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Budget Resolutions and Economic Situation

Volume 473: debated on Thursday 13 March 2008

It is good to open this debate and it is a pleasure to do so, as is traditional, on the first full day of the Budget debate. May I say how happy we are that we have been joined by the Secretary of State for Work and Pensions? He is one of a number of young Turks angling to deliver next year’s Budget, so we will see how he does today. It is good that he has been supported by so many members of the Labour party who have come to back up the Chancellor’s Budget just 24 hours after it was delivered.

It is indeed 24 hours since the Budget, and now the whole House has had an opportunity to examine not what the Chancellor said yesterday, but what he actually did in the Budget: to examine how, for example, the tax on so-called gas guzzlers is going to hit 70 per cent. of all cars sold; to understand how the tax on so-called binge drinking will hit 43 million drinkers; to get some explanation for how a Budget that was supposed to help business and enterprise actually has, according to the Red Book, £1.7 billion of new taxes on business; and to expose how a Labour Government whose sole claim to office was their ability to manage the economy have managed to leave Britain so ill prepared for the economic slow-down.

The Chancellor of the Exchequer said something extraordinary on the radio this morning. He was asked by the presenter, “Do you wish you had more room for manoeuvre?” He replied, “Well, we are where we are”—[Interruption.] Ah, the Chancellor has just arrived. I am grateful to him for appearing at this debate. I was just quoting from what he said on the radio this morning. He was asked, “Do you wish you had more room for manoeuvre?” He replied, “Well, we are where we are…er, you can only deal with the economy as you find it.” However, that prompts the question, who left him the economy that he now finds himself managing? Whose fault is it that we are where we are? The answer, of course, is the Prime Minister—the author of this Budget in every sense of the word.

Let us imagine for one moment that the Prime Minister, in his long years as Chancellor, had set aside something for a rainy day. Let us imagine—I know it is a fantasy—that like other Finance Ministers in other countries, he had used the 15 years of global economic growth to reduce the budget deficit or even to build up a surplus. Let us pretend that he actually meant what he said when he promised prudence with a purpose, and had used the good years to prepare for the difficult years. I know that it is difficult to take that leap of imagination today, but let us try. If the Prime Minister had done those things as Chancellor—if he had actually demonstrated the economic competence that he boasted of, if he had fixed the roof when the sun was shining—let us consider what yesterday’s Budget would have looked like.

There would probably have been a big fiscal stimulus package. We would be discussing a reduction of taxes on entrepreneurs, investors and businesses. There would be measures to put money into the pockets of families facing a rising cost of living. We would be discussing a cut in family taxes, not an increase. All these things are happening in other countries. They are happening in the United States, and they are happening because those countries can afford to do them. [Interruption.] The hon. Member for Rhondda (Chris Bryant) asks whether the United States is the only country that I can think of. No, in fact. There is Sweden, with its 2 per cent. budget surplus, Spain, with its 1.5 per cent. budget surplus, Australia, with a 1 per cent. budget surplus, and there are Denmark and Ireland. I could go on through a list of European countries.

We could even be considering—who knows?—where Britain’s new sovereign wealth fund was to make its first investment. Instead, what are we debating? We are debating a 3 per cent. budget deficit, £140 billion of borrowing, tax rises on business and measures that take money out of family pockets.

Does my hon. Friend also agree that, had the Prime Minister not sold the gold when he did and at the rate he did, we would have £4 billion to look at this in this Budget that we do not have now?

I thought that the hon. Gentleman was a great fan of modernising Parliament; now he is picking me up on my language. My hon. Friend, the hon. Lady, is absolutely right. The previous Chancellor managed to sell gold at the very bottom of the market. Indeed, the gold traders now call the price at which gold hit its lowest “Brown’s bottom”. Of course, gold might push through $1,000 in the next few days.

While the hon. Gentleman is on the subject of fixing roofs, will he comment on the roofs that have been fixed through investment in places such as my constituency, where there are three new schools at £30 million a piece, a new £100 million college and a £184 million Building Schools for the Future programme, and where every council and social house has been renovated through the decent homes initiative? Is he saying that he regrets, and would never have implemented, that programme of investment?

In London, I live in the hon. Lady’s constituency. I am well aware that the people whom she represents will be among those hit by the abolition of the 10p starting rate, upon which she will be asked to vote next week.

We were discussing economic incompetence—[Interruption.] I am coming to education spending, because I shall tell Labour MPs about something that they have not woken up to about this Budget. We were discussing this Labour Government’s economic incompetence and how it has left Britain with no room for manoeuvre. If this Chancellor was running for President, on the basis of that Budget his campaign slogan would be, “No, we can’t.” His tactic yesterday was to say that he had no room for manoeuvre and to blame the world economy. It is funny how this lot take the credit for 10 years of global economic growth and then blame everyone else when it slows.

It is the job of any Government to prepare for high oil prices or problems in the financial markets. It is not the fault of some sub-prime estate agent in Mississippi that we enter a downturn borrowing £36 billion—it is the fault of the Prime Minister. It is not the fault of Wall street bankers that we have the highest tax burden in our history—it is the fault of the Prime Minister. It is not the fault of some capitalist conspiracy that 5 million of the lowest-paid people in Britain face a tax increase this April—it is the fault of a Labour Prime Minister who is trying to fix his economic problems on the backs of the poor. His job in the 10 years that he was Chancellor was to prepare for when the global economy hit problems, and he failed.

Does my hon. Friend agree that when there are global inflationary pressures most sensible Governments try to cut taxes, not increase them?

My hon. Friend is right. He is also right in the sense that it is not clear that any other major economy’s response to the global economic problems is a significant increase in taxation. I cannot think of any Finance Minister in an equivalent country who will this year present a Budget containing a £2.5 billion increase in taxes. That shows what a mess we are in. The more closely one examines yesterday’s Budget the clearer it becomes, because as usual, of course, many things are hidden. That is one of the Chancellor’s predecessor’s habits that the Chancellor did not kick. Many things hidden in the small print of the Red Book were never mentioned in the Budget speech.

This debate is our chance to examine the small print, and let us begin by considering those public finances. One would never have gathered from yesterday’s performance at the Dispatch Box—[Interruption.] I am a generous man when it comes to this Chancellor of the Exchequer. I genuinely get on much better with him than I did with his predecessor—and I am not the only one. One would never have gathered from yesterday’s performance that not only have the Government got their borrowing figures wrong, but they were miles out. Never mind the fact that we have already borrowed £110 billion more than the previous Chancellor forecast in his earlier Budgets, and that the Government have been wrong in each of the past seven years, because even the forecasts made by this Chancellor in October are hopelessly wrong.

The Government are set to borrow in the coming period £20 billion more than the Chancellor predicted last autumn—£7 billion more next year alone. Last March, the Prime Minister told us in his last Budget that we would be in the black next year, but now we discover that we will be in the red to the tune of £10 billion, on the current Budget. As I say, that comes after 15 years’ global economic growth. It is the opposite of prudence and the opposite of what most of the rest of the world have done.

On the figures announced by the Chancellor, Britain enters this economic slow-down with about the worst budget deficit in the developed world; the exceptions are Pakistan, Hungary and Egypt. Labour has achieved the impossibility of making Italy, France and Germany look like paragons of fiscal virtue. We are now discovering the truth about the state of the public finances and about the public spending predictions—a point that was raised by the hon. Member for Regent’s Park and Kensington, North (Ms Buck).

The Chancellor said almost nothing about spending in his Budget; indeed, he said nothing at all about the national health service. I thought the Prime Minister’s mantra was:

“education is my passion; the NHS is my priority”.

It is not a priority that made it into the first Budget of his Government. That does not mean it did not feature, because if one delves into the detail and compares the spending tables published yesterday with those published in the autumn, one discovers something strange. One discovers that health spending is set to be £1.3 billion less than we were told it was going to be last autumn, including £700 million less on capital spending. The Chancellor talked about investing in schools, but we discover that capital spending on education is set to be £300 million less than he predicted in the autumn. The spending of the Department for Innovation, Universities and Skills, which is supposed to be a priority, will be £1.9 billion less than the Government were predicting in the autumn. None of those changes was mentioned in the Budget speech.

Alongside a raid on reserves, the Government pay for not only a big increase in defence spending, but a £1.5 billion rise in Department for Work and Pensions administration costs. Health and education spending growth appears to fall and welfare administration costs appear to rise.

I shall certainly give way. Was the hon. Gentleman aware that the Government had reduced the growth predictions on spending on health and education? I was not when I was listening to the Chancellor.

The hon. Gentleman said that the Chancellor said nothing about health yesterday. In fact, one thing, among others, that he said about health was:

“In 10 years, spending on health has almost doubled”.—[Official Report, 12 March 2008; Vol. 473, c. 289.]

I am sure that the hon. Gentleman will now withdraw that remark. More importantly, he just referred to defence spending. The shadow Defence Secretary has said that the percentage of public spending on defence should increase and the shadow Health Secretary has said that the percentage spent on health should increase, so where will the hon. Gentleman find the cuts to pay for those commitments?

What I am trying to explain to the hon. Gentleman is that there is a big increase in defence spending this year, and it is apparently paid for—I am happy to give way to the Chancellor if he would like to explain what went on—by a reduction in the projected growth in spending on health and education. I am bringing that to the House’s attention. If the Chancellor wishes to intervene to explain exactly what has been going on with spending—I am sure the hon. Gentleman did not know what has been going on, just as I did not know, when listening to the Chancellor—I would be happy to give way to him. Apparently he does not wish to intervene.

That brings me on to another story—the impact of the new alcohol and car taxes. What the Opposition demonstrated last week was that one can use targeted tax rises, as other European countries have done, on the drinks favoured by binge drinkers and under-age drinkers to pay for lower taxes on lower alcohol drinks, leaving alone most of the drinks that most responsible adults enjoy. The Chancellor demonstrates this week how general rises in alcohol taxes hit 43 million people and do little to tackle binge drinking.

On that specific point, the hon. Gentleman is saying that he would not spend that alcohol duty on anything other than tax cuts. Does that mean that he will not support the winter fuel allowance increase this year or the measures on tackling child poverty next year?

The increases in alcohol duty and vehicle excise duty, which I am coming to, are permanent increases, whereas the winter fuel payment is a one-off payment this year. If the right hon. Gentleman, either now or in his reply, makes a commitment at the Dispatch Box that it is an annual increase—in other words, it applies year on year—and if he is honest with the British public about what he is doing, I will tell him how we will vote on the alcohol duty increases. He is not prepared to give that commitment.

The hon. Gentleman was not in the House at the time, but can he explain why during his party’s 18 years in office it never, at any stage, had a winter fuel allowance and why child poverty and pensioner poverty grew, as he well knows?

Although I was a young boy at the time, I seem to remember that the Conservative Government who came to power in 1979 inherited a situation where there was no winter fuel at all, because the power stations were on strike.

My hon. Friend knows that I am vice-chairman of the all-party group on beer. The alcohol changes announced yesterday will do nothing to tackle binge drinking. Four pubs are closing each day in this country. Pubs are one of the great British institutions and in rural areas they add to the fabric of society. The announcements made by the Chancellor yesterday will condemn more British pubs to closure.

My hon. Friend makes a powerful point. Interestingly, on the radio this morning, the Chancellor gave up any attempt to claim that the changes were about binge drinking or health measures. [Interruption.] That is exactly how they were billed as in yesterday’s Budget and in advance. He made no attempt to make such a claim today because he knows that they are just a stealth tax. That is also true of the vehicle excise duty changes.

If the hon. Lady will allow me, I shall make my points about cars and then I will take an intervention.

Listening to the Chancellor yesterday, people would think that only the biggest, most polluting 4x4s will be hit, but of course that is not true. Family cars face a higher tax bill, including the Renault Espace, the Citroën Picasso and, worst of all, the Ford Mondeo. In opposition, young researchers such as the now Secretary of State for Work and Pensions toiled to build new Labour on the promise of helping Mondeo man, and they have ended up taxing his car.

There is nothing wrong in principle with green taxes—far from it. I actually want to see the proportion of the tax take from green taxes rising instead of falling. Indeed, our policy group examined ideas such as a showroom tax, but the key difference in our approach is that rises in green taxes should be offset with tax reductions elsewhere. That is the only way to command any public confidence that the changes are transparent weapons in the fight against climate change, not sneaky devices for raising more stealth taxes. While we are on the subject of sneaky green taxes, why did not the Chancellor mention that he is removing the duty differential on biofuels, raising a cool £550 million, in two years’ time?

The hon. Gentleman has already been asked—he failed to answer—whether his party will make a commitment to halving and then ending child poverty. Can he confirm that that remains an aspiration, not—this is what the Government have made—a commitment and an action plan to make it happen?

It is our aspiration to end child poverty, and it is also an aspiration for the Government, because on their present course they will not hit their target of halving child poverty by 2010. They have got one more Budget next year to do something about it, but even on the measures announced today they are still well short of their 2010 target. They can call it a commitment, but it is actually an aspiration.

There is another hidden tax in the Red Book. It is buried away in table C6 on page 187, which shows that the Government anticipate a 5.1 per cent. increase above their own capping limit in council taxes. That should certainly be drawn to the attention of local electors in the forthcoming elections. Yet again, we discover that the Government are squeezing everything that they can out of hard-pressed British families, who are already feeling the pinch.

As the Secretary of State for Work and Pensions has joined us, we should talk a bit about the Government’s commitment to welfare reform. I have some sympathy for the Secretary of State. He is Brown’s Blairite and the self-styled heir to the right hon. Member for Darlington (Mr. Milburn)—not that I want to kill off any leadership prospects that the Secretary of State might have. I can see his anguish as he watches the party, in whose Government he has risen so high, fall apart. I can also see his relish at the prospect of being the leader who puts it all back together again in opposition. On the back of this Budget, with its tax rises as we approach a general election, he may well get that opportunity.

Let us be honest about the child poverty figures. Let us be honest and say that they have risen by 100,000 in the last year. New figures are about to be published by the Secretary of State’s Department—perhaps he can give us a preview of what has happened to child poverty. He could be honest about the fact that 400,000 more families are in deep poverty. He could acknowledge, as the right hon. Member for Darlington did in this debate last year, that poverty has become more entrenched under Labour. He could be honest about the fact that, even if we accept the Government’s claims about the Budget, they are still well short of their target of halving child poverty in 2010. In-work benefits are part of the answer, but so is getting people off out-of-work benefits and into work. It has been clear since the Secretary of State took his post that it is his job to copy as closely as possible the policies of the Opposition. But this Budget exposes the central differences. There are no plans for sanctions on those who turn down reasonable job offers and no proper community work programmes. There is nothing to insist that people attend welfare-to-work programmes—

As the right hon. Gentleman is about to intervene, will he confirm that he would like to see the removal of the departmental expenditure limits-annually managed expenditure—or DEL-AME—divide that prevails in the Treasury? At the moment, he only has a commitment from the Chancellor to explore that.

As the hon. Gentleman has just said, that is on page 60 of the Red Book. He claims that we are copying his proposals, but it is the other way around. His policy document states:

“The radical blueprint set out in the Freud report, involving the contracting out of the return to work process to a series of independent providers…offers a clear way forward for the UK.”

His whole document is based on quoting the Freud report and saying that the Opposition will implement it. Now that the cupboard is bare on Freud report implementation proposals, which we are putting in place, will he come up with some ideas of his own?

The Secretary of State well knows that Tony Blair commissioned David Freud’s report, and it was completely rejected by the present Prime Minister. It is only after the disastrous events of the autumn—when we discovered that although the Prime Minister had been planning it for 10 years, he had no idea what he wanted to do with the job—that he started dusting off the reports that we had read and decided to implement them. [Interruption.] The Secretary of State knows that those ideas came from David Freud, who worked for the previous Conservative Government as well as the present Government.

If the Secretary of State were to implement the entire Freud report, we would welcome that. David Freud himself says that the most important proposal in his report is to use the money that is currently spent on benefits—the so-called AME spending—on helping people get back into work. After months of negotiation with the person sitting next to him—the Chancellor—and the Prime Minister, the best that the Secretary of State has, on page 60 of the Red Book, is a commitment to explore the idea.

If the Secretary of State wants to say that he will implement the Freud recommendation on DEL-AME spending—the difference between departmental spending and benefit spending—in its entirety, I shall let him.

We are implementing them in full and David Freud is advising us on that. Will the hon. Gentleman now admit that he is copying our ideas?

The Secretary of State should have seen the look on the face of the Chancellor when he said that he would implement the proposals in full. He has not secured agreement to deploy AME spending into DEL—[Interruption.] I would happy if the sitting were suspended for 10 minutes—with your consent, Mr. Deputy Speaker—so that the Secretary of State and the Chancellor could have a discussion and come back with the Government’s policy. I will speak for another 10 minutes if that will help them get it together.

The Secretary of State asks what we would do. We would make the change and allow the Government to use welfare spending through payment by results across the out-of-work benefit system to get people into work. That is a commitment from the Opposition, and the sooner the Government make that commitment the better.

Will my hon. Friend confirm that hidden away in the Red Book is another startling admission, which is that 145,000 more families will face a marginal rate of tax, or reduction in benefits, of more than 60 per cent. as a result of the Budget? Is that likely to help people get back into work?

My hon. Friend makes an excellent point. Of course, as I have already mentioned, we face a vote next week that will see an increase in the income tax bills of 5.3 million of the lowest-paid. Those people will not be compensated by the handouts in tax credits elsewhere in the system.

Several aspects of the Budget are obviously bad news for small businesses, but did my hon. Friend spot that one of the papers that accompanies the Budget proposes that tax inspectors should be given powers of surprise entry, without official warrant? Does he agree that that could easily be abused and could be very bad news for the hard-pressed small and medium-sized enterprises in thiscountry?

I certainly know that in years gone by the behaviour of the Inland Revenue caused enormous upset in areas of the business community, and the previous Chancellor had to intervene. It does not surprise me that the Government will now give more powers to the excise men and the Revenue men, as Governments have done that down the centuries, but the Chancellor desperately needs every single pound he can get out of the tax system because of the borrowing mess he is in.

Well, it was such a long intervention perhaps I just thought I had given way twice. With respect, I suspect that the Government will have some problem providing speakers in the debate this afternoon, so I suggest that the hon. Gentleman saves it for the long speech that he will need to make to fill up time. I am sure that the whole House will be very interested in what he has to say.

The final aspect of the Budget to which I want to draw the attention of the House today is the long-term assumptions that it makes. Again, those assumptions were not mentioned in the Chancellor’s speech but underpin the sums in the Red Book and something called the long-term public finance report. They reveal the Government’s true plans. For example, we discover that there is a new long-term forecast for immigration. We have read a lot from the Prime Minister in the tabloid press about immigration recently. In fact, there is a projection that immigration will go up to 190,000 people a year, which is 30 per cent. higher than the previous forecast.

If one reads the National Audit Office audit of the Budget figures, one will discover that unemployment is projected to rise in the near future to 1.1 million. That was not mentioned by the Chancellor at the Dispatch Box. We discover on page 36 of the Red Book that on the current spending assumptions, in the many decades ahead, taxes will have to go up by £55 billion. If we delve into the Red Book, we see how borrowing is increasing. That is the true story of the British economy. What is the Government’s response? They have no long term-plan, just short-term tax hikes; no leadership, just dither and delay.

That was summed up in another extraordinary interview yesterday, this time with the hon. Member for Coventry, North-West (Mr. Robinson)—the paymaster general to our Prime Minister in every sense of the term. He said on television yesterday that the Government had given the impression of making policy on the hoof. That comes from a former Treasury Minister in a Labour Government. That policy on the hoof led to the fiasco on capital gains tax and the many U-turns on non-doms. It is now forcing them to raise taxes in the downturn.

The British people deserve better than policy on the hoof from a Government who have failed. We need a long-term plan to restore stability to public finances by sharing the proceeds of growth. We need a long-term plan to reverse the slide in our country’s ability to compete by simplifying reliefs and lowering corporation tax rates. We need a long-term plan to combat climate change by building public confidence in green taxation, rather than making such taxes stealth taxes. We need a long-term plan to help aspiring families by taking nine out of 10 first-time buyers out of stamp duty and raising the inheritance tax threshold to £1 million. We will not get any long-term plan from this short-term Chancellor, and so the country will have to wait for the election of a Conservative Government to get the economic leadership it deserves.

It is no secret that we live in economically interesting times, which are sometimes unpredictable. They are so unpredictable, in fact, that until last night I expected to face the hon. Member for Epsom and Ewell (Chris Grayling). Clearly, Mr. Speaker expected that too when he introduced the debate. Unfortunately, like Jonny Wilkinson, the hon. Gentleman has been benched. In his place, we have the boy wonder—the young pretender—[Interruption.] I think he is younger than me. I am sure that, just like Jonny Wilkinson, my shadow will wish his replacement well today and hope that he performs well.

So, why the late substitution? Perhaps it was something I said.

On the point of late substitutions, the Secretary of State will be aware that stories are circulating widely today that the Chancellor changed his growth forecasts in the last few hours before the Budget statement and changed them upwards. Does the Secretary of State think that is true and does he also think that the Chancellor will live to regret that change?

That is clearly complete nonsense. It was not even about a late substitution; I thought that the right hon. Gentleman was going to draw a rugby analogy.

Why did the Opposition change their Front-Bench speaker today? The answer reveals a lot about their tactics this week. At the beginning of the week, their tactics were to erect a smokescreen around the subject of child poverty, to wring their hands if we did not achieve enough and to hope that no one would notice that they were not committed to the target that they intended to criticise us on.

They hoped that we would fail on child poverty but instead we have a Budget that has been welcomed by the Child Poverty Action Group as

“excellent news for Britain’s poorest children”

and by Barnardo’s as

“dramatically good news for children living in poverty”.

That is why the shadow Chancellor did not speak about child poverty today and why he concentrated on the economy. The Opposition do not want to talk about child poverty.

The presence of the shadow Chancellor raises two interesting questions. We have already had the answer to the first: the Opposition would not support our increase in the winter fuel allowance this year nor the ongoing increases in child benefit. His answer was clear on that. We will ensure that every pensioner and family in the country knows that between now and the next local elections.

Is it not a fact that the shadow Chancellor gave no explanation of why for 18 years there was no winter fuel allowance and pensioner poverty grew, as did child poverty? Is it not the case that if there were a Tory Government, the winter fuel allowance would be stopped?

That is right. I think that about £60 million was spent on help on fuel costs for the elderly during the last year of the last Tory Government, but that figure is now more than £2 billion, even before yesterday’s increases. The shadow Chancellor is welcome to stand up and say that he will support that increase—

How will he fund it? He says of course he supports it, but he said earlier that he would not use the tax revenue that we are raising to fund it, yet said that the child benefit increases would continue. The shadow Chancellor has no money to fund the winter fuel allowance or the child benefit increases, and there is no way that the Conservatives can commit to that. He is welcome to stand up and say how he will fund it. He cannot say he supports it if he cannot say how he will fund it, and I think that the electorate will be interested to find that out.

The presence of the shadow Chancellor gives us an opportunity to ask another question, which he was keen to avoid in his opening speech. How will he fund the proposals that he said that he would go for? How will he fund his inheritance tax cuts? How will he fund his stamp duty changes? How will he fund the spending pledges that every one of his fellow Opposition Front Benchers seems happy to make every week? Where will he get that £10 billion from? Again, he said nothing in his speech about that. He has no short-term plan to fund any of the long-term plans that he mentioned in his peroration. That is why those on the Opposition Front Bench have gone very quiet. They have no way of funding those plans, and they know it.

The shadow Chancellor also knows that over the past 24 hours that problem has got radically worse. He liked to say that he would fund his proposals by “squeezing welfare”. We are implementing the welfare reform set out in the Freud report, which he likes so much, and that means, as the Opposition admit, that they aim to get exactly the same number of people off incapacity benefit as we do. That offers no opportunity to squeeze welfare to fill that black hole, and that presents an even bigger problem today than it did at the weekend.

That is all very interesting, but this is the Labour Government’s Budget, and I am slightly more concerned to hear about that. The Secretary of State is asking how the Tories might fund things. Can I confirm that his Government are funding things through £43 billion of debt next year, a cumulative deficit of £581 billion, £189 billion of private finance initiative liability and, in consequence, an £87 billion balance of trade deficit in goods? I hope that the Chancellor is not shaking his head at those numbers; can I confirm whether they are absolutely correct?

The hon. Gentleman was obviously eager to read the Budget; I am sure that he has been quoting back a bunch of interesting figures. The point is that we have lower debt than any other country in the G7. When the Tories were in a similar position in the early ’90s they had debt of more than 8 per cent. It is now under 3 per cent. and that why we can use the fiscal position to support the real economy, and that is exactly what we should be doing.

My right hon. Friend will know that one of the constituencies with the highest levels of incapacity benefit in the country is the Rhondda—a situation it shares with many other former mining constituencies. One of the biggest problems is that there are simply not enough mental health services available to enable people with mental health problems, which are the main reason why they are on incapacity benefit, to contemplate going into work. Will my right hon. Friend ensure that we invest in mental health services, rather than just wagging a finger at those on incapacity benefit? That has never worked in the past, and such investment is the only way in which we will tackle poverty in our poorest areas.

That is an extremely good point. My hon. Friend has been campaigning effectively on that policy area for many years. I know that he will look forward to the recommendations of Dame Carol Black, who has been considering that issue and how we can help people to be more healthy in work and to avoid their going off work and on to incapacity benefit. Mental health is one of the key issues that we will be considering as part of that review. As my hon. Friend knows, we are rolling out a significant increase in the number of talking therapies available, as they have been shown to have a good effect on people’s well-being and their ability to work.

I am grateful to my right hon. Friend for giving way because I was unable to intervene on the hon. Member for Tatton (Mr. Osborne) earlier when he was talking about sanctions. He may have inadvertently misled the House by saying that people were not sanctioned for refusing to take jobs. In fact, 300,000 people were subject to employment sanctions last year. My personal view is that in many cases those sanctions are too harsh—indeed, they have risen sharply recently—but does my right hon. Friend agree that a sanctions regime already exists and is applied, so how on earth can the hon. Member for Tatton expect to make additional savings from further sanctions without casting hundreds of thousands more people into a position where they have no income whatever?

My hon. Friend is absolutely right; that is yet another area where the Conservative policy document copies exactly what the Government are doing. Another one relates to single parent benefits, on which the Conservatives say only that the Government’s policy is very good and they agree with it.

Why does it matter that the Conservatives have that £10 billion black hole and are making promises that—

I want to make a little progress.

Why does the Conservative black hole matter? It matters because the Conservatives have still not learned the lessons of their economic failure in government. They did not have tough fiscal rules, so they could duck tough decisions, and they are at it again—unfunded tax cuts, lower borrowing and a new spending pledge. They are worse than the Liberal Democrats. What did that policy lead to? It is absolutely clear: 15 per cent. interest rates and 3 million people unemployed—

As we are talking about the Government’s Budget, the Secretary of State will know that the Red Book says that £10 million has been set aside in 2010 to pay for additional assessments for incapacity benefit claimants. Can he tell the House how many assessments for how many claimants that money will actually pay for?

Actually, the figure is £30 million, so just like the £1.5 billion the hon. Member for Tatton (Mr. Osborne) cited, that was a misinterpretation of the figures, although I know the hon. Gentleman is fond of doing that. That intervention was a bit like a rolling substitution in rugby—the hon. Member for Epsom and Ewell (Chris Grayling) popped on to the pitch for a couple of seconds, so perhaps the hon. Member for Tatton will rise a bit later.

The answer to the question is that we aim to make all the assessments within three years. That is how we plan to proceed. After April 2010, the aim is to carry them out within three years. [Interruption.] The figure is £30 million—there is a net figure, but the gross figure is £30 million.

It is precisely because we have had a stable fiscal and monetary policy that we have had 10 years of economic growth. We have had higher growth than during the last decade of Tory Government, half the inflation and half the claimant unemployment, which means that we are much better prepared to face global economic difficulties than the Tory Government of that time. In the 1990s, when the Conservatives’ current leader was working in the Treasury—when they were trying to recover from Black Wednesday—the economy was not well prepared. Inflation was out of control, debt was well over 40 per cent. and interest rates hit 15 per cent., which meant that when they wanted the economy to adapt, it could not. Interest rates could not go down and borrowing could not support the real economy.

Today, we can afford to make changes because we can afford to increase borrowing. We can decide to do so. We can ensure that fiscal policy supports the economy. Last year, our economy grew faster than any other economy in the G7—

On stewardship and balancing the books, is it still the case that the Department for Work and Pensions, which has responsibility for many of the benefits and policies the Secretary of State is talking about, has not yet had Treasury sanction for its accounts to be signed off on an annual basis? Is the Treasury still overseeing his departmental budget?

I think the hon. Lady is talking about the National Audit Office. My permanent secretary had an interesting discussion with the Public Accounts Committee recently, and showed that there has been a significant reduction in fraud—[Interruption.] The hon. Lady says that she is a member of the PAC.

There has been a huge reduction in fraud—something that the previous Government did not even measure. Our accounts stand in good comparison to those of other welfare departments anywhere in the world. [Interruption.] The Conservatives did not measure fraud, so they have no grounds for making comments about it.

We can continue to invest because we have switched spending from failure—for which it was used in the past—to the future we face now. In the early ’90s, three quarters of all new public spending went on social security and debt; today, the amount is less than a third, which is why we have been able to invest in schools, hospitals and public transport—all the things the shadow Chancellor said he wished we had cut over the past 10 years. He wishes we had not spent money on all those things, but had instead taken money away from the future, spending it on the economic failure that used to be his policy.

Yesterday, we heard a speech that avoided the issues by trying to send us to sleep. Today, we are hearing a speech that avoids the issues by trying to talk about things that happened 10 years ago. Can I bring the Secretary of State back to today? Has child poverty increased or decreased in the last year?

No wonder the hon. Gentleman does not want to talk about the Conservative record of 15 per cent. interest rates, but we shall keep on talking about it. Under their Government, child poverty doubled—

The hon. Gentleman will like the answer. Child poverty doubled under his Government but it has fallen by 600,000 in the last 10 years—a clear contrast between our Government, who are cutting child poverty and his Government, who allowed it to double. That is a shameful record.

We can continue to invest because we have switched spending to the future. As everyone now knows, this is a Budget for stability—that has been well commented on.

I have given way enough for the moment, but I will happily give way to the hon. Gentleman later.

Everyone recognises that the Budget shows the difference in priorities between the Government and Opposition Front-Bench Members. Yesterday, we announced that we would lift 250,000 children out of poverty, in addition to the 300,000 announced in the pre-Budget report and last year’s Budget. Does anyone in the House seriously believe that if the hon. Member for Tatton had made the Budget speech yesterday he would ever have thought of making such an announcement? He would never have done so; it would never have been his priority, because the Conservatives never did anything about child poverty when they were in power.

The Budget gives us a good step towards it. [Interruption.] I am not giving a running commentary on the target. We are committed to it. We reaffirmed our commitment to it and published a document on how we would do it. With those measures, we are taking an extra 500,000 out of poverty, in addition to the 600,000. There is a clear contrast between a Government who are reducing child poverty and one who allowed it to double.

I am sure that the Secretary of State’s officials must have advised him about when, on current progress, he will meet his 2010 target. In what year have his officials advised him that the Government are likely to meet the target?

We aim to meet it in 2010. That is our clear commitment. How can the hon. Gentleman shed crocodile tears about a target to which his party is not even committed? The Conservatives are not committed to that target; we clearly heard again from the shadow Chancellor that it was an aspiration. I will not take synthetic anger from a party that criticises us for a goal that it will not even meet.

Will the hon. Gentleman say that the Conservatives are committed to that goal? Will he use the word “pledge”—will he say that he is pledged to meet the target? No one on the Conservative Front Bench has ever done so, now is his chance to redeem his colleagues.

Why has the right hon. Gentleman just told the House that he expects to meet the target in 2010 when last week his Department published a document stating that the target would not be met in 2010?

That is loud and clear: the Opposition are not committed to the target. Why does it matter? Why does it matter that it is an aspiration and not a target? What is it about the words

“We pledge to meet the target to end child poverty and to halve it by 2010”

that Opposition Front Benchers find them so hard to say? It is because they do not really believe in the target and would never have set it in the first place. In any case, they cannot afford to meet it.

Why does it matter that it is an aspiration and not a target? We pledge to meet the target of eradicating child poverty by 2010 by taking further steps—[Interruption.] That is our target. We have made it clear that our target is to halve child poverty by 2010. Yet again, the shadow Chancellor failed to say anything about it. People outside this place will notice that the Conservatives are simply not committed to the target.

Why does it matter? Because a target generates policy momentum. It also means that people have to find the resources to meet it, which is exactly what we did yesterday. Why will the Conservatives not do that?

Let me make some progress.

The Conservatives will not pledge to meet the target because of the £10 billion gap. On Sunday, the Leader of the Opposition said that they would spend £3 billion on the working tax credit. At exactly the same time, on Andrew Marr’s programme, the shadow Chancellor was saying that he would spend that money on the health budget. His leader was saying that they would spend it on the working tax credit; he said on the very same day that they would spend it on health. Their policy was confused and contradictory even then, with them not even being able to agree with each other. Today, the hon. Gentleman has found a third way of spending that money. He said that it would be spent on welfare to work. So they have spent exactly the same money three times now on three totally different issues. That is classic behaviour from the Conservative party, trying to fill a black hole by spending the same money again and again.

May I ask the Secretary of State the same question again, but in a perhaps more friendly way? What further measures does he expect are necessary for the Government to meet their 2010 target?

Thanks to the Budget, we will take further measures on welfare reform and child poverty. Clearly, we want to make to further progress towards the 2010 target, but we are committed to it and the hon. Gentleman is not. His party is not committed to it, either.

During the years when the Conservative party was in power and all the fat City bonuses were being paid, I was the leader of a south London council and remember going around the schools and seeing children with signs of poor nutrition—almost malnutrition—with skin blemishes, bad hair and bad clothing. How the Conservative party dares to raise the issue of child poverty and criticise the Government is quite beyond all of us who have had anything to do with child poverty over the years.

I will make some further progress in my argument if I may. I have already taken up some time of the House.

The Conservatives already had a problem: they had spent that £3 billion on three different issues, but they have a much bigger problem today. The much bigger problem for the shadow Chancellor is that that money has vanished. It is factored into our future spending plans, but the Conservatives have exactly the same welfare reform goals as we do.

I have given way quite enough.

Our welfare reform programme is based on a simple contract. For those who play by the rules, we will provide extra support so that they can realise their ambitions. For people who do not play by the rules, there will be clear consequences from their behaviour. That is why we want to create a higher floor for children. We want them to get on, and we know that poverty is one of the things holding them back. That is not just a child anti-poverty policy, but a pro-child well-being policy and a pro-child life-chances policy.

Let us think of all the problems that are alleviated by getting to grips with child poverty: obesity, truancy and low school attainment. About 50 per cent. of the educational inequality in this country is related to income inequality. Unless the Opposition commit to the target, their views on this issue will be hollow and, frankly, pious.

I said that this was a contract, and so it is. As my hon. Friend the Member for Regent's Park and Kensington, North (Ms Buck) quite rightly said, for those who can work, there is no option not to do so. We have already announced—much to the Opposition’s chagrin—that there will be work for the dole for young people who are not working or learning and for the long-term unemployed: a much wider programme than the one that they had previously announced. The hon. Member for Tatton wishes that we were not doing that. As we discussed, he was impressed by the Freud report—so much so that the Conservatives quote it on pages 10, 19, 38, 42 and 43 of their document. We are implementing it, and I am sorry that he cannot be disappointed about that, too.

Last month, we announced payment by results. Now, we can announce that everyone on incapacity benefit will be put through the work capability assessment to find out whether they are capable of work. But we will go further: welfare reform can help more children out of poverty. We will require lone parents with older children to look for work, and that will lift another 70,000 children out of poverty. We will develop a radical reform package to extend further and improve opportunities and incentives to work, lift even more children out of poverty and give independence, choice and control for disabled people.

No, we have not; this is a new announcement from the Budget yesterday.

If there are no more of David Freud’s ideas that the hon. Member for Tatton wants to plunder, perhaps the Conservatives would like to come up with some of their own, and we would be happy to look at them.

I am going to make some progress.

The Conservatives have clearly said that their goal is the same as ours: they would take 1 million people off incapacity benefit. They are not planning to squeeze any more from that budget. So their £10 billion hole is exactly the same as it was on Sunday. Everyone now wants to know the answer to this question: what does the hon. Member for Tatton say to the shadow health spokesman who said:

“It’s tough; it means that there are places where public expenditure will have to decline as a proportion of GDP or in some cases in absolute terms”.

I bet that he is very popular at shadow Cabinet meetings, going around promising to cut other people’s budgets. If not welfare, where are those areas that will be cut in real terms? Where will those cuts come from? Perhaps the shadow Chancellor would like to say where the axe will fall? He certainly did not tell us in his speech. From his silence, we can assume one of two things: either all the proposals that he made in his speech are completely unfunded and therefore should be taken for what they are, which is a con, or there are swingeing spending cuts coming in key Departments to pay for that £10 billion black hole. [Interruption.] Opposition Members do not like listening to this, because theirs is exactly the sort of fiscal indiscipline that led to the economic problems of the 1980s and 1990s, and they do not like being reminded of it.

The hon. Gentleman’s smokescreen is gone. He is left with no target, no funding and no credibility. I would be happy to take criticism on child poverty from people who have a record on combating child poverty and who are committed to the target. But I will not accept their crocodile tears on an issue that they will not even commit themselves to. He has not even got the generosity to acknowledge that 600,000 people have been lifted out of poverty, and he has not got the honesty to admit why we had to act. We had to act because child poverty doubled under the Conservative Government and was the highest in Europe.

If we had just continued the spending policies of the Tories but uprated them, there would be an extra 1.7 million children in poverty today. We would not be talking about halving and eradicating child poverty; we would be talking about doubling it. That is exactly the record that we would have if the Conservatives had continued in power. The 2010 target was deliberately tough. It was never going to be easy to get so far, but as I said, the Budget makes real progress. We will do everything that we can to meet our 2010 target.

We are aiming high, and we are making the choices stark. Which do we prefer: a Government who set a very tough target and invest again and again to get there, or a Government who only pretend to care about child poverty because their leader’s spin doctors tell them that they have to do so; a Labour Chancellor or the hon. Member for Tatton—confused, contradictory and a threat to the economy? I know which is better for the country, and I know which is better for the children of this country.

I would say that it is a pleasure to follow the Secretary of State for Work and Pensions and, indeed, the shadow Chancellor, but the debate so far has been an embarrassment. The shadow Chancellor had nothing at all to say, and the Secretary of State had almost nothing to say about his own budget. It is no wonder that people outside the House are so disillusioned with politics when they listen to the sort of contribution that we have heard from the first two speakers, who had nothing to say about the changes made in the Budget. Perhaps it was good knockabout stuff—or perhaps weak knockabout stuff—but it did not address the real issues of the Budget and how it affects people in this country today.

The Budget protected many of the loopholes and benefits that the wealthiest people have had entrenched under the Government and did precious little for those on the lowest incomes. I want to refer to four issues: child poverty, which has been mentioned already, fuel poverty, welfare to work and the overall effect that the Budget has on hard-pressed families on low incomes. Those are the issues that matter most in discussing the Budget today.

Of course, the background to the Budget is, as has been said, that ordinary families on low and middle incomes are under a great deal of financial pressure: rising energy bills, rising food costs, rising council tax and rising housing costs. Of course, that relates very directly to the experience of poverty that the Secretary of State referred to in the one or two brief remarks that he addressed to his proposals.

Let us look at the experience of poverty under this Government. Of course, the Secretary of State is right: the Government inherited a truly appalling situation from the Conservative party, and it would be wrong not to recognise the fact that some progress has been made on reducing poverty.

Does the hon. Gentleman agree that the number of people in severe poverty has increased compared with 1997?

I certainly agree, and I was about to add a few caveats of my own, because although some progress has been made it is worth pointing out that in the last year for which figures are available child poverty went up, both according to figures in which housing costs are taken into account, and according to those in which they are not. We may get some new figures in the next few weeks. Figures for last year show that inequality of wealth is rising. The Gini co-efficient—the recognised measure of inequality—is rising, and is higher than it was in 1997 when the Government came to power. Inequality of income is not narrowing as one might expect it to and, of course, the point about extreme poverty that the hon. Member for Tunbridge Wells (Greg Clark) made is absolutely right, too.

It is absurd that the poorest taxpayers pay a greater share of their income as tax than the richest taxpayers. Even after the changes made to capital gains tax—in fact, especially after those changes—it is still the case that a hedge fund manager paying capital gains tax at 18 per cent. is paying a lower rate of tax than the person who cleans our offices, who may be paying income tax at 20 per cent. That situation could not in any way be characterised as fair, yet fairness is one of the concepts that the Government talk about. That problem will get worse at the beginning of next month, when the 10p rate is abolished—or doubled, as I prefer to put it. It will mean that 5.3 million people on low incomes, generally earning less than £18,500 a year and not in receipt of tax credits, will pay more tax. Those same people are paying more for their energy, their council tax, their food and their fuel. They will now pay more income tax, too.

Let me deal now with the issue of child poverty, because it is critically important. I agree with the Secretary of State that it is not a subject for the sort of synthetic anger that we heard from at least some Conservative Members. The shadow Chancellor said little about what he would like to be done to take us further towards meeting the 2010 and 2020 child poverty targets. It was interesting to hear what the Secretary of State had to say in answer to the several interventions that he took on child poverty. In a document published alongside the Budget yesterday, entitled “Ending child poverty: everybody’s business”—and of course it is everybody’s business; that title is quite right—there are continual references to the 2020 target. It says that there will be working groups, new policy ideas and some money spent on piloting new proposals, but that is all aimed at allowing us to reach the 2020 target. However, the Secretary of State said strongly that he remains committed to the 2010 target.

There are initiatives going on at the moment. The hon. Gentleman will probably agree that getting lone parents back into work is important, so there are issues such as child care to consider. There are some very important pilots taking place across London. The Department for Work and Pensions study by Lisa Harker pointed out that child care costs are key, particularly in London. It is not at all true to say that work is not going on to meet the 2010 target; it is.

The hon. Lady makes an important point about London and lone parents, and I want to come back to that because she is right to say that there are specific issues affecting London that have to be addressed if the target is to be met. I was making a broader point. It is not that no progress has been made; the point is that, if we look at the Budget figures and the amount of extra resources being spent on the issue, we see that the Budget will be remembered as the time when the Government abandoned their target of halving child poverty by 2010.

I wish to make it clear that we Liberal Democrats are committed to the target of abolishing child poverty by 2020, and to halving it by 2010, but according to figures from the Institute for Fiscal Studies, the Government are expected to miss their 2010 target by some 450,000 children. Those are children who would no longer be in poverty if the target were met, but who are still in poverty because of the slow progress that has been made.

Does my hon. Friend agree that the most fundamental way of dealing with child poverty is for families to have decent housing? Does he share my dismay that the housing crisis in the affordable rented sector is worse than it was 10 years ago? Some 500,000 council houses were built in the first 10 years of Conservative government, but the Labour Government have built only 5,000 in 10 years.

I am grateful for that intervention, and I agree with the sentiment that my hon. Friend expresses. I pay tribute to the doughty campaigning that he has done on the issue in his time in Parliament. The point I was trying to make is that this is the Budget in which the Government effectively abandoned their 2010 target of halving child poverty.

It is worth reminding ourselves of a few of the facts about child poverty. In 2005-06, child poverty figures were still half a million higher than the target that had been set for 2004-05: there were 2.8 million children living in child poverty, if housing costs are not taken into consideration, and 3.8 million if they are. [Interruption.] That is not a matter for derision or laughter from Members; it is a matter for genuine, serious debate and consideration. I think that anger would be a better response. Between 2004-05 and 2005-06, child poverty actually increased by 100,000, if housing costs are not taken into consideration, and by 200,000 if they are. I hope very much that the figures published in the next few weeks will show that the downward trend has continued, but I am not convinced that they will; we shall see.

As the hon. Member for Worsley (Barbara Keeley) rightly pointed out, the area with the highest concentration of children in poverty, after housing costs have been taken into consideration, is inner London, where 51 per cent. of all children are poor. The Secretary of State could have mentioned, but did not, that the report that he published sets out some London-specific measures that I welcome, by and large, as an attempt to get to grips with specific problems in London.

It is worth pointing out that there are particular problems of poverty among families with large numbers of children. Some 50 per cent. of children in families with four or more children are poor, compared with only 23 per cent. in one-child families. Half the children in poverty are in families where there is work, so the problem is not confined to workless households. That is why it is not enough to get people into work; it has to be work that pays sufficiently well to lift the family out of poverty.

It is scandalous that 1.5 million children in poverty belong to households that pay full council tax, and are not in receipt of any benefits to reduce its cost. Of course, those children would be particular beneficiaries if a local income tax were to be introduced. [Interruption.] They would. The hon. Member for Bradford, North (Mr. Rooney) may laugh, but it is a serious point. If one wants to address the issue of income at the lowest level, it should be recognised that council tax is a particular cost burden on the poorest families. In the latest international child poverty figures from EUROSTAT, which uses the 60 per cent. median and not the lower figure to which the hon. Member for Tunbridge Wells referred, the United Kingdom is ranked 21st in a league table of 30 countries, equal with Romania and Bulgaria on child poverty.

The debate about child poverty must not be about income alone, and the Chancellor did at least hint at that in his Budget speech yesterday. We have to consider future opportunities for children, too. There is much less social mobility in this country than there was in the 1950s and ’60s. The Sutton Trust report shows a difference between the 1958 cohort and the 1970 cohort, but there is no evidence that things got better for later cohorts. The right hon. Member for Darlington (Mr. Milburn) talks eloquently on the subject; he believes that today someone from his background would not end up in the Cabinet. That shows the extent to which poverty has become a matter of inheritance; it is passed on almost automatically from one generation to the next. We must talk not only about income levels, but about how we can break that intergenerational cycle.

It is appalling to note that rich children are catching up with poorer peers in developmental tests between the ages of three and five, and will often have overtaken them by the age of six or seven. In other words, a bright, poor child will be overtaken by a rich but less bright child at the age of five or six. The impact of poverty can be seen at that very early age. We should ask—the Secretary of State should address the issue—what more can be done to help us to meet the target.

One measure in the Budget that I do welcome is the increase in the child element of the child tax credit. It is a good way to help families with multiple children, because it is a child element and not a first-child element. The Government are relying heavily on the tax credit system as a means of tackling child poverty, but the system has many flaws. There are overpayments, and the financial rollercoaster that far too many families experience when overpayments are made and then taken away; plunges people into a worse financial situation than the one they started in. There are also low take-up levels for some tax credits. The working tax credit, which is paid to people who are in work, is not being uprated. To make a more general point about poverty, take-up among people without children is appalling, at roughly one in five. The take-up of child tax credit is not good enough, either; it is around 80 per cent., at the lowest estimate. Tax credits are paid to people very high up the income scale. The child element of child tax credit is paid to people earning up to £58,000 a year, so it can be argued that it is poorly targeted.

It would surely be better, as we have proposed, to reform the way that tax credits work, to stop paying tax credit money to people with above-median income, and to use that money instead to concentrate the effort, first, on people at the lower end of the income spectrum and, secondly, to increase substantially one of the benefits about which the Government spoke yesterday: child benefit. At least we know that every family gets that money. Its take-up is almost universal—or as near as makes no difference—whereas there are problems of take-up and overpayment associated with tax credits.

I would argue strongly for a much more substantial increase in child benefit. The Chancellor yesterday tried to make the measures on child benefit sound great, but it is worth noting that child benefit was increased by today’s retail prices index of 4.1 per cent. this April and next April. It will be worth £19.61 anyway, so raising it to £20 is not really a huge step forward and is hardly a ground-breaking move. I am sure the extra 39p per week is welcome, but it is not the shift of resources that the Chancellor made it sound like.

Increasing child benefit for the first child by, say, £5, as we have proposed, would lift a further 150,000 children out of poverty and could be paid for by scaling back tax credits paid to the rich. Getting families over the arbitrary income line is not enough. We also need to invest in future opportunities. We have proposed a pupil premium to target additional funding to schools for each disadvantaged child those schools take. I was interested to hear from the shadow Chancellor—I am sure the figures that he gave are correct—that there was a reduction in education spending hidden in the Budget. If that is the case, it is going in entirely the wrong direction if the intention is to provide additional resources for our poorest children.

The most cynical element in yesterday’s Budget was the last point that the Chancellor made about the winter fuel payment. We have argued strongly that much more needs to be done about fuel poverty. But the idea seems to be that a one-off payment to deal with an issue that has been going on for many years and will continue for many years is the right way to tackle it. That is what happened when a similar one-off measure was tried with council tax, as some hon. Members will remember, when an extra £200 payment was provided on a one-off—[Interruption.] Yes, during an election year. Of course, there is a school of thought that suggests that an election may be in the offing, so a one-off fuel payment in the winter to come might be a nice bounce into an election. I do not suggest that the Minister would be so cynical, but the Chancellor may well be.

Even with the £50 increase that has been proposed, the winter fuel payment will still pay only 34 per cent. of a pensioner’s winter fuel bill, compared to the 50 per cent. of a pensioner’s winter fuel bill that it paid in 2003 when it was introduced. On fuel poverty, the measures are too little, too late. Four and a half million people, and rising, still live in fuel poverty, and the Government’s 2010 fuel poverty target has effectively been abandoned by Ministers—unless a Minister is about to pop up and tell us that that is another target that the Government stand by. It seems that there is no prospect whatever of that target being met.

I find it incomprehensible that the Government have not had the courage to claw back some of the huge profits that the energy companies have made from the free permits handed out to them in the emissions trading scheme. Limiting the measures in the Budget to pre-payment meters does not go far enough. Even on pre-payment meters, those are voluntary measures. Surely we are far beyond that. The idea that if “by next winter”, to use the phrase in the Budget document, the companies have not taken appropriate steps, the Government will consider statutory action is, again, far too little, far too late. That potentially condemns many very poor customers to paying, in the case of npower and E.ON, for example, more than £300 more than their equivalents who do not have a pre-payment meter. Surely it is time to compel all energy companies to introduce real, fair social tariffs for all vulnerable people, not just those on pre-payment meters.

The Secretary of State did a little more today to explain the Government’s plans, as announced in the Budget, on welfare to work; and the Budget contained key measures relating to lone parents and incapacity benefit. Of course, more help is needed to get lone parents into work. As the hon. Member for Worsley said, that can make a significant contribution to reducing child poverty. However, many lone parents would laugh out loud at the phrase in the child poverty paper,

“with accessible childcare…in place”.

That statement, which assumes that there is now sufficient child care in all parts of the country for all lone parents, and that it is now appropriate to move on and reduce the age of the youngest child at which lone parents can be forced to work, seems complacent in the extreme. Child care is still a huge problem and Government policy is not meeting the challenge in relation to two, three or four-year-olds.

We agree with reducing the age of the youngest child to 12, which effectively equates to the time at which the child would start secondary school. That seems right. I would like further reductions to be based on evidence about how that measure has worked, rather than being automatically reduced, and there should be much greater certainty in relation to child care; otherwise, lone parents with a child aged 7 for whom there is not appropriate child care will be put in an extremely difficult position and threatened with loss of benefits.

I question the Secretary of State’s remarks about lone parents and the effect on child poverty. I note that in the same child poverty report, the Government estimate that 100,000 more lone parents will be in work as a result of those age-related measures, but only 70,000 children will be taken out of poverty. Even assuming that each lone parent has one child, which is not a reasonable assumption—many of them will have more than one child—of those more than 100,000 children whose parents will be back in work, at least 30,000 and probably 70,000, will still be in poverty, on the Government’s own assumptions and according to the Government’s own projections.

Surely there is something wrong when the Government are saying, “We want you to get back into work to lift your children out of poverty,” yet the Government’s own figures assume that many of the children of the lone parents who have been pushed into work will still be living in poverty.

Does the hon. Gentleman accept that there can be a vast increase in household income through moving into work without necessarily getting above the poverty line?

Of course I accept that. I certainly accept that income can be increased by getting into work, but we are discussing the issue in the context of meeting the 2010 and 2020 child poverty targets. The information that I quoted is from the document “Ending child poverty”, yet the Government admit that some of the measures that they intend to take will not end the poverty that some children experience. It is deeply misleading, at the very least, to set the point that the hon. Gentleman made in the context of trying to end child poverty.

I turn now to incapacity benefit. During the passage of the Welfare Reform Bill, my colleagues and I supported the idea of extending the new assessment and support system to existing claimants, once it could be proved that the support network that those people needed was in place. But—and this is a big but—the extension to existing claimants, the 2.6 million people currently on benefit, must be about getting people into work. The emphasis must be on the work, not on the reduction of the benefit rolls. The media focus—the Minister may well be more humane in private—is on toughness, not on support to get people into work.

On pathways to work, good progress has been made for some groups, but concerns remain about people whose main reason for being on benefit is their mental health. They are the largest group among new claimants for incapacity benefit. Progress on getting people with mental health problems back into work is far too slow. In terms of making therapies more widely available, the Government’s steps towards meeting the objectives set down in an excellent report by Lord Layard are way behind. The Department for Work and Pensions and the NHS are nowhere near joined-up enough to implement that work-related agenda.

On the Freud report, which has been mentioned, I am a strong supporter of much greater use of the private and voluntary sectors to get people into work. As the Secretary of State knows, our policy proposals go somewhat further than the Freud report. They enable help to be made available more quickly and stop artificial barriers being set up for claimants who might go to a Jobcentre Plus, for example. We also need to examine the barriers that exist between benefits. For people on one benefit, one form of support is available, but the support that they might need is available only to people on a different benefit. That relates particularly to people with mental health problems, who might want to get condition management support, for example, but can get it only if they are on incapacity benefit, and not if they are on jobseeker’s allowance.

My main criticism of the way in which the Government are seeking to implement the Freud report is the emphasis on big regional monopolies. I am not convinced that a switch from a regional state monopoly to a regional monopoly of a large, possibly foreign-based, multinational provider is necessarily the right way to go. I would like a system based on the model used in Australia, where there is more choice among different providers and where small local providers, as well as big multinationals, are able to take on contracts.

Does the hon. Gentleman accept that it is necessary to have a certain level of case load to support the administrative costs? There is no reason why one of the larger providers could not subcontract work to a smaller provider as part of the scheme. Does he not think, on reflection, that his concerns may not be as strong as he thought?

Despite that intervention, my concerns are still strongly held. I look at examples such as the Shirlie Project in my constituency, which does a fantastic job in the city of Inverness but nowhere else. It is not in a position to win such a contract.

The exchange that took place on DEL and AME—I am not sure which of the Chancellor and the Secretary of State for Work and Pensions is DEL and which is AME—was an interesting one, but it is clear to me that the Treasury has still not fully bought into the idea that savings on annually managed expenditure—benefit reductions—should be spent on welfare to work. The Secretary of State, in arguing that case internally, as I am sure he is, will certainly have my strong support, for what it is worth, in beating the Chancellor over the head until he agrees to what would be a genuinely innovative funding mechanism.

Two things on the welfare-to-work front could have been considered in the Budget, but were not. The first is the inordinate complexity of our benefits system, which is still a huge barrier to getting people into work. The second is the competence with which the benefit system is administered. The delays that people face, the wrong decisions and the increasing amount of money lost through error—not fraud—in benefit claims point to a system creaking under the strain and to a Government who need to get those basic points right.

To conclude, the many hard-pressed families throughout the country will not feel that this Budget has taken on their concerns. It was a Budget in which the child poverty and fuel poverty targets were effectively abandoned. It is a Budget of additional compulsion for claimants but little additional support. It is a Budget in which hard-pressed families are the big losers, with higher rates of tax and higher fuel, energy and food bills, and in which precious little is handed back. It is a Budget that will not make Britain fairer.

I congratulate the Chancellor on what he did yesterday, particularly on child poverty. I am sure that when he woke up last Monday and got a copy of the report on child poverty by the Select Committee on Work and Pensions, he completely rewrote his Budget strategy, and we are grateful for that. What really pleased me was the categorical restatement of the policy on the elimination of child poverty by 2020, and of a move towards the 2010 target, compared with something that was an ambition, was downgraded to an aspiration, and now appears to be a maybe.

I particularly liked the disregard on child benefit that will apply to housing benefit from 2010, because that is definitely an in-work benefit that will benefit larger families in particular. Larger families are one of the key groups at risk of being in poverty. Despite what the Member for Inverness and Renfrew said. Is that it? Something like that, anyway. [Interruption.] Paisley and Renfrew, South—I have found it. knew that I had written it down somewhere. Despite the hon. Gentleman’s rather cheap comment, it remains the fact that work is the best route out of poverty. If someone leaves school at 18 and starts work, they will not be earning what they will earn two, three or four years later. The key challenge is to get people who have often been out of the labour market for years into work, and then develop that work so that they improve their earning capacity.

When we look at the myriad training schemes that the Government are supporting through the education and skills agenda, and the billions that have been put in, we find that people who get into work can advance and develop a career. It is right that more needs to be done on the minimum wage and the quality and sustainability of work, but it is important to get people into work. It is always easy for someone to get another job, if they already have one. It is a major challenge to get people who have been out of the labour market for five, seven, 10 or 15 years into their first job. We need to build and support that process, and if we look at the outcomes of the employment retention trials, with the support that has been put in, we find that if the package is right, people stay in work, but then look to advance.

Another key issue when moving into work, particularly for lone parents, is child care. When most lone parents first go back to work, they are looking for 20 to 25 hours a week, because they want to be around when their children go to school and come home. It is true that child care throughout the country is accessible, but there is the key issue of affordability, and the child care tax credit goes nowhere near meeting the cost of child care for disabled children. There are factors that extended schools do not cover, and that affects a lot of people, particularly lone parents, who want to work evenings and weekends. There are gaps, but nationally 22 per cent. of child care places are vacant, which raises a question. A lot of money is funding dead places, and we need to work out why that is happening.

I have been championing for years the idea that work is the best route out of poverty, and I am glad that the Front-Bench team and the Opposition parties have caught up with me. I made a speech on that in 1994; I wait and I wait, but eventually everyone gets there—I think that there is a saying about a prophet in his own country. It is also a question of the quality and sustainability of employment, and the pay associated with it. I welcome, as I hope everyone in the House did, the increase announced last week in the minimum wage. Frankly, however, even £5.73 an hour is a pretty poor level of pay. The Mayor’s living wage in London is £7-odd an hour, but even that is hardly a living wage. The more skills and work experience people have, the more they will drive up their earnings level. It is a chicken-and-egg situation.

People who are living in poverty, particularly children, suffer in terms of health and education. They get lower qualifications, which reduces their life chances at work and means that they will be in poverty when they retire. That is a complete life cycle. It is a matter of not only child poverty, but the next 60, 70 or 80 years of that individual’s life. That is why the issue is so important, and I am deeply sorry that the official Opposition still cannot commit to saying, “We accept that this has to be done.” We have had the usual banter between those on the Front Benches, but when the best we can get is a “Maybe”, to me that says, “It is not a concern for us.” For a party that froze child benefit for three years running—in 1988, 1989 and 1990—there is a lot of history, and perhaps some apologies are in order.

I welcome the publication of the document “Ending child poverty: everybody’s business”. The 2010 target concerns fiscal measures, but the 2020 one concerns longer-term strategies. That document says that Government do not have all the answers, which is true. All sorts of agencies need to contribute, because there is a 12-year strategy to meet the 2020 target. It is a radical change for a Government to say, “Tell us what we need to do,” instead of making an imposition. Everyone should welcome that.

I am sorry if I am boring people by restating the issues, but one of the key issues for anyone moving from benefit to work is the point of change. What happens then? Typically, the challenge for lone parents involves moving from a low income that is secure. They know that that income will arrive every week, and they know that housing benefit will pay their rent so that their children have a roof over their heads. They then move into the uncertain world of work, which is a real challenge, especially if people have two or three children, because they think about the children first, not themselves.

We need to firm up the package on offer at the point of change. In some circumstances, for example, housing benefit runs on for four weeks. I personally believe that it should continue for three months. One problem is that far too many authorities are too slow in assessing a new claim when somebody’s circumstances change. When someone moves from income support to work, the 100 per cent. claim stops and a new claim has to be made. If we had a three-month run-on, when the claimant was still paid 100 per cent., it would provide security for the claimant and give the authority time—under threat of some sort of penalty—to make the fresh calculations.

I may part company with my right hon. Friend the Secretary of State on the next point. We need to do better on the “better-off” calculation. It is currently poor and inaccurate, there are wide discrepancies between different offices and, indeed, it is not a better-off calculation. That was confirmed to me in a written answer, which said that any additional expenses arising out of starting work are not taken into account in the calculation. I am sorry to use strong language, but that constitutes deception. Most notably, the calculation does not include the cost of school meals, which were previously free. That can wipe out the £25 a week better-off promise. We need to improve the calculation and ensure that it includes all expenses, as well as income. Only income is currently included, whereas additional expenditure is not.

I have already considered the problems with child care. I am pleased about what the Budget documents state, but, as the Secretary of State knows, a major problem remains for families with disabled children or a disabled parent or—worse—a disabled parent and a disabled child. I appreciate the Government’s commitment on the matter, but we need much more action on opportunities for those people.

The Secretary of State knows that I disagree with the change to the jobseeker’s allowance regime when somebody’s child reaches the age of 12. I am grateful for his engagement with that discussion, the opportunities that it allowed us and the further discussions that will doubtless take place. However, I want to ask about one matter. Last year, there were 60,000 sanctions for non-attendance at second or subsequent work-focused interviews. I went on about that for ages, and eventually the Department commissioned research because nobody seemed to know what was happening. I understand that the research has been done. Will my right hon. Friend let us know when it will be published? There is obviously something wrong with the system, if there are 60,000 sanctions.

Barriers to work are a key element for most groups of claimants. There are so many barriers that I do not want to go through them all today. I am grateful to the hon. Member for Paisley and Renfrewshire, South—

The right hon. Member for Paisley and Renfrewshire, South (Mr. Alexander) is the Secretary of State for International Development, and I am sure that the hon. Gentleman does not want to confuse him with me. My constituency is Inverness, Nairn, Badenoch and Strathspey.

The book over here is wrong.

The hon. Gentleman who speaks for the Liberal Democrats received a written answer yesterday in which the Government helpfully listed several barriers to work:

“In addition, a key barrier to work is that many benefit claimants are not actually looking for work.”—[Official Report, 12 March 2008; Vol. 473, c. 436W.]

That is a statement of the so-and-so obvious. However, many groups of claimants experience serious barriers to work. When the Committee prepared a report on incapacity benefit a couple of years ago, it was striking to find that it was seldom the actual disability that stopped people moving into work; other factors in their lives, homes or family responsibilities did that. The move to making all claimants undertake the new work capability assessment test is right, but the decision on the test should be accompanied by the right support mechanisms.

Major mental health issues remain. Last year, the Chartered Institute of Personnel and Development conducted a survey of thousands of companies, 70 per cent. of which stated that they would not shortlist somebody with a history of mental illness. If that survey had showed that 70 per cent. of companies would not shortlist a woman, a black person or a Muslim, there would have been hell to pay, but because the statistic referred to mental illness, it disappeared into the ether. There was no press coverage and no discussion. While such discrimination remains in the workplace, we face a major challenge.

The number of new claims has fallen from 900,000 a year to 600,000 a year. The number of people coming on to incapacity benefit is falling dramatically. Doubtless, that has much to do with the economy. However, when people go sick or get injured, too many employers simply leave them on statutory sick pay for 28 weeks, have no contact with them and do nothing to support them. Those people then go on to incapacity benefit, and are lost to the work force. We should learn from places such as Holland, where everything is done to keep people in employment—even if is for only two hours a week—to keep them engaged with work and build them back up.

General practitioners, our old friends—I do not want to upset the British Medical Association any more—[Hon. Members: “Go on.”] I will then. Sadly, too many GPs do not realise that work can be good for people, even if people have a health condition, which applies especially to those suffering from depression. Depression can only be made worse by sitting at home all day on your own in a darkened room watching daytime television. That is enough to put someone in an asylum. We need to improve the interface between the health service and the benefits system. I am sure that Dame Carol Black’s report on Monday on health and well-being in the workplace will be stunning, and I hope that her suggestions are rapidly developed into policies. Too many people are being let down unnecessarily. Some people do not need to appear on the incapacity benefit rolls. We need a much better system to keep people in work.

I welcome the announcement—I am not sure whether many people noticed it—of the root-and-branch review of housing benefit. Its current operation is often a barrier to work, but a benefit should never be a barrier to work. I look forward to the review and to engaging with and contributing to it.

Again, I congratulate the Government on maintaining progress towards our 2010 target. It is telling that the End Child Poverty Campaign and One Parent Families congratulated the Government on what was done yesterday. Let us keep up the good work.

What a disappointing Budget. I thought that the new Chancellor would emerge from the shadows as his own man through the Budget, but we ended up with a Chancellor who dithered over Northern Rock and capital gains tax and cannot even decide whether the plastic bags levy should be voluntary or compulsory.

Let me begin with the public finances and our problems. Five years ago, in the Budget of March 2003, we were promised that we would be in surplus by March 2006. Each subsequent Budget and pre-Budget report postponed that. Yesterday, we were told that we would not be in surplus until 2010-11, exactly five years later than originally planned.

Let me put it another way. In the financial year that we are completing, we were supposed to have a surplus of £9 billion. Instead, we have a deficit of £7.9 billion. That is a turnaround of £17 billion—half the defence budget—because the Government failed to keep to their original plans.

Alternatively, let us look at net borrowing. Five years ago, we were told that net borrowing in the year that we are about to start would be £24 billion; yesterday, it was admitted that it would be £43 billion, almost twice as much. Worse still, for the first time that I can see in 11 consecutive Budgets and pre-Budget reports, the borrowing figures will be higher in the next two years than they were in the last two. The figures will increase to £43 billion and £38 billion, both of which are higher than the figure for borrowing in the year just ended. Not until 2012-13 will we get back to the borrowing level of £23 billion that we last saw as an outturn in 2002-03—a decade of binge borrowing.

Finally, there is overall public sector net debt. That will rise, according to the Red Book figures, to £731 billion in 2012-13, which is almost double what it was 10 years earlier. This comes at a time when we are already paying almost as much in debt interest, at £31 billion, as we are on the entire defence budget, at £33 billion, as we can see in chart 1.1 of the Red Book. Indeed, debt interest is now our fourth biggest spending programme. We on the Conservative Benches do not need to take any more lessons about unfunded tax promises, because that scale of collapse in the public finances is simply unfunded Government spending.

To put it another way, the Treasury got the growth that it expected from the economy last year, so why does public sector borrowing need to jump from £36 billion to £43 billion? Why do we need to force the motorist, the drinker and the small business to pay more taxes? Growth was around 3 per cent., as forecast and above its historic trend, but we are spending 45 per cent. of our national income while tax receipts account for only 41 per cent. Why? Because the then Chancellor failed to prepare during the stronger years. The Government failed to control spending or pay down debt. That is not just sloppy forecasting; rather it shows clearly and conclusively that the Government, and especially the former Chancellor, cannot plan their public finances properly. Therefore, we cannot trust the current Chancellor when he tells us that everything else will be okay. That is the failure in our public finances.

Secondly, I want to address the question of who really pays for that failure. It is not the public sector, which now faces relatively smaller increases in its growth. There will of course be fewer additional police community support officers and fewer additional NHS physiotherapists. However, we know that public sector pensions are still protected and that some pay restraint in the public sector is already being breached by the more and more widespread use of bonuses. For instance, one third of HM Revenue and Customs staff received bonuses last year.

It is not the public sector that will pay. The real losers from the collapse in our public finances are the people at the bottom. The first group are the lowest- paid of all. An unmarried person without children who earns only £11,500 year, on the minimum wage or just above it, pays tax and national insurance at 16 per cent. of their earnings. Someone in Ireland in exactly the same position would have to earn almost twice that amount—more than £22,000 a year—before they paid tax at 15 per cent. Why should single people starting their working lives be hit the hardest? Why should they be discriminated against by the myriad rules against part-time working, which make it less worth while to work between four and 16 hours a week, for example, because of the interaction of income support, working tax credit and child tax credit? The tax credit system is fine in itself, as we on the Conservative Benches have accepted. However, because it goes so far up the income scale, it simply does not give enough help to those who need it at the very bottom.

The second category having to pay for all the mistakes is our pensioners, particularly those on fixed incomes and those facing year-on-year real increases in council tax of around 4 or 5 per cent. Let me give an example from Sevenoaks district council, which is one of the southern district councils that has been worst treated by this Government. My constituent, Ms Earnshaw-Whittles, keeps a careful record, going all the way back, of the exact amount that she pays. In 1998-99, the first year for which the Government made the allocation, she paid £90 a month in a band G house. Had that amount been increased with inflation, she would now be paying £115.63. In fact, she has to pay £171, which is 48 per cent. higher. We are talking about people on fixed incomes paying half as much again in council tax they would as if the figures had been indexed. They are the people paying for the Government’s mistakes.

We know, too, that every council has had to plug the gap in its pension funds caused by the then Chancellor’s disastrous raid on pensions in 1997. Every local authority has had to cope with all the extra legislation passed through the House and the multitude of directives issued by Whitehall, but on a reduced grant.

Finally, small businesses are paying the price for the failure to control our public finances. Not only are they over-regulated, as Conservative Members have pointed out time and again, but they are constantly forced to act as the Government’s agents, by operating the tax credit system, checking on immigrant status and sorting out graduate loan repayments. As thanks for that, this year of all years, corporation tax will be increased by 2 per cent. We have been asking why since the last Budget, but we have not received an explanation. Rather than putting the burden of their mistakes on to those who simply cannot pay, the Government should look much harder at putting their own house in order.

I want to conclude with some remarks about the waste and inefficiency in central Government. There was not much in the Chancellor’s speech yesterday about the efficiency savings programme. We have had the Gershon savings and it is claimed that the £30 billion is on course to be realised. However, we know from the work of the National Audit Office and the Public Accounts Committee what a small proportion of those savings have been fully realised, fully audited and cashable. I understand that the NAO has endorsed only about a quarter of the current savings as real, in terms that the private sector would understand.

Secondly, there is the period after the Gershon review, post 2010-11. We were told yesterday that we would have to wait until the 2009 Budget before we saw the details of those savings, although yesterday we were promised something called the “public value programme”. It is not immediately clear to me how the public value programme differs from the current value-for-money delivery agreements. We have learned from bitter experience that changing the labels does not mean that we will get real cost-cutting in the administration of government, better ways of working, a reduced rate of absenteeism and an improvement in the efficiency of the back office systems. Those are all things that the private sector has had to cope with and implement over the past 10 years, but which still seem so difficult in the public sector.

Then there is pay, of course. I welcome the suggestion in the Red Book that Whitehall wants an increasing number of multi-year agreements, but I have warned before, including earlier in my speech, about the ever-widening use of bonuses to circumvent pay ceilings instead of adopting the performance-related pay measures that are now common in the private sector.

There are also asset sales. The Government have another £12 billion to go before they realise their 2010-11 target, and only two years left to get on with it. It seems to be taking them an awful lot of time even to sell the things that they have said for years that they wished to sell, such as the Tote. They have been playing around with that for years. A couple of weeks ago, the Department for Culture, Media and Sport announced that it intended to appoint financial advisers. If the Government are to realise their intended gains from asset sales, they must get on with it.

As I said on Monday, this country is in a financial crisis. We see that in the lack of confidence in commercial banking, the deep-rooted problems in the bond markets and the serious downturn in the United States. I suspect that we are nowhere near the end of that crisis. Just because this business cycle has run twice as long as previous cycles, that does not excuse the Government for not having prepared properly for its end. That is what Governments are for. Instead, just as our constituents face rising food and fuel prices, we find the Government being caught out. They have unfunded spending commitments, which are being met each year only through higher taxes and increased borrowing. They failed to prepare and have now been found out. Next year, they must prepare to fail.

I am pleased to be able to take part in the Budget debate and support my right hon. Friend the Secretary of State for Work and Pensions in his radical and modernising programme of reform in the Department. I know that he wants to implement it, and many Labour Members will want to wish him success.

The Chancellor delivered the Budget yesterday against a backdrop of probably the most difficult conditions that any Chancellor has had in the past 10 years or so. The global economic downturn and the turmoil in the world’s financial markets were difficult circumstances in which to deliver the Budget. I believe that the Chancellor was right to put stability at the heart of his statement and not take any risks. Of all years, this was probably the one when risks would have been totally inappropriate for our economy. He was right to stress the importance of using the economic strength that we have because of the decisions taken in the past 10 years, and of putting in place measures to ensure that we can weather the economic storm that all of us throughout the world now face. He was also right to identify key values and principles that he felt underpinned his statement: fairness and opportunity. The only way in which we can deliver on those values and principles is by having a strong and growing economy.

The Budget is one of the defining political events of any parliamentary year. It provides the Government of the day with the opportunity to give a political narrative and tell the public exactly what they want to do with their powers. It is particularly important this year, because it is under a new Prime Minister and a new Chancellor of the Exchequer. It is also an opportunity to develop the political dividing lines that exist between the Government and the principal Opposition parties. We saw a little of that yesterday, which perhaps gave a flavour of elections to come.

Even though things are tight and there is limited room for manoeuvre, the Budget is also an opportunity to present the positive case for what the Government intend to do in the months and years ahead. It can give real political momentum to what they seek to achieve. In that context, I wish to address three matters: first, the role and size of Governments in the modern world; secondly, the next stage of public service reform; and thirdly, how we can marry wealth creation and social justice, seeing them not as incompatible but as two sides of the same coin.

I believe that the first of those matters, the role of Governments and the size of the state, will be the key political issue for every party to tackle in the months and years ahead. What do the people want and expect from their Government? What role do they expect us to play? What should the size of government be? There are competing forces. At a time of globalisation, mass migration, international terrorism and climate change, we need national Governments to respond to those global issues and work internationally. However, the public increasingly want to stand on their own two feet. They do not want Government intrusion and intervention. In my view and that of most people in our country, the days of big government are over. They do, though, want a Government who are there when they need them. How to strike the right balance is what we must all address in the coming period. We must reconsider what we expect the Government to do, what we should be involved in and, as a consequence, how big government needs to be.

That is a difficult matter for all three of our major political parties. The Liberal Democrat supporters of the “Orange Book” see a limited role for the Government and believe that the market can address many of the problems that we face. The old left believed in big government and that the Government should be the sole provider of public services. It believed in large-scale intervention in industry. The right—I am not sure whether it is the old right—broadly believes in a laissez-faire approach. The hon. Member for Sevenoaks (Mr. Fallon), and maybe one or two others, might subscribe to that. It believes that the less Government intervention the better, and that the Government leaving things alone is the best way forward.

There are differing views among the political parties, but in many ways the debate has been over-simplified. Asking whether there is too much government is almost asking the wrong question, because it implies that the solution is less government. The issue is more complicated than that. The real question is what kind of government we want and what role we expect Governments to play. A progressive Government should be an enabling one. They should provide opportunities and make choice available to individuals, and they should support a new kind of redistribution of power and influence so that individuals can make decisions. A progressive Government should take power away from themselves and their agencies and devolve it all the way down to the individual, whether a patient in hospital or a parent whose child is going to school. That is where the power should rest—with the ultimate user of public services. An enabling state is, in my view, the only organisation that can guarantee fairness in our society. I know that that is the key difference between the position of Labour Members and the view expressed by the Conservative Leader of the Opposition, who does not see that as being a key role for a Government to play.

As we look in policy terms at the issues before us, we have to be careful that we do not come up with policy prescriptions for very pressing issues that lead us back into the ways of big government. I want to say a few words about how the tax credit system works in practice.

Having shared many a Committee Room with the right hon. Gentleman when the Labour Government first came to power in 1997, I have personally witnessed him abolish the assisted places scheme, prescribe from the centre how many children should be in a classroom and so on. Does he regret those big government steps he took back in those days?

I do not, and I shall come on to explain why. When I talk about public service reform, I will go through the three stages, which were articulated so well in a piece that the Prime Minister wrote for the Financial Times earlier this week. I will address the point that the hon. Lady raised when I reach that stage of my remarks.

I was making the point that there is a danger in government that the policy prescriptions that we bring forward to tackle a pressing problem may actually lead us back to the days of big government that I believe we should be moving away from. The present operation of the tax credit system is an example of how big Governments can be intrusive, and it will not in the end deliver the policy objective.

The range of people entitled to receive child tax credit has been mentioned. The hon. Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander) specifically raised that point when he drew the House’s attention to the fact that someone earning up to £58,000 is entitled to a child tax credit. In fact, it is even higher than that. If the child is less than a year old, someone on an income of £65,000 a year is entitled to a child tax credit. In my view, that is big government. I do not think that people on £66,000 a year really want a tax credit; they would rather have a lower level of taxation, full stop. I understand why the child tax credit is in place—to help, as I thought, families or single parents in poverty or on poverty pay—yet we suddenly find that child tax credit is available to someone on that level of income.

The second consequence of the tax credit regime, linked with the operation of other benefits and the abolition of the 10p starting rate of income tax, is that a record number of people now have a marginal deduction rate of more than 60 per cent. Page 62 of the Red Book tells a very sorry tale. There are now 1,875,000 people in work who face a marginal deduction rate of 60 per cent. or higher—an increase of more than 1 million people since Labour took office. That has come about because of the way in which the tax and national insurance system, the credit system and benefits such as housing and council tax benefits interact.

I have some sympathy with my right hon. Friend’s argument, but does he not accept that part of what has happened has been a reduction in the number of people paying infinitely higher levels of deduction—in some cases more than 100 per cent., or 90 or 80 per cent.? Does he further agree that the alternative may mean forcing people into work where they may lose money in comparison with their benefits, or that they are effectively priced out of work and end up on benefits? Of course, it would be better if we did not have such high marginal rates of income deductions, but my right hon. Friend has to look at them in the light of the alternative that used to exist, when people were simply priced out of the labour market entirely.

It is true to say that a small number of people were paying 90 per cent. or higher rates. The figure I am referring to is the total number facing rates of above 60 per cent.—in 1998, it was a little over 750,000, but it is 1,875,000 today. That is an unacceptable situation, and I think that solutions can be found—for example, a bigger increase in the national minimum wage, coupled with a shallower taper on the tax credit system, would make a huge difference to the people whom we are talking about.

Let me explain the consequence of the figures on page 62 of the Red Book. Poorly paid workers—hospital cleaners, people doing administrative tasks, school dinner ladies and so forth—are facing a reduction in their income more than 60 per cent. higher than that of millionaires who are paying 40 per cent. income tax, plus 1 per cent. national insurance. For a progressive Government, that is not an acceptable situation, and I believe that a solution has to be found. The review of housing benefit announced yesterday provides part of an opportunity, but we need to examine closely the operation of the tax credit system so that it does not act as such a disincentive for hard-working people to work the extra hours to get a decent income, which they will not get if they are being taxed at 60 or 70 per cent.

I welcome very much the positive statements made in the Budget yesterday about public service reform. The hon. Member for Sevenoaks referred to the announcement about the public value programme. Like him, I am not altogether clear about exactly what the programme will do. We should all support its terms of reference—to identify where there is scope to improve value for money, and value for money incentives. I would like to think that that is part of an ongoing reform of public services.

I was particularly pleased to see the Prime Minister’s article in the Financial Times earlier this week, in which he stated in the clearest possible terms his own personal commitment to drive forward the public service reform agenda:

“A greater diversity of providers, more choice and in many areas more competition will continue to ensure that services that fail to deliver are legitimately challenged and standards are forced upwards.”

He continued:

“So there can be no backtracking on reform, no go-slow, no reversals and no easy compromises. Indeed, to meet these new demands it is now time to go further and move to the third stage of reform where we not only further enhance choice but also empower both the users of services and all the professionals who deliver them to drive up standards for all.”

Did my right hon. Friend’s heart beat a little faster when he read that article, because it showed that the modernising flame in No. 10 is still burning brightly, and that the need to produce a public service in line with all our thinking over the past 10 or 11 years, which serves the public rather than serving itself, must be at the heart of the next stage of Government reform over the next, say, 10 years under Labour?

I would not go so far as saying that my heart was beating a little faster, but a smile may have played around my lips—[Interruption.] Yes, it is pretty good going really; it is progress.

The Prime Minister’s words are a clear indication of the direction in which he wishes to go, and they reflect the fact that, over the past few weeks, he has come to recognise the importance of public service reform. The challenge, however, is how to turn those very positive words into tangible policies on the ground, which will deliver on such commitments. I shall make a couple of suggestions about how that might happen in relation to the school sector, which needs greater improvement. We have seen incremental changes for the better, but given the investment that has gone into our school system, a dramatic shift is needed in the quality and standards provided in our schools. I agree with the Prime Minister when he talks about “greater diversity of providers”, “more choice” and “more competition” driving up standards. As a former Schools Minister, I thought about how that could be done in the school sector.

I have just two proposals. First, last week we had what is now called national offer day, when parents whose children are transferring from primary to secondary education are informed whether they have been successful in getting their child into the school of their choice. About 100,000, or one in five, will not get their first choice of school. It is clear from the timetable for admissions that we currently have a rationing system for places at good and popular schools. It is not a timetable aimed at meeting parental choice. The reason is simple. Parents express a preference—not a choice—in the autumn of the year before their children are due to transfer from primary to secondary school and are told in March whether they have been successful, so there is almost no time for the system to respond to their wishes.

There is a simple solution. In the private sector people specify at an earlier date the schools that they want their children to attend, which gives the system time to engage more teachers, put in an extra classroom and generally meet parental demand. The provision of places at good and popular schools can thus be expanded. If parents whose children were due to start secondary school in 2010 could specify their choice of school in autumn this year, the longer lead-in time would allow the system to organise and respond positively. I believe that that could galvanise the schools system; suddenly, schools would be able to respond to the wishes of parents.

There is, however, another issue that needs to be addressed. At present, children from poor backgrounds who are entitled to free school meals do appallingly badly. Of the 30,000 16-year-olds who leave school without a single GCSE or other qualification to their names, the vast majority are those receiving free school meals. Free-school-meals children are three times more likely to leave school with no qualifications, and 35 per cent. of free-school-meals children obtain five good GCSEs, compared with 63 per cent. of children who do not receive free school meals.

The Prime Minister has said that he wants all state school children eventually to be funded at the same level as those in private education. The average in the private sector is £8,000 a year; in the state sector, it is £5,000. If we are serious about changing the life chances of children from poor backgrounds, we must invest money to achieve that. The Liberal Democrats have proposed what I believe they call a pupil premium. I have a different proposal. I think that from 2010, each free-school-meals child entering secondary education should receive £8,000 as an educational entitlement. Given that about 90,000 children transferring to secondary school will be entitled to free school meals, the cost for the first year will be about £270 million. Over time the amount will increase to around 3 per cent. of the total schools budget, and I believe that it will be money well spent. It will dramatically improve the opportunity for children who need extra support and assistance to gain the benefits and get the best from the education system.

I think that if the £8,000 educational entitlement for a free-school-meals child is combined with a new admissions timetable allowing a longer lead-in time, young people who are currently denied access to the most popular and successful schools will soon have the opportunity to attend such schools. Parents who cannot afford the premium attached to buying a house in the catchment area of a good and popular school will at last be able to send their child to one.

Both those proposals are practical. Choice, competition and contestability must be at the heart of any third stage of public sector reform. It will be about devolving real power and influence to parents, rather than just giving those things to head teachers and schools, because, to be honest, they are just another group of vested interests that will not always act in the best interests of the children. For public service reform to be effective, it has to go the whole way and the ultimate users of the services must control their own destiny, and the money.

Finally, let me turn to wealth creation and social justice. When John Smith was Labour leader, he made an important speech on the progress the Labour party had made by casting off the old Labour approach and addressing instead a more modern new Labour approach. He said that whereas historically for Labour, wealth creation and economic efficiency were in conflict, they had to be seen as two sides of the same coin. When he was shadow Chancellor he made the strong argument—he may have done so in this House—that unless we have a growing economy and wealth creation, we will not be able to deliver on our social policy agenda. This Government have achieved that: 600,000 children have been lifted out poverty, and there have been record levels of people in work and of investment in public services. We have been able to do that only because we have had a strong and growing economy.

An important objective for any Government at a time of globalisation is to ensure that we remain competitive in world markets. That means being very careful about taxation levels for both businesses and individuals, because we are competing globally in respect of tax regimes. It also means reflecting the modern world in which we live in the overall climate that we create for business, entrepreneurship and wealth creation. There is a danger that one or two false steps, even if they are well intended, might disrupt the good record that has been established. We must therefore make it absolutely clear that the UK will remain the best place to do business. That means that the Government and the Labour party must become as comfortable with the concepts of aspiration, enterprise and ambition as we have been for generations with those of social justice, fairness and opportunity for all.

I have raised concerns about how the tax credit system works, but the overall message on the Budget is positive. It is a Budget that is right for our times: it stresses stability, and at a time of uncertainty in the world that is exactly what we need. This is the right approach, and one that should commend itself to the House.

It is a pleasure to follow the right hon. Member for North Tyneside (Mr. Byers), who made a loyalist and supportive speech; indeed, if I may say so, he made a better defence of the Budget than the Chancellor did yesterday. However, as the right hon. Gentleman developed his speech he talked about an enabling Government devolving power to the individual, about taking power away from the Government and about empowering the parent and the patient, but he is much more likely to get a Government who do all that if he supports my right hon. Friend the Member for Witney (Mr. Cameron) than if he continues to support a Government led by the Prime Minister, a man who blocked foundation trusts, for example—an initiative of the right hon. Member for Darlington (Mr. Milburn). That was a very modest move towards independence in the public sector, but it was blocked by the man who is now Prime Minister.

There is a problem that all political parties share. I have looked very carefully at the Conservative party’s proposals, and under them the power would go to another group of vested interests: the school head teachers. The Conservatives’ education policies would not empower parents. The situation is the same in respect of patients. The challenge for hon. Members from all parties is to have the courage to devolve power not to another agency acting on our behalf, but to the individual, such as the patient, parent or whoever it might be. We should be empowering them, but the policies of the right hon. Gentleman’s party simply do not do that.

I am familiar with what I think is called double-devolution, whereby one devolves power not just to the next layer of government, but over its head. It remains my strong view that a Government led by my right hon. Friend the Member for Witney is much more likely to deliver power to the patient and to the parent than a Government who continue to be led by the Prime Minister. My point is made by the fact that the right hon. Member for North Tyneside went on to launch an attack on the tax credit system—a system that symbolises the political philosophy of the Prime Minister: big government. If the right hon. Gentleman wants to reform the tax credit system, he is again much more likely to get that from the Conservatives than from his hon. and right hon. Friends. However, let me develop one or two other points, if I may, having listened with interest to the right hon. Gentleman’s speech.

This was an unusual Budget speech, in that we were not told by the Chancellor what his Budget judgment was. We had no idea at the end of the speech whether he was putting money into the economy or taking it out. He did not tell us the cost of postponing the fuel duty increase or of the increase in the winter fuel allowance. We were not told whether the vehicle excise duty changes were revenue-neutral or would raise money. We were not told how much the alcohol and tobacco duty increases would raise. So yesterday, we had an hour-long journey with no signposts or milestones. It was only at the end that we discovered where we were. If this Chancellor delivers another Budget, I hope that he will revert to the practice of giving the House the figures as he goes along. I do not think that I have ever said this of a speech before, but some statistics would have made it more interesting.

We have heard a lot about the imbalance in the public finances and the Government’s failure to build up a reserve for a rainy day—a point made by my hon. Friend the Member for Sevenoaks (Mr. Fallon). The Government have less money than they thought, but they have an extra bank in which to put it. This might have mattered a lot less, had not exactly the same imbalance been happening in the nation’s private finances. I want here to talk briefly about two issues, neither of which has featured much in our debate so far, the first of which is savings.

The nation’s savings ratio has plummeted—from 9.5 per cent. in 1997 to 3.4 per cent. in the third quarter of last year. The case that I make against this Budget is that this sustained decline is serious and bad news for the British economy, and nothing in the Budget begins to address it. If one looks at the Government’s five long-term goals in the Budget press notice, one sees no mention at all of savings. If one looks at the document published yesterday, entitled “The UK economy: analysis of long-term performance and strategic challenges”, one sees that the issue is totally dismissed on page 21. It states:

“Over the past decade, macro-economic stability and low interest rates have given households the confidence to borrow and invest.”

That is Government-speak for “people have stopped saving”. There is also a graph showing that household financial liabilities have almost doubled since 1997. The section on the household sector balance sheet does not mention the collapse in the savings ratio.

It is not until we get to page 64 of Budget 2008 that we come to a section called “Promoting saving, financial capability and inclusion”. However, what is there is frankly derisory and has no chance of reversing the drop in the savings ratio. There are three items under that heading, the first of which is the savings gateway. I welcome the savings gateway—I think it was first announced in 2002; it is not going to come in until 2010—but it is unlikely to generate large volumes of savings because it is targeted, on purpose, at people on benefits and tax credits. These are the very people who have been hit by the Budget’s other measures and who will be least able to save, so that is not going to take the trick. I will read out the second measure, so that the House can judge what impact this will have on the savings ratio. It states that

“the Government announces that, from April 2009, the requirement for providers to receive the CTF”—

child trust fund—

“voucher from parents before opening an account will become voluntary rather than mandatory.”

What is that going to do to the savings ratio?

The final item under this heading is a small increase in the individual savings account allowance, announced some time ago, which fails to keep pace with inflation. Those three items are a wholly inadequate response to a collapse in the personal savings ratio. Although the Government at least recognise the dangers of Government overborrowing, they do not recognise the dangers of the personal sector overborrowing and putting insufficient savings to one side. If they do not want to go on increasing direct taxes, they could, and should, encourage saving. In particular, action should have been taken to freshen up the product range issued by National Savings and Investments—the Government’s savings wing—which is beginning to look stale.

The Government have only about 7 per cent. of retail savings. Given that people are cautious about investing in the stock market, the buy-to-let market is looking risky and there has been a loss of confidence in many traditional products such as endowment policies, they have a real opportunity to help balance their books and help people to save by launching a new range of National Savings and Investments products. I am thinking of something to whet the appetite, such as the launch of premium bonds 50 years ago or the launch of personal equity plans and tax-exempt special savings accounts 20 years ago. I hope that next year’s Budget will contain a proper saver’s package to put that particular deficiency right.

Does the right hon. Gentleman agree that one priority product National Savings and Investments might usefully examine is child trust funds, which it does not provide but is ideally placed so to do?

I welcome the child trust funds, but the sums involved are relatively small, they build up over a period of time and they will not get us back to the 9 per cent figure that I mentioned—a statistic that has fallen to about 3.7 per cent. A much more imaginative approach is needed to whet the public appetite for savings, over and above the child trust funds.

The second subject I want to touch on briefly is housing. At yesterday’s Prime Minister’s questions, the Prime Minister mentioned the target of building 3 million new homes by 2020. That was an ambitious target when it was announced, and in the light of subsequent events, I am worried that neither it nor, within it, the target of 1 million affordable homes, may be achieved.

A fundamental change in the funding of social housing has taken place over the past 20 years. Traditionally, the Government gave grants to housing associations or borrowing powers to local authorities, and they built social housing. The social housing market was insulated against the broader housing market. Nowadays, that has all changed and social housing is a by-product of market housing. Some 48 per cent. of the Housing Corporation’s national affordable housing programme is being delivered on section 106 sites. Typically on such sites a private developer is building market homes, 25 or 30 per cent. of which must be affordable. That form of funding has many advantages: developments are mixed rather than polarised, and the cost of providing social housing falls in effect on the land owner, who gets slightly less of a windfall gain, rather than on the taxpayer.

Far from being insulated against the wider housing market, social housing is now, crucially, dependent on it. My concern is that the softening of the housing market will mean that both the 3 million figure and the social housing target will not be hit. If one examines the annual reports and the share prices of the country’s house builders, and the comments of the Council of Mortgage Lenders, one finds that the outlook for housing is not good.

The Government could address two particular problems. One is in the Planning Bill that is going through the House, which will introduce the community infrastructure levy in place of the planning gain supplement. As the housing market begins to turn down, the community infrastructure levy will squeeze out the social housing that would have been provided under section 106, because that levy will take priority over affordable housing. That will result in an overall reduction in the number of affordable homes built and will threaten the delivery of mixed tenure developments.

The second problem, which should concern the Treasury, is the unresolved problem of the classification of housing association debt. The Government have been warned that the Housing and Regeneration Bill, which is going through the House, will add £47 billion to the public debt by redefining housing association borrowing. That would nationalise housing associations and lead to that sum being added to the public borrowing requirement. Not only would all that borrowing be added to the public debt, but housing associations would not be able to borrow in the future, blowing a hole in the plans to build 1 million social homes. The Government could address that problem in the Housing and Regeneration Bill and thus avoid it.

I turn to the wider housing market. The number of new home buyers in January was down to 50,300, which is a third down on the figure a year ago and is the lowest figure since 2002. First-time buyers face either higher interest rates or having to provide higher deposits. The average rate for a two-year fix with a 5 per cent. deposit rose 0.3 per cent. last month, although base rates fell. With the changes going on in the mortgage market, costs are likely to rise whatever happens to base rates. Interest and capital repayments are now at their highest level for some 20 years.

There was nothing in the Budget for ordinary first-time buyers. The bands for stamp duty remained unchanged and 61 per cent. of first-time buyers will pay it. While some changes were announced, only 4,000 buyers have been helped on to the property ladder since open market homebuy was launched. Having quickly read the housing finance review, I can see nothing that will change that position in the short term. Just one sentence shows that it is a very cautious document:

“As financial markets develop, a variety of innovative products may come on to the market that could help households access the housing market…However, these products usually involve an extra degree of complexity and will not be suitable for everyone.”

So my second and final suggestion for the Government is that they may need up their sleeve a package of measures to restore confidence in the housing market if the future turns out to be less rosy than the Chancellor currently believes.

Tackling poverty, worklessness and inequality is not just a moral imperative, as it should be in a country that, happily, remains one of the most prosperous in the world—although no one would guess as much from some of the contributions that we hear in these debates. It is also a question of economic efficiency. When the Labour party campaigned in the mid-1990s, much was rightly made of the costs of economic failure. Many of those costs of economic failure have been tackled over the last decade by the measures that have helped to reduce unemployment and increase employment rates, although there is a great deal more to do.

Before I concentrate on my main subject of child poverty, I wish to pick up some of the arguments made by my right hon. Friend the Member for—

Yes, somewhere up north. My right hon. Friend gave an important analysis of some of the challenges facing the public sector and I agreed with much of what he said. However, I have some anxiety—and it applied in spades to previous Administrations and applies a little to this Government—about some of his arguments. Individual empowerment should lie at the heart of government, but the danger is that an approach to public services based on choice and contestability carries an enormous risk. It is that as one makes progress on reducing unemployment and poverty through certain measures, it is possible—perversely—to increase the disadvantage faced by those who remain in difficult circumstances.

The school choice example is a good illustration. The Sutton Trust has analysed the figures, which reveal a trend, and I see it happening in my constituency. It is a demonstrable fact that the polarisation between the better-off and the worse-off has been intensifying in recent years. We must be very careful about measures that encourage and accelerate that process. They can end in expanding popular schools—setting aside some of the practical problems with that—so that other, less popular schools become even more the schools of last resort. That can concentrate high proportions of children on free school dinners in those schools. That trend is happening now, and it is one of the reasons why the gap between schools has been increasing.

It is happening at the moment, and my hon. Friend is right to say that the divisions are intensifying, but that is because we have an unreformed system. My argument is that we need to reform the system radically, and then we will see the sorts of improvements that have been seen in Sweden, which we often hold up as a good example of public service provision. Sweden has the educational entitlement, which discriminates in cost terms in favour of children from low-income families. That has broken through the downward spiral of aspiration and ambition that afflicts far too many families in both our constituencies. We have to reform the system, otherwise the status quo will condemn a generation of children to a poor quality of education.

I have sympathy with the point about the education entitlement. I am certainly entirely sympathetic to the idea that we should concentrate the promised investment, which is very desirable, on bringing up the per capita allocation for children from low-income families to that which would be enjoyed by children in the private sector. That should be done as an absolute priority. It is an entirely desirable objective.

As a society and an economy, we are not yet comparable to the Swedish and Scandinavians. They began with decades of greater equality in public service provision and incomes. There is a risk—we have seen this in schools and neighbourhoods—that we will intensify the relative disadvantage not of 2 or 3 per cent. of the population but of almost a quarter of the population. As we benefit a small proportion of those disadvantaged people through some of the measures that my right hon. Friend proposed, we will leave behind in even deeper disadvantage a substantial minority. If we could find ways of adopting his approach without running that risk, I for one would be entirely behind him.

The Government, against a tight Budget in a difficult economic context, reaffirmed a commitment to end child poverty by 2020 and to seek to deliver on the target of halving child poverty by 2010. I welcome not only the commitment, although words are symbolically important and it is to our credit that we continue to maintain that emphasis, but a number of specific measures that, together with measures announced in the pre-Budget report, will add 500,000 children to those whom we will lift out of child poverty.

I welcome the specific recognition of the work that has been done by the London Child Poverty Commission. I have been a member of the commission for the past two years, as my right hon. and hon. Friends on the Front Bench know. In London in particular—although it is mirrored in inner-city communities in other parts of the country—we have an intensification of child poverty that is worse than that in any other part of the UK, with 41 per cent. of children in London living below the national poverty threshold. In inner London, more than half of all children live in poverty. Child poverty is deeper in London: far more children are in the lowest 10 per cent. of the economic distribution than in the rest of the UK.

We have heard statistics about poverty from people in all parties during the course of the debate. We sometimes forget to remind ourselves of what they mean: lone parents with two children have to bring up a family on about £5,500 a year. People in my constituency—almost certainly in every constituency, although in varying numbers—bring up their families on £7 a day for each member of the household. That is £7 a day to feed and clothe a child and, in theory, to pay for a holiday. Of course, many people in poverty never have a holiday. That £7 has to cover inviting their children’s friends to a birthday party, which never happens for many children in poverty. It has to cover taking those children to somebody else’s birthday party and buying a present, and many children in poverty are simply unable to do that.

That money has to cover the cost of a school uniform as well as of allowing the children to go on a school trip or to a sports club. In my constituency, children are asked for £3 a day to play football. That means that people with three children would be asked for £9. It seems like a small amount—the local authority says that it is—but if parents are asked to hand over almost 10 per cent. of their weekly income, which is all that is left for bills, for a football club, they will not do it. That is the scale of the remaining challenge.

Does the hon. Lady agree that sometimes in areas of affluence, such as my constituency where we have something closer to pockets of deprivation, families suffer even more? There are no low-cost shops and Government programmes do not reach out to those areas, so there is no Sure Start and no children’s centre. Many services that help others are missing for families for whom they matter just as much.

There is truth in what the hon. Lady says. She almost mirrors my opening remarks about the dangers of individuation. People living on a low income amidst affluence face particular problems of inequality and there are particular challenges in reaching those households. None the less, in a spirit of devolution—given the role we expect local government to play—it is incumbent on local authorities to work independently and with other partners such as Jobcentre Plus and the Government to help deliver services to children in poverty. It is thus extremely worrying that, as far as I am aware, only one local authority—and even that may have changed—has a child poverty target in its local area agreement.

If we are to eradicate child poverty in the UK, money lies at the heart of the process—let us be under no illusion about that—but life chances, too, are central to that goal, and local authorities and local partners, including local voluntary and community organisations, are often best placed to deliver targeted and focused support to families. I hope the Government will pick up on the deeply worrying fact that so many local authorities do not say in their local area agreements that as a priority they will make it their duty to help overcome the problems of worklessness and child poverty.

The hon. Lady’s constituency is very different from mine, but one of the problems in rural areas is that individuals in a poor position are isolated from the support systems that she describes. Furthermore, local authorities are not funded to provide services to the most difficult-to-reach people because the unit costs of doing so are much higher than where there is an identifiable critical mass.

I agree with the hon. Gentleman up to a point, but given that we are talking about devolution, one of the things we have to recognise is that each local authority has a responsibility to make a case to its local council taxpayers. Of course, there is a role for central Government in helping to support some of the measures, and in our debates about local finance we all make representations about the needs of urban authorities, the needs of authorities in the north versus those of the south and the needs of rural authorities versus those of London. The Government pick up many of those issues, but we continue to make representations on others.

We have to overcome a number of barriers if we are to meet the child poverty target, accepting, as we do, that for many people work will be the best way out of poverty. We know that incentives work. It is a proven fact. There may be plenty wrong with the administration of the tax and benefits system; we need constantly to refocus on how we can improve the delivery of tax credits, especially with regard to the overpayment problems. However, in principle, the tax credit system and other measures in the tax and benefits system are proven to work. The continuing problems of poverty and worklessness are in areas where the incentives do not work because they do not overcome the barriers.

Our London Child Poverty Commission has demonstrated beyond doubt that if the same level of incentive—for many people, not just for job entry but above all for job retention—delivered in London and other inner-city areas as it does in many other parts of the country, we would meet most of our targets. Why do the incentives not work? There are two reasons. The first is to do with housing costs, so I very much welcome the commitment to a review of housing benefit, although I shall wait to see what it says—I shall not approve it in advance. Clearly, we must make housing benefit effective as an in-work benefit, which it is not at the moment, particularly for families in high-rental areas. That review is welcome, and I will follow it very closely.

The other issue to consider is child care. One of the welcome paragraphs buried away in the Budget report included a commitment to extend the child care affordability programme in London. It has taken some time to get it up and running, but it is successful. It provides a subsidy to deliver affordable child care in areas of very high child care costs. It is a very good thing, and we want it to be rolled out and extended.

What does not work is the child care tax credit. The Government finally have to throw up their hands and say, “No, we’ve tried this; it is a failure; we must move on.” As my right hon. Friend the Financial Secretary to the Treasury knows very well, I have supplied her with figures to demonstrate that in my borough—a whole inner-London local authority—only 400 households receive the child care tax credit. If we are to help lone parents in particular to make the leap from worklessness to employment and sustain it, we cannot say that the vehicle for delivering that is child care tax credit or, indeed, child care vouchers, the numbers of which we do not even track. We cannot rely on a tax credit that does not deliver for most people most of the time. It is now absolutely crucial that we pull up the stumps on the child care tax credit and say that we will switch it to a flexible form of funding—an Oyster card-style system that gives people an entitlement to child care that meets the needs of flexible child care, which is what parents want, particularly lone parents, who so frequently want part-time employment but cannot find part-time child care.

We must also do away with a number of other barriers, such as asking for a deposit for child care. A low-income family could be asked for £1,500 up front before they even get their child care place. I very much welcome the fact that the child care affordability programme has been delivering in my constituency. However—I must put this on record because it has horrified me so much—my local authority, which is the flagship Conservative borough of Westminster, has taken up the child care affordability programme but then put up the rents for the council nurseries. A nursery in my constituency—Westminster Children’s Society, which is a voluntary organisation partner—is now paying back to the local authority £69,000 a year in rent. The money that the Government are paying for child care is simply pouring through the plughole and back into the local authority’s coffers. If anyone can convince me that that local authority is working in partnership to tackle poverty and unemployment, I am prepared to buy them a very large drink.

Does my hon. Friend agree that it is complete nonsense that child care facilities, either nurseries or before or after-school clubs, that use school premises are charged exorbitant rents because of the requirements for economic returns under the private finance initiative contract? Does she agree that that problem needs to be sorted out, so that those child care services can continue to function economically?

I agree. In fact, there are 100 anomalies in the system—some in local government, some in the benefits system and some in the tax credit system—and we have to work on them. It may be grey and detailed, but it is often in the precise implementation of benefits and services that the problems lie. Although I will vigorously campaign on next year’s Budget for substantial additional investment by the Government in the child tax credit, the working tax credit and a number of other measures to help us to meet the 2010 target, it is important not to dismiss as trivial many of those relatively specific measures at different levels in the system that can trap people in unemployment and poverty.

I have said that incentives work. Indeed, we know that they work, so we do not need a harsher penalty regime. In the past year, the number of people on jobseeker’s allowance subject to sanction has escalated. No one quite understands why that escalation has occurred, and it is fundamentally unnecessary, particularly for people with children, people on incapacity benefit and people with mental health problems. Sanctions will always be a part of the regime. No one is arguing that they should not exist and should not be applied, but it is through incentives, not sanctions, that we will crack this nut.

I should like to finish by reminding the House that we are talking about not pounds and shillings, but real people who encounter complexities and pressures that very few of us in the House have had to deal with, thankfully. In the past week or two—it is fresh in my mind—I saw in my surgery a bus driver and his family who are on tax credits. They are in temporary accommodation that costs £435 a week. The bus driver’s income changes marginally every single week, which means that his housing benefit has to be recalculated every single week. Since he went into work, he has not been out of housing benefit arrears and has had three notices seeking possession of his house. For doing what we want him to do—for going into employment—we have threatened to make him homeless. That is the kind of problem with which we have to deal.

Then there is the case of a single mother with three children—boys and girls aged 14, 12 and nine—who live in a one-bedroom flat. They have to sleep in shifts. The mother is still trying to go into work, but when she was last in employment she, too, ended up with a housing benefit overpayment of £3,500, and she is now a tolerated trespasser. Under those circumstances, the incentive to go to work evaporates. Word of mouth goes round, and staff in Jobcentre Plus then tell people in similar circumstances not to even think about going into work. As I have already said, one mother who wanted to go into work was asked for £1,500 in advance to secure a nursery place for her child. As a consequence, as I think someone has said today, there are nurseries that are only two-thirds full. That is an absolute absurdity.

We are talking about real people who are struggling with a complex set of circumstances. In addition to the problems I have mentioned, many of them have experienced domestic violence or have been homeless. I met a family last week who have been in nine different temporary accommodation addresses in eight years. That is the level of complexity on which we have to focus. We have to find ways of simplifying the system without losing a fundamental generosity that provides an effective incentive, because as I have said three times—I will say it again in my last words—incentives work.

Given that we have the largest budget deficit in western Europe, it is not surprising that yesterday the Chancellor spent a lot of time talking about other issues, which left many of us wondering whether we were listening to a Budget speech. Clearly he has very little room to manoeuvre. Macro-economic figures have been mentioned, but we should look at the reason why we are in our current position, and at the Government’s inability to plan for the future, as regards the global turbulence that they keep talking about, and the domestic problems closer to home, many of which were brought about by the former Chancellor. I mentioned one of those problems in an intervention on my hon. Friend the Member for Tatton (Mr. Osborne): the disposal of the nation’s gold supplies has left us £4 billion worse off than we would have been.

Another domestic problem is the raid that the former Chancellor, now the Prime Minister, made on the nation’s pension funds. It is worth recalling that when Labour came to office in 1997, there were more funds in private pensions in this country than in the rest of Europe put together. Anybody who was then in work and who was doing the right thing for themselves by saving for their future—creating their pension—would have had confidence that when they reached retirement age, they would have provided for their retirement, having made significant contributions from their earnings. As we know, it is increasingly the case that when people now reach state retirement age, they face greater financial uncertainty than previous generations did. Today I would like to address the issues affecting that group of people.

Quite properly, we have heard much in today’s debate about child poverty. It is an important issue, although I notice that we still did not get the Secretary of State to confirm from the Dispatch Box that he intended to meet his own 2010 target, which after all is only two years away.

I shall focus on the older age group, and perhaps I should declare an interest as I am in receipt of the state retirement pension and will benefit, of course, from the increase in fuel support announced by the Chancellor yesterday, which is welcome. However, in my constituency, there is a high proportion of people living on retirement incomes, coupled with a working population. In the south-west as a whole, we have historically had lower than average wages, but in my constituency we have wages lower than the south-west average. I am therefore used to constituency casework that deals with the difficulties of a retired population, and particularly with the difficulties of families on low incomes.

It is important to consider single people. Not everyone marries, and single people get older, too. They often do not have high incomes and they eventually get to retirement age, so I shall look across the spectrum at those on lower incomes generally. What I see in the immediate future for them are insurmountable problems. We know that the retail prices index is at 4.1 per cent., but that is no indicator of the real cost of living. That is true throughout the country but especially in rural Devon where people rely more on their own vehicles or on a very fractured public transport system.

Food prices, for example, have gone up by 7 per cent. In the South West Water area, which includes my constituency, water rates in the coming year will go up by 8.7 per cent. Even those who have a water meter will see an increase of 5.6 per cent. in their water charges. Council tax has gone up above the RPI rate. Attention is not always directed at the elements of the council tax. One of those, the police precept, is up by more than 7 per cent. in the coming year. Those are all bills that must be paid out of modest fixed incomes.

One other fixed cost for the people the hon. Lady is describing in her constituency, as in mine, is liquefied gas or oil-fired central heating for their homes, which has risen out of all proportion to its previous cost.

I agree. I know the profile of the hon. Gentleman’s constituency, which is not dissimilar from that of my constituency. The next item on my list was fuel, which is up 19 per cent. When we speak about fuel, we encompass the cost of travel. For many people, it is not just a matter of travelling round looking at the beautiful Devon countryside, but of travelling to access essential services such as doctors and dentists, for those who have one. All that adds to the household bill.

We know that people’s disposable income has dropped and is forecast to go down further. Nothing in the Budget gives me any comfort that the Chancellor is suggesting ways in which the drop in the standard of living will be mitigated. It gets worse for a certain group of people on lower incomes who have already been mentioned in the debate—those affected by the changes announced by the Prime Minister in his last Budget as Chancellor, which the Liberal Democrats rightly call the doubling of the 10p income tax rate. It was paraded as a reduction in tax, but those—ironically, the very hard-pressed group I am describing—earning just over £5,000 and up to £18,000, which includes many pensioners and many on low incomes, will see their income tax go up.

I wrote to the Financial Secretary on behalf of one such constituent—a lady constituent of mine—and received a letter back outlining why, in the 2007 Budget, the then Chancellor had felt that that had been a good move. It was a good move for people like me, who earn a higher amount of money and pay a higher rate of tax, but at the end of the day, given what I and many like me earn, we will not experience the same impact as my constituents on lower incomes. In her letter, the Financial Secretary said:

“I acknowledge that there are some individuals who will lose out through these changes, including pensioners aged 60-64. however, these losses will be relatively modest, at around £2 a week on average.”

I shared that response with my constituent who wrote back to explain:

“£2 a week might be a modest amount but it represents 1.5 per cent. of my pension. My husband will also be in the same position until he is 65 and the £2 a week for each of us equates to the total £200 of the heating allowance!”

It seems quite appalling that no consideration was given in 2007 to how this new tax would impact disproportionately on those on fixed incomes and those on low earnings, of whom there are many in my constituency.

I say to the Financial Secretary that it is not too late. Many of us in my party have heard for many years about fairness and justice—they were referred to earlier by the right hon. Member for North Tyneside (Mr. Byers) in a very good speech. I ask the Financial Secretary, where is the fairness and justice on the part of this Labour Government? They are penalising those on modest incomes, particularly those who are about to become, or have just become, pensioners.

It is now popular to talk about pensioners working for longer. Fortunately, many people in their 60s are fitter and healthier than those of the previous generation. We all understand the demographics, but I am enormously worried about those who reach retirement age, having saved and planned for it and having worked hard all their life, who find that there is not much choice about whether to give up work at the state retirement age. Psychologically, there is a huge difference between someone who is giving up full-time work and looking to do something slightly less onerous—I count myself among those, as I shall be standing down at the next election—and someone who reaches retirement age and knows that they have to work because the money they had counted on having is just not there. That will surely lead to a deterioration in people’s health, and it goes without saying that people who get to their mid-60s often do not know how good their health will be. It is a bit of a lottery, but we often take it for granted.

It is not too late. Following this Budget debate, there will be a Finance Bill, and I ask the Financial Secretary to consider the matter seriously. If the Government do not make changes to the aspects of the 2007 Budget that will have such an impact, we can only assume that that impact was their intention. Surely it cannot have arisen because they ommitted to consider the effects on that particularly disadvantaged group of people.

We have heard much about savings, including from my right hon. Friend the Member for North-West Hampshire (Sir George Young). As disposable incomes decline, people are less likely to have any money to put aside or save for the future. That leaves them feeling exposed and vulnerable. It does not make for an inclusive society in which people feel that they can look forward to old age; instead, it makes them fearful, and that is not good.

Let us consider small businesses. As a former member of the Federation of Small Businesses, I read its press release after the Budget with some amusement. Its headline reads “FSB welcomes a Budget speech with no nasty surprises”. The Minister of State, Department for Work and Pensions, the right hon. Member for East Ham (Mr. Timms), nods in approval, but he should reflect a tad and realise that that is not much of a compliment. The organisation is saying, “It’s pretty bad but we were expecting the worst and it’s not as bad as it might have been.” I emphasise that that is not a compliment. The Minister should be cautious about taking it as such, especially when he reads the FSB’s poll of small businesses on whether they have confidence in the Government.

My hon. Friend may have noticed that I left the Chamber for a few minutes. I was lobbied by the FSB, which is not happy. It says that 2,000 local shops close each year, that there will be no independent retailers in the UK by 2015 and that it expects 50,000 business to close. Perhaps its opinions are catching up.

My hon. Friend is right, so the Minister should not take comfort from the headline. We hear much about employment figures, but an economy that is genuinely growing creates jobs. Small businesses usually create those jobs and, if that sector fails, there will be fewer genuine jobs—people doing real things that create real wealth for the rest of the economy. The Government should not ignore that serious trend.

I am about to say something nice, which was jolly hard to find, about yesterday’s Budget. The announcement that the Government intend to defer the plans for income-shifting rules, which are incredibly complex, is welcome. I know from the lobbying that I have had, especially from family firms, that those rules were deemed to be bureaucratic and a genuine burden on business. The Government said yesterday that they would defer them. I hope that the Financial Secretary will go further and say that they are off the back burner altogether. She shakes her head. Here we go—another burden on business.

That leads me nicely to my final point, which is not only for those on the Treasury Bench but for my Front-Bench colleagues. Yesterday’s Budget was boring. I think it was meant to be boring, and it will probably count as the most boring Budget speech ever, but it could have been livened up, even without money to spend. Although he is in debt and has overspent, the Chancellor could have come up with some innovative ideas which would have made people outside, especially taxpayers, feel that the Government were on their side. I want to present—

No, I would not presume to do that. I want to present an idea that I hope the Government will take up. If they do not, I hope that a Conservative Government will do so in a year or two.

With the amalgamation of the Inland Revenue and Customs and Excise, something disappeared from our national life. In 1986, the Conservative Government introduced the taxpayers charter. I do not criticise the amalgamation of the Inland Revenue and Customs and Excise, but the Chartered Institute of Taxation has produced—I hardly dare say it—a consultation document. The Government love consultation reviews, so I am sure they will accept my invitation. I ask them seriously to consider the comments of the Chartered Institute of Taxation, because the relationship between the state and the taxpayer through HMRC is important.

Most countries have a taxpayers charter. Although we were the first country to introduce one in the mid-1980s, the amalgamation means that its purpose has become obscure and opaque. In other words, the taxpayers charter is not really enacted—or rather, it is there but it does not work properly. The Financial Secretary has probably already got a copy of the Chartered Institute of Taxation’s document, which is an options paper. I would ask her to consider it carefully, because where there is a recognition of both the rights and the responsibilities of taxpayers, the relationship between those who collect taxes and those who pay them is much fairer.

As a member of the Public Accounts Committee, which has just looked into the National Audit Office report and taken an evidence session on it, considering the non-payment of taxes and how HMRC goes about collecting them from the corporate sector in particular, where they are not paid properly, I believe that a reviewed taxpayers charter would be a valuable addition to our tax system. I hope that the Financial Secretary will be able to give a positive response on that.

I am pleased to take part in this debate, which concerns one of the most important parts of the Budget. I want to talk about some of the Government’s anti-poverty measures, particularly those to tackle child poverty.

In discussions about the economy there is often a disconnect between discussion about the macro economy and discussion about the micro economy. People talk about either global economic shifts or the personal finances of people who are poor, but for me the two are different sides of the same coin. We will not be able to achieve the place that we should in the global economy or equip our society and economy to compete unless we deal with the factors in our society that still hold people in poverty. In particular, we will not achieve what we need to compete as a high-skills, high-value economy if a percentage of children are born in poverty, grow up in poverty and end up out of work because they are denied access to the skills and services that the Government have discussed in their anti-poverty strategy.

Although all of us who are concerned about child poverty will have criticisms of some of the measures in the Budget and of what the Government have done, that is mostly because we want those targets to be achieved. It is clear to us on the Labour Benches that the Government’s commitment to tackling poverty is a giant leap forward from what we saw in the 1980s and most of the 1990s. That is partly because of the understanding in government of the need to tackle the factors of poverty, as part of equipping the UK for the challenges of the 21st century, and partly because we understand the complexity of what is needed to deal with poverty. As my hon. Friend the Member for Regent's Park and Kensington, North (Ms Buck) has said, in addition to the grand vision, we need to understand the detail of the rules. In that respect, some of what is in the Budget—albeit tucked away—will make a substantial change.

There are three measures to tackle child poverty directly. One is the child benefit increase, which will obviously benefit middle and higher-income families, as well as the poor. In that sense, it is perhaps a blunt instrument for tackling child poverty. However, the work of the Treasury Committee has emphasised the importance of looking at a simple universal benefit, in addition to the more targeted ones.

Although no one has talked about this yet, one measure that will have a dramatic effect is the disregard of child benefit for housing benefit and council tax benefit purposes. That will mean that those families who are in the greatest difficulty and who need support with their rent and council tax will not experience a withdrawal because of the increase in child benefit. For me, that is probably the measure that will most improve the income of the poorest households.

I ask Ministers to consider this point. The system is fine for people who are in social rented housing, or who are housed by the council or by a housing association, because there is a proper cap on rents. However, one problem that particularly affects my area is pressure on homeless families—particularly the most vulnerable, such as lone parents—to go into private sector rented accommodation. The rents for such accommodation seem to work by landlords taking whatever is paid in housing benefit and then fixing the rent at the amount that they think people will pay out of their other benefits. People in that accommodation therefore pay not only their housing benefit but £50 or £60 out of their limited other benefits. Alternatively, they might have a parent who coughs up, in which case the landlord charges a bit more.

There is a single parent in my constituency with one child who is living in a privately rented one-bedroom flat. She is paying £525 a month, and she has just lost her job and is going on to benefits. I do not know how anybody is supposed to pay a private sector landlord a supplement of probably £100 out of their benefits. If we are to increase benefits for families, we must ensure that those benefits are spent on their children, better food and school services, which my hon. Friend the Member for Regent’s Park and Kensington, North (Ms Buck) has mentioned, and that they do not just pay increased rents to private sector landlords. I hope that steps can be taken to ensure that.

Another important matter is the increase in the child care element of the child tax credit, which will go directly to the most hard-up families. I completely agree with the comments that were made about it earlier—it is a puzzle why it has not worked, because there previously seemed to be a reasonable take-up. One thing that might have put people off is the fact that, because it is a generous benefit, the results of an overpayment are catastrophic. Someone can ratchet up £135 a week or so in overpaid tax credits. For families that are struggling, overpaid credits are a problem anyway. If the overpayment is of the child care element, it can run into thousands of pounds.

It may well be that in some parts of the country people spend many years on tax credits. However, in my constituency a number of people, particularly women, are on tax credits for a while, because they are working part-time. Once their children are older, they move into full-time work and come off tax credits, because they are earning too much. If there is an overpayment at that point, they get clobbered, because they have to pay it out of their income rather than through a rounding off of future tax credit awards. For a number of women, that causes fury, because it hits at their aspirations. Such women have worked to improve their position and to get themselves into a professional job, perhaps by training to be a primary school teacher or something like that. They get into a decent job, but then get hit by a public sector debt, which is very much resented. I hope that some thought can be given to that.

The improvement of the benefits is exceptionally good, and the new payments to child trust funds are important, but we must also focus on improving take-up. The right hon. Member for North-West Hampshire (Sir George Young) has mentioned savings, and I think that he believed I was referring simply to the Government paying into child trust funds. I am concerned about the take-up of child trust funds, which tends to be better in more affluent areas. In my constituency, take-up is 75 per cent., but in the poorer area of Salford, it is 62 per cent., so we need to improve take-up in the poorest areas.

It would also help if we ensured that the financial services institutions that are most trusted by the public had the right products to meet that particular market. It is a matter of regret that National Savings and Investments does not provide a child trust fund product—the right hon. Member for North-West Hampshire will recall that we discussed the issue in the Treasury Committee. That seems to me to be a significant gap. That institution has a good public profile and a high level of trust, so it might be possible for it to encourage people who might not otherwise think of taking up savings schemes for their children to do so.

I want to say a few words about structural poverty, as the Government’s agenda for welfare reform, which I very much welcome, is particularly important there. If people are poor when they are out of work in my constituency, it is often due to some particular disadvantage—for example, suffering from a disability or long-term illness that prevents them from going into work. When that happens, the children also suffer. Lone parenthood is another major issue, and we all know that the Government have made it a challenge to ensure that more lone parents get into work. The figures show a massive improvement, which is largely due to the amount of detailed work that went into the new deal for lone parents. I very much welcome that.

The Government also have a programme dealing with incapacity benefit, which ensures, for example, that people get opportunities for interviews. They are offering people active encouragement—more than just support—to think about retraining and going back into work. That is an exceptionally important way of dealing with continuing issues of poverty in the UK. I do not underestimate the scale of the problem of getting people who have been on incapacity benefit back into work. I see people in my constituency surgeries who have had alcohol or drug abuse problems or who might have had industrial injuries some time ago and are shifting from unskilled or manual work, which has largely disappeared, and are perfectly capable of being retrained for other types of work, although they may not have thought about doing that. Similarly, lone parents who have never been in work or who have been out of work for some time can find it challenging to retrain to go into a workplace that is unrecognisable from just a few years ago.

It is evident from figures released by the Treasury on the take-up of benefits that ethnicity is still a significant factor in poverty. I am sure that the Minister of State, Department for Work and Pensions, my right hon. Friend the Member for East Ham (Mr. Timms) will recognise that from experience in his constituency. It is still an unfortunate feature of life in the UK today that people from black and ethnic minority communities—and particularly certain communities within them—are much more likely to be excluded from the labour market. There is a serious need to overcome those gaps, which is one reason why I particularly welcome the extra money put into encouraging enterprise, especially among women, and small businesses. In my county, about 94 per cent. of businesses are small and medium-sized enterprises. Like other hon. Members, I have noticed that self-employment and small enterprise offer a different way into work for those who experience what they perceive as exclusion from the traditional labour market. Local authority schemes to encourage women to consider setting up and expanding enterprises have been extremely important.

I welcome the Budget measures to deal with pensioner poverty. I very much welcome the proposed extension of fuel allowances, which will tackle one of the biggest problems facing older people, particularly given the increase in fuel prices. I also welcome the measures that the Chancellor set out to deal with pre-payment meters, given the much higher prices that those who use them have to pay. I hope that the Government will also work with the energy supply ombudsman, who does an outstanding job dealing with unfair bills, to examine recent charging by some power companies. To single one out, E.ON seems to have been sending out some exorbitant charges with not much justification.

I mentioned South West Water charges in my speech, and I share the hon. Lady’s concern about fuel. Does she share my concern that the regulators do not seem to be doing the job that they should do to make sure that consumers ultimately get the right deal from the utilities?

I think that the hon. Lady is right; she certainly has a point. Again, one of the issues is people knowing their rights. If an ombudsman is intended to deal with a particular service or issue, people should know that they can go to that person. Someone came to see me who was on benefits and had been sent a £500 bill by E.ON. He had proof that he had paid all his bills up to date, and was asking how on earth this could happen. It is important that people know that they can go to an ombudsman and get such issues resolved. For those on low and fixed incomes, getting a high bill can be frightening. Older people in particular will think that they ought to pay the bill, and start to pay it out of very low incomes.

I also welcome the extension of the concessionary travel scheme, which is a particularly important benefit for older people. I urge my colleagues on the Front Bench to consider ways of improving take-up.

I agree with the hon. Member for Tiverton and Honiton (Angela Browning) about the impact of the withdrawal of the 10p starting rate, which will affect some people disproportionately. The group that I would single out is women pensioners between the ages of 60 and 64 who are on a fixed pension. According to information that I have seen, they could face a doubling of their tax bills. To people who can do a bit of overtime to make the money up, £2 is not the end of the world, but it represents more to those who do not have that opportunity. People in my area would tend to say, “If they are taking £2 off me, and then giving it back in the winter fuel allowance, why not just leave my pension be?” This matter requires real thought.

Across the generations, women pensioners have had a tough deal. It is unfortunate that those whose pensions are large enough to be taxed should experience an increase in their tax burden just when their husbands or male colleagues are finding life a bit easier, because they have retired at a higher age and benefit from the increase in the tax allowance.

One of the anti-poverty strategies in the Budget that has not been discussed is extra funding for failing schools. I welcome that, not least because 20 primary schools in Northamptonshire are in special measures or have been notified that improvements are needed. If we are to equip children to meet the challenges of the future and provide the skills base that employers need, the extra money to improve schools will be a key factor in tackling the vicious circle of poverty that is perpetuated by children leaving school without the necessary qualifications.

Along with the need to ensure that people who are out of work are not in poverty, there is the need to tackle in-work poverty. As the Treasury Select Committee has pointed out, that is one of the big challenges that we face, and the Government will have to tackle it if we are to reach our target of ending child poverty. However, I welcome the anti-poverty measures in the Budget. I see them not as a signal of failure, but as a signal of the Government’s real commitment to tackling what is not only a blight on society by any standards, but a drain on our country’s ability to secure the economy and society that we want for the future.

I wish the Budget measures well as they work their way not only through the House but out into communities, delivering a much better life for our constituents.

In a thoughtful speech, the hon. Member for Northampton, North (Ms Keeble) highlighted the implications of the Budget for pensioners. I felt that what she said tied in with the point made by my hon. Friend the Member for Tiverton and Honiton (Angela Browning) about the effect of the current financial settlement, and the general economic conditions, on pensioners and people on fixed incomes.

The hon. Lady could be said to have issued a challenge when she observed that many of the speeches that had been made so far had concerned either the macro level or the micro level and that the two should be brought closer together, and I thought I would take up the cudgels. It seems to me that the world economic trends of recent years have been helpful to the United Kingdom. The growth of India and China, for instance, has meant imports into this country of cheaper manufactured goods, which have provided a brake on inflation. At the same time new markets have opened up in those countries for British services—our service industries have done very well—and there has been a flood of money into the City of London from those new great economies, and from parts of the world such as the middle east. Huge amounts arrive in the City from the Gulf each day to be invested.

While the overall picture is of a brake on inflation and the possibility of considerable growth in the British economy, I think we have reached a point at which the balance of advantage is changing and we are at something of a tipping point. As I think about the current effects of those great changes, it seems to me that we are beginning to see a world in which we are vying for economic resources, energy and food, and prices are rising as a result. An effect that used to be benign has become inflationary. The Chancellor talked in his Budget statement about increased inflationary pressures over the next two years, and it is hard to see how they will ease, so it might well be the case that we are moving into an era in which inflation will be a problem, as it used to be. Through most of my life—certainly my political life—inflation was for many years the No. 1 issue.

Inflation impacts negatively on the very people whom the hon. Member for Northampton, North and my hon. Friend the Member for Tiverton and Honiton talked about: pensioners and people on fixed incomes who find that their savings, which they had set aside year after year, are suddenly worth very little. Their economic position is very much prejudiced by inflation.

The great battle of the 1970s and 1980s was to try to get inflation under control, and one of the great boons of recent years has been that we have not had such a concern about inflation. On my reading of the Budget statement, the suggestion is that inflation will be 50 per cent. higher over the next two years than it was over the last two. If that is right, and we also consider the other great challenge of the sub-prime mortgage situation and concerns about the banking system, we must now worry much more about inflation than we have for some years.

Let us consider that banking problem. None of the banks currently have sufficient confidence to lend to one another because nobody really knows what the derivatives—the packages of debt that were put together—are worth, or how to price or value them. That is a major problem for the financial system. It is why billions of dollars are being pumped into the system, and everyone hopes that the steps the central banks are taking will work.

The current challenge for the British economy is to stimulate demand without fuelling inflation. Against that background, the normal remedies would be to have low interest rates and, lower taxes, or at least to keep them as low as possible. However, at a time when there are concerns about fuel bills increasing and food prices rising—very fast in the last year—is it sensible for the Government to throw oil on the fire by increasing taxes on items, such as a pint of beer, that people have to purchase, as that must start to change expectations about wages? The old cycle was that as taxes and commodity prices went up, people asked for higher wages, so wage inflation took hold. That cycle started, and inflation became the huge problem that it was. I question whether the Budget judgment is right if it involves these substantial tax increases, as they are not in the interests of the economy.

I agree with the hon. Member for Northampton, North that there are some good measures in the Budget, such as the winter fuel payments for pensioners and the target to halve the number of children in poverty by 2010. It would be marvellous for our country if that could be achieved. I did not agree with the Secretary of State that there are any great differences between the positions of the parties, however. The fact is that the Secretary of State is not giving a guarantee that he will deliver on the pledge—far from it; he is saying that he will do his best. If the pledge was a guarantee, he should put his job on the line and say, “If I don’t meet this firm promise to the British people that I am guaranteeing, I will resign,” but he is not saying that. Instead he is saying that he will do his best, which is what everyone else is saying. It is an aspiration and a target, not a guarantee.

There is a complete difference between the Government, and the Liberal Democrats and the hon. Gentleman’s party in this regard. Both opposition parties have opposed Sure Start, healthy start vouchers, the child tax credit, the child care tax credit and the child trust fund. Every single measure introduced to target low-income children was opposed by both the hon. Gentleman’s party and the Liberal Democrats.

The hon. Lady is just plain wrong. For example, when the child trust fund was first mooted, I was a work and pensions spokesman and we supported it. There may have been details of the scheme with which we disagreed—the hon. Lady will accept that such an exchange of views is reasonable—but we supported the principle of having such a capital welfare scheme. In fact, we had ideas about making the pipeline into adulthood stronger. We came up with a plan for an individualised savings account that could follow on from age 18, so I do not accept the point that the hon. Lady makes.

I do agree with the hon. Lady, however, that the changes that the Government have suggested, such as increasing the child benefit rate for the oldest child and the proposed changes to housing and council tax benefit, are all good things and will make some difference. However, we should look at the overall background. The number of children in child poverty went up by 100,000 last year, so such changes will make nothing like the difference necessary to meet the target. Save the Children has done its figures and its spokesman on child poverty, Jason Strelitz, has made it clear that in its view, 450,000 children will still be in child poverty in 2010. Indeed, the Government’s own figures suggest that, so one cannot say that this target is likely to be met, but it is a very useful one to have, to generate activity within the Government and press an important agenda. However, to say, “We’re pledging this and you’re aspiring to it,” is just a bit of party political nonsense.

Severe child poverty, on which Save the Children produced an extremely good report, is a key issue. Save the Children gave evidence to the Work and Pensions Committee on this issue and according to it, 1.3 million children are living in severe poverty, by which it means that they have less than 50 per cent. of the median income, and that particular necessities of life are not available to them. Severe poverty is increasing and has done so since 1997. Equally, there has been no improvement at all since 1997 for couples with a child living in poverty. So tackling severe poverty and the poverty of couples with a child is a great challenge.

Importantly, Save the Children pointed out that take-up of some of the most important benefits is very low. It said that the quids for kids scheme, which the Government ran last year, was an example of a take-up campaign that might make a difference. In considering child poverty, we should not just look at where the natural focus is because of the target—at nudging those who are just below the poverty line just above it, in order to meet a target. We should genuinely concentrate our efforts on the most deprived, where we do have a serious problem.

Social mobility is another very important issue that a number of speakers touched on. The Sutton Trust recently undertook two important studies, one of which looked at social mobility across the major developing countries. It showed that ours is one of the worst for social mobility, and that we are not providing really good opportunities for those in the bottom quartile to move up. The other study, which is quite interesting, looked at the social mobility of children born in 1958 and of those born in 1970. The 1970 group was far less socially mobile than the 1958 one, so we have lost ground on social mobility. Since 1979, no improvement has been made in social mobility during either Labour or Conservative years, and we must ask ourselves why.

Let me give an example of the scale of the task. About 38 per cent. of those whose parents were in the bottom quartile are still in that quartile when they hit 30 years of age. That is not a hopeless picture, because 62 per cent. of that next generation are moving up from the bottom quartile. The 38 per cent. who are not moving are an interesting group. We must examine why that group is not moving up generation on generation.

The Department for Work and Pensions has helpfully done some research examining the factors influencing social mobility. It found that education, which hon. Members from all parts of the House have mentioned, is an important factor influencing social mobility. If we examine what is happening in education in this country, we can see why there is a deprived group on local incomes and in poverty that does not do better in the next generation. I believe that the reason substantially relates to reading, writing and adding up—literacy and numeracy.

Each year, some 40,000 children leave school at 16 unable to read, write and add up properly—they are functionally illiterate. They could not write to their bank to explain a change of address—that is what functional illiteracy is. It is good that the Government are trying to rescue some of those people. Some 300,000 young people in our country are functionally illiterate and innumerate, at a time when all the jobs are moving up a ladder of skills, and reports show that in a few years’ time there will be no jobs for people who do not have basic skills.

It is therefore right that the Government are putting money—£60 million in this Budget—into basic skills education, but that is not the answer because it merely rescues people whom the system has failed. The right hon. Member for North Tyneside (Mr. Byers) was saying how he would like secondary education to be improved. Obviously, improving education at any level is a good idea, but the real battle is still in the primary schools. By the time a child moves up from infants to junior school, they should have the rudiments of reading, writing and adding up. We must catch children at that point if they are not acquiring those skills and ensure that they do. The Government still need to make a strong effort at that point to get those young people reading and writing, so that when they reach secondary school they do not end up always bunking off or hiding at the back with their head down so that the teacher does not ask them a question.

Does the hon. Gentleman accept that in addition to the work on improving primary schools, educating adults is particularly important because they can help their children at school? An inspirational in-work scheme run by a bus company in Northampton has taken a woman from being a cleaner in that company to being a qualified social worker who has a university degree. That has been done in a short time through inspirational basic skills training.

I agree about rescuing people whom the system has failed. Councils run some very good schemes to give basic skills to some of the staff—the estates staff, the gardeners and so on—and there are many examples of people moving up the system as a result of such help. But in our society, the average reading age of those in prison is 11 and there is a very high incidence of bunking off school, truanting and persistent absence. I do not know whether the Minister is aware that the Government’s figures show that by year 11 some 60,000 children—11 per cent.—are persistently absent from school.

We have a serious problem with basic education. If we are to tackle the problems of social mobility, we need to tackle that. It would also help us with many social problems. For a Government who started out talking about “Education, education, education”, we are still a long way from succeeding on a vital issue. It is sad that synthetic phonics is not used more widely for teaching reading in schools to students who are struggling. I know that Ministers have said that synthetic phonics must always be part of the package, but it is used in special schools that teach reading to children with real barriers to learning, and much more could be done in that area.

My final point concerns disabled children. The Select Committee has heard recently that child care provision for disabled children is not very good. Places with the specialist provision that disabled children need are not available, and the costs are not properly reflected in the benefit system. It is time that Ministers had another look at that. The report “The best start in life?” has an important section on the benefits and help needed for disabled children. Given that 11 per cent. of the children in poverty are disabled, tackling the particular difficulties that they face is obviously an important part of the task of Government in trying to meet their targets on child poverty.

On the Budget overall, I ask whether we will see inflation coming back into the system, and I worry that the Government’s response to that threat is increasing taxes. At the same time, we are still a long way from achieving our aims in alleviating deprivation and tackling child poverty.

I am grateful for the opportunity to speak in this important debate. At the start of the debate, I was slightly glum, especially after the opening speech by the Secretary of State for Work and Pensions. He is actually a very nice and decent young man, and his über-partisan tone let him down somewhat. However, my mood has been immeasurably improved over the past four hours by the quality of contributions from Members on both sides of the House. I shall endeavour not to lower the tone.

My mood has been improved further by being able to welcome the Financial Secretary back to the Front Bench. I know that she has been back on the Front Bench for nine months, but this is the first chance that I have had to congratulate her on her return after a short period of retirement on the Back Benches. Clearly they did not suit her as well as the Front Bench.

I wish to put on the record the fact that I love capitalism. It is a wonderful thing. It pays for many of the things that we enjoy as a wealthy society and take for granted. My one regret is that I was not very good at being a capitalist. I wish that I had been better at it and entered this place with a deal more money that I currently have—indeed, my wife wishes that even more than I do—but my lot is not a bad one. So I am a capitalist, red in tooth and claw. But in October last year, I was pleased and proud when our shadow Chancellor, my hon. Friend the Member for Tatton (Mr. Osborne), said that as a party we would levy a small and not unreasonable tax on those people who take advantage of non-domiciled status while they live in this country.

I was genuinely delighted that the Chancellor picked up the ball and ran with it on that issue. Over the intervening six months, I have been amazed by the media reaction to those proposals. Anyone reading our media, especially the broadsheets, would think that they were read only by the 120,000 non-doms who live here, such has been the outrage of journalists at those modest proposals. Indeed, one would think that journalists in this country spent most of their time on swanky yachts and in the posh houses of Holland Park with non-doms, so vociferously have they fought the cause of that tiny minority of people. It has been fascinating how the Evening Standard—a very good newspaper—has reported breathlessly that 10 American non-doms will leave this country. Some 120,000 non-doms live in this country, of whom only 8 per cent. stay for more than seven years. I am sure that every week hundreds of non-doms leave this country and hundreds more come in again.

I do not want to attack the noble profession of estate agents, which stands somewhere above the equally noble profession of being a Member of Parliament. Again, the Evening Standard reported that estate agents feared that the property market above £5 million might collapse because non-doms were going to leave the country. That might not be a bad thing. We need property prices to go down a bit so that people born and bred in this country have a chance to get on the property ladder. Indeed, it might mean that our home-grown millionaires would have a fighting chance to get that home in Holland Park. I do not want to attack the press; I am sure that no matter how much I attack them they will attack me far more effectively. I shall move on quickly.

As the Member of Parliament for Broxbourne, I am not overly interested in the fate of non-domiciled people living in this country. I am glad that they are here and I welcome the great contribution that they make to our economy, but I am paid to represent hard-working men and women who have the franchise to vote in this country. Indeed, I represent about 72,000 people. As a Member of Parliament in this great mother of Parliaments, I am more concerned about the 200,000 British citizens who leave this country every year than I am about the 1,000 or so non-doms who might leave when the tax changes come into force. I doubt that more than a handful will leave. The media scaremongering will prove to be just that.

I am worried about the low earners in this country and about the fact that as of 1 April, or 5 April, 5 million people will start to pay quite a bit more in income tax. I am concerned that people on tax credits are still suffering huge marginal rates of taxation. Some 2.5 million people still suffer marginal rates of taxation of more than 60 per cent. I hope that I am not being partisan in mentioning that point, because it was raised eloquently by a number of Labour Members who have spoken.

I am also worried about my middle-class voters. Many feel disfranchised and many, not only in my constituency but in constituencies such as that of the hon. Member for Ealing, North (Stephen Pound), are choosing to pack their bags and leave this country. I want to know why they are leaving; I am sure that everybody in the Chamber does. Is it because they do not feel safe in their communities any more? Do they feel that they cannot access good and proper education for their children? Do they feel that they are paying too much tax? Are they afraid of increased crime levels? I am not trying to be partisan, but we need to understand what motivates the people who leave this country and to start to address their concerns.

A recent Ernst and Young report found that the middle classes’ disposable income has fallen significantly since 2003. In 2003, after taxes and bills, they had 28 per cent. of their income left to spend on the things that they like to spend it on. That figure is now 22 per cent. They are feeling squeezed. Wherever we come from, we represent the middle classes as well as those who are higher up or lower down the income scale.

I do not want to be accused of soaking the rich, but we need a tax system that is not just perceived to be fair but really is fair. We cannot have a Marie Antoinette society—a “Let them eat cake” society where the rich few float above the rest of the population and the poor bloody infantry work day in, day out to make ends meet. I want taxes to be reduced—I really do—but I want to make sure that tax breaks are spread evenly across the income groups and not just focused on the very rich.

I believe in enlightened self-interest. As a moderately successful, middle-aged, middle-class man on a good income, I would like my tax burden reduced—Mrs. Walker would love my tax burden to be reduced. More importantly, however, I would like the tax burden reduced for the least well-off in my constituency; they really are the most deserving of a tax break.

Will non-doms flee the country in droves? I do not believe that for a minute. Research by Taxation magazine suggests that only 8 per cent. of the 120,000 non-doms in the UK—between 9,500 and 10,000;—remain for more than seven years; the rest come and go.

Large American merchant banks use things called work-force management and work-force rotation. Many bright and talented people around the world are capable of earning £3 million or £4 million a year. I wish I was one of them, but clearly I am not. After five or six years, the human resources department will say to those star foreign exchange dealers, “In a year’s time you’ll be eligible to pay a £30,000 charge, or to sign up to UK taxes or leave. Let us know what you want to do so that we can start succession planning.” That is work-force management. In essence, the £30,000 tax is voluntary; no one will have to pay it if they do not want to do so. They can choose to pay, they can choose to leave the UK and go to another part of the world or they can choose to pay UK taxes. After all, after seven years people might actually want to stay in the country and make a proper contribution to its upkeep.

It does not matter who a person is—a multibillionaire walking down Knightsbridge, Charles Walker walking down Knightsbridge or someone struggling on the minimum wage walking down Knightsbridge; if they fall to the ground with a heart attack on Knightsbridge their life will be saved in an NHS hospital staffed by NHS workers, doctors and nurses. It is incumbent on people living in the UK, benefiting from our laws and protections and all the wonderful things that go with being in our country, to make a contribution. Seven years is generous. The period could be five years, but the Government have picked seven years, which is a credit to them. I would rather people signed up to our way of life and our tax system much sooner, but seven years is not an unreasonable expectation. That is where I am coming from. If people want to live in the UK almost indefinitely, it is not unreasonable that we expect them to pay their way and £30,000 a year seems pretty generous.

As a capitalist, I am fed up with people in the media arguing that we need to be nice to risk takers because they are special masters of the universe who deserve special treatment. Over the last few months, we have discovered that those risk takers have been taking risks with our interest rates and our mortgages. When they are found out and removed from their positions, they leave with huge pay-offs, sometimes upwards of between £10 million and £20 million, or the equivalent in dollars. That is outrageous. It will bring capitalism into disrepute if failure on that scale continues to be rewarded so generously.

Thank you for your patience, Mr. Deputy Speaker.

It is a great pleasure to speak on the second day of the Budget debate. It is has been an interesting debate, although, unfortunately, it has perhaps not been as highly attended as it might have been, particularly by Labour Members. I do not know whether they found yesterday’s Budget speech less than inspiring. In recent years, one or two Budgets have been very well received at the time and subsequently become rather unpopular, and I am sure that the Chancellor will hope that the reverse can also be true. We have heard a limited number of contributions, but they have been of good quality none the less.

The hon. Member for Bradford, North (Mr. Rooney), the Chairman of the Select Committee on Work and Pensions, brought his great expertise to the debate. My hon. Friend the Member for Sevenoaks (Mr. Fallon) paraphrased Gary Player in saying that the Government have failed to prepare and therefore they must prepare to fail. My hon. Friend has played a rather prominent role in recent months and been very successful in holding the Government to account in his capacity as the senior Conservative on the Treasury Committee. I served with him for a number of months and know what a formidable figure he is. I congratulate him on having been recently voted on the ConservativeHome website as parliamentarian of the year—a thoroughly deserved accolade. He is developing into something of a cult figure, and I am sure that that will continue.

I suspect that most attention on the debate—at least on Back Benchers’ contributions—will go to the thoughtful speech delivered by the right hon. Member for North Tyneside (Mr. Byers). Of course, I did not agree with everything that he said—I am sure that he would be horrified if I did—but as someone who is new to deciphering the Blair-Brown dispute, I am sure that his rhetoric requires close examination. He argued that the days of big government are over, and I think that he is absolutely right. He called for an enabling Government and for devolving power to the ultimate user. It is encouraging that a senior figure on the Government Back Benches is making that case. He was critical of tax credits and described them as intrusive. He highlighted an important point, which was also made by my hon. Friend the Member for Tunbridge Wells (Greg Clark), about the high rates of marginal tax and the increase of 145,000 more families who will pay it at 60 per cent. or more next year.

I note that the right hon. Gentleman said rather wryly that he was pleased to read the Prime Minister’s article in the Financial Times and that a smile came across his face when the Prime Minister advocated welfare reform. I also note his comment—I think that I have got this correct—that, in the past few weeks, the Prime Minister has come to recognise the value of public sector reform. I almost felt his pain when he referred to the past few weeks. I fear that he regrets that that did not happen somewhat earlier.

My right hon. Friend the Member for North-West Hampshire (Sir George Young), who is in his place, had it absolutely right: the Chancellor’s speech yesterday would have been more illuminating and entertaining if there had been more statistics. It is not often that that can be said. My right hon. Friend spoke interestingly on housing in the context of welfare.

The hon. Member for Regent's Park and Kensington, North (Ms Buck), who is not currently in her place, criticised choice and contestability in public service reform, which might indicate why the right hon. Member for North Tyneside still has some way to go in persuading the Labour party of the advantages of that approach.

I fear that my hon. Friend the Member for Tiverton and Honiton (Angela Browning) may have been in danger of misleading the House when she said that she was entitled to the state pension and the winter fuel allowance. I for one find that very difficult to believe, and I think that I have the support of Members from all parts of the House in saying that. She spoke about a measure in the 2007 Budget that gives rise to problems—pensioners aged between 60 and 64 will lose out as a consequence—which will come into effect as a consequence of the Budget resolutions that we are debating. She is absolutely right to highlight the issue; let us not forget that although there were very few large, substantive measures in yesterday’s Budget, the Budget resolutions that we are discussing will implement the doubling of the 10p rate, and a group of people will lose out as a consequence.

My hon. Friend also spoke about the income-shifting measure, and rightly highlighted that it has been deferred for a year. It was not mentioned in the Chancellor’s speech yesterday, which is a great pity, but the fact remains that it has been deferred, and not yet abandoned as she and I would like it to be. It is interesting that in the Red Book—the financial projections for revenues and costs—the Government still anticipate that the measure will come into effect next year, and will raise the same amount of revenue as they anticipated it would this year. It will be interesting to hear what the Government’s and the Financial Secretary’s thinking is on the issue, and whether they think that it is realistic to suppose that they can obtain that sort of revenue, given that they will, I hope, make substantial changes to their proposals.

My hon. Friend raised the interesting point—for the benefit, I think, of both the Conservative and Government Front Benchers—of the taxpayers charter. I, too, have the Chartered Institute of Taxation paper on the subject, and I will certainly discuss the issue with my hon. Friend the shadow Chancellor. If he makes an announcement on it, I suspect that the Government will do so shortly afterwards. We shall see. The hon. Member for Northampton, North (Ms Keeble) discussed a wide range of issues arising from her experiences as a member of the Select Committee on the Treasury. I enjoyed serving on that Committee with her.

I was delighted to hear the contributions of two Hertfordshire colleagues. My hon. Friend the Member for North-East Hertfordshire (Mr. Heald) mentioned the importance of addressing inflation, and highlighted the concern that inflation is creeping back into the system, causing great difficulties for a number of people. He rightly says that the issue must be a priority. He also raised the issue of child poverty and our earlier discussion with the Secretary of State for Work and Pensions. I shall come back to that in greater detail later. My hon. Friend the Member for Broxbourne (Mr. Walker) delivered a speech that will certainly bear further reading. I am delighted that he loves capitalism, and I am sorry that he cannot afford to live in Holland Park. I am sure that he would rather live in Broxbourne, the constituency that he represents so well.

Yesterday was the Chancellor’s first Budget. It is worth considering the last time that someone delivered their first Budget. I refer, of course, to the Prime Minister, who delivered his first Budget in 1997. Welfare reform was at the heart of that Budget speech. He stated:

“the welfare state today denies rather than provides opportunity. So it is time for the welfare state to put opportunity back into people’s hands.”—[Official Report, 2 July 1997; Vol. 297, c. 308.]

That sounds rather similar to comments made by the right hon. Member for North Tyneside today.

The then Chancellor went on in his speech to highlight three types of people for whom welfare reform was needed. The first type was young people. He said that it was no longer an option for young people to stay at home on full benefits, but the fact is that 11 years later, as we debate the current Budget, there are still more than 1.2 million young people aged between 16 and 24 who are not in work or full-time education. That is 15 per cent. more than in 1997. The second group that he highlighted were lone parents. We continue to have the lowest lone parent employment rate of any major European country. Any improvements in the rate of employment—there have been improvements, which is not surprising in a period when employment has gone up generally—have slowed down and are much slower now than they were in the late 1990s.

The third group that the then Chancellor highlighted were incapacity benefit claimants. There are 2.6 million people claiming incapacity benefit. That is 120,000 more than in 1997. It is not just the numbers that cause concern, but the nature of the people claiming incapacity benefit. The hon. Member for Rhondda (Chris Bryant) referred to the high levels of incapacity benefit in his area. It is not surprising that there are high levels of incapacity benefit claimants among people such as former miners at the end of their working lives, who have undertaken hazardous careers, but the number of under-25s claiming incapacity benefit has increased by 25 per cent. People are also claiming incapacity benefit for a long time. More than half claim it for more than five years.

We should remember that we have had a period of economic growth and benign global conditions. Given that the Government were elected on a platform of welfare reform, the fact that there are still 4.8 million people claiming out of work benefits is a clear and dismal failure of policy. It is in that context, in a debate led by the Opposition, that welfare reform has risen up the political agenda.

After forcing out the only Government Minister who genuinely believed in welfare reform—the right hon. Member for Birkenhead (Mr. Field)—after years of blocking effective welfare reform and after rubbishing the Freud report, the Prime Minister has finally allowed some announcements on welfare reform. We must ask ourselves whether he truly believes in it. Has the Prime Minister undergone a conversion to welfare reform, after spending so much time and putting so much effort into blocking progress on it? Is the Secretary of State for Work and Pensions, who is not in his place, so persuasive that he has managed to articulate a case to the Prime Minister, persuading him to take welfare reform seriously? On the evidence of today, it is not the persuasiveness of the Secretary of State that is the answer.

The Prime Minister, as usual, has changed his position for reasons of political posturing. He has seen that the Conservative party has been making the running and putting forward proposals for welfare reform, and he is simply trying to shoot the Tory fox. It is more about calculation than principles. That is why we and the British public should be sceptical about whether the Government will succeed with their platform of welfare reform.

I shall spend a moment or two on the speech that we heard today from the Secretary of Work and Pensions. If, as some have suggested, it was an audition for the role of Chancellor next year, I suspect that the Secretary of State for Children, Schools and Families will not lose any sleep. The Secretary of State for Work and Pensions ran into problems in two areas. First, he claimed that the Government were setting the agenda because they had commissioned the Freud report and had always intended to implement it. That does not fit with the facts. It is well known that Tony Blair commissioned welfare reform, and that Tony Blair was convinced of the need to reform welfare, but it is also well known that the then Chancellor was strongly opposed to what Freud was proposing. Indeed, as Rachel Sylvester put it in The Daily Telegraph, David Freud

“had to sit through a 45 minute rant from the Chancellor”

about the flaws in his proposals before being ushered into a room full of Treasury advisers who picked more holes in his ideas. I suspect that it was not a pleasant experience listening to the then Chancellor for 45 minutes while he had a rant. I have no first-hand experience of that; I do not know whether the right hon. Member for North Tyneside can illuminate the House. It is clear that the Prime Minister had no enthusiasm—

I do not want to question Rachel Sylvester’s normally accurate reporting, but I understand that it was a 50-minute intervention. [Laughter.]

I am very grateful to the right hon. Gentleman. Accuracy is very important, and we should all be grateful that he has helped the House on this matter. [Interruption.] It is noticeable that it was the length of time, not the word “rant”, that was corrected.

My hon. Friend the Member for Tatton (Mr. Osborne) raised with the Secretary of State for Work and Pensions a very important aspect of the Freud report—the proposal to abolish the distinction between DEL and AME. That would enable more money to be used to pay private companies to reduce the numbers on benefit, which is crucial if the Freud report is going to succeed. What do we have from the Government? The answer is that they are going to explore that option. That is not quite a formal review—I could be wrong. Indeed, at one point, it looked as though the Chancellor and the Secretary of State for Work and Pensions were exploring the option in front of the House as they discussed it. I hope that during the course of the afternoon they had the opportunity to discuss the matter further.

Perhaps that is what the Secretary of State is doing at the moment. He may be about to enter the Chamber and announce that the Government have explored the matter, and have decided that they will abolish the distinction between DEL and AME. I hope that that is the case. If they do not do so, Freud is not being implemented properly, which further suggests that this country will not benefit from the full, serious welfare reform it so badly needs.

The other area where the Secretary of State got himself into a little difficulty was one where he clearly expected to get on to the front foot and score some runs. He challenged my hon. Friend the Member for Tatton to say whether we shared the target of halving child poverty by 2010 and of abolishing it by 2020. I do not have the precise wording of what he said; I think that he challenged us to pledge to meet the 2010 targets. Perhaps the Financial Secretary might answer that. Do the Government pledge to meet their 2010 target?

The Financial Secretary says, “Yes”, from a sedentary position, in which case, I would be grateful to know what the consequences will be if the Government do not meet their pledge. Every independent observer of these matters, including the Institute for Fiscal Studies, has said that the Government will not meet that target. Indeed, the Department for Work and Pensions has published documentation saying that it accepts that it will not meet the target. I do not know the important distinction concerning a pledge to meet a target. I do not know whether it is a target to meet a pledge or—

Yes, it is that sort of thing. I am grateful to my hon. Friends.

Surely the important thing is not whether it is called a target, pledge or an aspiration, but whether it is going to be met. The point is that the Government are simply not going to meet their 2010 target. I do not know whether the Government will say in 2010, “Oh sorry, we missed our target, but at least it was a target, not an aspiration. The Conservatives would have missed an aspiration, whereas we miss a target.” I fail to understand the distinction.

The Secretary of State could give a guarantee and pledge to resign if the target was not fulfilled. That would be something solid.

My hon. Friend makes an excellent suggestion, which might provide some reassurance. I believe that previous Ministers devised something similar for missing education targets, though I cannot recall which Ministers resigned. I am sure that some did.

My recollection is that the right hon. Member for Norwich, South (Mr. Clarke) made the pledge on education, but the day before the time was up, he was moved.

Well, he was no longer Secretary of State for Education—perhaps the Secretary of State for Work and Pensions would like to make a similar pledge.

Let me make a suggestion that could help the Government meet their child poverty target. They could abolish the couple penalty in the system, which makes it difficult, especially for working couples, to move out of poverty. Indeed, the Institute for Public Policy Research—a left-leaning organisation, which is close to the Labour party—pointed out that progress had not been made with working couples, and that such progress could take 300,000 children out of relative poverty.

After 11 years, the Government have failed to deliver welfare reform. They had almost everything going for them—a large majority and a mandate for their 1997 manifesto. Manifesto commitments are important and they had a mandate to reform welfare. Indeed, they were to be the party of welfare reform. They have had benign global economic conditions, and there was the Nixon-to-China argument that only Labour could reform welfare, yet it has not done so.

We now face more difficult times and we cannot afford high levels of worklessness. The Government failed to use the good years to prepare for the difficult years. It is easier to get people off benefits in good years. I am afraid that the Budget has strongly demonstrated the theme that there was an opportunity to reform welfare and the Government did not take it. There was an opportunity to reform public services and they did not take it. There was an opportunity to put public finances on a strong footing and, as we know from the figures for borrowing and for debt, they failed to take it.

The Government could have delivered but they did not. They have left the country unprepared. At the next election, they should be punished. If they are, it will be left to the Conservative party to tackle the problems that the Government failed to address.

We have had a good day’s debate. Occasionally it has been a bare-knuckle political debate, and I intend to continue in that vein.

When I listen to the shadow Chancellor, the hon. Member for Tatton (Mr. Osborne), I am often disappointed by his contribution, which never fails to sneer, offer personal abuse and shallow points instead of being a considered, tempered and incisive speech. He should occasionally take the time to study his performance. He is the representative of a party that, when in office, oversaw a denial of the concept of society. That denial allowed it to shrug off responsibility for poverty, which was measured by internationally accepted standards. Child poverty doubled during the Conservative Government’s stewardship of the economy, and poverty was endemic for pensioners in communities throughout Britain. Such a speaker would do well to show a little humility, in place of the arrogant pose that he strikes so well. I would have warmly welcomed contributions from those on the Tory Benches that acknowledged that past record. The Conservatives have recently been saying things that sound encouraging. It is always good to welcome sinners to repentance, but oh, how grudging have their contributions been!

Pensioners used to be afraid to turn on their heating under the Tory regime. I can remember when emergency fuel payments used to be dependent on temperatures hitting a low point on a given day in the winter. That was a positively Dickensian policy.

I will happily give way in a moment, but let me just finish this point.

Now pensioners can rest assured, under a Labour Government who introduced winter fuel payments that helped to keep 11.7 million pensioner households warm last winter. I should be very interested to hear whether the hon. Member for Bournemouth, East (Mr. Ellwood) wishes that his party would commit to supporting the payments that we have put in place in the Budget.

I hope that the Financial Secretary will not make the mistake that we heard the Secretary of State for Work and Pensions make at the start of this debate, when he devoted an entire speech to what was happening 10, 15 and 20 years ago, rather than talking about the issues for today and the future. May I bring the Financial Secretary back to the Budget and ask a specific question about health? It has emerged from what my hon. Friend the Member for Tatton (Mr. Osborne) has said that the amount of money invested in health is about to fall by more than £1 billion. Is that true or not?

The hon. Gentleman will have to contain himself for a moment, because I have not finished with the Conservatives’ record on pensioners and poverty. I will come to his question directly in one moment, but he will have to allow me to answer it in my own time.

Under a Labour Government who have introduced the pension credit, free TV licences, free eye tests and free national bus travel, pensioners can rest assured that we will continue to deliver a minimum income guarantee for them, now at £124 a week. Unlike the Conservatives, who could not bring themselves to support even the payment towards fuel costs that the Budget delivers for pensioners this year, we will stand by them.

I come now directly to the hon. Gentleman’s point. He is quite right: the hon. Member for Tatton has put out press releases alleging that public spending cuts, especially in the NHS, were secretly included in the Budget. I am afraid that this is another example of the Conservatives’ inability to get it right. They are apparently simply incapable of following what the Budget documents say. The Budget tables reflect that the Department of Health has spent slightly less of its allocated budget for this year than was forecast in the October pre-Budget report, as a result of management improvements that have resulted in a surplus. Following the introduction of end-year flexibility into Government budgeting in the 1990s, Departments can now draw on such underspends in future years.

The hon. Member for Tatton has made a series of claims that are completely wrong and he has misunderstood how the public spending tables work, with underspends carried over from one year to another as part of end-year flexibility. In fact, the figures confirm big increases in health and education over the next three years, with no cuts in spending or planned spending. In particular, the health budget has doubled in real terms since 1997. The figures confirm a massive increase in health spending and no cuts. The tables reflect the fact that the surplus in the NHS this year comes as a result of management improvements.

The figures also confirm a big increase in education spending. Again, the tables reflect the fact that some capital spending will be carried forward from one year to another, which is something that the hon. Members for Tatton and for Bournemouth, East simply do not understand.

I will happily give way to the hon. Gentleman one more time, to see whether he can get himself out of the hole that he has dug.

The only hole is the one that the Government have dug, and which has caused the mess we are in. Had we saved or invested when times were better, we would not face the problem that we face today. Let us return to health. I know, for instance, that Bournemouth and Poole primary care trust has been forced to make cuts in its budget. The Financial Secretary can stand at the Dispatch Box and say, “Oh yes, they’ve managed to make some savings,” but those savings have been forced on PCTs, which is why she can say that they spent less than they expected to.

The hon. Gentleman’s party must explain its unfunded plans. Spending on the NHS has doubled, and if he is making a bid for even more funding to be committed to his constituency, he needs to explain how his party’s commitment to do that would be paid for. As yet, there has been no explanation of how it proposes to meet its commitments.

My hon. Friend the Member for Bradford, North (Mr. Rooney) welcomed us all as converts to his long-held view that work is the route to prosperity and, for poor families, out of poverty. I pay tribute to him for the role that he plays as Chairman of the Select Committee on Work and Pensions. Appearing before his Committee has always been a source of learning for me, both when I was a Work Minister and now that I am in the Treasury. In our work to achieve the target of eradicating relative child poverty by 2020 and halving it by 2010, my hon. Friend and his Committee shine a light on the areas of policy that are not working as well as intended.

My hon. Friend, like my hon. Friends the Members for Regent’s Park and Kensington, North (Ms Buck) and for Northampton, North (Ms Keeble), mentioned housing benefit and the impact of the taper and the disregards, which we have addressed in the Budget. He also spoke about how we pay child care costs. I draw the House’s attention to the report that my hon. Friend the Member for Regent's Park and Kensington, North, mentioned, which is extremely thoughtful and well worked through. I am grateful for her support and her thoughtful speech, which outlined clearly the stark reality of the struggle that some families face.

The recent report of the London Child Poverty Commission, of which my hon. Friend is an influential member, is an important contribution to the debate. In particular, it offers good advice on what might be done in London. The Minister of State, Department for Work and Pensions, my right hon. Friend the Member for East Ham (Mr. Timms), and I will want to work with her and the commission in the coming months as we seek to understand the remaining barriers to parents in London getting into work.

My hon. Friend rightly reminded us that we should judge the Opposition by their deeds, not their words. She gave the example of the behaviour of Westminster council, whose councillors should hang their heads in shame. I am grateful to her for the examples that she gave of the impact of housing benefit on people entering work.

If the Financial Secretary wishes to present herself as a fighter against child poverty, perhaps with bare knuckles, will she acknowledge that 300,000 children are in poverty because of the couple penalty? If so, will she do something about it?

I am always willing to listen to valid points. That point is made frequently, and we are considering it. If the hon. Gentleman takes time to look at the documents that we have published alongside the Budget, he will see that in the next 11 or 12 years, we will work—

Indeed. We will work to achieve our target not only for 2010 but for 2020. I hope that the hon. Member for Enfield, Southgate (Mr. Burrowes) will see that that work takes place and that many questions are asked. As my hon. Friend the Member for Bradford, North, said, we do not claim to have all the answers. That is why we will work in partnership with a number of organisations that have a great deal of expertise, to understand the issues involved. I agree entirely with my hon. Friend that it is now right to determine how best we can dismantle the remaining barriers to work that people who depend on welfare have to face.

I agree with my right hon. Friend the Member for North Tyneside (Mr. Byers) that the Budget debate offers a prime opportunity, each spring, for the parties to set out their stalls. I thank him for his powerful speech and his encouragement. He made a number of important points, which I shall draw to the attention of ministerial colleagues. He talked about problems concerning tax credits, arguing that we should move in the opposite direction from current policy and reduce the range of income in respect of which a family with children is entitled to them. There was a degree of sympathy for that point throughout the House. However, the fact that we have been able to establish a tax credit system that carries with it absolutely no taint of being a welfare benefit—it is an entitlement—and enabled families with children to claim it has been a very significant factor in encouraging a high take-up. Given that success, I would be reluctant to dismantle such a policy framework. However, I am always happy to listen to comments.

Although I accept that tax credits do some important heavy lifting, does the Minister acknowledge the concern—expressed by citizens advice bureaux, for example—that overpayments and how they are recovered deter some people from making claims? How is she going to sort that out?

I was right to give way to the hon. Gentleman, who makes a good point. He made a thoughtful and entertaining speech, and I am sorry that I was not able to hear all of it. His point is valid. As the Minister who works closest with Her Majesty’s Revenue and Customs, I am spending a lot of time looking further into the problem. HMRC and I are working hard, first, to reduce the overpayments and then to understand the causes of them. We have made many changes there by following up work that was started by my predecessor, my right hon. Friend the Member for Bristol, South (Dawn Primarolo). She invested much time and effort in improving the structure of the tax credit delivery system.

My right hon. Friend the Member for North Tyneside drew our attention to table 4.2, but I hope he will accept that, as the text explains, the increase in the figures is primarily due to the introduction of tax credits.

I pay due respect to the right hon. Member for North-West Hampshire (Sir George Young) for the experience he brings to the Chamber, including being the Minister for Housing and Planning in a previous Government. He touched on the personal debt-to- savings ratio, but I hope that he will accept that household assets are now £7.5 trillion—much higher than the £1.4 trillion debt to which he drew our attention. The stable macro-economic performance over the past 10 years has meant that households have had to worry less about saving for an unpredictable future. We are not complacent, however. We believe that saving is very much to be encouraged and we particularly want to encourage lower-income wage earners to save. That is the purpose of the savings gateway and why individual savings account limits are rising to £7,200 from April.

The hon. Member for South-West Hertfordshire (Mr. Gauke) always makes a thoughtful speech; he is always thorough and entertaining, and it is always a pleasure to listen to him. He highlighted the comments of the hon. Member for Tiverton and Honiton (Angela Browning) about income-shifting, and I shall return to some of her other comments in a few moments. We have received strong representations on the issue, and both the hon. Gentleman and the hon. Lady referred to them. We acknowledge the problem, but we need to take more time to ensure that the current arrangements are not being abused. That is one of the reasons why this area has been crying out for reform, but we must get the reform right. I heard the points made by both hon. Members.

The hon. Member for Tiverton and Honiton asked what was happening with the taxpayers charter. I can tell her that I was very pleased to announce on 10 January that, in tandem with HMRC, we will be taking forward work on the charter, which I agree could play an important role in ensuring that the tax system is usable and accessible to everybody. That work is very much in progress and I know that HMRC is particularly keen to see a positive outcome. I am pleased to be working with HMRC as we deliver on that agenda.

I would like to wish the hon. Member for Tiverton and Honiton well on her retirement. She will be a loss to the House, but I am sure she will find many other things to do. She referred to the case of one of her constituents. I do not have the letter in front of me, but I recall writing to the hon. Lady about it. I hope she will accept that the package of reforms introduced in the 2007 Budget will mean that four out of five households are either better off or no worse off. The average household is £100 better off and the average family with children £200 a year better off. She should also bear in mind the fact that 59 per cent. of pensioners do not now pay tax. I listened to her comments on pensions with a degree of incredulity, given that the Conservative party was in office throughout the pensions mis-selling crisis, and set out to undermine the state earnings-related pension scheme almost as a deliberate act of policy. We deserve credit for our reforms to the UK pension system, which will provide a strong foundation.

My hon. Friend the Member for Northampton, North and I have met to discuss many of the matters about which she is concerned. I am grateful for her support for our work on the child poverty target, and I hear what she and others have said about meeting the target for 2010. We are committed to working towards meeting that target. I readily acknowledge, and the Chancellor is happy to acknowledge, that the target is challenging. We take on board my hon. Friend’s comments, however, and I will examine her suggestions closely.

I loved the contribution of the hon. Member for Broxbourne (Mr. Walker). Let me tell him that we are all capitalists now. I thank him for his welcome and graceful speech, which was highly entertaining. He would find the Labour Benches very comfortable. It is important that the House acknowledge the contribution that resident non-domiciles already make. We value the role of the City of London, and it is important to sustain its position as the place for the world’s banking and financial community, among others, to come to do business, trade and, in many cases, live. We should not forget that sizeable numbers of resident non-doms have low incomes, which is precisely the reason why we raised the de minimis limit from £1,000 to £2,000, which I hope will help many in such circumstances.

My right hon. Friend the Member for North Tyneside was also right to emphasise the importance of maintaining a strong economy. There was much twittering on the Conservative Benches about the Government failing to mend the roof of the British economy as the storm approached. I suggest that the reforms put in place by Labour when we came into office in 1997—the reform of the Bank of England, and the introduction of the golden rule and the sustainable investment rule—were necessary to secure the foundations of the British economy. The economy is now in a much more resilient condition than what the Conservatives left behind. It continues to grow—much to their chagrin in some cases. Because of its strong foundations, it has already weathered two storms in the global economy—the dotcom industry failure and 9/11, for three years after which other economies faltered or went into recession. During that period, however, the British economy grew quarter after quarter and year on year.

I am proud to have been invited by my right hon. Friend the Prime Minister to rejoin his Government and to be asked to work in this role with this Chancellor. I am delighted to commend this Budget to the House.

Debate adjourned.—[Liz Blackman.]

Debate to be resumed on Monday 17 March.