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Proposed Public Expenditure Cuts

Volume 515: debated on Monday 13 September 2010

(Urgent Question): To ask the Chancellor of the Exchequer if he will make a statement on his additional proposals for cuts in public expenditure. I am grateful to you, Mr Speaker, for allowing this urgent question.

I am grateful for the opportunity to update the House on the progress of the spending review, and to remind people of the context in which we make these difficult decisions.

The previous Government left Britain with the largest budget deficit of any major economy and no credible plan to deal with it. That was a major cause of instability and uncertainty that threatened any prospect of economic recovery. It was reflected in the substantially higher market interest rates that British families and businesses were being charged compared with those for families and businesses in countries that were regarded as less exposed to sovereign credit risk. The new Government had to take urgent steps to restore stability and allay fears about our country’s ability to pay its way in the world. In the words of the previous Labour Prime Minister,

“if we fail to offer a convincing path out of debt, that...will itself plunge us into stagnation”.

Those views were echoed in the comments this weekend from the International Monetary Fund, which said that

“fiscal consolidation remains essential for strong, sustained growth over the medium run”.

That is why in the Budget I announced decisive steps to get the deficit under control. I believe that that Budget has restored stability to the British economy and provided a sound basis for a sustainable recovery. It has helped keep down the market interest rates that Britain pays on its debts, which are today more than half a percentage point lower than at the general election. In other countries, such as Spain, Portugal or Ireland, these same rates have stayed broadly flat or gone up since then.

Because of the measures that we are taking, independent forecasters are increasingly confident about the British economy. Last week the OECD predicted that the UK would see the strongest growth in the G7 this quarter and the second strongest growth next quarter. I can also tell the House that today the EU predicted that the UK will see the strongest recovery in the second half of this year of any major European economy. These, of course, are just forecasts and all this hard-won stability would be put at risk if we did not now implement the components of our Budget plan.

Let me remind the House of the measures that we took at the emergency Budget and the steps that we now have to take. We are set to tighten the public finances by a total of £113 billion by 2014-15. Of this, £29 billion will come from tax measures, including the increase in VAT, higher capital gains tax and a new permanent levy on banks. A further £11 billion will come from the welfare reforms announced at the Budget. Another £10 billion will come as a consequence of paying lower interest charges on the national debt as a result of our plan—£10 billion that those who opposed the Budget plan would have to find to pay the holders of Government debt.

That leaves £61 billion that will come from reductions to departmental expenditure plans. It is worth reminding the House that £44 billion of that £61 billion was assumed in the figures left to us by the previous Government. In other words, for all the synthetic noise and fury that we hear, £3 of every £4 that we are having to cut were cuts that the Opposition were planning to make. Unfortunately, not a single one of those pounds was allocated to a specific programme.

Our job now is to allocate those departmental budgets. That is the purpose of the spending review that is under way, and I will announce the full results to the House of Commons on 20 October. The review is informed by the largest public consultation exercise ever undertaken on public expenditure. More than 100,000 substantive ideas have been received from members of the public. Teams at the Treasury have been sifting through these ideas over the past six weeks and some are already being implemented.

We have also created a mechanism for collective discussion of spending issues across the Cabinet, which is something of an innovation, so the Prime Minister—[Interruption.] Well, there was a Cabinet Committee on life chances, on talent and on democratic renewal under the previous Government, but no permanent committee on public expenditure. The Public Expenditure Committee of the Cabinet has already met twice this month and will meet again this week.

Of course, some decisions that shape the spending review have already been taken. We will protect the budget of the NHS with real increases, we will honour the commitments on international aid that we have made to the poorest in the world, and we will protect capital investment in our economic future. We have not reduced capital spending in future years beyond the plans that we inherited, and as we take further decisions, we will strive to ensure that those support economic growth, promote reform and local control, and are fair—fair between different sections of society and between different generations.

Let me say something about welfare spending—[Interruption.]

Order. May I tell the Chancellor that he has well exceeded his time? Allowance will have to be made for the Opposition Front Bench. That will happen today, but in future the time limits must be adhered to in this place.

I will heed your injunction, Mr Speaker, but the question was a very general one about an update on the public expenditure review.

I shall say something about welfare, if the Speaker will allow me. The welfare bill has risen by 45% in the past 10 years and almost £1 in £3 that the Government spend goes towards welfare. The current system is not protecting those who genuinely cannot work, nor is it helping those desperately looking for work to find a new job quickly. Close to 5 million people are on out-of-work benefits, more than half of whom have spent at least half of the past 10 years in this situation. Rather than rewarding work and supporting the vulnerable, we are wasting the lives of millions of people. That is why my right hon. Friend the Secretary of State for Work and Pensions is working with me and other Cabinet colleagues to see what we can do fundamentally to reform the welfare system so that it rewards work and supports aspiration, as well as saving the taxpayer on what someone once called the bills for social failure. When we have decisions to announce, we will bring them to the House and, of course, we will want to keep the House informed in other ways.

I have already given the Treasury Committee an unprecedented power to veto my preferred candidate to chair the independent Office for Budget Responsibility, Mr. Robert Chote, and I can tell the House today that I have asked my hon. Friends the Members for Gainsborough (Mr Leigh) and for Southport (Dr Pugh) to draw on their considerable expertise on the Public Accounts Committee in the last Parliament to advise the Government on how to improve the financial management systems that we have inherited, and in turn improve accountability to the House.

We have many difficult choices to make, but one thing is clear: one party created this mess; two parties are working hard to clear it up.

If the Chancellor wished to give a full statement to the House, he could have done so last week rather than giving a cursory one to the BBC and having to be dragged here today. I acknowledge that 75% of the cuts are Labour’s cuts, but we have not as yet had the spending review. Clearly, none of the cuts will affect the quality of life of Members of Parliament, but they will certainly affect the disadvantaged in society. We know that there will be higher food costs in the coming year, and other costs will rise. I have no time for the welfare cheats, but to try to blame this country’s financial ills on that small category of the population is unethical. It would be more ethical to act with equal determination towards those who cheat on tax, whether it be income tax, value added tax or corporation tax. There is now a whole industry of financial experts advising people on tax avoidance.

The turf war between the Chancellor’s office and that of the Secretary of State for Work and Pensions is somewhat immature. Children living below the poverty line and people on low incomes, the disadvantaged in society, do not want these fun and games, they want fairness.

The position on welfare is exactly as I set out in my Budget speech at this Dispatch Box when I said that if we could find further savings on welfare, we would be able to reduce the pressure on other Departments. That was what we were planning to do over the coming months as part of the spending review, and that is exactly what I said in the television interview to which my hon. Friend refers.

Secondly, it would be impossible to conduct a spending review without looking at the welfare bill. Whether one is looking for £61 billion of savings or £44 billion, welfare spending accounts for a third of the entire Government budget, so one has to look at the welfare budget. That is what we are doing, but we are looking to do it in a way that reforms welfare, to help those millions of people who have been trapped for a decade or more on out-of-work benefits into work, to help those with aspirations to improve their income, to make sure that work is rewarded by the benefit system, and to do that while we are protecting those who cannot work and protecting the most vulnerable in our society. I would argue that the failure on welfare reform over the last decade was one of the greatest failures of the previous Government.

Despite the lurid headlines in some newspapers, the relationship and the co-operation between the Treasury and the DWP is strong. There is a perfectly natural—[Interruption.]

Order. The Chancellor must be heard. This sedentary chuntering needs to come to an end. I want to hear the Chancellor.

It is an improvement on the situation under the previous Government, where there was absolutely no contact between the Secretary of State for Work and Pensions and the Chancellor. The two Departments are working very well. Obviously the Treasury is interested in financial management and control: that is a proper part of our function. My right hon. Friend has inspirational plans that he has worked on to reform welfare and get people working, and the two of us are working together with colleagues in the Cabinet to make that happen.

Let me finally say something about the tax gap and people who do not pay their taxes. Later this week, figures will be produced—independent figures, not produced by me—which will show the latest situation on the tax gap that we have inherited: in other words, the gap between what should be collected in tax and what is collected in tax at the moment. Judging by previous figures I have seen, I think that the House will be pretty staggered by this number. [Interruption.] Labour Members seem to forget that their people were in power for 13 years. We have inherited this situation, and we will be taking steps to reduce tax avoidance, including tax avoidance by the richest people in our society, so that everyone makes a contribution.

The shadow Chancellor and the shadow Chief Secretary are not in Westminster today, Mr Speaker, and you will be aware that I had asked a similar urgent question of the Secretary of State for Work and Pensions, so it is good that the Chancellor is replying, although very unfortunate that the Secretary of State for Work and Pensions has chosen not to come to respond.

On Thursday, the Chancellor told the BBC that the Government were cutting an additional £4 billion from out-of-work benefits. The BBC website says:

“The government is planning to reduce the annual welfare bill by a further £4bn, Chancellor George Osborne has told the BBC.”

Today, he has refused to tell the House what he told the BBC. Did the BBC correspondents just get it wrong? Did they mishear what he said? Will he now come clean and tell us what he has in fact got agreed and planned for the additional cuts that he wants to make to the welfare bills for the spending review? Will he tell us whether the Secretary of State for Work and Pensions has agreed to £4 billion of additional cuts? Will he admit that the timing of this interview had nothing to do with reaching agreement on the spending review with the Work and Pensions Secretary and everything to do with getting Andy Coulson off the BBC headlines for the day?

In June, the Chancellor wrote to the Secretary of State:

“I am pleased that you, the prime minister, and I have agreed to press ahead with reforms to the ESA as part of the spending review that deliver net savings of at least £2.5bn by 2014/15.”

His Chief Secretary said yesterday that this was not agreed; well, is it agreed or isn’t it?

The Chancellor is not being straight with the House—[Interruption.]

Order. The hon. Member for Wellingborough (Mr Bone) is normally a pretty equable fellow; he is getting a little over-excited. I must ask the right hon. Lady to withdraw that term. No Minister would be other than straight with the House. She will find another word, I feel sure.

I certainly accept your point, Mr Speaker. I am sure that no Minister would want not to be straight with the House, and I am sure that the Chancellor will be. I withdraw any suggestion that he was not, because I am sure that he will be.

Will the Chancellor confirm, therefore, that saving an additional £4 billion from getting people into work will require new jobs for 800,000 people, at a time when his own Office for Budget Responsibility says that far from creating an extra 800,000 jobs, his Budget will cut 100,000 jobs from the economy in each and every year?

The Chancellor has also said that he plans to target the workshy and those who are fit for work. Will he confirm, however, that savings from getting those who are fit for work off sickness benefits are already built into the Treasury figures, and that cutting an extra £2.5 billion from employment support allowance would hit only those who have been through the new, tougher test and who even his Ministers agree are genuinely too sick or too disabled to work? Is it not the truth that he is planning to cut the level of support for some of the most vulnerable people in society? Will he confirm that someone who is on employment support allowance, and has been through the test, is already facing a £285 cut in the value of their ESA and an average £650 cut in their housing benefit as a result of his plans?

The Chancellor claims to support jobs and to be progressive, but he is doing the opposite. The truth is that his plans hit the poorest harder than the rich, women harder than men and children and pensioners worst of all. Now he has shown that he is targeting those who are most sick and disabled in society. Is it not the truth that he has decided to hit those who he knows will find it harder to fight back? This is not progressive; it is a nasty attack, and he should withdraw it now.

First of all, I note that there has still not been a word of apology about leaving this country with the worst public finances in its history. Nor, by the way, has there been an apology for the complete failure, by the right hon. Lady and her predecessors as Secretary of State, to reform the welfare system, despite all those promises.

In the Budget speech, I made it very clear that we were looking for additional savings from welfare. If the Labour party wants to propose some ideas to make up its £44 billion part of the savings package, perhaps it will contribute to this debate. Sadly, at the moment, we have had absolutely no ideas from it. It opposed the VAT rise; the pay freeze; the in-year savings; the housing benefit reforms; the tax credit reforms; the switch to the consumer prices index for benefits; and the abolition of child trust funds. It opposed all those things. They are £33 billion worth of cuts.

Where are the Labour party’s numbers? Where are its ideas? If it wants to engage with us in a real debate about how we reform welfare, protect the most vulnerable and help people who can work into work, we will be all ears. But at the moment there is a deafening silence from the Labour party.

The right hon. Lady talks about my right hon. Friend the Secretary of State for Work and Pensions not being here. He happens to be at a conference in Europe about international labour market reforms. The shadow Chancellor is not here, and nor is a single one of the Labour party leadership contenders. That is because instead of talking about the national interest, they are courting the votes of vested interests.

I congratulate the Chancellor on his innovative way of taking suggestions from the public on the spending challenge. Has he had any suggestions from the shadow Chancellor or the Labour party leadership contenders?

The answer to my hon. Friend is no. Since Labour Members called for a vote on the value added tax rise, we have discovered that actually the shadow Chancellor supports the VAT rise. So he did have ideas; he just did not tell us about them.

If the recent report from BDO Stoy Hayward, which says that we could be back in recession by Christmas, proves true, how many more billions will the Chancellor take off the most vulnerable in society?

I draw the hon. Gentleman’s attention to the central forecasts produced by the Office for Budget Responsibility, the Bank of England, the OECD and the European Commission. They forecast steady and sustainable growth over the coming period. I take the view—a view shared by quite a number of people who observe the British economy—that if we had not put in place, in the Budget, a credible plan to reduce the budget deficit, this country would be in an economic mess.

The Chancellor helpfully published, decile by decile, the distributional effects of a number of his measures in the Budget. But the exclusion from his analysis of a number of other measures has led to a lot of controversy about whether his Budget is progressive or regressive. Will he now commit to publishing in the comprehensive spending review a full analysis of all the measures in aggregate, decile by decile, so that we can see whether their effects will be progressive or regressive?

First, let me say to my hon. Friend that the previous Government never published any distributional impacts as part of their Budgets. We have begun that work in the Red Book. We said that we wanted to receive comments about how we could improve the work. There is a real challenge, of which my hon. Friend is well aware, given all his experience, to do with the modelling of some of the impacts. The Treasury model, which, of course, we inherited—we did not create a new Treasury model—has made it very difficult to model certain expenditure changes.

We will continue to try to provide Parliament with the best information that we can, but I do not want to promise to deliver something that I cannot actually deliver.

I welcome the Chancellor’s repeated commitment to supporting people back into work. Can he confirm that benefits savings that may be achieved will be prioritised for DWP back-to-work programmes and, in particular, that the funding needed to meet the objectives of dynamic benefits will be provided to the Secretary of State for Work and Pensions as a first call on any savings on the benefits bill?

We have a dual task. We have a welfare bill that represents a third of all Government spending; and, given that at least half the Labour party—I think—still believes in trying to reduce the deficit, we have to find savings from the welfare bill. At the same time, we are seeking a fundamental reform of welfare to encourage people into work. Bringing those two objectives together is precisely what I am working on with the Secretary of State for Work and Pensions.

I am sure that the whole House will be pleased to hear the comment about going after those who deliberately avoid paying tax—it would be interesting to know when we will hear how that will be achieved—but more importantly, the Chancellor mentioned the phrase “protection of the vulnerable” several times in his statement today. I would be interested to know how that is going to be achieved, and when he will explain to the House how the vulnerable in our society—including the very poor—will get the protection that they deserve.

Let me give my hon. Friend a specific example: disability living allowance. We were faced with a number of options, but we decided that we wanted to keep it as a universal benefit, and instead look at the criteria that allowed people to get on it and ensure that they were entitled to stay on it. We are particularly conscious of benefits on which people in vulnerable positions are dependent, but with each benefit, we are proceeding with caution, seeking as wide a consensus as possible. However, my hon. Friend has my commitment that we are doing everything that we can to protect the vulnerable during this process. I would also make a general observation: the thing that really hurts the most vulnerable in our society is when a country loses control of its public finances.

Is the Chancellor really aware that as a result of these successive sadistic statements about cuts, war pensioners are ringing Members of Parliament and people who are severely disabled are frightened to death of losing their benefits? Is it not time that he had the gall to tell the truth: that this is all about using the deficit, which we had planned for, as an opportunity to carry out the Tory ideology of cutting the power of the state?

As the hon. Gentleman is now a Blairite, I thought that I would read out what his master said recently, which is relevant to what he has just said:

“I look at those policy papers now—the work on…the use of social security budgets…and I do think how different it would have been if we had done it. If we had…not wandered into a cul-de-sac of mixed messages and indecision… But there it is. It didn’t happen, and that’s it.”

We are trying to do the things that he once promised in his election manifesto.

In his article yesterday, David Smith, the economics editor of The Sunday Times, reminded us that the structural deficit had averaged 2.7% since 2003 and that we inherited planned tax rises and expenditure cuts of £73 million. Given the positive reaction of the markets to his Budget of a few months ago, what does the Chancellor think would happen if he did not persist with these tough but very necessary measures?

The answer is simple: there would be a catastrophic loss of confidence in Britain and an increase in market interest rates, which would hit every business and family. That would lead to an increase in unemployment, which is why we are not prepared to take the prescription offered by at least some of the people standing for the leadership of the Labour party.

The Chancellor ought to read the International Monetary Fund report on that subject. The economy is slowing, business confidence and business investment are flat, and net trade is going through the floor rather than through the roof. In those circumstances, is it not folly of the first order to cut public expenditure? Is not the Chancellor threatening a double-dip recession—the very thing we do not need?

The people who are talking down the British economy are the Opposition. Since the hon. Gentleman mentioned the IMF, let me remind him what it said this weekend:

“Fiscal consolidation remains essential for strong, sustained growth over the medium term.”

Since the election, the interest rates on gilts at two and three years—the kind of time periods that people borrow for their mortgages—have halved. Does the Chancellor think that that has anything to do with the new Government getting to grips with the nation’s finances?

I think it does have something to do with the new Government setting out their plan, and it is easy to see why. We can compare what has happened to market interest rates for the United Kingdom with market interest rates for countries such as Spain, Portugal, Ireland and Greece. At the time of the general election, it was well understood that people in the world were concerned about the record UK budget deficit, the largest in the G20. As a result of the steps that we have taken in the Budget—which we now need to see through in the spending review—we have restored stability to the economy and helped to bring down market interest rates. That would not have happened if Labour had stayed in office.

How does the Chancellor think that slashing jobs at tax offices up and down the country will help with the collection of the £120 billion that is lost every year through tax evasion and tax avoidance in this country? What other measures does he have in mind for collecting that money, which could be saved and used to prevent these enormous cuts, which are going to hit the poorest the hardest?

As I was saying in reply to my hon. Friend the Member for Colchester (Bob Russell), we are keen to ensure that the tax gap is reduced and that Her Majesty’s Revenue and Customs is an organisation that is able to collect that tax that is due to us all. Unfortunately, as has been well documented in recent days, we have inherited a whole string of problems, including 6 million people being given the wrong tax information under the previous Government. We are putting in place the measures that I believe will improve HMRC and enable it to focus on reducing that tax gap.

Does the Chancellor agree with the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), who said in 1996:

“Losing control of public spending doesn’t help the poor”?

It is not often that I say this, but I agree with the right hon. Member for Kirkcaldy and Cowdenbeath on that. Maybe one day he will turn up in the House of Commons and explain what he meant.

Instead of hitting the sick and the disabled with these cuts, why does not the Chancellor tackle the bankers’ welfare bill by reversing his ridiculous decision to give a £1 billion cut in corporation tax to the banks?

Over the past 13 years, Labour allowed the banking system to become completely unregulated and presided over the biggest banking crisis of our lifetime. At the time of the general election, I remember arguing in the television debates for a bank levy to be introduced in this country even if other countries did not introduce it. The then Chancellor opposed me on that. We have now introduced the levy, and I see that it has been universally accepted by the people who opposed it just a few months ago. The receipts from the levy massively outweigh any gain that comes from the lower corporation tax, and that was taken into account when I set the level of the bank levy at £2.5 billion.

Why, if the previous Government were so successful in achieving economic success, did the welfare bill rise by 47%? Is it not the case that the former Chancellor of the Exchequer and Prime Minister threw prudence to the winds? Is not getting the public finances in order the best way to stop hitting the sick and the vulnerable? Should not all Members of the House work together to champion the sick and the poor, rather than scaremongering when we do not have the details?

My right hon. Friend is absolutely right. People will remember that, in the mid-1990s, a central part of the then new Labour party’s claim to office was that it was going to reduce the bills for social failure. No doubt that was in all the election addresses that it delivered at the time. It did not do that, however; the welfare bill went up by 45%, and its former leaders are now telling us candidly that they completely failed. We are going to succeed where they failed.

I am always astonished that when Members move over to the Government side of the House, they ask for less spending on welfare than they did when they were on the Opposition side. I was visited on Friday by a severely disabled constituent who was seriously worried about her future. Why has the Chancellor promoted the legitimate debate on welfare reform by contextualising it with reference to those who abuse the system—for whom there is no support on either side of the House—thereby sowing great seeds of concern among many disabled people and their families in the UK today?

It is difficult to see how we can have a debate on out-of-work benefits and how to reform them without at least addressing the issue of some people who should perhaps be doing more to get into work. Let me stress that we are doing everything we can to make sure that the poorest and the most vulnerable are helped, while rewarding work. If the right hon. Lady or any other Labour Member wants to make a positive contribution or propose a positive plan, we will listen to it.

Will the Chancellor condemn the calls for civil disobedience coming from the trade unions in the light of the necessary spending decisions that have to be made in view of the economic mess left by the last Government?

I do not think that strike action would help anyone at this point in time. Again, the people who suffer most when countries lose control of their public finances are often those working in the public sector, so I would hope that the trade unions, like everyone else in our society, will work together to sort out this national problem—and do so in the national interest.

The Chancellor’s emergency Budget was criticised for adversely impacting on certain groups, not least women—indeed, it is subject to litigation in the courts at the moment by the Fawcett Society. With particular regard to the extra £4 billion of cuts announced by the Chancellor to the BBC last week, has he carried out an equality impact assessment of the effects of that measure?

Of course, as we prepare the comprehensive spending review, we will comply with the legislation on the statute book.

Does the Chancellor appreciate that on the coalition Benches, there is unanimous support for his policy of shrinking the size of the state? Are we not lucky to have a Chancellor with the guts and ability to carry it out?

I thank my hon. Friend for his last remark. The state currently consumes almost half of national income and I do not think that there is a serious contender for high office on the Labour side who does not think that it needs to come down. Unfortunately, not a single proposal has been forthcoming. It is quite remarkable that this is the most contentious issue that we are debating, yet the people who aspire to lead the Labour party have absolutely nothing to say about it.

While there is action to be taken against those who have defrauded the benefit scheme, what are the Government doing to encourage those who are in genuine need of those benefits, and how are they going to be made available?

The hon. Gentleman would know, first, that we are creating the new Work programme, which we believe will help people currently looking for work to get the skills and support they need to get into work. It will be a far better system than the one we inherited. Then there is the broader debate, alluded to in a number of questions, about how we reform the out-of-work benefit system to reward work and give people a greater incentive to take on additional hours of work. That is absolutely central to the debate.

The recent independent report by the National Audit Office found that on the last Government’s cost-reduction targets for 2010-11, only one Department had achieved even 50% of that target; that of the savings reported, only 38% could be relied upon; and that one Department had the distinction of achieving even less than 5% of its cost-reduction target. What representations has my right hon. Friend had on how to make up that shortfall?

Not many, is the answer. My hon. Friend is right to draw the House’s attention to the fact that what we used to hear from the Labour Government about efficiency savings—in the press releases issued at the time of their last Budget—was all guff. Anyone who has examined whether any of the former Government’s claims stack up has found that they do not. It is another part of the Labour party’s fraudulent record.

Does the Chancellor really believe that the Government’s proposals will not be met with the widest opposition up and down the country? The Chancellor might dismiss this comment, but the Cabinet is playing with fire.

Let me say this to the hon. Gentleman: he sat on the Government Benches year after year while the budget deficit racked up; he allowed this country to have the largest budget deficit in the developed world. We are now seeking to reduce that budget deficit. The previous Government pencilled in but never identified £44 billion of public expenditure savings. If he wants to make a serious contribution to the debate, I suggest that he propose some specific measures to deliver the plans on which he stood at the last general election.

Does my right hon. Friend have a view on why Labour Members continue to treat the entire British public like children? They spend, spend, spend, bringing our country to the verge of bankruptcy—

Order. There is much pressure on time. I remind the hon. Gentleman that he must ask a Minister about the policy of the Government, not the attitude of the Opposition. We will leave it there; the Chancellor can respond briefly if he wants, but he is under no obligation.

My hon. Friend said some very good things about how the Opposition treat the rest of the country like children.

Formula grant for local government is about £24.5 billion, made up of just over £3 billion in revenue support grant and just over £21 billion from business rates. The cut is £6 billion, which leaves about £3 billion income from business rates that is not being redistributed in formula grant. Would not a good use of that money be the protection of the poorest and most vulnerable in our communities from the ravages of the cuts being imposed by the Government? Exactly how will businesses be accountable for what that £3 billion is used for?

As well as considering reforms to the formula grant, we took some steps earlier this year, and we hope to take further steps, to increase the freedoms that local authorities have to spend the money and to have fewer ring-fenced programmes from central Government Departments. We are looking at a review of the formula grant.

If we do not put up VAT, do not cut defence expenditure—as the Labour party proposed during Defence questions—and do not cut the welfare bill, as the right hon. Member for Normanton, Pontefract and Castleford (Yvette Cooper) proposes, will the Chancellor confirm that the only way to have a sustainable budget is to slash spending on the NHS?

My hon. Friend is absolutely right. The Labour party has opposed the £13 billion VAT increase, even though we now know that the shadow Chancellor, Tony Blair and Peter Mandelson all supported that increase; and it has opposed some of the other measures to which my hon. Friend refers. There is a difference when it comes to the NHS: I believe it is the official policy of the Labour party that the NHS should not be protected from cuts and should not have a real increase in funding. I happen to disagree with that policy, and we will see what the public think about it.

The Chair of the Treasury Committee asked the Chancellor to publish new details of the distributional impact of the Budget, including the proposed cuts to housing benefit and disability living allowance. Is the Chancellor aware that the Institute for Fiscal Studies produced such an analysis last month? Is he aware that it says that

“the overall effect of the new reforms announced in the June 2010 Budget is regressive, whereas the tax and benefit reforms announced by the previous Government” —

for the same period—

“are progressive”?

In the light of that evidence, will he explain whether he still claims that his Budget and his Government are progressive?

I can do no better than repeat what the IFS said in the report to which the hon. Lady has referred. It said that in 2012,

“Considering all tax and benefit reforms… the richest tenth of households lose the most in both cash and percentage terms.”

Does the Chancellor agree that there is nothing progressive about leaving 5 million people on out-of-work benefits—a system that condemns single women in particular to a lifetime of poverty—and that there is nothing progressive about leaving the Labour party’s debts to the next generation to repay?

I can go better, and quote Lord Myners, who said:

“There is nothing progressive about a Government who consistently spend more than they can raise in taxation, and…nothing progressive that endows generations to come with the liabilities incurred by the current generation.”—[Official Report, House of Lords, 8 June 2010; Vol. 719, c. 625.]

The right hon. Gentleman says that he wishes to protect the most vulnerable. Will he intervene personally to solve the problem of a constituent of mine, who is severely epileptic, who has not received his tax credit for six weeks owing to the total inefficiency of Her Majesty’s Revenue and Customs, and who has no money whatsoever—[Interruption.] Don’t you care about this man? He has no money whatsoever, and is only able to feed his family as a result of collections from his church. The chairman of the board says that it is nothing to do with him; will the Chancellor say that it is something to do with him?

Of course I take responsibility for the tax credit system that I have inherited. We know that there are real problems with the way in which it operates, and we are trying to establish how we can reform things in general. I will, however, look urgently at the case that the right hon. Gentleman has brought to the House’s attention: if he will give me the details this afternoon, I will get on to it straight away.

Like many Members of Parliament—although, perhaps, not as much as the hon. Member for Wellingborough (Mr Bone) —I want to see cuts in our public services. I accept that they are, sadly, necessary to deal with the huge deficit that is Labour’s legacy. Does the Chancellor agree that if any party is to have credibility in criticising specific cuts, it must present a realistic alternative that does not just saddle the next generation with thousands of pounds of debt?

I entirely agree with my hon. Friend. The plethora of memoirs and interviews from people who were at the top of the Labour party until a few months ago have consistently made clear that it is not credible for the Labour party not to issue its own proposals and come up with its own ideas. As I have said, £44 billion of the cuts with which we are proceeding were pencilled in by the last Government, and they have between now and 20 October to tell us where those £44 billion of cuts would have fallen.

On Saturday I attended a conference organised by the Aberdeen branch of the Disability Advisory Group. The people there were genuinely worried about the reassessment for disability living allowance and the medicalisation that has been announced. They were completely baffled, and kept asking, “Why us?” Whoever is to blame for the economic crisis, it is certainly not disabled welfare recipients. May I now ask the Chancellor, “Why them?”?

I respect the fact that the hon. Lady is the Chair of the Select Committee on Work and Pensions, but I must tell her that the number of working-age people who claim disability living allowance has risen by more than 40% in the last decade, which is a substantial increase. When I considered reforms to the allowance, I saw that it would be possible to introduce such reforms as means-testing, but I rejected those. I said that it would be fairer to introduce an up-to-date assessment to help people to receive the benefit and ensure that they were eligible for it in future. I think that that is the fair way in which to proceed with this particular benefit, because I well understand that those who receive it are some of the most vulnerable members of our society.

Can the Chancellor tell us whether, having bankrupted the country, the last Government left any detailed financial restraint, according to Treasury officials? This reminds me of the kids—the yobs—who smash the bus shelter and then throw stones at the people who are trying to clean up the mess. It is a disgrace.

The last Government left nothing except a letter from their Chief Secretary saying “I am sorry, but there is no money left”.

Does the Chancellor recognise that most ordinary people consider a £2.5 levy for rich bankers to be grossly unfair, given that ordinary people are paying 10 times more? He can now do better with tax-dodgers. Does he expect Lord Ashcroft to pay more on 24 October?

We were the first major economy to introduce the banking levy. We were bitterly opposed in the run-up to the election by a Government, in whom I think the right hon. Gentleman was a Minister, who told us that we should not introduce the banking levy until all the other countries had done so. We took a lead and introduced the banking levy, which will raise £2.5 billion. Since then, many other countries have followed our lead. [Interruption.] Opposition Members say it’s nothing or a pittance. If that is the case, why did they not introduce a levy? They had 13 years to do it and they did not. The only thing they did was cut capital gains tax, which we have had to increase.

Order. In recognition of the level of interest, I have given this question a very good run but, due to pressure of time, some people will have to be disappointed. We must now move on.