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Pre-Budget Report

Volume 454: debated on Wednesday 6 December 2006

This is my 10th and latest pre-Budget report and, under this Government, the 10th consecutive year of economic growth.

I can report not only the longest period of sustained growth in our history, but that, of all the major economies—America, France, Germany and Japan—Britain has enjoyed the longest post-war period of continuous and sustained growth.

The Treasury forecast is that growth—sustained under this Government for a record 38 quarters—will continue into its 39th and 40th quarters and beyond. Ten years ago, Britain was seventh out of seven in the G7, bottom of the G7 league for national income per head. In the last two years, Britain has been second only to the United States. In no other decade has Britain’s personal wealth—up 60 per cent. since 1997—grown so fast. The pre-Budget report drives forward the great economic mission of our time—to meet the global challenge and unleash the potential of all British people, so that the British economy out-performs our competitors and delivers security, prosperity and fairness to all.

Let me report: growth in quarter one of 0.7 per cent.; in quarter two of 0.7 per cent., and in quarter three of 0.7 per cent. The forecast for 2006 was annual growth of between 2 and 2½ per cent. I can report that growth this year will surpass that figure and is expected to be 2¾ per cent., and will rise to between 2¾ and 3¼ per cent. next year. Business investment is up 5¾ per cent., exportsare up 6 per cent. and investment overall is up6 per cent. Despite contending with global imbalances, exchange rate uncertainties, stalled trade talks and high commodity prices, Britain’s investment-led and export-led growth is forecast to continue in 2007, and investment and exports are forecast to rise by 5 per cent. or more.

By mid-2007, we expect inflation to be at its 2 per cent. target and to remain at target in 2008. Britain uniquely continues to combine recession-free growth with the longest period—a decade—of simultaneous employment growth and productivity growth. Productivity, which, in the last economic cycle up to 1997 grew by1.9 per cent., is averaging since 1997 2.4 per cent. From 1997 to—and including—this year, our productivity per worker has moved 3 per cent. ahead of Germany and11 per cent. ahead of Japan. We have halved the gap with France and we are the only G7 country to narrow the gap with the United States.

As productivity continues to rise, this year alone there are 200,000 more men and women in employment—[Interruption.]

Order. It is the done thing to let a Minister make a statement to the House and not to interrupt.

In contrast to 3 million unemployed under the previous Government, there are now2½ million more jobs in Britain and the highest ever number of men and women in work in our country, and employment is higher since 1997 in every region and nation of the United Kingdom. The Secretary of State for Work and Pensions is today strengthening the new deal, with further measures to bring lone parents and the unemployed into jobs, but there is already a higher proportion of the working-age population in employment in Britain than in America, Japan, Germany, France or the whole euro area.

I can report also that the number of people with tax-free savings accounts, ISAs, is now exceeding16 million, in contrast to just 9 million under the old system of TESSAs and PEPs, and I can confirm that the tax-free advantages of individual savings accounts will continue beyond 2010 and they will be made permanent.

In line with independent forecasters, we have decided to maintain trend growth at 2.75 per cent. while basing our public finances, audited by the NAO as cautious and reasonable, on a rate of 2.5 per cent. As I will show when I give all the fiscal figures in detail, Britain will meet both its fiscal rules in this economic cycle and the next. So we build for the future from the fundamentals of a recession-free decade of stability and growth with low inflation, and this is the strongest foundation from which to address the great challenges ahead.

Let me summarise: Asia is already out-producing Europe. China alone is manufacturing half the world’s computers, half the worlds clothes, and more than half the world’s digital electronics and, this Christmas, more than 75 per cent. of children’s toys. But in the next10 years, the competitive challenge is even more profound. Once responsible for just one eighth of the world’s growth, China and India will soon capture almost half. And increasingly they are competing not just on low cost, but on high skills. Every year, Britain adds 75,000 engineers and computer scientists, while India and China add half a million. Annually, Britain turns out a quarter of a million graduates; India and China 4 million. Economies like ours have no choice but to out-innovate and out-perform competitors by the excellence of our science and education, the quality of infrastructure and environment, the flexibility of our economy, and our levels of creativity and entrepreneurship.

Just as in the last decade, by planning long term, we created a new and enduring British framework for long-term economic stability, the task is to think long term again for the coming decade and to create a new British framework for innovation and investment—a British strategy to make the next stage of globalisation work for the British people.

A shared finding of each review we have published in the past few days is that the investments that Britain must make can be achieved only in a new era of shared responsibility and of long-term partnerships between the public and private sectors. If the focus of our first decade was to replace or repair old hospitals, old schools and old housing—that is the catch-up investment that we had to do—the new priority is world-leading investments that will move Britain sustainably ahead of our competitors: the road and rail networks, the affordable housing, the advanced medicine and science and the schools and colleges of the future.

We in Britain now have a long-term choice to make—whether to commit to the essential investments that these reports recommend. First, I shall deal with science and innovation. Twenty-five years ago, the market value of our top companies was no more than the value of their physical assets. Today, the market value of Britain’s top companies is five times their physical assets, demonstrating the economic power of knowledge, ideas and innovation. The next challenge for Britain is to match strength in basic research with success all round in transforming knowledge into successful products and new jobs.

So, having consulted on the way forward for university research in the UK, we are today detailing a new system for assessment and funding. As a first step, universities will have access to £60 million a year directed to applied research with commercial potential. We are determined that Britain should be a world-class location for future medical research, including stem cells. To ensure that Britain leads the world in developing new treatments and drugs, we will bring together the research capability of our universities, institutes and pharmaceutical companies with the unique resources of the research facilities of the NHS. I can confirm that, with a pooled budget of over£1 billion a year and a new fast-track procedure for priority research, the president of the Academy of Medical Sciences, Professor John Bell, will lead this new drive to identify for Britain the most useful and fruitful areas for potential medical breakthroughs.

British science can also do more to eradicate poverty and disease around the world, so today the International Development Secretary is establishing a new partnership with the research councils and charities, including the Wellcome Trust and the Gates Foundation, so that we can maximise the contribution of British inventors, scientists and researchers to the urgent global task of attacking poverty.

Because the future success of our creative and knowledge-based industries also depends on Britain having a robust intellectual property regime, the Secretary of State for Trade and Industry is announcing today that he will tighten the penalties for copying and piracy while giving individuals new rights for personal use, and he will introduce a new fast-track protection for small companies to safeguard their trademarks.

Since 1997, the number of films made in Britain has increased by 50 per cent. To encourage an even more vibrant British film industry, I am confirming that 1 January will be the date to introduce new film tax reliefs. I am also addressing avoidance and the rules governing managed service companies.

The best way to make globalisation work for the British people is to combine open markets, free trade and flexibility with investment in people and fairness to people. The minimum wage is now £5.35 per hour, but to be effective we must ensure that British workers and good British companies are not undercut by illegal rates. In January, we will raise the penalties for persistent illegality, and to raise the standards of enforcement I am announcing a 50 per cent. increase to £9 million in the budget to monitor and police the minimum wage.

In the past 10 years, over 1 million more adults have gained literacy and numeracy qualifications, and the British work force now has 3 million more men and women with skills. The Leitch report says that instead of today’s 6 million unskilled workers, the 2020 economy will need only half a million unskilled workers. Instead of 9 million high-skilled workers and graduates today, we will need 14 million.

I want British workers to gain the skills for those higher-paid jobs of the future. Our aim is that by 2020: 90 per cent of adults reach at least the equivalent of5 GCSEs, achieving in just over one decade what no other country has managed until now; that by reforming underperforming colleges we will double from 2 million to 4 million the number of adults achieving A-level equivalent skills; and that we ensure that our economy has 5 million more men and women with high-level professional and graduate skills.

Our objectives cannot be achieved either by Government alone or by business alone. So the review assesses that, after 2010, a new statutory entitlement to skills training may be required. But there is an urgent need to make progress now and by consensus, so the Secretary of State for Education and Skills is today appointing the former director general of the CBI,Sir Digby Jones, to advance an agenda of employees taking more responsibility to train; employers taking more responsibility to offer time off, with, in return, more say over what training is provided; and the Government taking more responsibility to reform and invest in training provision at work, in colleges and online.

To meet the skills needs of the future, we must also encourage young people, who too often lose out, to stay on and study for qualifications and go to university and college. Around education maintenance allowances, we are introducing an earn-to-learn programme for people to gain graduate qualifications while still working part-time; new summer school universities; work experience and coaching to motivate young people to stay on in education after 16; and an extension of the support to 16 and 17-year-olds who are not in education or employment, to help them into training and then into work. We will consult on £2,000 bursaries for looked-after children to encourage them to go to university. We will also consult on a new path for entry to university, in which students volunteer in return for a reduction in tuition fees.

To ensure that every child and young person has the best start in life—[Interruption.] I thought that there was common cause on this. We must address the causes and roots of child poverty. In April, child benefits paid to the poorest child, which were only £28 a week in 1997, will rise to £64 a week. These tax credits are the main vehicle that has ensured that, since 1997, 2 million children have been taken out of absolute poverty and almost 1 million children out of relative poverty. Now that the healthy start scheme offers half a million pregnant mothers and families with young children up to £5.60 a week extra for nutrition, it is time to do more.

I have received powerful representations that in the last months of pregnancy, when nutrition is most important, and in the first weeks after birth, the extra costs borne by parents could be better recognised if we did more to help through the universal benefit—child benefit—which is paid to all. Maternity grants are available to low-income mothers from the 29th week of pregnancy. Help should be available to all mothers expecting a child, so child benefit will be paid on that basis to every mother—additional child benefit that now recognises the important role, at this critical moment, that child benefit can play.

We are also publishing today the interim report of the third-sector review and an action plan for third-sector involvement in public services. We propose more stability in funding for the third sector, the voluntary community and charitable organisations upon which so many communities depend, particularly small local organisations. I can announce that in the spending review the norm will not be one-year funding for third-sector organisations, but offering them three-year funding.

Community ownership of assets can provide local communities with a financial and social stake in their own areas, so we are also announcing a £30 million fund to encourage local authorities and the third sector to work together to expand community ownership of community assets. Reviews on children and disability, issues of social care and local regeneration will report next year. With 100,000 Olympic volunteers already, my right hon. Friend the Secretary of State for Culture, Media and Sport and my hon. Friend the Parliamentary Secretary, Cabinet Office—the Minister responsible for the third sector—will now consult on the next stage: how young people can do more to volunteer in the run-up to the 2012 Olympics.

The same partnership of responsible individuals, companies and Governments is vital to meeting the environmental challenge. I have said that we should use market mechanisms and incentives to work towards global carbon trading. Since the Stern review, I can report that 31 countries in the European Union and the European Free Trade Association have now signed up to emissions trading as a first step towards that global framework, and we are bringing together the major financial institutions because our aim is to make London the world’s leading centre for carbon trading.

On the development of biofuels, Britain has now signed a partnership agreement with Brazil, Mozambique and South Africa. On the preservation of rain forests, we are working with Latin American and Asian countries. On clean coal, we are working with China and India. Today, Norway and Britain are together launching the first feasibility study for a new infrastructure for carbon capture and storage under the North sea. My right hon. Friend the Secretary of State for Trade and Industry will be appointing engineers ahead of a decision to be made next year on the first carbon capture demonstration plan for the United Kingdom.

It is time, also, to set a long-term framework for curbing the carbon emissions from houses, which constitute 30 per cent. of all emissions. Next week my right hon. Friend the Secretary of State for Communities and Local Government and my hon. Friend the Minister for Housing and Planning will set out plans to ensure that within 10 years every new home will be a zero-carbon home, and we will be the first country ever to make that commitment. To accelerate the building of zero-carbon homes, for a time-limited period the vast majority of new zero-carbon homes will be exempted from stamp duty. For existing homes, I will consult on a new facility to undertake energy audits and offer low loans that would in time, because of low energy bills, pay for themselves.

Through greater energy efficiency, our aim is to reduce emissions and to eliminate fuel poverty. In addition to the basic pension rising from next April by 3.6 per cent. and the winter allowance of £200—£300 for the over-80s—the pension credit minimum guarantee will rise by £5 a week for a single person and £7.65 a week for couples. With grants of £300 to £4,000—through the Warm Front programme, which I extended last year—we are providing not only insulation, but free central heating for low-income pensioners and extra support towards central heating in all other pensioner households. By the end of 2008, we will have insulated an additional2.7 million homes, but in the coming year we will extend Warm Front and, community by community, we will make it possible for 300,000 pensioner and other households, the ones most vulnerable to fuel poverty, to have free insulation and free central heating.

I turn to the framework for transport, which is responsible for 30 per cent. of all carbon emissions, the aviation sector accounting for a fifth of those. Currently, aircraft emissions are not part of the EU emissions trading scheme, and nor is aviation fuel taxed. While we continue to work internationally to seek a global agreement on reducing aircraft emissions, each country must take action domestically. From1 February, we will double air passenger duty. For most journeys—over 75 per cent. of them—duty will rise from £5 to £10, securing extra resources in the coming spending round for our priorities, such as public transport and the environment.

A priority for vehicles—responsible for 25 per cent. of emissions—is to promote cleaner fuels through fiscal incentives. Today, I am extending the 20p per litre discount to include the next generation of biodiesel, and we will offer that discount to all new innovative fuels as they develop. I am also consulting, prior to a Budget decision, on extending the current 40p per litre duty discount for biogas and on the level of tax discounts for company cars that use high-blend biofuels. I am relieving small biofuel producers of requirements to register or submit returns. While I will go ahead with an inflation rise in fuel duty from midnight tonight of 1.25p per litre, I will not restore the fuel duty escalator and I have rejected a real terms increase in fuel duty. I can also announce that, to incentivise the use of cleaner fuels in trains in the same way as we do for cars, the tax rate for piloting rebated fuels mixed with biofuels will be reduced from 53p to 8p. For greater energy efficiency in public procurement, we are publishing new guidelines to ensure that the £125 billion we invest each year is spent both well and in a sustainable way, and as a first step we will pilot school designs that achieve a level of excellence in carbon reduction.

Tackling climate change is an opportunity for Britain to create thousands of new jobs. Our new institute to investigate new environmental technologies will start with a budget of £550 million, and I can also confirm that there will be a second enterprise capital fund focused on innovative green technologies. The theme of both the Eddington review on transport and the Barker review on planning is that we must systematically modernise and improve Britain’s road, rail, housing and civic infrastructure, which was run down in the ’70s, ’80s and early ’90s. We must invest in a sustainable infrastructure that will contribute to the future prosperity of the country.

Just as we made monetary policy independent of Government—then financial services policy, and then competition policy and much of industry policy—it is time to adopt the same approach for planning. We will now consult on the proposal that in future, while Ministers will set policy guidelines, strategic decisions on location and planning permission for major infrastructure projects will be made outside of day-to-day political control and instead by an independent planning body.

As we move forward our risk-based approach to local and national regulation, we are setting new incentives that will cut the numbers of local authority inspections. After consultation with, and support from, business, we will now implement a new approach offering early rulings on business tax, time limits for decisions by the Inland Revenue and a better approach to managing risk.

As we consult on, and then implement, the Barker and Eddington recommendations, we are today also designating new brownfield sites that will raise the number of new homes on surplus land to 130,000, and we are doubling within four years to 160,000 the number of families who will be able to become homeowners for the first time through shared equity under our investments.

Properly equipping ourselves for the economic and social challenges ahead requires a long-term commitment of new investment supporting reform and modernisation. Our capacity to finance that modernisation depends on the strength of our fiscal position, on our ability to release resources for priorities, and on the choices we as a country are prepared to make. On the fiscal position, I am today publishing a document on Britain’s long-term public finances. Its detail shows that even after taking into account our new commitments on pensions, the country’s public finances are on a sound and sustainable basis for the long term, and they are stronger than other countries.

Before I give this year’s fiscal figures, I can confirm that to fund operations in Afghanistan, Iraq and other international obligations, the Secretary of State for Defence has been allocated an additional £600 million, and I want to pay tribute to our armed forces and security services for their contribution to the country. I can also announce an additional £84 million directed to intelligence and counter-terrorism. Our budget for security, which was just £1 billion in 2001, will now be more than £2 billion for 2007-08.

Our two fiscal rules for the economic cycle are the golden rule that current spending is paid for by tax revenues, and the sustainable investment rule that with debt at a prudent level we can invest in education, the NHS, infrastructure and other essential priorities. Those rules are demanding, and no other major economy—neither America, nor Japan, nor the euro area—currently meets them. However, I can report that, even after the new commitments I am announcing in this report, our current deficit falls from £15 billion to £8 billion and then to £1 billion, and then we record a surplus in successive years to 2011 of £4 billion,£7 billion, £10 billion and £14 billion.

Therefore, with an overall surplus in this economic cycle of £8 billion, we meet the golden rule and are already on course to meet it in the next cycle. Let us compare that with the two economic cycles under the previous Government. In their first economic cycle the rule was missed by a margin of £140 billion, and in the cycle of 1986-97 they missed it by £240 billion. The strength of our fiscal position is that over the economic cycle, and for the first time for four decades no borrowing is necessary to cover current spending.

I now turn to our second rule, the sustainable investment rule. It is a rule that has been especially challenging for Britain because we have had to catch up after decades of underinvestment in our infrastructure. However, even after doubling capital investment in education, transport and the NHS, we meet our second rule. Debt is 47 per cent. of national income in America; it is 55 per cent. in the euro area; it is 65 per cent. in the European Union as a whole; and it is 90 per cent. in Japan—but it is 37.5 per cent. in the UK. Net debt levels will in future years be 38.2 per cent. and38.6 per cent., and then 38.7 per cent. and 38.5 per cent. Total net borrowing, which under the last Government went as high as 7.8 per cent of gross domestic product—the equivalent today of £100 billion of borrowing—will fall from £37 billion this year to £31 billion, £27 billion, and then in successive years to £26 billion, £24 billion and £22 billion. So borrowing will fall from 2.3 per cent. of national income next year to 1.3 per cent. by 2011. With overall deficits and debt lower than those of our competitors and lower than in recent decades, Britain is meeting both of our fiscal rules in this cycle and the next. Within that strong and sustainable fiscal position, we are well placed to make decisions and to meet our long-term priorities for public services and for investment.

To do so and to get the most resources to the front line, I am requiring every Department to re-examine each of their assets; granting new powers to the Office of Government Commerce, including tighter rules on fees; removing old financial barriers to the disposal of surplus Government assets; and, based on a register to be published in January, we will also identify additional assets that can be sold. Already, share sales— including Westinghouse and other assets—will raise this year and next an additional £7 billion, and over the spending review periods we will raise a further £30 billion from sales of land and buildings.

Following the Varney report, we can release£400 million by cutting Government call centre operating costs by 25 per cent. to free-up resources for the front line. I can also confirm real term reductions of 5 per cent. a year in the budgets of Her Majesty’s Revenue and Customs, the Department for Workand Pensions, the Cabinet Office and the Treasury,and of 3½ per cent. a year in the Department for Constitutional Affairs. I can announce that for the years to 2011 I have reached agreement with Secretaries of State for net efficiency savings in their overall budgets of 3 per cent. a year and for cuts in their administration budgets of 5 per cent. a year. Taken together with other measures, that releases an additional £26 billion by 2011 for our priorities such as education, the NHS, policing and security.

As recently as the mid-1990s, 75 per cent. of all new public spending went to debt interest and social security benefits, mainly to pay for unemployment. Today, it is down to less than 20 per cent., and the purpose of all these savings is to ensure that front-line services will have the resources that they need. So, up against the global challenge, and with fiscal rules that allow us to borrow for sustainable investment, we should not postpone, nor should we avoid, essential new investments that this country must make in infrastructure and education.

One choice for Britain would be to adopt a balanced budget policy, but to achieve that by cutting back on essential investment in schools and infrastructure would in my view weaken us for the global challenges ahead. I have also considered representations for a third fiscal rule, but that would require us to cut spending by£28 billion this year alone. That is a choice for Britain that I reject, because—[Hon. Members: “Hear, hear.”] It would deny us investment in education, health, infrastructure and vital priorities, and leave Britain ill-prepared and ill-equipped for the future.

Instead, I can confirm that capital investment in education, which was only £1.5 billion in 1997, will be £8.3 billion next year, and we will set out long-term plans for investment to rise even further. I can also confirm that investment in transport, just £4 billion in 1997, will be £9.6 billion next year, and in the spending review we will set out an updated 10-year spending plan. Investment in housing, just £2 billion in 1997,will be nearly £8 billion next year, with sustained investment through into the next spending round.

I can also announce that the spending review for the years to 2011 will be based on planned capital investment in our country in infrastructure, education and vital priorities, rising from £39 billion last year to £60 billion in 2011. Let me give details of the investment that we will make over the five years ahead: next year,£48 billion, rising in 2008 to £51 billion, then to£54 billion, then to £57 billion and then to £60 billion, showing our commitment to modern roads and rail, to modern schools and science, and to new housing, hospitals and the renewal of communities. That is a change from the age of disinvestment under the previous Government.

The single most important investment that we can make is in education, and today I can start implementing the recommendations that have been put to us on skills. In 1997, there were 80,000 apprentices; today, in England alone there are 250,000, half of whom are now in manufacturing, construction and technology. I can announce that in the years to 2020, the number of apprenticeships will rise to 500,000. I can also announce that under the “Train to Gain” programme, we will increase the number of adults learning basic workplace skills from 100,000 this year to 350,000 a year by 2011, giving adults, as well as young people, the opportunity to better themselves.

It is even more important that the next generation do not lose out or fall behind on the basic skills that they will need to succeed in the global economy. So the Secretary of State for Education and Skills is also announcing today that the “Every Child a Reader” programme, which already has the best results in literacy, will be extended nationwide year by year. All boys and girls who are already, at the age of six, falling behind in reading will be offered special catch-up tuition. In secondary schools, where the learning gap between boys and girls is greatest, there will be new funds for extra support for mentoring, small group tutoring and personalised learning.

Since 2001, all children at the ages of one, two and three have received books to encourage them to read. I can announce today that all children starting primary school at five, and as they move to secondary school at 11, will receive books free of charge. In total, 3 million books will go direct to children to lift the reading standards of young people in our country.

I have also become convinced that, for Britain to rise to the global challenge, we should commit now to year-by-year improvements in investments in schools and educational establishments. It is right that we now make a spending settlement right through to 2011 that covers all capital investment in education. Separate announcements will be made for Scotland, Wales and Northern Ireland. To ensure that all 21,000 schools and educational institutions are fit for 21st-century challenges, I can announce that educational investment in our schools, colleges and university buildings and facilities, which stood at just £1.5 billion in 1997, will by 2010 be £10.2 billion for education alone. The investments in education that we will make are£8.3 billion next year, £8.6 billion in 2008, and£9 billion in 2009, rising to £10 billion in 2010. In the next four years, that is a cumulative investment in education alone of £36 billion, matching by 2010 state school capital investment per pupil to private schools, as year by year we close the gap.

Our goal is 12,000 new or completely refurbished schools—half of all primary schools and 90 per cent. of all secondary schools—benefiting 4 million children a year; in addition, 100 colleges rebuilt, serving 1 million students; and in total, 3,500 new children’s centres, built for nearly 3 million boys and girls in every constituency of the country. Every one of our constituencies is benefiting from the biggest programme of educational investment ever, in support of our decision to prepare for the global economy as the most educated nation in the world.

For next year, I can go beyond the announcement that I made in the Budget on spending per pupil. In striking the right balance between tax, spending and borrowing, I am able to meet both our fiscal rules and to release additional resources for the coming year. I propose to increase the cash that we give to every school and every head teacher, to be used in the way that local schools think best. The typical primary school received £39,000 this year in direct payments. For April next year, I propose that that be £50,000 for every primary school. The typical secondary school received £150,000. For April next year, I propose that it be £200,000. That is the equivalent of £200 for every pupil, paid three months from now direct to the school—money I could use for tax cuts, but I say, invest in education first; money that could not be invested if we had a third fiscal rule.

Stability is our foundation, education our No. 1 priority—education first now and into the future. I commend this statement to the House.

The Chancellor was being modest when he said that this was simply his latest PBR. It is surely his last—unless, of course, the Home Secretary keeps him in his job next year.

What this country needed was a report that prepares our economy for a future that is more competitive, more flexible and more global than ever before, but that is not what we got today. With this PBR, like the nine PBRs before it, Britain is moving further away from the direction in which we need to go. The Chancellor talked about growth. What he did not tell us is that the growth that he announced puts Britain 21st out of the 25 members of the European Union. [Interruption.] He denied it today and he shakes his head, but it is confirmed by the European Commission. [Interruption.] Will he also confirm what is buried on page—

Will the Chancellor also confirm what is buried on page 198 of the report just published—that he has downgraded his growth forecast for 2008? He did not mention that.

The Chancellor talked about sound public finances, but he downgraded his borrowing forecast again. Will he confirm that that means that Britain is set to have the largest structural deficit of any major European economy next year—as he himself might once have put it, larger than Germany, larger than France, larger than Spain and larger even than Italy? Will he confirm that he has just revised upwards his net debt figures for this year? By 2010, they will be £4 billion higher. He did not mention that in his statement, but will he confirm that when he replies?

How on earth could the Chancellor have given a report on the state of the economy without mentioning that Britain has just recorded the largest rise in unemployment in the developed world? He is so obsessed about securing his next job that he has forgotten about the 300,000 people who have lost their jobs.

How could the Chancellor possibly have the nerve to speak for 40 minutes without addressing the crisis in the NHS? He had no new answers today. He promised a change of gear, but as usual all we got was more of the same. His speech was full of rhetoric about the long term, but he did not address the central, long-term economic question that we face: why, according to every international measure and league table, is Britain becoming less competitive?

Does the right hon. Gentleman remember saying when he first became Chancellor that the first challenge was to increase our productivity? It remains the first challenge today. Productivity was 2.6 per cent. when he entered the Treasury, and is just 1.5 per cent. ashe leaves. Measured against what he calls his “fundamental yardstick”, has he not fundamentally failed?

What is the Chancellor’s answer? Like every central planner in history, he hides behind a relentless production of reports. There have been 70 in total, and never have so many poor trees died in vain. However, a glimpse of the truth can sometimes slip past the Treasury censors. Sir Rod Eddington jetted in from Australia to tell us what we already knew—that the UK transport network is stretched beyond capacity. The Leitch report says that the Chancellor’s skills policies have led to “complexity, duplication and bureaucracy”, and that it is no wonder that the UK has

“a large and significant basic skills problem”.

Today, the Chancellor promised action for 16-year-olds, yet one 16-year-old in six cannot read, write or add up properly. They are the very children who have been educated almost entirely under a Labour Government, and they have already been failed by the Chancellor.

The Chancellor’s second challenge today was to sort out the public finances. We all know that he is a man in a hurry, but he read out his borrowing figures so quickly that people might have missed them, so I shall read them out again. Over the next six years, theright hon. Gentleman says that borrowing will be£37 billion, £31 billion, £27 billion, £26 billion,£24 billion and £22 billion. That is higher in every year than he forecast in the Budget last spring. By the way, the current Budget deficit has increased this year. Not only that, he said in the spring that we would be in surplus next year, yet today he confirmed that we will again be in deficit.

All that borrowing comes despite the biggest tax increase in our peacetime history. Let us be absolutely clear that that means that each family will pay £9,000 extra tax each year. In a world where our competitors are simplifying and reducing business taxes, the UK is almost alone in increasing ours. Where is the long-term sense in that? Where is the sense in landing us with the most complicated tax code in the developed world?

The Chancellor often responds by citing last year’s inward investment figures. That is a typical example of the systematic distortion of statistics that we have come to expect from him, as more than half of our annual inward investment—£50 billion—comes from one company, Shell, which features in the figures only because it moved its headquarters from Britain to Holland. Does not that say everything that we need to know about this Chancellor’s spin?

The third great challenge that we face is climate change. People say that the Chancellor has become green only recently, but that is most unfair. He has been green ever since that meal at Granita. The Prime Minister remembers that and, although he does not live in Islington any more, it says something about the state of the Labour party that the restaurant is now called Desperados.

This week, Friends of the Earth said that the Chancellor’s record on climate change had been “woefully inadequate”. Will he confirm that carbon emissions are higher than when he took office and that the share of taxes collected by green taxes has fallen? Today’s increase in air passenger duty should have replaced other taxes and not added to them. It proves that the right hon. Gentleman is more interested in raising taxes than in cutting pollution.

The fourth challenge is to spend public money wisely. The Chancellor once pledged to rise to that challenge. Does he remember saying when he was shadow Chancellor that he wanted to be remembered as a wise spender, not a big spender? His political obituary will say many things, but not that: he has spent £4,000 billion, and now he pledges more spending on education—[Hon. Members: “Hear, hear.”] The lemmings on the Labour Benches do not know that that was the third time that he has reannounced his extra capital spending on schools. When he first made the promise in the Budget, the Institute of Fiscal Studies dismissed it as a “highly misleading presentational device”—economist speak for “spin”. Will the Chancellor confirm, after all the rhetoric, that the rate of capital spending growth is set to fall?

The Chancellor’s greatest mistake is that he has spent without reform. The Organisation for Economic Co-operation and Development has said that, despite the extra money, NHS mortality rates are declining no faster than before. By the way, the extra £1 million for medical research was first announced last year. The Select Committee on Education and Skills says that school standards are not improving as fast as they were. People up and down the country who are struggling to find a decent school place or campaigning to keep their local hospital open or sitting in traffic on congested roads are entitled to ask: where has all the money gone?

The Chancellor is trying to persuade the public that he is the change that they are crying out for. He lets it be known with nods and winks that he will end the spin and eye-catching initiatives of the Blair years, but let there be no mistake: they were his years too; the Blair-Brown years were the years of the clunking fist. The hospital cuts are the Chancellor’s cuts, the failing schools are his failures, and the pensions that were destroyed were destroyed by him. The truth is that Labour can be new only once. If the public want change, they will have to vote for it.

Let us see whether the Chancellor can really break with his past and be different from the Prime Minister. I have four straight questions, to which I hope he will give four straight answers. First, will the Chancellor confirm what the European Commission has said—that this year Britain has grown more slowly than 21 of the 25 EU member states? Secondly, will he acknowledge that in the past year our country has recorded the largest rise in unemployment in the developed world? Thirdly, does he accept that Britain is set to have the largest structural deficit of any major European economy? Fourthly, will he admit that, in an age of prosperity, real living standards in Britain are now falling?

Those are four simple questions, so let us see whether the Chancellor can give us four straight answers. Let us see whether the clunking fist can change.

Is it not remarkable that the shadow Chancellor cannot bring himself to acknowledge the longest period of economic growth, with the lowest inflation, interest rates and unemployment, that we have ever had? Why does he not say to his Back Benchers the same things that he says when he goes to the City? There, he talks of Labour’s “macroeconomic success” and “economic credibility”. He speaks of Labour’s “ability to manage” the economy, and says that Labour is the “party of economic competence”.

I remind the shadow Chancellor that there were3 million unemployed under the Conservative Government. Unemployment is below 1 million under Labour and—as he wants international comparisons—that is half that in France, half that in Germany, and below the EU average. He said that Britain’s economic growth is down. In fact, growth here is higher than in the euro area, so how can he say that it is lower than in Europe?

Then the hon. Gentleman says that there is a structural deficit. I have just explained to him that we are meeting our fiscal rules. He says that productivity is lower. Productivity has risen, on average, by 2.4 per cent., compared to 1.9 per cent. under the Conservatives. The only two years when productivity fell were Conservative years; and in 30 years the only two years when manufacturing productivity fell were under a Conservative Government.

As for greenhouse gases and emissions, our economy has grown by 28 per cent. and greenhouse gases have fallen by 9 per cent. We are the country that is meeting the Kyoto targets—no thanks to what happened under a Conservative Government.

The hon. Gentleman’s party is promising to spend more, with every spending Minister offering more spending. Today, he promises that he wants to cut taxes. Then he says that borrowing is too high so he wants to cut borrowing. When will he wake up to the fact that to cut taxes, raise spending, cut borrowing and have a fiscal rule that requires him to cut spending of £28 billion is exactly the position that the right hon. Member for Witney (Mr. Cameron) was in when he was economic adviser to Lord Lamont? That is exactly what led to the tragedy of 1992 when we ended up with 22 tax rises, £100 billion of borrowing, 15 per cent. interest rates, mortgage repossessions and negative equity. We will never return to that.

May I start with the bits of the statement I agree with? I am glad that the Chancellor has listened to at least some ofthe advice from the Liberal Democrats about environmental taxation. He has not listened to all of it, because revenue will not be returned in tax cuts for the lower paid, but at least there is something.

The Chancellor may not have noticed that the Stern commission report recommended that tough preventive action was needed, amounting to something of the order of 1 per cent. of gross domestic product. The tax changes he announced today amount to about one tenth of 1 per cent. of GDP. Where will the other nine tenths come from? The Chancellor’s environmental credentials are not helped by publishing in parallel the Barker report, which is really a property developers’ charter, and the Eddington report, which makes an unashamed plea for the expansion of airports.

As the Member who introduced the most recent piece of legislation outlawing copyright theft, I welcome the Chancellor’s recognition of the creative industries. That is a major step forward. He is also right to put such emphasis on the long-term challenges from international competition and on creating a knowledge-based economy. However, one question troubles many of us. After all the billions that have been spent on science and on education, why has the number of British young people studying at A-level and equivalent the core disciplines of maths, science and modern languages—the foundations of a globalising economy—fallen since 1997 in both relative and absolute terms? Why are the fundamentals not being got right?

I turn to the basic theme of the Chancellor’s statement. Of course, he has earned much credibility over the years from the fact that the British economy is stable and performing well. He would have earned more credibility today if he had acknowledged some of the problems that his successor will inherit.

I start with personal debt. Two million people are in extreme debt. According to the Bank of England, one in six people has severe debt problems. The number of mortgage possession orders going through the courts is now 100,000 a year. The level of debt service in relation to income is close to the rate when the last Tory boom burst. My question is simple: who is responsible? Is it the responsibility of borrowers? Is it the responsibility of lenders? Has the Bank of England not done enough? Is it adequate for the Chancellor to be a passive spectator or does he have a role in these matters?

The Budget numbers are impressive on the surface. The Chancellor has produced some impressive numbers for Gershon savings, but why should we believe them? Until he accepts that his numbers have to be fully independently audited—both the assumptions and the outcomes—he will be treated as the clever schoolboy who always gets 10 out of 10 in his tests because he marks them himself. Why does he not take advantage of his good initiative in partially increasing the independence of the statistical service to establish a fully independent system of fiscal policy monitoring?

The Chancellor presented the Budget numbers reassuringly, but he knows perfectly well that if capital investment is to grow, current spending, especially public sector pay, must be dealt with severely in the years ahead. He has taken on board some big, expensive, open-ended public sector spending commitments: the continuing Iraq war; big defence procurement contracts, such as Eurofighter and Trident; new nuclear power; Ken Livingstone’s Olympics; and ID cards. In that constrained environment, how can he guarantee that key public sector spending commitments, such as pensions, policing and hospitals, will be sustained?

I finish with a question that I put to the Deputy Prime Minister last week and which I think bewildered him. I am sure that the Chancellor will always want to be remembered not just for economic prudence but for a progressive record in advancing social justice, so can he answer the following simple question? After 10 years of Labour Government, why is income inequality as bad as when the Conservatives left power and why is wealth inequality—in assets—actually worse than it was then?

I shall deal individually with the points that the hon. Gentleman raised. On debt and household income, he has been a persistent critic both of the Bank of England and the Government, butthe figure for debt in relation to income—the debt repayments people have to make—was of the order of 15 per cent. in the 1990s; it is about 8 per cent. now. Of course, individuals have difficult problems that need to be dealt with; we need proper protection and advice for those people, but the hon. Gentleman must not compare a situation in the 1990s, when interest rates were 15 per cent. and people faced mortgage repossessions, with the situation now when interest rates are 5 per cent. [Interruption.] Interest rates were above 10 per cent. for four years. I do not think that the Conservatives should keep raising that issue in case I read out the mortgage rates that people had to pay in the early 1990s. The hon. Member for Twickenham (Dr. Cable) will agree that we must do more to help people who fall into debt. We continue to look at what more we can do.

The hon. Gentleman put a direct question about Gershon. Of the Gershon numbers, 45,000 jobs in the civil service have gone, so it is not a question of something that is about to happen—it is happening now. It is part of our desire to drive forward efficiency and get resources to the front line, which I believe we are succeeding in doing.

The hon. Gentleman asked about poverty and inequality. Of course, in this global economy, they are huge issues, some of which a national Government can affect, but some of which—these days—a national Government cannot affect. I think he will agree, however, that to have taken 2 million children out of absolute poverty and 1 million children out of relative poverty is a major achievement, given that child poverty trebled in the years of the Conservative Government to more than 4 million. As I announced today, we will continue with additional measures to take people out of poverty.

The hon. Gentleman’s points to me about prudence pale into insignificance when I look at his policies. He is promising to cut taxes and to raise spending—[Hon. Members: “No”.] Every day I read a Liberal press release that promises an additional increase in spending. The hon. Gentleman now says that he wants to cut borrowing—[Interruption.] Behind him, someone is saying that he has a fiscal rule equivalent to that of the Conservatives. The only difference between the hon. Gentleman and the Conservatives is that he has at least admitted that he has to raise £20 billion from environmental taxes. He has at least put the figure out in the public arena, although I have to tell him that he would have to raise the price of petrol by 18p a litre and I do not think that the Liberals would be elected in any constituency on that platform.

Last year, the Treasury Committee advised the Chancellor to double air passenger duties, so I am delighted to see that he has taken that advice and that aviation is playing its part in environmentally responsible policies. However, behind the pre-Budget report is the issue of globalisation, which is indeed daunting. Given that current trends up to 2020 indicate that 6 million people will still be lacking everyday numeracy skills and 4 million will be lacking everyday literacy skills, is it not the case that initiatives are required in the employment sector? We have seen it in the USA and it is starting to happen here that unskilled workers’ incomes are falling behind. Will the Chancellor work with employers and trade unions to ensure that we do not end up with a two-tier work force in future—some with rising wages and prosperity and the unskilled on stagnant wages living in comparative poverty?

The Leitch report alludes to that when it says that because of globalisation, there are 6 million unskilled workers in our economy today, but because most of the traded goods sector can find unskilled workers in other continents, we will need only 500,000 in 2020. We have a stark choice. We have to ensure that people today who do not have the skills, get them for the future. I would have thought that there would be all-party consensus on what to do to achieve that. Britain is in a race with other countries to ensure that we can successfully work globalisation to our advantage.

The hon. Gentleman shouts “10 years”, but in the last 10 years a million more people have acquired adult and literacy skills and 3 million more people in the work force are skilled. That is what we need to do to ensure that we are best equipped for globalisation. I hope that we will see all-party support—when the Opposition get a policy that adds up, they may be prepared to support us—for a strategy of upskilling our work force right across the board. We are prepared to make the commitment to invest to do so. I look forward to coming before the Treasury Committee to debate those very issues.

Does the Chancellor accept that, although it is true that he has not destroyed the record of growth, stability and low inflation that he inherited in 1997, he is only extending our record-breaking period of growth and stability on a sea of mounting public debt and consumer debt, to which the hon. Member for Twickenham (Dr. Cable) has already referred? If the Chancellor’s successor believes the extravagantly optimistic descriptions of the public finances that the right hon. Gentleman has just given, he will make serious policy errors. Does the Chancellor accept that his fiscal rules are now lost in a maze of creative accounting and absurd assumptions about the date of the cycle? Even in his pre-Budget reports, every year he has to raise more tax from soft political targets, such as the oil industry last year or transport through green taxes this year. Does he accept that his legacy to his successor will be the toughest public spending round that we have seen for a very long time, in which his successor will have to keep public spending below the growth of the economy as a whole for the foreseeable future? Judging from the Chancellor’s rhetoric, he will apparently give him no support in principle at all from his position as Prime Minister.

I always like interventions from the former Chancellor and I am grateful to him for attending today’s statement. However, his central point was that debt is higher under us than under him. Debt stood at 44 per cent. of national income when he left office and it is 37 per cent. and below today. He should be congratulating us on our achievement. What if I had taken the advice of the former Chancellor at any point during the last 10 years? In 1998, he was predicting a recession and he opposed giving independence to the Bank of England. In his column on 21 June 1998, he wrote:

“I have been forecasting doom and gloom for the British economy in my column in the Financial Mail for most of the past year”.

That was the first of 10 years of stable growth in our economy.

I congratulate my right hon. Friend on his statement. My constituents will particularly welcome his commitments on science, education and skills as the keys to living standards and quality of life in the future. In carrying forward the recommendations of Lord Leitch’s excellent report, what incentives and measures is the Chancellor considering further to involve all employers in the challenge that lies ahead, especially those who do not do much at the moment?

I am grateful to my right hon. Friend. It was under his period at the Department for Workand Pensions that unemployment came down from1.6 million to the 900,000 of today. He is absolutely right that the central question is how to persuade people to get the skills for the future. He knows that the “Train to Gain” programme, with which he was involved in the DWP, is now equipping 90,000 men and women in the workplace with the necessary adult skills. Only yesterday, I visited a college where men and women who had previously thought that they would never get a skill were encouraged to come into college to acquire it. Many of them were talking about starting their own businesses in the future. That is the way forward. I appreciate what my right hon. Friend says about Oxford. He is an excellent representative of the constituency around which a huge amount of science and innovation is going on. I can give him the assurance that we will continue to invest in science and innovation in his constituency.

The National Audit Office has expressed concerns about the claimed efficiency gains because of double counting and confusion about baselines, which also applies to the Chancellor’s point a few moments ago about the saving of civil service numbers. Are the efficiency claims believable when they ignore the cost of setting up and running the Gershon efficiency projects?

Mr. Gershon—actually, I think it is now Sir Peter Gershon—undertook the review. There was no huge staff of civil servants around him, but he recommended that 84,000 civil service jobs had to go. As a result of his recommendations, large numbers of jobs have gone in the Department for Work and Pensions, Her Majesty’s Revenue and Customs and other Departments. The hon. Gentleman can see the figures for himself. There have been big changes and more will take place in those important Departments.

I understand where the hon. Gentleman comes from. He wants £50 billion of tax cuts, so he would cut back very heavily on public services. We have to get the right balance between the public services that we need, taxation that is fair with low rates wherever possible and, at the same time, stability in the economy. My job as Chancellor is balancing tax stability and the public spending that we need. I believe that we are making the right decisions today.

The textiles industry is facing major global challenges, so as we consider the innovations that it needs, is it not right to back proposals such as those in Yorkshire on the new technical textiles? We need to look into getting university-level degree standards, so that people can go right through from school into university. We should make the investments that we need to take those industries forward.

My hon. Friend has pioneered work that ensures that the textile industry can upgrade and, because of the quality of her work, get the design lead that will enable us to sell textiles to the rest of the world. A great deal of good work is being done in my hon. Friend’s constituency and throughout Yorkshire and the surrounding area to upgrade textiles with new investment, taskforces and skills investment. We will continue to give her constituents the opportunity to get the necessary adult skills, so that we can move to the next stage of globalisation. It is a measure of our commitment to doing so that the Leitch report recommends major targets that I believe we will be able to meet. One such target is the need substantially to increase apprenticeships.

Under this Government, we have seen average growth in the UK of about 43 per cent., compared with 35 per cent. in Scotland, and an average growth rate over the decade of 2 per cent. in Scotland and 2.9 per cent. in the UK—a 30 per cent. growth gap. If we had matched even the UK’s growth rate, Scotland’s economy would be £5 billion bigger—£1,000 a head. If we had matched low-corporation-tax Ireland’s growth rate, the Scottish economy would be £33 billion bigger—£6,000 a head.

It is extraordinary that, in the statement today, there was nothing at all on the Scottish growth gap. Indeed, the Chancellor mentioned Scotland once, fleetingly,34 minutes into a 37-minute statement. Instead, he comforted himself, as usual, with the mantra that there have been 38 consecutive quarters of growth under Labour—ignoring the fact, of course, that there have been four downturns in Scotland and a full-blown manufacturing recession.

The statement today failed to provide any coherent strategy for Scottish economic growth and did nothing for individuals—not even a word of comfort for those in the 328,000 Scottish households who now live in fuel poverty in an energy rich nation such as Scotland. Under the Chancellor’s stewardship over the past few years, we have witnessed an increase of more than 40,000 homes suffering—

Order. The hon. Gentleman must ask a question. This is not an opportunity for him to make a counter-statement. I can allow him to continue if he asks a question, but it must be very brief. He has had a good allocation.

Thank you, Mr. Speaker.

May I ask the Chancellor what part of the 30 per cent. growth gap he is proud of? If he is ashamed of it, what precisely does he intend to do about it?

Under a Labour Government in Scotland, unemployment is down, employment is up, growth is up and living standards are up. The one thing that would damage Scotland most of all would be to pursue the policy of the Scottish National party, under which there would be a separate Scottish pound, a separate Scottish interest rate and separate Scottish border arrangements. I will give just one example. Probably the biggest industry in Scotland is now the financial services industry, on which 125,000 people depend. If 93 per cent. of that industry’s exports go to England, I think that the hon. Gentleman had better wake up to the fact that an independent Scotland could not guarantee having the jobs or the growth that we have now. He would be ashamed of himself putting forward a policy that is so intellectually bankrupt.

I welcome the measures in the pre-Budget report that relate to the environment and follow on from the Stern report, but given the challenge of the global economy, it is crucial that we find a way to link action locally to the broad general concepts. Will the Chancellor take a particular interest in what is happening in north Staffordshire and Stoke-on-Trent, because of the job losses that we are still getting and the need to promote enterprise and to join up the education and skills agenda and so on? Will he meet north Staffordshire MPs to ensure that we take forward that whole agenda?

I will meet north Staffordshire MPs again—as my hon. Friend knows, I have met them before—to talk about the very issues of the future: not only manufacturing, but jobs in the area. As she knows, we have tried to get resources into both her constituency and the rest of the area, so that we can create new job opportunities. That is our aim. The way to respond to globalisation is to give people the skills and opportunities for the future, and that is what the statement is about.

How can the Chancellor claim that his fiscal rules are fully met when so many PFI liabilities and public sector pension liabilities are kept off the balance sheet? Given that those commitments are guaranteed, why are they not properly counted?

Opposition Front Benchers say, “Hear, hear.” We operate exactly the same rules and procedures that operated under the previous Conservative Government in this respect. [Interruption.] If the shadow Chancellor or his colleagues are saying, “This is the Enron,” it is a criticism of the previous Government for introducing those rules.

The hon. Member for Sevenoaks (Mr. Fallon) should say in the House what he is prepared to say on television. I have just been handed a note to say that, only a few minutes ago, he told Sky News that “the Chancellor has done a good job getting the economic framework stable.” Why does he not say that in the House?

May I ask my right hon. Friend to go back to his Budget three years ago, when he announced that Newcastle would be a science city? That is reinforced today by his pledge for more money for medical research and stem cell research, which are the heart of Newcastle’s recent world-beating scientific successes. May I ask him to give Cabinet leadership for science? May I ask him to share out the money that he is making available, not through closed old boy networks, but in an open and accountable way, so that if, as I believe, Newcastle can have 50 per cent. of the best ideas, it can have 50 per cent. of the money?

I am grateful to my hon. Friend for raising those issues. I have talked to him about them before. I have visited the stem cell research that is being done in Newcastle, which is one of the world leaders, and Britain is one of the world leaders in stem cell research partly because of what is being done in Newcastle. We are determined to support that. I think that he will find that the new arrangement, by pooling the NHS research budget and Medical Research Council money and working with the companies, allows us to be more proactive in the projects that we can support to make new drugs and new treatments more easily available. I am absolutely sure that Newcastle’s leadership on that will be rewarded when allocations are made.

I welcome the Chancellor’s realisation that a lack of transport capacity is a major constraint on our competitiveness. Given his new policy of giving that priority, what new road and rail projects will start in the next couple of years to show that that is more than words?

More than started under the previous Conservative Government—we have trebled the amount of spending a year on transport—but the right hon. Gentleman puts the dilemma that the Conservative party must solve. Yesterday, we had a transport debate in the House of Commons and all the Conservative Back Benchers were urging that there should be more spending on transport, while the shadow Transport Minister was saying on his website that corporation tax should be cut in half, losing £20 billion in revenue. How can the shadow Chancellor not control the Conservative party’s Front-Bench representatives? How can he not ensure that they do not make public spending commitments that they cannot meet and that they do not make announcements on tax cuts that he cannot afford? A year into his job as shadow Chancellor, he has lost complete control over the Conservative party’s Front Benchers.

May I assure the Chancellor that there will be a very significant welcome for the very significant commitments that he has made or confirmed today in his report for education, child benefit, community-based child support and, of course, the support for the continuing efforts against child poverty globally. Those commitments confirm his continued determination to ensure that every service, every system and every budget proclaims that every child is our child. Of course, as well as social support, economic opportunity for our children’s future depends on innovation and competitiveness, which he also addressed. In that context, for the Northern Ireland political parties, can he colour in the sketchy outline of 1 November for an innovation fund?

My hon. Friend puts the point that, first, we should act on child poverty, and we will; and secondly, that we should act on science and innovation, and I have made announcements today about what we will do. Thirdly, he rightly raises the question of the future financial framework for Northern Ireland. I have put proposals to the Northern Ireland parties, and I was grateful to him for attending the meeting when we discussed those matters. I am prepared to make a longer-term settlement to the Northern Ireland Assembly, provided that it can be reconstituted by the agreement of all political parties. I look forward to further discussions with him and other Members of the Assembly about how we can expedite that process. We remain ready to give the financial support that is necessary, so that Northern Ireland, particularly its economy, can move forward as a result of the Assembly being reconstituted, and we will continue to make that offer.

The Chancellor announced an increase in fuel duty, with which I concur, as it must be right to redress the balance between public transport and motoring; but may I ask him again to address the punitive premiums paid in remote rural areas, where there is no alternative to the car, as they cause real hardship and social exclusion?

The hon. Gentleman will know that we introduced a varied licence fee, which is of benefit to people making choices in rural areas. That is one of the ways that we have approached the issue. We have also put considerably more money into public transport, as a result of the decisions that we have made to allocate more resources in that area. For elderly people, of course, a national bus pass scheme will be introduced very soon. So we continue to look at what we can do to help rural areas. We continue to look at the variable elements of the vehicle excise duty system, and we continue to do more to provide for public transport in constituencies such as his.

In view of the Chancellor’s recent meeting with Cardinal O’Brien from Edinburgh and other faith leaders and the quite remarkable growth that he has again announced today, can he confirm that the Government are still on target to achieve the United Nations figure of 0.7 per cent. of gross national income being spent on aid and still on target to make our contribution to achieving the millennium development goals?

I am grateful to my right hon. Friend, because he has been one of the leading advocates throughout the world of action to achieve the millennium development goals and he has a proud record of passing legislation in this House that requires us to keep to the targets that we have set. Yes, we are intent on the 0.7 per cent. target. We are also intent on meeting the millennium development goals. In the next few months, we are launching the education for all initiative, which is designed to get every potential primary school pupil into education by 2015. There are 110 million children who are not. At the same time, Cardinal O’Brien, whose work in this area I applaud—particularly his visits to Africa to give hope to people in the areas of greatest need—was present at the launch of the vaccination initiative. We have agreed that500 million children will be offered vaccination. As a result of that, over the next 10 to 15 years, it is possible that 10 million lives will be saved. I was grateful that the Pope sent his representatives to that launch. The Archbishop of Canterbury was there, as was the Chief Rabbi. Muslim, Hindu, Sikh and other faiths were represented. It is a measure of the consensus among the Churches that something needs to be done that Governments around the world are being influenced by Cardinal O’Brien and many like him.

To complete the picture placed before us today, will the Chancellor tell us what part he thinks that he, personally, played in the collapse of final salary pension schemes? As a former opponent of means-testing, what pride does he take in the fact that 40 per cent. of the population, and well over 50 per cent. of the pensioner population, are now subjected to means-tested benefits from the state?

A total of 3.3 million people have pension credits as a result of the Government’s decision. In many cases, they are £30 or £40 a week better off as a result. If the hon. Gentleman is going to say to the pensioner community of this country that he will take away pension credit, and that that is part of the Opposition’s policy—

The hon. Gentleman says that it is not. Is it or is it not part of the Opposition’s policy? If the hon. Member for Gosport (Peter Viggers) is criticising what we are doing, he ought to be able to put up an alternative. Pension credit goes to 3.3 million people. It is easy to claim; it can be done by telephone. It is claimed for a period of years, not just for one year. He should be encouraging his constituents, rather than declaiming pension credit, because it is a proper way forward. As for the reform of pensions generally, I hope that he will support the pensions Bill that will be brought forward in the next few months to get a framework that we can agree across parties for the development of pensions for the future.

I welcome the extra investment in transport, housing and skills, the innovative policies for community ownership, and the green policy. Will my right hon. Friend say how, in moving forward, he intends to ensure that the delivery agencies on the ground, including local councils, are fit for purpose? I want to make sure that my constituents get the benefits of the announcements that he has made today.

I hope that my hon. Friend will lobby to have the new Warm Front initiative, which will extend Warm Front through community-by-community programmes. We will approach people in each area almost on a house-to-house basis, offering them insulation and central heating. It may be that her constituency or others can be included in that programme. The fact is that there are still millions of houses that are not insulated and many houses that do not have central heating. It is possible, under the arrangements that we have negotiated with the energy companies, for more people to get the benefit of both heating and insulation. It is our job to go out and persuade people that that is worth doing. For low-income pensioners, it is free. For many, there is a large grant available. I hope that the community-by-community projects that we are now proposing, to reach that group of people that we have missed so far, will cover a large number of constituencies.

During the Chancellor’s rather long statement on the pre-Budget report, he talked about a £1 billion tax raise through air passenger duty rates. However, I notice in table 1.2 that the tax going to be raised this coming year is not£1 billion, but £2 billion. Will he please confirm that?

In tackling climate change, will my right hon. Friend look at what seems to be a nonsensical position whereby employees who are given travel concessions by their employer to use public transport have that taxed as a benefit, whereas the provision of free car-parking places at places of work is not taxed in that way? Will he look at the anomaly that has arisen as a result of the otherwise welcome increase in the minimum wage, whereby many working carers are losing up to £46 a week because the minimum wage has taken them marginally above the £84 earnings threshold?

My hon. Friend makes two important points. I will look at each of them in detail in the run-up to the Budget. On the tax relief issue, I will arrange a meeting with him and Treasury officials. On carers, we will look carefully at the interaction of the minimum wage and tax credits.

The Chancellor mentioned making life easier for people on low incomes. Let us look at last year. How many tax credit recipients were overpaid and how many were underpaid?

I will send the figures to the hon. Gentleman. We are introducing a better system today so that there will be less overpayment. The issue is that we want to be as flexible as possible in responding to people’s situations. If their income goes up, their tax credit has been too high and therefore it is right to ask to recover it. We have arrangements in place whereby if the income change is reasonable, we will not ask for money back. The challenge is related to the difference between having a relatively inflexible system that cannot be adjusted during the year and a flexible system that enables us to respond to changes in the labour market. That is the challenge that we have always faced on tax credits. I believe that we were right to go for a flexible system, but obviously we must make sure that the figures for people who have to repay money are in order. That is why we are trying to reduce them with the change that we are making today.

We are in the middle of a £70 million investment programme involving building three new schools and a £140 million investment programme involving building schools for the future. I assure my right hon. Friend that educational spending is not the spin claimed by the Opposition. It looks like teachers, computers and new school buildings. However, is he also aware that inner London, in particular, faces exceptional challenges with education and skills? As a consequence of that, I have one ward—a mere mile from the west end—in which 83 per cent. of all children are growing up in workless households. In the run-up to the Budget and the spending review, will he look urgently at skills training, the tax credit system and affordable child care to make sure that no child or community is left behind?

I am grateful to my hon. Friend, who persistently puts the case for her constituency both to me and other Ministers, and quite rightly so, because of the degree of need in the constituency. We will listen to what she says about the issue of the number of people in poverty in her constituency and the need for better training. I agree with her entirely that it is easy to talk about the schools and educational institutions capital budget of £10 billion, which I announced, as simply a figure, but it is thousands more schools repaired, hundreds of children’s centres, better colleges all round, more books, whiteboards and computers, and modern facilities. The Conservatives may want to scorn what are major changes, but if they had done half as much as we have since we came into power, perhaps they would not have been out of power for so long.

Will the Chancellor confirm that he has today downgraded the GDP growth forecast for 2008 and will he also confirm whether he would have met the golden rule had he not changed the dates of the economic cycle last year?

The trend growth rate is exactly the same. If the hon. Gentleman is saying that if growth is upgraded this year, it should have no effect on future years, he is not living in a world with economic cycles and economic change.

Boom and bust is a term that applied to the Conservative years and two of the worst recessions in history. If the hon. Gentleman wishes to have a debate on boom and bust in the House of Commons, we are happy to do so. Growth this year is 2¾ per cent. and is higher than forecast. Growth next year is between 2¾ and 3¼ per cent. and therefore is higher than this year, and growth in 2008 is forecast to be2½ to 3 per cent. When did the Conservatives ever have 12 years of economic growth?

I congratulate my right hon. Friend on the extra£8.3 billion capital investment in schools, which will make a huge difference to my constituency. I thank him for resisting the temptation to introduce a third fiscal rule. Will he confirm that such a rule would prevent all the extra investment in education that he has announced, including reading recovery and books for children at five and 11, which are so necessary to meet his strict targets for skills in 2020?

If we had to adopt a policy to cut£28 billion of public spending now, it would be the equivalent of closing down most schools in the country. It would not just prevent capital investment, but mean that we could not hire teachers or pay the other bills of schools. Conservative Members will have to think about this. They are promising to spend more, but they say that they are going to tax less and that they would borrow less because they say that we have a structural deficit. They then say that their fiscal rule requires a reduction in spending. None of that adds up, but that is typical of the Conservative party. It left us in exactly that situation in the early 1990s and we are not going back to that.

The Chancellor rightly emphasised the need for fiscal measures to tackle the causes of climate change. Does he also accept that measures are needed to tackle the consequences of climate change? As a Scottish Member, he will know that the Scottish ski industry has been one of the first industries in this country to feel directly the consequences of climate change. Would he or one of his ministerial colleagues be willing to meet representatives of the Scottish ski industry to determine whether fiscal measures could be brought forward to help to alleviate the impact of climate change on that important sector of the rural economy?

If meetings are necessary on this issue, I am sure that they can take place. At the same time, I hope that the hon. Gentleman understands that there are now 200,000 more jobs in Scotland as a result of the Labour Government. Whatever changes are taking place, some of which are because of the environment, we are determined to replace jobs that are lost and we will continue to do so. That is why the Scottish Administration have adopted a new policy, with a new agency, to move towards full employment. Given that his party forms part of that Administration, I hope that he will support the policy.

I warmly welcome my right hon. Friend’s statement and everything that he said about child poverty, especially. As he will know, the Adoption and Children Act 2006 is working well. With crucial support from the Children and Family Court Advisory and Support Service, homes are being found for vulnerable children, many of whom used to live in institutions, and resolutions are being delivered for families in dispute. However, may I persuade him to examine the situation that CAFCASS faces? It has a standstill budget, and although the work that it does is excellent, the demands on it are exponential. The children that it helps usually have special needs. We need more money, so will my right hon. Friend look at the matter?

I will consider in detail the information that my hon. Friend has given me about that important agency. Obviously, there is not money to pay for everything. If I am right, the agency has the same budget as it did last year, but I shall examine the matter.

When the Chancellor was in opposition, he made a statement that if the parliamentary ombudsman found maladministration against a Government and people had lost out, that Government should compensate those pensioners. Why has the Chancellor turned into a hypocrite when the parliamentary ombudsman has found against the Government—

I apologise, Mr. Deputy Speaker.

Why has the Chancellor refused to accept the parliamentary ombudsman’s ruling that there has been maladministration under the Government and that they have stolen millions of pounds of pensions from our pensioners?

If I am right, the criticism was made against the previous Government—[Interruption.] This is a Labour Government and that was a Conservative Government. Since 1997, we have created the pension protection board and a scheme to help people who were not protected before the board came into being. We have done more than any other Government to deal with the problems faced by pensioners who have lost their pensions.

In addressing Labour’s historic commitment to end child poverty, the Chancellor was right to talk about the importance of child health. Babies with low birth weights are more likely than others to have learning disabilities and to suffer from heart disease and diabetes throughout their lives. The best start that a child can have is a healthy mother. Will the Chancellor explain in a little more detail the changes to child benefit that he proposes to make to tackle the problem?

At the 29th week, mothers to be are eligible to receive maternity grants. I propose that we consider whether we can give child benefit to mothers to be at that time so that they can get the nutrition that is necessary and prepare for the birth of their child. I am happy to talk to the Select Committee about that proposal.

Will any aspect of the Chancellor’s announcement about universities and tuition fees affect the situation under which English and Welsh students at Scottish universities pay much higher fees than Scottish students or students from anywhere else in Europe? Does the Chancellor think that that situation is fair?

I made two proposals on tuition fees: one in relation to voluntary work and the other in relation to children in care. The hon. Gentleman has to accept the principles of devolution. Once there is devolution, the Scottish Parliament and the Welsh Assembly—and, hopefully, the Northern Ireland Administration—can make decisions that are relevant to their needs. I am determined to ensure that there is sufficient educational investment. When we came to power, such investment represented 4.7 per cent. of national income, but that figure has been rising to 5.5 per cent. The hon. Gentleman should be supporting us for that, not criticising us.

I welcome my right hon. Friend’s statement and especially the extra resources for schools. Although extra funding per pupil and for schools is welcome across the board, does he agree that we need to target resources at the children with the greatest educational needs? Yesterday’s Ofsted report recommended extending to other areas the inner city challenge scheme that has been implemented in London. Teachers involved in the scheme have reported that having access to external expertise and, most importantly, extra resources has helped them to increase attainment in their secondary schools. Does my right hon. Friend agree that such a scheme is a way of tackling inequalities in education?

My hon. Friend is absolutely right. The matter concerns us all. The number of young people who are staying on in education, especially in school, is not high enough, especially given the challenges of the global economy that I have mentioned. Some 90,000 young people now receive educational maintenance allowances. However, my hon. Friend is right that we should build extra help around that. We can learn from what has happened in London. I have suggested that there should be more mentoring support and a project to catch people in their earlier years—before 14—when there is a danger of them drifting into trouble and antisocial behaviour. At the same time, we need to persuade people who leave school at 16 to stay on in other forms of education. I look forward to discussing those important ideas with my hon. Friend.

The Chancellor will recall that more people were unemployed in Wellingborough in October 2006 than in October 1997. He will also be aware that we have seen the largest rise in unemployment this year of any country in the developed world. Will that be the Chancellor’s legacy to the British people?

The hon. Gentleman seems to think that there was an election in October 1997. In fact, we were elected in May 1997. The figures for May 1997 show that 1,826 people were unemployed there, while the latest figures, from October 2006, show that 1,535 were unemployed. I say to the hon. Gentleman, as a reasonable man, that in the period we have been in government, unemployment has fallen in his constituency.

As far as the general situation is concerned, I think that the hon. Gentleman will find that 1.6 million people were unemployed when we came to power. The figure is now less than a million. He will also find that there were 26 million people in employment when we came to power, whereas there were 29 million at the last count. Over the past nine years, unemployment has fallen and employment has gone up substantially—[Interruption.] If the Conservatives want a debate on unemployment, Labour Members will welcome it. Conservative Members might then explain why, when they say that they are attacking unemployment, they spend most of their time attacking the new deal, which is designed to stop unemployment.

How much time did the Chancellor spend thinking about the islands when he doubled air passenger duty rates? He should know that there are very few routes over the islands that can be completed in a reasonable amount of time—many involve travelling for 12 hours or longer. Is Labour turning its back on the Western Isles? If so, the price will be paid next May, when Alasdair Allan will take the seat.

As the hon. Gentleman knows, there are special arrangements for the islands. He had better read the document closely.

Why, having raised £2 billion today for the next year, did the Chancellor choose to make barely a passing reference to the issue that is of the strongest concern to everyone in my constituency and many people throughout the country: cuts in service provision in the NHS? Out of the 265 pages of the pre-Budget report, only two paragraphs are devoted to health service provision.

The health service has already beengiven £5 billion more this year, and it will get between £5 billion and £6 billion more next year; I have announced those figures before. The hon. Member for Na h-Eileanan an Iar (Mr. MacNeil) says that he resents the fact that we had to raise money from air passenger duty. I think that he said that we would raise £2 billion—[Interruption.]

Order. I am sorry to interrupt the right hon. Gentleman, but I will not continue the questioning or call the remaining Members unless there is quiet on the Conservative Benches.

The issue is that if we are to pay for hospitals and health services—and we are spending£5 billion more on the health service this year than we did last year—that money has to be made available, and the money depends on striking the right balance between tax spending and stability. The hon. Gentleman criticises us for our tax measures, although he himself demands more spending, and that is precisely the contradictory position that the Conservative party is starting to represent.

It is hard to tell what the Chancellor does more: wriggle or fiddle. Today, there was only a single occasion on which he gave a straight answer to a straight question. Will he confirm that productivity growth under the Major Government was, on average, higher than it was at any time under this Labour Government, and that productivity growth has fallen in each term of the Labour Government?

I just gave the figures: productivity in the last economic cycle was 1.9 per cent., and productivity in this cycle is 2.4 per cent. If the hon. Gentleman wishes to answer questions, he should look at the contradiction in his own position. According to his website,

“Graham—Working for Beverley & Holderness … a tireless worker”,

demands more money for pupils, hospitals, and rural transport. He is also a member of the Cornerstone group that wants £50 billion in tax cuts.

If the Chancellor does not have one of my leaflets, I am happy to send him one. I welcome what he said about improving public procurement, but I have concerns about his comments on expanding the powers of the Office of Government Commerce, which has 22 criteria for judging sustainable procurement. Why are we expanding its powers? Is that not in direct contradiction to his aim of improving public procurement?

A document is to be published on procurement, and the hon. Gentleman will understand that that process extends right across Government. Today I announced, on procurement, that schools and designs for schools will be subject to an excellence test for carbon. What I announced today about the Office of Government Commerce was different: it was about the role that it is to play in reducing the fees that the Government pay to private agencies.


With the leave of the House, I shall put the two motions together.

Motion made, and Question put forthwith, pursuant to Standing Order No. 118(6) (Standing Committees on Delegated Legislation),


That the draft Compensation Act 2006 (Contribution for Mesothelioma Claims) Regulations 2006, which were laid before this House on 2nd November, in the last Session of Parliament, be approved.

Rehabilitation of offenders

That the draft Rehabilitation of Offenders Act 1974 (Exceptions) (Amendment No. 2) (England and Wales) Order 2006, which was laid before this House on 16th November, be approved.—[Tony Cunningham.]

Question agreed to.