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Pre-Budget Report and Comprehensive Spending Review

Volume 464: debated on Tuesday 9 October 2007

Today I can present the pre-Budget report and the conclusions of the comprehensive spending review. The background to this year’s report and spending review is a time of increased international economic uncertainty and a more fragile global environment which has already seen turbulence in America, Asia and Europe. The theme of this year’s pre-Budget report is that, provided we maintain the course for economic stability that we have set, we can respond to that global environment. We will do so by taking no risks with stability and no risks with unaffordable promises that put the public finances at risk. We can respond as well to the rising aspirations of the British people, and we can do that by taking the right long-term decisions for our country. Today I will set out how we will maintain that stability and strong economy, meet our international obligations, improve our public services and invest more in the highest standard of education and health care, and equip our country for the future as we meet these new global challenges.

Let me start with the economic figures. In March, inflation had risen to over 3 per cent. but decisive action has brought it down to below our target of 2 per cent., and I am able to forecast that inflation will again be on target next year and the year after. We are determined to hold firm to our economic framework, which has proved resilient over the past 10 years and which we can be confident will do so now and in the future. While this year growth in America is expected to be 2 per cent., in Japan 2.3 per cent. and in the euro area 2.6 per cent., growth in Britain—with exports and investment rising and employment at record levels—is expected to be 3 per cent. this year: Britain, the fastest growing major advanced economy in the world.

That underlying strength of the economy will stand us in good stead as we face the current international instability that started in the American mortgage market and has now spread across the world. The full impact of turbulence in the international financial markets is as yet unclear. The House will rightly want to discuss in some detail the current international instability and its effect on Northern Rock, and I intend to make a full statement to the House later this week. The International Monetary Fund has said that this international uncertainty will have an effect on growth right across the world, and independent forecasters expect growth next year in America, the euro area and Japan to fall to 2 and 2½ per cent. In those circumstances, it is right that we, too, are cautious. So my forecast for growth next year is also 2 to 2½ per cent. [Interruption.] But because of the strength of our economy, our commitment to openness and liberalised trade across the world—[Interruption.]

It is because of the strength of our economy and our commitment to openness and liberalised trade across the world, and our flexibility and dynamism here at home, that my forecast for growth in 2009 and 2010 is 2½ to 3 per cent., in line with the economy’s trend rate of growth and in line with the Budget forecast.

We can afford sustained investment in our priorities only because of our two fiscal rules that ensure sound public finances. I can report that last year, borrowing was 2.3 per cent. of national income—£4 billion less than forecast. I can also report that debt was 36.7 per cent., also less than forecast. Over the past 10 years of this economic cycle, borrowing and debt in Britain have been lower than in Japan, the euro area, America and the Organisation for Economic Co-operation and Development area as a whole.

I can tell the House that we are meeting our first fiscal rule with the current budget and surplus over the cycle. In the previous economic cycle, from 1986 to 1997, that rule was missed, with a deficit of £240 billion. But over this cycle, with a current budget deficit last year lower than forecast, we have a surplus of £18 billion and we are therefore meeting our first fiscal rule. Even taking into account the impact of what is happening in the financial markets, we have a current balance going forward of minus £8 billion this year, then minus £4 billion, then surpluses of £3 billion, £9 billion, £14 billion and £20 billion by 2012-13. So we will meet our rule in the next cycle.

We will also meet our second rule that net debt should be at a sustainable level. In America, debt is 44 per cent. It is 49 per cent. across the euro area, 86 per cent. in Japan and 94 per cent. in Italy. The figures in Britain are 37.6 per cent. this year and then 38.4 per cent., 38.8 per cent., 38.9 per cent., 38.8 per cent., and 38.6 per cent. in 2012, so meeting our second fiscal rule. Debt interest was 3½ per cent. of national income in 1997. Next year, it is expected to be just 2 per cent. That low debt allows more investment in front-line services. Net borrowing is forecast to fall from 2.7 per cent. this year to 1.3 per cent. in 2012, compared with a peak in 1993 of almost 8 per cent.—the equivalent of £110 billion today. The measures that I am taking in this pre-Budget report allow fiscal policy to support the economy while ensuring that the fiscal rules are met. As a result, net borrowing is forecast to fall from £38 billion this year to £23 billion in 2012.

In this cycle and the next we are meeting both our fiscal rules: borrowing not for current consumption, but for investment in Britain’s priorities. As the Prime Minister made clear in the Budget earlier this year, this spending review is tighter for many Departments—all the more reason to identify increased efficiencies and savings. The spending review has identified substantial savings that can be made by Departments. Building on the £20 billion already achieved, Departments will save a further £30 billion by 2010. That is money available for reinvestment in public services. In addition to that, asset sales in four years’ time will have reached £36 billion, reducing debt and releasing further resources. Departmental plans will be published, setting out in detail how these savings will be achieved.

We are also seeing the rewards that can come from a successful economy and record levels of employment. Just under a decade and a half ago, as much as three quarters of all new public spending was spent on debt and social security costs. The figure for this spending review will be a third of that. Today I can announce that, because unemployment continues to fall, we will spend £400 million less than forecast in each year of the spending review on the costs of economic failure.

Those three elements—a strong economy, sound public finances and efficiencies—make possible the investment that I can announce today. Departmental spending will rise from £345 billion this year to £397 billion in 2010. Departmental spending is published today; investment will be matched by reform and clear objectives, set out in new public service agreements, which we are also publishing today.

Let me now turn to our proposals. The foremost duty of any Government is protecting our country. The whole House will want to join me in acknowledging the dedication and courage of our armed forces in action overseas, including in Iraq and Afghanistan. To support our armed forces and all that they do, I am today allocating an additional £400 million for operations this year. That is on top of the increase in the defence budget to £37 billion by 2010 that will provide over £500 million-worth of investment for improvements in accommodation for members of the armed forces and their families. In the mid-1990s, defence spending was cut by 20 per cent. This settlement is the longest period of rising investment in the defence of our country for almost 30 years.

Matching our commitment to international security with international diplomacy, we will increase the Foreign Office budget, including spending £460 million in 2010 on the British Council, the BBC World Service and the launch of the BBC Farsi and Arabic TV channels.

The terrorist attacks in July 2005 and the attacks since remind us all of the constant threat to our security here in Britain, and of the critical importance of our police and security services. Since 2001, spending on security and intelligence has more than doubled to £2½ billion a year. I can now announce a new single budget that brings together the work of the police, the security services and all parts of the Government responsible for addressing the threat from terrorism. The budget for the intelligence agencies will continue its historic real-terms growth since 2001, with real growth over this period of 9.6 per cent. a year. I can announce that the single budget will rise every year over the next three years—a rise of £1 billion in total, to £3½ billion a year in three years’ time. That is a trebling in cash terms in a single decade. It also includes £700 million over the next three years for the Home Office for its work in combating the terrorist threat. Overall, I am allocating additional resources to the Home Office and Ministry of Justice that will now rise to £20 billion by 2010, as we guarantee neighbourhood policing in every community, build 9,500 extra prison places and finance over £400 million in technology to strengthen our border security.

Our ability to compete and succeed in the global age will depend on our competitiveness and continuing investment in our economy. Britain’s future success will depend on investment not just in physical capital but in skills, innovation and intellectual property. I am publishing today a new analysis which shows that Britain could now be investing as much in those areas as the United States of America. That means that almost £250 billion a year—up to a quarter of today’s income—is being invested in the priorities essential for securing tomorrow’s prosperity.

Lord Sainsbury’s science review reported last week, and I can confirm that investment in science and university research will rise to over £6 billion a year in three years’ time. That will help to ensure that British research and industry are brought closer together to develop the new products and services that the world wants to buy.

Britain has more Nobel prize winners than any country outside the US. Yesterday, another prize was awarded for medical research, and that is testament to Britain’s continued scientific success, which is recognised across the world. So that more British medical discovery can be translated into new health drugs, treatments and preventions, I can today announce that I am funding in full the recommendations of Sir David Cooksey’s review. We will expand the single fund for health research to £1.7 billion by 2010.

In the past, we paid a heavy price as a country for failing to invest when it was necessary, particularly in transport. We are putting that right and will double investment. By 2010, it will rise to £14½ billion a year, providing extra money for strategic road schemes such as the widening of the M1 and M6, and £1.3 billion a year for improving local and regional transport across the country. In addition, we will double the amount that we spend over the next two years on upgrading the national rail network, ahead of a further £15 billion for railways over the following five years. This also provides for the construction of Crossrail, which will be the largest transport project since the channel tunnel and essential for the competitiveness of not just the City of London but the whole country.

However, because transport requires investment year after year and decade after decade, I am extending to 2018 the long-term funding guideline of annual growth of 2¼ per cent. above inflation. That is possible only because of our commitment and ability to fund those long-term improvements. I am also today publishing proposals to give local authorities the power to set a business rate supplement for investment and local economic development, so that with their support they can provide opportunities for business expansion.

Making Britain one of the best places in the world to do business also demands a modern tax regime based on three clear principles: that our system is competitive, simple and fair. I confirm that the main rate of corporation tax will be cut by 2p to 28p next year. That is the lowest in the G7.

Working with business, we need to do more. I am announcing three reviews proposing simplification to the tax system that will let 3 million self-employed people pay their tax and national insurance contributions more easily and 500,000 businesses reduce their paperwork by removing a separate payroll. Taken together with other measures that I am proposing today, that will save British business up to £100 million a year.

The capital gains tax regime here has continued to encourage investment and enterprise. I now propose reforms to make the system more straightforward and sustainable; to ensure that it sets consistent incentives for investment and enterprise; and to ensure that it remains internationally competitive. The new code of conduct for private equity firms drawn up by Sir David Walker will be published next month and will set out much needed steps for increased transparency and disclosure.

I can tell the House that the changes that I propose to capital gains tax also, taken together with the tax loopholes that I am closing, will ensure that those working in private equity pay a fairer share. So from April next year I will withdraw the capital gains tax taper relief and in its place there will be just one rate of 18 per cent.—one of the most competitive single rates of any major economy. I am also proposing measures to combat income shifting, vehicle excise duty evasion, and to tackle the exploitation of national insurance exemptions.

I believe that it is right that everyone who lives and works here should pay their fair share. I therefore propose to close a number of loopholes which have allowed some people to avoid taxes that everyone else has to pay. Non-domiciled taxpayers already pay about £4 billion on their earnings. Any proposal for change has to be fair, workable and affordable. I can tell the House that I have examined proposals to impose a flat-rate annual charge of £25,000 on 150,000 non-domiciled taxpayers, which it is claimed would raise £3½ billion. There are in fact only 115,000 registered non-domiciles. I can tell the House, too, that if the charge of £25,000 were imposed, only an estimated 15,000 of those would earn sufficient money abroad to make it worth while to maintain non-domiciled status.

As a result, the combined effect of people paying this charge or changing their tax status would be revenue not of £3.5 billion but of only £650 million a year at most—a shortfall of more than £2 billion. In addition to that, such a charge could discourage men and women—doctors and nurses, business men and women—from coming to this country in the short term. Such men and women do pay tax on their earnings here, and do contribute to the country’s wealth, and we do not want to turn them away. So I will now consult with a view to early legislation on an alternative route. As a first step, we will introduce a charge after seven years, then a higher rate after 10. We will prevent people claiming that they are out of the country when they are actually here, from disguising income as capital and from claiming in effect two allowances; and for completeness we will introduce a flat-rate charge for everyone. Those measures will raise an average of £650 million.

The two great challenges for this generation are the need to tackle climate change and poverty across the world. So alongside the pre-Budget report I am publishing the next stage of the implementation of the Stern review, setting out how Britain is meeting its environmental obligations. We are the only country to have met our Kyoto obligations. We have reduced our greenhouse gas emissions by almost a fifth since 1990.

Next month, when the climate change Bill comes before the House, we will become the first country to introduce legislation on binding carbon targets. I am today increasing the budget for the Department for Environment, Food and Rural Affairs to £4 billion in three years’ time to help us tackle climate change and protect the countryside. I can confirm that that includes provision of £800 million a year by 2010 for flood defences. We now need to move further and faster on the next stage of the European emissions trading scheme. As part of that, we propose to increase significantly the use of the auctioning of carbon allowances, as we move further towards a low-carbon future.

Today I am also publishing an interim report by Professor Julia King, which shows that, by choosing the most efficient cars on the market today, drivers can cut emissions and their fuel bills by up to a quarter, and that with new technology and cleaner power we could cut carbon emissions from cars by up to 80 per cent. I will bring forward proposals in the Budget, after Professor King’s final report, on ways to encourage the next generation of cleaner cars and incentives for people to buy them.

Air travel accounts for a growing share of carbon emissions, so it is right that aircraft emissions should be part of the EU emissions trading scheme. I also propose that aviation makes a greater contribution in respect of its environmental impact. For that to be as environmentally effective as possible, I intend from 2009 to levy the duty not on individual passengers but on flights, to encourage greater and more efficient use of planes.

I can also announce a new environmental transformation fund, and that fund will have a three-year budget of £1.2 billion, which will provide investment in new energy technologies here at home and resources to meet our obligation to support poverty reduction in the poorest countries through environmental protection.

I believe that it is to the lasting shame of this country that, in the 1980s and 1990s, aid to developing countries from Britain fell by almost a quarter. In 1997, we devoted just £2 billion—a quarter of 1 per cent. of our national income—to development aid. That figure today is over £5 billion, and today I can announce that overseas aid will rise again to £9 billion by 2010. In doing so, we will meet our commitment to double multilateral and bilateral aid to Africa from 2004 to 2010. That puts us on course to meet our European commitment of 0.5 per cent. of national income devoted to development aid by 2010; and then to meet our commitment to achieve, for the first time, the United Nations goal of 0.7 per cent by 2013. I can tell the House that we will meet all our international obligations to developing countries in full.

In the 20 years up to 1997, child poverty in Britain doubled. Since then, we have lifted 600,000 children out of poverty. Two and a half million more people are in employment. We believe that helping people into work is the best way of cutting child poverty and providing opportunity, which is why we shall continue to support the new deal. For the first time in 30 years, the number of people on incapacity benefit is falling, with almost 100,000 people taken off the incapacity benefit roll in the past two years. The roll-out of pathways to work will bring together the public, private and voluntary sectors to help more people into work.

I can confirm that, with 300,000 more lone parents in employment compared with 10 years ago, we can help even more lone parents by extending the top-up that they receive for the first 12 months that they spend back in work. In addition, I can also announce today further measures to take more children out of poverty. First, I am doubling the amount of child maintenance that a family can receive without affecting their family benefits to £20 a week next year and then £40 a week in 2010. Secondly, I am increasing the child tax credit by a total of £175 a year from next April, with a further increase in 2010, so that, for families on low incomes, children’s benefits and tax credits will be worth at least £3,500 a year for the first child. Taken together, those measures will lift a further 100,000 children out of poverty.

Next year’s rise in the basic state pension and other benefits will be announced later this month, but the pension credit for older people with just a small pension of their own will rise from next April by £5 a week and £260 a year for a single person and by £7.65 a week and £397 a year for a couple. That guarantees every person over the age of 60 at least £6,450 a year. We will bring forward the start date for flat-rating the state second pension to 2009.

I can announce that direct funding for social care will increase to £1.4 billion by 2010. That will help to provide new homes for older people and help people with disabilities to live independently in the community, as well as offering more services for carers. I can also announce an extra £200 million next year to deliver on our commitment to every pensioner and disabled person in England—guaranteed free off-peak national bus travel.

Today, home ownership is at 70 per cent.—that is nearly 2 million more than 10 years ago—but we need to do more; we need to ensure that there are homes for people to buy. Last year the number of homes increased by 185,000. That is the largest increase for nearly 20 years. Planning reforms that are coming before the House will help the building of more homes in an economically and environmentally sustainable way, as we provide additional investment to increase the level of house building to 240,000 a year by 2016. In total, that is an extra 3 million new homes between now and 2020.

I can announce that we will also spend over £4 billion over the next three years to help people living in poor quality housing to make renovations to their homes, so that by 2010, some 1.9 million of the poorest children and 1.7 million pensioners will have benefited. As we build more homes, we need to ensure that properties are not left unrented, unsold or unavailable for people to live in. I am introducing measures today that will help to bring empty residential properties back on to the market.

Buying a home is probably the biggest investment that people make in their lives. Fixed-rate mortgages can offer more certainty. I want to see more fixed-rate mortgages not for just two years but for 10 years or even longer. I will bring forward proposals at the Budget on reforms to help lenders to ensure that more people can fix their mortgages as a matter of routine, if it is right for them. As we prepare plans for more home building, for eco towns and for shared equity, we will also consider how else we can increase the supply of housing to help first-time buyers to enter the market.

Grants to local authorities for local services in England will increase to £26 billion by 2010. We have provided sufficient resources to ensure that local authorities can keep council tax rises substantially below 5 per cent. The budget for the Department for Culture, Media and Sport will increase to £2.2 billion in three years’ time. That guarantees an inflation increase for the arts, free access to museums and galleries, and extra sport, so that every child and young person can take part in sport for five hours a week. It will also deliver the cultural Olympiad in the run-up to London 2012.

I can also set out the total settlements for the devolved Administrations in Scotland, Wales and Northern Ireland, giving them their full entitlement. In Scotland the figure will rise to £30 billion in 2010; in Wales it will rise to £16 billion; and in Northern Ireland it will rise to £10 billion. That, of course, is in addition to spending in Scotland, Wales and Northern Ireland on matters that are not devolved, such as spending on defence, tax credits and pensions, which benefit all parts of the United Kingdom.

I now come to my final decisions. In respect of capital gains tax, there is currently transferability between spouses, to recognise the fact that capital assets are built up jointly over a lifetime. In inheritance tax, there is currently 100 per cent. spouse relief over a lifetime, but there is no transferability of allowances. I want to ensure that husbands and wives can benefit from each other’s unused inheritance tax exemptions, so I will raise the total amount of inheritance for married couples on which no tax is paid, and this will apply to civil partnerships, too. I can announce that, from today, the combined tax-free allowance for their estates will not be the current £300,000, but up to £600,000. By 2010, the combined tax-free allowance for couples will rise to £700,000. And I can do more: to ensure that people who have already lost their husband or wife will also benefit, I will backdate that indefinitely for every widow or widower.

Those changes mean certainty for up to 12 million married couples, with an allowance of up to £600,000, rising to £700,000, and the same entitlement for 3 million widows and widowers. That allowance is worth more than the value of 97 per cent. of homes in this country. In future years, we will take both house prices and inflation into account when setting inheritance tax thresholds.

I now have a further choice to make. As a result of our economic management, I can meet both our fiscal rules and invest more—£2 billion in 2010, in addition to the sum proposed at the Budget. If I was to raise the inheritance tax threshold to £1 million, it would cost a further £2 billion. I found that, under that proposal, £1 billion would go to estates worth more than £950,000—the top 1 per cent.—only. Instead, I decided to go ahead with raising the inheritance tax exemption to £700,000 for married couples and civil partnerships, and invest the additional £2 billion in health and education.

Let us now have a debate about what is affordable and what is fair in the future of inheritance tax. I welcome that debate. In this statement, I have managed to raise the arts and culture budget; to give the go-ahead for Crossrail; to meet our international obligations on overseas aid; and to double the budget for social housing and expand owner-occupation.

I can now announce that the final figures for education will be higher than originally proposed. I hope that all parties will support and match these new plans when I explain where the additional money is going. The Budget proposed that investment in education and skills will rise to £74 billion in 2010, increasing education spending as a share of national income rising from 4.5 per cent. 10 years ago to 5.6 per cent. now. Today, I can announce, in addition, further investment, providing a £250 million fund to ensure that all children at school are ready to learn and benefit from personalised support.

I can also do more for the national health service. Over the next three years, the money we spend will rise again by more than its historic rate: on average, by 4 per cent. above inflation. This new investment will allow us to ensure a maximum wait of 18 weeks from referral to hospital, increased access to GP services and cleaner hospitals.

With the additional £2 billion I have available, I can now announce that investment in health in England will rise from £90 billion this year to a total of £110 billion in 2010. I could have spent that £2 billion on an inheritance tax reduction for the few wealthiest estates. Instead, I am able to raise the inheritance tax allowance and invest more in schools and hospitals for the British people. That means, in education, helping to build a new primary school in every local area by 2010. In health, when added to its budget, this will deliver 20 new hospitals, 140 new walk-in centres open seven days a week, and 100 new GP practices. We aim to ensure a regular check-up for every adult in the NHS, saving lives and improving the quality of patient care across the country.

We propose not unaffordable tax cuts that deprive public services of the money they need, but an affordable tax cut and improved investment in health and education, founded on economic stability. I commend this statement to the House.

I do not know why the Prime Minister even bothered to turn up. He should have called that election, and let us give the Budget. Instead, we had a pre-election Budget without the election. We all know that the report was brought forward, so that it could be the starting gun for the campaign, before the Prime Minister took the pistol and fired it into his foot.

Let us deal straight away with the announcements on aviation, and on non-domiciles and inheritance tax. For 10 years, the Prime Minister has been sucking millions of families into the inheritance tax net. For 10 years, he has been pulling first-time buyers into stamp duty. For 10 years, he could have reformed air passenger duty. For 10 years, he did nothing on non-doms.

Now, a week after we introduced our plans, the Prime Minister and the Chancellor scrabble around in a panic trying to think of something to say. The Prime Minister talks about setting out his vision of the country, but he has to wait for us to tell him what it is. That is not leadership of this country—it is followership, Prime Minister. It is not strong, Prime Minister, it is weak. He has learned nothing from recent events. The public will see today’s measures as a desperate, cynical stunt from a desperate and weak Prime Minister, and the public can tell the difference between a Labour party that sees this all as a cynical, calculating game, and a Conservative party that believes in lower taxes and in aspirations.

The Chancellor attacked my non-domicile policy, but then announced that he would consult on it. Will he confirm that? From this day on, let there be no doubt about who is winning the battle of ideas in Britain. If the Prime Minister wants to debate our policies, and if he wants to challenge the independent experts who support our costings, he should have the courage to call a general election, but he will not. This Prime Minister’s name may appear on the cover of books about courage, but it is never likely to appear in the index.

These cynical stunts should not distract us from the fact that today was the day when the economic chickens came home to roost. Britain needs a Government who prepare us for the new economic revolution by freeing our economy, reforming public services and putting us on the path to lower taxes. Instead, we got a speech that boils down to this: growth is down, borrowing is up, the spending rate is down, and overall taxes are likely to go up. What a mess after 10 years in office.

The real charge against the Prime Minister is not just that he got his growth forecasts for the next year wrong, although he did. The real charge against the Prime Minister is, first, that he should have prepared the public finances for a slowdown in the economy, and he did not; and secondly, he should have prepared the public services for a slowdown in spending, but he did not do that, either. The pre-Budget report is the opposite of what a sensible, prudent Government should do.

Let us look at the public finances. After 15 years of global growth, we should be running a surplus in this country. Instead, we are entering what the Chancellor himself admits are difficult times, with Government borrowing out of control. The Prime Minister told us in last year’s Budget that 2007 was the year when the finances would move into the black. Then, in this year’s Budget he told us that he was wrong, but that at least borrowing would fall.

Today the Chancellor admitted that borrowing is going up again. Total borrowing this year is now expected to be £4 billion higher than forecast. We all waited for the moment when, as the former Chancellor used to do, he would rattle off the borrowing figures for the years afterwards, but he entirely missed them out—talk about burying bad news! Indeed, the annual deficit, which he did mention, will be £4 billion higher in the current year. The real tragedy is that the Government should not have borrowed in a boom; they should have saved. Now there is nothing left to prepare Britain for the rainy days that may lie ahead.

Why did not the Chancellor tell us that the savings ratio has fallen? Page 146 of the report shows that the savings ratio this year has fallen from 5½ per cent. to 3½ per cent. That is the lowest savings ratio on record. He did not tell us that the estimates for the growth of disposable income for millions of families have also fallen sharply from 2½ per cent. to 1½ per cent. this year. Why did he hide those figures? He should be blaming his predecessor, not copying him.

The Chancellor has not prepared us for the economic slowdown or the spending slowdown. The growth rate of spending has been cut in half. The Chancellor has been forced to share the proceeds of growth. This is another example of us setting the agenda. Why cannot the Chancellor be honest with people about what that means, instead of trying to spin the figures?

Let us take the education budget. When the more gullible Labour Members cheered, perhaps they did not realise that the Chancellor is cutting the spending growth rate of education in half. The real tragedy is that the Government failed to use the boom years to reform education and prepare it for this slowdown. The building schools for the future programme, which the former Chancellor used to boast about, is now in such a mess that just 14 of the 100 schools that were supposed to open this year will do so. The £1 billion spent on tackling truancy has led to a 45 per cent. rise in it. The question people are asking is simple: where has all the money gone? [Interruption.]

Order. Members should allow the hon. Gentleman to be heard. Clapping is not in order in this House.

I might try that again: where has all the money gone in health? Why does not the Chancellor be honest with the public about what this health settlement means? The growth of health spending is set almost to halve in the next three years, so a health service that is already seeing maternity wards closing, accident and emergency wings shutting and staggered pay awards for nurses will now have to make do with a much slower rate of spending growth. It would have been able to cope better if the recent spending boom had been matched by reform.

I know that the Prime Minister has found himself a new health guru, Lord Darzi. Remember him? He is the one whose report sunk without trace last week. The Prime Minister should listen to the previous health guru, Derek Wanless, who says that the hoped-for productivity gains have not been achieved and that a lot of money has been wasted. When Wanless compared our health care with other similar countries, he found that Britain was still lagging on crucial outcomes such as life expectancy, infant mortality, cancer survival and health inequality. The Health Secretary puts it in a more technical way:

“We’ve put a lot of money in, but that hasn’t led to a lot of happy bunnies”.

Even with today’s spending slowdown, this report confirms that the tax burden is now set to reach a record high—at a time when all our global competitors are trying to reduce their taxes. By the way, why did the Chancellor not tell us that this is a tax-raising pre-Budget report? We heard all the talk about inheritance tax and so on, but I see that in 2010-11 there will be a £1.4 billion rise in taxes as a result of the measures that he announced from the Dispatch Box just a few minutes ago.

This pre-Budget report should have prepared our country for the new economic revolution, but instead we got over-spun claims, desperate stunts and fake figures from a Government who have given us fake photos, fake troop withdrawals and fake hospital openings, all led by a Prime Minister who is increasingly seen as a fake.

The Chancellor should spare us the Brownite nonsense and save it for the election campaign. Instead, he should give us straight answers to these straight questions. First, will he confirm that the Prime Minister got the growth and borrowing forecasts wrong? Secondly, will he confirm that the growth rate of health and education spending will be cut by almost half? Thirdly, will he confirm what he did not say when he gave his original report: that this report raises taxes overall? Out of curiosity, will he also confirm that he had no plans to reform inheritance tax in this PBR until we made our announcement and he looked at his polls? We know that the Prime Minister cannot give straight answers to straight questions, so let us see whether the Chancellor can do any better—let us see whether he can begin to restore trust in this weak and cynical Government.

I thank the shadow Chancellor for his response. It strikes me that he might have benefited—[Interruption.]

The shadow Chancellor might have benefited from rehearsing his lines a bit longer before he delivered them. Listening to him and to some of his colleagues, it is striking that they find it difficult to acknowledge in this Chamber that we have one of the strongest and most stable economies in the world. They have no difficulty in doing so outside this Chamber when talking to business audiences, when they have to concede that thanks to the stewardship of my right hon. Friend the Prime Minister over the past 10 years we have a very strong and stable economy. It is precisely that stability that will enable us to deal with the international uncertainty that we now face.

Another striking thing about what the hon. Gentleman said—as he desperately confers with his colleagues on the Front Bench—is how on earth he thinks he can maintain stability when he has made promises during the past week on inheritance tax, stamp duty and tax credits and has no means of delivering on those spending commitments. He has a black hole—£6 billion that he cannot find.

When he was talking about inheritance tax, the hon. Gentleman said that he set great store by independent experts, so I thought I would check to see which independent expert advised the Conservatives on their inheritance tax policy. I listened to the Leader of the Opposition as he went round the television studios last week, and he kept referring to Accountancy Age as the authority for the fact that there were so many people not paying tax. I read Accountancy Age and found out the source of this independent expert, and it turned out to be an article in a Sunday newspaper. And when I read the Sunday newspaper to find out where its figure came from, I learned that it was an “unnamed tax expert”. How on earth can we have any confidence in a man who wants to be Chancellor when he bases his estimates on what is in a Sunday newspaper, not on firm evidence?

If the Opposition make promises that they cannot afford, there will be instability, increased borrowing and taxation rises elsewhere, or cuts in health, education and other areas. It is precisely such instability that got the Conservatives into so much trouble when they were last in government. The choice is between an affordable tax cut and irresponsible, unaffordable promises being made by the Conservative party.

The second striking thing relates to my announcement in my speech that we were able to spend £2 billion on health and education. I noticed that at no point did the hon. Gentleman say whether he would match that commitment. Now, next week and during the next few months, we shall continue to ask the Conservatives whether they are prepared to meet our commitment on health and education. The truth is that they cannot afford to; they are already committed to reductions in tax and increases in expenditure that they cannot afford because they have not identified how they would carry them out.

The hon. Gentleman criticised us by saying that health spending was not rising as fast as it should. I came into possession of certain information just a few hours ago, and I can tell the House that we are spending more on health than the Conservatives thought. Helpfully, one of their Members—perhaps someone waiting to cross over to us in the next few months—left the Tory crib sheet in the photocopier in the House of Commons. There is a suggested question on this and, by the way, I have all the suggested questions. [Hon. Members: “Answer!”] I intend to answer the question that they have for me in the document. It asks whether the Chancellor can confirm that growth is only 3.5 per cent. a year. The health increase is at 4 per cent. a year—more than the Conservatives thought.

It is obvious that if the hon. Gentleman had his way, we would have a series of unaffordable promises on tax and spending that his party could not meet. In contrast, we will continue to take no risks with stability and we will continue to build the stability our economy needs because that is the best way of protecting the interests and aspirations of people in this country.

I thank the Chancellor for an advance copy of his statement, but 12 of the 18 pages were blank. Is that a new signal of open government and transparency? I congratulate him on adopting our long-standing policy on aviation taxation. There have also been welcome announcements on overseas aid, carers and social housing—[Interruption.]

Order. That is bad manners. The hon. Gentleman should be heard and any Member leaving the Chamber should do so quietly.

May I also sympathise with the Chancellor for having obviously spent the past 72 hours rewriting a speech that was originally intended to be a chapter in the election manifesto, and for having only just recovered from the ignominy of being the first Chancellor of the Exchequer since 1866 to preside over a run on a bank? Not since Black Wednesday has there been such a collapse of confidence in the authority of Government.

Let me begin with the key point in the Chancellor’s statement: the slowdown in the economy. We are in a rapidly changing and deteriorating environment. In the United States, to which we are closely linked,Alan Greenspan estimated that the risk of a recession approaches 50 per cent. What is the Chancellor’s assessment of the risk of a recession in Britain—50 per cent., 30 per cent., 20 per cent., 10 per cent.? It is an important question because factors that could precipitate a recession in the United States—personal debt and a bursting bubble in the housing market—are even more extreme in the United Kingdom.

Let me put to the Chancellor a question that I posed to his predecessor four years ago. I asked,

“is not the brutal truth that…the growth of the British economy is sustained by consumer spending pinned against record levels of personal debt, which is secured, if at all, against house prices that the Bank of England describes as well above equilibrium level?”—[Official Report, 13 November 2003; Vol. 413, c. 397.]

In the subsequent four years, every one of those indicators has deteriorated. Cannot the Chancellor bring himself to accept that millions of families are being squeezed by a combination of reducing disposable income and higher interest rates as a result of moving from fixed-rate mortgages in the next few months? Does not he accept that there is a major vulnerability in the UK economy?

The slowdown has major implications for the spending review, which makes grim reading for many Departments. The Chancellor has promised the largest increase in health spending. As I understand it, he said today that health spending will grow by 4 per cent. Will he confirm that the Wanless report argued that 4.4 per cent. growth was the absolute minimum required to sustain improvements in patient care? That assumed that the maximum amount of health service reform was achieved, which has clearly not happened. Will he confirm that, when we consider all the spending commitments, the growth that he suggests—I believe that it is 1.9 per cent. a year—is only fractionally higher than that achieved in the 18 years of Conservative government?

Will not local government now take the biggest hit? Something that did not appear in the statement but is buried in the report is the fact that council tax is due to rise by 5 per cent. a year throughout the UK. That tax bears disproportionately on low-income families and pensioners. At a time when the Chancellor is scrambling to catch up with the Conservatives on inheritance tax, why has he paid no attention to a report and an analysis conducted over four years on the need for reform of that hated and regressive form of taxation?

On poverty more generally, has the Chancellor made time today to glance at the parliamentary ombudsman’s report on tax credits, which has the wonderful, evocative title, “Tax Credits: Getting It Wrong?”? Is he willing to be a little more open-minded than his predecessor and consider the parliamentary ombudsman’s recommendations for simplifying and making a great deal fairer that hopelessly overcomplicated system?


On taxation, I am glad that, a few months after I introduced a debate in the House on the super-rich, there appears to be an all-party consensus that we should do something about it. However, the Government have got only themselves to blame for their current position with regard to non-domiciled investors. Five years ago, they commissioned a report, which was suppressed under the Freedom of Information Act 2000. The data were released only a few days ago. However, I agree that there is little merit in the idea of a poll tax on non-domiciled investors. It would be unfair to many immigrant workers of modest means and a fleabite to the super-rich. For the Abramovichs of this world, a £25,000 charge is roughly the equivalent of what they would spend on a day out at Stamford Bridge. For the noble Lord Ashcroft, £25,000 is roughly the equivalent of one marginal seat.

In conclusion, perhaps I could say something a little more positive and sympathetic to the Chancellor. We know from the press releases that he advised the Prime Minister against a dash to the polls and to stay the course. In the light of the gloomy outlook for the British economy, whatever else one says about the Chancellor, he is a very brave man.

First, may I apologise if we sent a series of blank sheets of paper to the Liberals—[Hon. Members: “You always apologise.”] Well, I will apologise, but it did enable the hon. Gentleman to jot down today’s Liberal party policy. Rather like the Conservatives, he overlooks the fact that over the past few years we have established a strong and stable economy, which will enable us to deal with the uncertainty that we face today. As I have said to the House and as I said last week, the reason we have adjusted our growth figures is that it is sensible in the light of what people are saying—that the uncertainty will have an effect not just here but across the world—to do that.

If I understood the hon. Gentleman correctly, I agree with him that there ought to be more fixed-rate mortgages. Indeed, I said that during my statement and I said it just a few weeks ago. I would like people to be able to fix their mortgage rates for a lot longer, not just because that would be good for them, but because it would be good for the country as a whole.

I am not sure that I follow the hon. Gentleman’s point in relation to the Department of Health. We have been able to increase the amount of money being spent on health over the past few years. There is a further 4 per cent. real-terms increase, which will enable us not only to build more hospitals and provide new GP practices, but to provide health check-ups for individuals, which is important. It has never been clear to me whether the Liberals want to spend more on health or less—it really depends on what day we are listening to them. What I do know, having looked at the Liberals’ proposals on tax, which cost around £18 billion a year, is that it is not clear where they are going to get the money from even to finance a small part of what we believe is necessary in public services.

The hon. Gentleman talks about poverty. I strongly believe that we need to do more to reduce pensioner poverty and child poverty. Today I announced proposals to take another 100,000 children out of poverty. However, the Liberals’ proposals on income tax would actually disproportionately benefit people with higher incomes, so I do not think that he is in a particularly strong position to lecture us on that.

As I said at the last Treasury Question Time, there are problems in the administration of tax credits. However, the hon. Gentleman should not lose sight of the fact that more than 6 million families have benefited from tax credits. I believe that the policy of helping people on low incomes is absolutely right, which is why I intend to stick with it.

I welcome the measures that the Chancellor has announced on simplifying the tax system, particularly on corporation tax and capital gains tax, and on fairness in private equity. As he knows, the Treasury Committee looked at the issue. We had practitioners from the industry lining up to say that it was terribly unfair for millionaires to pay less tax than their cleaners, so the steps that the Chancellor has announced today are welcome.

However, does my right hon. Friend agree that if we are to continue to enjoy prosperity in this country, we need economic stability? In that context, the Governor of the Bank of England mentioned that the UK’s economic fundamentals were there when he appeared before our Committee, while the Organisation for Economic Co-operation and Development has praised the UK’s monetary and fiscal framework. Will the Chancellor give a guarantee that any tax initiatives that he has announced today have been costed and can be funded in the long term? Otherwise, the chickens will come home to roost sooner than people expect.

I agree with my right hon. Friend. As the Chairman of the Treasury Committee, he knows a great deal about the subject. In particular, he knows that it is essential that the Government stick to the position that they have followed over the past few years. It was our strength and stability that meant that we dealt with the problems that arose after the collapse of the Asian stock market in the 1990s and of the American stock market in the early part of this decade. We have been able to do that precisely because we have not made promises on tax and spending that cannot be financed. As I said earlier, it is striking that the shadow Chancellor made little attempt to defend his position or to explain how he would fill that black hole.

In relation to spending, as my right hon. Friend the Member for West Dunbartonshire (John McFall) has said, it is important that we maintain expenditure where it will benefit the country in the long term. I understand that a Conservative Front Bench spokesman has already been on the radio failing to say that he would match us in spending that additional £2 billion on health and education.

The Chancellor has acknowledged that we are going to have a very sharp slowdown of the economy at the end of a period in which a sea of household and Government debt has sustained growth so far. Does he not therefore accept that people will be looking to today’s statement to see whether he can restore confidence in the Government’s fiscal policy through what might be a very difficult phase for our economy? Does he not think that he should have introduced some new fiscal rules to replace the two discredited fiscal rules of his predecessor? Does he not also think that it was a mistake to start playing around with the dates of the cycle as he did, so as to pretend that either of those rules was remotely credible? Does he not think that, when he announces that he is obliged to halve the rate of growth in public spending, compared with the rate that we have experienced for the past six or seven years, such an announcement should be combined with measures to indicate how reform can be accelerated, productivity improved and choice and competition actually delivered, in order to get a better quality of service for the money? With respect, his statement was devoid of any such measures. So far as he was concerned, this was the end of the party conference season. Does he not acknowledge that he will have to do some serious work over the winter if he is to retain even the modest levels of economic growth that he announced?

I seem to remember that the levels of debt that we have today are rather better than those that existed when the right hon. and learned Gentleman was Chancellor of the Exchequer. In relation to spending, I think that he was complaining that we were not spending enough, yet I had always understood that his party’s position was that we were spending too much. The amounts of money that we are spending on public services such as health and education are considerably more than was the case 10 years ago when he was Chancellor of the Exchequer, as he well knows.

In relation to the revision to the growth figures that I have given, I believe that it is sensible to do that because of what is happening internationally. The problems that started in the American housing market have clearly spread across the world. I made the point earlier that we need to take account of that, although, given the strength of the British economy, there is every reason to believe that we can get back on track with growth in the years after that—that view is shared not only by me but by independent commentators—because our economy is fundamentally strong, and it can deal with these difficulties. That is a rather different position from that of the Conservative party in the early 1990s.

I welcome the continued stability and growth outlined in the pre-Budget report. I want to ask my right hon. Friend about Northern Rock and the financial assistance scheme. When Northern Rock was in difficulty, the Chancellor rightly stepped in and made the state the insurer of last resort. The Government have consistently said that they will not do that in relation to the 125,000 pensioners who will benefit from the financial assistance scheme—set up, uniquely, by this Government—but not at a rate of 100 per cent. I did not notice anything in the statement today to suggest that the Government had changed their position on this and made themselves the insurer of last resort for those pensioners—in whose case there was an adverse ombudsman’s finding—as they did in the case of Northern Rock, in which there was no such finding.

I am sure that we will have an opportunity to discuss Northern Rock later in the week. The reason why I agreed that the Bank of England could provide lender of last resort facilities to Northern Rock was that I was concerned that damage might be done to the banking system as a whole. That is the only ground for intervention—a fear of systemic failure. It is not the policy of the Government or the Bank of England to intervene unless there is a risk that something that is happening in one bank will spread to other banks. That is why we intervened, and to that extent the case is quite different from that of any company in another sector.

In relation to the financial assistance scheme, my hon. Friend will recall that we gave an undertaking in July to bring the support up to 90 per cent., if we can do that, and I hope that we will be in a position to say something about that in the not too distant future.

Given that the Chancellor’s predecessor consistently overestimated corporation tax receipts and ended up having to borrow £100 billion more over the last five years than was originally forecast, what assurance can the right hon. Gentleman give that his revenue and borrowing figures are any more robust than his predecessor’s?

Just a few moments ago, the hon. Member for Tatton (Mr. Osborne), who is continuing his huddle on the Front Bench, was criticising me for taking the necessary steps to ensure that I had made the necessary provision. I say two things in response. First, I want to ensure that we maintain a strong economy, which will help the financial health of companies and enable them to contribute through the tax system. I want to ensure that this is a good place to do business so that we can continue to attract more companies here, which we have been remarkably successful in doing. Secondly, as I said at the start of my statement, I have taken a prudent approach to the economy in order to ensure that we can support the economy as a whole. What we do fiscally must be the right thing to do in the light of present circumstances.

I warmly welcome my right hon. Friend’s announcement on the increase in supply of housing for sale, which will be greatly welcomed, particularly by young families just starting out in life. Will he confirm whether there will also be an increase in the supply of social rented housing?

I know that my right hon. Friend has long been concerned that that should happen. I hope that, with the additional money that we can make available, we will be able to improve the stock when it comes to new build or renovation of affordable housing. It is important that the supply of housing and the housing market should reflect the differing needs of people in this country. Most of us are concerned about the difficulties faced by people on lower incomes. There are two sides to dealing with the problem. We look to see what we can do to help generally, but the key is to get more affordable housing into the market. That means money, and we are prepared to provide it, but it also means reform of the planning system, for which I hope we will gain all-party support.

Does the Chancellor accept that the NHS, for which the Government have responsibility, has consistently done better than social services, for which local government has responsibility? Will he confirm that he has done the same today? Does he recognise that local authorities are now spending billions more than their formula spending assessments on social services and are increasingly having to ration care and introduce charges? Would it not have been preferable, if we want to take some of the pressure off council tax, if we believe in joined-up government, and if we want to spend effectively on individuals, to have a better balance between health and social services?

I agree with the right hon. Gentleman. It is important to ensure that social services are properly funded. In my statement I announced a number of measures to help elderly people in particular, and also those with disabilities. We have increased the amount of money going to local government. It is obviously for individual councils to decide how they allocate that money. I believe that we have provided resources, through the health service and local government, to enable councils and others to make improvements to provide the care that we all want to see.

May I ask my right hon. Friend a bit more about his welcome announcement of increased spending on law and order, especially on local police budgets and local police teams? What would that mean in terms of the number of officers? Many people, including those in my own area, want to see more armed officers—[Interruption]—sorry, I mean uniformed officers, out on the streets.

I agree that we all want more uniformed officers on the streets, and I know that my hon. Friend has been vigilant in ensuring that the Government live up to their promises in that respect. We have made additional money available to the Home Office, but it is obviously for chief constables to decide how best to employ that money. I hope that by making this additional money available, we can ensure that police officers are placed where and when they are needed. I hope that the chief constable in my hon. Friend’s area recognises the additional funds invested and uses them to place the right number of officers where they are needed to police the streets.

I warmly welcome the £1.7 billion for the full implementation of the Cooksey reforms, but can the Chancellor confirm that the increase in resources by 2011 will not be at the expense of the Medical Research Council and basic research, and that resources for NHS clinical research will grow at the same rate?

I am grateful for what the hon. Gentleman has said. Over the past few weeks—and, indeed, in my previous capacity as Secretary of State for Trade and Industry—I have been struck by how advanced many developments are in this country, and the collaboration between universities and the health service is something that I want to encourage. The Prime Minister and I were at University college London this morning, and saw an excellent example of the way in which such collaboration is producing treatments and diagnostic skills that simply were not there just a few years ago. It is not only cutting the amount of time for which patients have to be in hospital to receive their treatment, but enabling more effective treatment to be provided. Yes, the Cooksey budget was identified as being a separate budget, and I think it very important for that to be the case. Sir David spent a great deal of time looking into the issue, and I was determined to ensure that he was given the funds that he needed.

Rather disturbingly, neither Opposition Front-Bench spokesman sought to match the Chancellor’s excellent achievements, or his projections on overseas aid to help some of the world’s poorest people in the world’s poorest countries. Does the Chancellor agree that when the Government achieve the figure of 0.7 per cent. of gross national income by 2014—as I believe they will—it will be consistent with our millennium development goals, and that when the Government achieve it, as some Scandinavian countries already have, it will not be beyond their horizons to build even on that?

For many years, in the House and outside, my right hon. Friend has campaigned for an increase in the amount that we contribute to overseas aid. I remember wondering years ago—before I was in the House, and during my first 10 years here—whether we would ever be able to get back on track to meet our international obligations. Now we are back on track, and have been able to bring forward the date for our commitment of 0.7 per cent. of gross domestic product.

As my right hon. Friend knows, the Prime Minister and his predecessor spent a great deal of time at Gleneagles securing international agreement and persuading all countries to join us. I am absolutely committed to meeting our international obligations. I only hope that there is cross-party support for that—although I am bound to say that, given their spending commitments, it is not clear to me how on earth the Opposition could possibly meet them.

Do the Chancellor’s estimates for public sector debt in total include the liabilities of private finance initiative and public-private partnership schemes? If they do not, can he tell us what the figure would be if they did?

I think the hon. Gentleman will find all that spelt out in the pre-Budget report that I have published today. As for whether PFI projects are classified as being on or off the Government’s balance sheet, that is a matter for the Office for National Statistics.

I congratulate my right hon. Friend on finding money to put into health and education rather than giving tax cuts to the extremely wealthy, but despite the excellent progress we have made, inequalities still exist in our country. Will my right hon. Friend use his position to ensure that the greatest proportion of the additional money that he gives to the Department of Health and the Department for Communities and Local Government goes to the areas with the most inequalities?

I very much hope that we shall continue to reduce those inequalities in all that we do, whether in local government or in the health service. It is important that we in central Government do our bit. That is why I said to the hon. Member for Twickenham (Dr. Cable) that although we clearly have difficulties to overcome with tax credits, they are clearly a very good way of putting money into the pockets of families who need that help.

It is sometimes forgotten that there is another big thing we can do to deal with inequalities. As my hon. Friend knows full well from the area that he represents, getting people into work makes a massive difference to their prospects. I worry about the Opposition’s proposals and the instability that they would create, because the inevitable result would be that, sooner or later, unemployment would go up. That has happened in the past, and we do not want it to happen again.

The gloom that was evident on the faces of the Members behind the Chancellor today when he talked about the pre-Budget report will be reflected in Northern Ireland. It is predicted that growth will fall by 50 per cent and that growth in public expenditure in Northern Ireland will be 1.2 per cent, as against the 1.9 per cent. generally that is announced in the report. That will have an impact on the economy. In light of that, will the Chancellor consider proposals to change fiscal policies, for example, in Northern Ireland, which will help the Northern Ireland Executive to grow the private economy to fill the gap left by the reduction in public spending?

Perhaps I could make a general point to the hon. Gentleman, which I might equally make to the Welsh and Scottish nationalists—[Interruption]—well, I certainly see a Scottish nationalist—[Interruption.] Two of them, indeed. The devolved Administrations all have their Barnett entitlement in full. There have been no changes to the basis on which that is calculated. They get the money as they always have done. However, that is not the whole story, because money spent nationally on, for example, tax credits, pensions and defence is also money that is spent in Scotland, Wales and Northern Ireland.

On the particular point that the hon. Gentleman made, I strongly agree that we need to encourage more private sector investment in Northern Ireland. I am sure that he will agree that at the moment public sector investment and public sector spending in Northern Ireland is disproportionate; it is much higher than any of us would like. He will also know that we asked Sir David Varney, who has been working on his report, to look at those things. However, a lot of things in Northern Ireland need to be looked at to encourage investment. One in particular is education and skills. When we ask business people in Northern Ireland what they want, they say that they want to ensure that when they set up businesses, they have the work force with the necessary skills, as well as investment, infrastructure and other factors.

Will the Chancellor confirm that he can afford free health checks, better health and a better future for the many by resisting the temptation to go back to the past by offering unsustainable tax thresholds for inheritance tax for the very few?

My hon. Friend makes a good point. Free health checks for people are a very good policy. I am sure we can all think of individuals who are alive today who might not have been if they had not happened to go to the doctor for a check-up. Doing that as a matter of routine seems to be eminently sensible, not just for them but for the good of the country as a whole. There is no doubt that if a party gets itself into a position where it promises to cut taxes by £5 billion and it has no idea where to get the money, sooner or later it will find that it cannot pay for the health service, education or anything else.

Why was more not made today of efficiency gains? Since 2001, the Public Accounts Committee has made some 2,500 recommendations in more than 300 unanimous reports. Most of those recommendations have been accepted by the Government, but many of the lessons are not being applied across Whitehall. In the light of the sheer size of the Government budget, does the Chancellor accept that an efficiency gain of just 2 per cent. in the use of resources would generate £8 billion-worth of savings every year? That would be enough to lead not only to increased spending on priority areas, but to a real reduction in the overall burden of taxation. Finally, does he agree that any Government or party that promised to return to the people a share in the proceeds of growth as well as a share in the proceeds of efficiency would be on to an election winner?

It is funny that the hon. Gentleman should say that, because at the last election the Conservatives said that they could get lots of savings out of paperclips, and it did not turn out to be the election winner that they thought it might be. When we started to look at what was being proposed, we found, just as we are finding now, that one did not have to look too far to see that promises were being made on the basis of money that had not yet been saved. That way lies the very instability that I have talked about.

On the hon. Gentleman’s more serious point, I agree that Government can always be more efficient. I said in my statement that our review identified £30 billion-worth of savings, which Departments will have to accomplish because if they want to meet the spending that they have set out they will have to find that efficiency saving. Following the Gershon report, £20 billion has already been saved; I have not the slightest doubt that all Government Departments, and the public sector generally, can always do more, and the pressure that the hon. Gentleman’s Select Committee brings to bear on Departments in this regard is useful.

Will the Chancellor confirm—so that I can welcome the fact—that the new improved child element of child tax credit will benefit some 130,000 families in Northern Ireland? On the wider issues, did an earlier answer that he gave indicate that in spite of significantly improved allocations to health, education and social housing, there will not be any translated increase in the Barnett allocation to Northern Ireland beyond what the Chancellor’s predecessor promised to the Northern Ireland parties back in the spring?

I welcome again the Government’s reaffirmed commitments on official development assistance. Will the Chancellor confirm that they will hold, no matter what the uncertainty brings, and will he colour in what that means in terms of the Department for International Development’s budget for education and the fight against AIDS, tuberculosis and malaria?

I am happy to hear a slightly different view from Northern Ireland in relation to Government expenditure, because increasing expenditure for Northern Ireland to £10 billion is very good for Northern Ireland. I can also tell my hon. Friend that, of course, the money that I announced to help us meet our target of getting 100,000 children out of poverty covers children in Northern Ireland—as it does children in the rest of the United Kingdom. I am sure that the tax credit increase will be welcomed by many families living in Northern Ireland, and my hon. Friend is right to welcome that.

My hon. Friend is also right to welcome the increase in the money that DFID will receive for overseas aid. However, the allocation within the Department is a matter for my right hon. Friend the Secretary of State for International Development, who will no doubt want to make further announcements in due course.

My hon. Friend highlights the fact that we have been able to make and confirm such allocations. We know that we will be able to deliver on them, because we have been running the economy and not making uncosted and irresponsible promises. Being unwilling to play to the gallery can at times be unpopular, but it is the right thing to do in the long-term interests of this country.

The Chancellor confirmed a number of things today, such as that the growth rate will fall and borrowing will remain high at about £30 billion. However, he failed to confirm that 75 per cent. of his PFI liability was off balance sheet—hiding the numbers—and he did not tell us what research and development spending was this year. Instead, he said there would be another report, which I will look at with some interest. However, we know that R and D spending for the future has been lamentable. Nor did he tell us, although it has been published, that the balance of trade deficit is some £45 billion—a direct consequence of the 1 million lost manufacturing jobs.

The Chancellor did, however, tell us two things, and I have questions about those. He spoke about Crossrail and the Olympics. There will be Government funding of at least £5 billion for each of those projects. Will he confirm that that will be subject to the Barnett formula? He also said that the Scottish departmental expenditure limit would rise to £30 billion by 2010. That would appear to amount to a 1.4 per cent. annual rise for each of the three years, but can he confirm that, with the shaving of more than £300 million off the Scottish baseline figure, that amounts in real terms to barely a 0.5 per cent. rise for each of the next three years? If that is the case, when his own report states that

“oil prices have risen above consensus forecasts”

because of factors such as “resilient demand”, and oil revenues are flooding into the Treasury, is it not shameful that a mere trickle of barely a 0.5 per cent. rise in real terms is returning to Scotland?

Let me respond to the various points the hon. Gentleman makes. First, most people might think that an increase of the budget in Scotland to £30 billion was not only the right thing to do, but that it also provided the Scottish Executive—even one currently led by somebody whose ambitions far exceed his ability to deliver them—with sufficient resources to spend on health, education, transport and many of the other things that Scotland needs. Scotland got its full share of Barnett expenditure; absolutely nothing has changed in relation to that. That means, for example, that Scotland—as well as Wales and Northern Ireland—also got its Barnett share of the expenditure on Crossrail. Although Crossrail is largely a railway line and tunnel in the middle of London, Scotland got the Barnett consequentials of it.

I would have thought that the nationalists—whose own policy would mean that the sums would not be available, because of all the disruption that would be caused to Scotland by tearing it away from the rest of the United Kingdom—would be able to see that, on any view, the settlement is very good, especially when they consider the amount of public spending per head of population in Scotland compared with that in the rest of the United Kingdom.

I shall say one other thing. As an Edinburgh MP, I follow closely what is happening in the Scottish Executive. It is increasingly clear to me that the reason why the nationalists are blustering and complaining so much is that they cannot afford, and are not able to deliver on, the promises that they made earlier this year.

Can my right hon. Friend comment on the plight of some of my constituents who are former council house tenants? They are having the greatest difficulty in getting the trust to do any repairs or improvements to their properties. Is there anything in the report that might help those constituents?

There is certainly more funding available, and I have made a change to the treatment of repairs for VAT purposes. However, if my hon. Friend sees me or drops me a note, I shall be interested to learn from her what the particular problem is. It may be a problem with money in the past, or some other problem. We have certainly made money available overall; perhaps the change in relation to VAT that I have made today will help.

Can the Chancellor tell us the current total borrowing figure for the public sector, adding in all the off balance sheet obligations under PFI/PPP, the guaranteed loans in parts of the public sector and the unfunded pension liabilities? I know that he is a strong admirer of transparency, and expects such accounting from the private sector.

As I said earlier, borrowing this year is lower than we expected. On public expenditure generally, and borrowing and PFI, the borrowing figures are set out in the Red Book, as I said. However, I wonder about this: one of the things that I thought good about the report that the right hon. Gentleman commissioned for his leader was his commitment to the necessary public investment in transport, for example.

We can deliver on our commitments, not only for transport but for health and education, only because we have been prepared to finance that partly directly by Government and partly through PFI. I have never understood the enthusiasm of Conservative Members who speak about PFI as if they wanted to see it end. I think that both that investment and the way in which we have financed it are absolutely justified; otherwise, we would never get the investment that the right hon. Gentleman himself called for in his report.

Does my right hon. Friend agree that the resilience of the British economy in the face of international problems, such as when the dotcom bubble burst a few years back, the soaring prices of oil and raw materials and, more latterly, the collapse of the sub-prime market in the USA, is due in no small part to sound public finances and the robust economic model that the Treasury has pursued in this country? Will my right hon. Friend undertake to ensure that that is maintained as a priority? Secondly, in light of the additional investment being put into our public services in spite of the international difficulties, will he ensure that we also look at productivity gains to add value to the extra money that we are still able to put in?

I agree with my hon. Friend that it is important to increase productivity in both the private and the public sector, and that the expenditure that I have been able to announce today is possible only because we can pay for it. We can do that because we have been careful to balance what we promise to spend with the money that we think that we can gather in—something that cannot be said of the Opposition.

The Chancellor tells the House that the economy is sound, but will he remind us of the last time the savings ratio was so low? In how many other European countries is household indebtedness at British levels, and in which other countries has there been a run on a bank recently?

I am sure that the hon. Gentleman knows that, both here and in other countries, the savings ratio falls when the economy is growing and inflation is low—but that is not to say that we do not need to do more to encourage people to save more. As for personal debt, it is true that some people have borrowed quite a lot of money to finance things, but the overall level of household assets exceeds the level of indebtedness by a considerable margin. Finally, on the subject of the strength and resilience of our economy, I think that the hon. Member for Canterbury (Mr. Brazier) will find that our economy is much stronger and more resilient now than it was when he was sitting on the Government side of the House.