was; it was because the Conservative Government foolishly accepted the advice of Labour and the Liberal Democrats to join the exchange rate mechanism. It was because we did what the hon. Member for Bexleyheath and Crayford (Mr. Beard) now wants us to do on an heroic scale: join the euro. We joined a European exchange rate project, and we were told by all and sundry—including the Labour party—that it would be good for jobs and would get rid of exchange rate unpredictability. It was, of course, a disaster. The euro would be a disaster that we could never get out of.

Does the right hon. Gentleman recognise that the ERM was a disaster, first, because the Government went in at far too high a rate; secondly, because they had not negotiated with colleagues in the ERM, so when difficult times came, they were not ready to bail the Government out; and, thirdly, because the ERM left cracks into which speculators could get, as happened on Black Wednesday?

The whole thing was negotiated with partners and was welcomed broadly by the Labour Opposition at the time. The hon. Gentleman should recognise that the rate at which we went in is very similar to the rate now. He says that he wants us to go in to the euro now, so I presume that he wants us to go in at the same rate. Why is the rate that was clearly wrong and a disaster then now miraculously right? There is no right rate for the pound in perpetuity against the European currencies. Our economies are very different.

I give one piece of praise to the British economy under Labour, as well as under the Conservatives. It is great news that we run our economy with such a lower rate of unemployment than that of France or Germany. The last thing I want to see my country do as a result of this Budget and a move to the euro, as recommended by the hon. Member for Bexleyheath and Crayford, is to converge with the continent by creating the joblessness and the job destructicn machine in place there. How do the Europeans do that? They do it by combining the wrong interest rate, through a rigid single currency scheme, the wrong monetary policy and very high taxation.

The burden of my criticism of the Bill and of the Government's policy is that this rip-off Government are proposing taxation that will be extremely damaging to British individuals and business. It is part of the process by which they would erode the most important competitive advantage that this country and our economy have built up—under several years of Conservative government and the first couple of years of Labour government—by keeping taxes well below those on the continent and staying well clear of monetary union, which would be a bodge and a mess on an heroic scale; a scale that would make the ERM look like a rather pleasant interlude in our economic affairs.

In his rose-tinted survey, the Chief Secretary—ignoring all the realities facing business and hard-pressed British families—failed to mention the way in which high taxation imposed by the Government in recent years has demolished the telecoms and internet industry by taking £22 billion out of it through the auction of licences. That procedure took money out of the industry at the very point it needed to expand and make new investment. It destroyed jobs, investment and success and helped the stock market to crash.

The Chief Secretary made no reference to the £5 billion a year sandbagging of British pension funds, which has led directly to part of the stock market crash; it is one of the reasons why the stock market has fallen further here than in the United States. It led directly to those funds being chronically short of money. As my hon. Friend the Member for Arundel and South Downs (Mr. Flight) said, it is a disgrace that many people now face the prospect of retiring on about half the pension they were looking forward to in 1997–98, before the tax on pension funds and before the stock market crash. That loss is a direct result of a Labour Government, who inherited the most successful pensions industry in Europe by far and thought that they could use it as a ready source of money without people noticing. If we wanted any proof that stealth taxes do enormous damage and end up costing the country rather more than they gain in extra revenue, surely it is the pension funds. It will now be extremely difficult to meet all the bills and make good the deficits and trouble created by that hated tax.

Does the right hon. Gentleman accept that the imposition by the previous Government of employers' contribution holidays from pension schemes was a major contributory factor in the so-called halving of pensioners' current incomes?

Of course not. It was not the previous Government who introduced them. Under pensions law approved by Parliament under Governments of both parties over the years, it was reasonable for a company with more money in its fund than it needed to meet its liabilities as assessed by an independent judge or actuary to reduce its contributions while the surplus lasted. Alternatively, a firm in that position could consider increasing benefits. It could also choose some combination of the two approaches. Many funds did a bit of both, to get rid of or reduce the surplus.

There was no problem when this Government came to power. Funds were very solvent and they had the marvellous choice of increasing benefits or cutting contributions. They could also choose a combination of the two. It is under this Government that funds face the awful choice of cutting benefits or winding up the funds because they cannot find the money to pay the bills.

How does the right on. Gentleman arrive at that conclusion? The tax introduced by the Chancellor at the beginning amounted to £5 billion a year or thereabouts, but the stock market has lost more than £100 billion in the past two years or so. Why is it the £5 billion that is having that dire effect, and not the fall of the stock market? In the contorted logic of the right hon. Gentleman's argument, how does he believe that this Government are responsible for the stock market falls around the world?

I specifically said that I was drawing attention to the extra fall in the London stock market, as compared with other stock markets. The hon. Gentleman greatly underestimates the extent of the total fall, but his figure of £ 100 billion is very fortunate for my argument, which he must want to support. That amount, £100 billion, is exactly the capital fall that one would expect from a tax on companies of £5 billion a year. When the tax was imposed, the stock market tended to value company earnings on a multiple of about 20. Multiplying the £5 billion taken away from companies each year by the multiple of 20 by which the stock market valued earnings, one arrives at exactly £100 billion.

I made that point when the Chancellor wanted to impose the tax. I said that he should expect a fall of about £100 billion in the stock market, in addition to anything else that might happen elsewhere around the world. That is what happened. Much of that fall of £100 billion was directly due to the pension fund accounts. The Chancellor should have known that British pension funds have traditionally had between 60 per cent. and 70 per cent. of their investment in equities—for good reason, because they tended to do well. When the Chancellor sandbagged British business with taxation, it was bound to cause trouble.

The Chief Secretary argued that British business should be grateful for the one or two very small tax reductions in the Budget, and in previous Budgets, but I find that extraordinary too. The CBI and other bodies—none of them well known supporters of the Conservative party—have come to their own independent conclusions. They believe that the Government have imposed a massive increase in the tax burden on businesses. That imposition was achieved by sleight of hand, through the pensions and telecoms taxes that I have mentioned, and above all by changing the timing and incidence of corporation tax payments. The Government were therefore able to claim that they had made a very small reduction in the rate, while at the same time collecting far more revenue because they had changed the cash flow impact on business, which is what matters. The Government had also removed quite a lot of money from business that firms needed to pay the wage bill and to continue investing in the future.

I should have liked a different kind of Finance Bill, although I suppose that that was too much to hope for from this Government. Occasionally, Ministers say that they would like lower taxation to make us more competitive. They accept that lower tax rates can produce more revenue and attract more business, jobs, prosperity and investment. So why cannot the Government produce a Finance Bill of the kind that I would like, doing just what I have described? Why do they find all sorts of ways to clobber all the main interest groups in this country?

This Bill continues the Government's hate campaign against the motorist. It further increases the charges on motorists. It is getting to the point where people need to be very rich if they want to drive around the country, because so many of the charges are imposed on people with relatively low incomes. The aim, presumably, is to tax them off the road to allow more space for the chauffeured cars of Ministers—who do not pay their own tax on such things.

The hon. Lady says that that is silly, but she may not realise that, for people who are not Ministers, it costs £5 a day to drive in the centre of London. That comes to £25 a week, which comes out of net income. People need large incomes to pay such bills.

The hon. Gentleman asks whether I had the use of a car when I was a Minister, and I can tell him that of course I did, but the Government whom I supported did not impose these very high charges on motorists. We did not try to tax people with low incomes off the road, as this Government are attempting to do.

Does the right hon. Gentleman recall the Budget statement made by the right hon. and learned Member for Rushcliffe (Mr. Clarke) in the last Conservative Parliament? He announced that there would be charging on motorways. Does the right hon. Gentleman agree with that policy?

No such charges were introduced by the Conservative Government. I favour charges if a new motorway, an additional facility, is financed with private money. I see nothing wrong with the Birmingham northern relief road, which I think is what my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) had in mind. That was a Conservative scheme, for which I see this Government are going to take some credit, after a bit of delay. There is at least bipartisan support for the notion that a new facility that is privately financed should result in a charge for those who use it. However, I do not think that the same applies to roads that we have paid for already, many times over, through taxes. That could be justified only if all sorts of other changes were made that improved rather than worsened the motorist's lot.

The Government have also decided to sandbag people who wish to buy properties. The stamp duty proposals are complicated and very expensive, but it ill behoves the Govt to tax people buying quite modest properties in London and parts of the south-east. It shows that they do not believe in fairness or justice around the country, as stamp duty has become a tax on anyone who needs to buy a property in the south-east and in London. As a result, many people—especially in central London—will have to pay the full 4 per cent. rate, given the very high level of house and flat prices, and the low level at which the highest rate applies. The Government should look again at the injustice around the country that their stamp duty taxes represent.

What have the Government got against young people and families struggling to buy a property in London and the south-east? Why do the Government weep crocodile tears about the difficulties experienced by key public-sector workers trying to buy property in London and the south-east, when they are making those workers pay a stamp duty tax? Given the level of house prices over which the Government have presided, that tax is very high in some cases.

According to the Chief Secretary, this Government claim to be very good at attracting inward investment. That was true of Governments for many years. It was true under the Conservative Administration of the 1990s, and of the first years of this Labour Administration, demonstrating that a country did not have to be in the euro, or seeking to join it, to attract inward investment. We were told many times, when the Conservative Government were in power, that, if Britain did not pledge entry to the euro, investment would flee or be driven away. That turned out not to be true. In the early days of the Labour Government, some people in business told us that investment would flee if they did not get on with joining the euro. However, investment kept flooding in.

Britain was the preferred destination for investment for many years—at the end of the Conservative era and at the beginning of the Labour era. Now we can see a problem developing. The Chief Secretary did not refer to it, but the volume of inward investment is now lower than in the good years. Why should that be so? I think it would be surprising were it otherwise. The Government are taxing and regulating business away from this country. The process that I described in manufacturing is beginning to spread to services. Companies are not going to France or Germany to seek the euro. They are going to countries in eastern Europe or Asia, where they get more flexibility, and much lower labour costs.

That is the serious threat to the British economy. Ministers would be well advised not to ignore it or bury their heads in the sand. They should understand the process, and should be seeking to reduce the tax burden on British business. In that way, we can return to being the premier location in western Europe to attract business, rather than pricing ourselves out of the market by stealth.

In response to my requests for lower business and individual income taxes, the Labour Government will ask where the money to pay for public services will come from. The most disreputable part of the debate has been the consistent attempt by Labour spokesmen and Back Benchers in this House to claim that my hon. Friend the Member for Arundel and South Downs (Mr. Flight) and his boss, the shadow Chancellor, my right hon. and learned Friend the Member for Folkestone and Hythe (Mr. Howard), wish to cut public expenditure by 20 per cent. across the board. They have never said that: it is clearly not Conservative policy; nobody believes that we would go to the electorate with such a policy; nobody believes that we would be elected on such a policy; and nobody believes a democratic Government would ever put through such a policy. It is complete nonsense.

What my hon. Friend the Member for Arundel and South Downs has rightly said, as he explained again today, is that there are parts of government—not teachers, nurses, doctors, hospitals and important frontline services—where he, modestly, would like a fifth off the cost. I have said before, and will say again, that I should like to see more than that taken off my regional government: I would Like 100 per cent. off my regional government.

is the right hon. Gentleman saying that his hon. Friend would want to cut 20 per cent. of waste or that he would, in reality, cut public services by 20 per cent., which is what we all believe.

There is no way that anyone in the Conservative party has ever said, or will ever stand on a platform and say, that they want one fifth off public expenditure across the board. That is complete nonsense. No one has said it, no one ever would, and I hope that we can move on from such trivia.

On whether my hon. Friend the Member for Arundel and South Down would like to cut one fifth off waste, I think that he would like to cut all waste, but he is starting off by saying one fifth of waste because he knows, from watching others, how difficult it will be to get rid of all the waste that this Government have created. Billions of pounds have been wasted under the Government, who have singularly failed to cut waste in benefit fiddles or the over-provision of civil servants. They have allowed the civil service to expand to 500,000 people; I should certainly be happy to see a fifth off the civil service. The civil service is not all waste, but a fifth off would be a good start.

My right ho n. Friend makes a persuasive case for why the debate about 20 per cent. is entirely sterile. Does he agree that it is remarkable that although so much time in the Ho use is spent bandying around the 20 per cent. figure, not one senior political journalist in this country believes that it is our policy to cut 20 per cent? They think that that is a complete joke put around by the Labour party.

I think that we should move on. I agree with my hon. Friend that that figure is not taken seriously outside the House, and the Government demean themselves by resorting to such statements.

It is the easiest thing in the world to say that we will cut all waste. However, the only way in which anyone can validate such a statement is by looking back at previous experience. I sat on the Public Accounts Committee for three years, during which time it scrutinised the expenditure of the previous Government. I could go into examples of housing benefit, over-expenditure on the national insurance computer system and lots of other problems that arose in public expenditure. Can the right hon. Gentleman honestly say, on the basis of that experience, that the electorate could have any confidence that the Conservatives would be able to cut out waste?

Having had considerable ministerial experience, I do not for one moment believe that an incoming Conservative Government could cut out all waste, or even most of it. But t hey could do a much better job of curbing and reducing waste than the present Administration. In fact, the present Administration have made the job much easier for an incoming Conservative Government because their waste is so monumental. Huge sums go into the machine, but very little of value extra comes out. It is like going shopping. When I go to a shop, the only two things that interest me are whether it has the goods I want to buy and whether they are at the right price—can I get the quality and the price that I want?

I am not sure that I am allowed to advertise my hon. Friend's shop in this place, but I am sure that things are very good in Uxbridge.

What I want to know is whether the shop has the right goods at the right price. In the Labour shop for public services, the answer is no. The goods are not available—one has to wait 15 months for an operation, and the school results are not good so one cannot get the quality that one wants. The price is astronomical, as we can see in the Bill before us. What do the Government do, then? They do not satisfy us by increasing the supply and quality or reducing the price. On the contrary, they lecture us, saying that it is wonderful news that although they do not have the operation that we want in the hospital and that we cannot have it for 15 months, they are delighted to tell us that they have taken a huge extra sum from our pay packets and are spending it somewhere in the health service, although they cannot tell us where and although it will not provide the operation. If my hon. Friend's shop were not as good as it is and were unable to supply me the goods I wanted at the price I wanted, and if he gave me a lecture saying that I would nevertheless be delighted to know that he had forced a levy on his customers, had spent it and had no clue where the money had gone, I would not go back to his shop, and I would have some pretty unprintable things to say about what it had done. Yet that is Labour's public service shop—no service, huge bills and endless arguments about how the Government have spent a huge sum, for which we ought to be grateful.

Does the right hon. Gentleman honestly believe this travesty? Indicators for the health service all show improvements over the past two years. Primary school literacy and numeracy have gone up unbelievably. Schools and hospitals recognise that big changes are happening. The right hon. Gentleman seems to fall into the trap that his whole party falls into by trying constantly to talk down services while ignoring the real indicators of improvement.

Some schools have done well, and some have done a bit better. However, if the hon. Gentleman examines the overall record, he will see that the health service has gone backwards and that more people are waiting longer in pain without the treatment that they want.[Interruption.] I speak as I find in my constituency; my constituents would not want me to say that everything is wonderful in our local health service when it is far from so. Far too many people are waiting too long for treatment that they ought to receive either immediately or very quickly.

The transport system is in chaos. The underground is far worse than it was five years ago and is not able to provide the transport needed at a time when the congestion charge stops all but the rich from travelling by car. There is chaos and dislocation on the railways after a back-door renationalisation that has backfired, costing the Government and the taxpayer a fortune, and which is delivering a worse service than the Government inherited in 1997.

I have more government than I want, more government than I need, and more government than my constituents and I can afford. The Government are not delivering. Public services are not getting better, and in many cases, such as transport, they are getting a lot worse. In Labour's public sector shop, the price goes ever upwards, the goods are either not available or of an inferior quality, and there is no choice. I will vote against the Bill with relish. It is a Bill from a rip-off Government who are charging us far too much for a lousy range of public services, a Government who are unable to tell us where all the money goes and how it is wasted. I look forward to supporting my right hon. and learned Friend the shadow Chancellor and my hon. Friend the shadow Chief Secretary in the Division Lobby. When we return to power, they will undoubtedly be able to deliver more for less than this wasteful, rip-off Government have done.

6.57 pm

I am pleased to follow the right hon. Member for Wokingham (Mr. Redwood) so that I can put him right on a few general points. I shall cover a range of issues. The first is overall investment. Given the enormous increases in public expenditure that the country is now able to afford for schools, hospital and transport, the British electorate will clearly choose to support public investment and do not want the 20 per cent. cut that we would otherwise have.

It is all very well saying. "Lots of money has been spent, but what is there to see for it?" The reality is that, thanks to the stability that we created by making the Bank of England independent and through prudent management, the British economy now has 1.5 million more people paying tax instead of taking benefits. Because Britain is working again and because we have macroeconomic stability and such things as working families tax credit to make work pay, we have people back at work, providing money. The money is being invested in our health service, our schools and our transport infrastructure. There is a lot more to do, but business responds to a better-educated work force.

Locally, the number of people obtaining five or more GCSEs in Croydon has gone up from 45 per cent. to 49 per cent. in a single year. Last year, Croydon also had an extra 227 nurses and record numbers of people being treated. On the ground, people are seeing benefits. If one runs a business, as I have done, the fact that people are more healthy and not waiting as long is good news. We are seeing returns. Interest rates are at a 20-year low, and the position on inflation is similar. People can plan with security, knowing they can pay back the investments that they make in their own homes without fear of repossession and bankruptcy—a situation that is unprecedented in British economic history. They know now that the economy is safe in Labour's hands, when formerly they felt completely insecure about their future. That is good and should be acknowledged.

Hon. Members have spoken generally about productivity. Productivity is continuing to grow, but Opposition Members occasionally say that the rate of growth is not as much as it might be. The reason is that if one rapidly increases the number of people working in an economy—we have had an increase of more than 1.5 million—the marginal productivity of the extra people entering the job market is less than the average productivity of the people already in the market, so one would expect a reduction in productivity. Instead, we are witnessing marginal increases.

Now that we have so many people back in work, the big challenge, which the Chancellor has identified, is to gear up their productivity. We are doing that by investing in IT, encouraging training and investing in the regions. Overall investment is up, as a premium for the fact that people are in work. Alongside that, we have had record levels of debt repayment—more debt repaid in Britain than ever before. Debt in Britain when compared with gross domestic product is lower than in any other European country.

The Opposition say, "Oh, look: the forecast is slightly out"—because of the world recession, obviously—but if one puts that in context, one realises that. Britain's finances are completely sound. They are stronger than they have ever been. I n the context of the EU stability pact—I am not a great fan of it—if Britain did borrow more than 3 per cent. of GDP, it could easily do so given our level of debt. France and Germany may breach that stability pact.

Those are some of the issues that are rightly being considered by the Treasury as it weighs up whether the time is right to move forward and recommend joining the euro. I do not feel that the time is right; there are some issues concerning the structure of EU finance and the stability pact and the European Central Bank that need refinement. The Treasury recognises that.

Already, France and Germany are likely to breach the terms of the stability pact. It is a great tribute to the Chancellor that he has introduced a model for the Bank of England that is so much better than that used by the European Central Bank. Specifically, my right hon. Friend's symmetrical inflation targets mean that if inflation drops more than 1 per cent. below the 2.5 per cent. target, or goes above it, in essence the Bank of England will adjust interest rates so that the economy is either reflated or deflated to maintain stability, whereas in the case of the European Central Bank there is simply a ceiling.

In addition, we have the advantage of transparency in terms of what is decided in the Bank of England, so that the markets can be confident and comfortable with the reasons for those changes, which is not the case with the European Central Bank. So in terms of stability, managed growth and a regime that encourages reflation as well as holding a lid on overheating, we have a very good model, which explains the remarkable growth that we, as opposed to our European friends, have enjoyed.

The hon. Gentleman paints a rosy picture of the economy under Labour, but why has the UK's share of inward investment into Europe fallen so dramatically? What does he put that down to?

It is worth remembering that Britain is still the leading player. There are issues—do not misunderstand me—about big companies operating in Britain, using Britain as a platform into the European marketplace. They are very strong advocates for joining the euro because if one is an investor, and for argument's sake 80 per cent. of one's products will be consumed in Europe and 20 per cent. in Britain, it is obviously better to invest in mainland Europe, because one can produce in the currency that it is being consumed in, so there is no currency risk in production. The cost of production is known, the selling price is known and it is possible to work out the business plan. The company knows that if it exports some products to Britain, there is only a 20 per cent. risk. On the other hand, if the company invests in Britain, it has 80 per cent. risk. That is why big investors are taking a medium to long-term view on whether Britain will join the euro. Many big investors from Japan or America, for example, want to see us join the euro eventually.

We need to get the conditions right. The Chancellor is right to focus on sustainable convergence, not on a one-off hit. He is right to think about what is right for Britain overall, and to consider, as he did in the Budget, ideas such as those to take the risk to home owners out of the equation, in order to combat the one-size-fits-all argument about interest rates. Presumably, the rationale behind his statement is that if people have fixed-rate mortgages and there is an adjustment to the interest rate, they will be insulated from that, whether the interest rate is set by the Bank of England or the European Central Bank. There are certainly strong arguments for going into the euro. The Leader of the Opposition and others are completely wrong to say that we will name the date and go in irrespective of the conditions and irrespective of whether we satisfy the five conditions for sustainable convergence.

Moving on from the macroeconomic situation that has delivered us such a bonanza in terms of economic success and investment in our public services, I shall speak briefly about distribution. Some of my colleagues have mentioned regional and sustainable economic growth, and the Chancellor has focused on full employment by the region.

:Before the hon. Gentleman moves off macroeconomics, perhaps he could say why, after 10 years of economic growth, the Chancellor needs to borrow £;24 billion this year.

:Obviously we must adjust to the peaks and troughs of the overall global economy. I think everyone would accept that forecasts for economic growth in the global economy have been massively pared down, as have those in all the major economies, although the reduction in economic growth forecasts in Britain has been less than in the rest of Europe and in America and Japan. It is sound finance that we borrow and spend more when we are in a dip than when we are on the way up, but we are not in a recession in the way that other comparable economies are, because of prudent economic management.

:If the hon. Gentleman looks at the Chancellor's forecast, he will see that the Chancellor is forecasting growth of over 2 per cent. for this year and over 3 per cent. for next year and the year after; that is hardly a trough. In that case, why are we borrowing £24 billion this year and £81 billion over the forthcoming four years? If that is a trough, I would hate to see a really bad trough.

:Obviously, growth forecasting is not a perfect science, but those people who doubt for a moment the accuracy, within reasonable tolerances, of the Chancellor's forecasts should look carefully, as I am sure they have not, at the world price of oil as a stimulant of growth. I mentioned it in a previous debate.

:The hon. Gentleman asks, "What has that got to do with economic growth?" It is obvious to someone who knows anything about economics. The oil price, which is a major stimulant of world growth, has moved from about $40 a barrel down to $20 a barrel in the last month or so, as more and more oil has been put into the marketplace because of the fear of the Iraq war, which has thankfully come to an early end. As confidence returns to world markets, and as input prices are lower, we are now seeing an opportunity to get back to buoyant growth.

:I thank the hon. Gentleman for giving way. Does he have any concerns about the fall in the savings ratio and the fact that the economy is being supported largely by personal consumption—by large amounts of housing equity mortgage release? Some £52 billion of it last year accounted for virtually all the growth in consumption. Does the hon. Gentleman feel that that is a sound base from which the economy may move forward?

:I am pleased that I have been asked that helpful question because the reality is that, first, savings ratios are historically low at times of public confidence in the economy. When people think that there is a sustainable growth path without massive redundancies, repossessions and a Conservative Government down the road, their conventional savings are less. Secondly, people save in a different portfolio of ways these days—not simply in pensions, although they

are important. People's major form of saving is in house equity, and in many instances it is rational to put money into housing instead of pensions.

Thirdly, people are increasingly investing in human capital—their propensity to generate wealth in the future. If one is a young person, it is by no means obvious that one should simply start an individual savings account. Young people might be better off putting the money into human capital development, perhaps by entering the housing market. We need to take a more sophisticated look at a lifetime model of savings. Frankly, having a facile and out-of-date look at savings ratios—an indicator of average savings—is naive in a stable economy. I thank the hon. Gentleman very much for that helpful question.

I am a great supporter of the Chancellor's ambitions for full employment regionally. That is a very difficult issue because prices and costs in the south-east and London are obviously much higher. Some eminent academics—Professors Oswold of Warwick university and, of course, Elliot of Aberdeen university—have looked at the private sector mark-up to attract labour for a standardised job in London, which I briefly mentioned in an intervention, and it is 25 per cent. in outer London and nearly 50 per cent. in inner London. They have also considered whether there is any replication in public services and, if so, how we manage it to avoid public sector workers migrating from London—we do not have enough proper public services in London—or pricing out some of the Labour market for the private sector outside London.

:Will the hon. Gentleman comment on the recent evidence from Incomes Data Services that suggests that most national private companies use national pay scales and do not vary their wage rate much between regions?

It is certainly not the case that most companies—or even a small minority of companies—do not provide a London weighting. That suggestion is completely false, and the statistics that I have already quoted apply: the mark-up for London is about 40 per cent. That is necessarily so because housing and transport costs are significantly higher and there are other built-in quality-of-life costs. Other things being equal, people would prefer to live in a less congested, less busy environment.

Does the hon. Gentleman not accept that the payment of public service workers is a problem not only in the south-east, but in all areas of the United Kingdom? There is a specific problem with recruitment in Scotland, where many public sector workers consider themselves to be underpaid. How will that be solved by the Government's proposal, in effect, to increase wages by regional indices in the south-east, but not in other parts of the UK? Will that not exacerbate the problem in some of the poorer areas of the UK?

:Not at all. That is not an accurate representation of the Government's position, which, as I understand it, is that flexibility should be considered where shortages occur. Clearly, that is an issue in the areas with shortages. Perhaps people are desperate to be nurses in the hon. Gentleman's constituency, and they are not being paid enough and are being priced out by other competitive jobs. However, I suggest that that is not the case at all. One has to take seriously the outputs of the market. Some of those market outputs occur for other reasons, such as not enough affordable housing. We need to address those issues as well, or instead: we cannot simply pretend that they are not there.

The firefighters' ambition is to have a 40 per cent, increase. The reality is that in parts of London there might be limited justification for that increase, if we are to get enough people to do the job, but there is no justification for a 40 per cent. increase in the hon. Gentleman's constituency. I shall move on before I provoke too much anger about that.

In relation to the distributional impact, I want to mention take-up of the working tax credit. The Opposition have criticised the take-up rate, but I understand that it is about 92 per cent. already and families with incomes up to £58,000 are eligible, so only about 8 per cent. of the people who are eligible for some level of benefit are not taking it up. Of course, they are clustered at the top end of that income scale—the £58,000 end—where there is less benefit to be got. That can be compared to the normal take-up of means-tested benefits, as opposed to payroll-delivered tax credits. The Chancellor has made a strategic change over the years in moving from means-rested, "You can have it if you want it", stigmatised benefits, which generated take-up rates of only 50 per cent., to saying, "Yes, this is your right. We are encouraging you to work through the payroll"—with 92 per cent. take-up rates. In fact, that is in a sense a way to subsidise business wages to enable families to participate in the labour market. That is a tremendous achievement and a success.

I wish to refer briefly to delivery in other areas. Prisons were mentioned by the Chancellor, who said that the Reading example was delivering and that about 80 per cent. of inmates were going into work on leaving prison. I have a particular interest in trying to increase the effectiveness of our prison system so that it delivers taxpayers instead of long-term liabilities. The reality is that we spend £34,000 a year on each person in prison and there are 73,000 people in prison, two thirds of whom reoffend when they leave it. Many prisoners are not educated to any extent, and 70 per cent. have been excluded from school and, before we invested in pupil referral units, they were wandering around stealing mobile phones and the like. Some 10 per cent. of the overall numeracy and literacy target relates to people in prison.

As a member of the Public Accounts Committee, I am horrified to know that only £700 of the £34,000 that we invest in those people is spent on education, compared with £3,500 spent on each pupil in the average state school or £15,000 in a public school. If more of the £34,000 were spent on providing the best, intensive education, more of those people would be turned into taxpayers, and we need to consider creative ways of doing that. The amount spent on health for each inmate is less than for the average person in Britain, although mental health problems are endemic in prison.

I shall say why I mention those things. It is obviously important to generate the global wealth and economic stability and to get right the distributional basis, the regional basis and the take-up basis. We have done that, but it is also important to consider efficient delivery mechanisms, and there is clearly a lot to do in the Prison Service to generate taxpayers out of people who have previously been criminals.

Finally, I wish to refer to hospitals. Obviously, the major debate tomorrow will be about the delivery of hospitals and whether foundation hospitals can represent a major key to progress in having not only minimum performance standards that increase over time but an environment where innovation can be pushed forward. As all hon. Members know, there are a number of issues. I do not see the issue as being the delivery of a consumer and patient-driven, post-Fordian system that is characterised by innovation and rising standards, which are then dissipated throughout the system. That is fine, but my specific questions about foundation hospitals relate to consumer accountability.

Will we still have patient forums, which were the successors to community health councils? There is a question mark over that. Those are questions for the debate tomorrow, but I just mention them in passing, as they have a bearing on the Finance Bill. I shall listen to that debate, as I have an open mind on the issue. If the Treasury is delivering the money and there are, as in the past, performance targets, will that mechanism help to deliver the services that we all want to see?

There are issues about audit. Obviously, the National Audit Office and the Audit Commission go in and take to pieces the health service and produce recommendations for increased performance. If foundation hospitals appoint their own private sector accountants, there will be issues about the power of accounting and the relationship between the national auditors, the regulators and the hospitals, and I shall be interested to listen to those discussions. Clearly, there will be more freedom, and we want as much, if not more, accountability to Parliament. There are issues about public sector asset management in relation to the use of land assets around London and so on.

:Order. I am reluctant to interrupt the hon. Gentleman. but he really ought not to debate today the issues that we will debate tomorrow.

:I appreciate that advice, Mr. Deputy Speaker.

Put simply, this Budget is first about providing an economic framework that will deliver the quantum of resources and stable framework needed for public services. Secondly, it is about providing a distributional system that is fair and equitable Thirdly, it is about providing new and innovative modernised delivery systems, which ensure rising standards on a continuing basis, in a fair and equitable way. We have the means of delivering more and increasing success in Britain today. Some underlying and legitimate questions need to be asked in a debate that will take place tomorrow, not today, but I very much welcome the Budget.

7.20 pm

:I begin by reminding the House of my business interests, which have been declared in the Register of Members' Interests.

When I listened to the hon. Member for Croydon, Central (Geraint Davies), I thought that I was in a parallel universe. I suddenly slipped forward to tomorrow—to a debate that has yet to occur—and although you, Mr. Deputy Speaker, provided no conclusions or projections about what will happen tomorrow, I knew I had been there.

When I listened to other Labour Members' contributions, I thought I was in the same parallel universe, in which everything in the economy was rosy and wonderful—investment was pouring in, services were being provided and so on. Yet when I returned to the other universe of the Conservative Benches and I recalled what people had told me on the doorstep during the election campaign about the real economy—the problems faced by north-west manufacturing industry, the increase in council tax of three or four times above the level of inflation, and schools struggling to find enough money—I began to think that I was in a slightly different world. Conservative Members are in the real world, and Labour Members are in an unreal world. I reflected on the fact that perhaps some Labour Members had not tuned in to or had direct experience of business; otherwise, we would not have heard some of the speeches that we have so far heard on this Finance Bill.

I cannot claim to share the Paymaster General's record of attendance on Finance Bills, but I follow her closely for the number in which I have been involved as an Opposition Member and as a Minister. If I had to rate the vintage of the Bill on a scale of nought to 10, I would give it about five. It does not contain any seriously interesting blockbuster measures, but it has many clauses—214—43 schedules and 447 pages, largely taken up by the introduction of the new stamp duty measures and land tax. That section of the Bill has a wraparound labelled, "Anti-avoidance". When we look at other sections of the Finance Bill, we find that anti-avoidance is a theme that weaves its way through many of the clauses.

That leads me to my first point—the quality of drafting of tax legislation. It is probably right that the Government should reform a tax that is some 200 years old—in this case, stamp duty—but questions have already been asked about how the new arrangements will work and the degree of consultation that has taken place. Given that during the Budget announcement the Government made great play of an additional £66 million to tackle tax avoidance and fraud, which they claimed would bring back into tax some £1.6 billion—some of the measures to achieve that are mentioned in the Bill—I wondered, if I may tell a little story against the Government of which I was a member, how they would achieve such a remarkable rate of return. The same people who are now Treasury Ministers attacked in opposition a measure that we proposed in the 1996 Budget to spend £187 million on corporate technical review and avoidance, income tax compliance and action on the shadow economy to yield £1.9 billion. I would therefore be grateful if, at some stage, Ministers would enlighten us with more detail on how that remarkable rate of return—£1.6 billion from £66 billion—is to be achieved.

That gives rise to two questions. First, have all the loopholes been closed? The answer is no. If a yield of £1.6 billion is achieved as a result of spending £66 million, perhaps a little more expenditure could have yielded an even greater return, thereby removing the need for some of the other obvious and stealth taxes in this and previous Budgets. Equally, it leads to the question of whether the resources of the Inland Revenue and Customs and Excise are sufficient to enable them to cope with the complexity with which the Revenue must now deal, especially the additional work on tax credits. In addition, we have known for some considerable time, as the Public Accounts Committee has told us, about the failure of Customs and Excise fully to gather in all the revenue for which it is responsible.

When I considered the overall economic challenges that I had hoped the Finance Bill might address, I asked myself whether it would do anything about the adult savings gap. The answer was no. Would it do anything to address the question of the pensions crisis, which other right hon. and hon. Members have mentioned? The answer was no. When the Government advocated the ending of the payable tax credit, one of their justifications for it was that it would increase private investment because pressure would not exist to distribute said moneys in the form of dividends. According to the Government's data, however, two things have happened: first, private investment has fallen; and, secondly, productivity in the economy has also fallen. Both those arguments knock out one of the key justifications for the tax hit on the pensions industry. For those who have life assurance and endowment products, was there anything in the Budget to deal with that? The answer was no; there is nothing in the Finance Bill either.

I am therefore disappointed that even on this occasion the Government have sought not to adjust, as I understand it, the internal tax rates in life assurance and other similar products to visit on the holders of those collective investment vehicles the same beneficial changes that have occurred in capital gains tax for those who hold assets outside investment vehicles. When I last asked for the cost of that work, I was told that it was about £35 million to £37 million. It is always dangerous for a Conservative Member to ask for any money to be spent, but given the losses that have occurred to the value of those long-term savings vehicles, the Government are guilty of a dereliction of duty by ignoring that area.

I mentioned productivity. The Chancellor's previous Budgets have been laced with a rich cocktail of micro-managing different parts of the economy. It is interesting that we hear little about whether those measures have delivered in economic terms. On the sum total in terms of productivity, my eye was drawn to an interesting commentary in theFinancial Times,in an article by Chris Giles, on what the Chancellor said in the Budget, which is reflected in the Finance Bill, about productivity:
"He could have added that the productivity gap between the UK and the US has fallen by 7 percentage points since November."
He continued that the Chancellor's boast,
"was a classic in its selective use of statistics, its use of inconsistent time periods, and its exploitation of irrelevant data revisions."
From a seasoned observer of Britain's productivity position, that is a damning critique: it is a critique of the overall use by the Chancellor, in many cases, of the numbers in the Budget, which, again, are reflected in this Finance Bill. It raises some severe doubts about many of the Budget's statistical projections, to which the Bill refers, as other right hon. and hon. Members have mentioned.

The principal aspect of the Bill is the reform of stamp duty. It raises the interesting question of how much work has been done to ensure that there will not be further innovative thinking on redeploying the use of leases, notwithstanding the question of the measure's practicality and how the complexities of the formula to calculate net present value will operate. The measure is designed to prevent the avoidance of stamp duty by ruling out the practice of creating a company and buying a share in it. Given the pressures on the Revenue, I suspect that an industry will start that will design leases to find ways around the measure. Although we know that the stamp duty land tax is a tax on an interest in land, one cannot say, practically or philosophically, that a lease is an interest in land. A lease is a way to access premises, for example, but it does not confer ownership of the land on which such premises stand. There is a further inconsistency: if we are to tax such specific leases, why have other leases not been similarly addressed? It would be useful to hear a more philosophical and practical explanation of why the Government have chosen to reform such taxation—many people would be interested to hear it.

There is also a question about inheritance tax. It is interesting that stamp duty and inheritance tax reflect an era in which there was not the same range of taxes under the labels of indirect taxes and taxes on income. The Treasury could get hold of such money at that time only when a capital transaction occurred. The principal asset of the majority of people in the United Kingdom is their home, but because ho use prices have risen, especially in the south and south-east, the £255,000 limit on exemption from inheritance tax is very low.

The Chancellor told us that 95 per cent. of estates escape paying inheritance tax but, given that the Treasury has been examining stamp duty, the Bill should, in the interests of reform, have identified a better way of dealing with individuals' inheritance tax. People use labyrinthine and complex measures to avoid paying inheritance tax, which is why 95 per cent. of estates escape paying it. However, is it right that people should have to go to such expense and use such complex methods in this day and age? Many of the system's complexities would disappear if inheritance tax provisions contained a more realistic and proper assessment of the principal private asset—the domestic residence. People would then not worry about trying to find ways to pass on to their heirs at least some of the fruits of their labours that had been accumulated by hard work and already subjected to taxation both when income was generated and through indirect taxation. There is a great need for change.

I mentioned the justification of several of the Chancellor's micro-measures, and I shall comment on value added tax. I was roundly attacked by Treasury Ministers last year for having the temerity to question whether it was right to reduce the rate of value added tax on children's car seats, which was proposed as a great measure to reduce road deaths among children. I would sign up to measures that would have a significant impact on reducing road deaths among children, but will the Paymaster General put my inquisitiveness to rest by telling me—if not today, perhaps she could write to me—how many deaths have been avoided according to the analysis that she has no doubt conducted on the measure? The micro-measure is a classic example of something that, I suspect, has had a marginal effect, if any. It is typical of the measures that have littered this and previous Finance Bills.

There are more serious matters relating to VAT. The Bill contains provisions on users of mobile phones and certain other electronic goods who are involved in a contractual arrangement in which one party does not pay VAT. It is absolutely right to clobber people if they knowingly avoid paying their dues. However, there will be innocent parties in such situations. For example, unsophisticated small firms without the benefit of complex legal advice on contracts may be caught up innocently by the arrangement. What level of proof will Customs and Excise use to determine whether there is joint and several liability? Will the Paymaster General tell us how the measure will work practically, because that would help everyone and give those who operate in an uncertain world a clearer and better idea about it?

Clause 165 contains a worthwhile measure to tighten provisions on information technology and capital allowances. However, although that measure and the proposed change to the tonnage tax are small aspects of the Bill, they give us an interesting illustration of the quality of drafting. We are tightening measures introduced last year, although I was told that there was exhaustive consultation with the shipping industry on the tonnage tax. The existing measure is already taking on water and must be blocked up by a new provision in the Bill. I know how hard people in the Inland Revenue and parliamentary counsel work because I have worked with them, but given the amount of tax law—and tax law rewriting—with which they must deal, questions are being raised about the resources that they receive and the quality of the work that may be done.

I want to raise an intriguing aspect of the Bill: the allowance that will be given for expenses incurred if somebody is a home worker. If, for example, an extra bit of cleaning is required in the office, the Revenue calculates that £104 extra per person employed may be claimed without the need for paperwork. How was it decided that £2 a week was the right amount for the concession? It seems to have been plucked out of thin air. If we are genuinely interested in encouraging home working, such a nit-picking measure is not the best way to achieve it.

I turn to green measures because the Bill includes a measure to increase the landfill tax. The Paymaster General might find it odd to hear me say that the increase suggested in the Bill will have zero effect on reducing the amount of waste generated. That is clear from evidence from the inquiry that has been conducted by the Select Committee on Environment, Food and Rural Affairs, of which I am a member. The Government must make faster progress. I am disappointed that the Bill will not change the climate change levy, because that affects the extent to which combined heat and power is encouraged.

The Government have cottoned on to the idea that a 20p per litre derogation for biodiesel is sufficient, but I hope that they will reconsider that. The Financial Secretary wrote a letter to me that said that because a plant was being set up in Motherwell that would increase biodiesel production, the 20p reduction in duty would be sufficient. In fact, it is clear from EU guidelines that this country will need far more than the 4.5 million litres of additional biodiesel a month that the Motherwell plant can generate from waste materials. There will be a 27 million litre gap if we are to meet the EU guideline targets of 2 per cent. biodiesel by 2005 and we will need a derogation of 30p a litre if agriculturally derived biodiesel is to be the order of the day. In all earnestness, I ask the Government to reconsider that.

I end with three quick points. I hope that the Government will not ignore the fact that the competitive advantage that our corporation tax regime currently enjoys is being eroded. I am disappointed that there is nothing in the Bill on that.

:The right hon. Gentleman raises an important point on the competitiveness of the corporation tax regime—not just its rate, but its structure. Consultation has taken place and he will have heard the Chancellor announce that another publication will be produced in the summer, followed by more consultation with business to do precisely what he says—to maintain that competitive advantage across the board.

:I am grateful for that clarification. The Paymaster General makes an important statement on the positioning of the second round of consultation on corporation tax reform. I was aware of the arrangements and am glad that I raised the problem, especially if we manage to sustain the competitive advantage.

I should have liked the Bill to create a special credit to encourage UK companies that want to invest in the most difficult parts of the world, such as Iraq and the poorest 50 nations. We have a tax credit for research and development because we want to encourage that. Can we not consider the same mechanism to encourage British overseas investment in difficult parts of the world?

Finally, I refer to a theme that I have mentioned a number of times in the context of the Finance Bill: the need to commit ourselves to go beyond the tax law rewrite exercise and to look comprehensively at the way in which our tax system operates. A draft new clause was sent to me on behalf of practitioners in the tax industry. The first part of it reads:
"The Inland Revenue and Customs & Excise shall jointly prepare a report to be submitted to Parliament on the need for a Tax Law Commission, to act in parallel to and to complement the work of the Law Commission."
That is one possible mechanism by which Government, industry, tax practitioners and Parliament might be enjoined in an exercise to consider carefully the complexity of the way in which our tax system works by building on the tax law rewrite exercise to produce a better tax system for the United Kingdom.

7.43 pm

:I am grateful for the opportunity to put on record something about which the Conservative party has said little this evening: the innovative child trust fund, which I support, and the £350 million that the Finance Bill makes available to invest in that. I also support the extra money for pensioners and many of the measures that are aimed at boosting competitiveness and productivity, which enable us to continue our work on the micro-economy. In particular, I welcome the incentives that the Bill and the Budget put in place to help improve skills, to reward investment in new technology and to promote innovation at a regional level. I have in mind the extension of the employer training pilots through the learning and skills councils—another important innovation by the Government—the extension of the research and development tax credits and measures to promote innovation throughout the supply chain, not least by working more closely at a regional level to build up regional networks by working with local industry, local government and local businesses. That will create the pool of skills and economic opportunity that is needed to encourage the innovation that will spread the strong economic growth experienced in some areas throughout the country.

The measures that are aimed at boosting productivity and competitiveness are important. Having put in place a highly successful and robust framework for macroeconomic stability, the biggest long-term economic challenges that face the country are micro-economic and involve how we can improve British competitiveness and productivity. The Budget measures implemented by the Bill reflect our commitment to economic stability and to enterprise and innovation. Those are coupled with measures to advance social justice, which has become the trademark of the Government whose work the Chancellor and his Front-Bench team carry out well. There is nothing different in that sense between this Finance Bill and others. I was pleased to see that we have more of the same so that we can build on the solid foundations for the future.

It is surprising that we have not heard more from the Conservatives about those micro-economic challenges. which involve the need to improve investment and innovation to boost competitiveness and productivity. Instead, we heard a long list of things that they do not like about the Budget, such as investment in public services. We want to raise revenue for those public services, but they wish to cut that investment, and in the parts of the debate that I heard, they focused on such fiscal measures and the macro-economic framework.

I first came to this place a few years ago, in 1997. Wimbledon was a Conservative seat for a long time and I was full of ideas, hopes and aspirations about what we could change. Many of my constituents accepted that I wanted to invest in public services—in hospitals and schools—but the first question they asked was, "Where is the money going to come from?" It is clear from the Bill where the money will come from because it sets out all the measures that are being developed by the Government to raise the resources that we need to meet our commitments to invest in public services.

It is all very well for Conservative Members to say, "No, no. It's not 20 per cent. cuts that we want." The right hon. Member for Wokingham (Mr. Redwood) said that we were wrong to think that and that it was not kind of us to suggest that they want to cut public expenditure by 20 per cent. In fact, from what he said, it seems that they really want to cut public expenditure by 40 per cent. or 60 per cent. We could have long and interesting discussions about that, but they would be academic because there is not much prospect of the Conservatives returning to office at the moment. We can, however, imagine what would happen if they formed a Government.

We can debate the level of cuts. but what we should really talk about is where the money will come from to pay for services. It is not possible for the Conservatives to say that they do not want to cut public expenditure and then to oppose a list of measures that are directed at raising revenue to pay for public services. Every year we have a Budget and a Finance Bill to implement its measures. Every year there is an opportunity, as there is this evening, to remind my constituents why they voted Labour for the first time in 1997 and then did so again in 2001. They will continue to vote for us because we can answer their question: "Where will the money come from?" It is because families, individuals and, in larger and larger numbers, small and medium-sized businesses do not trust the Conservatives with their economic security and future prosperity that they keep coming back to us. I am confident that at the next election many people will have further reason to avoid putting their trust in the Opposition, because it will be clear to them, as it is clear to me now, that not only can the Opposition not be trusted with their economic security and future prosperity but, in addition, they cannot be trusted with the public finances that the Government's able stewardship of the economy and the hard work of millions of taxpayers, both individuals and businesses, have helped to create.

It is an historical fact that the last Tory Government spent recklessly. They spent not only on the failure of their fiscal policies, as rising unemployment resulted in soaring social services budgets, up from £50 million in 1992 to £90 billion in 1997, but on the failure of their monetary policies—15 per cent. interest rates meant that the homeowner faced the threat and, in many cases, the reality of eviction, and the taxpayer was meeting the burden of the rising cost of Government debt. The Tories spent on consultancies. We have heard attacks on public servants and administrators in the health service and other areas of the public sector tonight, but what about all those private service consultants who received all that public money raised by previous Finance Bills to dismantle the public services, sell them off quickly and, in many cases, cheaply to plug the vast, gaping hole in public finances that they had created?