The Chancellor of the Exchequer was asked—
Britain is at or near the best for employment and enterprise. The report on science that we are publishing today shows the progress that we are making on research and development. Europe accounts for 50 per cent. of British imports and exports. To speed up the pace of economic reform across Europe, we are proposing that Governments and business join together in a Europe-wide business forum.
My right hon. Friend presides over one of the most dynamic economies in the world, with record levels of foreign direct investment, according to the United Nations, and massive levels of employment, according to the G7 nations. In an age of globalisation and cut-throat competition, what is he doing to ensure that our European Union partners go the same way as we have?
I am grateful to my hon. Friend, who has taken a broad interest in these matters. He is absolutely right about our economic performance, given that the shadow Chancellor has congratulated us on establishing economic credibility and on our success in macro-economic policy. On employment, despite the recent difficulties, the claimant count in Britain is 3 per cent. and the labour force survey figure is 5 per cent. Our unemployment rate is about half that of the mainland European economies. I believe that we can continue to expand, even in a situation of massive global competition. Our aim is full employment for this country, and I hope that all parties will subscribe to that.
Will the Chancellor try to speed up progress on the famous Lisbon agenda, particularly deregulation, given that under his stewardship the Scottish economy has grown at only one quarter of the pace of the Irish economy? Can he learn from the Irish economy, which gets less in subsidy from the EU than Scotland gets from England?
I can only tell the right hon. Gentleman what he said in his own report on the British economy:
“What are the most attractive locations today?…The lure of the USA…Of China…Of India…Of the UK”.
We have that allure for investors because we have a low-tax economy, stability, and an open competition policy. When the right hon. Gentleman chairs the Conservative party review on these matters, perhaps he can sort out its policy on Europe, which is in complete disarray according to the e-mails of the Leader of the Opposition’s Parliamentary Private Secretary. Perhaps he can also say that our economic record has brought stability, whereas under the Government in which he served there was instability.
Does the Chancellor intend to continue working with colleagues across Europe to promote employment and stability under the Lisbon agenda, or does he have any plans to isolate us from Europe and common sense by joining up with neo-fascists, weirdos and maniacs from all over the place?
My hon. Friend is right. It was Conservative Members who talked about the cranks, fanatics and extremists that they might have to join if they were part of the opposite grouping to the European People’s party. The choice is between a pro-European and pro-business agenda and an anti-European and anti-business agenda. The tragedy is that the Conservatives are not only anti-European, but are about doing what is damaging to business. If they will not believe what I have said, perhaps the Swayne e-mails—
Is not the Chancellor becoming a little concerned that Britain’s good performance in employment and unemployment is being undermined by the fact that unemployment has risen for 15 of the past 16 months and is at its highest point for six years? Does he have any specific initiative to make in respect of Britain’s mortgage lenders, given that unemployment is translating into rapidly rising repossessions because of the absence of any system of safety nets for people in mortgage arrears?
It is difficult to take lectures from the Liberals when they have just published their tax and spending plans, which show a £20 billion spending hole that would lead to damage to the economy. As for employment, I would have thought that he would give us a balanced account. We have one of the lowest unemployment rates in Europe. At the same time, we have moved closer and faster to full employment under this Government than under any Government for 50 years.
On interest rates, while I recognise that house prices have risen, the hon. Gentleman should recognise that interest rates are among the lowest that they have ever been. In fact, for mortgage holders, interest rates have averaged half under the Labour Government of what they were under the Conservative Government. It is perhaps about time that the Liberals acknowledged that.
The Chancellor will agree that the Lisbon agenda must be founded on the rock of economic stability. The Treasury Committee’s report, “Globalisation: the role of the IMF” suggests that there is significant risk to the UK in Europe if there are global imbalances and disorderly unwinding in the global community. Given that, will my right hon. Friend ensure that when he goes to Singapore in September, he will promote crisis prevention rather than crisis resolution so that economic stability is best served in the UK, Europe and the global community?
I am grateful to my right hon. Friend. The report is an important document, which points to the changing role of the IMF and, indeed, other international institutions. The emphasis must now be on crisis prevention rather than crisis resolution, the transparency that is necessary for countries to report what is happening in their fiscal and monetary policies and, therefore, for programmes of proper surveillance, whereby we can examine at first hand what is happening not only to countries’ fiscal and monetary but their corporate positions. That is why the proposal for extending article IV reports to cover those issues, and for an international form of surveillance as well as national reports, is important. I applaud the report. Perhaps we should also have surveillance of Opposition parties’ proposals.
The Labour Member on the European convention, the hon. Member for Birmingham, Edgbaston (Ms Stuart), said recently that economic policy throughout Europe is moving backwards. She singled out one country for special criticism—Britain. She said:
“The seeds of future stagnation have been sown. We have excessive public spending, rising taxes and excessive micro-management.”
I know that the Chancellor is keen to get on with the parliamentary Labour party at the moment. What does he have to say to his hon. Friend?
I just repeat what the hon. Gentleman says outside the House but not in it. He supported us and congratulated us on our successful macro-economic policy. [Interruption.] What is the country to make of a shadow Chancellor who, inside the House, criticises us for our economic policy but outside, when talking to business, to try to show that he has learned from his mistakes under a previous Conservative Government, refers to
“Labour’s success on macroeconomic policy”
and says that Labour has been successful in “establishing economic credibility.” He also said:
“Labour have improved the macro-economic management of the UK economy.”
If he is not prepared to say those things in the House but says them outside, the country will have to draw its own conclusions.
As for European issues, perhaps he should read the e-mails of the Leader of the Opposition’s parliamentary private secretary. [Hon. Members: “Oh!] Oh yes—they are precisely about the Conservative party’s European policy, which, according to the e-mails, is the subject of dismay, depression, “frustration and impotence.”
Before the Chancellor talks about friends in Europe, he should read the comments of the President of the European Commission, who says that, every time the Chancellor turns up in Brussels, it is like a vegetarian visiting a beef eaters’ club.
If the Chancellor does not agree with the hon. Member for Birmingham, Edgbaston, perhaps he will agree with the Prime Minister’s former chief economic adviser, who wrote recently in the Financial Times that
“higher taxes and intrusive micro-management are gradually taking their toll.”
Or perhaps the right hon. Gentleman is simply no longer interested in the mundane issues of the economy because his whole attitude is, as the right hon. Member for Birmingham, Ladywood (Clare Short) put it recently, “Please, please, let me take over. I’ll do anything you say.”
I can only quote back his own words to the shadow Chancellor and cite what has happened in his constituency, where unemployment has fallen by 54 per cent. under a Labour Government. Only a few days ago, he said:
“I worked for John Major when we lost the 1997 election, was William Hague’s political adviser when we lost the election after that. That doesn’t say much for the quality of my advice.”
Does my right hon. Friend agree that the Lisbon agenda is about real issues such as inflation, employment and getting money for public services? Will he scour the agenda next time to see whether it has any references to saying no to chocolate oranges and padded bras, or hugging a hoodie selling dodgy goods? I do not think that he will find them because they are all part of the Tories’ agenda.
The issue is whether one believes in stunts or substance in policy. The substance in policy is the lowest unemployment for 30 years, the lowest interest rates for 40 years and the lowest inflation rate in a generation. No Conservative Government have been able to boast of such a record. The shadow Chancellor would do better to go back to the drawing board with the right hon. Member for Wokingham (Mr. Redwood) and examine the Conservatives’ economic policy.
We call on all G8 and other countries to join us, and the fast-track initiative of the World Bank, in 10-year plans to expand education so that, instead of the situation today in which 100 million children are denied schooling, all children throughout the world will have the right to education.
I thank my right hon. Friend for that answer. Yesterday, 10 children from St. Joseph’s primary school, in my constituency, met the Prime Minister and pressed him on this very issue. One read a poem, which included the following words:
“Education is the key,
Look how it’s helped you and me,
Help them to feel safe and secure,
Knowledge unlocks the door for the poor.”
How can my right hon. Friend help to ensure that those children’s words and efforts are not in vain, especially if other countries renege on their commitments?
I am grateful to my hon. Friend. He has led a campaign in his constituency, and I hope that there are many Members in all parts of the House who are able work with schoolchildren and teachers in their constituencies, so that the “education for all” initiative gains support throughout the country, and schools in Britain can link up with schools in Africa. Two thirds of the 100 million children who do not receive education are girls. Many are at school, but the pupil:teacher ratios are anything from 100:1 to 150:1. Britain has set aside £8.5 billion over the next 10 years—the Secretary of State for International Development will make a statement later today on future plans—so that we can lead the way in providing education for all. That is the most cost-effective and beneficial investment that the world could ever make, and I hope that all Members can join together to support it.
This is clearly an ambitious and bold project that we Liberal Democrats would wish to support, but it will clearly also be very expensive. In light of that, and of the views of the Office of Government Commerce, will the Chancellor of the Exchequer consider redirecting the savings made by not proceeding with the identity card scheme into this area?
One of the benefits of running a successful economy, which the Liberal party might not understand, is that it is possible to spend money on both international development and domestic policy. We have proved over the past nine years that it is possible to expand public expenditure on policing and the Home Office, education and health and social services generally, and still to double the amount of money in real terms going into international development. I hope that the Liberal party will review its own spending plans, so that it can prove to the public that it, too, could be trusted with the spending of money.
Would my right hon. Friend care to develop his thinking on the education for all programmes and the strategies of African countries, particularly in view of the need for them to be fully funded and consistent with paragraph 18(a) of the Gleneagles communiqué?
I am not—I do not have it to hand—aware of what the (a) part of paragraph 18 says, but the whole House will thank my right hon. Friend for his work on the International Development (Reporting and Transparency) Bill, which will require the Government to report regularly to Parliament on the successes in, and the challenges of, meeting the international development aid targets. His work has been welcomed by all non-governmental organisations and pressure groups not only in this country, but around the world.
Yes, we will keep to the Gleneagles agreement on these issues, and at the same time we will continue to expand spending not only on education, but on health. The vaccination initiative introduced in the past few months, providing £5 billion extra for vaccination, will ensure that over the next 20 years millions of children will be able to survive, where previously they would have died. This initiative involves both education and health, and we are showing that this Government are properly funding it.
For education programmes to be worth while, we also need a decent environment for children. Can the Chancellor explain why he was unable to address the G8-plus-five legislators’ dialogue last weekend, which was very disappointed not to hear from him? Can he also tell us of any progress that has been made with the climate change fund, which he announced with many headlines at the time of World Bank’s spring meetings in Washington?
I am glad that the hon. Gentleman agrees about the need for action on climate change, and I hope that he will support not only our UK climate change levy but our public investment programme, so that the World Bank will set up, as he knows, a fund providing loans and grants to enable developing countries to move into alternative sources of energy and to make more efficient use of existing energy.
If media reports are to be believed—not always the case—Vladimir Putin was successful in keeping Africa off the core agenda of the G8 meeting in his country at St. Petersburg. Can the Chancellor reassure the House that education has the greatest potential to transform the lives of people on the continent of Africa? Will he try to ensure that the subject of education provides a means of broadening the debate so that Africa is not forgotten? It played a central part in Gleneagles, but it seems to be less central in St. Petersburg this week.
I suspect that middle east issues will form a big part of the G8 agenda in St. Petersburg, but I can assure my hon. Friend that African issues will be discussed. I can also assure him that the Germany presidency of the G8 next year fully intends to make development a central part of what it does. The IMF and World Bank meetings in September are focusing heavily on issues of development and providing finance for it. There is also a UN reform commission that is looking into how the UN can play a far more effective role in development in future. Far from those issues being off the agenda after Gleneagles, they are definitively on the agenda, and I believe that the public action by non-governmental organisations, Churches and faith groups, which have kept it on the agenda over the past year, will also keep it on the agenda in future years. I hope that MPs on both sides of the House can join Churches and faith groups in making sure that in every country there is a full knowledge of our responsibilities to the developing countries.
At the forthcoming meeting, will the Chancellor urge his G8 colleagues to live up to their promises on programmes for dealing with HIV/AIDS, particularly programmes relating to children? Will he take steps to ensure that UK Government programmes that are administered multilaterally alongside G8 partners or the EU give HIV/AIDS a much higher priority than they have in the past?
I will not be attending the meeting at St. Petersburg on Saturday, but I was at the meeting of Finance Ministers there only a few days ago. What was decided there was that we would push the development agenda forward. We discussed health issues and promised that HIV/AIDS sufferers would get some form of treatment and help by 2010. We know that 25 million people have died as a result of AIDS, we know that there are 12 million AIDS orphans and we know what our responsibilities are. Instead of promoting what I believe are divisive ideas about education vouchers, I wish the Conservative party would unite around the necessary funding that should go through Governments and civil society to deal with problems of health and education.
I am grateful for that reply, but it is a shame that it did not come from the Chancellor, who has not answered an oral question on tax credits for 791 days. One cause of the extraordinary level of fraud and error in tax credits—now the worst in the welfare system—was payments made to people subject to immigration controls. Why were the verification procedures that would have prevented such mistakes, specifically rule 12, suspended for 18 months from April 2003? Did the Paymaster General approve that decision?
I can tell the hon. Gentleman that at no point were officials instructed to overlook irregularities where claimants had failed the UK residential rule. I also say to the hon. Gentleman that I am the Minister for the Department, I am accountable to the House and I accept responsibility for what happens in the Department.
Tax credits are the Chancellor’s flagship scheme, but the level of fraud and error reported to the House earlier this week is running at nearly £2 billion for just one year. Does that not add the Treasury to the growing list of Government Departments, such as the Department for Environment, Food and Rural Affairs and the Home Office, that are not fit for purpose? How can the Treasury hope to control the rest of Whitehall when it cannot even run its own schemes properly?
If the right hon. Gentleman looks at the figures for 2005-06, as reported to the House, he will see that the Department stopped the overwhelming number of attempts to defraud it, thus demonstrating clearly that the anti-fraud measures are working. But of course he is right, and it is true for any Department that fraud must be tackled and reduced and that claimant error must also be tackled, by ensuring that claimants have clearer information and a clear understanding of their responsibilities and that the Department responds accurately and in a timely way to those submissions.
May I ask my right hon. Friend to focus on the outcome of the tax credits system, which in my constituency is providing new chances for single parents to work and therefore look after their own families, giving new opportunities to people who did not have them before and tackling child poverty, which was an absolute scourge when the Labour party came to power?
My hon. Friend works very hard in her constituency to ensure that her constituents receive all their entitlements, including tax credits, and she will know that the take-up of tax credits in their first year of operation, particularly for lower income families, was about 93 per cent., so we now have 10 million children—6 million families—benefiting. Tax credits have made a huge contribution in helping people to return to work, in paying for child care and, most importantly, in eradicating child poverty and lifting children out of poverty. That is the situation that needs to be tackled, because child poverty doubled under the previous Government, and the difference between the Labour party and the Conservative party is that we are dedicated to eradicating child poverty; they do not even want to understand it.
Is the Paymaster General aware that, only five weeks ago, the Treasury Sub-Committee—chaired so well by the hon. Member for Sevenoaks (Mr. Fallon), who is sitting on the Opposition Benches—found that the policy of using tax credits as a method of taking people out of poverty was laudable and that the programme had considerable success? Encouraged by such all-party support, will she assure us that she will continue her efforts to help the poorest people in our communities?
My hon. Friend is right to refer to the Treasury Sub-Committee report, which I welcomed when it was presented to the House, because it made it absolutely clear that both the Sub-Committee and the overwhelming number of people who gave evidence to it said that tax credits had widespread support, that they made an important contribution to tackling child poverty, and that they should be supported.
We have learned that, in 2003-04, nearly £1 in every £10 paid in tax credits was paid either in error or because of fraud. Specifically with regard to fraud, does the Paymaster General believe that that figure will fall as a proportion of tax credits paid, and if not, why not?
If the hon. Gentleman looks at the figures for 2003-04, he will see that they are divided between claimant error and fraud, which amounts to £70 million. As I explained to the House earlier in the week, the difference between error and fraud is that the investigating officer must be certain that there was an attempt to defraud, as opposed to a genuine error. The hon. Gentleman is quite right to suggest that strategies need to be developed—they have been announced to the House—to ensure that claimant error is reduced, that the information given to the Department is correct, and that officials act on it speedily and correctly. I have already answered the question on fraud in response to the right hon. Member for Wells (Mr. Heathcoat-Amory), by pointing out that the strategies in place in the Department are ensuring that the majority of fraud attempts made against it are not succeeding.
One would expect both the Opposition parties to welcome tax credits on the basis that, according to the latest figures from the Organisation for Economic Co-operation and Development, the tax paid by an average family on £21,000 a year has gone down from between 18 and 19 per cent. to 9 per cent. That has to be welcomed. In addition, the number of families paying no tax on their income has risen since 1997 from fewer than 2.5 million to more than 3 million, when tax credits and benefit reform are taken together. One would have thought that the Opposition parties would welcome this, but they do not, because they do not want to tackle poverty. That is the dividing line between us. They decry the experience of poverty but, unlike this party, they will do nothing to eradicate it.
The Paymaster General is making a spirited attempt to defend the indefensible, but the real culprit is not the Paymaster General—I will pay her that compliment—but the Chancellor. He invented the system, which is riddled with error and fraud. The Treasury itself concedes that nearly half of all payments are wrong. Week after week, the Chancellor answers questions about world poverty, which is not his responsibility, but he will not answer questions about tax credits, which are. Will he now get to his feet, come to the Dispatch Box and take responsibility for this mess, instead of using the Paymaster General as a human shield?
I fear that the hon. Gentleman has made a terrible mistake here. He has just described tax credits as “indefensible”. What is indefensible is his party’s record of doubling child poverty. When he reflects on his contribution in the Chamber today, he will deeply regret the fact that, for the first time, he has made it abundantly clear that the Conservatives are not prepared to defend tax credits. They do not support them because they are not prepared to tackle child poverty.
From April this year, the Serious Organised Crime Agency—SOCA—took over responsibility for the network of overseas drugs liaison officers. Her Majesty’s Revenue and Customs retains responsibility for anti-smuggling controls at the UK borders, and continues to seize drugs as part of its frontier work.
Unlike drugs such as heroin, cocaine is incredibly price-sensitive. Can the Minister give us an assurance that the expertise that has been built up in Customs and Excise will be made fully available to SOCA to ensure that the unsung successes in intercepting cocaine that have taken place in areas such as the Caribbean, giving great value for money, are not only continued but expanded by the Government?
I pay tribute to my hon. Friend’s work in the House, his constituency and elsewhere on the serious menace that drugs cause in our communities. I can give him the assurance that he seeks. When SOCA was set up, more than 1,100 drugs officers and their expertise were transferred from HMRC, and they now play an integral part in the work that SOCA is undertaking. I can also assure him that HMRC and SOCA continue to work closely together, including at the frontiers, so that we can continue to play a part in the battle against drugs.
A very high proportion of the 8,000 foreign prisoners in British jails are drug smugglers from Jamaica and other Caribbean countries. Will the Minister liaise with the Home Secretary to ensure that those people are sent back to secure detention in their own countries, thus saving the British taxpayer a small fortune?
The hon. Gentleman refers to a groundbreaking, innovative and highly effective programme called Operation Airbridge. This involved UK Customs and Excise—later HMRC—linking up with the Jamaican constabulary to prevent would-be cocaine smugglers and swallowers from getting on to the planes in the first place. That operation has resulted in an increase in the number of smugglers being intercepted in Jamaica, a reduction in the number of seizures and smugglers from the Caribbean being intercepted here, and a consequent reduction in the number of smugglers from those parts of the world having to be dealt with by our criminal justice system.
Until April there were two drug liaison officers in Peru, and then SOCA moved them to Colombia. Peru is the second largest cocaine-producing country in the world, cocaine production is on the increase and crop eradication and substitution programmes are not working. Intelligence-led intervention in trafficking will make the biggest difference to this country. Will my hon. Friend increase SOCA’s resources for that work, so that our drug liaison officers, who are very successful, can be in both Peru and Colombia?
My hon. Friend is right to say that the role played by drug liaison officers overseas is pivotal. As I have explained, they have now been transferred to SOCA. He is right to stress the importance of being able to intercept drugs at every stage of the supply chain. He may be interested to know that in the first 10 months of last year, the agencies combined intercepted more than 30 tonnes of cocaine destined for European markets, which we would otherwise have had to try to intercept either at our borders or on our streets. That important international work is helping to keep some of our local communities freer of drugs than they would otherwise be.
Monetary Policy Committee
Today I am appointing to the Monetary Policy Committee Mr. Andrew Sentance, chief economist at British Airways and previously chief economist of the CBI, and Professor Tim Besley of the London School of Economics. The whole House will also want to pay tribute to the work of the former MPC members—Richard Lambert, who is now director general of the CBI, and particularly David Walton, a brilliant economist who tragically passed away at the young age of just 43. Recognising the issues of market sensitivity, the procedure is that all appointments are made strictly in accordance with the legislation.
I start by echoing the Chancellor’s deep regret at the tragic early death of the brilliant David Walton, which is a great loss to this country. But does the Chancellor regard his answer as an adequate response to the growing criticism in the City, in which even the Governor of the Bank of England has partially joined, of what is perceived as his dilatory and over-secretive approach to the filling of vacancies as they occur on the Monetary Policy Committee? Why can the procedure not be more open and transparent? Is it appropriate, in a Bank of England that the Chancellor claims he has made independent, that those appointments should be made by him in such a personal way?
Let us remind the House that the hon. Gentleman was a vicious opponent of the independence of the Bank of England. He said that it would lead to deflationary policies and higher unemployment, and that the Bank of England’s reputation would be damaged. All those things proved to be untrue. On the appointments system for the Bank of England’s Monetary Policy Committee, the legislation requires that we seek people with experience and expertise. That has been achieved, and the proof is in the record. It would be wrong, when there is market sensitivity—which, unfortunately, the shadow Chancellor denies—if a rumour about a Monetary Policy Committee appointment meant that there was movement of the pound and the stock exchange. There is market sensitivity, so such appointments must be handled with care.
The effect of independence for the Bank of England and the accompany monetary and fiscal policy is that inflation, interest rates and mortgage rates have been half what they were in the previous 18 years. I have considered all kinds of proposals that have been put forward for reform of the Bank of England Monetary Policy Committee. I have considered the shadow Chancellor’s proposal that the House of Commons vote every year on the inflation target, which would be a recipe for the very instability that the Conservatives created in government. I have also considered his proposals for appointment to the Monetary Policy Committee—and it is remarkable that those proposals are intended to increase the external accountability of the Monetary Policy Committee. Even the Governor of the Bank of England would disagree with a proposal for the Governor to choose the two deputy Governors, the Governor to choose the other two internal members and the Governor also to have a role in the appointment of the remaining four members. That would mean the Governor having either a direct or an indirect role in the appointment of all eight members except himself. How would that secure accountability? The shadow Chancellor should go back to the drawing board and think again—about this and other issues.
I echo the sympathy expressed by the Chancellor over the sad death of David Walton. The independence of the Bank of England was called for and welcomed by the Liberal Democrats, but does the Chancellor agree that it is compromised by the direct control that he exercises in appointments? Is he prepared to give up that control and fall into line with the code relating to ministerial appointments? If not, why not?
But the hon. Lady’s party supported it. The legislation that she supported provided for five internal members of the Bank of England and four external members. That was in the legislation. The Chancellor of the Exchequer was obliged to propose the appointment of people with experience and expertise to the Monetary Policy Committee. I ask the House whether the record of the Bank of England as a result of our decisions has been good or bad. In my view, the only answer that the House can give is that we have achieved a degree of stability that the Conservatives could never dream of.
I echo the Chancellor’s comments about the late David Walton, and the work that he and Richard Lambert did on the MPC—but Richard Lambert was appointed to the MPC by means of a telephone call, as was Andrew Large. The Governor said before the Treasury Committee that the current process was
“something that is very informal and seems to result in appointments being made very much at the last minute.”
Is it not time for a proper, open and robust process for MPC appointments, rather than their being made furtively behind closed doors, on the whim of the Chancellor?
The policy of the hon. Gentleman’s party favours greater accountability of the MPC to Parliament and the public, but the detail of the shadow Chancellor’s proposal is that the two deputy Governors should be chosen by the Governor, the two internal members should be chosen by the Governor, and the Governor should have a direct role in the choice of the four external members. That is not extending external accountability. The Conservatives are making a laughing stock of their own policies.
This year’s Budget announced above-inflation increases in the inheritance tax threshold, with the threshold rising to £325,000 by the end of the current Parliament. Even given rising house prices, most homes are below the threshold. A link to house prices in each area would be very difficult and complex to administer, and I think that it would also be unfair.
What should I tell my constituent, who lives in a terraced house in Battersea and fears that her daughter, who is also her full-time carer, would face a bill for more than £100,000? Average house prices in my borough are still £80,000 above the threshold, and even given the increases—enormously welcome though they are—they will still be some £35,000 above it. Does not my hon. Friend, as a London Member, share my fear that families will no longer be able to live in the family home when their parents die, and that families will disperse and communities break up?
I know that my hon. Friend will agree that it is right for the estates of better-off people to contribute to wider welfare—and only 6 per cent. of estates paid inheritance tax last year. I think that he will also accept my point about the complexity that would arise if the threshold varied constantly, depending on what had happened to house prices, and if it were different in every area. In cases such as the one that he has described, equity release might help. I think that there would be a real problem if estates with no residential properties but otherwise identical paid different amounts of tax in different parts of the country.
The Minister may have dealt with the main point made by his hon. Friend, but he has not dealt with the supplementary point. What happens if a 90-year-old mother living with two 60-year-old retired daughters has a house whose value is above the threshold? How can she pass it on, without the benefits of civil partnership?
The hon. Gentleman is one of those who would agree that it is right that the estates of wealthy people should contribute to the wider wealth; I know of his interest in addressing poverty. In the situation that he describes, perhaps equity release could help. It is right that larger estates should contribute to the wider welfare, and that is what inheritance tax allows to happen.
Will my hon. Friend review the threshold annually? Rising house prices mean that it is Mr. and Mrs. Average who are now being caught by inheritance tax, whereas the wealthiest have the best advisers, set up trust funds, hold their money abroad and do not pay.
I can reassure my hon. Friend that the situation is reviewed annually, and we have committed to above-inflation indexing up to £325,000 by 2009-10. Where there are loopholes, we will continue to take steps to close them, and further progress was made on that front in the Finance Bill this year.
My right hon. Friend the Chancellor met his G8 colleagues in June. At that time, Finance Ministers judged that prospects for global growth remained strong, although downside risks from high and volatile energy prices, global imbalances and the lack of progress on the Doha trade round remain.
I thank the Economic Secretary for that reply, but—as I think he knows—the UK’s recent economic growth looks good only when set against some poor comparators. Will he explain specifically why he thinks that the UK’s GDP growth over the past year has been less than the US’s, less than Canada’s, less than Japan’s, and less than the G7 average, and why we are forecast to grow less strongly than the Organisation for Economic Co-operation and Development average this year? Has the Treasury given up on the idea of the UK being able to compete in the top division for GDP growth in industrialised countries?
The growth rate for the UK was revised up by the Office for National Statistics a week ago for 2001, 2002, 2003, 2004 and 2005. Since 1997 growth in output has been 26 per cent., compared with only 15 per cent. in the previous nine years. We have also had the lowest unemployment. In the hon. Gentleman’s constituency, for example, unemployment has fallen by two thirds and long-term unemployment by 90 per cent. At the same time as achieving growth and low unemployment, we have had stability and low inflation. That is because of our successful reform of the Bank of England, which would be put at risk by proposals to change the inflation target annually and remove the majority of internal members on the Monetary Policy Committee. We were told a few months ago that there had been detailed discussions on those matters, and the Governor was forced to issue—
When discussions take place with G8 colleagues, will the Economic Secretary explain to other members of the G8 why unemployment in this country has risen faster than in any other advanced country in the past 12 months?
Unemployment in the euro area is 7.9 per cent., in Germany it is 8.3 per cent and in Britain it is 5.2 per cent. That is the lowest level for 30 years. In the past four years there have been recessions in Japan, Germany, France and the US, but not in Britain. We all remember what happened when the Conservatives were running the economy. We remember what it was like to have unemployment at 3 million and interest rates at 15 per cent., and we are not going to go back to those days. It is about time we had a grown-up debate on the economy, instead of this triviality.
My hon. Friend is right: the high oil prices were discussed at the G8 meeting a few weeks ago. We have the highest oil prices for 25 years, and the geopolitical situation has meant that we have had high oil prices and falling stock markets since the beginning of the decade. Despite those pressures, we have still managed to combine rising employment, low inflation and rising growth. The last time such issues arose in the global economy, we had recession rather than growth, high inflation rather than low inflation and high unemployment rather than low unemployment. We have no intention of going back to those days.
I thank my right hon. Friend for that reply. It is clear that many families in my constituency have been lifted out of poverty by tax credits, and she is to be commended for her role in that. However, she will know that the continuing delays in resolving disputes about overpayments still cause hardship and distress for some people. One of my constituents has been told repeatedly that she is invisible to the computer, even though she can produce reams of correspondence that the computer has generated. Other eligible constituents have simply abandoned their claims in despair. Will my right hon. Friend redouble her efforts to get to grips with such problems?
As my hon. Friend acknowledged, some 13,300 families in his constituency benefit from tax credits. He will be aware that I have announced to the House that the Department must deal with disputed overpayments within four weeks, and that it must continue to pay claimants while disputes are being resolved. That is precisely what is happening. I hear what my hon. Friend says about specific cases in his area. I cannot deal with them now, but if he raises them with me in writing, I shall do my best to get him a sensible answer.
Order. I can tell the hon. Gentleman that Tunbridge Wells is a bit too far away for him to get involved in this question. While I am on my feet, I must advise you, Mr. Stuart, that you must be quiet. You have had your say in the House, and it is unfair to barrack Ministers every time they speak.
Competition is helping to boost digital inclusion through falling prices for equipment and communications services. The Government are helping by making targeted fiscal interventions, such as supporting the network of 6,000 UK Online centres. We are also investing in information and communications technology in schools and funding ICT at home for school students.
I have had some harsh words with members of the Treasury Bench about how the home computing initiative was abolished, but I have since received conciliatory letters acknowledging that there is a hole in the digital inclusion strategy in respect of low-income employees. Will Ministers acknowledge the efforts made by the industry to address those problems and to deliver a compliant and self-regulatory framework for schemes that enable employers to purchase computers? In that way, the industry is helping to plug that very important hole in the Government’s strategy.
I am not sure that the hole to which the hon. Gentleman refers exists. Home computer penetration has risen from one in four in 1997 to two thirds today, which shows that very welcome progress has been made, largely because of falling prices. I know that the hon. Gentleman has submitted some proposals on behalf of the industry, and I assure him that Ministers in the Department of Trade and Industry are looking at them. When he submitted them, he said that they looked rather complicated, and I think that he was probably right. However, the large price falls in PC equipment and much higher home take-up mean that the case for Government intervention looks much less strong today than it did in 1999, when the incentive was introduced.
Analogue switch-off is looming for many people, so will my hon. Friend consider funding the move from analogue to digital out of future income from the sale of the spectrum? Would that not be preferable to letting the cost fall on BBC licence fee payers?
My hon. Friend will know that my right hon. Friend the Secretary of State for Culture, Media and Sport is looking at those issues, and at ways of helping people make the transition in the future. Certainly, the switchover holds out a lot of promise for promoting digital inclusion, and I am sure that he and the whole House will welcome that.
The Financial Services Authority has a statutory objective to increase consumer understanding of the financial system, and works in partnership with the Government, the industry and the voluntary sector on those matters. I can tell the House that in the autumn my Department will publish a 10-year strategy on financial capability and inclusion, setting out the Government’s plans for action in that important area.
I thank the Minister for that answer and welcome his announcement. I know that the FSA is doing all it can to increase knowledge and literacy in financial matters for schools, young adults and workplaces and by providing money advice for new parents. Could the FSA extend its remit to pensioners and others who have to deal with instruments and other matters because of the increasing capital wealth among that age group?
My hon. Friend is right. In implementing the pensions White Paper, we will need to focus on such capability issues for future pensioners as well as current pensioners. Some things have been done, and we have announced that financial education will be embedded in the GCSE maths curriculum over the new few years. But there is much more to be done, and I shall give the House two facts. On the one hand, we know from our recent benchmark survey that more than 70 per cent. of schools provide personal financial education only occasionally—once or twice a month. We need to do much better than that, which is what the survey is about. However, our survey also shows that the cash management skills of many people on low incomes are very good—considerably better than the cash management skills of many people in the House.
If the hon. Gentleman is referring to the European budget, I can tell him that I am going to Brussels this afternoon to meet Commissioners, and I shall be at the budget Council of ECOFIN tomorrow. It is of great concern to us that the budget has been qualified for 11 or 12 years. That is exactly why, last autumn, we agreed in ECOFIN a plan to sort it out by 2009. We ought to have support from Opposition Members in trying to sort out the European budget, rather than the continual triviality of their attempting to leave the mainstream of Europe and join the extremist fringes.
Has my hon. Friend considered funding courses in financial capability for MPs who believe that it is possible to increase spending in areas such as housing, child care, youth services and social enterprises at the same time as introducing a proceeds of growth rule that would result in cutting public expenditure by £17 billion?
My hon. Friend is right. Perhaps we could arrange such classes, where we might explain to people that it is not possible to invest in education, tackle child poverty, clean up the environment and at the same time cut £17 billion from public spending, as the shadow Chancellor proposes.
Does the Minister accept that too many financial institutions—such as banks, building societies and credit card companies—encourage people of all ages to borrow beyond their ability to repay? Is that responsible? Should not something be done about it? The citizens advice bureau in my area wrote to me recently about growing debt among the elderly, because they are encouraged to borrow. What can the Government do about it?
I understand the hon. Gentleman’s concerns, and join him in praising the work of citizens advice bureaux. I met them a week or so ago, and they are in the process of hiring 350 personal finance advisers, precisely to give that kind of advice. It is often the case, however, that people fall into debt because they suddenly and unexpectedly face unemployment, family break-up or ill health. In those circumstances, going into debt would be the wrong thing, and we need to give people proper advice and support. In general, I do not think it right to say that banks should discourage people from taking out loans or credit cards, which in fact play an important part in our economy. The fact that so many more people in our society have mortgages and are home owners is a good thing, but we need to make sure that people have proper advice and support, especially at times of crisis, and I commend the CAB for all its work.
Non-EU European Banks
The Financial Services Authority regulates all non-EU banks operating in the UK under the Financial Services and Markets Act 2000. That includes the regulation of prudential standards, conduct of business, liquidity and financial crime. The Government and the FSA work closely together to ensure that the regulation of the banking sector is effective, well focused and up to date with current market practice.
Will my hon. Friend stop dodging and diving on this one? I have been trying to get some protection for constituents of mine, who believed that when they allowed assets to be managed by a Swiss bank that had opened a London office, they had the same protection as customers of other banks, and that European directives would apply. Pictet Asset Management does not conform to those rules. Is it not about time that Swiss banks were regulated properly in this country?
The Financial Services Authority regulates all banks operating in the UK in relation to financial crime and all other matters, including Swiss subsidiaries and branches, under existing legislation. I would say to my hon. Friend that I have been in this job for eight weeks, and this is the first time that we have had a conversation on this subject. I am happy to look into it in detail, but as I said, this is the first time that we have had the opportunity to discuss it. If he would like to meet, I will be happy to do so and provide him with all the reassurance he needs that the FSA is doing a good job, including with Swiss banks and subsidiaries.
The Speaker: Order. We now return to Questions 4 and 14.
Fundamental Savings Review
To ensure that, in the coming spending round, even more resources will go direct to front-line services, I am requiring asset sales in excess of £30 billion by 2010; and as we complete a zero-based and fundamental review of each Department’s baseline spending, with further announcements in the pre-Budget report, I can also confirm that all Departments will have to achieve efficiency savings of at least 2.5 per cent. annually, on top of the £21 billion administrative savings being implemented from the Gershon review. Administrative budgets which have already been frozen will now be cut not only in real terms but in cash terms, releasing extra resources for front-line services. These administrative savings make possible improvements in service within a Home Office budget which, as agreed, will have a flat real settlement, and settlements for the Treasury, Department for Work and Pensions, Her Majesty’s Revenue and Customs and the Cabinet Office, which have agreed a 20 per cent. real-terms decrease over five years. [Interruption.]
I am also today publishing the terms of reference for the six policy reviews on children and young people, the third sector, economic development and regeneration, supporting housing growth, mental health outcomes and counter-terrorism and security. These will inform cross-Government priorities for the comprehensive spending review. I can confirm that Sir David Varney, chairman of HMRC, will report to me at the pre-Budget report on further administrative savings—[Hon. Members: “This is a statement”.]—and I am also publishing my letter to the public sector pay review bodies, proposing that public sector pay settlements should be founded on a 2 per cent. target. [Interruption.]
Why has the Chancellor chosen to put that information out with a whimper, not a fanfare, at the end of Treasury questions? Surely the House deserves a proper statement. And why is it so at variance with his press release of 19 July 2005, which promised a thorough review of demographic change, innovation, global issues and terrorism? What has happened to his pledge to look at spending over 10 years? If we just look at health spending, 73 per cent. has gone on increased costs. When will Government get a grip of these issues and ensure that money is spent more effectively?
The hon. Gentleman should read what I have said previously. We published a document on globalisation and its challenges. We shall publish a further document on that in the pre-Budget report. As for administrative savings based on a zero-based review, I am announcing today—and I thought there was some all-party support for it—that we are finding savings in administration, we are imposing efficiency savings and we are imposing asset sales. The purpose of that is to release resources for front-line services. I should have thought that hon. Gentlemen would support that, but perhaps the Conservative party is still the party under which, when additional public spending was announced in the 1990s, 80 per cent. of it went to debt and unemployment; whereas now 80 per cent. of new spending goes to health, education and vital public services.
I reject the rule that has been put forward called the third fiscal rule. The third fiscal rule would require, no matter what the circumstances, that public spending should fall as a share of national income. [Interruption.] It was excellent I hear a Conservative Member say. It was exactly the policy on which the Conservatives fought the last election and the previous election. The electorate knew that and voted on the basis that they wanted to see improvements in health and education investment, money spent to relieve child and pensioner poverty, and this country properly defended and secure. I suggest that to impose a rigid rule on public expenditure would mean cuts of £17 billion this year and £18 billion next year. That would mean that hospitals, schools and public services generally would not have the resources that they need.
Is this empty document really what the Prime Minister called the vital foundation stone of his spending review and announced at the Labour party conference last year? This is not a fundamental savings review. A fundamental look at Government spending would have asked this simple question: how can Labour have taxed so much, spent so much and achieved so little? How can Labour have spent £4 trillion over nine years and have an NHS that is sacking doctors and nurses and a Home Office that is not fit for purpose? Surely a serious attempt to find savings would have addressed soaring public sector construction costs and falling public sector productivity, but the document does none of those things. Surely a review of that kind would have concluded that the real reason why the Chancellor has been a big spender rather than a wise spender is because he blocked proper public service reform.
I am amazed at the shadow Chancellor. He does not support my announcement that we get efficiency savings of 2½ per cent. He does not seem to acknowledge my announcement that the administration budgets of Departments will be cut. He does not seem to recognise that £30 billion of asset sales are being asked for. He does not seem to recognise that the administrative budgets of Departments, which were 6 per cent. in the early ’90s, will fall below 4 per cent. now. When it comes to the reason why he does not recognise that, I have a copy of a speech that he gave at the fringes of the Conservative party conference. He said that he would not compete with us at the next general election on efficiency savings. What he would do is promise that there would be very specific cuts in particular areas of the Budget, such as child tax credits and the new deal. He said:
“It’s a hard choice which we will put to voters in an election.”
He should tell us which hospitals, which schools, which teachers and which nurses will—[Interruption.]
I thank the Chancellor for sending us his 66-page report before the statement, but he did not give us the opportunity to respond fully to it. The Prime Minister himself set out the criteria at his party conference, when he stated that the report would describe
“where we can save, and where we need to spend more”.
Since the Chancellor has already indicated where he intends to spend more—partly on admirable objectives such as reducing child poverty, but also on massive overruns on the NHS IT scheme, on an ID card scheme costing £15 billion, on acquiring sites for new nuclear power stations, and on advance spending on the Trident missile—can he point us to those paragraphs in the report that show the Departments that will be cut in order to accommodate that? As his savings appear to depend largely on efficiency, which, of course we entirely welcome—the Gershon savings—can he point us to independent reviews that have shown where those efficiency savings have so far been materialised and how they will be monitored thoroughly in future?
We have had the work of the National Audit Office, the announcement in this document in relation to the first step—40,000 jobs in the Department for Work and Pensions and Her Majesty’s Revenue and Customs that were referred to in the Gershon report have gone—and the announcement in this document that DWP, HMRC and the Treasury, as well as the Cabinet Office, will have 5 per cent. real-terms cuts in their budgets over the spending round. The hon. Gentleman has therefore got the answer that he sought. I also said that this is part of a process whereby, in the pre-Budget report, we will have the Varney report and further detail on departmental settlements. Next week, we will have the capability reviews of individual departments. That is a continuing process that will lead to the spending round next year. I thought that he would have welcomed that, particularly as he has a special problem to solve: he has to find £20 billion to plug the gap.
When the leader of the hon. Gentleman’s party was asked a few days ago how he would do that—[Interruption.]
My constituents have benefited massively from the extraordinary increases in public expenditure for front-line services. They also value greatly their own public assets, which they have worked and paid for and which they control through public policies. Will the Chancellor give us some idea, an overview, of what kind of assets he intends to dispose of in order to give a further boost to public services?
Surplus land is a very good example—land that has been held by public authorities for a long period is now being released for housing. We have achieved £6 billion of asset sales in the last two years, and there will be £30 billion of asset sales by 2010. It would be wrong for the Government to hold on to assets that they did not need; it would be right for the Government to keep assets that they do need. My hon. Friend will see that that £30 billion makes possible investment in other areas of vital importance to the economy and to public services. He would be the first to acknowledge—indeed he did so—that in the past nine years we have doubled expenditure on health, and on education, and on policing and on transport, and the results are that not only do we now have more doctors, nurses, teachers and teaching assistants but standards in health, education and policing are rising, not falling.
The huge and mounting private finance initiative debt with which the Chancellor has saddled the public sector is now beginning to lead to cutbacks in the very front-line services that he is trumpeting. In advance of any internal Labour party election, is this one Tory policy that he regrets adopting?
The Tory policy was to cut public expenditure. Our policy is to increase public expenditure. The problem with the hon. Gentleman’s policies is that they are so economically illiterate that they would lead to the same results of cuts in public expenditure, and he should go back to the drawing board and think again.
Last week I visited Brislington enterprise college in my constituency to look at the architect’s plans for investment in new school buildings under the building schools for the future programme. Last week also saw the announcement of £750 million for investment in community hospitals, and in Bristol £42 million for the Greater Bristol bus network. Will the Chancellor assure me that that investment in front-line public services will continue under a Labour Government? What would be the implications for such investment if he were to give in to calls for spending to grow at a lower rate than economic growth?
I am pleased about those developments in my hon. Friend’s constituency. That is happening in all constituencies, and Conservative and Liberal Members are also getting benefits from that investment. When we came into power net public investment was £7 billion. It is now £27 billion a year; it is rising, and because of the announcements today it will continue to rise every year right through to the end of the next spending round in 2011. I should have thought that in a country that desperately needs expenditure on infrastructure, as well as investment in health and education, there ought to be all-party support for that increase in investment, rather than the cuts programme of the Conservative party.
Nothing could more vividly demonstrate the contempt that the Chancellor has for the House than the way he sought to make what is in effect and should have been a statement in this underhand way, and all because of his childish desire to avoid giving my hon. Friend the Member for Tatton (Mr. Osborne) and the other party spokesmen advance sight of what he was going to say. Why has not the Chancellor given the House, from that Dispatch Box, a progress report on the implementation of the Gershon review? Is it not because, like so much of what comes from him and the rest of this Government, that review amounted simply to warm words and the Government have fallen far behind in its implementation?
What was unimplementable were the James proposals that the right hon. and learned Gentleman put forward at the last election. Our Gershon proposals have already achieved £9½ billion out of the £21 billion of savings to be made by 2008. We have already reduced employment by the 40,000 net that we promised out of the 80,000 to come by 2008. We have already relocated 8,000 civil service jobs out of the 20,000 planned. We have reduced the share of administration in the Budget as proposed: compared with the 6 per cent. under the right hon. and learned Gentleman’s Government, it is less than 4 per cent. under ours. I am not going to take any lectures about administration from the former Leader of the Opposition who was the poll tax Minister who caused the worst administrative mess in taxation this country has ever seen.
Does the Chancellor not understand the damage done by the stop-go nature of his public spending planning? Public spending was first constrained, then expanded massively, and today there are panic cuts outside the priority areas. Can he confirm that the Treasury has asked some public bodies to prepare illustrative plans on the basis of budget cuts of 5, 10 and 15 per cent.?
That question shows the difference between the Front Benchers and the Back Benchers. The Front Benchers say that the proposal is a damp squib, but the hon. Gentleman says that it cuts beyond anything that has ever been seen before. The truth, however, is that we are making administrative savings so that we can get more money to front-line services. Every person in the country will welcome the cuts that will be made to administrative budgets, the sale of unnecessary resources, which will release money for further investment, and of course the efficiency savings being achieved in different Departments. Once the hon. Gentleman looks at the details of the proposals, I should expect him to welcome them, and perhaps he might give a lecture to those on his Front Bench. These are serious proposals, and they should not be dealt with in the immature way that the shadow Chancellor has done.
May I welcome the tough announcement that the Chancellor has made? The 2.5 per cent. cut that he announced will free up resources for our priorities of health and education, and I look forward to that. I welcome strongly the announcement on housing, but is the Chancellor selling off assets to ensure that the proceeds are made available for additional housing, and in particular affordable housing?
I can tell my hon. Friend that the budget for social housing is being doubled, which is a major advance. [Interruption.] The party of the hon. Member for Tatton (Mr. Osborne) set interest rates at 15 per cent. and prevented people from buying houses when they were in government. We have just announced £900 million for equity sharing to allow more people, particularly young couples, to buy their first home. I believe that we will be able to make further announcements about the extension of equity sharing, which should be supported on an all-party basis. My hon. Friend the Member for Edmonton (Mr. Love) is right that in addition to health, education, policing, security, and our defence responsibilities, housing has a priority in the future spending round.
Can the Chancellor explain why, in the Home Office section of the report, identity cards are not even mentioned as one of the Home Office spending priorities? Is that because the Treasury was responsible for the leak by David Foord of the Office of Government Commerce, who talked about the unaffordability of the ID card project and a “lack of clear benefits”? He said:
“Just because ministers say do something does not mean we ignore reality”.
Has the Chancellor finally accepted the reality, which is that the scheme will not wash?
Sometimes I think that the hon. Gentleman lives in a completely unreal world. Identity cards are the policy of this Government. I should have thought that the more that people see the chances of their identity being stolen by organised crime, the more they would support identity cards. The Opposition parties have made a very big mistake in opposing identity cards, which are part of the spending settlement for the Home Office.
As someone who has never wanted cuts in hospitals and schools, but wants to reduce waste and inefficiency, I obviously welcome the Chancellor’s latter-day conversion to the idea that we can achieve efficiency gains in the public sector. This time, has he consulted with the staff in advance and how many posts will have to go to meet these new, interesting targets?
The right hon. Gentleman is chairman of the Conservative party’s economic competitiveness policy group, so there will be an interesting debate in that group between those who believe that we are doing something serious, as he does, and those who do not take seriously the fact that a major change is taking place in administrative budgets. As for the numbers, 80,000 civil servants, particularly at the DWP and the HMRC, will be replaced. As a net figure it is nearly 40,000, and as a gross figure it is over 40,000 now. We will reach the 80,000 figure by 2008, and we will introduce further proposals for the next spending round, so that we can ensure that we provide the most resources for the front-line caring services, which are the priority for the Government and, I know, are the first priority for the people of Britain. I welcome the right hon. Gentleman’s support in this case, but can he inform and educate the shadow Chancellor on these matters?