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Commons Chamber

Volume 473: debated on Wednesday 12 March 2008

House of Commons

Wednesday 12 March 2008

The House met at half-past Eleven o’clock


[Mr. Speaker in the Chair]

Oral Answers to Questions

International Development

The Secretary of State was asked—


The recent air strikes and incursions have exacerbated an already grave humanitarian situation: 80 per cent. of the population is at least partly dependent on food aid and 90 per cent. of mains water is polluted. I have allocated an additional £2 million to the International Committee of the Red Cross, which provides water, sanitation, food, medicines and shelter. That is in addition to our wider contribution—linked to political progress—of £243 million over three years.

The Secretary of State is doubtless aware that the UN Office for the Co-ordination of Humanitarian Affairs report on the situation in Gaza during the week from 27 February to 3 March recorded that, in that week alone, 107 Palestinians were killed and 250 injured by the Israel Defence Forces and that two IDF soldiers and one Israeli citizen were killed and 25 injured. It also outlines a growing humanitarian crisis in Gaza, with some 30 per cent. of the population currently without access to a regular water supply. Does the Secretary of State agree that there is a prima facie case of Israel being in breach of its obligations under article 33 of the Geneva convention regarding collective punishment? If he does agree, what action will the Government—

Of course we unreservedly condemn the rocket attacks that continue to affect Sderot and the Negev in the southern part of Israel, but we are equally clear that we do not support the decision taken by the Israeli Government to close the crossings, restricting the flow of humanitarian supplies such as the ones the hon. Gentleman describes. It is also the long-standing position of the British Government that any response by Israel should be in accordance with international law, including the fourth Geneva convention. We also, of course, deplore civilian casualties on both sides of the conflict.

I thank the Secretary of State for condemning the rocket attacks, but is it not a fact that the bulk of the responsibility lies on Hamas, which has allowed terrorist organisations to rain rockets down on Israel in an attempt to kill children there and, indeed, has undertaken terrorist activity against its own citizens in the military takeover of Gaza? Will the Secretary of State ensure that, however much aid is vitally needed by the citizens of Gaza, none of it gets to those terrorist organisations?

We are obviously keen for Hamas to accept the Quartet principles, which were set out some time ago. Equally, however, we are clear that the humanitarian situation is serious. While we unequivocally condemn both the rocket and sniper attacks, of which my right hon. Friend spoke, we are also clear that there needs to be the means by which humanitarian supplies can reach the 1.5 million people in Gaza.

The crossings are at present closed, other than for very limited entrance for certain supplies. As the OCHA report, to which the hon. Member for Orkney and Shetland (Mr. Carmichael) has already referred, reflects, there is a growing and grave humanitarian situation in Gaza. It is therefore important that all sides recognise their responsibilities and facilitate the entrance to the Gaza strip of exactly the humanitarian supplies that would address that grave situation.

Does my right hon. Friend agree that one of the real problems facing the people of Gaza is shortage of fuel and electricity, as a result partly of an Israeli air strike on their power plants and partly of the blockade? What are we doing to ensure that electricity supplies get through to Gaza, particularly when, as I understand it, we and the European Union are paying for them to get through?

My hon. Friend is right to recognise that, in addition to the fatalities identified in the OCHA report, the air strikes resulted in an additional 30,000 people being cut off from water supplies—200,000 were already cut off before the incursion—and the electricity infrastructure was damaged. There are at present on average about eight hours of power cuts being suffered each day in the Gaza strip, which is why we are in regular contact with all sides and why we are encouraging through the Quartet the continued progress of the Annapolis peace process. Although there is an immediate humanitarian challenge, the long-term resolution to this conflict ultimately has to lie in the political process.

Obviously, the security of the Palestinian people as well as that of the people of Israel should be at the forefront of all our minds. What discussions has the Secretary of State had with the former Prime Minister of the UK, Mr. Tony Blair, who has taken on a role in the middle east?

I last met special representatives to the Quartet last January and I previously met them at the Paris pledging conference, which is the next major step after the Annapolis conference. There, Tony Blair made clear to me his pleasure in the scale of pledging that was put behind the peace process by the international community. However, there is only so much that the international community can do to support the Annapolis process, which is why we welcome the latest indications that there will be further political discussions within the region in the days to come.

Following on from what my right hon. Friend the Member for Warley (Mr. Spellar) said, may I tell the Secretary of State that although everyone recognises the sufferings of the ordinary citizens of Gaza, some responsibility must also be placed very firmly on Hamas for its rocket attacks on Israel? Will the Secretary of State therefore ensure that aid given to the citizens of Gaza actually reaches those ordinary citizens rather than the militaristic Hamas? What discussions has he had with the ICRC to ensure that that happens?

I assure my hon. Friend that, once again, we have unequivocally condemned the rocket and sniper attacks on Israel. That has been the British Government’s position for a long time. As for the related issue of whether we can be comfortable about the work being done, in this instance, by the ICRC and the United Nations, there are long-standing procedures to ensure that we provide the supplies that are immediately required to meet the humanitarian need, while not providing the political support that my hon. Friend has described, which I do not think any Labour Member would be keen for us to provide.

The Secretary of State and others are right to acknowledge that the people of Gaza are victims of both Hamas and the Israeli assaults, but will the Secretary of State also acknowledge that the Bethlehem development and investment conference will have limited scope to change things if Israel has no access to Gaza? The same applies to the west bank, where movement and access continue to be restricted although no rocket attacks are being launched in the area.

I find myself in complete agreement with the right hon. Gentleman. I travelled to the Palestinian territories in December and had an opportunity to observe the presentation from OCHA, which made clear the significance of the consequences of the blockages of movement and access that apply not just in Gaza but throughout the west bank. In our discussions both with the Palestinian authorities and with the Government of Israel, we have stressed repeatedly that if there is to be the economic progress that we should like as a result of the Bethlehem development and investment conference, there must be changes on movement and access.

According to the Secretary of State, the British Government have consistently said that Israel’s actions and response to violence from Hamas and others must comply with international law and meet United Nations humanitarian standards. Have the British Government assessed whether the Israeli Government’s recent actions meet those standards?

There are appropriate bodies to adjudicate on international law. I assure the hon. Gentleman that in conversations with Defence Minister Barak of the Government of Israel we made it clear that we are keen to see Israel adhere to international law, whether in relation to the barrier or settlements or in terms of its response more generally. The issue is the subject of continuing discussion between the British Government and the Government of Israel.

Is the Secretary of State aware that a group of leading charities recently described the situation in Gaza as the worst for 40 years? In particular, it cited shortages of essential medical supplies, electricity, fuel and especially water, which are causing increasing misery. What more can the British Government do, working with the Quartet and the temporary international mechanism, to alleviate the growing humanitarian crisis?

I refer the hon. Gentleman to the answer I gave a few moments ago, in which I announced that an additional £2 million would be given to the ICRC to address exactly those concerns. He is right to say that the crisis action report identified the grave humanitarian situation currently affecting the citizens of Gaza. That is why we not only continue to support the United Nations Relief and Works Agency and the ICRC, but have today pledged a further £2 million for the ICRC in recognition of the need to respond to that humanitarian situation.

What specific representations has my right hon. Friend made concerning Hamas’s callous decision to launch its rocket attacks on Israelis from civilian areas in Gaza such as the United Nations school in Beit Hanoun?

I assure my hon. Friend that we utterly deplore the rocket attacks, not simply because of their location but because of their consequences—the bombing and casualties in Sderot and the Negev in Israel. We take every opportunity in international forums to make it clear that we unreservedly condemn those attacks, and indeed the sniper attacks as well. However, we make it equally clear that we want Hamas to adhere to the Quartet principles that we set out some time ago.

I join other Members in condemning the violence on both sides of the conflict. I also join the Secretary of State in acknowledging the humanitarian crisis in Gaza.

In response to a couple of questions, the Secretary of State has said that international bodies are there to judge whether Israel is in breach of its international obligations. Does he agree with my hon. Friend the Member for Orkney and Shetland (Mr. Carmichael) that Israel is in breach of the Geneva conventions, and, as I asked him when we last discussed these matters, does he think that the Israeli reaction is proportionate?

I hope that I can offer the hon. Gentleman the comfort for which he is looking in the statements that I and the Foreign Secretary issued on 11 and 21 January and 8 February, where not only did we unequivocally condemn, as he has, the rocket and sniper attacks, but we consistently made it clear that any response by Israel should be in accordance with international law. We deplore civilian casualties on both sides and it is a matter that we repeatedly bring to the attention of the Israeli Government.


3. What steps his Department is taking to promote free and fair elections in developing countries. (193264)

Free and fair elections are central to better governance and accountability in developing countries, with primary responsibility resting with the relevant Government. Support is given by the UK at elections, including election observation and voter registration, as well as in between elections to Parliaments, civil society and other institutions.

This is all very valuable work, but does the Under-Secretary think that her efforts have been helped or hindered by her boss’s involvement in elections at home, which were criticised in a report from the Electoral Commission as overlooking voter interests—[Interruption.]

Further to that, the Under-Secretary wishes to be fair. Given that the Council of Europe, for example, has taken up concerns about our own electoral arrangements in relation to postal voting, will she assure the House that when she advises foreign countries and electoral authorities, she will have regard to the need to be scrupulous in terms of best practice rather than some of the practices that may have characterised recent elections here?

I am sure that if the hon. Gentleman has concerns about matters in the UK, he will raise them with the appropriate Secretary of State. It is important that we support not just free and fair elections at election time, but underlying systems and processes. We work hard with Parliaments, media and civil society, and the hon. Gentleman will want to know that we have established a governance and transparency fund to support accountability and governance in developing countries. We will soon be announcing the recipients of that fund.

Will my hon. Friend ensure that we get free and fair elections in Tibet? What pressure can be placed on China to ensure that Tibet gets those free and fair elections as soon as possible?

I can assure my hon. Friend that we are working with, and will continue to work closely with, the Foreign and Commonwealth Office on that. I will bring his concerns to the attention of the Foreign Secretary.

May I caution the Minister against putting too much reliance on Governments to patrol and police their own elections and encourage her to put more effort into strengthening the capacity of Parliaments to hold the Executive to account? The catastrophe in Kenya happened when President Kibaki stuffed the electoral commission of Kenya. Surely it is for the cross-party forum, the Parliament of Kenya, and not the Government of national unity to reform the law so that the electoral commission of Kenya represents all parties in civil society and has credibility when the next elections come?

My hon. Friend has a creditable record in this area through the Westminster Foundation for Democracy and I commend his leadership of that organisation and the work that it does. We support the building up of the capacity of Parliaments and political parties in many of the countries in which we work. That includes transparency and support in terms of the selection of candidates and how campaign issues are articulated. I can assure my hon. Friend that we believe that continued work will be very important in building Kenya.

Further to the question of the hon. Member for City of York (Hugh Bayley), the hon. Lady will be aware that the Department for International Development has spent more than £50 million in Kenya this year, including £600,000 on election monitoring. What lessons have she and her Department learned from the recent events there?

Perhaps I could put on record once again the fact that nobody could have predicted the scale of post-election violence in Kenya, and our approach is very much that it is not business as usual. We did much work before the Kenyan elections, and we now need to move from the not-business-as-usual approach to a transitional period. We are currently providing £50 million in aid, and we are keeping our programme continually under review. I can also assure the hon. Gentleman that we are not providing that assistance through a general Government budget, but instead we are ensuring that it goes direct to the Kenyan people who are most in need.

Is not one of the most significant lessons the importance of building civil society and holding politicians to account over the long term? Why then, according to the last Kenya country assistance plan, was spending by DFID on governance and accountability cut?

Of course, our key role is to ensure that the poorest and most vulnerable people get the aid they need most, so we are ensuring that health and education are receiving such aid. The setting up of the governance and transparency fund, worth some £130 million, will ensure that we increase support for activities that focus on accountability, which I know is of great concern to the hon. Gentleman. We have had many applicants, including Oxfam and other such organisations, and I look forward to making an announcement on that soon.

Is my hon. Friend aware that many people understand that the situation in Kenya was extremely difficult and very worrying and wish to congratulate the Secretary of State and his colleagues on the British contribution to finding a solution? Is she also aware that many people would plead with the Department to continue to support Kofi Annan in the excellent work he is doing?

I warmly welcome my right hon. Friend’s words of congratulation. We have been supporting the Kofi Annan mediation process and will continue to do so. The Government very much welcome the announcement of a peace deal. This is an optimistic and challenging time for Kenya, and it is important that we continue to work within that country to rebuild it so that Kenyans can look forward to peace, stability and further growth.

What action are the Government taking to guarantee free and fair elections in Zimbabwe? It is important that those elections are fair and free in order to bring about a change of Government in that country.

The hon. Gentleman is of course right to say that there need to be free and fair elections, and the reality is that the conditions are not in place. I met with the UK ambassador to Zimbabwe last week, and I discussed that matter with him. The UK will continue to provide support for the poorest through non-governmental organisations and the United Nations. We do not accept the list of observers, so we are working closely with civil society organisations to strengthen the process. I assure the hon. Gentleman and the House that we will continue to monitor and work on the situation with the international community.

Orphans (Malawi)

There are 1.5 million orphans and vulnerable children in Malawi, 550,000 because of HIV and AIDS. DFID gives £2 million a year to the National AIDS Commission, which, among things, provides education and care to orphans and vulnerable children through community-based organisations. In 2006-07, just under 1 million orphans and vulnerable children received support. The commission is also supporting a pilot cash transfer, which has helped 35,000 people in four districts, including 17,000 orphans and vulnerable children.

Will my hon. Friend join me in paying tribute to a small charity based in South Ribble, the Friends of Mulanje Orphans—FOMO—which supports 4,000 orphans in Malawi? Will he also ensure that his Department gives as much support as possible to the excellent work that organisations such as FOMO undertake?

I am more than happy to recognise the excellent work carried out by organisations such as FOMO, which, as my hon. Friend says, helps 4,000 orphans with school fees, meals and health care through a network of 10 centres covering 70 villages. That is exactly the sort of vital community-based work that Malawi’s National AIDS Commission funds. It supports some 1,800 organisations, providing care for orphans and vulnerable children across Malawi.

As the Minister said, many of these children are orphaned as a result of HIV/AIDS. Is he therefore confident that enough of the Department’s investment in Malawi and elsewhere in sub-Saharan Africa is spent on preventive measures through education, rather than just on treatment? Is it not the case that we will never get to grips with HIV/AIDS unless we can empower people to make informed lifestyle choices to deal with that dreadful disease?

The hon. Gentleman is correct. Education is vital in the fight against AIDS, but so, too, is health care. It deals with the symptoms; he is talking about the cause. I am pleased to let him know that we are investing £100 million in Malawi over six years to deal with many of these issues and that antiretroviral treatments are now available to 130,000 people compared with a figure of just 3,000 in 2003.

As my hon. Friend will be aware, the Scottish Executive have been running a programme in Malawi for some years. Given the Paris declaration on harmonisation and alignment, does he agree that it is important that the programme should work in tandem with DFID to ensure the best and most effective aid programme for Malawi?

My hon. Friend is right. Part of the Paris declaration and its principles is that there should be alignment between different funding targeted at various areas—that would apply in Malawi too.

Malawi is one of the poorest countries in the world—it is certainly one of the poorest countries in Africa. Does the Minister agree that the best help we can give its orphans is to reduce the number of children being orphaned in the first place? Ensuring access to antiretroviral drugs is vital; they must be properly delivered. What can he do to ensure that the numbers of doctors and nurses fleeing Malawi to come to countries such as the United Kingdom and the United States of America are greatly reduced?

The hon. Gentleman is, of course, right. A serious challenge for the developing world, and for Malawi in particular, is the fact that health workers leave those areas. I am pleased to say that between 2003 and 2007 their migration decreased by 71 per cent. The investment of £100 million to which I referred in part deals with some of those challenges. The situation has been helped by the code of conduct that this country has put together on employing overseas health workers. As a result of that £100 million investment, salaries have increased by 52 per cent. and a series of development incentives is in place for workers in Malawi. We are supporting the doubling of the number of nurses and the trebling of the number of doctors, and I am sure that he will very much welcome that.


5. What progress is being made in halting and reversing the spread of HIV and AIDS globally by 2015 in accordance with millennium development target 7. (193266)

Last year, the number of people living with HIV and AIDS levelled off for the first time. The number receiving antiretroviral treatment rose from 400,000 in 2003 to more than 2 million in 2006.

Although we all want to help people who have HIV and AIDS, does the Minister accept that we also need to ensure that proper programmes are in place to prevent the further spread of AIDS? Will she tell us what the Department is doing to help to spread the promotion of those educational programmes, in particular the further use of condoms in these areas, so that HIV/AIDS is stopped before it can begin?

My hon. Friend makes an important point, given that nearly 7,000 people are newly infected with HIV every day. Indeed, prevention is crucial to stopping and reversing the spread of HIV/AIDS. We need to improve people’s knowledge, change attitudes, give women more control over their own lives, promote the availability and use of condoms and boost education. On all those matters, DFID is working directly with countries and co-ordinating with other donors.

What steps are the Government taking to promote peer education on HIV and AIDS in developing countries by non-governmental organisations such as Christian Aid? Will she commend the work done by the pioneering group of young people from Wales that recently visited Sierra Leone?

I do indeed endorse peer education programmes, which are very much part of the work that we do, and I commend the young people to whom the hon. Gentleman refers. I have recently met groups of young people who are extremely committed to peer education. People listen to those with whom they identify.


This morning I had meetings with ministerial colleagues and others. In addition to my duties in the House, I shall have further such meetings later today.

The strength of the economy, with the minimum wage and tax credits for children, coupled with my right hon. Friend’s commitment to reducing child poverty, means that in my constituency and elsewhere, thousands of young people are now free from that scourge. Given the ambitious target of my right hon. Friend and the Labour Government to eradicate child poverty by 2020, what further measures—[Interruption.]

As a result of the work of the Chancellor and the Government, there are 3 million more people in work, and half a million children have been taken out of poverty. There are 2 million people benefiting from the minimum wage and 12 million children benefiting from child benefit and child tax credits, taking more people out of poverty. As a result, the number of people in absolute poverty has halved and 600,000 children are now out of poverty. We will do more in the next few years, but this would not be possible if, based on figures that do not add up, we cut £10 billion from public expenditure to pay for tax cuts. We will pursue a path of stability and tackling child poverty.

I am not sure that the planted questions get any better.

I would like to ask the Prime Minister about something that he rightly gave a very high priority: the humanitarian crisis in Darfur. Since the start of this year, another 80,000 people have been driven from their homes, aid workers have been killed, and access to humanitarian relief has dramatically reduced across Darfur. Even areas such as el-Fasher, which I visited 16 months ago, are sometimes inaccessible because of the Janjaweed militia. Seven months ago, the Prime Minister promised quick and decisive action, but will he confirm that on any objective measure, the situation on the ground has actually got worse?

There are 4 million people in famine or dependent on food aid. There are 2 million people who have been displaced, and 400,000 people have died. This is a humanitarian tragedy of colossal proportions, and the world must act. I believe that we must strengthen our sanctions against the Sudanese Government. We should have military sanctions for the whole of Sudan.

I believe also that the United Nations force—I have talked to the Secretary-General—must be in place as quickly as possible, that there should be no further delays and that the African Union must make its contribution. But I believe most of all that we must get people to the peace table. That is why it is important not only that the Government of Sudan come to the peace talks, but that the rebel groups join the peace talks, which they have not done before. We will continue to step up our efforts. The Foreign Office Minister, Lord Malloch-Brown, has been there recently. We have asked the Chinese to intervene in the situation, and of course I would like the Secretary-General of the United Nations to visit the region very soon.

The Prime Minister quite rightly mentions the joint African Union-UN force that everyone signed up to. Can he confirm that although seven months ago—last July—we were told that 20,000 peacekeepers and nearly 4,000 police would be deployed, today there are only 10,000 of them there, even on the most optimistic estimates? Recent reports say that they have no military helicopters whatsoever. Does he agree with me that this is completely unsatisfactory? The Prime Minister himself said that he would consider visiting Darfur. What steps is he now proposing to make sure that the international community rises to this important challenge?

The President of France, Mr. Sarkozy, and I have discussed the provision of helicopters and what more we can do. It is not only Sudan that is involved, but Chad as well. We have also discussed the creation of a no-fly zone, but the area in question is the size of France, which makes it very difficult to police. I believe that the way forward is to move to peace talks as quickly as possible, and I hope that right hon. and hon. Members in all parts of the House will join me in pressing the rebel groups, as well as the Government of Sudan, to join those talks.

Let me pick up on one point the Prime Minister just made, about a no-fly zone. That is important. Last year, Tony Blair said clearly that

“a no-fly zone to prevent the use of Sudanese air power against refugees and displaced people”

is vital, and I agree with him. Anyone who has been to Darfur and talked to people in the refugee camps will have heard them say, “It wasn’t just the Janjaweed militia; it was the Sudanese army that drove me out of my village—they were coming out of Sudanese aircraft.” The no-fly zone is vital, but a month ago, the Prime Minister said in a written answer that there had not been an assessment of the logistical challenges of implementing a no-fly zone. Will he confirm today that he remains in favour of a no-fly zone and will press for it very hard?

I simply emphasise that the most important thing is to get people to peace talks. That is the only way to bring the situation to a conclusion. As for a no-fly zone, I have considered it and I would like to move ahead, if it were at all possible; however, we have to accept that the area to be policed is the geographical size of France and large numbers of aeroplanes would be needed. More important at the moment is to get a ceasefire and, as a result, stop the aerial bombing of civilians. I believe that we can make progress in that respect and then get people to the peace talks. That is how to solve the problem.

The Prime Minister will be aware that the First Minister of Northern Ireland and the Democratic Unionist party have vetoed the devolution of justice and policing to Northern Ireland. When the Prime Minister comes to Northern Ireland in May for the US investment conference, will he give a clear, positive message that completing devolution and maximising investment are the twin pillars of progress and stability in Northern Ireland?

The hon. Gentleman is absolutely right. The devolution of justice and policing will complete the implementation of the St. Andrews agreement. However, a great deal of progress has been made in Northern Ireland, and I pay tribute to the First Minister. It is great news that the Queen is able to visit Northern Ireland in the next few days; and the conference on investment in Northern Ireland will be held in the next few weeks, with, I hope, substantial American participation. I also hope that all parties will follow the report produced for the Northern Ireland Assembly on the issues that are yet to be resolved in justice and policing, and move forward to reach agreement on those matters quickly.

Does the Prime Minister agree with me that unless we get big money out of British politics, there is a real risk that our political system will end up like America’s, where influence and power are controlled by cash? Does he not understand the British people’s disgust as they see the two larger parties refusing to deliver real reform?

I agree that there should be a limit on election expenditure; it should be properly enforced and it should be lower than the previous limits. There should also be a limit on donations. I agree with the right hon. Gentleman on that, although I see that he has changed his policy: once, he said it should be £10,000, but I gather from his speech at the weekend that he now thinks it should be £25,000. As for the other aspects of the matter, I believe that there should be transparency in politics and that all the information should be published.

We have heard all this before. The Prime Minister is doing nothing. Why is he using the Tory attachment to big money from Belize as an excuse to sit on his hands? Is not the truth that both he and the Conservatives are so busy protecting their own vested interests that they will not do what is right for Britain?

I do not think that the right hon. Gentleman followed me. I answered his question and said what we should do. There should be limits on national election expenditure and on individual donations, and there should be greater transparency. I hope that we can agree on this, and that all parties will do so.

The Prime Minister will be aware of the disgraceful plight of pleural plaque sufferers in this country, who are being denied their rightful claim to compensation by the courts. Does he agree that it does not matter how the issue is dressed up: pleural plaques are a working-class industrial injury caused by negligent exposure to asbestos? Will he meet the group of MPs who have been campaigning on the issue, so that we can bring an end to this dreadful, Victorian scandal?

I am grateful to my hon. Friend for raising the House of Lords judgment, which now has to be answered. Asbestosis and mesothelioma are terrible diseases, and all of us who have seen the effects that they cause know that we have to do more to help the victims of those diseases. On pleural plaques, we are looking at the matter at this very moment. We will publish a consultation document soon. We are determined to take some action, and I am very happy to meet his delegation.

Q2. When the Prime Minister was Chancellor of the Exchequer, it was widely spun that he gave Tony Blair only two days’ notice of his Budget proposals. Can we assume that the current Chancellor has been more co-operative? (193249)

The information that the right hon. Gentleman has is completely wrong, and it is because of co-operation in government that we are the Government who have created more stability than any Government in the history of this country.

As my right hon. Friend will know, this is prostate cancer awareness week, and 10,000 men die of prostate cancer every year, making it the commonest cause of cancer deaths in men. However, there are significant inequalities across the country in cancer death rates for prostate disease. Will my right hon. Friend commit to reducing health inequalities and improving research, treatment and awareness of that terrible condition, so that we can bring the death toll down?

I agree entirely with what my hon. Friend says. More has to be done. There has been a 16 per cent. fall in cancer deaths, and there is more availability of help, check-ups and screening. At the same time, people who are suspected of having the disease are treated far more quickly than ever before, but we have to do more about the issue. It is only possible to do more if we continue to spend and invest in our national health service.

I believe that there is a strong case for more free votes in Parliament, and there is an unanswerable case for free votes on matters of conscience. One such example is the Human Fertilisation and Embryology Bill. Can the Prime Minister explain why votes on matters-of-conscience issues were whipped in the House of Lords, and can he tell us why his official spokesman has said that the Bill will not be subject to a free vote in the House of Commons?

On the issues that arise in the Bill, one is a potential amendment on abortion, and that will be subject to a free vote in the House, as is absolutely normal. On the Human Fertilisation and Embryology Bill, the right hon. Gentleman must know that it initially came before a Joint Committee of both Houses. Recommendations were made, and they were then part of the Bill. The Bill was then put through the House of Lords. It will come to the House of Commons, and we will make a decision about the way in which votes on it will take place in due course.

Let me tell the Prime Minister what was whipped in the House of Lords: votes on the production of hybrid human-animal embryos, the requirement for IVF clinics to have regard to a child’s need for a father, and the circumstances under which saviour siblings can be created. Those were all whipped votes, and they should not have been. He says that he will make a decision. Why not break the habit of the lifetime, make the decision now and tell us what it is?

I am explaining how the Bill arose. It arose from a Select Committee, which made recommendations that formed the basis of the Bill. The Bill then went through the House of Lords. We will make our decisions on the issue in the normal way, but let me be absolutely clear that we respect the conscience of every Member of the House in this matter.

This just is not good enough. The Prime Minister’s official spokesman said that the Bill would be treated in a normal way: there would not be free votes. If that is to change, why cannot the Prime Minister tell us? Why does he not listen to Lord Alton, who said in the House of Lords:

“Sometimes I despair that even after such an extraordinary debate as we have had here, there are Whipped votes. I am sorry that the precedent of 1990, when the original legislation was introduced and free votes were allowed throughout on these matters, has not been followed today”?—[Official Report, House of Lords, 15 January 2008; Vol. 697, c. 1232.]

Tell us now: can we have free votes on all the conscience issues in the Bill—yes or no?

If the right hon. Gentleman wishes to call a free vote for his party, that is a matter for him, but let me say this: he is not understanding the way in which the Bill arose. It arose from recommendations made by a Joint Select Committee of the House. As I have said before, we will respect the conscience of every Member of this House.

Thanks to the magnificent work of Kirklees primary care trust, health services have been transformed in my area. The shadow Health Minister predicted that accident and emergency would be closed by now. Instead, millions of pounds are being spent in community health and mental health services. Will my right hon. Friend give me an assurance that success will continue to be rewarded and that sound financial management will be continued by the Government?

It is possible to spend more on the national health service in every area of the country because of our commitment to a 4 per cent. real-terms rise in health service expenditure over the next few years. That would not be possible if we accepted proposals for £10 billion of tax cuts, which would have to be paid for by £10 billion of cuts in public expenditure. That would inevitably mean cuts in the national health service. That we will not do. It is for others in the House to decide what they do on health.

Q3. For months the Government have been warned that continued unfair treatment of staff in the Maritime and Coastguard Agency would lead to strike action, and last week, for the first time ever, it happened. Fortunately, there was no loss of life, but next time we might not be so lucky. Will the Prime Minister intervene to impress upon senior management in the coastguard agency the need to engage with their own staff and end this dangerous and damaging dispute? (193250)

I am very saddened by the strike. I understand that the management remain keen to talk to the unions on the issue to ensure that the situation is resolved as soon as possible. Safety at sea is a priority, and I can assure the hon. Gentleman that nothing will be done to allow industrial action to affect the safety of people at sea.

Q4. Many of my constituents rely on London’s buses in order to get about and they would be greatly alarmed if they thought that the service was under threat. With pensioners across the country about to enjoy free off-peak travel, does my right hon. Friend agree that this a timely moment to remember how important it is that London has a well run and properly funded bus service? (193251)

Bus usage in London is at its highest level since 1965. In other words, there are more people using buses in London than at any time for 40 years. I understand that that would be put at risk by proposals that would cost £100 million if applied by the Conservative party. That would mean that bus fares rose. It would discourage ordinary people from using the bus service. We are determined to maintain bus services in London.

If the Prime Minister were to set about the rather daunting task of trying to persuade trade unionists back into the Labour fold, would he refer to the 40,000 job cuts under Gershon, the below-inflation pay rises in the public sector, or perhaps his Government’s support for the evil regime in Colombia? Which would be his sales pitch?

I would refer to the minimum wage that we implemented in the teeth of opposition from other parties. I would refer to the right to be a member of a trade union, which we restored after what happened at GCHQ Cheltenham, and I would refer to the 3 million jobs created by the Government.

Q5. Given the 40 per cent. increase in funding to Brent council under the Government, can the Prime Minister explain why a disabled person in my constituency is faced with a 214 per cent. rise in their cost of care, or a grieving family a 143 per cent. rise in the cost of burying a loved one? Does that not show that where there are Liberal and Tory coalitions, they always target the vulnerable and the disadvantaged? (193252)

Brent council has received extra money from central Government to enable it to undertake the public services that it should be performing. Therefore it is unfortunate that a Tory-Liberal coalition is cutting vital public services in the area. We have provided the money. They have cut the services.

Q6. I thank the Prime Minister for his words of support for military personnel wearing their uniform in public. In addition, I hope for his support for an armed forces day. Will he see whether the Public Order Act 1986 can be amended to make it a specific offence for somebody to insult a member of Her Majesty’s armed forces who is wearing uniform in public? (193253)

We are proud of our armed forces. Not only do they have the right to wear their uniforms in public when they are in the United Kingdom, but we welcome the fact that they do. I know that the hon. Gentleman is proud of what happens in his own constituency as well.

I believe that the police do have powers to deal with those people who abuse or intimidate our armed forces; if they need them, they can use those powers already. The public are on the police’s side if they take action to ensure that our armed forces achieve both the recognition and the acclaim that they rightly deserve.

Q7. Will my right hon. Friend give us a bit more information on what he is doing about humanitarian aid for Darfur? At the same time, we appreciate that the Government are trying to initiate peace talks. (193254)

The UK is the second largest donor to Sudan; we have a programme of £114 million. At the same time, we have spent to date £290 million on humanitarian aid in Darfur throughout the last few years. We stand ready to provide additional assistance if the peace talks are happening and working and if we can get a proper settlement, backed by a United Nations force in the area.

Given that the Prime Minister has once again misrepresented my policy and given that the hon. Member for Islington, South and Finsbury (Emily Thornberry) said herself last week that there was scarcely a child in her constituency who had not been mugged, will the Prime Minister now join me in agreeing to reallocate some of the Mayor’s publicity budget increment for next year to put another 440 uniformed police community support officers on some of the rowdier bus routes, to give Londoners on buses the security that they want?

There are more police in London than ever before as a result of the decision—[Hon. Members: “Hear, hear!]

There are more police in London, and it is the result of the Labour Mayor. If I may say so, the hon. Member for Henley must answer for what he says. He says:

“We have got to be absolutely clear where the scope for real economies is and the real big ticket for spending is the Metropolitan Police and Transport for London. That’s where the real savings, believe me, are to be found.”

It is a cuts manifesto from the Tories.

Q8. Unemployment in Ipswich has fallen by 1,500 or nearly one half since 1997. That is a success both for the Government’s economic policies and for each and every one of the individuals who have returned to work. In the face of global competition, regional cities such as Ipswich need every bit of home-grown business talent that they can acquire. Will my right hon. Friend tell me what his new national enterprise academy will achieve in constituencies such as mine? (193255)

I am pleased that the Secretary of State for Innovation, Universities and Skills has announced proposals for more universities and higher education institutes in cities and towns of this country. On Monday, we announced the creation of a new national enterprise academy, to be led by Peter Jones; we will choose a site in a part of the country that needs that enterprise academy. There will be more apprenticeships over the next few years in every area of the country. There were 70,000 apprenticeships when we came into power. There are now 250,000 apprentices. That will double over the next 10 years; that is what we mean by equipping Britain for the future.

Sutton does not get decent homes funding and its properties are in greater need of investment than those of almost any other London borough, yet from April this year £10 million of the rent from Sutton’s tenants will be used to improve housing in other boroughs. Would the Prime Minister be willing to meet a delegation of Sutton tenants to explain why this is going to happen?

We have doubled expenditure on housing, particularly social housing, over the last few years. We have made it easier for people to buy their own homes by raising the stamp duty threshold as well, and we have introduced equity sharing to make it possible for more people to buy their homes, even if they do not have that amount of money when they start to become an owner-occupier. Those are all measures that we are taking to improve home ownership. I hope that councils around the country will support us in our aim to build 3 million more houses by 2020.

Q9. Ignoring the lesser ambitions of other countries, the German Government have set themselves a carbon reduction target of 40 per cent. by 2020. Can we join Germany in a new arms race—a carbon reduction arms race—whereby we will win the new jobs, new technologies and new exports, and a clean environment? (193256)

I have to say that we are the country that is meeting our Kyoto obligations. We will continue to do so, and we will also press the international community to move to a higher level of ambition for 2050. At the moment the ambition is to reduce emissions by 60 per cent. We are asking our committee on climate change to look at 80 per cent. That is the sort of ambition that we all need, and I hope that every country in the European Union will support us.

Q10. I am holding up a can of beef from a ration pack issued to the Yorkshire Regiment in Afghanistan, where I recently had the privilege of meeting many of those there. On the base of the tin it reads, “Produce of Argentina”. Does the Prime Minister agree that our troops deserve the best, which in this case means British, or even Scottish, beef? (193257)

We continue to look at how we can improve procurement. I will take what the hon. Gentleman says and look at it with the Chief of the Defence Staff and others. It is very important that we do the best by our forces, and we will do so.

Q11. A strong economy has meant fewer unemployed young people in Slough, but many of them do not have the skills to compete for the work that is available. I am glad about the Prime Minister’s announcement of extra apprenticeships, but can he do more to ensure that employers commit to high-quality work-based training for young people so that they can compete for well-paid work? (193258)

I had the privilege of visiting my hon. Friend’s constituency when we launched the new deal to give young people and adults new opportunities for employment. I still hope that there would be all-party support for the maintenance of the new deal. As far as adult learners are concerned, she is absolutely right. We need to do more to persuade employers, particularly small businesses, to train their work forces. That is why we have introduced train to gain; why we are giving every adult under 25 the right to train up to A-levels even if they have missed the first chance at school; and why all adults, of whatever age, are given the chance to train to basic level 2. We are doing more than ever to train people for what is a new economy where we are going to need the skills for the future.

Q12. Does the Prime Minister agree that it would be entirely wrong to devolve policing and justice powers to the Northern Ireland Assembly while the IRA army council remains in place? (193259)

I understand that the hon. Gentleman has chaired the Northern Ireland Assembly Committee on these matters. The Committee debated these issues, and I gather that it reported yesterday. It agreed to forward its report to the Secretary of State. I know that decisions are being recommended by that Committee and that there are controversial issues. I think that the best thing is that discussions take place on those issues and we see how we can resolve them.

Q13. My right hon. Friend the Prime Minister has seen for himself the devastation that flooding causes in homes, communities and families. The Government set aside millions of pounds to assist the areas suffering from flooding. However, this is a matter not just of natural weather events, but of failing infrastructure in many parts of the country. How can people in my constituency, whether in local authorities or businesses, access those moneys set aside by Government? (193260)

I am grateful to my hon. Friend, who has taken a very big interest in these matters. Expenditure on this issue has risen; in fact, it has doubled in the past 10 years. We will raise expenditure further, because it is absolutely vital that we have the investment against flooding and coastal erosion risk. We will spend £800 million on that by 2011.

The official inquiry into the foot and mouth outbreak at Pirbright has found direct ministerial responsibility. Can the Prime Minister tell the House how Ministers are to be held to account and when a full and proper animal tracing process will be put in place?

I do not accept the hon. Gentleman’s interpretation of that report at all. What the report actually says is that the action taken by the Government was immediate and instant and was the right thing to do. It also says that we were far better prepared than for any previous foot and mouth outbreak. It makes recommendations for the future, and we will look at all those recommendations. We are already investing and changing the management at Pirbright to avoid these things happening in the future. I hope that the hon. Gentleman would give the House a fair reflection of Mr. Anderson’s report.

Q14. My right hon. Friend will be aware of reports this week that up to 4,000 forced marriages take place every year, and that hundreds of ethnic minority children are disappearing from school rolls, who may have been forced into marriage against their will. Will he look into the role of education welfare officers and those tasked with responsibility for children’s absenteeism from school, and perhaps look to— (193261)

My hon. Friend raises the important issue of the 3,000 young women—and perhaps many more—who are victims of forced marriages. The Home Office and the Foreign Office set up a joint unit in 2005, which is handling 5,000 inquiries a year. All the matters that she raised will be looked at carefully; this is not tolerable and we must do everything we can to support victims of forced marriages.

Prime Minister

The Prime Minister was asked—

Orders of the Day

Ways and means

Financial Statement

Before I call the Chancellor of the Exchequer, it may be for the convenience of hon. Members if I remind them that at the end of the Chancellor’s speech copies of the Budget resolutions will be available to them in the Vote Office.

The core purpose of this Budget is stability, now and in the future. Its core values are fairness and opportunity, founded on stability and strength.

In every country in 2008, every Government have one aim: to maintain stability through the world economic slowdown. Britain, with its central role in the world’s financial system, is no exception. But with low inflation, record levels of employment, and unemployment at its lowest level for a generation, and with the action that we took last year to curb inflation, Britain is better placed than other economies to withstand the slowdown in the global economy.

This year’s Budget is a responsible Budget that will secure stability in these times of global economic uncertainty. We will do everything in our power to maintain stability, keeping inflation and interest rates low and maintaining our record of growth. Whilst other countries have suffered recessions, the British economy has now been growing continuously for over a decade—the longest period of sustained growth in our history. Because of the changes we made to entrench stability and increase the flexibility and resilience of our economy, I am able to report that the British economy will continue to grow throughout this year and beyond.

Even in today’s difficult and uncertain times, we are determined that we will not be diverted from our long-term aim: to equip our country for the challenges of the future, to confront climate change and to end child poverty in a generation. This Budget is about equipping Britain for the times ahead and making sure that everyone, no matter what their circumstances, can exploit their full potential. It is about building a fairer society, offering more opportunity—a fair Britain in which everyone can succeed.

Throughout the world, economies have benefited from the globalisation of trade and investment, which has delivered strong world growth. Here in Britain, our openness, our global reach and our history of scientific invention and creative success make us uniquely placed to succeed in the global economy. But with the benefits of globalisation, we see, too, how problems in one part of the world can quickly spread to another. Turbulence in the global financial markets, which started in the American mortgage market, has affected all economies, from the United States to Asia, as well as Europe.

We have seen significant disruption across many credit markets, with a number of them barely functioning at all, and since the turn of the year, global stock markets have been affected. This poses a major risk to the world economy, and so we welcome yesterday’s commitment by the world central banks, including the Bank of England, to address these concerns.

Here, the action that we took last autumn to support Northern Rock and protect depositors and savers means that despite seeing the worst period of financial disruption for a generation, we have maintained confidence and stability in the banking system.

Between the early 1970s and the mid-1990s, the UK was one of the least stable economies in the G7. Today, we are the most stable. In the past, our economy suffered from high unemployment and high inflation, but today unemployment is lower than in Germany, France and Italy.

Welfare reform makes work pay and encourages people off benefits. Our strengthened competition regime has increased the flexibility of product and labour markets, backed by fair employment laws.

So the reforms that we have made since 1997—independence for the Bank of England and tough fiscal rules—mean that Britain is now more resilient and more prepared to deal with future shocks, and it is better equipped to meet the challenges of rapid global change.

We are developing new strengths in the industries of the future—the creative industries account for 7 per cent. of our economy; pharmaceuticals account for a quarter of the UK’s research and development.

Ours is the only major industrial economy to see an increasing share of trade in global services—from 7 per cent. a decade ago to 8¼ per cent. today.

In the knowledge-intensive services, the UK is second only to the United States. High-tech manufacturing has grown by 30 per cent. in the last 10 years.

Driven by improved productivity, the UK’s GDP per head—the average income for every man, woman and child—has gone from the lowest amongst the group of seven leading industrial economies in the early 1990s to being second only to the United States last year.

Right across the world countries have lowered their forecasts for growth in the coming year.

In Japan growth is forecast to be 1.4 per cent., in the euro area and the United States, 1.6 per cent., and in Canada, 1.8 per cent. Even in the fastest growing markets—China, India and Brazil, which have enjoyed record growth in recent years—it is expected to slow. Despite the slowdown in the world economy, in 2007 the British economy grew by 3 per cent.—the fastest growth of any major economy.

This year my forecast is that—as growth in the world economy slows further—growth in the British economy will be between 1¾ per cent. and 2¼ per cent. in 2008, but faster than that in Japan, the US and the euro area.

I expect growth to shift towards companies and exports, with growth rising to 2¼ to 2¾ per cent. in 2009 and 2½ to 3 per cent. by 2010. My forecast shows that the UK economy will continue to grow throughout this period of global uncertainty—a view supported by the Bank of England, the International Monetary Fund and the Organisation for Economic Co-operation and Development.

In the past, inflation has overshadowed many Budgets. From the 1970s until the early 1990s, the British economy suffered through the failure of successive Governments to deliver economic stability.

We have seen recent increases in world food, fuel and energy prices. The reforms that we have made since 1997 mean we can be confident about the inflation outlook. There will be no return to the inflation rates of the early 1990s.

As is happening in many countries because of commodity prices, inflation in the UK will rise in the short term as higher oil and food prices feed through into domestic inflation. But inflation is forecast to return to target in 2009 and remain on target thereafter.

The success of the Monetary Policy Committee and the resilience of the UK economy is clear. Energy prices have tripled since 2002, but over this period inflation has averaged just 2 per cent. and growth has averaged 2¾ per cent.

To provide certainty and to build on this foundation of stability, I am today writing to the Governor of the Bank of England to re-affirm that the inflation target for the Monetary Policy Committee remains 2 per cent. on a CPI basis, which will entrench our commitment to low inflation.

The discipline we have shown on pay in the public sector will support the Bank of England in maintaining low and stable inflation. The reforms we made and this hard won stability mean that—whereas in previous decades, the UK economy suffered more than other economies in the face of global economic downturns—we enter this period of uncertainty better placed than any other major economy. For that reason, I will continue to reject proposals for a £10 billion programme of unfunded tax and spending commitments, which would put that stability at risk.

Our fiscal policy, like our monetary policy, is designed to support stability. It is founded on tough fiscal rules underpinned by the code for fiscal stability and forecast on the basis of cautious assumptions, which are audited by the independent National Audit Office. Our fiscal rules—to keep debt low and stable and to borrow only for investment over the economic cycle—deliver sound public finances in the medium term. They protect public investment and they allow fiscal policy to support monetary policy at the right time to support economic stability and growth.

Over the past 10 years, at all times we have taken the necessary action to meet our fiscal rules. The disciplines we have imposed mean that borrowing is much lower than it was before 1997, and so too is debt. Between 1979 and 1997, borrowing was 3.4 per cent. of national income. Since 1997, it has averaged just 1.2 per cent. Debt, which at the start of the economic cycle in 1997 was 43.3 per cent., has now fallen to 36.6 per cent. of GDP. It is precisely our commitment to this discipline and stability that gives us the flexibility now to respond to the global economic challenges we face today.

Given the fundamental strength of our public finances, it is right to allow fiscal policy to support monetary policy over the period ahead, helping to maintain stability in the face of global downturn. For environmental reasons, we will increase fuel duty by ½p per litre in real terms from 2010. Fuel duty is due to rise again in April, but because I want to support the economy now and help business and families, I will postpone that increase until October.

I can tell the House that our Budget projection for the current budget balance in 2008 will come in as forecast. Our projection for net borrowing, at £36 billion, is £1.4 billion lower than I forecast at the time of the pre-Budget report. Debt this year is also forecast to be lower than the pre-Budget report, at 37.1 per cent. As a result of the decisions in this and recent Budgets that come into effect this year—including a reduction in the main rate of income tax from 22p to 20p—fiscal policy is able to provide real support for the economy this year. This is a responsible approach—within the disciplines of our fiscal rules—that will help entrench the resilience of the UK economy.

Borrowing next year, which peaked at 7.8 per cent. of national income by 1993—that is equivalent to £110 billion today—next year will rise to £43 billion, some 2.9 per cent of national income, less than at its peak and less than the average level of borrowing between 1979 and 1997. And because of the decisions taken in this Budget, it will fall to 2.5 per cent., then 2 per cent., then 1.6 per cent. and then 1.3 per cent. by 2012-13, supporting stability and resilience in the economy. That is £38 billion and then £32 billion, £27 billion and £23 billion by 2012-13.

Even taking into account the turbulence in financial markets and the support we are providing to the economy now, the current balance this year is in line with my forecast at the pre-Budget report, at minus £8.8 billion. Next year it will be minus £10 billion, then minus £4 billion, before returning to a surplus in 2010 of £4 billion, then £11 billion and then £18 billion by 2012, forecast to meet the golden rule over the economic cycle. The Budget shows that we are meeting our first fiscal rule—the golden rule—with the current budget in surplus over the economic cycle.

In the previous two cycles, the then Government failed to meet the golden rule. In the cycle between 1986 and 1997, they failed by a margin of £240 billion, and in the cycle from 1977 to 1986 by £140 billion. In the past, the then Government borrowed to fund the immediate pressures of the day, with no long-term return for the taxpayer. It is vital that today our fiscal discipline means that over the cycle we borrow only to invest. Vital investment—in transport, schools and hospitals—has been protected and increased. So whereas in 1996-97 public sector net investment was £5.4 billion, over the forecast period it is set to rise further from £33 billion next year to £37 billion in 2010—the highest in three decades.

Borrowing for investment within the fiscal rules means that we will meet our second fiscal rule—the sustainable investment rule—in each year and over the cycle. This year, debt will be lower than in the US, lower than in the euro area and lower than in Japan. Debt levels are forecast to be 38.5, 39.4, 39.8, 39.7 and 39.3 per cent of GDP by 2012-13: every year lower than in 1997.

In the 18 years between 1979 and 1997, investment increased by only 20 per cent. in cash terms and reached a low of just 0.3 per cent. as a share of national income. But I can tell the House that, by 2011, investment will have increased by 500 per cent. since 1997 and will have trebled as a share of national income. By 2011, we will have seen the longest sustained expansion of investment in public services since 1945. It is an achievement that we can be rightly proud of, and we remain committed to continued investment in these public services.

Building on the platform of stability provided by the fiscal rules, successive spending reviews have delivered sustained increases in spending addressing the backlog of underinvestment in public services. Public spending grew by 3.6 per cent. a year in real terms between 1997 and 2007. Following the comprehensive spending review last October, public spending in the coming three years will grow by 2.2 per cent., building on past increases and underpinned by stretching value for money reforms.

In 10 years, spending on health has almost doubled, and spending on education is up by 58 per cent. As a result, waiting lists are down, and school standards are up. Transport spending is now 90 per cent. higher, with more people using public transport than ever before.

Aid for the world’s poorest countries has doubled in real terms. The defence budget has seen the longest period of increased spending in a generation. This year, we again expect to spend over £2 billion more supporting our troops on the front line, including £900 million on military equipment.

I want to take this opportunity to pay tribute to our servicemen and women, and their families, in Iraq and Afghanistan. We are deeply proud of the bravery, professionalism and courage they display in serving our country.

This has been an exceptional commitment to improving public services. By 2010-11, we will have seen the longest sustained expansion of investment in public services in recent history. In 1997, the annual cost of servicing our national debt was 9 per cent. of public spending. Today, it is 5 per cent., freeing up an extra £23 billion each year to invest in public services—around half the entire budget for schools. In the early 1990s, as much as three quarters of all new public spending went on debt and social security costs. The figure today is just a third of that, allowing us to target spending where it is needed.

We have turned welfare into work and borrowing into wealth creation, and it is essential that we continue to help everyone who can get into work to do so, so we will bring forward further proposals to reform housing benefit to ensure that work pays. From April 2010, all long-term recipients of incapacity benefit will attend work capability assessments, helping them into work. These reforms will continue to free up resources for investment.

It is right that, like any other organisation, the public sector is as efficient as possible and that it delivers value for money. Over the past year, public sector employment has fallen. At the same time, private sector employment has grown strongly, leading to record levels of employment, which again underlines the resilience of the British economy.

All Departments have now published plans that will deliver another £30 billion in savings each year from 2010. All these savings will be reinvested in services and will examine all major spending areas to identify where further reform can be made to deliver better value for money and to maintain improvement in the public services.

The Prime Minister has made it clear that spending must be matched by reform. Reform remains vital. It is not optional; it is essential. It is common sense. Since 1997, we have responded to people’s expectations for better public services after decades of underinvestment and neglect. We have driven up standards, developed a greater diversity of providers, tackled failing services, and ensured that the maximum benefit was gained from the investment that we put in.

Ten years ago there were 600 schools in which less than a quarter of pupils gained at least five good GCSEs; today, there are fewer than 50. Compared with 1997, 10 per cent. fewer people die from cancer each year thanks to faster and better treatment and more specialist doctors. But the test for public services in the future is not whether they are better than before or simply good enough. It is whether they are as good as they can be. So if the focus of the past decade was on repairing the old, the focus of the next must be on developing genuinely world-class services.

After a decade of hugely increased investment, we will continue our spending at a sustainable rate alongside our wider objectives for the economy and public services. This Budget therefore confirms the spending plans set out in last year’s comprehensive spending review, and makes an assumption for continuing real growth in public spending after 2011 at a rate of 1.9 per cent. a year, which will allow departmental resources to continue to grow broadly at the same rate for the next three years.

I now want to turn to the steps that I believe are necessary to equip this country for the future. There is no greater moral imperative than to make sure that every child has the highest aspiration and ambition and the best possible opportunity to go as far as they have the talent to go—not some children, but every child in this country.

If we are to build a fairer future for our children, we must eradicate child poverty in Britain. Between 1979 and 1997, the number of children living in poverty doubled. Since then, I can report that 600,000 fewer children live in relative poverty, and we have halved the number of children living in absolute poverty. We have set ourselves an ambitious target to eradicate child poverty by 2020 and to halve it by 2010, and today I want to do more to deliver that ambition.

I will help families to escape permanently the cycle of deprivation that has blighted too many lives. Central to that is helping more parents into work. We want to demonstrate our commitment to supporting parents through a contract in which the Government undertake to provide the support that families need to move into work, and the other side of this contract is that we look to families to make a commitment to improve their situations where they can.

From October 2009, we will change the rules for housing and council tax benefit so that parents are better off in work than on benefit. As a result, a family with one child on the lowest income will gain up to £17 a week. This measure alone will lift 150,000 more children out of poverty. And I can do more to help all children of hard-working families.

In 1997, child benefit for the first child was just £11 a week. I can tell the House that, from April 2009, I will increase child benefit for the first child to £20 a week—a year earlier than planned. I will increase by £50 a year above inflation the child element of the child tax credit for families on low and middle income from April next year. That means that a family with two children earning up to £28,000 a year will be over £130 a year better off. To make further progress, we will spend a further £125 million over the next three years targeting help on those who need it most and where the challenges are the hardest, developing new approaches that help families in the long term. Taken together, these measures mean that even at a time when we need to take difficult decisions we are investing a further £765 million next year and then a further £950 million the following year to take 250,000 more children out of poverty.

Today I am publishing analysis on what further steps we intend to take to eradicate child poverty, and I believe that further action is also now needed to help vulnerable groups deal with rising energy prices. We want to see the 5 million customers on prepayment meters given a fairer deal and energy companies increase their support to vulnerable customers. We will work with the companies to take forward further action on a voluntary and on a statutory basis to underpin this as necessary and we will legislate when it is necessary to do so. Energy companies currently spend around £50 million a year on social tariffs. I want to see this rising to at least £150 million a year in the period ahead.

We are committed to helping people who need the help most. We are also committed to encouraging more people to save. There are now over 17 million people with individual savings accounts and, from this April, we are increasing the annual individual savings account investment limit to £7,200, while the amount that can be held in cash will rise to £3,600. Parents have now opened over 2.4 million child trust fund accounts, saving more for their children’s future.

But we can go further. So I can also announce that the Government will launch the savings gateway nationally with the first accounts available from 2010. By contributing to these accounts, we will offer incentives to save to up to 8 million more people on low incomes. Ending child poverty, encouraging saving, raising ambition and providing greater opportunity—that is the objective of this Budget.

For business, my Budget provides continuing stability and certainty and introduces new opportunities for entrepreneurs and also maintains the three critical factors contributing to the strength of the UK’s business environment, ensuring that we remain one of the best places in the world to do business. We will continue to promote open and competitive markets, by removing barriers to trade across the world through bilateral and multilateral trade negotiations, including the conclusion of the Doha development agenda.

Our goal is, and will continue to be, to maintain the most competitive corporation tax rate of any major economy. We already have the lowest corporation tax rate in the G7 and a competitive and simplified tax regime is essential, which is why we cut the main rate of corporation tax in 1997 and again in 1999. And from next month the main corporation tax rate falls again from 38 per cent. to 28 per cent.

The UK is one of the best places in the world to do business. We remain committed to consultation with business to maintain a stable business tax regime that remains responsive to business needs and is internationally competitive. Underlining our commitment to maximising the economic recovery of the UK’s oil and gas reserves, I can also confirm reforms to the North sea oil fiscal regime to help incentivise investment and support production.

But today, I want to do more to support small and medium enterprises, now and in the longer term. Thirteen million people work in those enterprises and there are over 750,000 more small and medium firms than there were in 1997. The new capital gains tax regime will come in next month including the entrepreneurs relief that I announced in January. That will benefit over 80,000 businesses and investors in the next year alone: 90 per cent. of them will continue to pay capital gains tax at 10 per cent., one of the lowest rates in the world. This Budget continues a programme of tax simplification. I am today announcing further steps to help small companies simplify their tax calculations.

Especially at this time, we need to do more to help small and medium enterprises to get access to the finance that they need. To help them in the current conditions, I can therefore announce that funds available through the small firms loan guarantee scheme will be increased by £60 million for the coming year. I am from next month extending the scheme to all small and medium firms. I am also increasing the amount of investment on which tax relief is available under the enterprise investment scheme from £400,000 to £500,000 and the employee share limit for tax relief under the enterprise management incentive scheme will increase from £100,000 to £120,000. The Secretary of State for Business, Enterprise and Regulatory Reform will consult with radical new proposals to impose a limit on the amount of regulation that can be imposed by Whitehall Departments. I will also provide a capital fund of initially £12.5 million specifically to encourage more women entrepreneurs.

There is also more I can do to ensure that small and medium firms win more business from the public sector, so we will take immediate steps to give firms better access to Government contracts and help them with their cash flow. I am asking Anne Glover, the chief executive of Amadeus Capital Partners, to look into what other barriers we can remove and the practicality of also setting a goal for small and medium enterprises to win 30 per cent. of all public sector business in the next five years. I believe that that could help promote enterprise in one of our most innovative and dynamic areas of the economy. I also believe that we can help support them grow their businesses, which will create new jobs and opportunities.

We welcome the contribution made by people born outside the UK who choose to come and work here. They are an important and central contributor to our economy’s growth and prosperity. They pay their taxes on their earnings here; they also pay tax on the money they bring into this country from abroad. But for those non-domiciled individuals or families who have chosen to make Britain their home, I believe that it is right and fair that they should, after seven years, pay a reasonable charge to maintain the right to be taxed differently from other UK residents. Beyond that, as I have said before, we will not seek to charge UK tax on offshore income or capital gains that are not brought into the UK. This new charge will be implemented from April. There will be no further changes to this regime for the rest of this Parliament or the next. [Interruption.]

Last October, I said that I would also consider a scheme that claimed to raise an additional £2.8 billion from people who are non-domiciled. On closer examination, it was clear that the sums that did not add up—not for the first time, given the source from which that representation came—and I rejected it. We will continue, though, to be vigilant against tax avoidance, and we are publishing today further measures to ensure fairness for all taxpayers.

If we are to compete in the future, it is essential to do even more to drive up standards in education and improve skills. Increased spending on education has benefited children right across the United Kingdom. We have cut the number of underperforming schools dramatically in the last decade and building on last year’s spending review will raise standards even further to create greater opportunities for children.

So the Secretary of State for Children, Schools and Families will be investing £200 million to bring forward by a year to 2011 the Government’s aim for no schools to have fewer than 30 per cent. of its pupils achieving five A* to C GCSEs, including English and maths. We will also extend the successful London Challenge model to enable the best head teachers to turn round low-performing schools, to create new trusts and federations around successful schools and, in areas of greatest need, to drive forward a faster expansion of our academies programme. As a result, by 2011, we will ensure that every school is an improving school meeting the standards that we have set.

I can announce today that we will commit £10 million over the next five years, which, alongside contributions from the Wellcome Trust and private sector, will create a £30 million Enthuse Science fund. That will give every science teacher in secondary and further education access to high-quality professional development, helping to improve the science on offer in today’s schools.

To improve skills, the spending review last year increased the amount of money for adult training. Extra funding will enable nearly 3 million adults to gain new, high-level skills by 2011. Today I can also announce an extra £60 million over the next three years to provide new opportunities for people to gain the skills they need to enter the labour market, to remain in and progress through work. That includes additional apprenticeships with leading employers to help tackle skills gaps and shortages.

By 2010, we will be spending over £6 billion a year supporting British science and innovation. Tomorrow, the Secretary of State for Innovation, Universities and Skills will publish the science and innovation White paper, which will include proposals for a further education innovation fund to help support businesses to develop their innovative potential.

If we are to compete in the future, not only do we have to have the best business environment and higher skills levels, but we also need good transport links to make up for decades of under-investment. In the last 10 years, we have doubled the amount of money that we spend on transport—£7 billion on the west coast main line to cut journey times—and public transport usage is at a 25-year high.

Last November, following the Government’s investment of £6 billion, we saw the completion of the channel tunnel rail link and the opening of the St. Pancras international station. This week, terminal 5 opens at Heathrow. Today, I can announce new measures at Heathrow and other airports to ensure greater use of biometric technology to speed up the time that it takes passengers to get through immigration control. Government funding for Crossrail is now secure and that will support economic growth not just in London but in the whole of the United Kingdom by adding an estimated £20 billion to national income. That will help London retain its position as the world’s pre-eminent international financial centre.

We are spending more on public transport, and we also need to spend more to reduce congestion and improve transport links. If we are to remain competitive over the next 20 to 30 years, we need to take more radical steps to reduce congestion on our roads. We do need more capacity on the roads, but we cannot build our way out of all the problems we face.

Last week, the Secretary of State for Transport announced further measures to ease congestion. In addition, she has made available funding to develop local schemes to tackle congestion in the short term. In the longer term, though, road pricing could reduce congestion in the future, as well as helping to meet our wider environmental obligations, so I am setting aside new funding to develop national road pricing, inviting tenders to test road-pricing technology, with the results expected next year.

Just as we need good transport links, we also need to make sure that we have more housing to meet the rising demand for homes as well as to support our growing economy. Since 1997, as a result of historically low mortgage rates, we have seen 1.5 million more home owners. Already, we have helped 95,000 families into new homes through shared ownership and shared equity schemes. We will now spend £8 billion more on new, affordable and social housing over the next three years. That will enable the Housing Corporation to develop 70,000 new affordable homes each year over the next three years.

But I want to go further. From this April, key workers, such as teachers and nurses, and first-time buyers will be able to borrow money from new shared equity schemes. Up until now, those were available only to people who could afford three quarters of the price of their new home. I am now extending the scheme to help those able to afford half the price of their new home. I can also announce that, from today, stamp duty on shared ownership homes will not be required until buyers own 80 per cent. of the equity in their home.

It is precisely at this time that we need to do more to promote longer-term stability for home owners and mortgage holders. Already, the reforms we have introduced have created much greater stability with consistently low mortgage rates for home owners. However, the uncertainty in the financial markets is having an impact on mortgage lenders here in the UK, so I want to take measures that will keep mortgage rates low and stable.

In 2006, 30 per cent. of mortgages agreed in the UK—£100 billion of lending—were funded through secondary funding markets. Current conditions in these mortgage markets are extremely difficult because of the financial turbulence in global markets. In some countries, those markets are closed. It is, however, imperative that lenders have access to stable and low-cost funding so that mortgage rates can come down as soon as possible. We want to bring together investors and lenders with the Treasury, the Bank and the Financial Services Authority to find market-led solutions to strengthen these funding markets further.

I also want more people to have the choice of a long-term fixed mortgage. These protect borrowers from risks and allow them the flexibility to move and to get a new mortgage if rates go down. Today, however, most people in the UK have short-term fixed-rate mortgages for two or three years, leaving them exposed to interest rate rises when their mortgage deal ends. That is not the case in other countries—Denmark, for example—where the majority of home owners take out long-term fixed-rate mortgages. I want to see more flexible and affordable long-term fixed-rate mortgages for 10, 20 or 25 years.

I am today publishing the findings of a review of housing finance in the UK. The conclusions show that long-term fixed-rate mortgages can reduce some of the risks of taking out a mortgage, especially for first-time buyers and lower-income families, and this will help more people get on to and stay on the housing ladder. So I want to seek views on how we can deliver—drawing on international experience—the right framework for the UK to achieve long-term fixed-rate mortgages, and I will report back in the pre-Budget report.

The best way to improve long-term affordability and stability is to build more houses, which is why we are committed to building more homes by 2020. So I can announce that in addition to the 40,000 already under construction, we have, through the review of public sector land, identified sites for 70,000 more houses.

We are determined to take decisions now for the long-term future of our country, helping to improve affordability, supporting long-term stability for home owners, and meeting the needs of future generations, and our greatest obligation to the future must be to tackle climate change. Britain has been at the forefront of international action. We are one of the few countries to meet our Kyoto target. We are working with other countries following agreement in Bali last year to agree tougher global goals after 2012, and the UK will use our £800 million environment fund to work with the United States, Japan and other countries, as well as the World Bank, to fund clean technologies in developing countries and adaptation to climate change.

We are already the leading financial centre for carbon markets, and we are also working with California and other American states to build these markets and strengthen partnerships. We need to do more and we need to do it now, though. Few doubt the science. The need to take action is urgent; the effects if we do not will be catastrophic.

Recognising this threat, we are the first Government anywhere in the world to introduce legal targets compelling us to take action to cut carbon emissions. We have established a target to reduce emissions by at least 60 per cent. by 2050, but I believe that we should go further. That is why we have asked the committee on climate change to advise us on whether, as part of an international commitment, we should raise our target not to 60 per cent. but to 80 per cent. And if we are serious about reaching demanding targets, every Government, every Department in Government, every single public sector body, every business, every one of us needs to play our part. To ensure that carbon reduction is a central part of our economic objectives, I can tell the House that the first carbon budgets to 2022 will be announced alongside the Budget next year.

Long-term growth must be sustainable. There are huge opportunities there too for businesses, and there could be over a million jobs in our environmental industries within the next two decades. Meeting these long-term challenges will require us to make substantial reductions in emissions across the economy, in energy supply, in transport and in our business and our homes. But I believe there are three key steps that we can take now.

First, working within Europe we have helped to build the emissions trading scheme to curb the amount of carbon produced by generators and large industrial users. The scheme imposes a cap on the amount of carbon that companies can generate. Companies get allocations for credits to help them to adapt. But if we want to encourage investment in low-carbon technology, in energy renewables and in nuclear, for example, and if we want to make the industry more carbon-efficient, we need to go further. So in the next phase, instead of auctioning of just 7 per cent., I want to see auctioning of 100 per cent. of these allowances for electricity generators. Last year’s energy White Paper committed us to increasing the supply of renewable energy, and the Energy Bill now going through Parliament will allow us to triple renewable energy by 2015. We will consult on how to meet our share of the European Union target in the summer.

Secondly, we need to do more to reduce the amount of carbon generated at home and at work. Given the damage that single-use carrier bags inflict on the environment, we want to be able to take action now, so we will introduce legislation to impose a charge on them if we have not seen sufficient progress on a voluntary basis. Legislation will come in in 2009, and on the basis of other countries’ experience it could lead to a 90 per cent. reduction, with around 12 billion fewer plastic bags in circulation. The money raised should go to environmental charities.

Next month we will launch the most ambitious household emissions reduction programme. Energy companies are obliged through the carbon emissions reduction target to give their customers better deals for energy efficiency and therefore cut bills. This means cavity wall insulation for nearly 3 million homes, loft insulation and more energy-efficient appliances. I can announce funding of £26 million next year for a Green Homes service to help people cut their carbon emissions and their fuel bills. We will also extend the use of smart meters to medium and large companies over the next five years to provide them with greater incentives to reduce the amount of energy that they consume.

We already have a target to make new homes zero-carbon from 2016. I believe that we need to go further, and I can announce today that new non-domestic buildings will become zero-carbon by 2019. We will consult on achieving that target, with the potential to achieve 75 million tonnes of carbon dioxide over the next 30 years. The climate change levy, which is the main reason why we have met our Kyoto targets and which is still opposed by the Conservative party, will increase in line with inflation from April.

I believe that the third key area in which we need to take action now is transport, which accounts for nearly a third of our carbon emissions. We recognise the contribution of aviation to the UK economy, which is why we support expansion at Stansted and Heathrow, but I have always been clear that aviation must meet its environmental costs, and that is why we want it to be in the European Union emissions trading scheme. Because emissions from aircraft are forecast to continue to grow, I am also announcing that revenue from the duty will be increased by 10 per cent. in the second year of operation. But Britain’s 30 million cars, vans and lorries together account for 22 per cent. of total carbon emissions. Over the last 20 years new cars have become 50 per cent. more efficient, and new technology will bring further improvement.

Today I am publishing Professor Julia King’s review of low-carbon cars, in which she examined new technologies which could help to cut carbon emissions further. Professor King found that simply by switching to the cleanest cars on offer, motorists could save 25 per cent. of their fuel costs. She also found that manufacturers needed to be encouraged to bring new technology to the market. I am asking the European Commission today to set a tighter target which reduces the cap on emissions from 130 g per km to 100 g per km by 2020.

But I believe that the road tax system should do more to support the use of more carbon-efficiency, and therefore less costly cars. It will continue to reduce the average carbon dioxide levels in new cars. First, I propose a major reform of vehicle excise duty from 2009 to encourage manufacturers to produce cleaner cars with the introduction of new bands. There will be an incentive to encourage drivers to choose the least polluting car.

As a second stage for new cars, from 2010 there will be a new first-year rate based on carbon dioxide emissions from the car. Cars that emit less than the proposed 130 g European standard will pay no car tax at all in the first year, but a higher first-year rate will be introduced for the most polluting cars. Cutting taxes for those who cut carbon emissions; but it is right that if people choose to buy a more polluting car, they should pay more in the first year to reflect the environmental cost. These changes will provide a real incentive for both manufacturers and motorists.

We must encourage sustainable biofuels, and therefore the biofuel duty differential will be replaced by the renewable transport fuel obligation. I am also reforming capital allowances for business cars to increase the incentive to move to lower-emitting cars.

Today is No Smoking day, and from 6 pm the duty on tobacco will rise, adding 11p to the price of a packet of 20 cigarettes and 4p to the price of five cigars. To help people stop smoking, we are continuing the 5 per cent. reduced rate of VAT on smoking cessation products beyond 30 June this year.

Mr. Deputy Speaker, as incomes have risen, alcohol has become more affordable. In 1997 the average bottle of wine bought in a supermarket cost £4.45 in today’s prices; if you into a supermarket today, the average bottle of wine will cost about £4. So from midnight on Sunday, alcohol duty will increase by 6 per cent. above the rate of inflation. Beer will rise by 4p a pint, cider by 3p a litre, wine by 14p a bottle and spirits by 55p a bottle, and those duties will increase by 2 per cent. above the rate of inflation in each of the next four years.

It is only because I have taken these decisions on alcohol and on closing tax loopholes that I am able to provide additional support for families and lift more children out of poverty. It is also why I am able to make two further announcements, while still meeting our fiscal rules. As the House will know, the basic rate of income tax will fall by 2p in April. Because charities have a vital role to play, we will therefore implement a transitional rate of 22 per cent. to allow them to continue to claim gift aid at the current rate, delivering £300 million-worth of relief. It will provide charities with certainty for the next three years.

I also said that one of the key features of this Budget is fairness and I want to do more to help older people, especially this year. We are spending £11 billion more in real terms per year on pensions, with over half this extra money going to pensioners on the lowest incomes. From April, as a result of the changes we made last year, a further 600,000 pensioners will be taken out of paying income tax. The pension credit now guarantees a minimum income of £124 a week from April.

Before 1997, there was no winter fuel allowance. For this year, I have decided to help pensioners who are facing pressures such as high energy bills, so I intend to raise the winter fuel payment for the over-60s from £200 to £250 and for the over-80s from £300 to £400. Nine million pensioner households will be better off.

This is a responsible Budget to secure Britain’s stability in the face of global uncertainty. I have made my choice: responsible decisions, not irresponsible, unfunded promises; fairness and opportunity for everyone in Britain to secure a strong and sustainable future. I commend this Budget to the House.


Motion made, and Question,

That, pursuant to section 5 of the Provisional Collection of Taxes Act 1968, provisional statutory effect shall be given to the following motions:—

(a) Rates of duty on alcoholic liquor (motion No. 8);

(b) Rates of tobacco products duty (motion No. 9);

(c) Rates of vehicle excise duty (motion No. 13);

(d) Amusement machine licence duty (motion No. 18); and

(e) Alternative property finance (motion No. 55). —[Mr. Darling.]

put forthwith, pursuant to Standing Order No. 51 (Ways and means motions), and agreed to.

I now call on the Chancellor of the Exchequer to move the motion entitled “Amendment of the law”. It is on that motion that the debate will take place today and on the succeeding days. The remaining motions will be taken at the end of the budget debate, next week.

Budget Resolutions


Motion made, and Question proposed,

(1) That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance.

(2) This Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—

(a) for zero-rating or exempting a supply, acquisition or importation,

(b) for refunding an amount of tax,

(c) for any relief, other than a relief that—

(i) so far as it is applicable to goods, applies to goods of every description, and

(ii) so far as it is applicable to services, applies to services of every description.—[Mr. Darling.]

It is not difficult to see what is wrong with the Budget. It is not just that it was, on the whole, a dire list of reviews and re-announcements delivered with all the excitement of someone reading out a telephone directory, although that did not help. But people watching this Budget for the last hour will conclude that the Chancellor and the Prime Minister live in an entirely different world from everybody else. Every time people refinance their mortgage, it is costing them more. Every time they fill up their car, they are paying more. Every time they shop, food bills are higher. Yet every time they get a tax bill, they are paying more. There was no recognition of that in the Budget. The cost of living is going up and Labour is making it worse. Everybody has now learned the cost of living under Labour.

Everybody listening to the Budget will have noticed something else. This Government and the Prime Minister took all of the credit when the global economy was growing, but now there are difficulties, they will not take any of the blame. Here are some of the things that they would not tell us in the Budget. The Chancellor boasted about trade, but he did not tell us that the current account deficit is set to rise to a record £72 billion. That was on page 165 of the Red Book. He told us about investment, but he did not tell us that the rate of growth of business investment is slumping by two thirds. That is on page 163 of the Red Book. He talked about debt as a share of GDP and boasted about his rules, but if we include Northern Rock, debt as a share of GDP is 43.8 per cent., busting his fiscal rule.

The Chancellor made one central claim at the heart of his Budget: he told us that Britain is well prepared for economic slowdown. I have to tell him that he is absolutely wrong. As this country enters troubled times, it could hardly be worse prepared. We have the highest tax burden in our history.

“So what?” says the Secretary of State for Children, Schools and Families. I know he wants to be Chancellor so badly it hurts. I have to tell him that another Budget like the one we have just heard and he will not have to wait very long.

We have the highest Budget deficit in western Europe. Today, the Chancellor told us that borrowing would be up by £20 billion over the next four years. Those are truly dreadful figures; there is a £7 billion increase in the next year alone. We have the highest interest rates in the G7, which means that on top of high taxes, home owners and businesses have a higher interest rate burden, too. Today, for the second time in his very short period as Chancellor, he downgraded his growth forecast once again—not that he could bring himself to use that word.

High debt, high interest rates, high taxes and now lower growth—those are the facts that this Budget cannot hide. They tell the story of just how badly prepared we are for the downturn. We all know why; because in the years of plenty, Labour Governments put nothing aside. They did not fix the roof when the sun was shining. What better metaphor could there be today, when it has started to blow off at No. 11 Downing street?

What we needed in the Budget was real leadership and a serious plan to get this country out of the mess that they have made. We need a Government who help people when times are tough; instead, we have a Government who kick them when they are down. The key test of competence for any Government is not how they perform when things are going well, but how well prepared they are to cope when things get tough. The key question at these times is how much room for manoeuvre one has given oneself. The answer with the Government is, “No room for manoeuvre at all.”

In America, they are cutting taxes by 1 per cent of national income. In Sweden, there is a 2 per cent budget surplus to help them out. [Interruption.] I am not surprised that hon. Members do not want to hear the consequences of the waste and incompetence of the last decade with their Prime Minister. In other countries, they are debating what to do with their surpluses. In this country, there is no debate because there is no surplus. In Britain, we have nothing—no room for manoeuvre on the deficit, no room for manoeuvre on interest rates and no room for manoeuvre on taxes. I want to take each of those in turn.

On debt, the Government said that they would borrow £47 billion over the last five years. In fact, they have borrowed £165 billion—over £100 billion more debt than planned. Today, it is worse again. They have told us that the current Budget deficit is up another £23 billion over four years. That is the extent of the Government’s economic incompetence.

This Chancellor, just like the last one, likes to read out the league tables. Let me read a list of major countries with deficits higher than Britain: Hungary, Pakistan and Egypt. That is the league of debt to which we have been relegated today. For years the Prime Minister and the Chancellor liked to tell us about their fiscal rules and how they would stop us getting into this kind of mess. The Chancellor tried today, and I do not know how he did it with a straight face. The truth is that they have forgotten the most important rule of all: in good years you put money aside for bad years, because you cannot spend money that you have not got.

We are ill-prepared on fiscal policy; let us look at monetary policy. Again there is virtually no room for manoeuvre. The Chancellor boasted about low inflation, but let us listen to what the Governor of the Bank of England expects. He predicts

“inflation rising sharply alongside a marked slowing in growth”,

and it says on page 139 of the Red Book that inflation—on whichever measure we take—is higher now than in May 1997. That is why the Bank of England has the highest interest rates in the G7. But the situation is in fact worse than that. Let us look at the real figures for inflation. Food inflation: 7 per cent. Housing costs: up 8 per cent. Petrol and oil: up 19 per cent. That is the real inflation paid by families in Britain.

If anybody still needs proof of how little room for manoeuvre the Chancellor has, they should just take a look at what is happening to taxes. While our competitors are cutting taxes on enterprise, the Chancellor confirmed today that he is putting such taxes up. Capital gains tax: up by £700 million when we are heading for a downturn. Taxes on family businesses: up by £200 million—that is the new income-shifting rules for family businesses that he did not even mention in his speech. Corporation tax on small businesses: up £800 million as we head for a downturn. This is a crazy way to respond to a slowdown—hitting the very people who create the wealth, the jobs and the investment that this country so badly needs.

However, the true extent of the Chancellor’s dreadful predicament is the fact that the Budget—[Interruption.] I am going to mention something that last year was the centrepiece of the tax-con Budget, but which this year does not get even a single mention. He is abolishing the 10p starting rate of tax. That is the tax con that Labour Members all cheered so loudly last year, and soon they will find out what it means. Low-paid NHS workers will have to pay more tax. Part-time teaching assistants will have to pay more tax. [Interruption.] Is the Prime Minister shaking his head? Well, that is the Budget that he introduced. Our soldiers fighting in the heat and dust of Afghanistan will pay more tax. That is the consequence of the tax con. [Interruption.] Labour Members say, “Shame”; well, they should be ashamed for taxing our soldiers more. The fact is that 5.3 million of the lowest paid will be worse off, and what have the Government got to say to them? They say, “If you fill in a form, some of you can get some of the money back.” Taking away people’s money, reducing self-reliance and increasing people’s dependence on the state: that tells us everything we need to know about this Prime Minister and this Chancellor.

Let me explain what we would do differently. We would ensure that higher green taxes were paid into a family fund and were used to cut taxes on all Britain’s hard-pressed families. We would help business by sweeping away the allowances and reliefs and cutting the headline rate of corporation tax. We would target tax on binge drinkers, not on every responsible drinker in this country who wants a glass of wine or a pint of beer at the end of a hard day’s work.

What was the most important thing the Chancellor should have done in this Budget? He should have set a long-term strategy for economic policy that learns the lessons of the waste and extravagance of the last decade. He should have set out how to share the proceeds of growth so we could get borrowing and tax rates down. That would help not only Britain’s families, but Britain’s businesses, too.

Business knows just how bad this situation is. The CBI says it is now like a “banana republic”. [Interruption.] Those are its words; that is the effect of the prawn cocktail offensive of all those years ago. The British Chambers of Commerce says the Government have “lost the plot”. Nine in 10 small businesses have lost confidence in the Government. Business has fallen out of love with Labour. The very least businesses expected was competent leadership in uncertain times, but all they have got is dithering.

Five months ago, the Chancellor stood at the Dispatch Box and proposed changes to capital gains tax; all the Labour Members cheered, and the policy fell apart. Five months ago, he announced his plans on non-doms; they all cheered, and the policy fell apart. Month after month, the Government said they did not want to nationalise Northern Rock, and they did. They cancelled the general election, which, unbelievably, they had planned to fight on the issue of competence, and they promptly lost half the country’s personal data in the post.

Who is to blame for this? It is tempting to blame the Chancellor; after all, he has had the most disastrous start of any Chancellor in modern history. But I do not think that would be fair. Let us be in no doubt as to the real source of this Government’s problems. Ask any question about this Budget, and the answer comes back to one man: the Prime Minister. Why is the Chancellor hitting the low-paid with higher tax? Because his predecessor put it in his Budget last year. Why is the Chancellor left with the biggest Budget deficit in western Europe? Because the Prime Minister spent all the money in the last 11 Budgets. Why is the Chancellor imposing £1 billion in extra taxes on capital gains and family businesses? Because the Prime Minister got himself in a panic trying to copy our proposals on inheritance tax. This country should not be in any doubt about the source of the difficulties that Britain is now in: the Chancellor was put in a hole by the Prime Minister and they both kept digging.

What is the situation now? We have the highest taxes in history, the highest deficit in western Europe, the highest interest rates in the G7—[Interruption.] I thank the Secretary of State for Children, Schools and Families for his comment; I know he is Minister for children, but he does not have to behave like one. We have all of that, and the Government are asking us to trust them to get the country out of this mess. They just do not get it. The City may be having a credit crunch, but this Government have a credibility crunch. The Treasury has run out of money, and they have left Britain running on empty.

All over this country, people are asking questions: “I am paying more tax, so why is my post office closing?” and “I am paying more tax, so why is my maternity unit closing?” and “I am paying more tax, so why do I see so much waste and incompetence?” The answer is sitting opposite me. Never has so much money been raised in taxes spent and wasted. Never again should we be so unprepared for a world downturn. Never again should there be so little room for manoeuvre when things get tough. This Budget shows the whole country the cost of living under Labour, and everyone will conclude that the Prime Minister, who got us into this mess, cannot possibly be the person to get us out of it.

I am told that during the Government’s previous 10 Budgets Prime Minster Blair did not know what the proposals would be until Chancellor Brown rose to his feet in the Chamber. This time, the situation is exactly the other way round: the Chancellor is the Prime Minister’s creature, struggling to clear up a mess left by his boss under instruction from No. 10. What we have seen today is an act of political ventriloquism. I would like to compliment the Prime Minister: I watched him very closely, and his lips barely moved all the while that the Chancellor was speaking.

This Budget has inevitably brought a lot of bad news. It has also massively over-egged and exaggerated any good news. Why, for instance, did the Chancellor not admit in his statement that the winter fuel allowance increases are a one-off? How can he bring himself to play with the hopes and expectations of some of the oldest and most vulnerable people in our society? Is this just another pre-election bribe? Are we now to expect an election in 2009?

There are tough times ahead, of course, and the world economy remains uncertain, so this was an opportunity to give whatever help possible to the millions of hard-pressed families who are feeling the pinch—whose money simply does not stretch as far as it once did—but the Chancellor has not delivered such a Budget. This is a meagre, tinkering Budget, which gives precious little help to the poor but maintains special treatment for the rich. It is a Budget designed to fill a black hole, masquerading as good for the environment. It is a Budget that will not make Britain fairer. It is a Budget that is a green cop-out.

The Chancellor bravely suggests that the problems afflicting our economy were all caused elsewhere. He has to do that; he cannot tell the truth. He cannot blame his boss; a monkey never blames the organ grinder. It is deeply disingenuous to claim, as he did, that a housing market crash in the United States is the main reason for our economic woes. The reality is that a swelling tide of personal, private debt secured against high house prices that are now declining is creating the conditions for a perfect economic storm. High oil and food prices make it difficult for the Bank of England to cut interest rates, and with Britain now up to £2 trillion in debt, the Chancellor has backed himself into a corner with no room for manoeuvre. The sustainable debt rule is in tatters, even without Northern Rock and private finance initiative projects being put on to the national accounts, and the “golden rule” has become the “gamblers rule”. Deep in the red, the Government keep betting more and more of our money in the hope that someday, somehow, they will find themselves back in the black. As we have heard today, that prospect is moving ever further into the distance.

We heard much today about the Chancellor’s wish to cut child poverty, but the meagre, piecemeal reforms that he is introducing to the chaotic tax credit system will not get the Government anywhere near meeting their 2010 child poverty target. By my reckoning, only about a third of what is needed is being provided; the ridiculously complex set of proposals that we have heard about today will be difficult for the most hard-pressed families to understand. Using the Government’s own calculations, the Chancellor would have to find an additional £3.5 billion to stand even a faint chance of achieving their goal, and they are nowhere near doing that. The reality is that this Government’s approach to child poverty has failed. If we are to abolish child poverty for good, we must increase not only income but opportunity. We must target more investment to help the poorest children in our schools and offer them genuine opportunity for life. Crucially, we must deal with the link between poor housing and persistent poverty.

This Budget was widely trailed by the Treasury as the greenest ever, but at the first sign of political difficulty the Government have run away, by postponing the petrol duty increase until October. The fact is that the real cost of motoring has fallen consistently over the past two decades while the real cost of public transport has risen by a third. We of course welcome the Government’s increasing vehicle excise duty on the most polluting cars. Like many of the Treasury’s best proposals—nationalising Northern Rock, reforming aviation tax and increasing stamp duty thresholds—that started life as a Liberal Democrat policy. We have got used to the fact that a while after we have a good idea, the Treasury, too, finally gets round to realising it is the best way forward.

Green taxes should be revenue-neutral. They should not be treated as a wheeze to squeeze ever more money out of the British people, but should instead be designed to encourage green behaviour and cut the taxes of the most needy. By my reckoning, the figures that we have heard today will mean that the Government will be taking approximately £1.7 billion in new green taxes, but less than £1 billion of that will be spent on the poor. Much of the revenue from those green taxes, plus other duties, will clearly go straight back into the black hole that the Prime Minister and the Chancellor have created in the UK’s finances. By 2010, an additional £1.9 billion will go straight to filling that black hole. This is not a Budget for the environment; it is a Budget driven by fiscal incompetence and political desperation.

Is it not the case that the only people who will welcome this Budget are those at the top of the income scale, not those at the bottom? The Government’s policy on non-doms is laughable. Their new poll tax, which the Conservatives unsurprisingly support, will be wildly punitive for ordinary foreign workers, but it will be no more than a flea-bite for foreign billionaires, who have come to regard the United Kingdom as nothing more than a tax haven.

The Government’s approach to capital gains tax policy continues to be mired in chaos. It is frankly amazing that the Chancellor has contrived to create a tax change that has caused howls of anguish from businesses and cries of derision from commentators but still allows hedge fund managers to pay lower rates of tax than their cleaners. Surely it would make more sense to return to the capital gains tax system of Nigel Lawson—not a man with whom I readily agree—and tax capital like income. Until the two taxes are united, we will continue to see mass tax avoidance by the wealthy, presenting their income as capital for a 23 per cent. tax break. Surely this is also the time to take a much wider look at tax avoidance by big business. It is scandalous that companies such as Tesco avoid paying millions in stamp duty by placing British properties in foreign special purpose vehicles, which are based in offshore tax havens.

Finally, the Chancellor’s announcement on fuel poverty is, once again, too little, too late. Why has he not had the guts to claw back the huge excess profits made by energy companies thanks to the emissions permits that the Government have given them for free? Some 4.5 million people still live in fuel poverty, but the Government’s 2010 fuel poverty target appears to have been conveniently shelved by Ministers. Limiting his measures to prepayment meters and only a modest increase in money for social tariffs does not go nearly far enough. Surely this is the time to compel all energy companies to introduce real, fair, social tariffs for all vulnerable people, not just those on prepayment meters.

This Budget gives no real help to families struggling with higher food bills, higher energy bills and higher debt repayments. What will this Budget do to help junior nurses, teaching assistants and soldiers serving in Afghanistan? The answer is nothing. What we have got instead is a sequel to last year’s Budget, when the Chancellor’s predecessor scandalously raised taxes exclusively on people earning less than £18,500 per year who do not get tax credits. What will the Chancellor say to those most vulnerable people when their income goes down in three weeks’ time?

After 11 years in government, Labour has today completed its fiscal fusion with the Tory Party. Both parties believe in the same kind of Budget: the kind of Budget that kowtows to vested interests, but fleeces the average family; the kind of Budget that keeps tax loopholes for the super rich, but closes in mercilessly on single mothers who have been overpaid tax credits; and the kind of Budget that uses green taxes as an excuse to take more money from the kitty of low earners. This is not a green Budget. This is not a people’s Budget. This is a tinkering, con-trick Budget that protects the rich and abandons the poor.

I welcome the opportunity to speak in the Budget debate. Given the economic instability and turbulence in the markets, I am delighted that the Chancellor referred to the targets on child poverty—a primary target of the 1997 Government—the initiatives on environmental taxation, the savings gateway and the measures for elderly citizens. He did so against a background of economic turbulence and the globalised world in which we live. Indeed, only yesterday the Federal Reserve put $235 billion into the market by providing Treasury securities to the bond market for it to accept as ordinary triple-A-rated mortgages for collateral. That was done to encourage banks to lend to one another.

We are in the Northern Rock situation because of a failure of the private sector in the United Kingdom. We face the global crisis because of a failure of the private sector in the international system. The Treasury Committee has examined Northern Rock over the past six months, producing a report on “The run on the Rock”. Just as importantly, it produced a report a few weeks ago on “Financial Stability and Transparency”, pointing the way forward for the Government and the international community. We said that markets need a clear message about the risks that they are taking. We could see that in the Northern Rock fiasco, its board in particular did not appreciate the risks that it was taking. We are thus asking the Financial Services Authority and the Bank of England to ensure every year that their warnings are heeded, and that they come out with two or three main issues for boards to study. The boards should then report back to the FSA and the Bank of England that they have understood those messages.

I can only describe what we have seen in the markets as a bout of collective madness. How much write-down is taking place at the moment? On the Committee’s visit to the United States in December, I was told that we could be talking about $600 billion, but a senior economist at the UBS bank is talking about $1 trillion, and others are coming out with figures of $2 trillion, $3 trillion or $4 trillion. We do not know where we stand at the moment, but there is no doubt that things will get worse. We must remember the globalised background against which events in the United Kingdom are taking place.

The reason for that situation is that the low inflation and low interest rate environment of the past decade has encouraged a search for yield, which has resulted in complex and opaque products. The designers of those products often do not understand what they are producing. We had the chairman of an investment bank before the Treasury Committee, and when I asked him what a CDO-squared was, he said that he was not there to explain that. If the designers did not understand them, certainly investors did not.

CDOs are collateralised debt obligations, and I shall explain the CDO-squared to my hon. Friend over a cup of tea in the Tea Room if he is interested.

Investors did not exercise due diligence when considering such products. They equated complexity with security. That has been compounded by the role of the credit rating agencies. All the members of the Committee appreciated that the credit agencies’ conflicts of interests need to be sorted out. The agencies are paid by the issuers, which is unacceptable. The Basle II international agreement must be examined, because we need to correct the perverse incentive for companies to meet the capital adequacy requirements by reducing their liquidity. That has to stop. There are both national and international elements to the current situation.

Does the Chairman of the Treasury Committee share my disappointment that the Chancellor did not have the courage to refer to Northern Rock on a single occasion in his Budget speech? Given that he has just taken on a potential £100 billion of public debt, surely the Budget provided him with an opportunity to explain how it would be treated in the public accounts.

The hon. Gentleman is a very good member of the Treasury Committee, so he knows that we have been studying the matter in depth for six months and made reports to the House. I can only quote a wise old central banker from the City who said to me, “John, there have been no casualties in this. Nobody has lost any money, and the system has been stabilised.” The public’s response shows that they share that sentiment. I am not surprised that the Chancellor did not mention Northern Rock, because it has been the focus for six months, and arrangements have been put in place.

I wish to cover a number of matters. The first is economic prospects and forecasts. The second is fiscal policy and fiscal sustainability, and the third is child poverty. I was one of the 72 Members who wrote a letter to a national newspaper last week urging the Chancellor to ensure that the child poverty targets were re-established. The fourth is environmental taxation, the fifth is the savings gateway and the last is rogue trading and insider dealing.

When considering the economic prospects and forecasts, I am mindful of the globalised, turbulent background. At the time of last year’s pre-Budget report, the Treasury’s forecast was for economic growth of between 2 per cent. and 2.5 per cent. in 2008, and between 2.5 per cent. and 3 per cent. in 2009. That forecast was prepared when the wider economic situation was far from clear. When the Committee reported on the pre-Budget report last November, we cautioned that there remained a risk that the credit crunch would have a greater economic effect than expected. That has been confirmed today by the downgrading of those economic forecasts. We also observed that the Treasury’s optimism that the economy would revert to trend in 2009 was not adequately explained. When the Chancellor and others come before the Committee, we will wish to test whether the new forecasts are realistic.

I expect the Committee to focus particularly on three areas of risk. First, the Government have been looking for a growth in exports as part of the rebalancing of the economy. The International Monetary Fund is now forecasting US and eurozone growth of well below 2 per cent. for 2008, with world economic growth as a whole at its slowest rate since 2003. If exports are to grow significantly against that backdrop, exports to growing markets, including China, India and the oil-rich countries, will need to increase.

In some of those markets, the UK has not performed as impressively as some of our European competitors. On a visit to India 18 months ago, the Committee was made aware that the links between the UK and India could be developed. We were convinced that the UK’s exports to India could complement what is happening there rather than challenge it. Developments could take place in high technology, and particularly clean coal technology. I would also like to see further developments between the UK and China in that area.

Secondly, the Committee will consider the fact that the UK’s growth in recent years has been fuelled by the prosperity of the financial sector. On an international basis, that sector is the main cause of the current slow-down in the world economy. It is bearing some of the costs of its past exuberance. I believe that the British financial sector remains competitive and innovative, but it is still to be seen whether its relative contribution to the economy will diminish during the current period of consolidation.

Thirdly, we will consider the dependence of the British economy on wealth and confidence linked to rising house prices, which is well known. In recent years, Treasury forecasters have prided themselves on defying the doom-mongers who have repeatedly forecast a sharp downward adjustment in house prices. There is a risk that house prices will prove less resilient than the Government expect in the face of the credit crunch. I expect that the Committee will explore that matter, and particularly the Chancellor’s initiatives in the mortgage market, with our witnesses next week.

I am pleased to hear that the Committee will examine that. While doing so, will it examine the related matter of arm’s length management organisations? Is the right hon. Gentleman willing to consider the funding arrangements for ALMOs, which look after a large amount of social housing stock? They are concerned about the limitations on how they can borrow money. Would it be reasonable for the Committee to have a little look at ALMOs when they examine the housing market in general?

I suggest that the hon. Gentleman do a bit of homework between now and next week and send me a letter, and we will consider the matter in the Committee.

I turn to fiscal policy and fiscal sustainability. In several reports during the current Parliament, the Committee has argued that the fiscal rules need to be more forward-looking and less dependent on the dating of the economic cycle. Although the fiscal rules have served the Government and the public finances well in the past decade, the Government and others might have focused too much attention on arithmetical arguments about whether the rules have been met, and insufficient attention on underlying issues of fiscal sustainability.

On the golden rule, the most pertinent question to ask ourselves is not about public borrowing over a notional economic cycle but about the current state of the public finances and the prospects for the near future. With regard to public sector debt, it is clear that performance against the sustainable investment rule will be affected by both the public sector control of Northern Rock and the eventual implementation of international financial reporting standards, which will mean almost all private finance initiative projects appearing on the public sector balance sheet. I expect the Committee to consider in detail the impact of that, and how it is reported. In doing so, we must bear in mind the underlying purpose of the fiscal rules: to set parameters for fiscal sustainability. It remains to be seen whether either accounting changes or the public control of Northern Rock represent a threat to that sustainability.

On child poverty, I am delighted to note the Chancellor’s initiatives, but we must remember that there are still 2.8 million young people in poverty. One big issue that the Treasury Committee has tackled in recent years is financial inclusion. We have produced four reports on it since November 2006, which have stated the need for people to be included in the banking services and financial network. Those who are excluded from that network are largely socially excluded as well.

Let us not forget that 600,000 children have been taken out of poverty. That is six times the population of my constituency, more than the population of Bristol and two thirds of the size of the population of Glasgow, so the achievement is considerable—but the Treasury Committee was concerned about the idea that the Government might be resiling from their child poverty targets. I am delighted to see today that the Government have stuck to those targets. Some 700,000 more children must be taken out of poverty by 2010 if the Government are to achieve their interim target, and there will be a long way to go by 2020. I can say with confidence that the Committee will examine the Chancellor on that matter in the next few weeks.

In relation to poverty more widely, will the Chairman of the Select Committee also examine the Government’s handling of fuel poverty, which has increased? The Government placed far too much reliance on cheap energy during a period when prices fell because the UK had a temporary surplus of supply, and now that prices are rising, more people are being pushed into fuel poverty. Will his Committee examine Ofgem’s advice that the Chancellor should consider whether he can make a one-off gain on the profits made by energy companies as a result of the issue of emissions trading licences, so as to fund a one-off investment in improving people’s housing, so that they can reduce their fuel bills?

The hon. Gentleman makes an important point. I believe that he is a member of the Select Committee on Trade and Industry—

The hon. Gentleman was a member of that Committee the last time we spoke, but he has left it now. I forgot the turbulence on the Liberal Benches.

The Treasury Committee will be happy to look at those matters. Fuel poverty is defined as individuals spending more than 10 per cent. of their income on energy. Some 4.5 million people, including 2 million pensioners, suffer from fuel poverty, so it is an important matter. However, I am delighted to welcome the Chancellor’s initiative on the winter fuel allowance, which is to increase from £200 to £250 for our elderly constituents, and from £300 to £400 for the over-80s.

Does the right hon. Gentleman accept that for many pensioners, some of whom have a small private pension, who now face the loss of the 10 per cent. income tax band, the extra money made available for this year’s winter fuel payment will be more than offset by the tax loss?

I know that personally, the hon. Gentleman is a bright and optimistic individual, but politically he is always pretty gloomy. I look at the glass as half full today, and I welcome the increased winter fuel allowance. I challenge the hon. Gentleman to go knock on his constituents’ doors and ask them whether they want that allowance to be taken away; I reckon he will get a raspberry in response. We should welcome that good initiative.

On environmental taxation, when the Treasury Committee reported on climate change and the Stern review last month, we expressed disappointment that the Government’s commitment to the 1997 statement of intent on environmental taxation had not been maintained. The Treasury has used a different definition of environmental tax from the one used by the Office for National Statistics; the Treasury definition, which excludes energy taxes and taxes on transport, is, in my opinion, too narrow. I do not believe that tax measures are the only, or even the best, way to tackle climate change at national level, but the Treasury cannot continue to hide behind definitions to defend its caution in moving to a position where environmental taxes more accurately reflect the environmental damage associated with certain activities. In that context, I welcome moves to replace air passenger duty with a per-plane duty, as well as the other measures announced.

The Chancellor mentioned the savings gateway, on which the Treasury Committee has focused in the past. Indeed, last October we published a report that emphasised the importance of secure short-term savings to the financial well-being of the least well-off. We examined the success of savings gateway pilot projects, where private contributions are matched by Exchequer support. In our report, we stated that the national savings gateway

“could achieve some of the Government’s aims of promoting saving among low-income groups”

where it encourages

“genuinely new savers and new saving”.

We noted:

“It can bring some individuals into contact with mainstream financial institutions for the first time”,

thereby starting

“a savings habit which continues even when the incentive of Government matching is no longer available.”

Such a scheme can certainly have a positive effect on participants’ attitudes to saving. Professor Elaine Kempson, who undertook the survey of the first savings gateway pilot project, made the point that matching strongly encouraged people on low incomes to save. I suggest that the Chancellor and others consider going further. The Institute for Public Policy Research has provided estimates of the first-year cost of a national savings gateway scheme. The IPPR assumes eligibility criteria based on those for working tax credit and qualifying benefits for those out of work, and individual contributions averaging £16 per month. On that basis, it estimates that the first-year costs of a scheme taken up by 50 per cent. of the eligible population, with Government matching of 50p for every pound invested, and pound-for- pound matching for the first two months, would be £249 million. In contrast, the Government estimates that individual savings account and personal equity plan savings are supported by £2.1 billion in tax relief each year, and employee tax reliefs for pension contributions have been valued at £5.3 billion. Expenditure of £249 million pales into insignificance next to the support given to ISAs and tax relief on pensions. I welcome the Government’s initiative, but I urge them to go further to encourage more low-income people into the financial network.

My last theme is rogue trading and insider dealing. I note in today’s press that the Financial Services Authority has taken action on rogue trading. We certainly want no repeat here of the Société Générale incident, or of the Barings scandal involving Nick Leeson in the 1990s. Rogue trading remains a big problem, and I want the Government to support the FSA in its efforts, but I also want them to support the FSA on insider dealing. There is no doubt that insider dealing goes on regularly; I am told that by City executives. However, very little is done to bring people to court or to get to the bottom of such incidents.

An important foundation of the City’s reputation is the quality of its markets and the authorities’ determination to investigate and prosecute insider dealing. In that context, I endorse the FSA’s view that it should be given powers to confer statutory immunity from prosecution or otherwise encourage people to come forward to give evidence against the criminals who commit insider dealing. The FSA has civil and criminal powers to tackle such market abuse, but sometimes there are real challenges in securing the evidence necessary to prove that the offence has been committed. It is in the nature of the offence that there is seldom a smoking gun. Legislative change to enable the FSA to confer immunity would send a clear message to those who contemplate insider dealing: they should know that the FSA has the fullest range of tools to bring them to justice.

I welcome my right hon. Friend’s comments, because when I considered that matter 18 months or two years ago, I found that the track record of the Serious Fraud Office and the Financial Services Authority on insider dealing was absolutely shocking—not a handful of cases had they prosecuted. What is needed is not only legislative change, but for those bodies to use the powers that they already have. They should also examine how such powers are used in the United States of America, where the authorities have a very different and far more successful way of proceeding on such charges.

Exactly. When we compare what happens in the US with what has happened in the City, we see that the UK is a soft touch in that respect. Our record is abysmal. I want the Government to consider that, paying regard to what has been going on in the United States, and the FSA’s desire to ensure that the City’s reputation is cleaner, and is kept clean. They should also give the FSA the powers that other bodies have.

We did visit America, and it is on the basis of that experience that I make my point. Those taking part in insider dealing should be aware that others who know of their criminality may turn against them. We need the Government to give the FSA those powers.

Does the Chairman of the Select Committee not accept that if we simply allow people to come forward and get immunity, without introducing the other measures to which hon. Members have referred, it would lead to a situation in which there were super-rich supergrasses? That would be a public scandal.

I know where my hon. Friend is coming from, but the FSA and others have a legitimate point. As I say, people should be aware that others who know about their criminality may turn against them, because we are making no progress at all on the issue. Something needs to be done, and the Government need to consider the issue urgently. I encourage them to ensure that the powers available to other prosecutors are extended to the FSA, and to make progress with the work of considering in which cases a plea-bargaining, or plea-discussion, framework would be of benefit to all prosecutors, including the FSA.

As I have said, I welcome the Budget. I welcome the stability, as the next 12 months or so will be difficult for all of us, because we live in a globalised world. We do not need any fancy initiatives; we need to hunker down to get through the next 12 months. I am delighted, in an economic sense, that the Government are doing that while paying due regard to social obligations such as the need to tackle child poverty and the problems that people are experiencing with fuel. I welcome the Government’s initiatives, and I look forward to the Chancellor and his colleagues appearing before the Treasury Committee in the next seven days or so.

My impression of the Budget is overwhelmingly one of boredom. It was illuminating to look around the Chamber and see the number of people who were nodding off. It was predicted that it would be a boring Budget, and it most certainly was. It will probably be remembered as the carrier bag Budget, rather than as any other kind of Budget. If that is to be the Chancellor’s main claim to fame, I suspect that he will not be in his job for very long.

It was striking that in the midst of the anodyne messages that the Chancellor poured out in order to send us all to sleep there was little reference to Northern Rock and the issues that it has created for the British economy, and little reference to the problem that the world economy faces. I sincerely hope that we are not facing the sort of economic downturn that I remember from 1974, when the stock market fell to some 120 points, which seems unbelievable in this day and age. It may seem odd for a Conservative to quote JK Galbraith, but a close analysis of his book on the great crash of 1929 shows the similarities between the situation that the world economy is facing, and the factors that contributed so greatly to the world crash in ’29. That crash was based on pyramid selling of investment trusts, and we now face the prospect of pyramid selling of derivatives in an attempt to defy risk, but of course when one attempts to defy risk, it is spread more widely.

When risk finally comes into the equation—as it inevitably does, because nothing is risk free—the potential for collapse is much more calamitous. We are on the cusp of witnessing such a collapse as the various derivatives that have been developed in the past few years unwind through the system. My understanding is that banks across the world have lost 10 per cent. of their capital base. It is an indication of the severity of the problem that the central banks have fed so much money into the system, just a few months after they last did so. The expectation is that for some weeks, or perhaps months, there may be some loosening in the international credit market, but as the underlying problems are severe, and as unwinding has not yet been completed, we are seeing the same situation being created for a third time in a year. If we prop up a market that is in denial about risk, those concerned will not learn their lesson, and the same pattern of behaviour will be repeated. However, if they are allowed to confront their actions and take responsibility for them, we will see the sort of scenario that we saw in 1929. I should say that I did not see what happened in 1929; I read about it. However, I did witness the crunch in 1974, and that was fingertip.

I thank the hon. Lady very much for the history lesson about 1929 and Galbraith’s treatise on the subject. Would she say that there will be a market correction in the near future, or will we have to adopt far more Galbraithian responses to the current crisis?

I know exactly what the hon. Gentleman is getting at, but I suspect that if the central banks continue to pump liquidity into the market, it will not cure the problem. The potential consequences are terrifying.

Regarding 1929, I am reminded of the remarks of Judge Pecora, who undertook the commission of inquiry. He said that if the financiers had repeated to themselves time and again that two and two add up to four, they would not have got into the mess that they did. Does the hon. Lady see parallels with that situation today?

I think that I have already said that that is the potential problem that we face. As a Scot, I have to say that the investment trust vehicle that caused so much of the ’29 problem was of course invented in Scotland, but there it was managed by, dare I say it, dour Scots. It was transported to the States and was then leveraged; that was the problem. That is precisely what has happened with the risks that have been leveraged into various derivatives. I have real concerns that if the central banks keep pumping money into the market, we will not unwind the derivatives, and this generation of financiers will not learn the lesson of risk.

We cannot defeat risk, and one of my criticisms, as a Conservative, is that the whole thrust of what the Government have done since 1997 is to try to deny that risk exists, and that is a very dangerous thing to do. Year after year, the Prime Minister, when he was Chancellor, would say, “I have abolished boom and bust.” We are potentially about to have another bust. We are certainly on a downturn. That causes me more concern than anything else. It is my overriding concern about the Budget, because no preparations are being made to deal with the worst-case scenario.

The Treasury is in denial. It has to be in denial; it has no money. Where the £10 billion from the Bank of England has come from, I can only guess. Is it printing money? If so, we have inflation. Is it borrowing it from the Arab states, which are raising so much money as a result of petrol prices? If so, the money has to be paid back. At some point, the latitude that we allow ourselves with regard to money will catch up with us. I have serious concerns about the fact that no preparations are being made in the Treasury to deal with the situation; the Budget tinkers round the edges.

As for the green taxes, interestingly, it is proposed that tuppence be put on fuel in six months’ time. It is not until 2010, if I read the statement correctly, that we will get ½p per litre—not per year, but per litre—[Interruption.] I stand corrected—½p above the index, but that is still as a means of dealing with carbon emissions, and is not a significant change.

Taxes are being raised, but we see no offset for the coping classes, the people who have been hit for so long by the Government, with the increase in taxes being piled on top of them, along with, as my right hon. Friend the Member for Witney (Mr. Cameron), who responded on behalf of the Conservative party, said, all the extra costs that are coming with higher inflation, higher food prices and all the extra pressures on those people, who are keeping the economy afloat.

My hon. Friend speaks about fuel. She will accept that that now costs £1.08 or £1.12 a litre, or over a fiver a gallon. For people in my rural constituency, having a car is not a luxury; it is a necessity. The rural bus transport service is not sufficient. They need a car and they are being clobbered. The fact that they are being given a six-month reprieve before another 2p is placed on a litre will not be welcome news.

I entirely agree with my hon. Friend, and I would love to find his rural garage that is charging only £1.12 a litre. I am paying considerably more than that. It will be exceedingly hard for people who must rely on their own cars, unlike the situation in London.

London buses no longer come in threes—they come in dozens and most of them are empty, which has a serious impact on congestion in London. I notice that there are mixed messages coming from the Government about road pricing. As we understand it, the Secretary of State for Transport has withdrawn road pricing, yet the Chancellor is putting money into developing road pricing. It will be interesting to get some response in due course about what is happening with road pricing.

The Budget ignores the big picture and focuses entirely on small issues. I want to examine some of the issues that I picked up from the Chancellor’s speech. There was a mention of a contract between the Government and families in an attempt to get parents into work. I am having a hard time envisaging how such a contract would work. Is it a series of separate contracts, such as those that parents had with schools to ensure that the children turned up at school? Is it a contract with the jobcentre, whereby people agree to take the first job they are offered? Is it a contract with the local authority, whereby people accept lower housing benefit and council tax, provided they get a job?

What is the contract? Will there be red tape coming out of the ears of families who just want to get back to work, because the Government think it might be a nice idea to have a contract and make people responsible, even if they do not agree with the Government’s objectives?

There is a promise about business red tape and a limit on regulation. Again, I have difficulty working out how that will happen, given that every time the Government introduce a Bill, it increases regulation. Does that promise mean, for example, that at Report stage on a planning Bill, we will see the Treasury finally releasing its grip on planning gain supplement and tabling an amendment to repeal entirely the Planning-gain Supplement (Preparations) Act 2007? That would be a serious step towards reducing red tape, and a simple one, because the Government say they do not intend to introduce PGS at all. Why keep the Act on the statute book? Let us have a gesture of good will. What is the limit on regulation and how will it work?

The Government want to encourage zero-carbon homes. We all share that aim, but anybody who talks to the building industry will know very well that zero- carbon homes are technically impossible at present. It is possible to have, on balance and using a very complicated formula, zero-carbon communities, but not zero-carbon homes, as I understand it. The Government are trying to sound as though they are developing some serious strategic thinking on green taxes, so there are proposals on vehicle excise duty and the first year tax rate.

My problem with the Government is that they like red tape. They like producing pieces of paper that limit people’s scope, rather than encouraging it. If there is one message after 10 years of this Government, it is that they are unable to trust people to respond and to act positively in their own and their community’s best interests. If the Government want to put over a message about green issues, people will not respond to taxation on their vehicles, particularly because of the need, as my hon. Friend the Member for Ribble Valley (Mr. Evans) pointed out, to use cars in the countryside.

We should be ensuring that manufacturers and scientists work together to develop the science. There are exciting opportunities in environmental sciences. The Chancellor referred to that, although it was the usual glancing reference. The best way to make us green is through technological development, not by dragooning people into patterns of behaviour. Have the Government, after 10 years, not learned the law of unintended consequences? The minute anybody is forced into a pattern of behaviour, they find ways out of it. It is much better for people to decide willingly to go green than to force them.

We all take the hon. Lady’s point that to make sure that vehicle emissions are at a much lower level, we want science and the motor industry to co-operate fully, but does she accept that fiscal measures such as vehicle excise duty are intended to create market conditions and market incentives that will motivate a partnership between science and industry? Unless there is a market in which they can meet with new products, it will not happen. That is why it has not happened to date to the degree that it should have.

I disagree that that has not been happening. The hon. Gentleman may be disappointed that it is not happening at the speed he would wish, but the science is still in its relative infancy, so it is difficult to produce the family car for five. When the science moves on, the market will move—when it becomes sensible to do so. To tinker at the edges and add vehicle excise duty to the cost of motoring is not the most effective way to deliver the changes that the Government and the whole House wish to see. We are all concerned about our green taxes.

I want to let others in, as I know that many hon. Members wish to contribute.

I shall move on to one last point, which was not mentioned but which has been brought to my attention by a number of constituency cases—inheritance tax. The Chancellor announced last year that all widows would benefit from changes in inheritance tax. There is one very small group that is possibly the hardest hit—those whose husbands died before 1972. The people in that group are now very elderly; one such constituent is 106 and her husband died 40 years ago. The inheritance tax changes do not apply to that group of widows. I am sure that that is an oversight—at least, I would like to think so. I would hate to think that that group of very elderly widows was deliberately missed out. The money involved cannot be enormous. I hope that by the end of the Budget debate, perhaps tucked away somewhere in the Finance Bill, there will be a proposal from which every person who is liable for inheritance tax could benefit.

I have covered the broad points that I wanted to mention and have picked up on one or two smaller points. Overall, the Budget was a yawn and will have little impact on the wider economy. All it will do is reinforce the difficulties that the coping classes face under this Government.

The hon. Member for Beckenham (Mrs. Lait) made an interesting speech; the House will hope that her more pessimistic predictions for the global economy do not come to pass.

I am grateful for this opportunity to congratulate the Chancellor of the Exchequer, my right hon. Friend and Edinburgh colleague, on his first Budget. I particularly welcome the increases in child benefit and child tax credit and the winter fuel allowance for 2008-09.

By any standards, the past 10 years of economic management have been a success story. Continued economic growth throughout the decade has been enjoyed alongside 10 years of low inflation and modest interest rates. Thanks to the stable and prospering economy, the number of people in employment in this country has risen steadily to record levels. The number of unemployed is at its lowest for 28 years and in my area that number has fallen by 57 per cent.

It is fair to add that the economic success of the UK in the past decade has not taken place against a background of great global economic stability and tranquillity. After all, during that period there have been a number of shocks to the global economy, such as the dotcom bubble and the Asian financial crisis. All other G7 countries have experienced at least one quarter of negative growth in the past decade.

Currently, the global background is once again somewhat tumultuous. I guess that at this time there is more apprehension about the future of the global economy than at any time since Labour came to power. Hon. Members and those outside no doubt listened more carefully than usual to the Chancellor’s statement on the outlook for the global economy. There is clearly a big question mark over where the world economy will be in 12 months’ time—primarily, of course, because of what has been happening in the US.

In the context of the Budget debate, there is always a huge focus on what we now call the public sector net cash requirement. That is understandable; the Chancellor has direct responsibility for striking the right balance between what the Government spend in any year and what they take into the Exchequer through taxation.

During the Budget debate of two years ago, I raised the question of our balance of trade in goods and services. My question, to which I did not receive an answer, was about the extent to which we should be concerned about our trade deficit. Our balance of trade in goods and services has been negative for many years. We are net exporters of services; the balance of trade in services reached £36 billion in 2007. However, the increase in the negative balance of trade in goods has been even faster; it reached £87 billion last year.

Is the right hon. Gentleman equally concerned that the tables in the Red Book have been changed? It is now almost impossible to do a like-for-like comparison without flicking through to other tables and small references to “MTIC adjustment”. The total balance of trade is not the £48.75 billion on the table, which would have been the same as for the year before, but £70 billion—and that is tucked away somewhere else in the Red Book.

I congratulate the hon. Gentleman on his detailed scrutiny of the figures. He will certainly agree with me that the substance of the issue is more than worthy of comment.

We have a positive balance in respect of services, but the position is different for goods. Even faster than the rise in the positive balance has been the increase in the negative balance of trade in goods, which reached £87 billion last year. In 1998, our overall total goods and services trade deficit was £7 billion. In the past five years, that deficit has increased from more than £30 billion in 2002 to more than £50 billion last year. I see the Exchequer Secretary on the Treasury Bench; I hope that at some point a Treasury Minister will say a few words about the significance of the trade balance in the modern world. I invite her, or any other Minister with the opportunity, to do so—the issue is clearly of considerable interest.

To varying degrees, any one tax has two outcomes: it raises revenue and it influences behaviour. To their credit, in 1997 the Government declared a commitment to shift the burden of taxation away from activities that we want to encourage, such as the creation of employment, to activities that we want to discourage. That is clearly right in principle, and important steps have already been taken in that direction. One of the most significant measures for lifting taxation away from desirable activity was the introduction of the tax credit system in 1999. Through that, the tax system is used to help ensure that work pays and removes disincentives preventing people entering employment. The tax credit system has been a factor in raising employment throughout the country.

However, I particularly want to focus on the environment, to which a number of hon. Members, including my right hon. Friend the Member for West Dunbartonshire (John McFall), have referred. I am thinking in particular of the need to put in place measures to reduce greenhouse gas emissions. Some years ago, the Government made a start on using the tax system to make our behaviour on these islands more environmentally friendly. The climate change levy was introduced in 2001 and the aggregates levy was introduced in 2002. Vehicle excise duty was restructured to reflect, for the first time, the environmental damage done by different makes of car. Alongside other environmental actions by the Government, those changes made for a promising start. Office for National Statistics figures show that the proportion of tax revenues raised from environmental taxes saw a modest rise—from 9.4 per cent. in 1997 to 9.7 per cent. in 1999.

However, as the Environmental Audit Committee brought out in its recent report, that was followed by a series of cuts and freezes in key environmental taxes. As a consequence, green taxes as a proportion of all tax revenue fell below 1997 levels—to 7.3 per cent. in 2006.

The Government should take credit for our being on track to meet the Kyoto targets, but we must also look at current trends and where they will take us. The Exchequer Secretary will be aware that the trajectory of UK greenhouse gas emissions is not as it should be. Our emissions have been on a plateau, with only the faintest trace of a decline between 2002 and 2006, the latest year for which figures are available. If the UK is going to do its bit to prevent catastrophic climate change, we will have to take far stronger action than we are taking now. The taxation system has an important part to play. I welcome some of the things that the Chancellor announced in that context, but I suspect that we will have to go further still.

Does the right hon. Gentleman agree that any “green taxes” should be revenue-neutral? Green taxes should be for encouraging people to lead more sustainable lives, but a lot of people are suspicious that they are being used as a smokescreen behind which the Government can raise extra revenue.

I hear what the hon. Gentleman says. If the tax is put on, it will have an effect, whatever happens. However, the hon. Gentleman’s point is valid. Such taxes will be more acceptable to the electorate if they feel that although they are paying more tax for some things, they are paying less for others. We can hardly dispute that such a situation would make green taxes more acceptable.

One of the duties that has been subject to cuts and freezes in recent years has been air passenger duty, and—as the Environmental Audit Committee identified—the doubling of rates from February last year simply restored most rates to 1997 levels. Aviation is acutely undertaxed. It pays no value added tax, and hardly any aviation fuel is subject to duty. At the same time, aviation is the UK’s fastest growing emitter of greenhouse gases.

The announcement by my right hon. Friend the Chancellor in October’s pre-Budget report that air passenger duty was to be reformed was welcome news. The Treasury proposes that air passenger duty become a charge per flight rather than a charge per passenger. In its recent report, the Environmental Audit Committee concluded that that will incentivise airlines to fill their flights. The Committee believes that short haul charges must reflect relatively high emissions and the fact that alternative means of travel are available. The Committee also recommends that the Government consider the introduction of an extra band to cover very long haul flights. I welcome my right hon. Friend’s acknowledgement that he will not only maintain his policy on this tax but expect to secure a very substantial rise in air passenger duty in subsequent years.

Did the right hon. Gentleman find anything in the Budget that might encourage expanding areas of aviation, such as the low-cost carriers, to adopt the most modern and least emitting types of aircraft?

The proposal to move from taxing flights as opposed to passengers is certainly a positive move. I hear what the right hon. Gentleman says. I am not sure how easy it would be to implement something like that, but we should constantly be looking at other ways of bringing pressure to bear. The inclusion of aviation within the figures—it is excluded at the moment—is in itself long overdue.

I want to move on to carbon capture and storage, which has already been mentioned by my right hon. Friend the Member for West Dunbartonshire and others. Electricity generation is the UK’s largest single producer of carbon dioxide emissions. Traditionally, our coal-powered stations have been the highest emitters of carbon dioxide, and the move away from coal to gas in electricity generation played a large part in our being on track to meet our Kyoto target. However, coal is still the source of about a third of our electricity, and the House will be aware that new coal plant is planned.

To reduce the carbon footprint of fossil fuel-fired power stations, carbon capture and storage—CCS—technologies are being developed to remove the carbon dioxide that is produced and to store it for the long term. With the 2005 pre-Budget report, the Government launched a consultation and a competition for a full-scale demonstration plant, and with the 2007 pre-Budget report came details of the competition and the news that it would apply only to a post-combustion coal plant. That competition is welcome.

The fact that post-combustion CCS should be suitable for retro-fitting existing plants is also an important consideration. However, the winning plant will not be built until 2014, and even then the CCS element need not be fully operational. The response to the potential of CCS should be on a larger scale and of greater urgency. In this context, I should mention last year’s regrettable decision by BP to abandon its planned CCS project at Peterhead.

As the Environmental Audit Committee pointed out, CCS power stations will cost more to build and run than conventionally built plants and will need ongoing support. That support could be financial, through mechanisms such as feed-in tariffs. It could also come in a regulatory form. The regulations could apply to plants that had been in operation for some years and that, it is to be hoped, should be able to retro-fit if the technology becomes available. In addition, we need to ensure that the new power stations are built with CCS in place, if the technology is sufficiently advanced, or, if it is not, that they are built ready for CCS to be fitted as soon as that technology becomes available.

We do not know what the world economy holds for us in the next year. Clearly, the outlook is uncertain. I believe that the Budget gives us a good opportunity to do the best for this country and ensure that whatever the world economy holds we have the best opportunity of maintaining the stability that we need for our people and industry in this country.

It is a pleasure to follow my fellow member of the Select Committee on Environment, Food and Rural Affairs, the right hon. Member for Edinburgh, East (Dr. Strang). I acknowledge his commitment to environmental issues and welcome his remarks on that subject.

Before proceeding, I remind the House of my entry in the Register of Members’ Interests.

The first thing that one does when one listens to a Budget speech is to judge whether the overall impression is going to impress, depress or whatever. It is usually said that if there are great cheers, particularly from the Government Benches, the next day people will adjudge that the speech was not really quite as good as they thought—a bit like a Chinese meal that will be quickly forgotten. The deadly silence with which most of the Chancellor’s remarks were received on the Labour Benches makes me tremble a little bit and think that perhaps there is something more inside this Budget that I did not spot. A silent Budget is usually one of those that has a longer-lasting effect. I am certain that that last prediction will come true, because it deals with some long-term economic trends.

When it comes to people outside—the public whom we represent in this House—digesting what the Chancellor said, the first thing that they will realise is that they have heard it all before. It seems that the old idea of Treasury purdah has departed, as most of the content of the Budget, if not in specifics then certainly in themes, was well trailed by journalists at the BBC and elsewhere who seem to have had privileged access to what was in it. I would ask those on the Treasury Bench at least to give us some measure of excitement and, at a time when the Chancellor is struggling to say anything of great interest, to stop briefing the press and allow future Budgets to contain one or two measures of genuine surprise.

Was there anything in the Budget for my constituents, who would perhaps have sought some comfort from its content in dealing with the things that worry them? They will have heard the Chancellor talk about this country’s low inflation policy. However, I am afraid that although the target may be 2 per cent. on the consumer prices index, which the Chancellor has selected, inflation is much higher than that in the real world, as the retail prices index is well above 4 per cent. When people get their council tax bill through their door, see their rising cost of living and reflect on their rising uncertainty about their economic prospects, I think that they will find their own situation difficult to reconcile with the Chancellor’s words of certainty as regards the economy.

Will not the right hon. Gentleman’s constituents, especially those on low incomes, welcome the increases in child benefit and in child tax credit, and, from October next year, the very important disregard of child benefit in the calculation of housing benefit and council tax benefit, which will make a real difference to the incomes of many people on low wages?

The right hon. Gentleman is right to paint some positive pictures. I am sure that those who are able to access the sources of funds to which he referred will be pleased so to do. However, my postbag is still heavy with correspondence from people who have problems with tax credits. Those people will still face an uphill struggle to ensure that they get that money, and when they review it against the rising costs of the basics in their living standards, they may well find that it is a case of giving with one hand and taking with the other. Those who are lucky enough to see themselves on a rising trend of income will immediately discover that fiscal drag is an issue that has not been addressed in this Budget. Many lower-paid workers will come into the tax bracket before they should, while those who are a little further up the income scale will find themselves paying the higher rate of tax when they might have hoped for some salvation from that. Fiscal drag is again being used by the Treasury to maintain income going into its coffers. The elderly, whom the right hon. Gentleman did not mention, and who might rejoice at the thought of another £50 on the winter fuel allowance, had better be warned that the Red Book tells us that that money is there only for one year—so that is, I suppose, this Budget’s special offer.

The Chancellor made a lot of reducing corporate taxation in terms of reducing the basic rate of corporation tax from 30 per cent. to 28 per cent. However, he forgot to remind the House that capital allowances are simultaneously being reduced. When those numbers are netted off, we find from the Red Book that there is a £100 million increase in income to the Treasury. By all means let us talk about competitive tax rates, which I welcome, but let us talk about the complete picture: business as a whole will pay more taxes.

Does the right hon. Gentleman agree that while larger businesses will experience a small decrease in tax, small and medium-sized businesses will not? They will be greatly disadvantaged.

The hon. Lady, who had the pleasure of visiting my constituency not very long ago, makes a telling point. The Chancellor talked about the competitiveness of business, but she has just reminded the House that small and medium-sized enterprises are effectively suffering a tax penalty. To go back to the impression given by the Budget, once the numbers and the total picture have been gone through by financial commentators, people will find that it ain’t as good as the Chancellor tried to paint it.

The right hon. Gentleman referred to the fact that the picture is not so good, and to fiscal drag on tax bands. However, on page 113 of the Red Book there is an increase in the personal allowance for those under 65 of about 4 per cent. The starting point for the higher rate of tax has also gone up by about 4 per cent. That does not sound like fiscal drag to me.

It may not, but I suggest that the hon. Gentleman, who I know takes a keen interest in these matters, looks again. He will find that the allowance for under-65s has gone up by a total of 210 allowable pounds, which represents about £45, which is roughly speaking a reduction in tax of £1 a week. Set against the cost of living increase that I mentioned earlier, people will not find that a particularly pleasant situation. I hope that the hon. Gentleman has not confused the amount of tax paid with the number of people paying tax, which is what the concept of fiscal drag is meant to address.

While on the state of public finances, the other thing that intrigues me is that if we consider the next financial year, the Red Book last year had a projected borrowing level of £30 billion, but one year later, that figure has now risen to £43 billion—an increase of £13 billion. If we consider receipts, we find that they are forecast to rise by £22 billion on last year’s Budget. We therefore have rising receipts, bearing out what my right hon. Friend the Member for Witney (Mr. Cameron) said from the Dispatch Box: a rising trend in the payment of taxation and a rising trend in the level of Government borrowing. That illustrates keenly the difficult situation that the Treasury finds itself in, hence the overall gloomy tone of the Chancellor’s remarks. He does not have any fiscal room for manoeuvre.

I turn to three specific areas, the first of which is monetary policy. I am still concerned about the structure of the British economy. In my remarks on the Budget speech last year, I conjectured as to why, of all the western economies, the UK needed higher interest rates to achieve a similar performance with regard to inflation—a target of 2 per cent. I query whether we need a national debate, if I may put it that way, on monetary policy. The drivers for inflation are matters that affect people’s consumption at the moment—the cost of food, fuel and energy. Most people have a choice: they can spend on the basics, but their discretionary spending diminishes. We have witnessed that already in the reduction in retail expenditure.

We have a zero-sum game, where money is going round, but is being spent on basics, rather than being part of discretionary spend. In recent times, the response of our monetary policy in trying to keep global inflation down has been to raise interest rates, or marginally to lower them with a potential depressive effect on the economy’s ability to sustain employment and investment. I mention that because, to me, the most difficult element of the inflationary equation is whether people seek to address inflationary pressures through inflationary pay demands. In the public sector, the Government have already put a cap of 2 per cent. on what they are prepared to have as the norm. I suspect that the figure is between 2.5 per cent. and 4 per cent. in the private sector. I have not heard much from the Monetary Policy Committee or the Treasury about whether there needs to be a revised view of what constitutes inflation in the 21st century.

I find myself in the paradoxical and unusual position of agreeing with the right hon. Gentleman. Does he agree that if the Bank of England had the double-header rubric, like the Fed, to keep inflation down and to maximise employment, it would make for better and more flexible policy?

It is a pleasure to agree with the hon. Gentleman. I seem to recall that section 11 of the Bank of England Act 1998 defines clearly what the Bank’s Monetary Policy Committee is all about; it is achieving the target that the Chancellor set. It is interesting that the previous Chancellor reset the inflation target from 2.5 per cent. to 2 per cent., just as we ran into the first serious series of commodity price rises that we had experienced for a long period of time. It is interesting to speculate as to whether we conspired to have a more difficult monetary situation simply by decreasing the target for inflation by a half of 1 per cent.

I have a slightly different point from that of my hon. Friend the Member for Great Grimsby (Mr. Mitchell) on monetary policy and the use of interest rates to calm inflation. Is it not the case that the measures announced by the Chancellor on longer-term mortgages will assist monetary policy by taking some pressure off the Bank of England when it sets interest rates, while recognising that a different market will come about with the longer-term interest rates announced today?

The hon. Gentleman raises an interesting point, but longer-term mortgages relate to the stabilisation of people’s personal finances, not the heart of the inflationary issue. Current inflation is being driven not by wage demands, although they may come, but by commodity prices and the world economic situation. With respect to the hon. Gentleman’s point, long-term mortgages are a response but not a solution to those overall inflationary factors. I say to the Treasury that the time is right to have a discussion and analysis of the current nature of inflation because our response is still geared to previous inflationary cycles in the economy.

I am interested to hear my right hon. Friend’s remarks. Conversely, is it not the case that during the last couple of months, the Bank of England has decided to reduce interest rates at a time when it was clear that there were significant inflationary pressures? Does that not show a little more flexibility in its response than he suggests?

Sadly, the hon. Member for Great Grimsby (Mr. Mitchell) is no longer in his place, but my hon. Friend’s point goes back to the fact that we look to the Monetary Policy Committee to drive not only the fight against inflation, but the level of activity in the economy. Inevitably, the two are linked, but commentators ascribe to the Monetary Policy Committee the ability to influence all kinds of economic factors by virtue of its attempt to focus on the achievement of the inflation target. Although I acknowledge my hon. Friend’s point, he does not go to the heart of what is driving our present inflationary situation. I would welcome a debate on whether we have the right mechanism. Broadening the scope of the Monetary Policy Committee may be right—I do not want to come to a conclusion on that matter without considering it carefully—but the time is right for a reappraisal of what drives UK monetary policy.

The second area that I want to consider is that of sub-prime lending. Such lending grew in the United States in a situation where there was a lot of cheap money and people were looking for opportunities to deploy it. They suddenly alighted on the opportunity to allow mortgages to many people who probably should not have had one. The net result was that the American economy turned down and people defaulted on their mortgages—we saw what happened next. I carried out a little exercise to examine the corporate social responsibility reports of some of the banks in America that have suffered the most, in order to see what they said about their responsibility to wider society. Why did I do that? One of the clear trends in provision for, for example, old age, investment and paying mortgages is the weight that we now have to place on private sector investment vehicles. People’s security and future well-being depend on the integrity of the products that the financial system now delivers. Events in the sub-prime market have shaken people’s faith in those financial vehicles’ ability to deliver long-term future funding.

It is therefore interesting to read some of the American banks’ corporate social responsibility reports. Citibank, which lost $18.1 billion, states in its corporate social responsibility report on its website:

“From affordable housing to sustainable economic development to financial education, our network of employees and resources provides many meaningful opportunities to serve our communities to really make a difference.”

What a difference chasing that last margin of those sub-prime loans made. It has contributed to shaking the foundation of western capitalism. We are now considering the instability of the banking system. Central banks are pumping in hundreds of billions of dollars to stabilise the system when so much depends on its stability.

Merrill Lynch, which lost $14.1 billion, wrote under the heading “Integrity” on its website:

“No one’s personal bottom line is more important than the reputation of our company.”

What, in the psyche of those banks, got them into a position whereby they put at risk not only their products but the statement of their public position and intent? I know from what the Chancellor said that a great deal is happening in international banking—through the World Bank, the IMF and so on—but if there is one issue with which it must deal, it is the integrity of those banks’ actions. They should be forced to re-examine their commercial policies, which put at risk the very security of the millions of people whom we represent.

A recent edition of The Economist conducted some analysis of how good some of the experts are who run the funds that have been so badly affected by sub-prime lending. It concluded that the costs of the so-called professional management of our money were high and the returns were not much better than they would be if people simply followed the general indices of stocks and shares. It pointed out that, in Sweden, which privatised much of its future pension provision, many people invested in a fund that had grown by 534 per cent. in the five years preceding the change in Swedish policy, only to lose 70 per cent. of its value in the next three years. People were so frightened by that that inertia set in and they did not know what to do.

That is the problem. Unsophisticated investors, of whom I count myself one, subcontract to experts the well-being of our future position. In the light of events in sub-prime lending, those in whom I and many millions put their trust have been found wanting. A fundamental re-examination of those banks’ commercial requirements and their responsibilities to their shareholders and, more important, to wider society, is needed.

Does the right hon. Gentleman agree that the Government were right to step in on Northern Rock to stabilise the position? Does he also agree that nationalisation was right?

The Government had to take action on Northern Rock because many innocent individuals were caught up in something that was not of their making. Unlike the position of, for example, the Bank of Credit and Commerce International, whereby people were seduced by high returns on their money, Northern Rock looked like a good, normal bet. However, the Government have been found wanting on the speed of action and the direction of travel. The institution wallowed in difficulty and the share price has been adversely affected, perhaps disproportionately, by the delay in acting. However, some action had to be taken.

The article in The Economist that I cited earlier concluded:

“But whatever happens to the industry,”—

the banking and investment industry—

“it would do its reputation a power of good if over the next ten years its activities were adjusted to benefit its clients a little more and its managers a little less.”

I share my right hon. Friend’s analysis, which he presents in a sophisticated manner. He mentioned the re-examination of the products of the businesses. Does he accept that an appreciation of what risk means has been missing?

I agree because no investment can be risk-free. However, on the cost of investment, the Government tried the stakeholder pension—their only venture into that territory. Perhaps if the Financial Services Authority, the Bank of England, the Government and bankers came together to re-examine the matter, a fundamental rethink might occur of the cost of investing, the risk:reward ratio and the corporate social responsibility provisions to which many of the institutions subscribe, but which have been threatened by sub-prime.

I want to comment on a couple of things that the Chancellor did not say. I find it intriguing that the former Chancellor said, when he first came to power, that the taper tax system had to be introduced because it would help capital accumulation in the economy. The current Chancellor has not explained why moving to a flat rate of capital gains tax is now better. I suppose that the only thing that is better is the £700 million in the Treasury’s coffers. However, a little more plain speaking would be nice to explain what has changed in the fundamental operation of capital gains tax.

It is disappointing that the Chancellor has not tried to simplify inheritance tax. I suggested in my Budget speech last year that we could have a low single marginal rate of inheritance tax if we did away with the panoply of allowances, many of which are accessible only if one can afford the professional fees for the advice about how to use them. Again, that suggestion was ignored, and we retain an incredibly complicated, old-fashioned tax, which needs modification.

I stress to Treasury Ministers, especially the Financial Secretary, who is in her place, that I hope that, as the tax law rewrite project, with which I have been associated since its inception, nears the end of its major change to the clarity of tax law, the Treasury will not shy away from reacting to the enormous amount of work on improving the operation of the tax system. That is different from rewriting the law in a legible and understandable way. If the Treasury is to take with it the support of the accounting profession and others in the financial community to make Britain’s tax laws work properly, the Financial Secretary needs to expand and change the tax law rewrite committee’s remit to consider more carefully modifying and improving the efficiency of the tax system.

With respect to the Chancellor, changing the way in which small and medium-sized enterprises access the tax system and report their financial transactions is not the same as making the whole system work better and simplifying it. The word “simple” is often used but it is difficult to achieve. However, many lessons have been learned through the rewrite exercise and they need to be examined.

Let me consider green taxes. The Select Committee on Environment, Food and Rural Affairs, which I chair, suggested trying to encourage local investment in decentralised energy systems. We suggested to the Chancellor the introduction of a green ISA—a unique instrument for investing in green technology or local, decentralised low-carbon schemes. Sadly, that did not figure in the Chancellor’s speech this year. However, there are some remarkable examples in Germany of small communities with local networks of investors, which have now got combined heat and power schemes, which would be the envy of many communities in this country.

Sadly, there was no mention of a buy-in tariff to encourage more decentralised electricity generation or help to deal with emissions from the heat sector. We all talk about electricity and transport, but heat accounts for one third of emissions in this country, yet is the one area where revolution and change are under-encouraged.

I hope that the Treasury will look carefully at what I have said about the state and security of our financial institutions. They are so vital to the well-being of so many of the millions whom we represent. If, as a result of reacting to Northern Rock, we could address some of those issues, there might be a different way of expressing the concept of financial stability, for the long-term benefit of the millions whom we represent.

It is a great pleasure to follow the right hon. Member for Fylde (Mr. Jack) and to listen to his words of wisdom about our financial institutions. He agrees with the hon. Member for Beckenham (Mrs. Lait), who also made an excellent speech, about the problems resulting from, if I may say so, the misuse of financial instruments—the bundling up and selling off, the derivatives and futures, and the hedging. All are useful tools in the world of finance, but when misused, they have created enormous danger. The right hon. Gentleman made that extremely clear.

Interestingly, I recall the Leader of the Opposition suggesting not so long ago that the City was falling out of love with Labour. On the back of the remarks that we have heard from the right hon. Member for Fylde and the hon. Member for Beckenham, it would seem that the City has not yet found a new suitor in the Conservative party, with those attacks on the behaviour of the very institutions that, formally and traditionally, were its major supporters. The Conservative party’s whole approach has to find a new pathway, so perhaps the right hon. Gentleman and the hon. Lady should communicate that to their leader.

I would not like my remarks to be construed as an attack; it is more a question of saying, “Watch out!” The expertise of those institutions is vital, and there is no substitute for long-term investment carried out responsibly by the City of London and other financial markets—but on this occasion they got things wrong.

I am pleased to hear the right hon. Gentleman moving back towards the middle path that I was suggesting, which is to have a use for those instruments, but not a misuse. We can now take that as read.

I want to concentrate my remarks on what I regard as the heart of the economy—the manufacturing capacity in this country. I want to focus particularly on the auto and aerospace industries, and to consider them as part of the export effort that we must continue to make. If a Budget is about the gathering and distribution of taxation, there must be real wealth before anything of note can happen. That is why I choose to speak about the manufacturing industries in our country.

Export is everything, as far as Britain is concerned. Whether in manufacturing or services, we must recognise that for an island economy, the choice is trade or die. Therefore, we have to make friends worldwide. The right approach to world peace is to have mutually advantageous trade. I wholeheartedly support the efforts of our exporting community to call for assistance wherever it is required, in their main effort of ensuring that Britain pays its way. I shall speak in a moment about the conditions of work in which we are operating, and the effect that those have on the balance of payments.

The overall thrust of our economic policy has not been particularly helpful to our manufacturing industries. If manufacturing is at the heart of what we do, and most else is peripheral to it, we have for many years not taken care of it as we should have done. Our current balance of payments deficit is some £51 billion—considerably different from what it was just 10 or 15 years ago. That figure is accounted for by a monthly deficit in manufacturing of £7 billion to £8 billion, which is offset only by a services surplus of some £3 billion.

Given that situation, it is right to recognise that manufacturing has continued to increase its output, although its share of GDP has fallen. In 1995, the output of manufacturing and allied services was overtaken, in terms of growth in GDP, by the services sector. The services sector now accounts for some 75 per cent. of total output. Again, that illustrates the fall from grace of manufacturing in our country.

At the same time, I should like to pay tribute to those in the manufacturing industries, by recognising that their productivity gain has been startling—startlingly good, it is nice to report. Indeed, in 2004-05, it reached the giddy heights of 8 per cent. per annum. The figure has moderated a little since then, but it is still well ahead of the productivity gains seen in the services sector. Although more should have been done to assist in the manufacturing endeavour, those increases in productivity illustrate that manufacturers have, in the vernacular, been playing a blinder.

I share the hon. Gentleman’s interest in the manufacturing industry in the UK. We are all aware of the balance of payments deficits overall, in manufacturing and services put together. However, does he agree that the Government ought to be doing more to support small and medium-sized businesses in particular, by holding more exhibitions and trade missions abroad and by giving those businesses more assistance to participate in them?