I am delighted to open this third day of the Budget debate on the economy and the environment. It provides an opportunity to explore two key themes that will be central to our prosperity in the years ahead: first, the drive to build a low-carbon economy at home; and secondly, the need to maximise our contribution to the development of effective systems for emissions reduction around the world.
The Budget took important steps forward on curbing domestic emissions and contributing to international emissions reduction. It complemented measures in previous Budgets and pre-Budget reports, the Climate Change Bill and European negotiations. It set the stage for further measures in the next few months in the waste strategy, the energy White Paper and international discussions and negotiations, first in the G8 plus 5 in June and subsequently in the United Nations framework.
Vice-President Al Gore said—[Interruption.] The hon. Member for Cambridge (David Howarth) says that he spoke to him yesterday. I congratulate him on his choice of dining partners. The vice-president, who is recognised as an authentic voice on climate change, said that United Kingdom citizens should be proud of their record in contributing to the global fight against climate change. The starting point for the debate is, therefore, the UK’s record so far and international evidence on the science and politics of climate change.
UK greenhouse gas emissions, including emissions trading in 2005, the latest date for which data are available, were nearly 19 per cent. below their 1990 levels. The figure for carbon dioxide is 11 per cent. Since 1997, greenhouse gas emissions, including reductions achieved through the European Union emissions trading scheme, are down by 11 per cent. For carbon dioxide, the reduction—including through the EU ETS—is 4 per cent. Only the countries of central and eastern Europe, the economies of which have undergone a process of restructuring since 1990, match the UK for the scale of emissions reductions.
Our carbon reduction goals have not been fulfilled through economic austerity. In this country, we have enjoyed 58 successive quarters of economic growth. Our inflation, according to the internationally recognised measuring standard, has been the lowest in the G7 countries in the past 10 years. Since 1997, our interest rates have been half the 11 per cent. average of the previous 20 years. Employment is at a record high, and, all the while, greenhouse gas emissions have fallen. In other words, we have given the lie to the old choice of environment versus economy.
The latest figures for the household sector show that emissions are declining. I am happy to address the question about the dash for gas. It is true that the switch to gas reduced our CO2 and greenhouse emissions, in the same way that rising gas prices in the past three years have led to an increase in CO2 emissions.
Anyone listening to the Secretary of State might be misled into believing that the Government were meeting their environmental targets. Can he name a single target, other than the Kyoto target, which is being fulfilled largely because of the dash for gas, that is being met? What about the renewables target, the energy efficiency target, the biofuels target?
What have the Romans done for us other than created a new civilisation? Other than fulfilling the international standard, which is to reduce our greenhouse gas emissions by 12.5 per cent., I am happy to provide examples. What about our recycling commitments? When we came to office, this country was rightly perceived as a throwaway society, with 4 or 5 per cent. of waste going into recycling. The figure is now 27 per cent., which beats the target that we set. I am sorry that the hon. Gentleman has decided to start the debate in a rather churlish spirit because he and I agree that the UK has a good record by international standards, but that it has to do better. It would better become him if he admitted that.
The old choice was between the environment and the economy. The new choice is between low and high carbon development. Reducing emissions powers our economy forward, with 400,000 people working in environmental industries, compared with 170,000 only five years ago. Venture capital is moving into environmental industries, with London’s alternative investment market becoming the market of choice, listing more than 60 clean technology companies with a combined market capitalisation of more than £4 billion.
Meanwhile, Lehman Brothers—[Hon. Members: “It is pronounced “Leeman.”] I say “Leyman”, they say “Leeman”—I think we are talking about the same company. [Interruption.] Since I am British, I pronounce it “Leyman”; since they are American, they pronounce it “Leeman”. However, we are talking about the same company of Lehman Brothers—the distinguished bank, which, I am pleased to say, has many operations in this country. It states that climate change is inexorably becoming one of the major forces that shapes business, and that that presents new opportunities and enables new business to appear and develop. But while we have broken the link between economic growth and carbon growth, we know the country as a whole—Government, businesses and individuals—has to do better. That is the rationale behind the climate change Bill, which I look forward to debating in the House, and also for the measures in the Budget and further measures to come.
I want to ask about aggregates tax. The right hon. Gentleman and I agree that we need to reduce the use of non-sustainable resources, but given that the prime driver is transport costs, is there any evidence to suggest that the aggregates levy has actually reduced the take of virgin stone or increased the use of recycled stone? Will not removing the direct environmental benefit for the local communities affected by quarrying create a pointless levy?
The short answer to whether there is any evidence is yes, but it might be best if I write to the hon. Gentleman to provide the extensive details, some of which, I think I am right in saying, were published in the Red Book last week. They show some of the changes made, but I will happily write with further details.
For the UK, there are four main sources of greenhouse gas emissions: electricity, heat, transport and waste disposal. Each needs to be addressed by a combination of Government, business and individual action. That is what the Government are determined to do. Let me start with electricity and heating supply.
It is remarkable that we can deliver more than 1 million tonnes of carbon reduction from the decision to make the UK the first country in Europe to phase out all high-energy light bulbs. Further significant reductions will come from consumer electronics and from reducing the power consumed in wasteful standby mode. Renewable energy, including wind energy, will cut carbon and a continued nuclear contribution is also important. “Wait and see” is not a sufficient policy in this area, but to drive down energy-related emissions we need to go further in respect of the business sector and households.
The business sector accounts for 40 per cent. of all carbon emissions. I am pleased that large businesses and large emitters are now covered by the European Union emissions trading scheme, covering nearly half of all carbon emissions in this country—and more than half if aviation is included. For medium emitters, we are consulting on an energy performance commitment, but small business needs high-quality advice on energy reduction. That is why the Chancellor announced that the regional development agencies are increasing their expenditure on environmental and energy efficiency initiatives from £140 million to £240 million over the next year. In addition, all firms, whether or not they are in taxable profit, will have access to an enhanced capital allowance for more than 14,000 energy-saving and water-efficient products.
Households constitute 34 per cent. of electricity emissions and changes in building regulations have raised energy efficiency standards by 40 per cent. since 1997, which is worth more than 1.5 million tonnes of carbon every year by 2010. We have reformed the planning rules for wind turbines so that they are no more difficult to install than a satellite dish, and we are committed to help all householders take advantage of cost-effective energy efficiency measures. We also believe that individuals should be able to export electricity more easily to the grid, which is why Ofgem is conducting a special study of how we can better reward people for taking the step of becoming an electricity producer, not just a consumer.
Has the Secretary of State given any consideration to the Trade and Industry Select Committee report and its proposal not to levy council tax increases on households that choose to carry out the sort of actions that he is now praising?
Under the energy efficiency commitment, council tax—or reductions in it—are already being used as incentives for such energy efficiency commitments and I certainly intend to work with my right hon. Friend the Secretary of State for Trade and Industry, whom I see by my side on the Government Front Bench, to ensure that an appropriate response is made to the Select Committee’s work.
We also know that the fight against global warming needs new technologies such as carbon capture and storage. The principle is simple: instead of carbon dioxide from fossil fuels being released into the atmosphere, it is captured at source and stored safely underground. The results are transformational, with about 85 to 90 per cent. of carbon emissions removed from coal-fired power stations. The requirement is now urgent, which is why we are determined to have a demonstration plant in the UK, why a competition is now being launched by the Secretary of State for Trade and Industry, and why we want to show the world, especially developing countries, that this is not a technology to fear, but one to embrace.
The third main area of transport represents around a quarter of carbon dioxide emissions. The pre-Budget report made commitments in respect of aviation that will save the equivalent of 750,000 tonnes of carbon a year by 2010-11, but surface transport—mainly from cars, vans and lorries—is 93 per cent. of the total.
I am glad that the hon. Gentleman raised that issue. One of the joys of the real world of government, rather than the dream world of opposition, is that collective discussion sorts out the best proposals from the not-so-good proposals. That is why—[Interruption.] If Opposition Members will contain themselves, that is why I was delighted that the Chancellor embraced the air passenger duty proposal, which was in the same letter about which the hon. Gentleman is so excited.
I have not yet been asked to join the campaign team, but I assure the hon. Gentleman, who will be concerned about the issue, that, as I have said for three years, the Chancellor of the Exchequer is an outstanding Prime Minister in waiting, and I believe that he will do outstanding service for the country—[Hon. Members: “As Chancellor or Prime Minister?] As Prime Minister—for some reason, there are some suspicious minds in the House. I am happy to assure Opposition Members that the Chancellor of the Exchequer will be sitting on this side of the House as Prime Minister for a long time to come.
Surface transport accounts for 93 per cent. of the total, mainly from cars and lorries. It is right that we give incentives to all individuals to choose fuel-efficient ways of motoring. Were every car owner to purchase the most efficient vehicle in their current class of car, average CO2 emissions across the UK fleet would fall by 30 per cent. The commitments on fuel duty, over the three years, make that choice more likely. We predict that they will save 160,000 tonnes of carbon a year by 2016. Fuel-efficient cars in band B have CO2 emissions of about half those in band G. We now have a graduated vehicle excise duty system, so that cars in band G will next year face a tax rate of more than 10 times the level for band B.
While it is perfectly laudable to try to reduce inappropriate use of vehicles, such as 4x4s, perhaps in the city, does the Secretary of State recognise that the measure is rather unfair to those of my constituents who are farm labourers, shepherds and uplands farmers, who must use 4x4s for their job? Checking the sheep at 4 am in a Nissan Micra is totally inappropriate. Does he recognise that the proposal is too blunt an instrument?
Will the Secretary of State address the issue raised by my hon. Friend the Member for Lancaster and Wyre (Mr. Wallace)? The issue is not poverty in rural areas, although we know from the Government’s own advisers that 20 per cent. of rural people live in poverty. The reality is that many thousands of people require powerful engines for their work—towing trailers, four-wheel-drive pick-ups and so on. Of course we need to stop the use of 4x4s—although the issue goes beyond 4x4s—in wholly unnecessary circumstances. But does he accept that it is necessary to devise a new class for those who genuinely need a powerful engine as part of their work, and who might fall foul of the regulations? Will he discuss that with the Chancellor?
The hon. Gentleman speaks on these matters with expertise and commitment, and I take his point seriously. Obviously, we think that the principle of a graduated VED system makes sense. Different people have to make different choices for all sorts of reasons. This is not about forcing Nissan Micras down the throats of farmers, as was suggested earlier. However, if we are to have a graduated system that does not become impossibly complex to administer—for example, many people in rural areas might have a larger car but will not drive it only in that area—there will always be a balance to be struck with simplicity. I am sure that he would not want an over-bureaucratic scheme. If he wants to write to me or the Chancellor, however, or if the hon. Member for Lancaster and Wyre wants to make a specific proposal, we will consider it seriously. We try to strike a balance between the environmental, economic and social parts of the equation. A simpler system is always an advantage.
The hon. Gentleman makes a good case for the measures across the board that the Chancellor announced last week. I look forward to him persuading his own Front Benchers to set out their position on fuel duty, which has not been clarified.
We also need to explore the scope for a large-scale shift away from fossil fuel-based transportation. For reasons of environmental and economic security, it is right that we look to a future in which we no longer use petrol to get around.
On that important point, is my right hon. Friend aware that road freight pushes out 12 times as much carbon dioxide as the equivalent rail freight? It would be a tremendous advantage if we could get more freight on to rail. In that respect, will he support the scheme that I proposed, in an Adjournment debate, to build a railway line from Glasgow to the channel tunnel? The railway line would be dedicated to rail freight, link all the industrial areas of Britain and take 5 million lorries off the roads every year.
I believe that there has been a 35 per cent. increase in passenger numbers on the railways and an almost equivalent increase in freight numbers—I am happy to write to my hon. Friend with the details. Tempting as it is for me to do the job of the Secretary of State for Transport, the fairest thing that I can say is that I will look at his scheme. No doubt, my right hon. Friend will also consider it.
Countries such as Brazil decided, about 25 years ago, to shift away from fossil fuel-based surface transport methods. The Chancellor has asked Professor Julia King to work with Sir Nicholas Stern to look into the benefits of taking carbon out of surface transport over the next 25 years by using electric or hydrogen-powered cars. My right hon. Friend the Transport Secretary will shortly announce the terms of reference of that work.
My final point on domestic emissions is that the methane that comes from landfill is 23 times as powerful a greenhouse gas as CO2. That is why we have had the landfill tax for the past 11 years, which has helped to achieve a 25 per cent. reduction in the amount of waste that is sent to landfill. However, with the rate of increase at £3 per tonne, the incentives are not yet right for a fundamental shift away from landfill, which is why the tax will rise by £8 per tonne every year from April 2008 until at least 2010-11. That should save greenhouse gas emissions of at least 200,000 tonnes of CO2 equivalent per year. [Interruption.] An hon. Member says from a sedentary position, “No, it won’t”, but I am happy to provide details to show how the landfill tax, which was introduced by a Conservative Government, has worked. I suggest that Conservative Back Benchers take a few lessons from their Front Benchers.
I rose to help my right hon. Friend out because it seemed as though we would not get any response from the Opposition. The Staffordshire Environmental Fund is keen that there should be an increase in the landfill tax because of the good work that is being done to aid recycling and environmental schemes as a result of the tax. That is a very welcome outcome of the Budget.
My hon. Friend, who sits on the Select Committee on Environmental Audit, is right. I thought that the landfill tax had cross-party support, so I am surprised by the earlier sedentary comment. We will have to put certain Conservative Back Benchers down as sceptics, if not opponents, but I assure them that the scheme is very good.
I read in the newspapers that some people believe that it was a landmark decision to move away from landfill. Many companies pursue a zero landfill waste policy, which is a good thing.
The Secretary of State has been very generous in giving way. Just for the record, the landfill tax was introduced by the Conservative Government. We support it and we support what the Government are trying to do with it, but does he recognise that one of its consequences is increased fly-tipping, responsibility for which should fall within his Department? What initiatives is he taking to ensure that an increase in the landfill tax does not lead to an increase in fly-tipping?
The hon. Gentleman may not have memory on his side, but Labour Members recall his opposition on Second Reading to the Clean Neighbourhoods and Environment Act 2005, a measure that was designed to tackle precisely that problem. I suggest that he does not tie himself in any further knots.
I welcome the increase in landfill tax because of the likely consequence of a reduction in methane emissions, but can the Secretary of State give us an estimate of the overall impact on greenhouse gas emissions of the measures announced in the Budget? How large a cut will they lead to, in percentage terms?
I am sorry to disappoint the Secretary of State, but one difficulty with “tallying up” the environmental effect of the Budget is the precise result that the Government intend with their alterations to the climate change levy. The Red Book appears to give no figure for carbon saving from the package. Are the measures in the Budget designed merely to hold the savings level, or are they intended to make any change? If they are not intended to cause a reduction, why not?
The climate change levy has been raised by inflation, and the associated climate change agreements work with it. I understand the hon. Gentleman’s difficulty with calculation in respect of some of the changes. Obviously there is an arithmetical relationship between tax and output, but my experience of talking to businesses suggests to me that the climate change levy and the associated agreements are causing them to take a whole new attitude to the way in which they deal with energy. In other words, the climate change levy—which, as I shall make clear later, has saved about 16 million tonnes of carbon so far—has had a bigger effect than an arithmetical calculation might suggest. To put it more simply, it has resulted in a cultural as well as a fiscal change.
I want to say something about the international part of the agenda. We know that, as well as helping to build a low-carbon economy at home, we must contribute to further emissions reductions abroad. Our commitment to European action is central to our vision of the low-carbon economy of the future.
The European Union can regulate across markets worth 475 million citizens, minimising the competitive disadvantage for any one country. It can bring together a negotiating bloc that is powerful on the world stage. It can create and use carbon markets to drive emissions reductions in Europe—markets that are worth billions of pounds in carbon finance for the developing world.
We are determined that London will be the centre of the European and global carbon market. Thanks to the resolution of the dispute with the European Parliament, we can release common agricultural policy funds to our farmers to help environmental stewardship and rural development across our country. I will make further announcements about that later today.
In raising the European Union, the Secretary of State acknowledges that many decisions on these issues are now made in the Council of Ministers, but this is, in United Kingdom terms, a devolved matter. Can he tell us how many of those Council of Ministers meetings he has attended in the presence of a Scottish Executive Minister?
I have been to many meetings of the Council of Ministers. I do not know whether the hon. Gentleman is deliberately misleading the House, or deliberately misunderstanding what I said, but I shall be happy to find out how many such meetings I have attended.
I can remember Scottish Ministers being present at meetings. I sit on the council of environment Ministers as well as the council of agriculture Ministers. What I can tell the hon. Member for Moray (Angus Robertson)—and I am sure that it will interest him—is that the clout of all parts of the United Kingdom is all the greater for a United Kingdom presence at the negotiating table, rather than a splintering of our efforts. [Interruption.] I said that I would find the exact number. I do not want to name a number of meetings that Scottish Ministers have attended, and then for that to turn out to be wrong. I want to reply to the hon. Gentleman later to ensure that he has an accurate answer.
Thank you, Mr. Deputy Speaker.
We know that we need to effect change further afield. Carbon finance—the product of emissions reduction commitments in richer countries—will help, but we also need Government leadership. It was announced in the Budget that there will be an £800 million international window for the environmental transformation fund to help developing countries deal with climate change, get access to clean energy and tackle unsustainable deforestation. The poorest countries will be the most vulnerable to the effects of climate change, and we have a duty to support them and to help them to participate in the global transition to a low-carbon economy. Deforestation accounts for about 18 per cent. of global greenhouse gas emissions.
That is why it is right that the first £50 million of the fund will go to support proposals made by 10 central African countries to help protect the Congo basin’s forests and people. I am not sure whether the significance of that announcement has been appreciated. The forests of central Africa contain an amount of carbon equivalent to about 4 years of global emissions. If that carbon is released, all our futures will be affected. If it is safeguarded in those rainforests, we will all be protected.
It strikes me that the European Union might introduce measures along the lines of the emissions trading scheme, which placed tax burdens on British citizens. Will the Secretary of State give a commitment that, if that is the case, the taxes that he has created—in respect of air passenger duty, for example—will be reduced to offset the taxes from the EU?
That would be a very disappointing commitment for the following reason. The European emissions trading system has had support from all parts of the House, as well as from business and industry. The recently published UK manifesto for the future of the European emissions trading scheme got part of its strength from the fact that business, non-governmental organisations and all parties in this House supported it. The market mechanism that has been established ensures that those who are environmentally thrifty are rewarded, and that those who are not have to pay. That seems to me to be a very good principle to establish.
The Secretary of State is right in what he says about deforestation, and we all want to prevent that from happening, of course. However, that raises an issue to do with the renewable transport fuel obligation. As he knows, there is widespread concern that if we are not careful we will meet that obligation simply by sucking in ethanol from Brazil and palm oil from Indonesia, with both of them taken either directly from land that was rainforest or by domino effect. When does he expect the Government will announce their criteria for meeting our targets in this regard, using sustainability objectives and others that will prevent those imports?
The hon. Gentleman raises an important point, but we are consulting now on how we can make this work. He might be thinking about the European side of this matter. As a result of our interventions, and those of others, the European commitment on biofuels requires steps to be taken in a sustainable way.
At the G8 meeting in June and the UN convention in December, the UK will be able to argue for a global emissions reduction deal on the back of landmark proposed domestic legislation in the draft Climate Change Bill, significant domestic action and world-leading commitment to international help. The hon. Member for East Surrey (Mr. Ainsworth) said last month, at a joint forum at which the Government and the Liberal Democrats were also represented, that the foundation of his approach—the lodestar of his policy and the reason why he could be trusted in the battle against climate change—was that he believed in conservation. However, we will never achieve a low-carbon economy by becoming a preservation society. The old ways are the problem; they are not the solution to climate change. What our carbon-fuelled economy needs is not conservation but change.
The hon. Gentleman says—and I believe him when he does so—that he has no time for climate change deniers, but I therefore have to ask him to have a word with the hon. Member for Woodspring (Dr. Fox), who speaks for his party on defence and who says, astonishingly, that
“there’s evidence on both sides, I don’t think anyone actually knows what the real causes are”.
We know from the scientists that they are 90 per cent. certain of both the nature of climate change and its causes. I hope that the hon. Member for East Surrey will be able to reassure us that the real position of the Conservative party is not to be found lurking in the words of the shadow Defence Secretary.
The Budget represents clear choices not for conservation, but for radical change. If we were to rely on social responsibility and not on Government action, we would not have every house builder working towards constructing zero-carbon homes. If we did not have the climate change levy, we would not have already saved more than 16 million tonnes of carbon and be on course to save 3.5 million tonnes of carbon a year by 2010. If we were isolated in Europe, we would not have been able to win support for tough vehicle emissions standards. If we were to follow the new fiscal rule of the Opposition, we would not have £800 million to spend on development projects, which they say they support.
The Chancellor said two weeks ago that carbon reduction now sits alongside low inflationary growth and high employment as the third foundation of economic policy. The Stern report has given Governments their marching orders: to align a market price for carbon and procure sustainable products, alongside international regulatory standards for low carbon goods, and information for citizens to help them support the goal of emission reduction. Stern said that carbon tonnes, not just sterling pounds, are the metric of policy. That is the course that the Government are following, and I commend it to the House.
I feel rather sorry for the Secretary of State, not just because of the lamentable turnout on the Government Benches for this very important debate on a key issue of our times, but because of the Budget itself. He has tried to put a brave face on it, but he knows that it was a hopelessly unambitious Budget for the environment and for rural Britain. It was spun as a green Budget, but yet again it was just plain Brown. It is not the Secretary of State’s fault: he was a given a job to do by the Prime Minister, and he has found it quite difficult. If what we read in The Observer this weekend is true, the Prime Minister is keen to give him another job; and we hear today that even Peter Mandelson is keen for him to have another job.
Before even contemplating taking on another job, however, the Secretary of State needs to be a little more careful about the way in which he expresses himself. Writing in the very same edition of The Observer yesterday, he said:
“New Labour has, in my view…not been good enough at promoting strong community self-government...not good enough at making them”—
teachers, nurses and the police—
“feel like real entrepreneurs…not good enough at giving young people a sense of commitment to the country…not good enough at reducing domestic carbon emissions…not good enough at promoting real engagement with citizens.”
Indeed. Many Opposition Members look forward to the Secretary of State promoting himself, and to a Labour manifesto that reinforces the points that he put so eloquently in The Observer yesterday.
The Secretary of State was originally given the job by the Prime Minister in order to tackle the environment. In a letter sent at that time, the Prime Minister asked him to
“take action on climate change”
“ensuring that national consensus for action is turned into concrete measures that will have a real impact.”
Unfortunately, somebody else has got in the way, and we know who.
In October, the Environment Secretary wrote a letter to the Chancellor, entitled “DEFRA’s Priorities for Budget 2007”. In it, the right hon. Gentleman urged the Chancellor to “seize the policy initiative” on the environment, which is quite interesting in its own right, because it implies that the policy initiative has slipped from the Government’s grasp. It has: it is on the Opposition Benches.
I have often asked and urged the Government to show some initiative on climate change and the environment, and I have made it clear that we will support them if they provide leadership in the drive towards a low carbon economy. However, after years of watching them fiddle about and fail, I am running out of patience, and they are running out of time. They have left behind a trail of missed targets on the environment, and they are going to miss the most important target of all. It must be the most important of all, because it has appeared in three successive Labour party election manifestos: the 20 per cent. cut in carbon emissions by 2010.
The Government are not even meeting their own internal green targets. Not a single Department attained full marks in the recent Sustainable Development Commission report on Government performance, and 15 Departments’ emissions have gone up. The Department for Environment, Food and Rural Affairs itself came a rather middling ninth, getting three out of five points. The Government’s own watchdog said:
“Against a background of non-stop messaging on climate change and corporate social responsibility, the Government has failed to get its own house in order.”
The Budget will not put that situation right, and the Secretary of State knows it.
In his letter to the Chancellor, the Secretary of State asked him to look into aviation, car tax, greener homes and incentivising clean technology. We might have expected that his pleas would fall on deaf ears. After all, the former Cabinet Secretary, Sir Andrew Turnbull, told us last Tuesday about the
“more or less complete contempt with which”
the Chancellor holds other colleagues. He singled out the Environment Secretary. According to Sir Andrew, the Chancellor’s attitude is:
“If you want something done about the environment, you don’t talk to David Miliband.”
It is all too clear that the Chancellor did not talk to the Environment Secretary before putting together the so-called green part of the Budget.
Let us use the Environment Secretary’s yardstick to see how the Budget measures up. In his letter to the Chancellor, the Environment Secretary warned that
“emissions from aviation are our fastest growing source of greenhouse gas”,
“air travel is lightly taxed”,
“I do not believe that we can leave aviation untouched”.
We agree. He also said:
“There is a case to look again at making flights subject to VAT”,
In fact he went further; he said that VAT should be on domestic flights, as in some other European countries or, better still, on all EU flights.
On Wednesday, the Chancellor told the House that he had
“had representations to put VAT on airline tickets”.
Indeed he had—from the Environment Secretary who, presumably, felt suitably chastened when the Chancellor went out of his way to say that
“the substance of the measure has not been properly thought through”.—[Official Report, 21 March 2007; Vol. 458, c. 823.]
Could it be that the Chancellor has executed an aerial U-turn, because when we made just that point, the Environment Secretary accused us, absurdly, of wanting to “criminalise” aviation? If taxing something means criminalising it, the Chancellor is responsible for the biggest crime wave of the century. The Environment Secretary’s views about aviation appear to be a little confused.
As the hon. Gentleman should know if he has been following politics, which is probably sensible for someone in his position, we have published some policy proposals on aviation, and we are consulting on them. Unlike Government consultations, we will listen to what people say and propose policies as a result. I am delighted to have had an intervention from the Liberal Democrats because it enables me to say how much we look forward to working with them. We believe that we can do business with them onthe environment and that many Liberal Democrat supporters would do well to support the Conservatives on the environment because we share many of their values.
I did a little homework at the weekend and got out my paint set. The paper I am holding up is not a trick; it is genuine. I discovered that yellow and blue make green, but that if red is added it becomes brown. That is absolutely true and I did not mess about with the painting at all, Mr. Deputy Speaker, but I shall put it away quickly because I can see that I am catching your eye in an unhelpful way.
The Environment Secretary’s views about aviation appear to be somewhat confused, but so are the views of the whole Government. We know that the Chancellor does not listen to the Environment Secretary, but he does not seem to listen his own Treasury team either. The Financial Secretary—I am delighted to see him in the Chamber this afternoon—told the Environmental Audit Committee a year ago that
“air passenger duty is not an environmental tax; it is not related to a concern about emissions, it is not related to more efficient aircraft, it is not related at all to more efficient use of the aircraft which are flying.”
That is absolutely right, but the next thing we know is that the Chancellor is doubling air passenger duty to save the planet. However, unlike our proposals, he is using green taxes not as replacement taxes, offset by tax cuts elsewhere, but as a stealth tax. I cannot think of a better way to alienate public support for measures to tackle climate change than to dress up stealth taxes as green taxes. He really does not get the tax offset idea, does he?
We are in favour of increasing green taxes and offsetting them with tax cuts elsewhere. The Chancellor is in favour of announcing headline-grabbing tax cuts and offsetting them with an overall increase in the burden of taxation that hits the least well-off hardest. That is not a tax cut; it is a tax con. What does the Environment Secretary think about green taxes, or has the Chancellor not had time to tell him yet?
Let us return to the right hon. Gentleman’s other proposals. In his letter to the Chancellor, the Environment Secretary asked for a “substantial increase” in vehicle excise duty. In Wednesday’s response to that letter, the Chancellor cut the bottom rate by £15—heady stuff—and increased the top rate by £200. Does the Chancellor seriously think that someone thinking of paying £75,000 for a Porsche Cayenne will have second thoughts because of a £200 hike in vehicle excise duty? This is a classic example of ineffectual tinkering. We need to be far more ambitious and radical. It is high time that the Government backed a commitment to getting car emissions down to 100g per kilometre, with a clear package of incentives and regulations to ensure that the goal is met.
I had a long time to make my speech and to answer questions. A number of those questions—three, possibly four—protested at the increase in vehicle excise duty from £200 to £300 to £400. The hon. Gentleman has just said that that increase is far too puny and that it should be much greater. Will he explain what his position actually is?
The concerns that were expressed were in relation to the impact on people in remote rural areas who need to use heavy-duty cars to go about their business. There is a genuine problem there, and the Government have admitted as much.
In his letter to the Chancellor, the Secretary of State then moved on to homes. He asked the Chancellor to look into stamp duty rebates for new zero-carbon development. In Wednesday’s response to the letter, the Chancellor did indeed promise no stamp duty for new zero-carbon homes, but with this Chancellor nothing is straightforward. He sneakily put a five-year time limit on the stamp duty exemption. How many zero-carbon homes does the Secretary of State honestly think will be built by 2012—the deadline for the exemption? Will he explain why a Minister killed off the Local Planning Authorities (Energy and Energy Efficiency) Bill, which was promoted by the hon. Member for Gower (Mr. Caton) and which had all-party support? It would have allowed local authorities to set tougher environmental standards for new homes. It is extraordinary: the Government wreck a Bill by one of their own Labour colleagues that could have made a real difference and instead offer a hollow headline about stamp duty relief on houses that do not exist.
In the final part of his letter to the Chancellor, the Secretary of State asked him to look into removing barriers to innovation. In Wednesday’s response to that letter, the Chancellor attempted to support microgeneration. First, he promised an income tax exemption for domestically produced energy sold back to the grid. That looks like a good move—until one reads the small print. The move is not exactly life-changing. Experts say that it would be worth, at most, £22 a year to householders who go through the hassle of installing renewable energy in their homes—big deal.
It gets worse. Income tax is not currently collected on microgenerated energy anyway, so we have something completely new here. It is not a stealth tax; it is a ghost tax. The scheme does nothing to make it easier for home owners to sell their energy. The Chancellor made no effort to push for a higher grid price for microgenerated energy or for smart meters to allow everyone to buy and export energy more easily. The Chancellor claims that he has asked Ofgem to look into the matter. We are so bored with his asking people to look into it. We have seen endless consultations and dither, timidity where we need boldness, and half-hearted and piecemeal meddling where we need consistency and leadership.
Friends of the Earth called the promise of an extra £6 million for the low-carbon buildings programme “a joke”. The trouble is that tackling climate change is not funny. The low-carbon buildings programme was originally supposed to run for six years. Then we were told it would run for three. Then in December we were told that a monthly cap would be placed on grants to try to draw the scheme out. Then last week we were told that the scheme was being temporarily suspended. Is it not utterly typical that the Department of Trade and Industry released a stealth announcement on Budget day that suspended the low-carbon buildings programme for at least two months? This has been a total shambles. Where consumers and suppliers have looked for certainty, they have found chaos. In March, the grants ran out in 75 minutes. What the Government have created is a monthly bun fight that is constricting demand. People who are unable to get grants wait until next month, the following month or the month after that to order their chosen technologies, or they simply give up.
So, even on the Secretary of State’s own tests, the Budget was a failure. He asked the Chancellor to look into aviation, car taxes, greener homes and cleaner technology. He wanted the Chancellor to be bold and imaginative and all he got was tinkering. No wonder the Secretary of State said recently—presumably in a fit of bitterness—
“in six months or a year’s time, people will be saying, ‘wouldn’t it be great to have that Blair back, because we can’t stand that Gordon Brown’”.
The Budget also ignored many issues that the Environment Secretary has ignored too much of late. There was no mention of support for the natural environment, despite the perilous state of more than half our sites of special scientific interest. Despite the Chancellor’s obvious lack of interest, will the Environment Secretary confirm that a marine Bill will be guaranteed in the 2007 Queen’s Speech, whoever is Prime Minister at the time? There is no guarantee.
There was no mention of support for our rural communities. The sole rural dimension was a 2p a litre increase in the tax rate on red diesel. Of course, as the House has heard, many farmers and people in remote rural areas will be caught by the increased tax on 4x4s—[Interruption.] I do not know why the Economic Secretary to the Treasury is looking so dumbstruck. I am merely reiterating what I said a few moments ago.
On the same day as the Budget, the Lyons report recommended that farm buildings should be subject to business rates. That would represent a £300 million tax on farming. Can the Environment Secretary imagine the impact that that would have? Does he agree with that proposal? Does he agree with the recommendations in the Lyons report on rural farm buildings and business rates?
Are you going to give way?
The hon. Gentleman has not exactly answered the question. The ominous silence on the question of the impact of the Lyons report on farming will echo around the countryside. I have already discussed vehicle excise duty. It creates a problem for people who have to use such vehicles for their work in remote rural areas—it is as simple as that.
Having read the Lyons report, it is clear why the Government decided to publish it on Budget day: it was a good day to bury bad news. In sum, the 2007 Budget was full of headline-grabbing half measures and wholesale omissions. The Chancellor may have commissioned the Stern review, but it is clear that he has not taken its findings to heart. He just does not get it. It is because there are still people in British politics who do not get it, such as the Chancellor, that the forthcoming Climate Change Bill should provide for annual rate-of-charge targets to be set and audited by an independent body. The Government need a better annual yardstick than a leaked letter from the Environment Secretary. We need a climate change policy that is based on science, not spin.
I understand that some of the Environment Secretary’s friends have nicknamed him Brains, after a character in “Thunderbirds”. I probably do not need to remind you, Mr. Deputy Speaker, that Brains was a slightly weird, geeky character. However, above all, he was a plastic puppet jerking around on the end of a piece of string. We all know who the puppet master is; the strings are held in a clunking fist belonging to the man who assumes that he will soon be the next Prime Minister. People are sick of spin, stealth taxes, tax cons and puppet Secretaries of State whose ambitions, when they exist at all, are ignored and ridiculed by the Chancellor. We need a step change in our approach to the environment. We need a sense of urgency and a message of hope, opportunity and determination. This Budget proves beyond doubt that the last thing that anyone who cares about our fragile environment needs is the change at the top that is being engineered by the Labour party. We need a complete change of direction and a change of Government.
Change of Government!
I agree with the percipient and prescient comment of the hon. Member for East Surrey (Mr. Ainsworth). I assure him that, under me, the Labour party and a Labour Government would have a very different environmental approach and a genuinely green policy.
I am tempted to go down the route of discussing the Government’s environmental policy after the forceful speech of my right hon. Friend the Secretary of State for Environment, Food and Rural Affairs, but I will not, because I prefer to confine my comments on that subject to the Second Reading of the Climate Change Bill, which, I take it, will be held shortly. I therefore want to talk about a rather different issue, but first I shall make just one comment on the subject.
As my right hon. Friend said, the Government’s record on greenhouse gas emissions is good, at least compared with those of others, but he made a statement at the start of his speech that I had not heard before. If I heard him correctly, he said that, taking account of the EU emissions trading system, UK greenhouse gas emissions had gone down by 11 per cent. since 1997. I think that he said that.
I am happy to repeat the figures for the benefit of my right hon. Friend, who is a distinguished former Minister for the Environment. On 1990 levels—the figures are for 1990 to 2005—greenhouse gas emissions are down 19 per cent. It is actually 18.8 per cent., I think. For CO2, the figure for 1990 to 2005 is 11 per cent. Since 1997, if we include the EU ETS, greenhouse gas emissions are down 11 per cent. For CO2, if we include the EU ETS, the reduction is 4 per cent.
That is what I thought my right hon. Friend said, and he has repeated something that I have not heard before, namely that if one includes the EU emissions trading system, since 1997, UK greenhouse gas emissions are down by 11 per cent. What my right hon. Friend did not say, but which needs to be said, is that the EU emissions trading system is very poorly crafted. The baselines are far too lax, the allowances are far too generous, and the net deductions are, in reality, very much smaller than is claimed. If that somewhat deceptive scheme, which needs to be sharpened up hugely, is excluded, as I think it should be, I fear that our greenhouse gas emissions have hardly gone down at all since 1997. I am not saying that they have not gone down, but they have gone down by a very small amount. My real point is that they have gone down by much less than the 2 to 3 per cent. a year that is needed if we are to achieve the target of a 60 per cent. reduction by 2050.
I am as surprised as the right hon. Gentleman is that the Secretary of State appears to have invented an entirely new statistical series that is not included in the environmental accounts published by the Office for National Statistics. Those accounts show that there has been an increase in CO2 emissions since 1997. At the very least, the Secretary of State ought to place those figures in the Library.
That would be useful, and in light of this debate, I am sure that my right hon. Friend the Secretary of State will consider doing that. I take heart from the fact that my right hon. Friend agrees that the UK has to do much better, and not just marginally better. It has to act on a scale that I do not think many people, including Ministers, have got their heads around. The changes across the spectrum of Government policy will have to be considerable. Having made that point, I want to speak about a different issue.
One of the central objectives of a Budget should be social justice, and on this occasion, I think that on balance politics prevailed over social justice considerations. As many have said, the combination of the 2p income tax cut and the elimination of the 10p tax band will, of course, transfer income from lower earners to middle earners. The alignment of income tax and national insurance, so that there are two tax bands and two thresholds, may simplify the tax system, but only at the expense of undermining its progressiveness. The 2p cut in corporation tax reduces company taxation to its lowest ebb in 60 years, inevitably switching the burden towards more regressive personal taxes.
The continuing failure to end the scandal of hugely lucrative tax loopholes for the very rich, such as non-domiciled tax status and the short-term taper relief for private equity investors, simply enhances the trend towards inequality, which is far too embedded in the system. All of that may well have shot several Tory foxes—it was probably very successful in doing so—but it does not promote social justice to any significant degree.
The right hon. Gentleman’s sentiments about social inequality are shared by the Opposition, but does he share my overwhelming concern and alarm that while there was a 2p cut in corporation tax for large businesses, which is to be welcomed if one believes in competition in the tax arena, taxation on smaller businesses was increased by about 16 per cent. in a three-year time frame? Those smaller businesses may be owner-managed, and they may support one or two other members of the family, so it will hit them very badly.
I cannot validate the hon. Gentleman’s figures. All that I would say is that the level of corporate taxation overall is too low. Of course, I understand the competitiveness point, but the level of corporate taxes has reached such a low level that it will inevitably lead to a big increase in every other arena of taxation, so there are likely to be regressive taxes on individuals. However, I agree that within the corporate sector taxes on small businesses should be reduced as far as is reasonable and fair, even at the expense of large companies, which are extremely profitable compared with similar businesses abroad, so they could certainly pay more.
It is kind of the right hon. Gentleman to give way to me a second time. Is he as shocked as I was to discover the calculations over the weekend, which showed that someone needs to earn £18,650 a year before they will receive an income tax cut in the Budget? What the Chancellor has done—and it is the first time ever that a progressive Government have done so—is to take from the bottom end of income distribution to give to the middle. Is the right hon. Gentleman as shocked as I am by that?
I have already referred to that point, and I am not going to add anything further.
Britain is now one of the most unequal countries in the world. The latest official figures show that the rich have made a killing in the past decade, and that inequality rose sharply between 1997 and 2002. It is perfectly true that it has fallen back since then, but it still remains, at least on the latest figures, above its level in 1997. That reflects the fact that although child tax credit, working tax credit and pensioner benefits, all of which I strongly support, have provided a modest but welcome lift for the poor, the rich have done hugely better. That is the problem. It is not that the poor are poorer; they are not—they are slightly better off—but the rich are hugely better off.
I promise it is not about private equity. I strongly support what the right hon. Gentleman said about social justice, but does he share the concern of the Opposition and myself that the tax credit system itself is a fiasco, with only three in five people receiving the right amount of money?
We all know that there have been considerable problems with tax credits. We are perfectly well aware of that—and I know that the Government are striving to overcome those problems—but the principle of tax credits for working families is a very good one. One of the problems is that not every one who is entitled to a tax credit necessarily claims or receives it. The principle is a good one, but I am worried that through the tax system, the Government are effectively supporting employers who pay their lowest-paid employees too little. That is the fundamental cause of the problem.
The top 1 per cent., whom I would call the super-rich, have done a great deal better. Their share of national income fell from 13 per cent. in 1937 to just over 4 per cent. in 1974, but in the Thatcher-Major years it rose rapidly back to almost 11 per cent. in 1997. I submit to the House that we are now returning to the inequality of the 1930s, if not of the Edwardian era. Their share of national wealth has ballooned even more. It shot up from 17 per cent. in 1990 to 23 per cent. in 2002, so fewer than half a million adults—the group that I am talking about—controls nearly a quarter of the entire wealth of the nation, while half the population, over 20 million individuals, have seen their share fall to just 6 per cent. in 2002. I would call that a case of gushing up, rather than trickling down.
I shall give one further example before I turn to what needs to be done. The mega-rich, perhaps the top 0.1 per cent.—one in a thousand—have done best of all. I have been looking at the statistics. Some 75,000 individuals now own almost half the liquid assets in Britain and they are, on average, 66 per cent. richer than they were five years ago. Those at the very top, the richest 1,000 in Britain, have seen their wealth triple from £99 billion to £301 billion since 1997. In the past year alone, the overall wealth of this group soared by 21 per cent. or by more than £50 billion, and the number of billionaires has tripled from 14 to 54. That, I submit, is a degree of inequality that has nothing to do with competitiveness or fair differentials. It simply reflects the capacity to satisfy greed on a very big scale.
The right hon. Gentleman is making a powerful case, but with reference to liquid wealth, does he agree that one of the important reforms that we could have introduced over the past 10 years but which has not happened is to increase share ownership, which has been incredibly static among individuals over the past 10 years?
I am certainly not opposed to that. The previous Prime Minister of the hon. Gentleman’s party, Lady Thatcher, made a very considerable effort in the 1980s to achieve an extension of share ownership. To a degree, she did, but it stuck at around 9 to 12 per cent. If anything, the concentration of share ownership among the most wealthy has continued since then.
I would like to make progress, if I may.
All this matters for three reasons. First, the corollary to this extreme maldistribution in income and wealth is the persistence of poverty and inequality. It is worth noting—I say this for illustrative rather than practical purposes—that if all the gains made by the top 1 per cent. since 1997 were transferred to the poor, poverty would be abolished overnight. I do not expect that to happen, but it illustrates the point that I am trying to make.
Secondly, such excessive widening of inequality cannot conceivably be justified. Like everyone in the House, I believe in merit, fair rewards and incentives, but this is on a completely different scale. It in no way reflects improvement in business performance. Indeed, we read every week in the paper about rewarding failure, which has become commonplace. Rather, it is self-enrichment on a mega scale.
In 1980 a chief executive of a top company might have earned some 25 times more than the average worker. Today, it is 120 times. Last year the average pay of the FTSE 100 chief executives, including bonuses, share options and so-called fringe benefits, was £2.8 million. I have done a quick sum. That works out at £46,155 a week, which is 550 times more than the state pension and 230 times greater than the minimum wage.
There is a third reason—for me, it is the most profound—why such drastic inequality matters. There is now abundant international data showing that the greater the inequality between the richest and the poorest, the higher the levels of ill health, crime and social breakdown across society. The price of extraordinary material success for a tiny number is social failure and dysfunction within society, which is not a bit surprising. Increased social hierarchy and increasing social inequality significantly raise the stakes on personal worth, and for those who lose out, the feelings of inferiority, resentment and inability to compete inevitably generate antisocial reactions towards the society that demeans them.
There are lessons here for the Government. Some years ago, Peter Mandelson charmingly told us in a remark that I have never forgotten that
“New Labour is relaxed about people getting filthy rich”.
The Chancellor’s ideological commitment to unfettered market forces, neo-liberalism and globalisation has certainly let inequality rip. At the same time—I wish to be entirely fair—the Government have commendably tried very hard to limit social dysfunction by relentless targeting to deal with inefficiency, misdemeanours, crime, poor performance and inadequate effort. I praise all that, although I sometimes think it a bit excessive. However, it is not perceived that those policies are incompatible, because the pursuit of inequality persistently undermines the Government’s real efforts to improve health and educational outcomes, to cut crime, to improve social mobility, to build sustainable communities and, obviously, to reduce poverty.
There are some other lessons for the Government. The Chancellor’s predilection for giving the market its head to work in its normal way as an engine for generating huge and growing inequalities and for then, very commendably, trying to correct some of the worst excesses at the margin by improving benefits and allowances of some of the neediest groups in the Budget will not work. That strategy is not adequate.
Inequality is now a structural issue—it is a systemic issue, and not simply a matter for tactical adjustment at the periphery from time to time. The problem is that the basic incomes of the poorest are far too low, while the incomes of the rich are largely self-attributed, are not independently assessed and are often unrelated to merit or effort. Furthermore, every trick in the accountant’s book is used in order to eliminate, avoid or evade tax.
I do not want to duck the question of what needs to be done. The state pension, which is now worth no more than one sixth of average earnings, is far too low, and it should be raised to the pension credit level as of right for all, not least in order to avoid means-testing as many as three quarters of pensioners by 2050, which is the current trend. The net cost of that measure would be about £7 billion, although if it were confined to the over-85s, which I would understand, it would be less than £3 billion. That is certainly affordable, when the current surplus in the national insurance fund is around £40 million.
I strongly support my right hon. Friend’s remarks, especially about pensions. Does he agree that a more ambitious target for the state pension would be 25 per cent. of average earnings, which was the level in 1980 before Mrs. Thatcher broke the link with earnings? Just getting back to where we were 25 years ago might be a good target.
I like my hon. Friend’s ambition, but I am, as ever, modest. If we could achieve what I have set out, which would result in an increase from £84 a week to £119 a week, I would call it a considerable achievement. However, I agree that that would be only a first step.
I suggest to my right hon. Friend that it would not be a good idea to raid the national insurance fund, which is to pay for unemployment benefits, the NHS and disability benefits for those injured at work. A much better source of funding would be tax relief on pension contributions, which amounts to about £18 billion a year and which is extremely regressive—half of the relief goes to the top 25 per cent. of earners, and some 10 per cent. goes to the top 2.5 per cent. I cannot recall the exact figures, but that relief is incredibly regressive, and it consists of £18 billion in forgone tax revenue.
I entirely agree. I am only embarrassed that I did not come up with the idea first, because my hon. Friend is exactly right. We have an extraordinary system that involves a very low state pension and enormous reliefs on pension funding, which are largely limited to those at the top. A simple redistributive transfer makes obvious sense. I shall take on my hon. Friend’s idea and will credit him when I repeat it in future.
Instead of employers being allowed to close down good occupational and final salary schemes, they should be required over time to pay back the £18 billion that they have taken out in past pension holidays. That is affordable, when many companies continue to pay dividends each year which exceed their pension scheme deficits. I shall give one example from the Lane, Clark and Peacock survey: in 2005, Vodafone paid out a dividend of £2.7 billion, which was significantly more than its accounting deficit of £136 million, and 24 companies declared dividends in excess of twice the amount of their pension scheme deficit. Why do the Government not require companies to meet pension fund deficits before dividends on that scale are permitted?
The national minimum wage is too low at £5.35 an hour, which is certainly not a wage that anyone in this House would want to live on. It should be increased straight away to £6 an hour, and soon after that it should be increased again to at least £7 an hour—incidentally, that would be without any risk of higher unemployment from internationally traded goods and services. As for top incomes, which may be of more interest to hon. Members, they need to be justified and not simply appropriated. We should require companies—at least the larger ones—to call a meeting once a year of representatives of all the main grades in the company from the highest to the lowest to open the books, to examine what is left for increasing wages and salaries after all the costs have been met and to allow people to justify their claims, if they can, to all those present. Transparency would not prevent fair or even large differentials, which I am certainly not opposed to if they are justified, but it would make the naked greed of some much harder to carry off at the expense of everyone else.
It is time that the grotesque excesses of greed and inequality—I am glad to hear that this view is shared on both sides of the House, and I hope that the Government share it, too—which now disfigure our society are brought under control. The Prime Minister has regularly defended the super-rich with two arguments: that wealth creation is much more important than wealth distribution; and that wealth at the top harms nobody else. I am afraid that he is wrong on both counts. If Labour—or new Labour—is genuinely for the many not the few, a major reduction in inequality must now be a priority for the rest of this Parliament.
The Secretary of State was a little harsh with the hon. Member for East Surrey (Mr. Ainsworth), because any policy that is advocated by a Tory Front Bencher and loathed by quite so many of his own Back Benchers cannot be all bad.
I am happy to say that there is a good deal to welcome in this Budget’s environmental measures. I should particularly congratulate the Chancellor and the Secretary of State on the Congo basin initiative. Tackling deforestation will be a key part of a global attack on climate change, because, as we know from the Stern review, it is responsible for 18 per cent. of carbon emissions. It is essential that we develop a policy that works not only in the Congo basin, but in Brazil, Indonesia, Borneo and Papua New Guinea.
I also welcome the competition to develop a full-scale demonstration of carbon capture and storage, which is a vital interim technology. The rise of the climate change levy in line with inflation is overdue, as are the rises in the landfill tax and the aggregates levy. Zero carbon homes are to have no stamp duty levied on them, so let us just hope that house builders are encouraged to build some and that it will prove to be a reassuringly expensive concession.
The Budget’s key importance is that it is the prime statement about the economy in the parliamentary year. The climate change debate is an economic one: it is about how we change our economy and how we undergo a new industrial revolution. There is a big difference between the new industrial revolution that we shall require over the next four decades and those that have occurred, all of which were driven overwhelmingly by the desire to satisfy new consumer needs, whether we are talking about moving from gas light to electric light or from the steam engine to the internal combustion engine. There are advantages in tackling climate change, but this will be the first major technological change that will have to be driven both globally and by policy.
The Government’s record is, unfortunately, disappointing. I look forward to the figures that the Secretary of State has promised us. The published figures in the “Environmental Accounts” show that emissions have increased since 1997, even given the enormous advantage of the electricity generating sector’s movement from coal to gas.
I turn to the spending side of the Budget, where flood defences cuts this year look exceptionally short-sighted, as do biodiversity research cuts at the centres for ecology and hydrology, such as the centre at Wool in Dorset, which have done so much important work in understanding how our natural system—our flora and fauna—will adjust to climate change. Even more ridiculously, there have been cuts in expenditure on the Hadley centre, which is probably the world’s leading research centre on climate change.
On the broader environmental front, I noted that the Secretary of State was proud of the Government’s record on recycling. I should merely add that we started at an extraordinarily low base and that the latest environmental comparisons within the European Union show that our recycling rate remains the third lowest of all member states.
I am also extremely worried that after I intervened earlier the Secretary of State was entirely unable to tell the House what the environmental or climate change impact of the Budget would be. The Red Book devotes a whole chapter to the environment and hardly a week goes by when the Chancellor and his Treasury team do not tell us that it is essential that there should be environmental impact assessments and assessments of compliance costs, yet the Secretary of State is unable to tell us what the impact of these measures will be. I look forward to hearing his reply, because the research that we have conducted appears to show that they will have the combined effect of reducing the amount of carbon emissions by about 330,000 tonnes—or 0.15 per cent. of the UK’s total. That makes the point that this is far from the planned route march towards a decarbonised economy that is essential if we are to grasp our opportunity.
Transport has largely been ignored on the tax side, yet its emissions are key. The Environmental Audit Committee’s recent report told us that such emissions have increased by 18 per cent., yet the Chancellor, as we all know, was spooked by the fuel duty protests in 2000 and since then, green taxation as a share of gross domestic product—the only sensible measurement of the tax burden—has fallen from 3.6 per cent of GDP in 1999 to 2.9 per cent. on the latest figures.
Is that a good measure of effort? It is a summary measure. The idea that if green taxes work they may vanish is simply wrong, because a continued high tax and high price on bad activities may be necessary to sustain a continued change in demand. Many Chancellors have discovered that sin taxes pay, and this Chancellor would have an exceptionally large hole in his Budget if he were not able to rely on the ongoing revenue from tobacco and alcohol.
The specifics of this Budget on the environment, and on taxation in particular, are not good. The Liberal Democrats are unequivocal that the vehicle excise duty changes do not go far enough; we know exactly what the likely impact of the increase to £400 will be, because the Energy Saving Trust commissioned a MORI opinion poll that examined the likely impact on purchases. It found that 33 per cent. of car purchasers were likely to change their view as a result of that increase in vehicle excise duty.
The hon. Gentleman has used the Energy Saving Trust’s figure that there will be an impact on 33 per cent. of people. Will he confirm that he is citing a poll from 2003 and that the differential in the bands was £50? There was not the £300 to £400 versus £35 differential that will exist.
I can confirm that the poll was from 2003, but it is the latest poll that has been conducted. The Secretary of State is misinformed if he believes that the use of the £50 per band is inappropriate, because the £400 applies to band G—the highest band—and if one were to add up the £50 for each step, funnily enough one would reach that sort of figure. I am sorry that his arithmetic is as challenged as it appears. I rest my case: if we were to adopt the £2,000 figure that the Liberal Democrats have proposed, we would change the purchasing decisions of 72 per cent. of the population, rather than 33 per cent.
Moreover, the element of retrospection that would be avoided were the duty to be imposed only on newly purchased vehicles would make it a substantially more saleable proposition, not least in rural areas. As those who have been concerned about that issue know, a number of working 4x4 vehicles do not fall into the top category. Liberal Democrats believe that it is important that we have measures that support rural communities in their proper business.
On the aviation proposals, we have seen that the increase from £5 to £10 merely gets the Chancellor back to where he first started. There is nothing in these proposals to base our national aviation tax on the emissions of the flight, which is the only sensible way to proceed, because doing so would ensure that where a flight takes off half full the amount of tax that is paid is not halved. There would be an incentive to fill up the flight and the airline would have an incentive to move more rapidly towards having low emissions aircraft.
Green taxes can be popular providing that—this deals with the worst charge against the Chancellor—there is a clear guarantee to hand the money back. We know from opinion poll evidence from Populus that 71 per cent. of the British population will back green taxes if they are not regarded as a stealth tax and if the revenue is handed back. However, 62 per cent. of the population do not believe that that is what the Chancellor is doing—unfortunately, they believe that he is merely raising revenue in another stealth tax.
My understanding is that the hon. Gentleman’s party’s proposal—certainly last year, although it may of course have changed by now—is to raise about £18 billion through green taxes. He likened green taxes to sin taxes, in that they would become a permanent part of the Government’s revenue-raising measures and so would not be designed to change behaviour, but now he talks about giving things back. There is a contradiction in his position.
The hon. Gentleman is a highly intelligent Member of the House and knows very well that changing behaviour on an ongoing basis often requires ongoing changes in price. Green taxes will change people’s behaviour. For example, in the case of vehicle excise duty, 72 per cent. of the population will change the car purchases that they make, but that will leave 28 per cent. continuing to buy gas guzzlers and paying substantially more as a result.
The Environment Secretary seems to “get” a lot of this agenda, judging by his interesting Budget submission to the Chancellor. I will not intrude on his embarrassment, since the hon. Member for East Surrey has already quoted it in extenso; nor will I quote from Lord Turnbull’s remarks to the effect that if you want something done about the environment you do not talk to David Miliband.
Thank you, Madam Deputy Speaker; I stand corrected.
It is regrettable that the Secretary of State talks a good deal more sense about these matters than the Chancellor. It is also regrettable that he has not yet decided to throw his hat into the ring for the leadership—[Interruption.] Speaking from experience, I recommend it. He has the perfect qualification for running for the leadership, and indeed the premiership, which is that the Chancellor does not listen to a word he says.
The Budget contains something to be recommended, but there is no fundamental strategy for the long route march to decarbonise the UK economy and the world economy. That means that it is ultimately an unsatisfactory and disappointing Budget. The reason why the strategy is not there is simple—the Chancellor does not “get” the green agenda. He does not understand the environmental agenda or the nature and all-encompassing threat that climate change poses to our society and to our economy—if he did, he would be far more radical.
On a point of order, Madam Deputy Speaker. I seek your guidance. On the Order Paper, there is listed for publication today a written ministerial statement from the Department for Communities and Local Government. It is a very important statement about local government reorganisation. I have just come from the Library, where, at 2 minutes past 6, that statement was not present. I was further informed by Library staff that they had been told by the Department that it might not even be forthcoming at any point today. Can you advise me and the House, Madam Deputy Speaker, whether it is in order for a Department to put down on the Order Paper a written statement and then not produce it at all on the day in question?
A decade ago, the major political issues were interest rates, unemployment and economic chaos. People wanted us to fix it and to get a grip, and we have. We have changed the country—fundamentally and for the better—but in doing so we have changed what people want from their Government. I can tell the House that what people in Islington want has changed. I want to talk about some of the new priorities in my constituency—climate change, affordable housing, child poverty, and treatment of the marginalised. Although my constituents’ priorities have changed, what has not changed is their belief that the problems that we face can be tackled only by radical, collective action.
Only the most ridiculously partisan observers would deny that one of the greatest achievements of this Labour Government over the past 10 years has been economic growth and stability. Looking back to the time before 1997, it is difficult to believe that before we introduced spending reviews with their three-year rolling programmes, Government Departments knew only from year to year what funding they were going to get. They lurched around between lean and fat years. They were dependent on boom and bust, and on whether their Department was fashionable or their Minister was in favour with the Prime Minister. It must have been a nightmare to plan anything. We have changed all that and allowed for the planning of good and stable government. Because of Labour, the British Government are well placed to take a stable and strategic view of what they are going to do domestically to tackle the biggest challenge of our generation—climate change—and able to take a lead in the world.
The draft Climate Change Bill will introduce radical change in the way that Governments work. It is based on the principles in the Climate Change Bill that I was proud to sponsor and promote. When introduced, the Bill will be the first example of its kind. It will have legally binding targets for carbon emissions. It anticipates the first carbon budget period being between 2008 and 2012, which is roughly concurrent with the comprehensive spending review and its parallel public spending agreements. The Government now have an opportunity to tie together their investment and activity with our obligations to cut emissions under Kyoto and our own self-imposed obligations under the draft Bill.
However, we need to be brave and bold and to get on with it. I hope that this will mean that even greater improvements are made to public transport infrastructure in London and that Londoners will be able to look forward to increased investment in that infrastructure, with projects such as Crossrail and the continuing refurbishment of tube lines and stations, including the hugely welcome rebirth of St. Pancras. We will get the joining up of the East London line with Highbury and Islington and the breathing of new life into the tragically neglected North London line. We will get hybrid buses introduced across London—first, I hope, on to Islington’s badly polluted streets. We will get continuing investment in the network of cycle paths and facilities that are so encouraging cyclists in London. I speak as chair of the all-party group on cycling. All that will allow the powerhouse of the British economy—London—to cut its carbon emissions while allowing our economy to continue to grow.
While on the subject of climate change and the support given to environmental policies by the Budget, let me take this opportunity to welcome the increase in vehicle excise duty on the most polluting vehicles—up from £210 last year to £300 this year and £400 in 2008-09. When I was a member of the Environmental Audit Committee, we called for the top band—band G— to be “significantly raised”, and I am pleased that in the two years since our report was published the tax on gas guzzlers will have doubled. Let me put it another way. By 2009, the cost of road tax for the biggest and most excessive Chelsea tractor—a Range Rover with a 4.4 litre Jaguar-sourced V8 engine—will be more than 10 times that of a Toyota Prius, and so it should be. The hon. Member for East Surrey (Mr. Ainsworth) seemed to commit the Conservative party to a much higher band G for 4x4s in cities. I agree. I hope that the Government listen and go further. However, I should say to the hon. Gentleman that the hon. Member for Hammersmith and Fulham (Mr. Hands), who was sitting behind him, did not look the slightest bit happy about the Conservatives seeming to make that commitment.
I agree that the purpose of green taxes should always be to change behaviour and I believe that we should do it progressively so that, if behaviour changes and, for example, people buy a smaller car, they do not need to pay so much tax. In that way, we can change behaviour and say to people, “Go this way and we will help you.” However, that is not the Liberal Democrats’ approach, which is to set green taxes simply to raise revenue. It is interesting that their documents do not mention the amount of carbon emissions that will be saved by their green taxes.
The changes in vehicle excise duty, combined with the planned increases in fuel duty in the next three years, show the direction of Government policy. That is the sort of large, brightly lit—solar powered, of course—road sign that shows the Government’s direction and where we expect to go together. Those of us who are alarmed by global warming should stand and applaud the Government for their lead. However, while encouraging them, we should also urge them to go further.
Our homes produce one third of the UK’s carbon emissions and we cannot rely on enlightened self-interest to solve the problem by erecting a windmill here and changing a car there. We must work collectively and we need a Government who will step in to bring people together. I welcome the way in which the Budget does that.
The Environment, Food and Rural Affairs Committee, of which I am a member, visited Freiburg in south-west Germany, near the Black forest, only a few weeks ago to ascertain the reason for its reputation for leading local authorities in Germany on renewable energy and energy efficiency. My hon. Friend mentioned her local authority at the start of her speech. Does she believe that local authorities such as Islington, which is probably a similar size to Freiburg, as well as the Government, should take a lead, and revert to the principles of Agenda 21? They were laid down many years ago and some local authorities appear to have abandoned them.
Yes. A Liberal Democrat Member launched my local authority’s new policies on the environment. From what I understand of the new policy, it appears to subsidise putting windmills on top of houses and other such high-profile matters. Such attention-grabbing behaviour does not, in the end, save the planet. There is no point in putting a windmill on top of a house if it is not insulated and the boiler has not been changed. One does not save the planet through the equivalent of buying a different sort of car. One has to do much more—and be much more fundamental—than that. I am greatly saddened by my local authority’s attitude to its so-called green initiatives because I believe that they constitute a certain frippery.
I am sorry that the hon. Lady has not taken the opportunity of welcoming her local council’s initiative, which is the first of its kind in the country to get the private sector in a borough to commit to greenhouse gas reductions. That is a worthwhile initiative and she runs the risk of appearing a little sour if she does not welcome it.
Many private industries are interested in cutting their emissions and work with local government and national Government to do that. I assure the hon. Gentleman that Islington council did not think of that first.
It is important to cut the carbon emissions of our homes, and we have already done that. We started with Labour priorities through the decent homes programme, which, to many council tenants means new kitchens and bathrooms, but is much more than that. It is about ensuring that our social and affordable housing is up to decent homes standards. That means making sure that they are properly and fully insulated and energy-efficient. We have begun with social housing, so that those who are most vulnerable and in most need are literally insulated against the cold. When we came to power in 1997, only one in four homes in Islington were at decent homes standard, but by 2010, every single one will have reached that standard, thanks to a Labour Government. That is progressive politics in action and an achievement of which we should be immensely proud.
I also welcome the initiatives in the Budget to take the next step in our comprehensive action of ensuring that owner occupiers and private rented homes are brought up to the mark. The energy-efficient commitment will continue to force energy suppliers to improve energy efficiency in the homes that they serve. The Warm Front programme gives low income households grants of up to £4,000 to improve their energy efficiency. Pensioners who do not have central heating can receive a £300 discount when installing a new system. To tackle the biggest market failure of all—in the private rented sector—the Budget extends and expands the landlords energy savings allowance, which gives an allowance of up to £1,500 to landlords who invest in cavity wall and loft insulation. However, we could and should do more, although we are going in the right direction.
I also greatly welcome the kick start that the Budget gives to the Government’s goal to make all new builds zero carbon by 2016. The Budget has changed the stamp duty rules so that no stamp duty will be payable on the first sale of zero carbon homes of up to £500,000. Homes costing more than that will get a reduction of £15,000. I have a special interest in that aspect of financial incentives because, when I was a member of the Environmental Audit Committee, we made recommendations in our sustainable homes report of 21 March 2006.
The answer is many but not enough—we can always do more. Our ambition is clear and we are moving in the right direction. No British Government have previously introduced financial incentives to ensure that people insulate their homes. We are introducing those green incentives, in accordance with the recommendations of the Committee on which the hon. Gentleman served with me.
The Committee recommended that the Treasury consider reducing stamp duty for green homes. Exactly a year after the publication of the report, the 2007 Budget delivered the recommendation. Various groups that put pressure on the Environmental Audit Committee and gave evidence at its meetings should be acknowledged. They include WWF and its “One Million Sustainable Homes Campaign”, the Association for the Conservation of Energy, and the Energy Savings Trust. They have been working hard on the issue for many years and I hope that they will continue to work with us to ensure that we move forward.
The Government now need to build on their progress and develop a comprehensive set of fiscal incentives linked to the code for sustainable homes. The Budget will ensure that no home is left behind and that, by the end of the next decade, all existing and new homes will have the highest standard of energy efficiency. As we proved with social housing, that will not happen as result of market forces alone. We can achieve our goal only by stepping in as a Government commitment to working together. We cannot simply leave matters to the market. When Labour Members talk about housing, we know that it is a priority for our houses to be green, but that we also desperately need more of them and that they must be affordable.
We need more affordable housing for people such as Ms A, who came to my surgery recently asking for help. She is married with four children. She lives in a two-bedroom flat and has been on the waiting list for a transfer for several years. Her parents have died and she took on responsibility for her teenage sister, so there are seven people in a two-bedroom flat. Ms A’s oldest child is eight and autistic. Her second child is five, has severe language delay and may also be autistic. Her third child is three, has language and learning delay and behavioural problems. Her fourth child has asthma.
Ms A lives in fear that her three-year-old, who was rolling on the table moaning while Ms A was trying to talk to me at my surgery, may fall out of the window as she has no idea of danger, cannot communicate and climbs a lot. Ms A has back pain and cannot sleep at night because the eight-year-old and the three-year-old keep her awake. She is worried about her orphaned sister, who has to share her bedroom with her two nieces and has nowhere to study. Ms A suffers from depression—and no wonder. She urgently needs a four-bedroom home.
Islington council runs what is laughably called a choice-based lettings system, which means no choice and precious few lettings. One needs a certain number of points to have a chance of getting rehoused. Getting the points depends on how desperate one is compared with everyone else, who is also desperate. Ms A has 202 points and she needs about 350 to stand a chance of getting the sort of accommodation that she needs.
No, I will not.
What chance do Ms A and her children have? What chance does her sister have? This case is not an isolated one. I hear stories like it every day, which break my heart. They are just one of 13,000 families languishing on the council waiting list in Islington. Many Labour Members, particularly those who represent inner-London constituencies, will recognise this story. There are many Ms As who need bold and radical action from our Labour Government.
There is a chronic housing problem in many areas and there are many thousands of people on waiting lists. Unfortunately, the problem in my constituency is exacerbated by the actions of the Liberal Democrat council. My council has for the last six years presided over planning controls that allow six out of every seven new homes to be luxury flats.
It seems that the Liberal Democrat council cares more about investment bankers who want to live in luxury flats near the City than the needs of our own overcrowded families, who are in desperate need of rehousing in a decent manner. In the face of this terrible crisis, we were heartened to hear my hon. Friend the Economic Secretary, in a debate on the London economy in Westminster Hall on 20 March 2007, say:
“Building more social housing must be a priority for the spending review.”—[Official Report, Westminster Hall, 20 March 2007; Vol. 458, c. 232WH.]
The mobile phones of London Members started humming, expectations were raised and many of us sit and hold our breath—and we wait.
I want to move on to deal with child poverty, of which the lack of affordable housing, particularly in inner London, is a major cause. Indeed, 35 per cent. of children in inner London live in poverty, even before housing costs are taken into account, but once those costs are included, it jumps up to 52 per cent. There is no other part of the country where housing costs have such a huge effect on child poverty. As a result, my constituency, on some counts, has the 16th highest level of child poverty in the UK.
This morning, I visited Winton primary school to discuss the marine Bill. I have been to 25 primary schools in my constituency to promote the importance of that Bill and they are all writing to the Secretary of State for the Environment, Food and Rural Affairs. At Winton school, 69 per cent. of the children get free school meals, 74 per cent. speak English as a second language and 93 per cent. do not come from a white British background.
The Government’s efforts to tackle child poverty have been unparalleled. Under the Tories, child poverty doubled, but now, because of sound economic management, more people are in work with their pay topped up by tax credits—[Interruption.] The hon. Member for Beverley and Holderness (Mr. Stuart) should listen, as there is very little understanding among Conservative Members of what tax credits are or how they work. Those of us who work in the inner cities, where there are high levels of child poverty, understand the importance of tax credits very well. As a result, 700,000 children have been lifted out of relative poverty, giving them a chance and giving them hope.
Tax credits may not be as flash as putting a windmill on your house, but they have worked. A recent report by the independent Institute for Fiscal Studies found that the fall in child poverty has been the result of more parents being in work and fewer people in work being in poverty. The report said:
“The government can take considerable credit for this: the reduction in the risk of poverty amongst these groups is due at least in part to new spending directed towards families, through tax credits. The reduction in the number of children in workless families is also due, at least in part, to government policies that have helped previously non-working parents (particularly lone parents) move into work.”
In Islington, South and Finsbury that means that, whereas unemployment was up at 5,319 when Labour came to power in 1997, it has now more than halved to 2,386.
Here is an example of where our policies have helped one of my constituents. Ms B is a single parent who works about 20 hours a week as a nursery nurse. Her net wages—the Liberal Democrats should listen to this; I urge them to change their ideas on tax credits—are only £127 a week, which is about the same amount that she would get if she stayed at home on benefits. However, working tax credit, child tax credit and child benefit together contribute another £123 a week, bringing her total to £250 a week. Now that really is making work pay.
No, because the whole point is that tax credits will take people up to a certain limit and will guarantee a certain income. This woman, working the hours and getting the tax credits that she does, will receive a guaranteed income. That is the difference. That is why we are bringing in progressive taxation and benefits and helping women exactly like this. These are the sort of people who are our people, whom we are looking after—[Interruption.]—and I am proud to sit on the Government Back Benches when my Government do things like that. We had a progressive Budget that is doing the right thing for poor working families, for single parents like Ms B. They are now able to work because of the Budget and other Labour initiatives, which were done in spite of the Opposition. We need more single parents like Ms B to feel they can afford to do vital jobs like working in child care.
The fall in unemployment over the last decade in Islington, South and Finsbury has made a real difference to—[Interruption.]
The fall in unemployment over the last decade in Islington, South and Finsbury has made a real difference to people’s lives. If we are to cut child poverty further, we need to help more parents into work and ensure that it pays to be in work. Two fifths of children in the constituency get free school meals, which means that neither of their parents are in full-time work. Another measure of child poverty—based on children in families on benefits—makes my constituency the sixth poorest in the UK.
The new measures in the Budget are therefore welcome, as they will directly help those families. They include significant increases in the threshold for full working tax credit and in the child element of the child tax credit, which will help incentives to work. Perhaps most welcome though is the—[Interruption.]
No. I am coming on to a very important point for poor families in London—and it is a change in Government policy for which we are very grateful. We are perhaps as grateful as we feel it was overdue. The change in policy is extra specific help for London’s single parents returning to work. There will be an extra credit of £60 a week for the first year compared with £40 for parents in other parts of the UK. Some parents in London who do not go to work currently feel that they cannot afford it because of the high costs of housing and child care. We are really pleased that the Government have recognised that and increased the tax credits.
Another of my constituents wrote to me today to say:
“There should be help for people who want to work, even if I decide to stay off work to claim full benefit I will die of not working, I want more out of life.”
Women like that should be and are being helped by us. I am glad that the Budget recognises the higher costs that single parents face in London. On top of that, child benefit for the first child will rise to £20 a week by 2010, and we will continue our investment in education across the board from early years through primary to secondary schools. Taken together, it is estimated that those measures will take a further 200,000 children out of poverty—another important step towards our goal of ending child poverty by 2020.
Along with children living in poverty, children with disabilities are one of the most vulnerable groups in society, so we must make sure that we support them. I am glad that the Government have already initiated a review covering the needs of disabled children. It is especially welcome that the Chancellor mentioned the review in his Budget speech as well as his commitment to consult widely on its findings in the run-up to the comprehensive spending review.
I am glad to note that the review has already identified speech and language therapy as an area in which services may not be sufficiently responsive to need. The Michael Palin centre for stammering children, which is based in my constituency, is an NHS centre of excellence for treatment of children who stammer. It is helping thousands of children from across the country. The centre deals with a complicated and distressing disability. The effect of a stammer on children is more than just a health issue. It affects their educational opportunities, social confidence and many other areas of life. A child who stammers may find involvement in class more difficult or suffer bullying at school.
Labour Members and the Government are very serious about tackling social exclusion, so we must make sure that children’s lives are not blighted by being unable to communicate properly when it is possible, with the right intervention, to really help them. The Michael Palin centre is facing problems getting its services commissioned by some primary care trusts, but I am glad to say that Islington PCT’s commissioning ensures that Islington’s children get a first-class service from the Michael Palin centre. However, we need to make sure that all children across London and the rest of the UK can get the help they need from the centre as well. The patchiness of response from PCTs and strategic health authorities has been recognised in the review and I hope that the upcoming comprehensive spending review ensures that there is dedicated funding for children with communication difficulties and disabilities in general. We also need to make sure that the needs of that group are reflected in the next round of public service agreements.
Let us contrast that with the Liberal Democrat and Tory priorities. Every time that tax credits are mentioned in Parliament, they attack them. We know the Tory approach: record pensioner poverty, record child poverty and record levels of unemployment. They will not spell out their policy positions because they know that they are unpopular. The Lib Dems, on the other hand, have never had to take responsibility for anything, so they have no track record. In their 36-page paper on tax policy, child poverty is not mentioned once. They should be ashamed. The Lib Dem tax plans hardly mention tax credits, which is not much of an assurance for those hard-working families who rely on them. They voted with the Tories against tax credits in 1999, and they have made no commitment to keeping them.
Under the Budget, by October 2007, a couple or lone parent in full-time work with one child will have a guaranteed minimum income of £276 a week. The Tories and Lib Dems have shown no commitment to supporting Labour’s guarantee to parents in work. I am proud that Labour is ready to guarantee a decent income to families. It is a pity that the Liberal Democrats and Tories will not join me.
I have spoken about some of the top priorities of people in Islington. Compared with 10 years ago, people’s priorities have changed, because the country has changed. The Labour Government have made the country better and more stable by putting progressive politics into action. The solutions, however, are based on a set of values that have not changed. The values that we have in 2007 are the same as those that we had in 1997, and the solutions are progressive, radical and collective. As we face the new problems and priorities of the future, it is as clear as ever that we can only tackle the problems that we share by working together for the common good.
Members have heard a tale of two cities so far tonight; there certainly is a big difference between Oldham and Islington.
Next month, I will have been a Member of the House for 15 years, as will my hon. Friend the Member for Cotswold (Mr. Clifton-Brown), who is sitting on the Front Bench. During that time, I have listened attentively to every Budget speech. Over the weekend, I have been wondering why I found last week’s Budget speech so offensive. All the other Budget speeches, including the previous ones from the current Chancellor, have been political: after all, we are politicians, and one expects politics from politicians. Until this year, however, all those Budgets, even this Chancellor’s, have concentrated on the needs of the real world. But this Budget was about two things only: trying to secure the Chancellor’s position as the next Prime Minister; and trying to embarrass and discredit the opposition—although I am not sure whether he had in mind the Opposition on this side of the Chamber, or the opposition from within his own party to his prospective leadership.
The right hon. Member for Oldham, West and Royton (Mr. Meacher) was right to speak about the Budget’s lack of attention to social justice. I am afraid that the hon. Member for Islington, South and Finsbury (Emily Thornberry) has not understood what the Budget was all about. The failings of the Budget, however, have met their just reward: sometimes, there is justice. Because of the sheer nakedness of its purpose, the Budget has failed in both its intentions, and, regrettably, has further diminished the respect in which we are all held by the electorate.
In short, it was a nasty, dishonest little Budget. The Chancellor finished with a great flourish, managing not to grimace as he went against the grain and promised us all a tax cut. But it did not take long to work out why he was not grimacing—he was not cutting taxes. In fact, he was putting them up. If my reading of the figures, all the expert comment and the Red Book are wrong, and the Chancellor really was offering tax cuts, I would welcome such a remarkable U-turn. The Chancellor has dismissed our policies for over a year, so were his offering genuine it would have been his masterstroke—his cherry-on-the-top moment—to embrace them.
It has been said before—but not yet by me, so I will say it again—that the Budget was a tax con, not a tax cut. The British people, however, are cleverer than the Chancellor realises.
Until one gets round to reading the Red Book, it is easy to be taken in by the Chancellor. Only a close reading of the Red Book, as I will show in my speech, will reveal the true nature of the Budget. It is important to repeat the point that I implied earlier: the most breathtaking aspect of the Budget was the way in which the Chancellor appeared—I say “appeared” for reasons that I shall explain—to embrace Conservative party policy.
As I was saying, the Chancellor’s great mistake was to think that the British people would be taken in—but they will not be. After all the stealth taxes of the past 10 years, they are paying more, and getting less for it, and they know it. An attempt was made to present it as less pounds or bang, whatever the phrase is, for your buck—[Interruption.] I am glad to see that my colleague on the Trade and Industry Committee, the Member for Wolverhampton, South-West (Rob Marris), is in the Chamber and making sedentary interventions, but he knows what I meant. The Chancellor tried to present the Budget as fiscally neutral, and then offered us tax cuts. We know that the two things are contradictory, and the Chancellor is nothing if not a man of ruthless logic.
Instead, however, the Chancellor invited us into the looking-glass world of Alice. You will remember the moment, Madam Deputy Speaker:
“I can’t believe that!” said Alice.
“Can’t you?” the Queen said in a pitying tone. “Try again: draw a long breath, and shut your eyes.”
Alice laughed. “There’s no use trying,” she said: “one can’t believe impossible things.”
“I daresay you haven’t had much practice,” said the Queen. “When I was your age, I always did it for half-an-hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast.”
The happily named Red Queen did not persuade Alice, and the red Chancellor certainly has not persuaded the country. Well before breakfast on the day after the Budget, the British people knew exactly what was going on. Sadly, some right-wing commentators did not. One, writing in The Daily Telegraph the following day, said that the Conservative economic policy now lay in smoking ruins after the Chancellor’s tax cuts. Admittedly, he described the cuts as symbolic, recognising that they were not really tax cuts at all. He seemed to believe, however, that British people would be taken in. I have more faith in my fellow countrymen and women. The commentator wrote:
“The message is simple; the Tories are now the party of high taxation, Labour is the party that gives you tax cuts.”
Just how wrong can a clever man be? The so-called tax cuts were all offset, to use the appropriate phrase, by tax increases elsewhere in the Budget—as they had to be to achieve neutrality, not of carbon but of tax rates.
Let us consider, for example, the massive growth in the revenue from stamp duty shown in table C8 of the Red Book—a growth of £4 billion in two years. In London and the south-east, and now in many other parts of the country, that is a tax on hard-working families, not on the rich. There is no real danger of the Labour party being seen as tax cutters: the British people know a con trick when they see one. Incidentally, promising the illusory tax cut in a year’s time did not help the Chancellor’s cause much either.
Although the British people are wearying of their growing tax burden, they want the real thing when it comes to tax cuts, not deception. They know that the Chancellor had already increased taxes by £2.5 billion since the last Budget, so it was never going to be a day of announcing bad news—he had £2.5 billion in the bank. Those tax increases, which would normally have been part of this Budget, were announced in the autumn statement, and included a massive increase in air passenger duty that is already being paid by hard-working people without the traditional legislative scrutiny or authority. That is really stealthy—a tax that was imposed in February and not mentioned in the Budget will get legislative authority only tomorrow night.
Conservatives should not be worried about the Budget in relation to tax cuts; the real danger is that the Chancellor has adopted our fundamental economic policy, as my right hon. Friend the Leader of the Opposition made clear in his response to the Budget. The Chancellor has done that cautiously, but he has adopted it, and it is called sharing the proceeds of growth. The same right-wing commentator whom I mentioned described that policy as a “silly little catchphrase”, but he is badly, dangerously wrong. It is not a catchphrase; it is a very good idea.
Let me try to explain this simple concept to the clever people who seem to find it elusive. There are, in essence, only three things that a Chancellor can do. He can steadily increase the share of the national wealth that is taken by the state, he can keep it broadly stable, or he can reduce it. The Conservatives believe that he should reduce it. Then comes the choice about the rate at which to reduce it. The route that we have chosen would mean that some of the growth would be used to provide improved public services in real terms and some to reduce taxes. That is the prudent route. It is prudent politically because we know that the British people rightly value public services such as health, education, the police force and defence. It is an economically prudent route because it offers the best guarantee of economic stability and of increasing competitiveness. The Chancellor plans to increase public spending in each of the next three years by less than the growth rate of the economy as a whole, but he could have gone further. He has planned for a gap of only about 0.5 per cent. in his sums—increasing public expenditure by 2 to 2.5 per cent. a year while the economy grows by 2.5 to 3 per cent. However, it is a step in the right direction. He is sharing the proceeds of growth timidly, but he is doing it.
Does the hon. Gentleman accept that his thesis that an economy with low taxes and low public expenditure is a strong economy is fatally flawed? Last year’s Organisation for Economic Co-operation and Development figures show that Sweden spent 57.1 per cent. of its gross domestic product on public services, while Denmark spent 53.8 per cent., Finland spent 50.6 per cent. and the UK spent 45.4 per cent., so we are at the bottom of that league table. However, the highest growth figures are in the countries with the highest public spending figures, such as Sweden. We are also at the bottom of that list. Does he accept, therefore, that his argument is entirely wrong?
No; by adopting in moderate and tentative form this fundamental part of Conservative policy, the Chancellor is likely to make the economy rather stronger than would otherwise have been the case—again, I deny the hon. Gentleman’s point. That is the real danger of this Budget for my party, but it is good news for the country. Our economic competitiveness has been slowly declining under this Government, but the planned reduction in the share of national wealth, to be taken by the state, could begin modestly to correct that, although the Chancellor’s borrowing plans in table C5 of the Red Book remain a cause for real concern.
I am following the hon. Gentleman’s argument, but given that the state spends money mainly on benefits and salaries, there are only three ways in which to achieve what he and the Chancellor propose. They are to reduce benefits, to ensure that public sector pay stays behind the national average or to choose different Budget priorities. Is not that the case? Which of those three options does he advocate?
My hon. Friend the Member for Beverley and Holderness (Mr. Stuart) just helpfully said, “Zero-sum economics”, and I deny the hon. Gentleman’s point on that ground as well. If expenditure on public services continues to increase in real terms, that choice is nowhere near as acute as he maintains.
Other than in the early years, when the Chancellor stuck to Conservative spending plans, the Government steadily but surely eroded our competitiveness. In the past 10 years, our economic growth has been sustained for three reasons, and I hate to disappoint the hon. Member for Islington, South and Finsbury, but I disagreed profoundly with one of her remarks. The first reason is the golden economic inheritance, including significant supply side reforms, that the Chancellor had from the previous, Conservative Government. The second reason is the decision to give the Bank of England independence. The third reason is the decision not to join the euro. I salute the Chancellor for making the latter two decisions, which were positive, if one can call a decision not to join something positive. If I were Chancellor, and the Bank of England were not independent, I might have tried to use my influence to persuade it not to remove Elgar from the £20 note in the year of the 150th anniversary of his birth, but that is another matter.
Sadly, all the Chancellor’s other decisions have worked to undermine our competitiveness. In the uniquely benign world environment of the past 10 years, it would have been a scandal if the British economy had not flourished. Things have got better, but they should have been much better still. That is the real scandal. The Chancellor has nothing to boast about except for those two crucial decisions on the Bank of England and the euro. He was simply in the right place at the right time, and is a lucky Chancellor. Even the Government’s supporters are beginning to realise that the clunking fist might have been clutching at straws. Derek Scott, the Prime Minister’s former economic guru said:
“When you an inherit an economy in good nick, as we did, it takes a long time to foul it up…We’re clearly going the wrong way and I don’t think Gordon’s reputation is going to look nearly as good in 10 years time.”
Let us look at some of the specifics. On business taxation, I am happy to reassure the right hon. Member for Oldham, West and Royton that taxes on business will rise as a result of the Budget, not go down. There will be an extra £1 billion in 2008-09 and £1.8 billion in the following year, despite the apparent headline cut in corporation tax. I welcome the cut in corporate tax: the embodiment of the Conservative policy was that the corporate tax regime should be simplified and the simplification used to reduce the headline rate. That is a good idea. Bizarrely, however, the Chancellor then behaved exactly as the Red Queen would have him behave by not simply wishing to do two flatly contradictory things, but actually doing them. He simplified the main corporate tax system and used the simplification to cut the headline rate, but he also made the small business scheme more complex and used the complexity to increase the headline rate. Make sense of that if you can, Madam Deputy Speaker.
The clunking fist has been clunking all over our nation’s smaller businesses. The Chancellor is raising corporation tax by 3 per cent. for some companies, thus taking from them a further £820 million by 2009-10. Considering that the small business sector employs nearly 60 per cent. of the private sector work force and contributes half of the national GDP, the Chancellor should realise how angry people—not anonymous businesses, but real voting people—will feel about that. The British Chambers of Commerce surveyed its members and found that 71 per cent. of UK businesses believe that the rise will harm them. The BCC commented that, as the Chancellor
“champions enterprise and acknowledges the importance of small business to the UK economy,”
many of its
“members feel let down and are dismayed by the measures taken which will hit their competitiveness and increase their tax burden.”
It adds, most worryingly, that it will especially harm those that are looking to grow their business. It is a pleasure to reassure the right hon. Member for Oldham, West and Royton again by saying that that comes on top of the massive £50 billion tax increases on British businesses since Labour came to power and the roughly similar cost of regulation that the Government have added to the cost of doing business.
I am indebted to my constituent who gave me a copy of the excellent Shropshire, Hereford and Worcester edition of the Federation of Small Businesses newsletter, which I suspect is simply the national newsletter with a different wrapper. On eight pages headed, “Business information No. 134”, Alan Roxborough enumerates the 57 varieties—literally— of Government actions that demand the attention of small business in this two-month period, some of which are very important, such as the first provisions of the Companies Act 2006 about the changes that they will have to make to their websites and letterheads. Others include the working restrictions on Bulgarian and Romanian nationals, the new rules for cutting waste crime, the implementation of the waste electrical and electronic equipment directive, the new money laundering regulations, access to good quality pensions and the penalties for incorrect tax returns. Another variety concerns streetworks permits, which are an important matter for small businesses when roads outside their front doors are dug up without any notice. I am sure that all those changes are worthy and necessary, but 57 in a two-month period? No wonder small businesses are hurting so much.
Such a hostile attitude towards business is not unsurprising. A CBI poll suggested that 22 per cent. of British-based businesses have relocated one or more of their assets abroad, and that a further 17 per cent. are thinking of doing so. In the majority of cases, tax was the reason for that. There is another answer for the right hon. Gentleman. Indeed, 70 per cent. of the UK’s business leaders believe that the UK’s tax regime has got worse and more complex.
As it happens, my next remarks are on Tolley’s Tax Guide, and I can give my hon. Friend the precise figures. He slightly overstates his case, but he does not ruin it in the process. In 1997, Tolley’s Tax Guide had 4,555 pages. It currently has more than 9,000 pages and it is projected that it will increase to 10,200 pages as a result of this Budget. It has more than doubled. No wonder that the Engineering Employers Federation joins the Federation of Small Businesses, the CBI and the British Chambers of Commerce in arguing for simplification of the cumbersome tax system.
The Chancellor has made much of having lowered corporate tax rates. It is true that he did that, but I am indebted to Liam Halligan, who wrote in yesterday’s Sunday Telegraph:
“The cut in corporation tax is too little, too late. In 2003 Britain had the fourth lowest rate of corporation tax in the European Union. As new members have joined, and others have cut their rates, we now have the 19th lowest.
And given recent announcements elsewhere, the forthcoming reduction means we will remain only in 19th place in 2008.”
That does not advance our competitive cause at all. It just means that we can barely manage to stand still. It is strangling our economy and affecting our competitiveness. According to the World Economic Forum, we have slipped from fourth to tenth in the international competitiveness league.
Over time, yes. It would generate more wealth for the country, and there would be more money to be spent on vital public services. The hon. Gentleman’s intervention shows that, despite their best efforts, the Liberal Democrats still do not understand the way in which a modern economy works.
Let me draw the attention of those seeking more details of our economic freedom to a survey carried out by the Heritage Foundation. I do so with some trepidation, as I know that mention of that organisation sends a certain shiver of apprehension up many people’s spines, but it has done a very good and detailed job of work on economic competitiveness and similar issues. Among other things, the survey provides a vital measure of our economic freedom from Government, which shows that we are doing particularly badly. If anyone wants to know what “economic freedom” means, I will happily define it. I obtained a detailed definition from the website, which I commend to Members on both sides of the House: it is really interesting.
We are worryingly behind our major competitors. We are the 31st least free of the 157 countries that the foundation examined. In other words, 126 countries are freer from the state in economic terms. We are just one place ahead of Lesotho, and one place behind Botswana. We lag far behind Canada, New Zealand, Australia, the United States, Singapore, China, India, Hong Kong, Japan and Ireland. Unsurprisingly, we score better than many European countries, but given their bureaucratic, interventionist approach, we should draw little comfort from that.
The Chancellor talks about globalisation. I wonder whether he understands the real scale of the challenge we face. This “clunking fist” has a contradictory quality: it loves to tinker, too. Here we are again, back with the Red Queen. It is no surprise that industries as diverse as hotels, film production businesses, casinos and stairlift manufacturers are angry about changes tucked away in the details of last week’s Budget.
I had hoped to say something about the Lyons inquiry, but in view of the time I shall confine myself to asking—reinforcing the point that I made to the Secretary of State in an intervention—why people should take pride in the environment and invest in environmentally friendly things such as double glazing and solar panels if they are to be more highly taxed as a result. Council tax really must be more intelligent than that.
I had also hoped to say rather more about some of the green taxation measures to be introduced by the Chancellor—I mean the Secretary of State. He may become Chancellor under the next Prime Minister, but I doubt it. However, I only have time to say something about vehicle excise duty. The Chancellor’s VED proposals do not look as though they have gone through the rural proofing mechanism. I was interested by what was said about this by my hon. Friends the Members for Lancaster and Wyre (Mr. Wallace) and for South-East Cambridgeshire (Mr. Paice).
The proposed tax on “Chelsea tractors”—the increase in VED—is actually a tax on the countryside. The rich drivers of the largest 4X4s can shrug off £400: it means nothing to them, and will not alter their behaviour. But what about the poor farmers? The forester in Scotland, the shepherd in Yorkshire, the arable farmer in Norfolk and the grower in Worcestershire need their 4X4s, and the increase will be a serious blow to them.
The hon. Member for Islington, South and Finsbury (Emily Thornberry) rather misleadingly—but I must not say that; she rather unfortunately—compared Land Rover to Toyota in terms of environmental sustainability. I tried to persuade her to give way on that point. She obviously does not know that Land Rover, a very important British manufacturer, offsets carbon in both the construction and the use of its vehicles. There is no known way of recycling many elements of Toyota cars at present, and they are nowhere near as green as Land Rovers if the offsetting claim is true, as I believe it to be. The hon. Lady could have chosen a happier parallel.
The hon. Lady would not give way to me, so I will not give way to her. Such blanket taxes are a further indication that the Government have forgotten rural communities.
I would have liked to say something about carbon capture and storage. I think that the Government are moving in the right direction, but using the wrong mechanisms. I would also have liked to say something about science funding in the Budget, which I welcome, although I worry about the extent to which science is being translated into practical innovation and adding value to British business. I would have liked to say many other things, but I will conclude with just two more comments.
The measures on spectrum mentioned in the Budget statement are a detail, but an interesting one. For a fleeting moment I woke up and heard the Chancellor use the word “spectrum”, and refer to the sale of assets. The House will know that Ofcom is currently planning to auction spectrum as the nation moves towards digital switchover. As I have argued many times—for instance, in an Adjournment debate in the House—the planned auction could have serious adverse consequences for many users of the spectrum: churches, theatres, concert halls, sporting stadiums, news reporters and a host of others.
I wanted to know the extent to which that sale of spectrum was being driven by financial considerations, so I tabled a parliamentary question asking the Chancellor what estimate he had made of the likely income to his department from the sale of spectrum resulting from the digital dividend. The answer was:
“HM Treasury has made no estimate of the likely income from the sale of spectrum.”—[Official Report, 8 March 2007; Vol. 457, c.2225W.]
The Budget statement, however, included a figure indicating a massive increase in income from the sale of public assets, which incorporated the sale of spectrum.
I have looked at the Red Book, and, to be fair, I must add that the Chancellor is also proposing to force the Ministry of Defence to sell off much of its spectrum. Perhaps that is what he was referring to. I tabled a named-day question that should have been answered before this debate began, seeking clarification from the Treasury. I have not received that clarification, and I must tell the Economic Secretary that while I realise that some of my speech has been knockabout in style, this is an extremely serious point. If the Chancellor plans to take too much money from the sale of spectrum by Ofcom, he may have a devastating effect on a whole sector of the economy that I know he does not actually wish to harm. I seek reassurance, and the answer that I should have had today.
Let me end with a plea for Worcestershire to receive a fairer share of education spending. The Budget claimed to put education at its heart, but—probably rightly—kept education spending increases in line with growth in gross domestic product. The hon. Member for Worcester (Mr. Foster) denied that in a radio interview in which I took part with him last week, but it is true: 2.5 per cent. is the figure. That means that the years when it would have been easy to reduce the growing gap have been wasted. I refer to the years in which everyone was receiving larger increases. Those were years when a slightly higher percentage for the least well-funded local education authorities, such as Worcestershire, could have been offset by slightly smaller increases for LEAs such as Birmingham. If that had been done, the gap would have been painlessly closed.
In fact, those years were worse than wasted. Because of the iron law of compound interest, places such as Birmingham became immeasurably richer, and shot ahead of Worcestershire in terms of per-pupil funding. Now that future increases in the overall budget will be so much more modest, it will be harder to close the gap without squeals of pain from people at the top of the league table of expenditure who have grown used to living on their high spending.
Hopeful signs are emerging from the Department for Education and Skills that there is at last some understanding that there is a real problem that needs to be addressed, and I am encouraged by some of the things I heard from the f40 conference at the weekend, but solving the problem at a time of relative financial stringency will be very much harder. For me, and for Worcestershire, these are the politics of a regrettably political Budget.
I commend my hon. Friend the Member for Islington, South and Finsbury (Emily Thornberry) on the passionate section of her speech which dealt with housing. That is the big issue facing my constituents as well as hers, and I have many similar stories to the one that she related in such strong terms.
Thirty years ago, when I was vice-chair of housing in Luton, we had a housing waiting list half the size of the present one. We thought that a waiting list of 4,000 was outrageous, and we built houses to accommodate all on the list when the economy was supposedly weak. Now that we have a strong economy, somehow we cannot afford to house the poor. That is a disgrace, and we should reverse the position very quickly. It is the No.1 issue for my constituents.
I also commend my right hon. Friend the Member for Oldham, West and Royton (Mr. Meacher). I think I agreed with almost everything he said in his speech, but as we generally agree on many things in politics, that is not particularly surprising.
I want to talk about the environment, and particularly about energy and renewable energy, as that is the headline subject of the debate. The Government have gone some way in the right direction in the Chancellor’s Budget, but we have not gone anywhere near far enough. My hon. Friend the Member for Nottingham, South (Alan Simpson) spoke last week, and he said that in Germany there are a hundred times more buildings with solar roof panels than there are in Britain. That highlights that something is fundamentally wrong. He also mentioned the renewable energy approach taken in Freiburg, where I understand that a third of people cycle to work. The Germans are far ahead of us, and our Government and Chancellor must go much further.
In terms of renewable energy, there are many other areas in which we could improve. We should be building barrages across the Thames and the Severn to generate electricity. They would also help in defending us against rising sea levels, which will occur as a result of global warming. If we do not do that on the Thames and do nothing about rising sea levels, we in this Chamber might find that we have wet feet. A barrage across the Thames—another barrage—with generators right across it would be beneficial in many respects.
There are many other forms and sources of renewable energy, such as geothermal energy and biofuels. If we were to invest heavily in them—including in wind, wave and tidal power, and in solar panels—we would not need nuclear and we would be become strategically much more independent. At present, we are heavily dependent on imported gas. That gas comes from countries that are currently sort of friendly, and it comes across countries that are sort of friendly. Even the Germans were recently made very pleased by the fact that gas is delivered to us through Germany; that gives them a certain political leverage, which might be useful in the future. We are aware of the situation that arose between Russia and Ukraine. Ukraine was beholden to Russia for its gas, and we do not want to be in that situation. The more independent we become by producing renewable energies, the better it will be for us in every sense, making us a genuinely independent democratic country and not at risk of having political difficulties in the future because we import much of our energy.
My right hon. Friend the Member for Oldham, West and Royton said much of what I wanted to say on pensions. He said that it would be difficult quickly to raise the basic state pension towards the level of 25 per cent. of earnings, which was its level before the earnings link was cut. However, I suggest to Members—including the Chancellor—that it is possible to achieve that, and that if we have the political will we can do such things. Six or seven years ago, we had the lowest level of basic state pension in Europe by a considerable margin, and I think that that is probably still the case. The next lowest level was £150 a week, which was the rate in Germany. We have a long way to go to catch up, and to set a target pension worth 25 per cent. of earnings would be thoroughly justifiable.
How would we pay for that? We would have to do many things, and I suggest that we should start by raising revenue, which would mean raising national insurance contributions. I recently tabled a written question on that, asking that we remove the upper earnings limit and have a standard percentage all the way up the income scale. That would bring in £6.6 billion, which could go straight into pensions. An hon. Friend has asked a question about the current surplus in the national insurance fund; it is about £73 billion, which is a considerable sum. I know that it is useful for the Treasury to be able to live off the income of that surplus, but we should use some of that surplus to boost pensions now.
We must also go further in order to raise income to finance a higher basic state pension, but it is not impossible to take the necessary measures. We could secure income from other areas. There is an entire chapter in the Institute for Fiscal Studies green Budget report of this year about VAT fraud, which currently amounts to about £1 billion a month. We should pursue that fraud more assiduously. If we could get back just half of that sum, that would give us an extra £6 billion a year. There is also a massive gap in other areas between the tax that should be paid and how much is actually paid. Some people suggest that the total tax gap is more than £100 billion a year. That sounds like a phenomenal figure, but even if it was half that and we got half of that amount, we would have £25 billion a year in extra income. Such is the sum that we would receive if we pursued that taxation rigorously and assiduously. The Chancellor should do that. Some years ago, I went to my local VAT office where I was told that for every extra VAT officer employed, five times the salary of that officer could be collected—apparently, that is true in other areas of revenue collection as well. I wrote to the Treasury suggesting that we employ many more VAT inspectors and thereby collect much more revenue.
Does the hon. Gentleman accept that one of the problems that might have caused the failure to collect tax is the over-complication of the tax system by the current Chancellor, and that if we had a simplified system that would cease to demoralise the honest—which is what currently happens—and to give opportunity to the dishonest, as is also currently the case?
I agree with the broad principle of the hon. Gentleman’s point. The tax system should be much more simple. I would get rid of a lot of tax reliefs and tax allowances and I would build the system much more towards having a progressive income tax, rather than retaining the other taxes that I agree are more complicated.
I should remind Members that income taxes are currently substantially lower than they were in the 1970s. I acknowledge that there was a shift from income tax to VAT, but even if that is taken into account the level of income tax that is paid now is tiny, particularly at the top end, compared with the level in that period. I remember the figures well—I am of an age to do so. The top marginal rate when Jim Callaghan was in office—which I call the golden age of socialism—was 83p in the pound, and in addition there was a 15 per cent. unearned income surcharge. Therefore, some people—the genuine billionaires—were paying 98p in the pound on the top part of their income. I do not suggest that we should go quite that far, but I do suggest that a compromise position in respect of those people could be found that is between that 98 per cent. rate and a 40 per cent. rate.
I have looked at some figures, and I do not think that many people would object if we were to have a 50 per cent. income tax rate for those on £60,000 a year of taxable income, and if that were to increase to 60 per cent. for those on £80,000. Certainly, we in my constituency would throw our hats in the air, because we would know that we could pay off our hospital and health service debts immediately with the extra income.
Some people might well throw their hats in the air, but I suspect that the people in the Treasury would be throwing up, because the reality is that most of such people can move, and they would leave the country and thereby leave the country with a tax shortfall.
The odd pop singer or footballer might leave the country, but that would not seriously damage our economy. Let me draw attention to the Organisation for Economic Co-operation and Development statistics on top marginal personal income tax rates for employees in 2006. All the following countries have considerably higher top marginal rates than us: France, Japan, Italy, Sweden, Finland, Germany and Denmark. Denmark’s top rate is 62.9 per cent. and Germany’s is 60.5 per cent. and ours is down at 41 per cent. I suspect that floods of wealthy people have not left those countries, thereby damaging their economies.
Is the hon. Gentleman aware that 40 per cent. of the total receipts for income tax come from just 5 per cent. of income taxpayers, and that if even a small percentage of them were to go abroad there would be a massive hole in the public finances, and also that it would be the poorest and weakest in our society, and the public services that they depend on, that would be undermined?
I just do not believe that. Some people whose income is at the top end of the tax system might even think that it is a good idea to pay a little more tax and to make a bigger contribution to society. Some years ago I had lunch in the City—I do not often go to the City—and I talked with people who had been watching television when Nigel Lawson announced his 1998 Budget in which he cut the top marginal rate from 60 per cent. to 40 per cent. They were all amazed; “But we do not need the money”, they said. They were City people, who are probably represented by Opposition Members. I suspect that not many people would leave the country if there was a higher rate of tax, and that that would certainly not change the way that most people voted. I might be being unkind in saying this, but I suspect that a lot of rich people vote for the Conservatives rather than Labour, but people who support the Labour party and who earn such levels of income would also certainly not change their vote if we were to become a little more socialist.
Will the hon. Gentleman consider the reverse flow? A lot of people are coming to the City of London and to my constituency from continental European countries, which have significantly higher income tax regimes. One reason why they come to work in the City is to escape those higher tax regimes. Does he not share my fear that if we equalled those regimes, all those people would go back again?
I have no doubt that there would be some marginal effects, but I suspect that they would not be anything like as significant as the hon. Gentleman suggests, and I doubt whether they would damage our economy. I have looked at other successful economies—particularly in Scandinavia, where they have much higher tax rates—and people do not leave in droves. Those countries are doing very well; indeed, their growth rates in the past year or two have been higher than ours.
I thank the hon. Gentleman again for giving way again; he is being very generous. Is he aware that according to the latest figures for my constituency, some 11 per cent. of its residents come from other EU countries? The figure is even higher for Kensington and Chelsea.
They are very welcome and I am happy to see them here; they are no doubt making money and repatriating some of it to their own countries. Such effects might prove marginal, but they would not have a fundamental impact on our economy. What would have such an impact is greater income, collected in a much fairer way, for spending on the poor and the needy, and on public services. We need to make a serious attempt at redistributing income that goes some way back toward the position in the 1970s—and, indeed, in the 1950s and 1960s, under Conservative as well as Labour Governments. The people of Britain would massively welcome our moving in that direction—toward the social democratic regimes of Scandinavia—and it would not be economically damaging. That is the direction in which I want to go, and I urge my hon. Friends on the Front Bench to give serious thought to such ideas.
I have probably said more than enough, but I shall mention just one or two minor—not for my constituents, but in terms of the national budget—and local points. The pressures on health spending this year have caused serious difficulties in my constituency. We have the poorest health in the region, the biggest health inequalities and serious problems with heart disease and other illnesses. However, we have suffered the biggest cuts as a proportion of our budget, because of the squeeze on health funding this year. The strategic health authority has just inflicted a blanket cut, top-slicing everyone, and it has savagely affected Luton. We have effectively had £1 million a month cut from our primary care trust, which has had serious effects on my constituents.
The health service’s total debt this year is about £1 billion, which is what we lose to VAT fraud in one month. It is not a large sum of money in the overall scheme of things, and I urge my hon. Friends on the Front Bench not only to promise jam tomorrow—we know from the Budget that for the health service, there is jam tomorrow—but to lift the spending constraints now, so that we can immediately start putting back what has been cut this year. We have had some serious cuts in the health service locally, and my constituents are suffering. I have written at length on three occasions to my right hon. Friend the Secretary of State for Health to make those points in detail, and I have given figures, too.
Indeed I am, and I am very pleased about it. However, it is unfortunate that instead of smoothing out spending, there is serious pressure this year, with much more money to spend next year. Cuts are affecting us now, and a bit of next year’s money ought to be brought forward now to relieve our health spending crisis immediately.
Finally, I have said many times that we ought to move quickly towards free funding for long-term care. A royal commission recommended that some years ago, and we have had early-day motions—I myself tabled two in two Parliaments—calling for free long-term care, which more than 100 Government Members have signed. This has been a big issue on the doorstep. I do not want working-class people who have bought for the first time in their family’s history a little terraced house, or even a council house—I do not approve of that principle, but it is understandable that they would wish to buy it because it is a bargain— to be forced to sell the little bit of equity that they have because granny then starts suffering from dementia and they have to pay for her care.
That situation is unacceptable, and it would be much better if we shared the payment for long-term care generally throughout the population—we could have a hypothecated tax, or perhaps a small capital gains tax on houses when people die, if one wanted to have a link to the housing market—to ensure that no one had to pay out of their own pockets for any component of care in the future. I urge my hon. Friends on the Front Bench to give serious thought to that idea, and to recognise the wisdom of the royal commission’s report all those years ago.
It is a great pleasure to follow the hon. Member for Luton, North (Kelvin Hopkins). He and I agree a great deal on things such as the European Union and other foreign policy matters, but regrettably we do not agree about much, if anything, on the economy and taxation.
The hon. Member for Islington, South and Finsbury (Emily Thornberry), who is a fellow inner-London MP and a member of the Select Committee on Communities and Local Government, did her cause a poor service by not giving way for interventions. She does not have exclusive knowledge of inner-London problems. She mentioned that her constituency is the sixth poorest in the country. At least until recently, the index of local deprivation said that my borough was the 18th poorest, although I represent some areas of wealth, too. That does not give me an exclusive right to talk about poverty and deprivation either.
It is certainly not for me to defend the Liberal Democrat council in Islington, but I noticed the hon. Lady’s opposition to choice-based lettings. It is worth noting that it is mainly Labour rather than Lib Dem councils in London that promote choice-based lettings, so I am intrigued by her opposition. It is of course always worth mentioning that this Government are building less social housing than the Conservatives built in the 1990s.
This has been an excellent Budget debate so far, and fascinating to follow from its beginning at 12.31 pm last Wednesday. The fascination has been not so much with the Budget itself, but with the way in which it has been assessed and reported. Every year under this Chancellor, the initial positive coverage has given way to a more considered assessment. This year was no different—only that the Budget unravelled even quicker than usual. We saw the initial cheering on the Labour Benches behind the Chancellor, but by the opening of today’s debate three Labour Back Benchers were present. At one point we were down to two; we went up to a maximum of five; and it looks like we are back down to four at the moment. It seems that the Chancellor gave his incomplete view of the tax changes merely to put the Leader of the Opposition on the wrong foot, and to gain a cheer from his own side. If so, that is an absurd way to run the finances of the world’s fourth largest economy.
The Chancellor's speech gave us only half the story, and the whole Budget took me back to my childhood in the 1970s when we had a black and white television of dubious quality with a grossly distorted picture. The distortions on the TV were amazing—people had elongated foreheads, and I remember thinking that the poor bald man who presented the cricket in those days looked like a cucumber. The most tragic thing for me was at 4:45 pm each Saturday, when “Final Score” came on, and the far right-hand side of what should have been on the screen was not visible at all. One could see the home team score and one could cheer if one’s team had scored three goals, but I had to wait until the next day’s newspapers to find out the complete score, and realise that one’s team had lost 3-4.
It was very much like this Budget. I shared with Government Members an initial cheer when I heard the 2p cut in the basic rate of income tax, but it turned to dismay when I learned that it was more than made up for by the abolition of the 10p rate and the increase in national insurance contributions. In fact, the cut in the basic rate cost £8 billion, but the other increases will raise about £8.4 billion.
Away from the big picture, I wanted to address four specific issues faced by my constituents that have not been raised in the debate in any detail. The first is stamp duty, or more precisely, stamp duty land tax. According to Her Majesty’s Revenue and Customs, the stamp duty yield from residential property throughout the UK has gone up sevenfold under Labour, from £675 million in 1996-97, to £4.6 billion in the last financial year. In London, during the past 10 years, there has been an eightfold increase. Five times as much of that tax is raised from London as from Scotland, and 16 times as much in London as from the whole of the north-east.
I am coming to that.
The yield from all stamp duties is projected to rise from £10.9 billion last year to £14.3 billion in 2007-08, all because the higher thresholds remain at £250,000 and £500,000, and there is no sign of the Chancellor upgrading them in line with inflation—past, present or future. It is a London stealth tax. Because the average London home price is more than £300,000, and far higher in constituencies such as mine, and because the percentage rate rises from 1 per cent. to 3 per cent. at the £250,000 threshold, the majority of London home buyers need to find at least £7,500 in cash just to buy a property, and that is on top of the deposit, survey fees, legal fees and so on.
The effects of stamp duty banding are serious. It is a mobility tax and combined with the inflexible policies pursued by many councils, such as preventing otherwise reasonable loft extensions, the huge rises in stamp duty land tax are making previously uneconomic home improvements worth while; for example, light wells and basement conversions, which have sprouted up all over Fulham and south Hammersmith, especially since the punitive stamp duty regimes came in. Light wells tend to flood, and there is a real fear that their increasing prevalence may lead to long-term structural damage to neighbouring properties. Ironically, my constituency is reckoned to be one of the first in Britain that would disappear if some of the more dire predictions of global warming were to come true. The flooding may get much worse.
The impact of stamp duty on mobility in London is severe and leads to a number of effects that other Members frequently remark on in their constituencies. Before the big increases in stamp duty, families used to move within Hammersmith and Fulham when they wanted more space because of, for example, an expanding family, or even just a better-paid job. Now, the move from a two-bedroom house, perhaps costing £450,000, to a £600,000 three-bedroom house will cost £24,000 in stamp duty alone, plus the extra £150,000 difference between the two sale prices.
If we compare the £24,000 stamp duty bill with a loft conversion costing on average £35,000, a side conversion costing £45,000 or a light well at around £60,000, we start to see why such home improvements are all the rage. An argument might be made that those buying and selling simultaneously should pay stamp duty on the difference between the prices of the two homes, as long as they are below a certain level and there is a minimum fee. In my view, that idea should be explored. It would be rather like capital gains tax, which is paid only on an increase in asset price. It might be said to discriminate against first-time buyers—I shall come back to them—who, by definition, have no property to sell, but I believe that the proposal would have an impact on the supply of homes to the market, in London in particular, which would have a huge knock-on benefit for first-time buyers. It would also encourage people, mainly retired, who wanted to trade down the size of their home, because they would end up paying no stamp duty and would thereby free up a family-sized home for another buyer. We could also look at schemes such as those in Australia where first-time buyers can be exempt from stamp duty.
I am grateful to my hon. Friend for making those important points about the impact of stamp duty on mobility in the labour market and housing market, but I urge him to pursue the argument with our Front-Bench colleagues because it is not just in London that it is a major issue. I can tell him from my personal experience that it is a problem around the country, with people delaying housing changes that they might have made because they do not want to write out a very large cheque to the Chancellor of the Exchequer.
My hon. Friend is quite right. The problem extends throughout the south-east, parts of the south and probably into Wales, the north of England, and doubtless elsewhere. It is certainly not exclusive to London.
Mobility is vital to the housing market, yet the Chancellor has done a great deal to harm it. At the moment, the supply of homes is severely constricted as prices continue their meteoric rise, as demand vastly outstrips supply. It has also had an effect on second homes. One hears constantly from Members with rural constituencies—for example, in Cornwall, where I first lived in this country—about the impact of Londoners and others from the south-east buying second homes, and it is important to understand the economics.
Ironically, many of the professional people in my constituency are more tempted to buy second homes than they used to be, by the perverse effects of stamp duty land tax. Someone in my London constituency with £100,000 of capital and mortgage financing could spend that sum on two extensions to their home—a loft extension and a side extension to the kitchen—or they could move within Hammersmith and Fulham or within London and trade up to a house with an additional bedroom, but they would have to pay the Exchequer stamp duty of between £20,000 and £30,000 to do so. Increasingly, my residents take a third option: to buy a bolthole in the country for their extra space.
I was looking at the prices advertised by an estate agent in Looe, in Cornwall, where I spent a large part of my childhood: a one-bedroom cottage was on sale for £90,000. For many of my constituents, getting their additional space at that price would be extremely attractive, because no stamp duty whatever would have to be paid on that home. Given the punitive taxes on moving, is it any wonder that many of my constituents find their extra space by building extensions of doubtful wisdom or buying second homes in far-away places, adding to all the other effects we dislike about that trend, such as carbon emissions, road and rail congestion and rural depopulation?
I want to talk about some of the effects in my constituency of NHS deficits and of the poor management of the NHS and its financing. The Chancellor mentioned the NHS only once in his speech, which may not be surprising when we consider how his meddling has undermined health services in my constituency. Since the last Budget, Ravenscourt Park hospital has closed—a remarkable fact; but even more remarkable is the fact that the closure took place only four years after the hospital opened. The chief executive of the hospitals trust announced 150 sackings at the time of the closure, yet when the hospital opened four years ago he said:
“The NHS is people hungry. It needs skilled and qualified people and that is why we are scouring the world.”
He went on to describe how he was hiring people from Germany, Australia and so on, yet such is the boom and bust, or feast and famine, in the NHS, that only four years later the new hospital was closed.
When I raised the matter last year, the Secretary of State for Health told the House:
“The hon. Gentleman has fallen into precisely the trap that so much of the media have and that I warned against earlier: those are not sackings.”
However, Hansard then records the riposte:
“Hon. Members: ‘Yes, they are.’”—[Official Report, 7 June 2006; Vol. 447, c. 269-70.]
Remarkably, a few weeks later I received a letter from a sheepish Secretary of State apologising to me, stating that she needed to make a correction and that they were indeed sackings. In Hammersmith and Fulham, as is the case across a large part of west London, we await with bated breath the impact of the hospitals reorganisation that is likely to be announced in the summer and its effect on services at the Charing Cross hospital in the heart of my constituency.
The third important matter for my constituents is the specialist area of funding for British films. Hammersmith and Fulham is a centre for the British film industry and for a large number of other media jobs related to it. The criticism from the sector is not that the Government have neglected it, but that they are constantly chopping and changing their policy on it. A producer who visited my surgery this morning told me:
“It’s as if every producer in this country is trying not to make films here…outside of this country, producers have given up on us altogether.”
Film policy is a shambles, I am told. Since 2000, the Government have made 12 major changes to film policy. It is impossible to secure the long-term funding that is needed to make films, partly due to the fact that some of those changes in policy have taken place with retrospective effect. The attitude from many of the funders is: once bitten, twice shy with the UK film industry.
For example, almost the entire industry used to use sale and leaseback finance. That was replaced in last year’s Budget, quite suddenly, by a scheme of tax credits. Unfortunately for the British film industry, not only did few understand the new tax credits—that might sound a little familiar to my colleagues—but the new scheme did not take effect until 1 January this year. Between the last Budget and 1 January 2007, there was no support at all for the British film industry.
The effect of all that chopping and changing is not always apparent to the general public. The general public see us winning a few Oscars or they see a couple of films that look like they were probably made in Britain or about Britain, but the British film industry is in deep trouble. For example, one company that was going to make a series of six Beatrix Potter films in the UK is now going to Louisiana. Classic British titles, such as James Bond and Harry Potter, are moving out of the UK. We need consistency and intelligence in how we support the British film industry.
I do not know whether this is good or bad news, but the concerns that my hon. Friend has expressed, which I share, about taxation and the film industry could become entirely irrelevant, because if Ofcom’s auction of the spectrum goes ahead as currently planned, there will be no radio microphones so it will become impossible to make films at all in this country.
My hon. Friend is an expert on these matters. Often, when I have tabled questions on spectrum issues the answer that I receive states, “I have nothing to add to the answer given to the hon. Member for Mid-Worcestershire (Peter Luff).” I have great respect for his views on these matters, which I share.
The fourth area of importance for my constituents is council tax. If the Chancellor wants to take lessons in how to set a budget, he should take a short, 25-minute tube ride to Hammersmith station, get off and make the five-minute walk to Hammersmith town hall. The Hammersmith and Fulham Conservatives have shown how to set a real budget. Together with my hon. Friend the Member for Brentwood and Ongar (Mr. Pickles), I attended the budget meeting of the new council last month. The 3 per cent. council tax cut will ensure that Hammersmith and Fulham residents are set to be the only people in the country to receive a reduction in their council tax bills this year. A further programme of tax cuts was announced for the next two years as well. There were no stealth taxes or tax cons—unlike in the Chancellor’s Budget. It was a pure cut in the basic council tax rate. The new administration ran on a clear policy of a tax cut to bring council tax down to Wandsworth’s levels within two terms, over eight years. What a shame that we do not hear that level of ambition from Members on the Labour Benches. The Hammersmith and Fulham councillors were elected as tax cutters and I am sure that they will govern that way as well.
After 18 years of Labour mismanagement, my local council is making real improvements and councillors are starting to turn around a council that was previously handicapped by bureaucracy, political correctness, red tape, unions and vested interest. Hammersmith and Fulham council is on its way to becoming a model Conservative council, delivering high-quality value-for-money services to all. In the last week, it has come under attack from Polly Toynbee. I am not one of those Conservatives who is a great fan of Polly Toynbee.
Perhaps there is a split: a split between two Gregs.
The mistake that old left wingers such as Polly Toynbee insist on making is in thinking that higher tax equals better services and that lower tax means cutting services. In Hammersmith and Fulham, we are demonstrating that that is not the case. The 3 per cent. council tax cut has been well documented, but the council is also spending new money on the things that matter to residents. It is investing £1.5 million over the next two years to pay for round-the-clock beat policing in our town centres, as well as spending more on schools and, as was mentioned earlier, providing free personal care at home for our most vulnerable residents. It is one of only two councils in London to do that. We talked earlier about the NHS, but, although the health budget has increased in recent years, council social care budgets have not been keeping pace with need. That needs to be addressed seriously in next year’s budgets.
There are tough decisions to be made in my local authority. For example, despite investing nearly £500,000 extra in social care, the council is having to balance finite resources with an ever-increasing demand for services. The funding from the Government has not kept pace with the demands of an ageing population. The funds have increased by just 14 per cent. in real terms since 1997.
For my constituents in Hammersmith and Fulham, the Budget has been in general very unwelcome and will hit people quite hard. More generally, Britain is heading in the wrong direction. Under Labour, we have fallen eleven places in the international competitiveness league. Tax is rising rapidly, inflation is the highest for 16 years, unemployment is going up, and interest rates are rising. Britain is over-taxed. We need lower, simpler and flatter taxes, and I look forward to a new Conservative Government delivering them.
Today’s debate has been intriguing. At some times, it has seemed like a hustings for the Labour party leadership and at others like an episode of “Play School”, in which we have had Conservative speakers quoting long passages from “Alice’s Adventures in Wonderland” and, earlier, holding up pieces of paper with coloured paint blobs on them. I will commend those to my five-year-old daughter Maya and my two-year-old son Sam, who I am sure will be impressed, but if hon. Members do not mind, I will move on to more serious issues.
As many hon. Members have pointed out, at the heart of the Budget is essentially a tax con. The Chancellor of the Exchequer gave away some £8 billion by cutting the basic rate of tax from 22 to 20 per cent., but largely offset that by doubling the starting rate of tax from 10 to 20 per cent. This tax measure therefore joins a long list of measures introduced by this Government and then abolished by them a few years later.
The measure was probably designed to fool about three audiences, since it could never have been expected to fool serious analysts. The first audience was the Chancellor’s supporters on the Labour Benches, who, astonishingly, cheered a Budget that doubled the rate of income tax for those on the very lowest incomes and raised it for many others earning less than £18,000 a year. The second audience that it was designed to fool was the right hon. Member for Witney (Mr. Cameron), who in his initial response to the Budget said that it was a vote-grabbing tax cut, which is the phrase that I was trying to get my mouth round earlier when I intervened on the hon. Member for Mid-Worcestershire (Peter Luff).
The third audience that the measure was designed to try to fool was the headline writers, but unfortunately in that respect it failed, thanks to my right hon. and learned Friend the Member for North-East Fife (Sir Menzies Campbell) and my hon. Friend the Member for Northavon (Steve Webb), who spotted the tax con at the heart of the Budget. The Chancellor, who had hoped to gain a reputation as a tax cutter, instead reconfirmed his reputation for sleights of hand.
I am grateful to the hon. Lady for her intervention. I will come on to whether the changes are fiscally neutral for poor families in a minute—well, in fact, why not straight away? There were many costs to this piece of political theatre. One is going to be paid by the lowest-paid in our society. Labour Members will argue that the cost of doubling the starting rate of income tax will be offset by tax credits. Tax credits are clearly a favourite of the Chancellor. But the Government’s figures, in the Budget documents, show that only 82 per cent. take up child tax credit at the moment. That means that 18 per cent. do not. Only 65 per cent. take up working tax credit, so again a large number of families miss out on a benefit that is designed to offset the rise in income tax.
Many of us are aware from the casework that we get in our surgeries and constituencies that, even among the families that do claim tax credits, the repayments that are an integral part of the system cause particular families huge problems when they are called upon to repay adjustments. It would be far better to do the right thing with the tax system from the start than to do the wrong thing and then introduce a complicated system to try to compensate for it. We need real tax breaks for the lowest-paid, which can be paid for by green taxes.
The piece of trickery with income tax also has a cost for charities. Income tax is crucial to the earning of gift aid by British charities. The Chancellor has breath-taking cheek, because in his statement, he said:
“Our culture of volunteering and giving defines Britain as a fair and compassionate society.”
Almost in the same breath, he went on to say:
“My right hon. Friend the Chancellor of the Duchy of Lancaster and I will consult the charitable sector on measures that we will fund to increase take-up of gift aid”.—[Official Report, 21 March 2007; Vol. 458, c. 823.]
Well, they will need to fund quite a lot, because the damage to the income of British charities from gift aid is estimated by the Charity Finance Directors Group at 11.4 per cent. of current gift aid receipts, or some £70 million.
That is the situation before we consider the Lyons report’s simultaneous recommendation of removing charities’ council tax relief, although I hope that, when the recommendation is considered, it will be rejected. The finance director of Oxfam estimates that the changes to income tax and thus gift aid will cost that charity alone £1.8 million. The World Wide Fund for Nature has told my office that the changes will cost it something like £400,000. How will the measure help international and environmental charities like these to assist us in the battle against climate change?
The environment is the most important challenge facing the Chancellor and the Government when developing their policies, including their economic policies. The Chancellor’s comments on the environment sounded quite ambitious. In his Budget statement, he said:
“our objective is that we have not only the most economically competitive but environmentally sustainable companies”.
“Since 1997, business and Government together have achieved a 25 per cent. reduction in the carbon intensity of the economy.”—[Official Report, 21 March 2007; Vol. 458, c. 821.]
When I spoke this morning to an ambitious company based in my constituency called Commercial, it told me that it was aiming to save not just 25 per cent., but 75 per cent., of its carbon dioxide emissions in only three years, which makes the Government’s ambition look a little pathetic.
Commercial is one of the dynamic small and medium-sized enterprises that make up 99 per cent. of UK businesses. Given that those enterprises provide 59 per cent. of UK jobs and create 51 per cent. of UK turnover, they make up a vital sector. However, they are neglected by many of the Government’s environmental measures. For example, as Commercial has only 130 employees, it is too small to receive an onsite visit from the Carbon Trust to help its programme.
How is Commercial planning to achieve such a drastic reduction in emissions? It is trialling low-energy light bulbs to replace not only traditional incandescent bulbs, but all its high-intensity halogen bulbs. It is encouraging its employees to walk and cycle to work and providing showers on site for those who do. It is also encouraging its customers to look at competitively priced and high-quality recycled paper instead of more traditional paper stock. I did not notice any measures in the Budget to help Commercial in any of those initiatives.
The most important plank of Commercial’s carbon-reduction programme is shifting its van fleet from fossil fuels to biofuels. Its ambition is to achieve not the 5 per cent. target on biofuels by 2011 envisaged under the renewable transport fuels obligations, but a 75 per cent. biofuel-powered fleet in three years. When I showed the Chancellor’s measures on biofuel to Mr. Simon Graham of Commercial, he was not very impressed. He said:
“Personally, I think the initiatives are piecemeal, driven by promoting technology rather than providing value, difficult to find and apply to, difficult to plan with … and seem to be directed away from the SME sector. What would be so much better from my point of view would be to have a system based simply on a given environmental benefit (say reduced CO2 or waste going to landfill) by whatever technology”.
However, I have to give the Government some credit because some elements of the Budget were designed to support biofuels. The fuel duty differential of 20p a litre will be extended to 2009-10. That is welcome, in that it does not stop doing something positive. The lightening of the burden of regulation on biofuels is also welcome, although an opportunity was missed to differentiate clearly environmentally beneficial biofuels and harmful biofuels that cost more in energy than they save and that are grown at the cost of biodiversity in the rain forests. Although the Government have said that they are exploring the question of providing certification for the biofuels that are most environmentally-friendly, a standard is already on offer—EN14214—although it was not mentioned in the Budget.
The Government have also produced an incentive of a 2 per cent. discount on company car tax for those using bioethanol, but as the spokesman for Commercial said, the measure is a drop in the ocean that is targeted at one specific biofuel. Why not give an incentive that applies to all biofuels that reduce CO2? The Government plan a 100 per cent. first-year capital allowance for biofuel plants and have made an announcement on an international taskforce involving Brazil, South Africa and Mozambique. While both those steps are welcome, will they tackle the major obstacles to the take-up of biofuels faced by companies such as Commercial? Simply put, the answer is no.
A major barrier to the take-up of biofuels that stands in Commercial’s way is manufacturers’ warranties. In some countries, certain warranties will protect a vehicle using as much as 100 per cent. biofuel. However, in the UK, manufacturers generally offer a warranty only for cars using as much as 5 per cent. biofuel. What incentives does the Budget give for diesel car manufacturers to get their act together? None, sadly. The Secretary of State said earlier that Professor Julia King has been asked to examine technological developments, but she is being asked to look at developments over the next 25 years, which is too long. If the programme is successful, it will come too late for the drastic change that we need to make in the next 10 years.
If hon. Members need any reassurance that we are dragging our heels on biofuels, let me quote someone who knew what he was talking about at the time:
“The use of vegetable oils for engine fuels may seem insignificant today. But such oils may become in the course of time as important as petroleum”.
That statement was made by Rudolf Diesel himself in 1912. The diesel engine was originally designed with peanut oil in mind. Green Fuels, another company in my constituency, assures me that, if the problem with manufacturers’ warranties could be tackled, many vehicles on the roads today could happily run on 80 per cent. or even 100 per cent. biofuel. The technical barriers to such a move, which would make an enormous difference to this country’s carbon emissions, would be quite slight.
Let me turn to household microgeneration. I am afraid that the Budget is the latest in a long line of muddled, short-term and inadequate initiatives on microgeneration, especially household microgeneration. Let me share the grisly details with hon. Members. The £10 million clear skies programme, which started in 2003, had to be boosted by £2.5 million and extended to March 2006, presumably to bridge the gap until its successor, the low carbon buildings programme, was ready. The photovoltaic demonstration scheme, which started in 2002, had to have its budget of £26 million to £28 million boosted by £750,000 so that the scheme would last until March 2006. Phase one of the LCBP itself was launched in April 2006. Its budget was originally £30 million, although it actually received only £28.5 million because £1.5 million was used for the bridge funds from the old schemes. The programme was supposed to last for three years, but only £6.5 million of the budget over those three years was for households, so there was barely half as much available for households as when the clear skies programme and PV demonstration schemes were running.
In a letter to the then energy Minister, the Renewable Energy Association commented:
“In 2005/6, £6.6 million was committed to household grants under the old programmes. But the equivalent LCBP household grant budget for 2006/7 is just £3.5 million, falling to £2 million in 2007/8 and £1 million in 2008/9”.
Since then, the household allocation has been increased twice. In October 2006, it was doubled to £12.7 million, but that was achieved through a reallocation from other LCBP funds. The Budget has added an extra £6 million, which is welcome given that the money really is additional, but that measure was immediately undermined when the Department of Trade and Industry suspended the whole programme. And of course, we have had the ludicrous spectacle in the past year of the Energy Saving Trust offering grants on the first day of each month and almost immediately running out of funds.
I am not sure whether the right hon. Member for Witney managed to get such a grant for his urban windmill. I did not get one for my solar thermal panels, which were installed by So-lar Smart—yet another impressive and successful green company that is based in Cheltenham. However, the company complained to me last year that the stop-start nature of the Government’s household microgeneration grants and incentives were causing it huge problems. I suspect that it did not gain much reassurance from the Budget.
All in all, the Budget falls far short of the shift in the economy demanded by the Stern review. The Budget advocated simplicity, but delivered more complexity; it sounded fair, but on closer examination was not that fair at all; it sounded green, but on closer examination it let down many of the individuals and organisations who try to do their best to safeguard our futures. If the Secretary of State for Environment, Food and Rural Affairs is looking for an excuse to split with his right hon. Friend the Chancellor of the Exchequer, the Budget surely provides it.
I am grateful for this opportunity to take part in the Budget debate. I was pleased to hear all the firm environmental commitments that the Chancellor made last week, but I want to focus on the measures to reduce child poverty. I welcome the decisions that will lift 200,000 children out of poverty, and the recommitment to halving child poverty by 2010 and to abolishing it by 2020. I found the criticism that people could not understand the redistribution in the Budget rather strange. It is absolutely clear what the Budget is doing; it is redistributing money to families with children. The array of practical measures to support children who are living in poverty and their families is far better and more concrete than anything that has been offered by either the Conservatives or the Liberal Democrats.
It is clear from the criticisms that we have heard that Her Majesty’s Opposition basically do not understand the phenomenon of child poverty, which is presumably why they allowed it to treble under the last Tory Government. It has also become clear to us that the right hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) has completely misled his colleagues by suggesting that family breakdown is the prime cause of child poverty in this country. In January, there was a lot of talk about the UNICEF comparisons of child well-being among members of the Organisation for Economic Co-operation and Development, but I have looked at the more up-to-date comparisons between European countries by Jonathan Bradshaw of York university. They were published in a journal called Social Indicators Research in January this year, and they show that family breakdown is not the prime cause of child poverty in any of the European countries. Indeed, if we strip out the experience of the United Kingdom, we see that there is a positive correlation between child well-being and the number of single-parent families, with Finland and Sweden at the top of the table.
That large, comprehensive study looked at overall child well-being. It referred to all the European countries and included 51 different variables, which covered the material situation of children, their housing, their health, their subjective well-being, what they thought of their situation, their education, their relationships, their civic participation, and the level of risk and safety for children. The key factors influencing child poverty were found to be income inequality, child poverty itself, obviously, gross domestic product per capita—that is, the overall wealth of a country—social spending and spending on children and families. That is why the strategy announced in the Budget for tackling child poverty is the right course of action.
The key decisions that have been taken are absolutely what are needed to achieve reductions in child poverty. The increase in the child tax credit by £150 over the level of earnings growth, and the increase in the working tax credit threshold by £1,200, will have a significant impact. In my constituency, nearly 4,000 families and nearly 7,000 children will benefit. Those changes to tax credits are worth £2 billion in total, and that will be far more effective than the increase in tax allowances proposed by the hon. Member for Cheltenham (Martin Horwood). The problem with raising personal tax allowances as a route to addressing child poverty is that raising such allowances benefits the rich far more than the poor.
I am sorry, but the hon. Members for Cheltenham (Martin Horwood) and for Cambridge (David Howarth) are just revealing their complete failure to understand how the tax system works, and how the allowances operate at the top. If we slide all the allowances upwards, there is far greater benefit to the rich than to the poor.
No, I have given way twice, and the hon. Gentlemen simply keep repeating their misunderstandings.
Another benefit of the Government’s approach of putting money into tax credits is the high take-up of tax credits. At the moment, 82 per cent. of those who are eligible claim tax credits, and 97 per cent. of those on incomes of under £10,000 a year claim tax credits, and that is a far more successful record than that of the Tory Government, who operated something called the family income supplement, for which the take-up was roughly 50 per cent. I welcome the increases in child benefit. It is clear that they will have a stronger impact in addressing child poverty than Opposition Members’ rather bizarre suggestion of reintroducing the married couple’s allowance. I simply cannot understand why they want to throw away money that they could use to good purpose, and to reduce child poverty, on people who are happily married, do not need the money, are high up on the income scale and may not even have children.
Taken together, the changes that the Chancellor announced this week, and the other measures that he has introduced, will result in a positively redistributive effect over the period from 1997 to 2009. People whose household incomes are in the bottom 10 per cent. will experience, over that period, a rise in income of 27 per cent., whereas those in the top 10 per cent. will have their incomes fall by 1 per cent. A single-earner couple with mean earnings who have two children will get a rise in their income of £320. A single-earner couple on median incomes with two children will have a rise of £500. Contrary to what has been claimed by Opposition Members, a single-earner couple on half median income with no children will also have an increase in their annual income; they will get a rise of £175.
One reason we Labour Members believe that it is important to address child poverty is that disadvantage is translated across the generations. Last week, the Cabinet Office published an interesting paper on families with multiple disadvantages, which showed that children with four experiences of family problems had a 70 per cent. risk of suffering multiple disadvantages by the time they were 30 years old. Interestingly, children from the 5 per cent. most disadvantaged households were more than 50 times as likely to suffer problems when they reached the age of 30 as children not in the top 5 per cent., but in the top 50 per cent.
One of the disadvantages that is being looked at is the disadvantage of being the child of a teenage parent. In October, I undertook an experiment, and tried to live on the income support rate for people under 25. Using the information from York university, I found that that gave me £21 a week for food, taking account of everything else for which one might reasonably expect to have to pay. I wanted to see whether or not on that £21 I could have the kind of healthy diet recommended for pregnant women. At the end of the week, I had lost weight. Hon. Members may think that in my case that is not a problem and that there were advantages for me personally, but it is obviously not satisfactory for a pregnant 19-year-old to do so. I was therefore pleased by the improvements to benefits for pregnant young women. First, the Sure Start maternity grant is now £500, and it goes to young mothers on low incomes. Secondly, the payment of child benefit has been extended, and it will begin at week 29, so all mothers will be up to £200 better off.
That sort of practical measure makes a genuine difference to the people who need it most. The Budget documents include measures to help young people who are not in employment, education or training, but may I point out to my hon. Friends a contradiction that should be addressed? At the moment, teenage mothers, if they are still at school, are expected to return to school 18 weeks after the birth of their baby. This April, we will extend maternity leave to 39 weeks, so I suggest that young mothers need at least as much time to adjust to their new role and bond with their babies as older mothers. We should bring targets for those young teenage mothers into line with maternity provision for the rest of the community.
Frequently, what is said about children and child poverty is a way of thinking about how to construct a new and better society. Looking at things from a child’s point of view offers a vantage point from which to offer critiques of society as a whole. It is the child’s position as a future adult that is of interest to politicians. That has always been true—it was true in ancient Sparta, it was true under the Jesuits and it was true for Bismarck. That is largely because we know, or we think we know, that what happens to us as children is a significant influence on our lives when we become adults. It is extremely tempting to believe that by controlling the condition of childhood we can reach into the future and control the society that we want.
I believe, however, that we should be concerned about child poverty for a more important reason. Children are not human becomings—they are human beings. Childhood is part of life. It accounts for about 20 per cent. of life, so it matters in itself, as well as providing a good basis and preparation for adulthood. It needs to be enjoyable and fulfilling. Last year, Shelter and “End Child Poverty” put together a collection of poems written by children living in poverty across the country. If anyone was in any doubt about the importance, urgency and significance of the need to address child poverty, they would not be after reading those poems. I want to end with a poem written for that book by an eight-year-old child in my constituency called Lucas. It is called, “I Can't Live There”:
“Damp with rats carrying germs,
I wish I wasn't there.
Leaking roofs, unstable floors, I hate,
To be there.
Teenagers telling me things I shouldn't know,
I wish I was somewhere else, somewhere,
Where I can live.
Please help me Mr Government,
I beg you, I plea.”
Thank you, Mr. Deputy Speaker, for calling me to speak in this important debate.
Although today’s debate centres on the environment, I should like to discuss the moral case for ending tax poverty. I believe that the Government’s commitment to alleviating poverty is genuine, but I am concerned that there is a growing industry around poverty, with huge fortunes being spent on entrenching an immobile underclass. I am concerned that in the past 10 years, or perhaps even longer, the state has created an expanded pool of supplicants, with more and more people deriving an increasing share of their income from the state. It is wrong that those people should be patronised with benefits and hand-outs, which have a corrosive effect on their self-worth and self-esteem.
There are perversities in the benefit system, which is, in itself, extremely complex. As an MP, I try to help my constituents navigate it, but often it is beyond comprehension. There are tens of thousands of pages of legislation, backed up by thousands of forms, classes, groupings and exceptions. In too many cases, benefit recipients simply have their own money laundered back to them, minus the Government’s handling charge.
As a Member of Parliament, I believe that all Members have a duty to ease the benefits burden on our constituents by making large parts of it redundant. It is certainly complicated. In The Independent this weekend, Simon Carr wrote:
“Gordon Brown’s anti-poverty policy is literally unintelligible to ordinary people”.
It will not have escaped your notice, Mr. Deputy Speaker, that I am an incredibly ordinary person, and I find the Chancellor’s anti-poverty policy unintelligible. In The Sunday Times, economics correspondent David Smith wrote:
“We are still light years away from a simple personal tax system”.
The tax credit system is so complex that many people do not even bother to claim. That money is theirs by rights, but they are put off by the complexity of the system.
We have identified the fact that the very highest earners are getting richer, but the less well-off seem to be subject to more and more means-testing. That is a soul-destroying process, and it is not just or fair. It is wrong, for example, that tax is levied on pay rates once they exceed £2.65 an hour. Why should people earning the minimum wage or a sum just above it be forced to turn to the state to recover their confiscated earnings in the form of tax credits? Who is best served by that process? I do not believe that my constituents should have to go through that process to claim back money that is rightfully theirs. Another problem across our constituencies is the expanding poverty trap. Again, the Government are not deliberately making it bigger, but it is there. Some 2 million low earners still pay marginal rates of tax of between 60 and 90 per cent. Indeed, 200,000 people still pay marginal rates of tax in excess of 90 per cent. We in the House should not allow that to continue.
What is the solution? The priority fiscal reform of any Government, Labour or Conservative, should be to reduce the taxes on low earners. We must take people out of the tax and means-tested benefits net altogether. If the greatest cause of poverty is worklessness, we must work to make work pay. Reducing taxation on low earners will not only ensure that people keep more of what they earn, but will have huge social advantages.
In addition to encouraging people back into the work force, it will allow them to take jobs at or above the minimum wage, knowing that the money that they are earning will go into their pockets, and that they will be replacing the state as their family’s major provider. What price does dignity carry? “I am putting the food on my family’s table, not the Government”—many men and women would like to be able to say that.
Reducing the tax on low earnings will start to liberate people from a benefits system that can, at times, be seen as callous. I know that that is not a deliberate ploy on the Government’s part, but the benefits system can often seem remote and uninterested in people’s everyday concerns. All Members of Parliament are familiar with Her Majesty’s Revenue and Customs’ phrase:
“having looked at the information we hold and that you have provided, I consider that you should have been aware that your payments were wrong”—
a mealy-mouthed phrase used by HMRC as justification for clawing back perhaps thousands of pounds of overpaid tax credits from bewildered and frightened families, who are sometimes left facing legal action for the recovery of moneys that they do not possess. That is not the action of a caring state. Most of those people notified HMRC of their change in circumstances, and HMRC failed to update and amend its records accordingly.
Take the example of the working single parent to whom the hon. Gentleman refers, for whom the combination of the minimum wage and tax credits would lead to an effective hourly rate of slightly over £12 an hour. If tax credits were taken away from that lone parent, would she be poorer, or how would the hon. Gentleman make up the difference—by a higher minimum wage or by tax cuts? Could he explain that conundrum to us?
The Minister makes a good point, and I am about to come on to it, but I will take no lectures from a Minister whose Department has just introduced a Budget that will leave people earning £18,000 worse off. The Minister should get his own house in order. I am trying to approach the issue in a non-partisan way and I hope he respects me for that.
No, I will not give way again.
Over the next five years, I would like to see the tax threshold increased to £12,500. Anybody earning less than that would not pay tax. That requires an increase in the threshold each year of £1,500. Yes, the cost of the increase would be about £8.4 billion per annum. That sounds a lot, but in the 2007-08 tax year due to start in a week, the Government tax take is set to grow by £36 billion—that is, from £517 billion paid in this tax year to £553 billion paid in the tax year just starting, an increase of £36 billion. Then in each year for the next four years, the tax take is due to increase by £32 billion.
I am puzzled by what the hon. Gentleman is saying. I thought it was the policy of Conservative Members to share the proceeds of growth between tax reductions and increased public expenditure. How can the proceeds of growth be shared unless there is some increase?
I am happy to deal with that, but I am not speaking for my party. I am speaking as a very junior Member of Parliament for Broxbourne who is speaking because he feels passionate about the subject, and because he cares about alleviating the circumstances of the very poorest in society. Again, I will not be drawn into a partisan exchange.
The cost of reducing taxes by £8.4 billion a year is significant, but it would be substantially offset by higher rates of economic activity, with people choosing to take jobs and working longer. As people go back to work and increase their earnings, there will be savings in the £20 billion currently spent on tax credits, plus the other £100-odd billion spent on other benefits. The £42 billion could quite easily be found if we did not spend the £36 billion that the Government have earmarked for unpopular ID cards and the failing NHS IT records system.
I would be more than happy to have a debate on how we fund the future alleviation of high levels of taxation. I, as a Conservative—in answer to the question from the hon. Member for Bishop Auckland (Helen Goodman)—might like to fund it by getting rid of schemes that I do not think will deliver benefit to the taxpayer, or, yes, partly fund it by slowing the growth of the state, or yes, partly fund it by a reduction of the tax benefits and benefits that we pay out.
I know that Labour Members are concerned that many people on low incomes are paying tax and they might argue, as the hon. Member for Luton, North (Kelvin Hopkins) did, that the taxes of the very richest should go up. Let us have the debate. We cannot live in a sterile political world where we are afraid to talk about things that matter to the many millions of people out there in the community. We have an obligation and duty to them.
Of course we want to achieve economic stability, but it is not impossible that a future Government, whether Labour or Conservative, could commit to taking the very poorest people out of tax altogether. We are, after all, elected to run the country and to make hard decisions. I can almost anticipate the Minister’s response. He will say that raising tax thresholds, as the hon. Member for Bishop Auckland said, cannot be done because it will benefit the rich. That is not good enough. It is an abrogation of our responsibility to the least well off in society. Raising tax thresholds may benefit the rich, but the marginal benefit to the very poorest in society will be far greater.
I do not wish to make a partisan point. In the spirit of the hon. Gentleman’s comments, I say to him that if he keeps the minimum wage at its current level, abolishes the tax credit for single parents and uses the money instead to raise the personal allowance, a single parent will be significantly worse off by many hundreds of pounds. Does he accept that fact?
We can assist single parents through universal child benefit. I point out to the Minister that the Joseph Rowntree Foundation said in recent evidence to the Scottish Affairs Committee that tax credits may be useful for single parents, but they keep many married couples and cohabiting couples in poverty. That is worth thinking about. I can send him that evidence if he wishes to double-check it.
Yes, I agree that cutting taxes or raising thresholds may benefit high earners, but as I said, the marginal impact of raising tax thresholds will be felt far more keenly by hard-working families at the bottom end of the income scale. The purpose is not just to give people back money. It is to give them back their self-respect and to reduce the role of the state in their lives.
Who would benefit from Charles Walker’s proposal from Broxbourne? People who want to work, people in work—despite what the Minister says, both single people and married people—families and pensioners, all worthy recipients of a tax cut allowing them to keep more of the income that they earn. Who would not benefit? The overbearing state would not benefit, and the poverty industry would not benefit if we took measures that genuinely alleviated poverty and restored self-respect to people and to families.
I draw hon. Members’ attention to my entry in the Register of Members’ Interests.
In 1998, the Chancellor proposed a code of fiscal stability so that the Government would adhere to the principles of transparency, stability, responsibility, efficiency and fairness. The reality in 2007 is that he has given us another Budget so opaque that a cut in the basic rate of income tax will actually leave some of our poorest families worse off.
After the Budget, the Chancellor told Radio 4:
“It wasn’t a short-term giveaway”,
and he certainly got that right. Before he entered office, he said:
“I want the next Labour Government to achieve what in 50 years of the Welfare State has never been achieved. The end of the means test for our elderly people.”
Last week, however, he gave us a Budget that will drag even more of the most vulnerable people in our society into his means-tested credits fiasco.
With his 11th Budget, the Chancellor has shown once again that he is the true heir to Blair—all spin and no delivery. He has failed to deliver a balanced Budget—by “balanced”, I mean letting the House and the public know that while he was giving with one hand, he was taking with the other. It should therefore come as no surprise that no one believes a word he has said. The Chancellor should reflect on the following day’s headlines: one paper went with, “Tax cut: It’s just a big con”; another went with, “Brown tax cut trick”; and a third used, “What Gord giveth, Gord taketh away”. In less than 24 hours, the Chancellor went from tax cutter to tax con.
The heart of the debate concerns the environment and environmental taxation. Office for National Statistics data show that the proportion of total taxation composed of environmental taxes has fallen from 9.8 per cent. in 1999 to 7.7 per cent. in 2005. The Chancellor told the Treasury Committee in December that there were five strands to the Government’s policy on tackling climate change, and I want to go through each of them. The first strand is science and innovation, but the reality is that innovation schemes, such as the Peterhead DF1 carbon capture project, have stalled while the private sector waits for the Government to catch up.
The second strand is market mechanisms such as carbon trading. Page 173 of the Red Book claims that
“a strong lead from the UK”
has helped the EU’s carbon trading scheme, but the Environmental Audit Committee recently found that
“the emissions projections appear to have been inaccurate and inflated, and the national caps derived from them too unambitious”.
That is hardly an unqualified success.
The third strand is encouraging personal and social responsibility. Airline passenger duty is typical of the Chancellor’s delight in raising stealth taxation from the environment. The money raised is not actually reinvested in the environment, and, as I said in my interventions, it does nothing to change the public’s behaviour. However, I noted with interest that my hon. Friend the shadow Chancellor mentioned in his response to the Budget a letter from the Secretary of State for Environment, Food and Rural Affairs entitled, “DEFRA’s priorities for the Budget of 2007”, in which the Secretary of State noted that
“there is a case to look again at making domestic flights subject to VAT.”
When questioned earlier in the debate, the Secretary of State seemed to throw in the towel, but I am delighted that he shares the view of my right hon. Friend the Member for Witney (Mr. Cameron) that the polluter must pay. More is the pity that the Chancellor went out of his way to attack my right hon. Friend’s submission during the Budget debate.
The fourth strand concerns public investment in environmental efficiency. I welcome grants for pensioners to install insulation and central heating, as well as reductions in VAT on energy saving and environmentally friendly products. Conservative-led Braintree council has shown the Chancellor the way ahead for some years by offering council tax rebates in return for investment in cavity wall insulation, so the Chancellor’s measures are hardly ahead of the curve.
The fifth strand concerns tax incentives and tax reliefs. The stamp duty exemption for carbon-free homes might be a step in the right direction, but the website smarthomes.com states that there are currently 27 zero-carbon homes in the UK, so there is clearly a long way to go before the relief is actually useful. Furthermore, as I said in my interventions, the increase in vehicle excise duty does nothing to control usage. Vehicle excise duty is a tax on ownership, not on mileage or usage. Instead of having a policy driven by the polluter pays principle, the Chancellor views the environment as another vehicle for stealth taxes.
I should like to move on to public sector debt, which is a particular interest of mine. In 1997, the Chancellor’s pre-Budget report statement promised:
“We shall legislate so that there is a duty on Government to report to Parliament on how they are meeting their fiscal rules; in that way, everyone can plan for the future on a much clearer and better informed basis.”—[Official Report, 25 November 1997; Vol. 301, c. 774.]
Table C4 on page 278 of the Red Book shows public sector net debt reaching half a trillion pounds, but that figure is dwarfed by potential off-balance-sheet liabilities, such as the private finance initiative and public sector pension liabilities, which push public sector net debt to well over £1.3 trillion. That represents nearly £2 off balance sheet for every £1 on balance sheet. The only way to find out the extent of public sector pension liability is for us to keep asking parliamentary questions. So much for our being clear and better informed about things. The Chancellor’s creative accounting means that he is more like the Enron Chancellor than the Iron Chancellor.
Despite a steady rise in the tax burden since 2000, successive Budgets have seen the Chancellor borrow £100 billion more than he originally intended. On Wednesday, he admitted that we need to borrow £8 billion more than he said was the case in December—a mere three months ago. Mystic Meg could do a better job of predicting public debt figures than the Chancellor. After his 11 Budgets, Organisation for Economic Co-operation and Development data show that public sector spending accounts for 45.3 per cent. of gross domestic product, while the International Monetary Fund says that the UK has the largest structural deficit in the G8.
Much has been said about public services, but I want to touch on the theme because it is important. The 1999 Red Book boldly declared that
“the Government does not pass on the costs of services consumed today to the taxpayers of the future—each generation is expected to meet the current costs of the public services from which they benefit.”
In 2001, in another red book, The Sun, he was quoted as saying that
“any additional resources must be matched by reforms so that we get the best value for money. There is not to be one penny more until we get the changes.”
Yet again, there is nothing in this Budget about public sector reform. Richard Lambert, the director general of the CBI, has said:
“The skill levels of many young people leaving secondary school remain poor despite almost a decade of rising investment in schools. Basic skills remain a real weak point of the UK economy.”
Page 139 of this year’s Red Book shows that education spending growth is set to halve to 2.5 per cent.—that is below the growth rate of the economy—despite a Labour party pledge in its 2005 manifesto:
“We will continue to raise the share of national income devoted to education.”
Furthermore, the Chancellor’s silence on the national health service speaks volumes, given that nurses’ jobs are being axed, junior doctors are on the march and community hospitals are being closed—in some cases, they are not even being built. My Braintree constituents were promised such a hospital. I welcome the fact that almost twice as much money has been spent on the NHS since 1997, but there has been no equivalent improvement in productivity, so it is not surprising that the public are asking where all the money has gone.
During the past couple of days, we have heard much about business taxation and competitiveness. The issue is important for our business community. The corporate tax rate change is forecast to lose the Treasury some £1.38 billion in the fiscal year 2008-09. However, I am led to believe that changes to tax relief on capital expenditure should net £1.49 billion more in the same year. Of the £985 million that the Chancellor is clawing back through the corporate tax system, £820 million will come from small businesses. The bottom line for business is that total business taxes will raise almost £3 billion extra over the next two years.
Professor Peter Spencer, economic adviser to Ernst and Young’s ITEM club, summed up the Budget’s effect on business:
“It is a con trick, there’s no doubt about it. I’ll be amazed if people are duped by it for more than five minutes.”
David Frost, director general of the British Chambers of Commerce, was concerned about the “long-term damage” to small business:
“As the Chancellor champions enterprise and acknowledges the importance of small business to the UK economy, many of our members will feel let down”.
At the time of his 1998 Budget, the Chancellor proclaimed:
“This is a Government which does not simply talk about cutting the cost of bureaucracy and red tape but takes the decisive action necessary to achieve it.”
Then perhaps the Economic Secretary can explain why Tolley’s Tax Guide has grown from 5,952 pages in 2001 to almost 10,200 pages in 2007. The bottom line is that the Chancellor has shown that he knows nothing at all about wealth creation and those who create the wealth for our country.
Moving on to rising personal taxation, the total tax take is up by more than 100 per cent., from £287 billion in 1997 to £586 billion in 2008, rising to a whopping £682 billion in 2011. Table C9 on page 285 of the Red Book indicates that we now have the highest tax burden on record. The Institute for Fiscal Studies has found that up to 3.5 million families will be worse off. How does that square with the Chancellor’s statement that the purpose of this year’s Budget is to ensure that working families are better off? Furthermore, the families and individuals most affected are some of the poorest—those earning under £18,000. I thought that I would see the Economic Secretary perk up at this stage and point out that the Chancellor would say in reply, as he told the BBC:
“For people who are low earners the tax credit wipes out the income liability and that’s why lower income workers are better off now as a result of what we have done as a Government.”
But tax credits are not tax cuts.
I therefore turn to tax credits. The most recent figures from the Treasury for the tax year 2004-05 show that nearly £4 billion in working tax credits and child tax credits went unclaimed. Robin Williamson, technical director of the Low Incomes Tax Reform Group, said:
“There are plenty of reasons why people don’t claim tax credits. Some people do not know they are entitled to claim, while others are put off by hearing about other people’s bad experiences.
Those who do take the plunge face a 12-page form and a 60-page explanatory note that might even challenge the hon. Member for Wolverhampton, South-West (Rob Marris), were he here. That may have something to do with the problem. It should not be at all surprising that four out of 10 people end up not claiming their entitlements. Surely the Economic Secretary must recognise that this is a problem. With 3 million out of 5 million people either receiving overpayments or underpayments, I wonder whether he would agree with the hon. Member for Newcastle upon Tyne, Central (Jim Cousins), who said in the Treasury Sub-Committee that such widespread
“under or overpayments of tax credits is a shocking, devastating damage to the whole welfare reform policy.”
Although I welcome the increase in capital allowance for pensioners, it is disappointing that the Chancellor has, once again, preferred means-testing to index-linking pensions. Gordon Lishman, director general of Age Concern, said:
“Without quick intervention, the real value of the basic state pension will fall to a pitiful £75 by 2012 and today’s pensioners will fail to benefit from any of the good measures proposed in the Pensions Bill.”
Mervyn Kohler, head of public affairs at Help the Aged, said:
“This Budget was a missed opportunity to address the wider needs of our pensioner population.”
I am sorry that the Secretary of State for Environment, Food and Rural Affairs is not present, because I should like to ask him whether, following last week’s Budget, he would change the prediction that he recently offered on BBC’s “Question Time” that
“when I come back on this programme in six months’ or a year’s time, people will be saying, ‘Wouldn’t it be great to have that Blair back because we can’t stand that Gordon Brown?’”
Or does he agree with the shadow Chancellor’s remarks on Thursday that:
“With his last Budget, the Chancellor has shown us that he cannot be the change the country wants—that he is part of the problem, not part of the solution… if people… want… to restore trust in the political process, we do not just need a change of Prime Minister—we need a change of Government”?—[Official Report, 22 March 2007; Vol. 458, c. 971.]
I apologise for not being present for the whole debate. I was chairing a meeting of the Conservative party’s human rights commission.
Many hon. Members with an interest in energy policy and environmental policy would have welcomed the reference in the Budget to the announcement on the same day by the Secretary of State for Trade and Industry of the competition that will be launched for going ahead with Britain’s first full-scale carbon capture and storage demonstration project. The UK, with its history of being a coal producer and a key oil and gas producer, is especially well placed to lead the world in developing carbon capture and storage technology. We also have a world-class skills base in geo-engineering, which makes Britain uniquely well placed to take advantage of the emerging technology.
Let me inject a few words of caution into the proceedings. As my hon. Friend the Member for Braintree (Mr. Newmark) said, a pretty large subsidy is required to make the full-scale demonstration project a success. The private sector on its own will not fund a full-scale carbon capture and storage project. I understand that the Department of Trade and Industry has made available some capital grants to support demonstrations of capture-ready plant and CO2 storage. However, it has always been acknowledged that a full-scale demonstration of the complete CCS chain would require a much larger financial support package from the Treasury.
The Science and Technology Committee in its report on CCS referred to such a package as being of the order of hundreds of millions of pounds. The Government, in their response to the report, did not dispute the figure, stating:
“the scale of support that might be required from taxpayers and/or consumers is very large”.
Unless I missed something in the Budget, I do not recall any announcement of specific funding to help a full-scale CCS project come into being. We must watch this space closely to ascertain whether the funding gap will be closed to an extent that enables a full-scale demonstration project.
My layman’s understanding is that it is not solidified, but injected back into porous rock, and I gather that disused North sea oil and gas fields are particularly well suited geologically for that sort of use.
Secondly, the emphasis on this being a demonstration project is exactly right. Specifically, it is a demonstration project that can be applied in an overseas context where new coal-fired power stations are being built at a tremendous pace. I think that hon. Members who believe that CCS somehow throws a new lifeline to the domestic coal industry may be disappointed. Some Members believe that the domestic coal industry offers one solution to our energy security challenges in the decades ahead, but I beg to differ. Coal has an important part to play in the energy mix and will continue to be significant for several decades to come, but it will be increasingly foreign coal rather than domestically produced coal that keeps—
I am slightly surprised at my hon. Friend’s argument. Does he not believe that there is huge potential in clean coal technology, in which the UK actually leads the way? Surely it could enable us to utilise the 300-plus years’ stock of coal in this country. Will he speculate about investment in biofuels, which generate far fewer emissions into the environment? Should not the Government proceed in that way rather than penalising people as they are currently doing through the taxation system?
I agree with my hon. Friend that incentivising new environmental technology perhaps represents a better way forward for tackling carbon emissions than reliance on blunt green taxes. I regard biofuels as an exciting development in the field of environmental technology. In my constituency, a planning application will shortly be made by a large Irish company to develop a large biofuels plant at the port of Milford Haven—one of the UK’s leading energy ports, as my hon. Friend will be aware. It has specialised in oil refining, but liquefied natural gas terminals will be coming on stream at the end of this year. Now added to the mix will be a biofuels plant, which is an exciting development as well.
Returning to coal, it will be increasingly foreign rather than domestically produced coal that will keep the UK’s coal-fired generating capacity burning. There are many reasons why domestic coal production will continue to decline, but they are quite unrelated to demand. Indeed, during last winter, which saw a significant upswing in demand for coal as gas prices spiked, the additional demand was met entirely by imports rather than any increase in domestic supply. I believe that our coal will come increasingly from Russia, South Africa, Australia and south America. To my mind, that creates the conditions for enhanced energy security rather than a return to reliance on domestic coal production. Hon. Members should not forget that the only time that the lights went out in the UK’s recent history was when we relied almost entirely on domestic coal.
My belief is that in future decades we are going to need a basket of different energy supplies. I reject the football supporter approach whereby we have to be in favour of nuclear or coal or biofuels when the truth is that the UK is going to need a whole different spread of energy sources in the decades ahead. My belief is that nuclear will still feature in the mix, though it may have less of a share than it does now.
Returning to carbon capture and storage, which was referred to in the Chancellor’s Budget statement, it is not clear to me what contribution CCS can make to cleaning up the UK’s coal-fired power stations. The Science and Technology Committee produced an excellent report on this subject in February last year, in which it noted that there were significant technical difficulties associated with retrofitting capture technology on to Britain’s ageing fleet of coal-fired stations. Even if those difficulties could be overcome, it might not be economically viable to do so.
The value of the CCS demonstration project surely lies in its application overseas, particularly in countries such as India and China, which are adding huge amounts of coal-fired generating capacity each month. At the beginning of February, I was in India and saw a news report in the Hindustan Times, which referred to the previous day’s announcement by the Indian Prime Minister that India will need 56,000 MW of coal-fired generating capacity just for the next five years. Given the lifetime of those coal-fired plants and the associated carbon emissions, it is clear that countries such as Brazil, India and China—without downplaying the moral obligation on this country to do its bit to tackle climate change—are where the serious potential lies for cutting carbon emissions. The focus of the UK’s demonstration project must surely be on showing how it can work across different countries with different electricity-generating systems.
Like other environmental technologies, carbon capture and storage represents a significant export opportunity for the UK. As I have said, the UK is a world leader in geosciences and the oil and gas sectors, and there is no reason why that expertise cannot be extended to carbon capture and storage so that it becomes an export opportunity. The barrier to that lies less in the technical skills involved in the process than in our abilities as an exporting nation. In the remainder of my contribution, I should like to focus on trade and exports.
Exports are an extremely important component of GDP growth. Those of us who have been concerned about the over-reliance in recent years on household consumption as a driver of GDP growth believe that exports have not been sufficiently strong. In comparison with other Organisation for Economic Co-operation and Development competitors, our export performance is simply not good enough. The UK has a smaller share of total world exports than many of its key competitors, with the exception of Italy. In the export of goods alone, the UK lags well behind Italy. In part, that reflects the UK economy’s specialisation in services, which make up a small percentage of total global trade, but we should not hide behind that argument to excuse our poor performance as an exporter.
For example, if we read across from the UK figures to the German figures for exports in the past 10 years, we will see immediately that Germany is competing as an export nation in the new globalised world far better than we are. When our exports were flat between 2001 and 2003, Germany posted increases of 7 per cent., 4 per cent. and 3 per cent. While the export growth rates registered by the UK in the past two years have been much more impressive, we now know that soaring VAT fraud had the effect of inflating those figures. Professor Peter Spencer, chief economic adviser to the ITEM Club, noted:
“It appears that the recent revival in UK exports largely reflects the activities of fraudsters rather than genuine business. When seen against the background of the boom in world markets, it’s actually very disappointing.”
In this year’s Budget statement, the Chancellor forecast growth and exports of 5.5 per cent. and 5 per cent. going down to 4.5 per cent. in three years’ time. Those figures are hardly stellar or ambitious. In last year’s statement, he had rather more to say about foreign trade. He seemed to be on the verge of announcing a major new Government initiative for boosting our trade with key industrialising nations such as India and China. He said:
“Alongside a new City of London taskforce to promote British financial services globally, and backed by a new British advisory board and council, the Foreign Secretary and the Secretary of State for Trade and Industry are announcing a revamped UK Trade and Investment, which will set new targets for expanding trade with China, India and emerging economies, and for making Britain the location of choice for international business.”—[Official Report, 22 March 2006; Vol. 444, c. 291.]
That all sounded great, and a number of right hon. and hon. Members, and many UK business organisations, have made the case for a number of years for a concerted effort by the DTI and Foreign Office to help UK exporters take advantage of the huge investment and trade opportunities on offer in places such as China and India. For some time, concern has been growing that the UK is not capturing a large enough share of that huge increase in international trade.
My hon. Friend may or may not be aware of my long-standing interest in manufacturing, which, in my view, is the only source of long-term, sustainable, non-inflationary economic growth. How does he respond to the fact that manufacturing jobs in this country are being lost at a rapid rate? How can we capture opportunities overseas other than in financial services, in which we are highly qualified, if our manufacturing base is shrinking year by year because it is less competitive? The chief executive of a major pharmaceutical company told me that we are one of the least attractive countries in which to invest. Ireland and the Netherlands are far more attractive in that regard.