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Oral Answers to Questions

Volume 447: debated on Thursday 15 June 2006


The Chancellor of the Exchequer was asked—

Science and Innovation

1. What assessment he has made of the potential impact on the economy of Government encouragement of investment in science and innovation. (77539)

With science spending doubling since 1997 and research and development credits now worth £1.5 billion to business, Britain has seen 200 spin-off businesses created each year compared with 70 10 years ago. To support Britain as the world’s best location for science, the Minister for Science and Innovation is announcing today that he will build on our proposed new institute for energy and environmental research and the single budget for health research by inviting the Royal Society to create new international science fellowships to bring the world’s best scientists to the United Kingdom.

The House might be interested to know on the day of the national service of thanksgiving to mark Her Majesty the Queen’s 80th birthday that, in addition to a crown piece to celebrate her diamond wedding anniversary, there will be two £2 coins, one to mark the Union of 1707 and a second to mark the abolition of the slave trade in 1807.

I thank my right hon. Friend for his recent visit to Ellesmere Port, which was truly welcomed by the Vauxhall work force and management. What steps does he intend to take to enable UK manufacturers such as Vauxhall to position themselves so that the UK can take a leading role in future vehicles beyond the internal combustion engine?

To visit Ellesmere Port, to have confidence that the workers there can win the next model for Ellesmere Port and to know that 1.6 million cars are now being produced in Britain is to have faith in the future of British manufacturing, as long as it is modern and efficient.

In addition to all the other measures that we are taking, including the new institute to study environmental and energy technologies, there will be capital allowances available for investment in environmental technologies related to fuel. We are also working with Brazil, South Africa and Mozambique to develop bioethanol from sugar, which will contribute to our meeting our renewables obligation. We are determined to have the most environmentally efficient means of producing fuel in future.

The Northwest Development Agency has committed more than £50 million to develop Daresbury science and innovation campus. We now have a return on that investment, with 22 ultra-high-tech companies based at the centre. Will my right hon. Friend come to see world-class science in action at Daresbury and discuss further investment opportunities?

I am grateful to my hon. Friend, who has worked hard to promote new investment for that important scientific campus. I understand that the Northwest Development Agency is investing about £50 million in that campus, which is one of two science and innovation campuses. Not only are 22 businesses operating there, but considerable new infrastructure investment is being made to attract businesses for the future. That reflects our recognition that, in modern manufacturing, we need to promote advanced science and technologies so that in future we lead the world in key technologies. The north-west is an important part of the new investment.

How does the Chancellor explain the fact that, on the one hand, 80 university science departments have closed in the past six years because of the squeeze on university research and teaching of science while, on the other, he is handing out £1.5 billion of taxpayers’ money every year to private companies, which have access to shareholders’ funds and capital markets and which have rewarded his generosity by increasing R and D not one iota? Is there not a fundamental lack of coherence in the Government’s approach to science and innovation?

The lack of coherence is in the Liberal tax and spending plans that were announced only a few days ago. There seems to be a £20 billion gap in the spending plans of the hon. Gentleman’s party.

I hope that the hon. Gentleman will support the £1.5 billion in R and D tax credits so that Britain is a scientific leader in future. I hope that he supports our doubling of the science budget for the United Kingdom, so that instead of being behind the rest of the world as we were under the Conservatives, we are catching up and hope to lead the world. I hope that he also supports the money that we are putting into universities. It seems to me that in every part of the country the Liberals are making promises to spend on universities, science and R and D tax credits, but he must now explain his £20 billion spending gap.

Who is the Chancellor fooling when he boasts about extra investment in science, given that the permanent secretary at the Department for Education and Skills told the Select Committee yesterday that overall funding was going to get tighter? If total education and science spending is to increase more slowly than transport spending, is it any wonder that we end up with 15 million people who the Secretary of State for Education and Skills says would not pass maths GCSE?

We will take no lectures from the hon. Gentleman. When we came into power, spending per pupil was £2,500. It is now £5,000 per pupil. We have doubled spending per pupil. When we came into power, spending on university students had been falling under the Conservative Government. It is now rising as a result of what we are doing. We have set the ambition that we will increase spending per pupil. By 2011, capital spending per pupil will equal that in private schools. I would have thought that Opposition Members would want to support our ambitions in this area.

Will my right hon. Friend remember when he listens to Twickenham Man that Twickenham does not have a university? Huddersfield does have a university. I was with Huddersfield, Bradford and York universities only last Friday. They are enthusiastic about the innovation, the science, the technology and the investment that has been going on over the past nine years. Will my right hon. Friend remember that I was told, “You don’t look at a university campus to find an entrepreneur.”? We need new ways to bring more entrepreneurial spirit and activity on to university campuses.

I am grateful to my hon. Friend, who chairs the Education and Skills Select Committee. He will be aware of the fact which I set out initially in the main answer to the question. It is that 200 companies are spun off from universities every year. That is three times what was achieved under the Conservative Government before us. There are 20 companies now listed on the stock exchange—this is in the past two years—that have a combined capital of £1 billion. The idea that Britain is not moving forward, as has been suggested by the shadow Chancellor, in high technology and science-based industries is completely wrong. We are making considerable advances and we shall continue to do so, but it depends on us making the commitment to both education and science, which we have done, but which other parties seem unprepared to do.

I am sure that the Chancellor will join me in congratulating three schools in my constituency that have received prestigious awards under the young enterprise programme for innovation. There has been a difficulty with funding throughout the United Kingdom. Has that problem been rectified? Lastly, I wish the right hon. Gentleman well for his trip to the Province on Monday.

I am looking forward to visiting Northern Ireland on Monday and meeting representatives of all political parties. No doubt I shall hear some spending representations from many of them.

The enterprise insight programme in Northern Ireland has been a tremendous success. It has encouraged young people to take up business opportunities and many have started their own businesses once they have left school or college. At the same time, throughout the United Kingdom, thousands of school children are involved in enterprise programmes, particularly as part of enterprise week. We are determined to continue to fund them. I would be happy to meet the hon. Gentleman to talk about funding for his area.

Climate Change (Taxation)

11. What his policy is on using taxation to tackle climate change; and if he will make a statement. (77552)

The climate change levy is playing a crucial role in enabling the UK to meet its Kyoto targets. An independent valuation conducted recently by Cambridge Econometrics has examined the levy. It concluded that the levy would, by 2010, deliver annual carbon savings of 3.5 million tonnes. That is far in advance of the forecast of 2 million tonnes of carbon when we introduced the levy.

This is an issue of great concern to growing numbers of my constituents, who are concerned that their children and grandchildren’s futures will be marred by global warming. Given that the climate change levy package has reduced emissions of carbon by 16.5 million tonnes and is a vital part of meeting our Kyoto commitments, how does the UK’s progress on meeting these commitments compare with our international colleagues?

My hon. Friend is right. The UK led the way with introducing the climate change levy, and now it is the sort of measure that is required throughout the European Union. We led the way in introducing an emissions trading scheme, and we led the way also in setting up and strengthening the European Commission’s scheme. We are leading as well with our commitment to Kyoto. Along with the Netherlands and Sweden, we are one of only three EU member states, of 15 countries, in being on track to meet our Kyoto targets.

On climate change, the test for all parties is whether they will back the domestic action that is needed in Britain. In addition, can they wield the international influence that is required to secure the international action that is needed even more badly?

I am sure that every Government Member accepts that the levy plays a significant role in reducing carbon emissions. Does my hon. Friend agree that it is an industry-friendly measure, given the incentives that it provides to improve energy efficiency and thus the cost-effectiveness of British business?

My hon. Friend will remember that when we introduced the climate change levy, we also introduced a 0.3 per cent. cut in employers’ national insurance contributions. She will be aware of the launch of a new campaign by the Carbon Trust, which is linked to the climate change levy. British businesses will waste more than £500 million over the summer if they fail to adopt energy efficiency failures, and the campaign demonstrates that the trust can help them by delivering an average 15 per cent. saving in energy efficiency and business costs. Clearly, the climate change levy package can help business and the environment, so I hope that it receives support from Members on both sides of the House.

How can we better use the tax system to promote microgeneration in residential properties? The technology is expensive to install initially, and the payback period is very long, so can we incentivise home owners to invest in microgeneration technology at the front end to avoid that long payback period?

My hon. Friend will be aware that we reduced VAT rates on all significant microgeneration technologies that are installed professionally in domestic or charitable buildings. That is the extent of the action that we can take under existing VAT rules, but he will know that my right hon. Friend the Chancellor announced in the Budget extra support to try to boost microgeneration technologies and build the market in Britain. Demand is still too low for the technology to take off, but we want that to change. As a Government, we are prepared to try to help, as we want the technology to spread much more widely across Britain.

The Chancellor recently claimed that one of his favourite memories is Paul Gascoigne’s goal against Scotland in 1996, but Whelan claims that, after the goal, the Chancellor was so upset that he would not speak to him for weeks. Which of the Chancellor’s claims is more credible—his claim that people support his climate change levy, rather than a proper tax or levy on carbon, or his claim that he will support England tonight?

There are several questions at the heart of the challenge of climate change. Does the hon. Gentleman accept that the climate change levy has delivered greater reductions in carbon emissions than forecast and that almost a fifth of carbon savings in our Kyoto commitment have been delivered by the climate change levy package? Does he therefore accept that his right hon. Friend the Member for West Dorset (Mr. Letwin) was wrong when he said in the House:

“We regard the climate change levy as an aberration that should never have been brought before Parliament”?—[Official Report, 18 July 2000; Vol. 354, c. 322.]

Does the Minister consider it appropriate that revenues from green taxes as a proportion of the total tax take have fallen while emissions continue to rise?

The hon. Lady, typically for a Liberal, takes a simplistic view. I have two things to say to her. First, the point of environmental taxation is not, contrary to the Liberals’ view, taxation for taxation’s sake: it is about the change in behaviour and opinion that those taxes can achieve. It is wrong to look at taxation simply in terms of the total tax receipts, because environmental taxes can influence behaviour and lead to a reduction in receipts. Environmental taxes can be used, as can discounts for biofuels and climate change agreements, to achieve significant environmental ends without raising the environmental tax take. Secondly, as the hon. Lady looks at the big black hole in her spending and tax plans and the £8 billion of environmental taxes that she would impose on people, I urge her to take a more sophisticated view, and we look forward to her plans in future.

Science Funding (North-East)

I have received a number of representations on regional funding, including on science and innovation, and will consider them in our work on public spending over the coming year.

Will my hon. Friend join me in congratulating Durham county council and the County Durham Development Company on their NETPark project, a major science park being developed in County Durham? Does he agree that it is important that such innovation has the full backing of all Government agencies, including the regional development agency? Will he look into why £4 million of funding has been withdrawn from the new plastic electronics centre at the site for budgetary reasons?

I gladly join my hon. Friend in congratulating Durham county council and I agree that it is an important issue for the region’s productivity. That is why I welcome the decision of One NorthEast to commit £200 million over five years to building up the scientific research and innovation of the north-east. I will certainly look further into the particular case that he mentioned. Last week, I met the chief executive of AddIt North-East, whose role is to pool public sector communications demand as a lever to build a world-class infrastructure for the region. That lever is being applied with particular success in the north-east.

G8 Finance Ministers Meeting

The G8 communiqué called for an enhanced dialogue between oil producers and oil consumers to bring greater stability to the oil and energy markets, supported the education for all initiative on international development and advanced market commitments for health. The communiqué also called for an urgent agreement on world trade to thwart the dangers of protectionism.

My right hon. Friend referred to the education for all initiative and he will be aware that thousands of schools up and down the country, including Leith Walk, Trinity and Granton schools in my own constituency, supported the “My friend needs a teacher” campaign. What positive steps were Finance Ministers able to take to advance the commitments made on this matter at Gleneagles last year?

Hundreds of schools around the country are now linking up with schools in developing countries, and the Department for International Development is providing support to enable those schools to have teacher exchanges or contact between the pupils in the different countries. I applaud the initiative of the schools in my hon. Friend’s constituency. As to progressing the education for all initiative, 110 million children are not going to school today, two thirds of whom are girls. For $10 billion a year, we could provide education for every child. As the House knows, the British Government have set aside £8 billion over the next 10 years to make possible a major education initiative that will help millions of children into school, but we will need the support of other countries and also the fast-track initiative of the World Bank to expand to achieve that. We discussed with other countries on Saturday how to secure a co-ordinated campaign to enhance the number of children going to school. That will be a subject for the G8 meeting next month, which the Prime Minister will attend, and will also feature in the September meetings of the World Bank, where we hope to reach further agreements. It is a major international initiative and I hope that, by this time next year, we will have signed up all the major countries to make it possible.

Did the G8 Ministers discuss the importance of education in preparing our children for the highly competitive global economy in which we live, or did the Chancellor tell G8 Ministers the truth about his pledge instead, which is, in the words of the permanent secretary in the Department for Education and Skills, that it is a “pipe dream” and that

“no research was being done”

on it? He said that it was designed for the next day’s headlines, not for the next generation of school children.

What the hon. Gentleman says is completely wrong. I announced in the Budget new money for capital spending on schools, so that each pupil in state schools would have exactly the same amount of capital spending invested in him or her as is the case in private schools. [Interruption.] They do not think that investment in buildings or computers or equipment is important. [Interruption.] When we came to power, the average investment per pupil in buildings and equipment was £100 a year; today it is £1,000 a year—a tenfold rise. The hon. Gentleman should look at his own party’s policies, which have consistently tried to cut expenditure on education.

Will the Chancellor continue his commitment made at Gleneagles last year to halve world poverty by 2015? If the wealthiest countries can increase their spending from £20 billion a year to £200 billion a year over the next decade, we can indeed reach that target. If his fellow Finance Ministers think that is challenging, will they look at global arms expenditure, which is £900 billion? In the comprehensive spending review that he will announce later this month, will he give a commitment that the United Kingdom will do more than its bit to ensure that the target of halving world poverty by 2015 is achieved?

International development spending in the United Kingdom increased last year and this year and will increase next year. We are on course to meet our targets for international development spending. World development aid is increasing. We have signed the agreements that make it possible to write off multilateral debt, so in total we expect up to £170 billion of debt to be written off. The condition of that is that the money will go to education, health and anti-poverty programmes in the developing countries. At next month’s meeting of the G8, we are determined to push forward so that every country agrees that the commitments that we made for the millennium development goals on poverty, education and health are met. I hope that that is the common view in all parts of the House.

Did the G8 Finance Ministers discuss the fact that in 2005 Britain recorded its slowest economic growth for 13 years? In the first quarter of this year, our growth put us 15th out of the 23 Organisation for Economic Co-operation and Development states that have reported so far. We are below the OECD average, below the G7 average, behind the EU 25 and no better than the poorly performing eurozone. We may be ahead of slow-growing France, Germany and Italy, but when will we start catching up with the world’s successful economies?

The Conservatives seem to be banking on a recession. They must face up to the fact that growth is strengthening this year and will be faster in the second half of the year than in the first half. Growth since 1997 is far faster than it was in the 18 years before 1997, and we are the country that has low inflation, low interest rates, high employment and sustained growth—the opposite of what happened with two major recessions in the Conservative years. The hon. Lady will also have to face up to the fact that, to maintain our levels of growth, we will need the investment in education and science and the investment in the infrastructure for the future, so her announcement at the time of the Budget that she would not support the additional public spending will have to be revisited. I hope that she will agree that she has to do that.

The Chancellor is in denial about the way everything is going in the economy. If everything is going so well, why has Derek Scott, the former economic adviser to the Prime Minister, criticised the Chancellor’s “higher taxes”, “intrusive micromanagement”, “deteriorating fiscal position” and “burdensome regulation”? Does the right hon. Gentleman agree with Derek Scott, a Labour insider, that Labour’s record is “mixed”, “depressing” and “dispiriting”?

If things are going so badly, why did the shadow Chancellor praise us only a few months ago for our record of macro-economic stability? Why did he praise us for having an economic record in creating stability, which his party had never achieved? If things are going so badly on regulation, why did the Heritage Foundation, which is beloved of the right wing of the Conservative party, report that we are a more liberal and deregulated economy now than in 1997, when we took office? If things are going so badly, why are there more people in work, why are interest rates low, why are there more home owners, and why is there more prosperity in this country than ever the Conservatives could achieve?

Debt Cancellation

8. What recent assessment he has made of progress on cancellation of the debt of the world’s poorest countries. (77549)

At their spring meeting, the World Bank governors confirmed the 100 per cent. debt cancellation for heavily indebted poor countries, matching the debt relief that the International Monetary Fund has been providing since January. World Bank debt cancellation will be implemented on 1 July, the first day of its financial year. Debt relief is already making a difference in Zambia, for example, where the Government are using the proceeds of debt relief to abolish health fees for rural populations.

How will my hon. Friend ensure that the funds released to the poorest countries through debt cancellation will be used for basic services to achieve the millennium development goals, particularly reproductive health services for HIV prevention, the reduction of child and maternal mortality and gender empowerment?

My hon. Friend is right to press us on those issues. She has considerable expertise and a fine record of campaigning on those issues over many years. She has mentioned reproductive health, and she knows that unprotected sex is the most common cause of HIV/AIDS infection, which currently affects millions in developing countries, including 2 million children around the world. Worldwide, less than one in five people have access to HIV prevention services. Last year, DFID spent £242.9 million on improving maternal health services and reproductive health services, but, as I have highlighted in the case of Zambia, releasing resources for investment in preventive health care is the particular focus of discussions. We must do everything that we can to fight the scourge of AIDS around the world.

The Chancellor has highlighted the importance of trade as well as of debt cancellation as a means of lifting people out of poverty. The Government know that a good result from the Doha round will lift more people out of poverty and improve the economies of particular countries. When did the Chancellor last meet Peter Mandelson face to face to put that case?

We are in regular touch with commissioners on all those issues. The successful completion of the round is extremely important. Although we made progress at the end of last year, the situation is still disappointing. The hon. Gentleman is right to press for further action, and we will not lower our ambitions. In particular, agriculture is key—we need an ambitious outcome to the round, which means an ambitious outcome on agriculture. We will continue to press commissioners and Trade Ministers around the world to get an outcome as soon as possible.

Will my hon. Friend join me in congratulating organisations such as Jubilee 2000 on their work over many years in highlighting the need to cancel debt in the poorest countries of the world? Does he agree that that type of people power can be incredibly effective both at home and abroad? Will he therefore update the House—

My hon. Friend is absolutely right. Make Poverty History was a truly brilliant campaign—it was probably the most successful political campaign that I have ever seen in terms of mobilising, in particular, young people to support international social justice. There has also been some fine campaigning by hon. Members. In particular, my right hon. Friend the Member for Coatbridge, Chryston and Bellshill (Mr. Clarke) is promoting a private Member’s Bill that has Government support tomorrow. The Bill will make sure that we continue to make progress on the millennium development goals, and I urge all hon. Members to be here tomorrow to support it.

Tax Credits

End of year adjustments are an integral part of the flexible system that responds to families’ circumstances as they change. Eliminating the need for adjustments would require a move to a fixed system, where eligibility would be based on the previous year’s income and circumstances, which would diminish responsiveness. The Government have introduced administrative enhancements and policy developments to improve the operation of the tax credits system, which includes measures to reduce overpayments.

I hope that that works. Last month, the Paymaster General wrote to me confirming that, after an examination of the transcripts of a constituent’s telephone calls to the Revenue, the Revenue acknowledged that it had incorrectly advised the constituent, that the constituent would not have to repay the sums involved and that the constituent would be compensated. Given the clear evidence that staff are finding it difficult to cope with the system, the lack of staff training, the evidence of fraud and the injustice to so many thousands of citizens who have claimed those credits and who have been forced to pay them back, will she acknowledge that the Revenue should always examine the transcripts and not persist in issuing denials when the mistake is usually theirs and not the constituent’s?

Improvements to the tax credit system have been discussed in detail in this House, and I am sure that those discussions will continue. I cannot comment on the specific case raised by the hon. Gentleman, but the system to determine whether an error has occurred and whether an overpayment should be written off is clearly defined and clearly followed. If he believes that that has not happened in the individual case that he has mentioned, I am happy for him to bring it to me again.

My right hon. Friend will realise the hardship that is caused to many families who have to repay tax credits, but does she recognise, as I do, that only a fool or a knave would ever pretend that we will get this 100 per cent. correct? I assure her that I would rather be struggling to defend overpayments than underpayments under this scheme.

My hon. Friend is making a very clear case. Some 6 million families are receiving tax credits, and their role in lifting 700,000 children out of poverty is making a huge contribution to all our communities. Their flexible and responsive nature is particularly important for families whose incomes fall and who therefore need more tax credits. He will know from last year’s figures that 700,000 families’ incomes fell significantly and they then received extra support from the tax credits system, which the system supported by the Opposition—the Liberals and the Tories—would have denied them.

Yet another question on tax credits; yet another occasion on which the Chancellor has failed to defend his own failed policy. In 2004-05, almost half of the 6 million tax credit payments were wrong. This week, the Institute for Public Policy Research, Labour’s favourite think-tank, produced a report that said:

“as the system currently operates, there are real doubts about whether this is an effective policy mechanism.”

When will the Chancellor accept personal responsibility for his creation of a massively over-complicated system that is causing misery to millions of families and needs to be reformed?

It does not matter how much the hon. Gentleman wriggles in trying to disguise the fact that the Conservatives want to abolish tax credits and take them away from millions of families, because he cannot deny that whenever this has been discussed in the House, including by the Treasury Committee, it has been concluded that tax credits are a significant contribution to challenging and eradicating poverty. The basic policy is correct, and the administration must follow that.

There is no doubt that tax credits have helped millions of families—thousands in North-West Leicestershire and in every other constituency—in tackling poverty. However, can my right hon. Friend reassure the House that the substantial income disregard that is being implemented is the best way of tackling poverty? Is it not at least possible that it will be a significant incentive to collusion in fraud in some cases? What assessment has been made of the cost of this new initiative?

First, as my hon. Friend can see, the package of announcements, including the disregard, is in the pre-Budget report books. Secondly, tax credits have two objectives: first, to assist in the eradication of poverty; and secondly, to help people to into work. The disregard is designed specifically to help people to transfer into work and to support them in that early period. Thirdly, I can give my hon. Friend the undertaking that he seeks in that the tax credits system will continue to ensure a robust compliance strategy.

Inheritance Tax

10. What the total cost was of administering inheritance tax in each of the last five years; and what the estimated cost is for 2006-07. (77551)

The cost of collecting each pound of inheritance tax was 1.23p in 2000-01, 1.21p in 2001-02, 1.38p in 2002-03, 1.21p in 2003-04 and 1.14p in 2004-05, the most recent year for which figures are available. I do not expect a big change in the current year.

Because it is morally the right tax. Only 6 per cent. of estates paid inheritance tax last year. The zero threshold is £285,000 this year, rising to £325,000 in 2009-10. All wealth passed to spouses or civil partners is tax free. It is right to apply tax in that way and we will continue to do so. If the hon. Gentleman is suggesting that it should be abolished, he needs to explain where the money would come from.

Does my hon. Friend agree that any party that claims to be concerned about equal opportunities must have a fair inheritance tax regime?

I do agree; my hon. Friend is right. I expect inheritance tax to raise £3.6 billion this year. The Conservative party needs to identify the spending that would be cut or the taxes that would be raised to fill the gap.

Tax Credits

Her Majesty’s Revenue and Customs actively encourages claimants to report changes in circumstances promptly to reduce the likelihood of underpayment.

I thank the right hon. Lady for that answer. Will she take cognisance of the Treasury Committee’s suggestion that a complete analysis should be made of official error? Would that analysis be published?

The Treasury report on tax credit fraud and error was supposed to be released last month. I understand from the Department that it has been completed. Where is it?

Science and Innovation

13. What assessment he has made of the contribution of expenditure on science to the performance of the economy; and if he will make a statement. (77554)

A study by the Organisation for Economic Co-operation and Development in 2001 found that a 1 per cent. increase in public research and development spending leads to a productivity rise of 0.17 per cent. There is also growing evidence of a link between effective use of information and communications technology and higher productivity.

I thank my hon. Friend for his response. I believe that it is important to invest in science to help the UK economy grow and for us to compete in an ever increasing global economy. I draw his attention to the semi-conductor company, Pure Wafer, in my constituency. It is the only company outside Japan with the technology and capability to recycle 300 mm silicon wafers on a global scale. It has received grant assistance and brought jobs to Swansea, and it was recently awarded the title of Welsh company of the year. Will he ensure that the Government continue to invest in science to provide local jobs and help us to compete on a global scale?

I can certainly give my hon. Friend that assurance. I congratulate the company in her constituency and pay tribute to the support that she gives it and other firms in her area. The 10-year strategy for science that we launched two years ago set out the ambition that public and private investment in research and development should reach 2.5 per cent. of GDP by 2014. Thanks to the new stability that we have achieved in the British economy plus the extra support for science, we can look forward to many more examples, such as that to which my hon. Friend drew the House’s attention.

Given the Chief Secretary’s comments about the link between science expenditure and economic development, why does Wales, with 5 per cent. of the UK population, receive only 2 per cent. of the science budget, which is about a third of what the Government spent last year on science overseas?

The science budget will reach £3.4 billion by the next financial year—more than twice the 1997 level in cash terms. Of course, many decisions about money that is committed in Wales are now for the Welsh Assembly. However, there are many outstanding examples in Wales of science-based companies thriving, thanks to what the Government have done.


We are strongly committed to supporting the development of biofuels in Britain. The Budget announced an extension of the 20p per litre discount on both biodiesel and bioethanol and that will run until at least 2008-09. The Chancellor also made a range of announcements to bring into force a renewable transport obligation.

Several weeks ago, I had the pleasure of launching one of the country’s first bioethanol pumps at a filling station in Lowestoft. This is a symbol of our determination in East Anglia to lead the way on biofuels. We have new biofuel plants coming on stream, but is my hon. Friend satisfied with the present rate of progress? Does he think that the process needs more encouragement? What discussions is he having with motor manufacturers to ensure that we have vehicles that can use bioethanol and petrol in the same tank—as they have in Brazil—ready for the new bioethanol revolution?

I welcome the introduction of the new bioethanol pump in my hon. Friend’s constituency. East Anglia is taking the lead in many ways. One of the first bioethanol plants is likely to be set up in Wissington, close to my hon. Friend’s constituency. The industry is being given great support and encouragement by the package of measures that the Chancellor announced in the Budget. That will give greater certainty about the development of the market. Clearly, even to reach the level at which 5 per cent. of our road fuels are derived from renewable sources—which is the level of the obligation—will involve a huge step up. However, I am confident that we now have in place the sort of package that will lead to that sort of development. The development of engine technology and of the technical specifications for fuel will be part and parcel of our ability to push well beyond 5 per cent. after 2010-11.

In an earlier response to a question about bioethanol, the Chancellor mentioned Mozambique. Does the Minister acknowledge that there are many sugar beet farmers around this country, not least in Shropshire, which has 600, with 200 in my constituency alone? They would be more than willing, able and keen to assist the Government in meeting their climate change targets, if only there were a guaranteed market, and incentives rather than a stick. Will the Minister send out a message today to Shropshire farmers—rather than just Mozambique farmers—about how the Government will encourage them to get into the bioethanol market?

I am not sure that the hon. Gentleman has looked at the package of proposals put in place by my right hon. Friend in the Budget. Nor am I sure that he has looked at the reaction of the industry to those measures, or at the plans for the new bioethanol plants in this country. The purpose of our policy is to develop the biofuels market in Britain, which will provide new opportunities for British farmers. However, we are not providing a fresh form of subsidy for British production. We are interested in building the biofuels market and gaining the environmental benefits from it. The managing director of Losonoco, one of the firms due to set up two bioethanol plants in the UK, has said that, from the firm’s perspective, it was a good Budget and that the support that the Government is giving to the biofuels sector was very encouraging.

We now have in place all the right economic instruments, including the reduction in fuel duty, the capital allowances for new developments and the proposed renewable transport fuel obligation. Does my hon. Friend agree that what we need now are home-grown entrepreneurs to come forward to make the most of home-grown fuels?

My hon. Friend is right. The Government can go only so far. We have put in place the framework of incentives and support for the development of the market, but, in the end, it requires private investment and private enterprise. The signs are good, but private industry and investment must now do the heavy lifting.

Tax Credits

The information requested by the hon. Gentleman will not be available until family circumstances and incomes for 2005-06 have been finalised.

I thank the Minister for her response. She will be aware that a considerable amount of tax credits have been overpaid through no fault of the claimant and that, when they have to pay the money back, it causes considerable hardship. I recently wrote to her about a case in which the claimant had put her income down on the claim form, but not in the specific box required. She subsequently confirmed that that was her income, but was then overpaid because the Inland Revenue was unable to take account of what she had reported to them. She is now faced with a bill for £3,500, which she cannot pay back. Will the Paymaster General look into that case, and into the whole issue of overpayments that are absolutely no fault of the claimant?

I am sure, Mr. Deputy Speaker, that you would not want me to conduct an MP’s surgery here in Treasury Questions—[Hon. Members: “Go on.”] Perhaps I should not have said that. The hon. Gentleman should write to me on that specific case and I will look into it—a facility that I offer to all Members. I remind him that during 2003-04, the first year of the scheme’s operation, 54,000 families received tax credits. In 2004-05, that figure rose to 60,000, and some of those families, because of their income, benefited to the tune of £2,400 or more. The crucial point is that tax credits in Gloucestershire and everywhere else are contributing to lifting children out of poverty and assisting families and parents to return to work.

UK Productivity

The Budget report provided an assessment of all areas of the UK economy and UK competitiveness, including gross domestic product, productivity growth, labour market performance and economic stability.

I think that I thank the Minister for that non-answer. He was a special adviser in the Treasury when the Chancellor of the Exchequer made it one of his first priorities, back in 1997, to raise economic productivity. The Minister must know that his Government have singularly failed to do that, and that we have actually dropped down the economic competitiveness league. What is he going to do, through tax and regulation, to make the economy of this country a good deal better than it has been in the past nine years?

I thank the hon. Lady for her question and for being here to ask it. The fact is that since 1997, productivity has grown in every quarter under this Government, unlike under the previous Conservative Government, when it fell. This week’s edition of “Employment Outlook”, produced by the Organisation for Economic Co-operation and Development, tells us:

“Britain has scored the highest employment rate and the best combination of unemployment and inactivity rates in the G7 countries for the first time in 50 years.”

We have combined stability, strengthening productivity and record levels of employment. People will remember the difference between that record and the record of previous decades, when we suffered the deepest recession since the second world war and the longest recession since the second world war, when people suffered from negative equity and when we had high interest rates. People do not want to go back to those days.

One of the areas of concern for manufacturing in my constituency is the cost of energy. In the light of that, and given what has been stated about the next generation of nuclear power, what is the Treasury’s view?

My hon. Friend is right to point out that the high cost of energy in recent months has been an issue for British industry, and more generally for the economy. On Monday, the Governor of the Bank of England talked about the pressures on the economy as a result of the high oil prices around the world. An energy review, which will report in a few months time, will be a Government report and will set out exactly how we can have an energy policy that meets our climate change obligations and also delivers security and diversity of supply. That report will refer to the need for a range of measures and of sources of energy, but we will need to wait for the final details before we can comment on it.

Is the Minister aware that business and industry are more heavily taxed now than ever before? In 1997, the tax take was £80 billion; this year, it is £140 billion, due to corporation tax, national insurance tax and other taxation. On top of that, there a huge amount of regulation, some of which is emanating from the European Union. Is it any wonder that companies, including headquarters in the City of London, are thinking of relocating elsewhere?

As I said in a speech yesterday, the number of listings in the UK has been rising, rather than falling, in recent years. We have cut corporation tax from 33p to 30p. We have cut small business tax. We have also cut capital gains tax from 40p to 10p since 1997. However, the hon. Lady includes in her figures one tax that we did raise: a £5 billion windfall tax on the privatised utilities. The Conservatives opposed it, but it has helped to get down unemployment—particularly youth unemployment—in constituencies across the country. I would like her to support that tax rise, but I fear that she will not do so.

Climate Change Levy

18. What recent discussions he has had on the climate change levy and its impact on carbon emissions. (77560)

We have discussions with a wide range of groups on a wide range of issues, including the climate change levy. Talking of discussions, next week we will be able to debate and vote on the climate change levy as part of the Finance Bill; indeed, we will discuss it with all parties in this House, and I hope that all will back it at that point. In particular, I hope that, for once, we will see backing from the Conservatives on the environment, instead of opposing the levy. I hope that they will support the measures that we are taking. I am grateful to my hon. Friend for that response. He will know that high energy users, including the aluminium smelter sector, have reduced their CO2 emissions considerably because of incentives provided by the Government, through changes to national insurance and part-exemption from the climate change levy. That has allowed smelters, including Anglesey Aluminium in my constituency, to reduce their carbon emissions by up to 30 per cent. Will he consider that issue further when climate change is under discussion, to ensure that British manufacturing, including smelters, is more productive? Does he agree that that carrot and stick approach is just what British industry needs?

My hon. Friend is right in that the package that we introduced with the climate change levy included the important climate change agreements, giving an 80 per cent. discount from the levy for high energy, high intensive sectors, especially those facing international competition. We were able to introduce those discounts for 42 sectors and have since added five more. We are looking to legislate for those five more, building on an extra nine that we added previously. We are trying to strike an essential balance with a package of measures that gets us the environmental gains that we need, but protects the competitiveness of British industry. We have achieved that with the climate change levy package and I hope that we will receive support from both sides of the House for the Finance Bill next week, instead of the Tories—to coin a phrase—talking tough and voting soft.

Tax Credits

20. What criteria he used in deciding on his response to the request from the Institute for Fiscal Studies for information on the cost of the £25,000 income disregard for tax credits. (77562)

In responding to the freedom of information request from the Institute for Fiscal Studies and in the subsequent review of the decision, officials at Her Majesty’s Revenue and Customs followed the criteria set out in the Freedom of Information Act 2000.

The Paymaster General knows exactly what the likely cost of the increased disregard will be, but in rejecting the freedom of information request she said that officials had to balance the public interest in disclosing the information with the public interest in withholding it. What is the public interest in preventing MPs from knowing the cost of her policy? Is it not a shameful situation for the Chancellor of the Exchequer to be afraid of scrutiny of his flagship policy?

On the first question that the hon. Gentleman posed, the information has been made available to the House. On the specific point of the Freedom of Information Act 2000, Her Majesty’s Revenue and Customs is a non-ministerial department. It is for officials to follow the criteria set out in the Act, and that is precisely what they did.

The Paymaster General will be aware that the Treasury Committee’s report, published recently, criticised the lack of understanding of the cost of the new package, including the disregard, as well as a failure to understand the roles of IT, fraud and official error. The report also stated that the Committee was not convinced that the Paymaster General fully realised

“the extent to which HMRC needs to re-focus its administrative structures for tax credits around the needs of claimants.”

Since that report was published, has the penny finally dropped?

The Treasury Committee said:

“We commend HMRC for the positive step it has taken towards improving the way it deals with complex cases, by setting up a specialist team for the express purpose”.

The Committee also commended HMRC for the moves it has made to improve its work.

The report said that

“we welcome the fact that the Government is seeking to improve the operation of the tax credits regime by introducing a package of reforms.”

The Treasury Committee’s report commented in detail and commended the department on the administrative changes it is making. The press release by the Committee also acknowledged that tax credits are the right policy.

Pension Reform

21. What discussions he has had with the Secretary of State for Work and Pensions on the tax implications of pension reform; and if he will make a statement. (77563)

I am pleased, if somewhat surprised, to be able to answer question 21. My right hon. Friend the Chancellor and Treasury Ministers have regular discussions with the Secretary of State for Work and Pensions on a range of matters, including those relating to pension reform.

I am grateful for that very informative response. In evidence to the Treasury Select Committee earlier this week, the Secretary of State for Work and Pensions was unable to give a clear-cut assurance that increases in the basic state pension would definitely be linked to earnings, not just in 2012 but throughout the life of the next Parliament. It is increasingly unlikely that the Chancellor will be in a position of influence over the next Government, but will the Economic Secretary say whether he has any doubts about the affordability of that key plank of the Government’s pension reforms?

I know that the hon. Gentleman keeps a close eye on pension issues, as a member of the Select Committee and through his website, where he has expressed his concerns about affordability. The Government’s position was set out clearly in the White Paper. We want to introduce the earnings link by 2012, and certainly by 2015. Our aim is to reform pensions in an affordable way that is fair to future generations as well as to this one. That is what we will deliver.

Tax relief on pension contributions currently costs £18 billion a year in foregone tax revenue, and there will be further tax relief under the new pension arrangements proposed by my right hon. Friend Secretary of State for Work and Pensions. However, the evidence from the Department for Work and Pensions is that tax relief has a negligible effect on how much is saved in pension schemes. Why is there tax relief under the new scheme, when the existing relief is not doing what it was designed to do?

As my hon. Friend knows, people pay tax on their pensions when they receive them, and they receive tax relief as they contribute to their pensions. That has been the system in this country for many years, and it is the right way to ensure that we encourage people to save for retirement. We want more rather than fewer people to use the tax reliefs by saving for their pensions, and that is why the current system will continue after the White Paper has been implemented.