Budget Resolutions and Economic Situation

15:47:00

The Secretary of State for Business, Enterprise and Regulatory Reform (Mr. John Hutton)
I am pleased to have the opportunity to open our last day’s debate on my right hon. Friend the Chancellor’s Budget, which deals with the very important issues of business and enterprise.

The Budget will help the United Kingdom tackle some of the biggest economic issues that we now face: uncertainty in international financial markets; intensified global competition; and the need to promote and support Britain’s strong pro-enterprise culture. To steer the right course, Governments must listen and respond to the needs of British businesses. That is what we are doing.

My right hon. Friend the Chancellor has brought forward a Budget designed to ensure that Britain’s economy remains strong in uncertain economic times. These are such times. In every respect, the Budget also stands in stark contrast to the measures that others have proposed, which would weaken our economy by compromising economic stability, threatening the public finances in the process. That would be a real double whammy for our country.

My argument today is that we should take no risks with our hard-earned stability. That is why this Budget sets a course for continued macro-economic stability, rather than putting it at risk with the unfunded spending pledges and tax cuts proposed by the Opposition parties. It promotes enterprise across the economy, rather than undermining key sectors such as manufacturing with huge cuts in capital allowances for investors, which the Conservative party has also proposed. That change would penalise investment at a time when we should instead support it. The Budget will help to deliver sustainable economic growth through greater business certainty, rather than confusing businesses with half-baked policy initiatives designed merely to last as long as it takes to generate a headline or two.

Mr. John Redwood (Wokingham) (Con)
Given that money market conditions are very tense and tight on both sides of the Atlantic, will the Secretary of State comment on why the United States authorities are cutting interest rates, taking the position very seriously and pumping money in, while the United Kingdom authorities are not?

Mr. Hutton
Every country must respond in a way that is appropriate to its own market conditions, and I believe that my right hon. Friend the Chancellor and the Governor of the Bank of England have taken appropriate action to support the United Kingdom economy as it enters an uncertain period.

The Budget’s foundations, and indeed its ambitions, lie in the UK’s strong and stable economic record since 1997. In the past 10 years, we have achieved unmatched economic growth. The UK is the only country among the G7 to have experienced no quarters of negative GDP growth since 1997. There have been 62 quarters of unbroken GDP growth in the UK, which constitutes the longest economic expansion on record in this country.

We have helped more people to progress through work. The UK’s employment rate at the end of 2007 was also the highest in the G7. A record 29.39 million people are in employment, over 2.7 million more than in 1997. We have also kept inflation and interest rates low. In case we have all forgotten, I remind the House that before 1997 the UK had one of the worst inflation records in the G7. Now we have one of the best. As a result, interest rates have averaged 5.4 per cent. since 1997, about half the rate between 1979 and 1997, which has helped home owners and businesses to plan for the long term in a much more sensible way. So we enter this period of uncertainty, caused by upheavals in international financial markets, with our economy performing strongly and with growth forecast for each of the next three years.

Mr. Henry Bellingham (North-West Norfolk) (Con)
Is the Secretary of State concerned about our trade deficit, which is the worst since records began, and about our worsening competitive position? Am I right in saying that we have fallen in the World Economic Forum chart from fourth in 1998 to about 11th now? Will he comment on those two very concerning factors?

Mr. Hutton
I think that the UK remains a very competitive economy. That is borne out by the record levels of foreign direct investment in what is one of the most preferred locations for inward investment, which I think tells its own story. We have worked to provide a positive climate for business investment, raising national and international investment in our economy. Business investment has grown in nine of the last 10 years, averaging 5.3 per cent. since 1997—compared, I am afraid, with an average of just 3.5 per cent. between 1979 and 1996.

Mr. Alan Reid (Argyll and Bute) (LD)
The Secretary of State talks of encouraging investment. Will not the swingeing increases in duty on Scotch whisky deter investment in what has been a Scottish success story? Whisky is already charged a higher rate of duty per unit of alcohol than other drinks. If the Government want to tackle binge drinking, surely they should target the drinks that are responsible for it rather than targeting whisky.

Mr. Hutton
No doubt the hon. Gentleman has made a very strong constituency point. He takes a close interest in all such matters, not unreasonably given the constituency that he represents. It should be borne in mind, however, that 90 per cent. of Scotch whisky is exported, and that changes in duty relating to the UK will not affect the strong position of the Scotch whisky industry in international markets.

As I said in response to the hon. Member for North-West Norfolk (Mr. Bellingham), the UK—thank goodness—remains a magnet for overseas investment. There was a stock of over a trillion dollars of foreign direct investment in 2006 and, in the same year, a flow of $140 billion of foreign direct investment. In that regard, we were second only to the United States. I do not believe that any of those things would have happened if Britain were still locked into the cycle of short-termism that had begun to characterise much of British economic policy in the 20 years before the Government came to office. If there is one thing on which Members on both sides of the House should be able to agree, it is that we should not return to those times.

That economic success, and a powerful commitment to attracting and developing the best in global talent, have helped to make Britain one of the best places in the world in which to do business, but in today’s global age no one can afford to be complacent. Everything that we seek to achieve as a country must have its foundations rooted first and foremost in greater enterprise and higher investment.

This Budget sets a course that will help Britain become, I hope, the most entrepreneurial economy in an increasingly competitive global marketplace, creating an enterprise framework that responds to the aspirations of so many of our people to start and grow a business of their own. That aspiration is evident in a record 4.5 million businesses already operating in the UK, or in the growing number of young people who say they want to form their own businesses.

Miss Julie Kirkbride (Bromsgrove) (Con)
Given his remarks just then, will the Secretary of State explain how a company such as Land Rover, which is adjacent to my constituency, will be helped by the Budget in comparison with other car companies not based in the UK that will clearly have an advantage as a result of the green taxes that the Government are proposing?

Mr. Hutton
Those issues have been debated extensively already—[Interruption.] If any of the hon. Members want to say something on the record, let them come up to the Dispatch Box and make their comment instead of chuntering like a lot of hopeless parrots, which they are, I am afraid, beginning increasingly to resemble.

If the hon. Member for Bromsgrove (Miss Kirkbride) wants to support investment in manufacturing why does she support the halving of the capital allowances, which her party is proposing, for investment in new plant and machinery and equipment? At some point in the debate, she and others who would want to argue from her position will have to justify that.

Our commitment to Britain’s entrepreneurs is reflected in the business environment that we have helped to develop, delivering higher business survival rates than a decade ago. We have overtaken many of our competitors in the EU, but we need to make more progress when we compare ourselves with the United States, the world’s most enterprising economy. The US still has more businesses per head than the UK and more of them achieve quicker and higher growth than is often the case in the UK.

A range of new measures launched as part of the Budget aims to bridge that gap, creating opportunities for every section of our society, every region of our country and every sector of our economy. It is an

“innovative package of measures designed to promote enterprise.”

Those are not my words, but those of Martin Temple, the chairman of the Engineering Employers Federation, who has said that the initiatives will

“tick many of the boxes for manufacturers”—

including, we hope, Jaguar and Land Rover.

Mr. Bellingham
I am grateful to the Secretary for State for being so generous in giving way. Are the proposals in the Budget to give tax inspectors the power to enter small business premises unannounced and without an official warrant a good way of building confidence between the SME sector and the Government and regulatory bodies?

Mr. Hutton
Of course there have to be proper safeguards, and a proper judicial framework and the rule of law within which all such activity takes place—that will remain so—but the hon. Gentleman and others will have to answer some important questions about how we deal with tax evasion. It is important that Revenue and Customs inspectors have the right powers to do that. If the hon. Gentleman has an alternative set of proposals that would avoid the need for the measures that we have set out, we should hear from him. We can then look at them in turn. Those who criticise should always have an alternative and, so far, I am afraid that I have not heard one.

We should compare the record with the business reaction to the Tories’ flagship proposals on corporation tax—I am sure that the hon. Member for Rutland and Melton (Alan Duncan) will want to explain them to the House shortly—which the CBI has warned will damage manufacturing in Britain by cutting capital allowances to the tune of more than £3 billion, according even to the Tories’ figures. On 19 March, Richard Lambert said in The Guardian:

“there are dangers that the removal of these tax reliefs will have potentially wider consequences, particularly on business investment in manufacturing and by introducing volatility into the taxation of capital gains.”

I am a fair-minded and, I think, reasonable person and I always try to be fair to the Conservative party. In one sense, I must congratulate the Conservatives on the tax proposal, which is clearly enterprising and innovative. In fact, they have given a whole new meaning to the term “creative economy”. They have come up with a host of new spending pledges that can be met only if one were to design a new mechanism that allows the Government to spend the same pound several times over. No such mechanism exists. Creative economics is not an approach to inspire business or public confidence. The Conservatives’ £10 billion black hole is a recipe for risk and instability, but companies look to Government to do all they can to minimise instability in uncertain times such as now.

The Government want everyone with entrepreneurial talent in the UK, regardless of their circumstances or background, to be able to turn their ideas into reality, creating new jobs, businesses and wealth for our country. [Interruption.] An Opposition Member, who does not wish to stand up to make his point, is arguing from a sedentary position about the tax burden. It is worth reminding ourselves that the tax to GDP ratio is well below the peak set by previous Tory Governments and continues to rank below the EU 15 average.

Mr. Mark Prisk (Hertford and Stortford) (Con)
The Secretary of State was referring to me when he mentioned a Member who was talking about tax rises. He is talking about his enterprise White Paper, which I am sure he finds exciting, but if he is so keen to encourage small firms, why is he going to add £1,000 million to small firms’ tax bills? What is the economic case for doing that?

Mr. Hutton
I shall come on to that later in my speech. [Interruption.] No, I will come on to it when I am ready to do so, not when the hon. Gentleman pops up with a question on it. What I would say, however, is—[Interruption.] I will answer the question, but let me say this now: the hon. Gentleman has described this package of enterprise measures as of interest to me, but he should get out more and read what people are saying about the measures. [Interruption.] He is saying that they are exciting, and they are; that was the view of the CBI, the Institute of Directors, the Federation of Small Businesses and other employers’ organisations. He needs to respond to that.

To achieve what I have set out, we must do everything we can to strengthen the culture of enterprise in Britain today. Taking the stigma out of failure and properly rewarding risk are two essential ingredients in helping move our economy forward. By the end of 2009, insolvency officials will be able to decide on whether publicity, in addition to a notice in the London Gazette, is appropriate in every case and, if so, the right medium to use. Currently, all insolvency advertisements appear in local newspapers, so such a change would help reduce the perceived level of stigma associated with bankruptcy and benefit creditors by lowering the costs of administration.

We will also ensure that British businesses have the support of a modern tax regime that balances sustainability and fairness with opportunity and competitiveness. In the pre-Budget report, a package of simplifications was announced that will save British business up to £100 million a year. The Budget will help increase those savings with a new consultation to simplify tax calculations and returns for small companies. That will enable companies to spend less time on tax and more time on business growth. From April, the main rate of corporation tax will be cut from 30p to 28p, the lowest rate in the G7. With the introduction of a new annual investment allowance from April, more than 95 per cent. of small and medium-sized enterprises will be able to write off all their capital expenditure on plant and machinery in the period in which it is incurred. That has been warmly welcomed by business organisations, but it is opposed by the Conservative party.

Following consultation with business on our changes to capital gains tax, the introduction of the new entrepreneurs relief will ensure that 80,000 business owners and investors annually will have their entire gains taxed at 10 per cent. The enterprise investment scheme has raised more than £6.1 billion, which is now invested in more than 14,000 smaller, higher-risk companies. To help even more businesses prosper, we will now increase the investor limit from £400,000 in one tax year to £500,000 from April, and we will consult on the simplification of that scheme. Those changes will all ensure greater simplicity, fairness and growth for more businesses, rewarding entrepreneurs and risk takers and rightly recognising the importance of wealth creation.

We are also bringing forward new ideas and investment to deepen the culture of enterprise in the UK. We are committed to spending a further £30 million to extend enterprise education into primary schools and tertiary colleges, bringing the total spending in this area to more than £200 million over the comprehensive spending review period.

Mr. Philip Dunne (Ludlow) (Con)
The Secretary of State refers to the greater simplification that the Budget provides to small businesses, saying that it will mean business men taking less time to prepare their tax affairs. Has he assessed how much time it will take them to read through the 107 new tax notes included as part of this Budget?

Mr. Hutton
The hon. Gentleman, for whom I have a lot of respect, has argued with me before about the extensive administrative burdens reduction programme that the Government have been pursuing for the past two years. It will produce significant benefits in the round to small businesses’ dealings with regulation and tax matters. The Government are seized of the importance of trying to reduce all compliance costs associated with these matters.

We are also working on the launch of global entrepreneurship week, and our work with the premier league of football clubs will open up the idea of entrepreneurship to many individuals and families who never thought it could be for them. I hope that hon. Members from all parts of the House will support that work. Those and other measures will, as Sally Low from the British Chambers of Commerce recently said,

“increase the level of enterprise education…Sowing the seeds for a new generation of entrepreneurs and business people”

—in our country.

If we are to succeed as an enterprising nation, we must remove barriers to success and, most importantly, we must redouble our efforts to support more women in starting and growing their own businesses. Despite a 17 per cent. increase in the number of self-employed women in the UK since 2000, women remain the largest under-represented group when it comes to enterprise. If women started businesses at the same rate as men, there would be 150,000 extra business start-ups each year in the United Kingdom. If we matched US levels of female entrepreneurship, there would be 900,000 more businesses in the UK, employing millions more people. The social, as well as the economic, benefits to Britain are obvious.

We are therefore implementing a package of measures to improve knowledge, skills, finance and support for enterprise among women. We are investing £12.5 million in a co-investment fund with the aim of securing £25 million of new investment, to be invested primarily in women-led businesses. Ken Olisa, a member of the Women’s Enterprise Task Force, describes the fund as

“an opportunity to create a bridge between aspiring entrepreneurs and capital.”

We will also work with regional development agencies to pilot new women’s business centres, building on the very successful programme that has operated in the United States for more than 20 years and creating the right culture, environment and support network to enable more women to build their own business. Regional development agencies in the east of England, the east midlands, the north-west and the south-east have all agreed to participate in the programme, and I hope that all RDAs will join that new drive to support more women in business.

We will also test how we can make enterprise information and advice available in the family-friendly environment of children’s centres to help build the confidence, skills and knowledge of potential entrepreneurs, investing in our public services, not withdrawing funding from them as the Conservative party is committed to doing, as we all know. We are supporting the establishment of a new national centre of expertise to help build the economic case for women’s enterprise, encouraging the financial services, private and corporate sectors to see women-led businesses as key suppliers of products and services.

Miss Kirkbride
The Secretary of State is being generous with his time. Although I commend any efforts to get more women to launch their own businesses, is he not concerned that the number of women in board rooms has decreased over the past few years? Although we want women to set up their own businesses, we also want them fully represented at the top level in the board room. Why does he think things are going backwards?

Mr. Hutton
Like everyone, I am concerned about that issue, but it does not lend itself to more Government regulation in order to resolve it. [Interruption.] The hon. Lady might not agree with me, but perhaps one or two others on the Conservative Benches do agree. That deeply centred cultural issue must be tackled, and we should do all we can to support companies in trying to tackle it, but I do not think it lends itself either to regulation or legislation.

All the initiatives on women’s enterprise that I have described are modelled on the successful implementation of the programmes in the United States. We always know when the Conservatives do not like a policy, because rather than say that they do not like it, they start sniggering—in this case about the importance of and the need to support more women in business. [Interruption.] They deny the sniggering, but we heard it. Whether or not they support these initiatives is an important test of their credibility. It would be good to hear from the hon. Member for Rutland and Melton whether he supports those initiatives.

To help bridge the enterprise gap faced by other under-represented groups in more deprived regions, we are also providing more financial assistance to the Prince’s Trust, which I hope will raise awareness of enterprise among some of our most disadvantaged young people. Support for community development finance institutions will also help businesses in poorer areas to access finance. Improvements to the operation of community investment tax relief will increase flexibility and confidence. We have also committed up to £10 million to establish a risk capital fund for social enterprises, the first fund of its kind, which will help social enterprises during their start-up and early growth stages.

Well targeted regulation can help us to achieve vital social goals and ensure that markets work properly for the benefit of consumers and business, but regulation has a cumulative cost and a consequence for the businesses, third sector organisations, public sector organisations and citizens who operate in our economy. Ensuring smarter, proportionate regulation will be critical to the UK’s future competitive position. So it is important that the Government do everything that they can to prioritise and simplify the regulation that really matters and remove unnecessary regulatory burdens wherever they exist.

In March 2005, following a request from this Government, the Better Regulation Task Force and Sir Philip Hampton published recommendations on how the public sector could better regulate, and we have made significant progress in implementing those recommendations. We are on our way to meeting the 2010 target to cut administrative burdens faced by companies by 25 per cent. More than £1.5 billion of cost savings have already been delivered to the economy through that mechanism. We have reformed the impact assessment process and continued to embed the Hampton principles in the work of local authorities and national regulators.

In this Budget, we are taking further steps to ensure that the impact of regulation on small and medium enterprises remains proportionate. We will strengthen our “think small first” policy so that Departments more rigorously assess whether SMEs can be exempted from new regulations or would benefit from simpler enforcement procedures. To help further reduce compliance costs, I have also asked Sarah Anderson to lead an independent review of ways to increase clarity and certainty for forms and official guidance.

Those are important new steps, but we need to go further. We need a new discipline across Whitehall, one that forces Departments to prioritise individual regulations within an overall budget and one that makes more transparent the true cost and impact of regulation on businesses. We will now consult on how we can best introduce a new system of regulatory budgets across Whitehall. Those budgets would set out the cost to business of new regulation that can be introduced within a given period and the Government will operate for the first time within an overall ceiling on new regulations.

That proposal is radical and innovative, and we will be the first country in the world to implement such an ambitious system. It will fundamentally change the creation, development and implementation of regulation in the United Kingdom and it has already been welcomed by the CBI and the Institute of Directors as a measure that could make a real and lasting difference to businesses.

Mr. Redwood
I welcome the intent behind this measure and it is a very good idea. Can the Secretary of State give us any indication of the early Budget runs in terms of relief to business in total cost?

Mr. Hutton
I shall not put a figure on that today, because it would be silly to try to do so. What we will do over the next few weeks is set out the methodology that we will deploy, and the figures will have to be put in the public domain and we will consult on them. However, it is important to recognise that the significant challenges that we face as a country include climate change, which must be dealt with sensibly and proportionately. For example, it would not make sense for us to say that we can make progress on climate change only if we scrap all the health and safety laws, or opt out of the social chapter—as the right hon. Gentleman would probably propose. We have to strike a balance, but it is important that the Government have decided that we should have regulatory budgets, and this is not a consultation on whether but on how. I hope that those budgets will come into effect in the financial year starting April 2009. All Departments and relevant regulators will be covered, and the new system will give a powerful boost to our aim of making the UK the best place in the world to do business.

Let us compare that credible action with the Opposition’s incoherence on regulation. The Leader of the Opposition has a track record of proposing significant new regulation when he wants to appear family-friendly. I am sure that that has not escaped the attention of the right hon. Member for Wokingham (Mr. Redwood). When the hon. Member for Rutland and Melton talks tough to businesses, he proposes a one in, two out policy for all new regulations. Perhaps today he will tell the House which two regulations he will scrap in order to introduce the new right for fathers of newborn children to take time off at the same time as mothers. Which two regulations would go to make way for the mandatory pay audits for businesses that the Leader of the Opposition has also proposed?

I am sure that the right hon. Member for Wokingham would be able to give the hon. Member for Rutland and Melton some tips on the right way forward. It might be helpful to read out what the right hon. Gentleman has already said about the UK’s framework of employment regulation, which is, I think, his starter for 10:

“we should seek opt outs from the areas of regulation that we think are most damaging…This would include all employment and social regulation.”

One thing is certain: a party that tells each audience what it wants to hear will ultimately not find favour with any audience at all. Those least impressed will be British businesses looking for a clear direction from their Government to steer the UK through uncertain times in the world economy.

We want to ensure that every entrepreneur and business in the UK can access the finance that they need for business creation and growth. We will work to remove any remaining barriers in one of the world’s most dynamic and flexible finance markets. [Interruption.] The hon. Member for Runnymede and Weybridge (Mr. Hammond) is chuntering away. I suspect that he will have the opportunity to make his own speech. We always look forward to his contributions. He has mentioned the small companies rate of corporation tax—

Mr. Philip Hammond (Runnymede and Weybridge) (Con)
No, capital gains tax.

Mr. Hutton
Well, I will also come to the small companies rate of corporation tax, because the hon. Gentleman has mentioned that, too.

We have made significant changes on capital gains tax in response to what business has said to us. The hon. Gentleman would be hard pushed—he is a decent and fair man—to find any example from the G7 or from any of the developed nations of relief for entrepreneurs as generous as the 10 per cent. entrepreneurs relief announced by my right hon. Friend the Chancellor for the first £1 million of lifetime gains from business. That is a significant improvement to the current provisions on retirement relief, on which I am sure the hon. Gentleman is an expert, and will address many of the concerns that have been raised.

The hon. Gentleman will know that the small companies rate of corporation tax is part of a range of measures that have to be taken to deal with the serious issue of tax-motivated incorporation. Even with those changes to the small companies rate it is important for us all to remind ourselves of one rather important fact that has escaped all the chanting of Opposition Front Benchers. Even with the phased increases, the small companies rate of corporation tax will still be lower than it was at any time when the Conservative party was in office.

We want to ensure that every entrepreneur and business in the UK can access the finance that they need for business creation and growth. We will work to remove any remaining barriers in one of the world’s most dynamic and flexible finance markets. With the support of small firms loan guarantee lenders, new measures include £60 million to the small firms loan guarantee scheme and the extension of the scheme to small and medium-sized businesses that are more than five years old. We are also providing an extra £30 million through enterprise capital funds to stimulate the provision of mezzanine finance alongside the launch of the third round of those funds on 1 April.

The public services industry is also an increasingly dynamic part of our economy. We want to increase the opportunity available for small and medium-sized enterprises to work and innovate in the sector, too. Anne Glover of Amadeus will lead a review of the barriers to SMEs winning the greater share of public contracts and consider the practicality of a 30 per cent. SME target for Government procurement. We will amend the public sector procurement clause to enable organisations that use factoring and invoice discounting to compete for this business.

We have, I believe, listened to businesses and responded to their needs. I believe that the Budget will help the UK economy to continue to grow at a time of turmoil in international finance markets.

Tony Baldry (Banbury) (Con)
The Secretary of State has just announced yet another review. Can he tell the House how many reviews his Department is undertaking at the present moment?

Mr. Hutton
The Department is not undertaking very many reviews. We are looking at a number of important issues, and many people have asked us to instigate the sort of review and investigation that I have described. We are prepared to look again at some of the issues involved.

One thing that I have learned in government—and I am glad to say that few Opposition Members have had the chance to do so—is that it is often a good thing to ask people from outside Government to take a fresh look at policies. That approach has proven beneficial for both the Government and business.

Mr. Jim Cunningham (Coventry, South) (Lab)
My right hon. Friend will be aware that representatives of small business, including a delegation from Coventry, lobbied Parliament last week. The review should look at the process by which bids are submitted for contracts with local authorities that are worth less than £10,000. For small businesses employing two or three people, the ability to tender for those contracts is vital.

Mr. Hutton
I am grateful to my hon. Friend, and glad to get one supportive intervention.

Mr. Philip Hammond
I seek clarification on a point of detail. The Secretary of State mentioned that the prohibition on invoice factoring would be abolished. It is one of the features of his enterprise White Paper, but I have here a letter from his colleague the Exchequer Secretary, dated 13 January 2008. In it, she assures me that the standard terms and conditions used by Government Departments

“do not prohibit the assignment of a debt between suppliers and third parties”.

Is she wrong, or is this a non-announcement?

Mr. Hutton
I am sure that there is a perfectly sensible explanation and that, given a bit of time, I will be able to respond appropriately to the hon. Gentleman. For now, however, the right answer must be that the approach taken by that Treasury Minister was obviously correct.

The Budget will genuinely help to release the talents of more of our people. It will harness the untapped potential and rising aspirations in our society to create businesses, jobs and wealth for our country’s future. It should help remove the financial, regulatory and personal barriers that still hold too many of our businesses and citizens back from achieving their ambitions and success. It is a Budget that will help boost enterprise and innovation throughout the economy. It will build on the strong and stable framework of the past decade to enable this country to tackle the challenges of the decade ahead effectively, and to seize the opportunities that it presents.

16:22:00

Alan Duncan (Rutland and Melton) (Con)
The House has listened to the Secretary of State for well over half an hour, but I am not sure that we have learned very much. What we are debating today is less a Budget than a Government confession of all the accumulated consequences of their misbehaviour in the past.

I call the Prime Minister’s first Budget a “confession” because hidden away in the back of the Red Book is all the evidence of his wasted decade as Chancellor. We had 10 years of profligacy that are now costing families in higher bills every year; 10 years of incompetent management at the heart of Government that are now to cost business £1.7 billion extra over the next three years; and 10 years of the right hon. Gentleman bragging and boasting about how much he was spending, with no appreciation of the consequences.

The Chancellor did his best to talk us into submission last week, but the rhetoric has unravelled and exposed us to some very uncomfortable home truths. For all that the Prime Minister used to bang on about prudence, the cruel truth is that prudence has turned out to be not such a pretty lass.

The UK has the largest budget deficit in western Europe, and there has been a massive rise in Government borrowing. We have a consumer economy fuelled by unrestrained and certainly unprecedented levels of domestic debt, so it is no wonder that the Chancellor has been forced to downgrade his growth forecasts.

But what is the Government’s response? Is it to do nothing, and to be the very definition of soporific but sensible stability? If only it was: instead, the Government’s instinct is to raise taxes and spend even more, and to hit the wealth creators and entrepreneurs who are the very people who can expand our economy and help wean us off our addiction to borrowing.

In case Labour Members have forgotten, I can tell them that the wasted decade was built on the strongest economic foundations, and that it was sustained by 15 years of global growth. We have had high levels of liquidity in the market and low prices—until recently—of crude oil, with optimism remaining stable. We had all that, even despite the Asian crisis in the late 1990s, the bursting of the dotcom bubble or the tremors of 11 September.

Ultimately, all economics is cyclical. Long periods of economic growth invariably end some time and a downturn follows. No matter how successful a country’s, or company’s, economic management may be, the good times always have a turning point. Nobody has yet managed to abolish the business cycle. It is the most enduring economic phenomenon. Its existence is the one thing for which we cannot blame the Government, but their refusal to admit that one day the cycle would turn is something for which they are utterly culpable.

The surest sign that problems are looming and that the dreaded turning point is just around the corner is when bankers, institutions and countries convince themselves that they have entered a new period of history in which economic gravity can somehow be defied. As the Chancellor and the Prime Minister have both said to anyone who would listen, the disintegration of sub-prime debt did indeed light the fuse that led to the explosion of Northern Rock and the fireworks that we are witnessing in today’s markets. Institutions are indeed partly to blame for allowing their judgment on the quality of lending to become polluted. For some, the music has stopped and market liquidity has evaporated.

Much of this has indeed been caused by an irresponsible United States Government deficit, but the reason that the UK Government are now undeniably culpable is that they did not use that decade to prepare for the years that would inevitably follow. Especially with globalisation’s pressure on competitiveness, the Prime Minister should have recalibrated the economy so as to reinforce it for more difficult times later. He did the opposite.

At the end of the right hon. Gentleman’s decade as Chancellor, we should have had lower taxes, less borrowing, better funded pensions and higher savings. Instead, all those variables have been moving in the wrong direction. Taxes are right up to their limits, debt—public and personal—is right up against the buffers, savings have evaporated and pensions have been raided to destruction by the Chancellor’s unforgivable economic vandalism. He has squandered a decade of economic prosperity. He has disguised growing structural problems and deferred decisions that could easily have been taken when things were going well. He used the decade to support his political ambitions over and above the long-term interests of the country. Now, thanks to him, the economy has no slack to cope with a downturn. It is unduly reliant on the City, and housing transaction costs are likely to prove an exaggerated downward force on the housing market. He has not even managed the public finances sufficient to support inflation-based increases in public sector pay.

The Prime Minister while Chancellor should have recalibrated the British economy not just to withstand the pressures of a cyclical downturn but also to equip it to contend with the new forces of global competition from the likes of India and China. While talking of doing so, in practice he did not. In other words, thanks to the Prime Minister, the condition of the economy is ill equipped to cope with the problems posed by events in world financial markets and it contains elements that are likely to exacerbate the problems.

United Kingdom conditions are not prepared for the turn in the cycle. We have nothing set aside for a rainy day, so the pain people will face stands to be greater than it would otherwise have been. We can perhaps, therefore, rustle up a little dose of sympathy for the poor hapless creatures who have to follow in the wake of this bludgeoning Prime Minister. There is the poor, poor Chancellor who has had to succeed the Prime Minister’s decade as Chancellor. He is like a poor malnourished orphan equipped with a bucket and shovel following a cart horse with bad digestion. Then we have the Secretary of State for the Department for Business, Enterprise and Regulatory Reform, whose words about our current Prime Minister were famously read into the record.

Mr. Bellingham
What did he say?

Alan Duncan
It would be inappropriate for me to repeat the words. I will steer my hon. Friend to the comment to which I am referring later. Some of the people who most wish that the Prime Minister would change his ways are people in business—people working in the thick of the economy. Those same people were left battered and bruised by the Government’s election gambits in the pre-Budget report last autumn. Business confidence in the Government has eroded very fast since then.

Last week’s Budget should have been an offering that restored the trust that the Government have lost, but it turned out to be more of a fig leaf to disguise the defectiveness of the British economy. It is no surprise that 92 per cent. of business leaders do not think that the Budget will restore consumer confidence. Some 65 per cent. say that it will be bad for their business, while an astonishing 73 per cent. believe that the Budget will actually contribute to the economic downturn in the UK—and no wonder, considering that the Government will take £1.7 billion in extra revenue from business over the next three years. That is in addition to the disastrous capital gains tax hike announced last August, and the small companies tax rise that was announced in last year’s Budget but is coming into effect now. For small businesses in particular, it is a disturbing trend at the very moment when their pockets are feeling the pinch.

It is clear that the Secretary of State, who has been an eloquent, albeit lone, voice for business in Whitehall over the past year, may have won some important concessions, but in other ways he has not been that successful. The dreadful changes to capital gains tax—Lord Jones’s words, not mine—remain pretty much the same. Income shifting has merely been deferred, with the pain being stored up for next year, not removed altogether. The same goes for fuel duty, with a sting in the tail being included for 2011. Small businesses will still be hit by the rise in their corporation tax. Recent data from one business organisation indicate that on average small companies spend £8,700 and 50 hours annually just on complying with basic tax regulations.

The enterprise White Paper, on which it is important to focus today, had some welcome news. I am glad that the Government have finally come round to our proposal that a percentage of state contracts be offered to small and medium-sized enterprises. I hope that they will go further than merely reviewing it, as the Chancellor said he would. The proposal was of course first announced by my right hon. Friend the Member for Witney (Mr. Cameron), the Conservative party leader, back in October 2006, so it has taken a little longer for the Government to copy the idea than it took them to “borrow” our inheritance tax proposals, but it represents progress none the less.

Similarly, we welcome the Government’s new commitment to regulatory budgets, something that I called for at our party conference last October. If properly implemented and operated, they will be a significant step forward, but I fear that business is not holding its breath. It is the Government’s fourth major initiative on regulation since 1997. Just two years ago, we were promised a year of delivery, but instead of cuts to the regulatory burden, all that was delivered to us was £16 billion-worth of additional regulations. Those measures aside, the White Paper is terribly thin on substance and bears all the hallmarks of a Government who have run out of not just ideas, but wriggle-room. There is a plethora of small policies and initiatives, including some very minor changes to the financing regime for SMEs, but they are certainly not the key to “unlocking the UK’s talent”, as advertised on the document’s front cover.

The most depressing part of the White Paper is a classic eye-catching initiative—a high media campaign—entitled “spark an idea”, with a corresponding £12 million capital fund for female entrepreneurs. The Secretary of State mentioned that in his comments. Of course we welcome the focus on women in business, because one of the Government’s biggest failures has been the failure to encourage women to establish businesses, resulting in the UK having one of the lowest rates of female entrepreneurship in the world. However, we are not convinced that the £12 million will create the growth that the Government want. Also, as the fund is being distributed through Business Link, we will need convincing that the money will find its way to women, rather than just be lost in administration.

The problem for the Government is that 10 years after they promised to be the party of business, we are seeing clear evidence of enterprise being held back by the actions of Government. Our competitiveness rating has dropped seven places in the international league table since 1997. We are falling behind other European countries in investment and research. While other countries have been developing a competitive business tax code, the UK has the unique distinction of creating a tax code that is longer than India’s. The Chancellor has compounded that by adding a further 107 new technical tax changes in the Budget alone, which brings a certain Kafkaesque logic to the Government’s pledge to simplify the system.

Another part of the problem is that the Department that is supposed to represent the long-term interests of business has not shown, in a decade of Labour rule, any long-term thinking that we find comprehensible.

Mr. Richard Benyon (Newbury) (Con)
Does my hon. Friend agree that the Secretary of State has another problem to deal with—the bizarre decision by the Prime Minister last July to close the Defence Export Services Organisation, a body that was responsible for assisting British business to create £5 billion of inward investment every year? That decision has caused great dismay across a key sector of many of our constituencies. Does my hon. Friend agree that we must change that decision when we get into power?

Alan Duncan
My hon. Friend makes a serious point. The attempt to sanitise the process has probably gone a long way to undermining it seriously. There was a fudge between the Ministry of Defence and DBERR, as it is so ridiculously called. I call upon the Secretary of State, if not on this occasion, at least later to defend that fudge, because many of the phones have gone dead in our attempts to sell important equipment abroad.

The Department over which the right hon. Gentleman presides has had 38 Ministers since 1997. It has even had seven Secretaries of State. The Minister with responsibility for small firms has changed, on average, once every 18 months. The churn at the top is creating a churn elsewhere, so while the number of small and medium-sized enterprises in the UK has increased, the start-up rate has fallen.

Mr. Jeremy Browne (Taunton) (LD)
“You churn if you want to”.

Alan Duncan
Indeed. That is exactly what is happening.

While the number of female-run businesses has increased, the latest small business survey found that those businesses are replacing, not adding to, the existing stock of male-run businesses. The Government do not seem to understand that one cannot create enterprise through the distribution of little pots of money. Fundamentally, it is a cultural phenomenon, and the Government do not appear to understand that culture.

The Government have mishandled the overall economic picture, they have mishandled the business sector and they have squandered a decade of growth. Their legacy is a big bill for all of us to pay, and the Budget is a sad reflection on the plight that they have put us in. It is the Prime Minister’s legacy and he will not be thanked for it.

16:38:00

Mr. John Grogan (Selby) (Lab)
I first heard news of last week’s Budget when I was in outer Mongolia, where I had been dispatched with the Foreign Office, well out of harm’s way, along with my noble Friend Lord Malloch-Brown. Given that I am chairman of the all-party beer group, perhaps it was the best place for me, in view of the 4p rise in beer duty. In my brief remarks, I shall reflect on alcohol policy and the alcohol industry—an important industry in our country—the energy sector, the gambling industry, and non-domiciles.

There was a significant change in the policy on alcohol duty last week. All alcohol duty—on wine, spirits, beer or cider—was increased by a similar percentage. A promise was made that in forthcoming years there would be increases of inflation plus 2 per cent. on all alcohol. It is worth exploring the reasons for that. Up to now, the Treasury has said that alcohol duty is a revenue raiser, rather than an aspect of health policy. Indeed, last week my right hon. Friend the Chancellor referred to increased alcohol duty giving additional support for families and lifting more children out of poverty. He also mentioned in his remarks, which were backed up by the Treasury press release, that as incomes have risen, alcohol has become increasingly affordable. He spoke about ensuring that alcohol duties keep up with rising incomes. For the first time, there was a hint that alcohol duties were being raised for health as well as revenue reasons. I would be interested in any clarification from Ministers on that point.

I want to explore whether the measures will be an effective way of raising revenue and promoting health. What are the implications for the pub industry, in particular? It employs 500,000 people and generates more than £20 billion—it is as big as the airline, retail clothing or media sectors. How much revenue are the increases likely to raise? The Treasury forecast in the Red Book suggests that £8.6 billion will be raised in the forthcoming year, up from £8 billion this year—a significant rise, particularly from wine duties, which will apparently raise more than £400 million extra. At the moment, our beer duty is the highest among those of comparable European Union countries, at nearly 40p a pint.

In the past few years, beer duty has gone up a lot more than other alcohol duties: by 26.7 per cent. since 1997, compared with a 3 per cent. rise for spirits, an 11 per cent. rise for cider and a 16 per cent. rise for wine. However, as beer duty has increased, the tax take has not increased to any extent at all. In 2004, £3.1 billion was raised through beer duty; that has now decreased to £3.05 billion for the current financial year. The actual amounts raised through beer duty undershot Treasury estimates by £130 million last year and £160 million the year before.

As beer duty has risen—considerably—since 1997, the gap between the price of beer in a pub and its price in supermarkets has widened. A pint of Carling in a managed pub cost £1.65 on average 10 years ago, but it is now £2.32. The average price of a pint of premium lager in a multiple grocer was £1.14 10 years ago but is now down to £1.05. There has been a shift.

Tony Baldry
Is not the hon. Gentleman’s point that the increase in beer duty will not have much of an impact on off-sales, but will have an impact on village pubs? All the village post offices in constituencies such as mine have been closed by this Government. What next? It will be pubs. It is disingenuous to suggest that any increases in beer duty will have an impact on binge drinking; they are just another way of collecting more revenue, which will also hit a valuable service—the village pub.

Mr. Grogan
The hon. Gentleman is ahead of me. Unless other measures are taken, the rises will reinforce the trend of the past 10 years of more off-sales and fewer on-sales. Ten years ago, the on-trade accounted for nearly 80 per cent. of beer sales; that has gone down considerably to just over 60 per cent. The measures will reinforce the trend from drinking in community pubs and towards more sales in supermarkets.

I shall come to the impact on health, but I shall first address the impact on tax, as the hon. Gentleman mentioned that. It is important to remember that pubs and the beer industry pay not only excise duty, but VAT and employment taxes. In fact, Ernst and Young suggested that the entire pub and beer industry contributed a total of £9 billion to Government revenue. The more that is drunk in pubs, as opposed to at home, the greater the Government revenue. The Government receive £1.14 in taxes from a pint of beer in a pub, compared with 55p for every pint drunk in the off-trade. In themselves, the measures will, as the hon. Gentleman points out, damage drinking in community pubs and favour supermarkets.

Tesco said something interesting a few weeks ago. For the first time, it admitted that it sells alcohol below cost. It hinted that that was a problem socially and suggested to the Government that it would be prepared no longer to sell it below cost if the Government changed the law to deal with the competition requirements that might be infringed if the supermarket moved alone. My fear is that, unless the Government move quickly to deal with supermarket prices, the impact of the excise duty changes will be, as the hon. Member for Banbury suggested, that the supermarkets continue to loss-lead, treat alcohol like baked beans and not raise prices in line with excise duty.

Indeed, I have a letter from a major retailer and wholesaler to a brewer. It states:

“As you know the aggressive market that we’re all trading in continues”.

It suggests that the brewer does not raise the price of beer following excise duty and that:

“Given the discount pricing strategies adopted in the past few years by the multiple grocers we are not confident that the budget will result in material increases in retail prices.”

The Government’s review of the impact of alcohol pricing on health is due in a couple of months. The Government must act urgently and take Tesco at its word. I referred to Sir Terence Leahy before Christmas as the godfather of British binge drinking, and there is no greater joy in heaven than when a sinner repenteth. However, as St. Augustine said, “Lord, make me virtuous but not yet.” That is Tesco’s position and the Government need to encourage it to take the further step. I believe that that will require a change in the law.

The all-party parliamentary beer group is now considering reference pricing— minimum pricing for alcohol—which is prevalent in Canada. In Canadian supermarkets, the minimum reference price of a bottle of beer is around 50p. We will hold a seminar, to which we hope to invite the supermarkets, the Treasury and the health lobby to ascertain whether we can reach a consensus. Without that, the increase in excise duty over the next few years will accelerate closures of village pubs—we have reached more than 20 a week on some counts. The community pub will also decline, and that is where drinking is supervised and managed, and where people generally drink socially. Such decline could have bad implications for one of the industries that make one proud to be British. I therefore hope that the Government will act on supermarket pricing and stand up to the supermarkets, given that they are going down a specific road on alcohol duty.

Mr. Prisk
The hon. Gentleman mentions small pubs, and he is right, but is he aware of the impact of the measures that he mentioned on small breweries? I am thinking of McMullen in Hertford and Sharp’s, an excellent brewery in north Cornwall. Both told me that their costs have risen by 60 per cent., and now the Government are slapping on an additional charge. Has his group considered the impact on such excellent small breweries?

Mr. Grogan
We have indeed. To be fair to the Chancellor, and especially the previous Chancellor, the relief to small breweries on excise duty has led to an expansion in micro breweries in recent times. However, the brewers who are just above the level of micro brewers, some of whom have closed in recent years, will be especially badly affected by the increase in duty, as the hon. Gentleman says.

Three measures in the Budget affected fuel poverty: the winter fuel allowance, the action on pre-payment meters and the proposed increase in social tariffs paid by the energy companies from the current figure of £50 million to £150 million. The Government will enter into negotiations about that increase.

Let me press Ministers about the voluntary versus statutory debate. On pre-payment meters, the Chancellor referred to the possibility of legislation if the Government did not get what they wanted from the energy companies. However, possible legislation on social tariffs was not mentioned. I am not sure about the reason for that inconsistency, especially now, when some of the major energy companies are calling for statutory social tariffs. They say that it would be much easier if there were a level playing field. Let me cite two brief examples. After the Budget, EDF Energy stated:

“Our own proposal—which we have supported for some time—is for mandatory social tariffs in the form of a discount or relief against published tariffs.

This would ensure a level playing field for suppliers and sufficient funding since it would require statutory mechanisms by which money was redirected for this purpose.

It should also be possible—in a statutory framework—to solve the issue of identifying objectively the customers who should benefit.”

Npower wrote to the regulator, Ofgem, just before Christmas, saying:

“At present, government is encouraging the delivery of a social action solution within a voluntary framework. It is doubtful whether this is the most efficient approach and it is also seemingly inconsistent with a market framework. We believe that the interest of the fuel poor is best served by a mandatory social tariff”.

I ask Ministers to be open in their discussions with the energy companies to the possibility of a mandatory social tariff, in the interests not only of the fuel poor, but of a competitive energy market, so that all the energy companies know exactly where they stand and what they have to fulfil. If they want to go beyond that for competitive advantage, it is surely up to them to do so.

There was no reference in the Budget to energy prices as such. I was pleased that, following the Chancellor’s discussions with Alistair Buchanan, the chief executive of Ofgem, there will be an inquiry into energy prices. The hon. Member for Rutland and Melton (Alan Duncan) mentioned the impact of the Budget on manufacturing industry, and energy prices are a major issue that the sector faces.

When he met the Chancellor, Alistair Buchanan said that there was no need for such an inquiry and that the market was operating efficiently. He changed his mind within three or four weeks, but I fear that his inquiry will be a little like the Princess Di inquiry with Mohamed al-Fayed as the judge rather than a witness. It would be better if Ofgem gave evidence to the Competition Commission in a full-scale inquiry into energy views, so that its views could be put against those of Energywatch, the consumer champion, which will sadly be abolished in a few months, and so that there could be a proper test. Unless there is a proper test, many small businesses and energy consumers will not have confidence in the Ofgem inquiry.

That brings me to a broader point, which concerns the relationship between the Government and business, which those on the Opposition Front Bench mentioned. I am proud that I was a small business man before I entered the House. It gave me an appreciation of cash flow, and what it means to employ people and so on. We have done a good job over two decades of getting rid of the idea that Labour is anti-business. We are a party that supports entrepreneurs, but we have also lost the progressive critique of business oligopoly and big businesses acting against the interests of small businesses.

There is a much greater willingness on the left of the American political debate, as well as among Republicans, to criticise markets in which there is self-interest and no competitive framework, rather than having markets working in the public interest. It is at least arguable that our energy sector is dominated by a number of very large companies that not only produce but retail electricity and gas. It is not clear to me that those companies are operating in the competitive interests of small businesses and consumers. It would be much better to give the issue to the Competition Commission.

The Secretary of State mentioned regulation. One of the Competition Commission’s critiques of Government policy is that the Government do not refer nearly enough sectors to the commission for investigation. It is in the self-interest of regulators not to make such references, because they risk being criticised or admitting that they do not have enough powers to regulate different sectors of the economy. It will be interesting to see what Ofgem comes up with, but I hope that the Government will not rule out making a full-scale reference to the Competition Commission before next winter, when who knows what will happen to energy prices.

Finally, I congratulate the Chancellor and the Government on sticking to their guns with respect to imposing modest charges on non-domiciles. Again, it is a question of being bold and arguing the language of fairness. It is fair and right that some of the richest people in our society who enjoy many of the fruits of our society should make a contribution. Incidentally, I am disappointed that our candidate for Mayor of London, Ken Livingstone, whom I very much support, does not strongly back the proposal. Indeed, he has criticised it.

The Wall Street Journal was more correct when it said in a headline at the weekend, “New U.K. tax rules don’t vex ‘non-doms’”. The paper gave a number of quotations from various prominent business people. One of them, a CEO of a hedge fund in “London’s plush Mayfair district”, said that he was still being inundated with foreign citizens who want to come and work in the City of London. The paper also cites several prep schools that are doing very well as a result of the presence of the sons and daughters of such foreigners. I believe that the so-called harm to the City of London that this measure would bring has been massively exaggerated.

I congratulate the Chancellor on the measures to ensure that non-domiciles make a fair contribution to our society, and I hope that he will look at other tax measures similar to those suggested in the TUC’s report on tax avoidance and tax evasion measures. We need to ensure that we can live in a fair society in which everyone, rich and poor, makes a contribution to the public services that the Government have improved over recent years.

16:55:00

Mr. Jeremy Browne (Taunton) (LD)
I am grateful to have this opportunity to speak on behalf of my party on the Budget on the final day of our deliberations on that subject. This was a Budget with a big hole in the middle—a Polo mint Budget. Its central feature, which will be experienced by all our constituents from next month, was the proposal to cut the basic rate of income tax by 2p in the pound and to double, rather than abolish, the 10p rate. That will have a profound effect on many of our constituents when it comes into effect next month. It is overwhelmingly the biggest change that people will experience.

The Prime Minister, in his characteristically uncollegiate way, took the central feature of this year’s Budget and announced it as the central feature of his final Budget as Chancellor of the Exchequer last year, thereby leaving his successor with a relatively small number of measures to pad out the 50 or so minutes that he managed to spend on his Budget speech last week.

The central feature—the doubling of the 10p rate and the reduction in the basic rate—is a hugely regressive measure that will impact adversely on more than 5 million households across the United Kingdom. They will be worse off as a result of the proposals, announced by the then Chancellor last year, that will come into effect next month. It is simply unbelievable that a Labour Government should choose to alter the income tax structure in a way that is most disadvantageous to people on low and middle incomes.

That feature was announced in last year’s Budget, however, so let us look at what was announced by the Chancellor of the Exchequer last Wednesday. I think that it was Barack Obama, in the presidential contest in the United States, who observed that the tragedy of politics at the moment is that just as the issues are getting bigger—he was referring to issues such as climate change and globalisation—the political discourse seems to be getting smaller. I was reminded of that observation as I listened to the Chancellor on Wednesday, because his proposals were so timid, so meek and so lacking in purpose.

I cast my mind back to the genuinely formidable Chancellors whom I can recall. Nigel Lawson, for example, was second only to Margaret Thatcher as the politician who shaped the 1980s. Many would argue that the present Prime Minister was not second in stature to, but parallel with, Tony Blair in shaping the politics of the past decade. These were politicians who, for good or for ill, had a big view of the kind of society that they wished to mould. They painted on a broad canvas. It was therefore somewhat demeaning to see the Chancellor of the Exchequer of one of the world’s largest economies rising to his full height to announce not only that he was minded to introduce a policy on plastic carrier bags, but that if the supermarkets did not implement it in two years’ time, at that point he would really, really do something.

We can look back at those considerable figures, but I also see one in the Chamber now. The right hon. and learned Member for Rushcliffe (Mr. Clarke) was the last Conservative Chancellor of the Exchequer—possibly the last ever, certainly the last for the time being. He was undoubtedly a big political figure, and he remains one today. I cannot believe that he would have wished his legacy to be a threatened plastic bag levy two years in the future. This Budget reminded me of a 1950s Budget. It was full of good housekeeping, reminiscent of the days when Chancellors of the Exchequer often dealt in millions rather than billions of pounds.

Let us go through some of the measures mentioned when the Chancellor spoke about his priorities for our country. We should remember that this Government are spending £1,700 million every day; that is the scale of public spending nowadays. When the Chancellor rose on his annual opportunity to speak for three quarters of an hour, he found time and space to accommodate the following announcements into his Budget: £10 million over five years for science; £26 million—slightly less than a pound per UK household by my calculations—for home insulation; and £12.5 million for women entrepreneurs, which we have discussed this afternoon. I have never before heard a Chancellor announcing in his main Budget statement items of expenditure to the nearest £500,000. Those are all laudable objectives, but the scale is so small and humiliating that it is indicative of a Chancellor and a Government who have lost the ability to shape the bigger picture.

Tony Baldry
But was it not the intention behind all those pages of Budget coverage with lots of little boxes for various initiatives to detract from the main story of the collapse of the Chancellor’s overall financial competence?

Mr. Browne
The implication of that intervention is that financial competence existed in the first place, so in that respect the hon. Gentleman displays his characteristic generosity. He is clearly more of a details man than I if he went through all those little boxes in the Budget supplements, which go on for page after page. I am not sure, however, that they win as many votes for the Government as people would like to think when they cook up these ideas in the Treasury.

What, then, of the alternatives put before us? I was intrigued and bewildered over the weekend to read the centrepiece of the new tax policy by the hon. Member for Runnymede and Weybridge (Mr. Hammond), the Conservative shadow Chief Secretary to the Treasury. As far as I understood it, it said that there was a possibility of the Conservative party cutting taxes by 2015. That, Mr. Deputy Speaker, is seven years away—[Interruption.] We fought and won the whole second world war more quickly than the hon. Gentleman believes he might be able to introduce some modest tax proposals. I think it was Harold Wilson who said—although perhaps not in these exact words—that seven days was a long time in politics. I do not know how long the Conservatives think seven years is, but it seems an awfully long time to be thinking up some ideas for tax cuts.

The hon. Member for Runnymede and Weybridge expanded on his policy by saying in a very touching way—I am pleased to see him in his place to hear this—that the Conservatives were going to create a pot of money to fund tax cuts. When his Back Benchers display their thirst for Thatcherite economics, my assumption has always been that they did not want to return to the household budgeting of the Roberts family between the wars, but desired something a little more robust. Instead, we have the worst savings scheme in history—a pot of money tied up for seven years with a 0 per cent. return in interest and requiring two Conservative election victories before people get their money back. That makes Northern Rock look like a model of realistic business practice!

Frank Dobson (Holborn and St. Pancras) (Lab)
The hon. Gentleman really ought to give proper credit to the Tory party and put its long-term thinking on taxation in perspective. The Conservatives were, after all, the party that introduced income tax as a temporary measure.

Mr. Browne
I am grateful for that intervention, which brings me neatly on to my next point.

I have been trying to work out what the Conservative critique of the Budget really is. As far as I can work out, the Conservatives have two policies: the first is that taxes and spending are much too high under Labour; and the second is that taxes and spending will be identical under the Conservative party. We are left in a very strange position: we know that the Conservatives oppose every tax rise that the Chancellor announced last Wednesday, so they must have secret mystery alternative tax rises to make up the difference. We have not yet heard what secret taxes they propose to put in place instead, but we look forward to hearing about them later in our debate.

Mr. Bernard Jenkin (North Essex) (Con)
Is it inconceivable that a future Conservative Government would follow policies, which have been followed in many other countries, to restrain public spending a bit and keep taxes lower, but bring in tax revenues that were actually higher? Tax rates would be lower, but revenues for the public services would be higher, reflecting higher economic growth as a consequence. Does the hon. Gentleman not recognise that the steep increases in public spending and taxation are beginning to suppress the rate of economic growth, so that tax revenues consistently come in below forecast, as they have over the past seven years?

Mr. Browne
There were so many “highers” and “lowers” in that contribution that I will call it the Bruce Forsyth doctrine. I shall recommend it to the hon. Gentleman’s Front-Bench colleagues.

So far, I have come up with four Conservative suggestions on tax. Let us consider them, as they might inform the Chancellor’s next Budget. The first was a supermarket car parking tax—a policy dreamt up by an adviser to the Conservative party whose chauffeur drives around the block while he is inside the supermarket not collecting any plastic bags. That proposal appears to have been dropped.

As far as I can work out, the second policy is that “normal people” should be allowed only one short-haul flight a year. I have not heard whether that was confirmed by the right hon. Member for Witney (Mr. Cameron) in connection with his recent holiday in South Africa, but no doubt those on the Conservative Front Bench will enlighten us on that subject.

The third policy of which I am aware—which ties in with the previous speech— is that the price of a pint of beer should be increased by 7p over and above the Budget proposals. It says something about the career of the right hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) that that is considered his finest achievement in politics—to have put forward a policy that is universally unpopular in my constituency. 

As for the final area, public spending, the Conservative health spokesman made the big announcement a couple of weeks ago that NHS expenditure would increase massively under the Conservative party. I was as intrigued by that proposal as many other right hon. and hon. Members must have been. I read the blog of the political editor of the Daily Mail, and under the headline “From Untouchable to Unmentionable”, he described how the proposal had gone down in the ranks of the Conservative party:

“I'm told that in the days following Mr Lansley's reckless assertion about health spending, Mr Osborne hit the roof and one Shad Cab heavyweight”—

that narrows the field, unless we include the hon. Member for Brentwood and Ongar (Mr. Pickles)—

“even put Mr Lansley against a wall and pummelled him verbally into admitting his crime”,

which was to envisage extra spending on the national health service. It is no wonder that The Daily Telegraph, the newspaper generally considered sympathetic to the Conservative party, ran the headline yesterday, “Tories mired in confusion over policy on tax cuts”. No doubt we will have some clarification later.

To assist the hon. Member for Rutland and Melton (Alan Duncan), let me make one modest proposal for how he might reduce public spending to fund some of his reckless plans. In recent months, the Conservative party has been shedding Members of Parliament at an alarming rate. As I understand it, the hon. Member for Croydon, Central (Mr. Pelling), the hon. Member for Old Bexley and Sidcup (Derek Conway) and, just last week, the hon. Member for Castle Point (Bob Spink) have all left the Conservative ranks, which were already smaller than those that Michael Foot managed to achieve during his electoral triumph in 1983. I venture that there must be some substantial savings to be made from reviewing the Short money claimed by the remainder of the Conservative party. That could go into funding some of the exciting new proposals on which I have touched.

The truth is that the Budget took place against an extremely worrying economic backdrop. An explosion of consumer debt has been secured on the rising value of house prices. The bubble, if it has not burst, is certainly deflating rapidly. As the hon. Member for Rutland and Melton pointed out, the Government’s growth forecasts have been revised downwards and public finances are struggling. In the next financial year, the Government will borrow £7 billion more than they envisaged only last year.

No one in my constituency or elsewhere recognises the rosy picture of the economy that the Government are painting. The measure of inflation, for example, is totally detached from reality. It is possible that the price of the iPod that the Prime Minister uses to listen to the Arctic Monkeys in the gym in the mornings has fallen in recent months, but pensioners in my constituency see rising fuel costs and soaring shopping bills, and their biggest outlay of all, the council tax bill—about which the Chancellor had nothing at all to say in his Budget statement—has virtually doubled since Labour came to power. Replacing the council tax could have been the great centrepiece of a Budget dedicated to a fairer and greener Britain, but there was no urgency and no big-picture analysis.

According to a United Nations report published at the weekend, glaciers are melting at an unprecedented rate. The signs are all around us, but the Chancellor fiddles while the world gets closer to burning. My party believes that we need a proper green tax switch with serious measures to combat pollution, but—and it is a crucial but—that every pound raised in environmental taxation should be returned, in the form of income tax cuts, to the people on low and middle incomes who are struggling the most in the current difficult economic circumstances. It is simply not good enough to give green taxes a bad name and a bad reputation by using them to introduce, through the back door, extra revenue-raising measures to plug black holes in the Treasury’s own finances.

Stewart Hosie (Dundee, East) (SNP)
Will the hon. Gentleman be supporting the £1.2 billion tax take resulting from changes in vehicle excise duty, which are clearly predicated on no behavioural change, given that the money is not to be returned to the hard-pressed taxpayer?

Mr. Browne
We have made our policies entirely clear. Let me be uncharacteristically boastful, and point out that the whole drive for differential vehicle excise duties was a Liberal Democrat policy. Like many of our good policies, it has found its way into the wider body politic and become more universally popular. We will continue to present popular policies for others to consider in the future.

We proposed that the council tax should be replaced by a fairer system. We could have had a Budget that painted a big picture of a fairer, greener, better Britain—a Budget that really went for the issue of climate change and global warming, took it seriously and understood the urgency of the system. The Budget could have replaced the council tax with a fairer system for our constituents, a system that reduced the basic rate of income tax further as a consequence of environmental taxation, but instead we are piling extra tax on the households that are feeling the squeeze most.

As for child poverty, on which the Government are asking to be judged, the biggest single announcement in the Budget statement told us that only a quarter of the money needed to meet the Government’s own target had been found. Unless there is a dramatic change in next year’s Budget, they will fail to meet that target.

I looked far and wide for a respected impartial figure who supported the Budget, and found only one. It is a sign of the smallness of politics, which I described earlier, that that commentator was the BBC’s new Budget commentator, Jade Goody. Never let it be said that public service broadcasting is failing to make a unique contribution to our national life, for the insights of Jade Goody can be found on the BBC website. We know of her antipathy to Indians, but on this occasion she was the only respected economic observer to endorse the cowboys in Government. She said:

“I’m fed up with boozy Britain, so I’d like the Chancellor to increase taxes on cheap booze and clamp down on most people selling cheap alcohol to underage children”.

That was her policy, which was as close as I could find to an endorsement of any of the proposals made by the Chancellor on Wednesday. It might have been a Budget for Goody, but it was not a good Budget. Where there should have been vision, there was a black hole. Where there should have been drive and direction, there was a soporific lack of ambition. It made one wonder why the Chancellor and the Prime Minister ever bothered to get elected to Parliament in the first place. It was a Budget from a Government who have run out of ideas, and will soon be run out of office.

17:15:00

Mr. Alan Milburn (Darlington) (Lab)
It is a great pleasure to follow the hon. Member for Taunton (Mr. Browne), who let himself down slightly at the end, but made what was a very good speech that indicated that the “Orange Book” tendency is alive and well and thriving inside the Liberal Democrats. I will leave it to his hon. Friends to judge whether that is a good or bad thing.

It is also a great pleasure to follow my right hon. Friend the Secretary of State for Business, Enterprise and Regulatory Reform, who today proved once again that he is what it says on the tin, so to speak—a champion for business and enterprise, not just inside the Government but in the wider world.

There are many things to welcome in the Budget, not least the extra help for pensioners and the further progress that the Government intend to make on tackling child poverty. Of course it is a truism that mid-term Budgets are never easy affairs. They have to contain difficult judgments without upsetting confidence either in markets or in politics. They have to show that the Government are sticking to a course without stealing the thunder of later, possibly pre-election, Budgets. They have to make the right long-term policy judgments and yet produce the necessary short-term corrections that the immediate circumstances demand.

On many of these grounds, my right hon. Friend the Chancellor got the balance about right and did so against the background of what all right hon. and hon. Members agree are perhaps the most difficult economic circumstances that we have faced in many years. That is a testimony to his calm approach and steady hand.

It is hard to be anything other than concerned about the current global economic situation and the turmoil in the global markets. As the recent turbulence demonstrates, it is all too easy for that concern to tip into panic. Fear in the markets will certainly not be helped if it is followed by pessimism in politics about the underlying state of the British economy. Of course the situation is serious, as we have seen during the last 24 hours, but I also believe that concern should not be allowed to crowd out confidence about what I believe at least to be the underlying resilience of the British economy.

It is true that worldwide inflation is rising and that growth is slowing. America may well already be in recession, a point acknowledged today by the US Treasury Secretary. For all of those who doubted that the credit crunch was going to be real some months ago, it is perfectly obvious that it is both real and biting. Yet most commentators believe, as reflected in the Red Book forecasts, that although growth will slow this year in Britain, it will rise again next year. I thought that my right hon. Friend was right to point to the fact that in every single quarter of every single year since 1997—despite the turbulence that there has been in global markets at different points during those 10 years—Britain is the only G7 country that has been able to avoid negative growth in any single quarter.

The macro-economic policy framework that was put in place in 1997 has stood the test of time and I believe that the continuation of that approach is the best safeguard against global economic uncertainty. I speak about confidence for another reason. Confidence about the underlying state of the British economy is important for another reason. Unless we are confident about it, the danger is that there will be a disproportionate response to what are currently serious problems. The danger is over-reaction, which is why I thought that my right hon. Friend the Chancellor was right to resist the siren voices of those who are calling for, as the best response to global uncertainty, the return of economic protectionism.

When I look across the Atlantic at the United States, I think it is a tragedy that the ugly sound of economic protectionism has returned in that country above all others, which has been built on confidence about its place in the world and openness in its markets. Incidentally, protectionism has returned across the political spectrum—in both the Republican party and, sadly, the Democratic party.

In Europe, protectionism is as much a commodity of the right as of the left. It is striking that whereas Chancellor Merkel in Germany and President Sarkozy in France push full-steam ahead on other aspects of reform, when they speak about economic reform the message becomes somewhat blunted. For them, defence of the national economic interest comes first. That is why European Commission President Barroso was right when he said in a recent Financial Times interview that the two things to resist in the current climate are the return of both protectionism and over-the-top regulation.

Nobody doubts that the US sub-prime mortgage crisis, the Northern Rock collapse, the Société Générale scandal in France and the global credit crunch necessitate a re-examination of how financial institutions operate. A highly integrated global economy brings many benefits, but it brings big risks as well, as the current turmoil in the financial markets demonstrates. That is why we will need to hammer out a global agreement on ensuring greater transparency in the future. My right hon. Friend the Prime Minister was therefore right when he called yesterday for a re-examination of how global institutions, including the International Monetary Fund, operate, to ensure that global stability is maintained. In a world of global financial movements, more global co-operation is what is required, not less. That is why it is also right to resist the tide of anti-Americanism and the wave of Euroscepticism, both of which are all too prevalent in sections of our society.

Let me proffer one word of advice to the Conservative party. If it is serious about becoming a moderate, mainstream, outward-looking party, which is what it professes to want to be, instead of always standing against Europe, now is the time to embrace Europe, because a key lesson to be drawn from the events of the past few months is that no country is now able to stand alone. Nor should we seek to do so because, notwithstanding the self-evident risks, open markets and free trade are the best way to deliver results. The economies that have done best in recent times are those that have been most open. To see that, we need only compare the performances of Thailand and Burma or, even more graphically, North Korea and South Korea; we need only look at the experiences of the countries of Asia or Latin America, which by opening their markets—if not yet always their politics—have produced the biggest reduction in poverty that the world has ever seen.

It is not only developing nations that are benefiting from a more open and globalised economy. Notwithstanding the noise about protectionism and the threat of competition from India and China, over recent years the EU managed to increase its proportion of world exports, and over the past 10 years Europe has created some 18 million new jobs.

I am particularly proud that over the past decade the British Government have championed that pro-globalisation approach. The message has been that wealth creators can be sure of a warm welcome here. That message, and the framework of policy that lies beneath it, has helped the City of London become a world leader in financial services.

Tony Baldry
Does the right hon. Gentleman think that the £500 million that will be raised through the non-dom tax will help to send out a signal that the City of London will still be a magnet for those coming from overseas to do business here?

Mr. Milburn
I should say two things to the hon. Gentleman. First, that is a good question to put not only to Labour Members but to his Conservative Front-Bench colleagues—let us remember that the Conservative party also made a non-dom proposal. Secondly, as we seek to maintain economic prosperity and stability in the future, it is important that our policy formulation on not only regulation but taxation sends the message to global investors and institutions that Britain is open for business, rather than closed. Opposition and Government alike have a responsibility to ensure that that is not put at risk.

If I were being candid, I would say that it is perfectly obvious that during the past few months the relationship between the Government and the business community has been sorely tested. I hope that the Budget draws a line under those tensions and that our future policy programme will build on the key lesson that we have surely learnt over the past 10 years—that the economy thrives best when the Government focus primarily on helping to create wealth rather than penalise it.

Stewart Hosie
I agree with a great deal of what is being said, particularly the critique of protectionism, but we have an £87 billion deficit in our trade in goods. I want to avoid protectionism, but we need to help manufacturing and, therefore, the whole economy. Is it right for the Government to have taken so much from business in last year’s Budget, the pre-Budget report and this Budget? Last year, the CBI was talking about £5 billion, and another couple of billion has been taken this year. Is that not the wrong thing to do at this time?

Mr. Milburn
Of course it is right that we help business. The hon. Gentleman was talking about manufacturing in particular, and I have no problem with that. The best way to help manufacturing is not artificially protecting it. We learnt a lot of lessons during the 1970s and 1980s, when Governments tended to develop a pretty poor record of picking winners, but people could be certain that losers developed a pretty consistent habit of picking Governments. We should bear that lesson in mind. Open markets and free trade are the best way of delivering results. Of course there are limits to the role of free markets and Governments have a responsibility to ensure that markets operate both efficiently and fairly, but equally, we must recognise that there is a limit to the role of Government and the centralised state.

The second area about which I wish briefly to speak is the Government’s role in tackling poverty and inequality. For me and, I suspect, for all Labour Members, it is a matter of great pride that a Labour Government have presided over the biggest falls in child and pensioner poverty that this country has ever seen, but we must also be candid about the fact that, despite rises in living standards and falls in poverty, a big inequality gap still scars our country. The ossification of British society— the slowing down of social mobility—that set in over many decades will clearly take more than one decade to unfreeze. Unfreezing it means recognising, as Amartya Sen, the Nobel prize winner for economics has rightly put it, that families and communities can suffer not only economic disadvantage but cultural, social, housing and educational disadvantage.

The Budget’s proposals to lift many more children out of poverty are welcome, but if we are not only to raise the glass ceiling but break through it, we must do more to empower individual citizens, especially the poorest, to exercise more choice and power in the way that better off people nowadays take for granted. Social mobility will not advance if we think that only wealth is unevenly distributed in our society. Power is also unevenly distributed. Equity demands empowerment. Never mind its succeeding economically, if Britain is to get moving again socially, people need more than just support from the tax and benefits system and they need more than just help getting a job, a house, training or child care. They need to enjoy far greater control and to have a bigger say in how they lead their lives. That is why I welcome what the Prime Minister calls

“a new politics that places power…in the hands of people themselves.”

Although many of the Budget’s measures are welcome, it could have done a lot more to make the notion of a state that empowers, not controls, the defining idea of the next phase of my party in government. For example, it could have allowed individual citizens, especially the poorest, to take control of their own budgets, not just in training, as the Red Book suggests, but in health, in old age and particularly in education. In those aspects of the public service where it is less easy for the individual to exercise direct control—most of us are hardly in a position to choose our own police officers, for example—the Budget could have set out how power could be relocated to local communities.

I would have liked to have seen the Budget be far more ambitious in seeking to make Britain more of an asset-owning democracy. We know that asset owning works. Those with assets tend to spend less time unemployed, and they enjoy better health and greater independence in their lives. Indeed, evidence from the US suggests that home owners are far more likely to engage in local politics and local neighbourhood organisations. As Larry Summers once famously said, “No one ever washed a rental car.” Why? Because ownership encourages people to act responsibly and independently.

Spreading asset ownership is crucial to tackling inequality and speeding mobility. That is because the most substantial inequities in today’s society are no longer between income groups but between those people who own shares or have a pension or own a home, and the people who rely purely on wages and benefits. That is why I welcome the Government’s efforts to increase housing supply in general, and the Budget’s proposals to make homes more affordable through new equity loan schemes in particular.

Of course Britain needs more social housing, of that there is no doubt. But given a choice, most people would prefer to buy rather than to rent. The US sub-prime mortgage problem should not be allowed to derail the ambitious Government plans to extend home ownership to far more people. More than 1.5 million social tenants aspire to own their own home, and it is progress that 95,000 households have been helped into home ownership through shared equity schemes, but far more needs to be done. With fewer people able to afford to buy outright, and more young people dependent on their parents for financial help to get on the housing ladder, further reforms are clearly needed.

Mr. David Winnick (Walsall, North) (Lab)
Given a choice, most people want to buy their own home. We do—I doubt whether there is a single Member of Parliament who does not own their own home. But does my right hon. Friend accept that many people, certainly in my constituency, would struggle to get a mortgage—even in better circumstances—and therefore need to rent? Does he agree that we therefore need a substantial number of new social rented properties to be built?

Mr. Milburn
Of course we need more social housing, and the Chief Secretary, when she was Minister for Housing, will have argued strongly with the Treasury for more money for housing. Now she is in a position to put her wallet where her heart is, and I am sure that she will tell us later that she is going to do that.

Frank Dobson
Handbagged.

Mr. Milburn
As my right hon. Friend suggests, I will be at risk of being handbagged if I continue.

Many people want to fulfil their aspirations to own their home. The idea that they have to be able to pay 100 per cent. of the cost is unrealistic for many people, which is why we must have flexibility in how these shared ownership schemes work.

To put the issue in perspective, the Government spent £38,000 million on income-related social security benefits last year. Spending on tax credits amounted to an additional £17,000 million. Of course, that total of £55,000 million of expenditure makes a real difference to families struggling to make ends meet. But that sum dwarfs the £400 million that the Government spend on helping people to buy their own home. I believe that it is time to shift the balance. It is not dependence that we should seek to foster, but independence. The welfare system would enjoy far greater popular support if people thought that that was what it was doing.

Social mobility cannot be bought through social security payments and an old-fashioned safety net welfare state system. It can happen only if people are helped on to the ladder of opportunity and independence. To secure a Britain that is genuinely socially mobile, we have to do more than tackle poverty. We have to unleash aspiration. That requires not less of a state—as Opposition right hon. and hon. Members believe all too often—but a state that is prepared to empower and not to control. If we do that and open our country to aspiration and effort by fundamentally changing the distribution of power in our society, I believe that the progress that we have been able to make in the past 10 years will be complemented by even more progress in the next 10.

17:35:00

Mr. Kenneth Clarke (Rushcliffe) (Con)
I refer hon. Members to my entry in the Register of Members’ Interests in case they are not familiar with my business interests or wrongly believe that they will influence what I say.

It is a pleasure to take part in the Budget debate and to follow the right hon. Member for Darlington (Mr. Milburn), who has just given us a remarkable and interesting speech. He does not need to persuade me of the virtues of the free market and an open economy and of the evils of protectionism. I agree entirely about the importance of a sense of ownership to the stability of a society and I quite agree that we will not restore the social mobility that we require in this country simply by building up welfare payments and welfare safety nets.

The right hon. Gentleman did not need to address me; he was addressing a small selection of his Back Benchers. I hope that he will allow me to indulge myself, as a long-serving Member, by saying that I enjoyed the expressions on the faces of the right hon. Members for Holborn and St. Pancras (Frank Dobson) and for Oldham, West and Royton (Mr. Meacher), whom I remember as distinguished spokesmen of their party over many years. They would have regarded most of the sentiments in his speech as anathema; I suspect that, to a certain extent, they still do so. He might address more of those remarks to his colleagues.

To be fair, like his right hon. Friends, the right hon. Gentleman has chosen the luxury of the Back Benches and the freedom to discuss such subjects. He has recently been given to producing very interesting articles in the newspapers about the next election being up for grabs. He said that he believes that his party will not win that election unless it demonstrates some vision of what society wants. He then started to use words about supporting aspiration, which were entirely taken from the Conservative lexicon and were never those of the Labour party.

With the greatest of respect, the right hon. Gentleman has chosen the wrong debate. I assume that he wished to support a Budget that showed some vision of a society where people can be empowered to improve themselves, and that he wanted to hear, with a new Prime Minister, statements made by a new Chancellor that showed a grasp of the great issues facing this country. He cannot conceivably claim that we are discussing a Budget that does any such thing.

We all realise, as my hon. Friend the Member for Rutland and Melton (Alan Duncan) and the hon. Member for Taunton (Mr. Browne) said and as others will reflect, that this was a mini-Budget. It was absolutely devoid of vision and almost empty of any particular measures of any great consequence or significance. The Chancellor appeared to be the victim of events and not in control of any of them. I find that alarming.

Let me be fair to the Chancellor, as I belong to the trade union of Chancellors of the Exchequer. He did some good things; I am glad that he got out the old Gladstonian red box. His predecessor so hated any hint of tradition that I feared it had been lost. The Chancellor—unlike the Secretary of State for Business and whatever—takes scrupulous care when describing the evils of the past to talk about the problems of the early 1990s and has not slipped into that irritating habit of describing past problems as though the Government were in any way an inheritor of what they talk about when they go back to the 1980s and early 1990s.

I shall not even criticise the Chancellor for being boring, although he obviously was; I shall credit him for trying to minimise interest in the Budget that he was announcing, and to reduce the prominence of his own role in what is going on. Unfortunately, he does have a prominent role, and so far he has not responded to events.

In his Budget statement, the Chancellor repeated the word “stability” over and over again, with an almost soporific rhythm. The same word was repeated a fair number of times today by the Secretary of State, the name of whose Department I honestly cannot remember yet. It used to be called the Department of Trade and Industry, and no doubt it will be called that again one day.

Less than a week has passed since the Chancellor’s speech about stability, but the economic environment in which business is trying to earn its living does not look very stable. Seismic events have taken place in the markets, and the future uncertainty is very difficult to read. The credit squeeze is becoming serious on both sides of the Atlantic, and it is clear that we are in the middle of a quite unprecedented financial crisis. Everyone agrees that there will be a marked slow-down in economic growth, but no one knows the extent to which the financial crisis will have a knock-on effect on the real economy. There will be a slow-down, but how many jobs will be lost and how many businesses will fail? Will the financial crisis even lead to the recession—that dreaded word—which, although not with us yet, is certainly on the horizon?

At times like these, the business community needs to have a reasonable level of confidence in the ability of the Administration, the Chancellor of the Exchequer, the Treasury and the Governor of the Bank of England to handle events. The Chancellor sounded remarkably complacent as he made his Budget statement. The one message that he wished to give was that the British economy was

“better placed than other economies to withstand”—[Official Report, 12 March 2008; Vol. 473, c. 285.]—

the global slow-down. He stated that with an air of complacent confidence, but the biggest question marks of all hang over the inheritance left by the Prime Minister to his successor as Chancellor, and over the Chancellor’s ability to produce measures to deal with the problems that have arisen.

The events of the past day or two throw into stark contrast the reactions to events, and the decisions that have been taken, on either side of the Atlantic. There has been another bank failure, although I accept that the analogies between Bear Stearns and Northern Rock cannot be stretched too far. However, when the crisis finally came, the decision taken on the other side of the Atlantic was dramatic and rapid. Within a matter of hours—and certainly within a very few days—steps were taken for the US Government to intervene and reassure the many organisations that are creditors or counterparties to Bear Stearns. A private sector partner was found after only a couple of days and, with the business transferred into new private sector ownership, the risk to the American economy and taxpayer was minimised.

On this side of the Atlantic, we had the much smaller problem of Northern Rock. In contrast with what happened in the US, decisions were taken here that were followed by several months of indecision. Ultimately, a bank that the Chancellor had said that the Government did not wish to nationalise was taken into complete public ownership. That was followed by the preposterous statement that it would be business as usual while a strategy about where to go from here was devised.

I shall comment about Northern Rock only to the extent that it is relevant to the economic problems that we face, but it appears that the strategy for the bank’s future will cost jobs in the north-east as the mortgage book is reduced. However, it was still possible to read in the newspapers—certainly at the weekend—that Government-owned and backed Northern Rock was offering the leading savings rates in the market to any depositor who wanted to buy the equivalent of gilts with no risk to capital value, and receiving a rather greater return, so we have some way to go.

In the Budget, the Chancellor produced nothing to add to any air of authority. He gave no indication that he thought that serious global problems might be about to have a serious impact on the UK, and he did nothing to regain the confidence of the business community that he was either the person to do anything about it or in a position to do so. It is not as though there were no warnings. The Chancellor has had an awful lot of bad luck since he took over—for which he has considerable sympathy from me. One bit of bad luck was taking over from the predecessor who is now his boss and who, certainly at the time of the pre-Budget report, gave every indication of not allowing the Chancellor to produce any scintilla of a measure of his own to deal with matters. Subsequently, the Chancellor hit a lot of serious economic problems, but they were not unforeseen.

As my hon. Friend the Member for Rutland and Melton said, the economic cycle was bound to come to an end and preparations for that should have been made long ago. The nature of the end of the cycle became clear a long time ago. To make sure that I would not be giving too many hostages to fortune, I looked back to what I said in the debate on the Prime Minister’s last Budget. I found that I had been talking about the risks to the American economy because of what was already happening in the American housing market.

By the summer it was clear that the American housing market was in a state of collapse and the beginnings of the credit squeeze were coming. Throughout the autumn, it was obvious that the impact of the credit squeeze on the British economy was becoming pronounced and that slow-down was imminent, so it cannot be said that the Chancellor had no time to prepare a strategy and that there was no opportunity to give us a greater description of how he would help to ensure that the British economy would not be too badly affected by the inevitable consequences of what is now happening.

The content of the Budget was trite. The Chancellor followed the party line set out by his predecessor for the previous 10 years. Almost all the phrases, apart from the missing word “prudence”, were taken from the standard lexicon of the previous Chancellor since he took office in 1997. I have been trying to work out how they arrived at that modest package of measures. It seems to me that above all else, the authors—who probably included the Chancellor, but more importantly, included the Prime Minister—were dominated by the absolute determination to try to show that they would still comply with the previous Chancellor’s fiscal rules. My advice to the present Chancellor is to stop doing that.

Nobody left on God’s earth still believes in the previous Chancellor’s fiscal rules, apart from him and such loyal acolytes as he still has in the Treasury helping to produce such things. The rules are completely incredible. The movement of the date of the cycles has been utterly ridiculous. Not only has the calculation of the national debt always excluded Railtrack and significant parts of the private finance initiative, which were due to come on to the books this year but for an accounting change that has been mysteriously delayed for 12 months because it cannot yet be accomplished, but it now calmly leaves out Northern Rock. Of course, the Government always intended to leave out Northern Rock. About three weeks ago, I received an answer to a parliamentary question saying that Northern Rock was contingent debt so it would not have to be counted. Given the danger that the Government may have made the statisticians slightly more independent than they were a year or two ago, there has been a change, but the Government are still coolly ignoring the debt as though it will be only temporary. We all hope that it will be, but we do not yet know how much will be called in.

David T.C. Davies (Monmouth) (Con)
I am grateful to my right hon. and learned Friend for giving an excellent and informative speech. Can he tell us whether the public sector pension deficits are included on the balance sheet?

Mr. Clarke
To be fair, they never have been, but my hon. Friend raises an extremely valuable point: if anybody is looking to the future of the national finances, as they should do, they will see that the extent of the unfunded, public sector pension obligations that will start to hit the next generation is extremely alarming. The Government’s failure to get on with any serious reform of public sector pensions will be paid for by future Governments of every colour—and by future taxpayers, but that is another matter. Things that should be in the rules have been left out, and keeping to the fiscal rules is a bit of an illusion.

It was obviously decided that this is no year to raise a lot of taxation, and I agree with that decision. Every Budget for some time now has raised taxation, as carefully and as stealthily as possible. If the rules were to be complied with properly, it would be necessary to raise billions of pounds in taxation—the Institute for Fiscal Studies suggested £8 billion—but it would have been most unwise to do so, given the extent of the economic slow-down that we will face. However, small or smallish amounts of taxation—a couple of billion of pounds-worth or so—have been raised to bring us just within the fiscal rules, taking us to just below 40 per cent. of gross domestic product, if the other forecasts are right. Again, that is a quite ridiculous guide to policy, and I do not think that it will work.

The Treasury’s borrowing forecasts have been totally and utterly unreliable for years now. I see no reason for believing that the forecasts in this year’s Red Book are any more likely to be achieved than those in the Red Books for several years past, or even than those in the Chancellor’s first attempt at a pre-Budget report last year. We will have a sharp economic slow-down. The figures in the Red Book for the likely take from corporation tax and value added tax are almost incredible. The practice of producing, for our delectation, a set of tables showing yet again an unfortunate and unforeseen rise in public borrowing next year, followed by a happy recovery two or three years later, has lost all credibility. If that was the core of Budget policy making, as it seems to have been, it was not rising to the urgency of events; it was not even a very sensible way of tackling the problem of the public finances, which should always be the first duty of a Chancellor presenting a Budget.

So where have we turned to for taxation this year? As the hon. Member for Taunton said, we have largely turned to the tax revenue-raising measures that the previous Chancellor put in last year’s Budget and postponed for a year. Aside from that, a very old-fashioned approach has been taken. Labour Chancellors used to be more reluctant to go for fags and booze, but they did so this year. They have also turned to large cars. The mood has changed. The British have always had a puritan spirit, and that spirit is alive and well in the British media and among the British public. Although the British indulge in sin on a considerable scale, they always feel that they should pay tax on it, which is why we have always raised a disproportionate amount of our revenues from excise duties of one kind or another; that has been a popular feature of the British fiscal system for 200 years.

One problem was clearly described by the hon. Member for Selby (Mr. Grogan): parts of the industries affected—the beer and pub industry—are not in a great state to raise much more revenue. However, to be fair to the Chancellor of the Exchequer, he did not pretend that the rises were to do with binge drinking and pleasing the Daily Mail, as I thought he would. I heard him give an interview, and he did say that the measures were intended to raise money. The problem with taxes on beer and alcohol is that they are somewhat regressive. They fall disproportionately on the households of the less well-off, when the proportion of total income is taken into account. That, coupled with last year’s changes doing away with the lower rate of income tax, undoubtedly make it a slightly regressive Budget for the second year running. The taxes on large cars are not sufficient to change the behaviour of people who can afford to buy them, so it is really a rather unoriginal way of raising tax.

Of course, income is also raised through capital gains tax and the tax on non-doms. I do not have strong feelings about either of those. Capital gains tax should be made more simple. I am worried about having a capital gains tax rate that is below the marginal rate on income tax; I think that we will see many of our accountant friends back in the business of turning people’s income into capital gains. That was the backbone of many people’s practices 20 or 25 years ago.

I do not think that many non-doms will flee these shores, but I simply say that it is extremely unwise to consult on taxes. I do not understand why we have a pre-Budget report. We should have Budget purdah. I say: announce it on the day, and if the details are wrong, sort them out and correct them in the Finance Bill. I accidentally found myself in consultation on ending European duty-free travellers’ allowances. I had to listen to accounts of the number of airports that would close, and the tens of thousands of airport workers’ jobs that would be lost if I did not seek a derogation from the decision. I do not think that everybody will flee the City of London and go to live in boring islands overseas.

The capital gains tax change was unwisely made. It was wrong not only to break Budget purdah but to announce the measure in a pre-Budget speech that was really nothing more than a political extension of the exchanges in party conferences. It was wrong to announce, almost overnight, decisions on which no proper work had been done, and to do the work of getting the detail right—for retiring entrepreneurs and so on—in public, faced with a tremendous clamour.

To conclude, what the Budget lacked was any notion of how the Government would face impending economic problems if the situation worsened. The Chancellor looks like a rabbit transfixed by the headlights. He is a boy standing on the burning deck and whistling inconsequentially the old tunes of his predecessor. There are many similarities between the British and American economies: we have had a housing boom; financial services are a large part of our market; and there is a credit squeeze here. This is no time to raise the tax on small businesses. We will have inflation and public debt as problems next year for sure; I hope that we have no worse.

17:57:00

Mr. Tom Clarke (Coatbridge, Chryston and Bellshill) (Lab)
It seems to be a feature of our post-Budget debates that it is my lot to be called after my namesake, the right hon. and learned Member for Rushcliffe (Mr. Clarke), and I welcome the opportunity to speak after him today. We have our name in common, and perhaps one or two other things, too. I shall, if I may, confide in the House—if the right hon. and learned Gentleman objects I shall stop straight away—that occasionally we receive each other’s mail. Not long ago I read a postcard that said, “Mr. Clarke, I will never vote for you again. You are a disgrace to the Tory party. You have betrayed us on the Common Market and on so many other issues.” I took that as a compliment, not just to me but to the right hon. and learned Gentleman. 

Perhaps I am being too kind to the right hon. and learned Gentleman today, but if I may say so, his post-Budget speeches are improving. I have been in the House long enough to remember his speeches as Chancellor, when he stood at the Dispatch Box, doing an impression of a poor man’s Brian Rix, pulling up his trousers and checking his braces to make sure that they were still in place. More than that, I remember some of the policies with which he identified himself and those that he supported. I pay tribute to him as a former Chancellor for the improvement in his speeches. He did not go so far today as he has on previous occasions, predicting the “we’re all doomed” scenario that we have heard so often. He has not quite reached, if I may say so seriously, the standing of Nigel Lawson who, to his credit, when pressed by others, particularly on “Newsnight”, to help talk us into a recession and even worse, has resisted that temptation. The threat of recession is one of the issues that we must address in the Budget.

In last week’s response to the Budget from the Leader of the Opposition we barely heard reference to the problems that we see occurring across the pond. Are we to believe that since the days when the right hon. and learned Member for Rushcliffe was Chancellor, right up to this week, no Chancellor of the Exchequer has had to take on board the challenge of globalisation and, particularly in the past week, the backdrop of turbulence, credit crunch and so on, and pretend that those factors do not exist?

I spent a great deal of time with my constituents at the weekend, and they are fully aware that times are difficult in the international context. They saw the Budget as well balanced and one that addressed the problems that we face in the United Kingdom, against the international backdrop that I mentioned. Yes, the Budget speech mentioned stability. Oddly enough, stability is important to people in my constituency, where employment matters, where we recall unemployment at 3 million, where we recall negative equity, and where we remember very high interest rates, not only on Black Wednesday but for many years around that time.

I asked people whether they preferred the economic policies being pursued by the Government—the low unemployment, the low interest rates, the low inflation and the rest—and despite criticisms that they might have, which I hope to reflect in my speech, about some elements of the Budget, I know the choice that my constituents will continue to make.

The Budget rightly focused on hard-working families and children living below the poverty line. The priorities were correct. I have some reservations, as I said, but I am a realist and I acknowledge the grim realities of the global economic slowdown signalled by the sub-prime mortgage crisis on the other side of the Atlantic. I hope, like my colleagues, to be constructive in the debate.

Rather late on Friday evening I was invited by BBC Scotland to take part in an early morning programme. Given the lateness of the hour, it was not possible, but I listened carefully when the programme was broadcast. Apparently, somewhere in the long documents that are produced as part of the Budget presentation, there was a reference to the fact that people with learning disabilities are obliged to fill in great long forms in order to find jobs. As co-chair of the all-party group on learning disabilities, I know that 65 per cent. of people with learning disabilities have made it clear that they want to work. If there are impediments to those people finding and keeping jobs, I am sure the Government, and especially the Department for Work and Pensions, will employ the sensitivity that that situation invites. Advocacy, which I have long supported in the House, especially when I was fortunate enough to get an Act of Parliament on the statute books, might apply in that situation and in others, as the Government rightly pursue their policy of making employment opportunities available to the great majority of our people, including those who experience disability.

There were many good points in the Budget. First, the high-profile restatement of the ambitious targets concerning child poverty will help galvanise the cause. The increase in child tax credit and the substantial increase in first-child benefit will help us towards the target and will help many of my constituents. Secondly, the plan to take more pensioners out of income tax, alongside the rise in pensioners’ minimum income to £124, is welcomed by many. I am delighted to deliver that and other good news to my constituents in Coatbridge, Chryston and Bellshill. I would welcome Opposition Members joining me in that task.

Mr. Prisk
The right hon. Gentleman has a strong record of helping the more vulnerable in society. Does he therefore share my concern that the net effect of the tax changes that the Government are planning is that those just over the £5,000 personal allowance see a marginal tax rate of 60 to 70 per cent.? Surely his Government should do better than that.

Mr. Clarke
The hon. Gentleman makes his point well. I hope that if he serves on the Committee considering the Finance Bill, or if he gets the opportunity to express that view on the Floor of the House, he will do so. I hope we can discuss his comments rationally.

In an excellent speech, my hon. Friend the Member for Selby (Mr. Grogan) made an important point about the Budget’s influence on an issue that is raised again and again in my constituency—antisocial behaviour. Some people might think that that is an odd thing to relate to a Budget speech, but my constituents identify the availability of cheap alcohol as a direct cause of many of the problems that they face day in, day out.

On Saturday, during the annual St. Patrick’s day celebration that we have in my town, Coatbridge—a great cultural event—I met many people and discussed antisocial behaviour, which is not all that amusing in my constituency. I was accompanied by Superintendent Henry Campbell, who does an excellent job, and a man called Jackie Charlton, who is probably well known in all parts of the House and who graced us with his presence. We met many people who raised the issue of antisocial behaviour and alcohol misuse.

Alcohol misuse is estimated to cost £7.3 billion in crime and antisocial behaviour. We know that about 17 million working days are lost each year through alcohol-related absence from work. I welcome the fact that the Chancellor recognised that and, as I said, I found constituents who thought the same way. I am beginning to think that Budgets are a little like football matches. We see a match, then read a report of it in the newspaper, and it is not quite what we thought we had experienced.

From an industrial constituency like mine that is suffering the effects of antisocial behaviour, I warmly welcome what the Chancellor has done, together with the measures taken by the Scottish Executive, in fairness both to the present Executive and the previous one, as well as the alcohol harm reduction strategy for England. Those measures are having some success and progress is being made.

I am sorry that the hon. Member for Argyll and Bute (Mr. Reid) is not in his place at the moment. I welcome the increases—which, frankly, I thought rather modest—in duty on alcohol, including spirits. The scotch whisky industry has not done too badly of late. Spirits make up many of the ingredients of the flavoured drinks that appeal to young people and cause mayhem. If we are to address the problem of spirits, we cannot ignore the fact that whisky is one of them. Not only were the rises right, but the revenues are being fed back into fighting poverty. We Labour Members welcome that aspect of the Budget; we recognise that the issue remains a challenge.

As for my personal reservations about the Budget, I cannot recall any Budget about which I did not have some. Again, my hon. Friend the Member for Selby raised points that I want to make. I welcome the increase in fuel allowance. It is right that people—especially the elderly—should have the benefit of that increase, given that energy prices are so high. However, I do not want our welfare policies to subsidise the big profits of energy companies, and that prospect remains a big worry for me.

I welcome what the Chancellor did on prepayment meters and social tariffs—the increase from £50 million to £150 million. However, although some companies said that they were practising a social tariffs policy, people thinking that they really meant it were cheated. We need to consider such matters much more carefully. In other words, I want to say to the Chancellor and our colleagues on the Front Bench that given the problems of energy companies and the policies that they are pursuing, and given the role of Ofgem, we have to have a much more robust approach. In January, we will again have price rises, followed by massive profits in April. There will be another bonanza for shareholders and executives, but another winter of discontent for the less fortunate.

Spring is now on the way; heaters will soon be turned down and sweaters will start to come off. However, before long we will face the same problem again. Incidentally, I would have encouraged the Chancellor to extend the provisions on the fuel allowance to families with disabled children and perhaps, in time, to other families with people who endure acute disabilities. Before we know it, it will be winter 2009, when winter fuel payments will be rolled back to the pre-Budge rate. I recognise that the commitment this year is a one-off, but I hope that each year the fuel allowance will be reviewed and a realistic payment will be delivered to those who very much deserve it.

I want a strategy for true social tariffs to come from the energy companies, Ofgem and the Government Departments that are responsible for energy issues and assessing the costs for people, especially the elderly, as they try to decide between heating and eating. The role of energy regulators needs to be reviewed. My hon. Friend the Member for Selby made a compelling case in saying that such matters should go before the Competition Commission; I certainly support that view. It is time that we made switching suppliers meaningful and not just a slogan. Let the companies that do not participate in a real sense be named and shamed and let the needs of our people, who have done so much—particularly in constituencies such as mine—to help us build our economy towards the stability that we now enjoy, be recognised.

The right hon. and learned Member for Rushcliffe seemed to mock the word “stability”, but I find it very welcome. On Sunday morning, I saw the Leader of the Opposition being interviewed in the north-east on the Andrew Marr programme; he did not feel that the use of that word was unacceptable. What I want is meaningful stability, not just slogans. We hear grim talk about the old fabled man in the street, and platitudes about Government competence being not about how they perform when things are going well, but how well prepared they are to cope when things get tough. That opinion was bandied about almost immediately after the Chancellor sat down.

I believe that we have built up our economy and seized the opportunities in Europe and the rest of the world. Some have mentioned India and China. There has, of course, been considerable growth in both those countries, but we still must maintain the approach that I am happy to say I have witnessed from the Dispatch Box: one that means that we do not have extreme wealth on the one hand and huge poverty on the other. The proposals in the Budget to continue with an excellent record on international development and overseas aid fit comfortably with the challenge of tackling poverty—a challenge taken up by those on the Labour Benches and one of the reasons why I joined the Labour party at a youthful age and continue to support it with great pride.

I conclude on this note. Employment, inflation, interest rates, public investment, making sure that we do our utmost for equality of opportunity in education, the health service and even culture and the creative industries—such things remain a priority today. It is right that at this stage of the millennium our Government should address themselves to such issues. In presenting his Budget, the Chancellor had every reason to feel proud. Although my constituents accept that we have much more progress to make, and will remind me that that is what they want, they recognise fairness when they see it—and this Budget was, above all, a fair one.

18:18:00

Mr. Edward Leigh (Gainsborough) (Con)
It is always a pleasure to follow the right hon. Member for Coatbridge, Chryston and Bellshill (Mr. Clarke), who always addresses the House in a measured way on behalf of the least advantaged in society. What he says is, of course, true: credit squeezes are not new. It is also true that lady luck has not smiled on this Chancellor since the previous incumbent moved next door. We all know that.

The Chancellor has now presented himself as the steadfast helmsman steering us through the global economic storm, but I contend that in some key respects the Government’s own navigation has contributed to the gathering gloom. To continue the nautical analogy, the squalls were apparent long before they hit us, as my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) said, and perhaps the Government were tardy in reefing their mainsail in time.

The Chancellor said that his Budget is responsible and that it matches increased spending with vital reforms. We all share that concern for reform and I welcome the examples of change that I have seen in my role as Chairman of the Public Accounts Committee. I always try to give credit where it is due. However, I have also witnessed too many examples of waste and inefficiency to share the Chancellor’s supreme confidence in the certainty of savings that he promised us. I want to make that the gravamen of my contribution, which, I hope, will not be too long.

Spending on health has doubled and there are many more doctors and nurses, as we were reminded, but hon. Members will perhaps not be surprised to learn that the statistics in the Budget speech do not reveal the full picture. There was no acknowledgement that productivity in the health service has fallen in recent years. Hon. Members might not trust me implicitly on statistics, but, on this occasion, they can also rely on the Office for National Statistics. Its latest completed figures show an average 2 per cent. decrease in NHS productivity between 2001 and 2005, which is worrying.

Let me be clear: those who work in the NHS deserve to be paid a decent wage. We know that our lives and those of our constituents depend on them. They are not to blame for the inconsistency in outcomes. After all, the worst work on their behalf is often done with the best of intentions. For example, our Committee will shortly take evidence on the recent National Audit Office report on the new GP contract. There is the small matter that it cost £1.76 billion more than the Government expected, and that a 2.5 per cent. decrease in primary care productivity accompanied the first two years of the contract. Of course, the Government had predicated the entire reform on a productivity rise. The contract for NHS consultants was a similar story, and the predicted productivity rises have yet to happen. The cost of out-of-hours care was, again, higher than forecast, and delivery struggled to fulfil expectations. That is constantly repeated in public service delivery.

Tony Baldry
Is not the lack of accountability a genuine concern? By the time problems come to light, as with the chaos about the Bicester asylum centre, Ministers and permanent secretaries have moved on, so that when people appear before the Public Accounts Committee they can claim, “Not me, guv, it was the previous lot”, and no one is accountable for the wastage.

Mr. Leigh
I agree and I want to suggest a modest reform in our procedures that might tackle the problem that my hon. Friend identifies. We have the best system in the world of post facto audit but one of the least effective Budget scrutiny systems. I shall deal with that in a little more detail before I sit down.

I do not take issue with the rosy portrait of reform that the Budget statement presented for the sake of blind opposition. There is no point in that. We all believe in reform and I welcome, for example, the proposal that long-term recipients of incapacity benefit should attend assessments of their fitness to work. That is good, but hon. Members listening to the Chancellor would be forgiven for thinking that his £30 billion of savings a year are already in the bank. They are not. We have prepared numerous reports on the existing efficiency programme. The record on reform to date shows that savings are easy to predict but harder to achieve in practice. My hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond), the shadow Chief Secretary, knows that well as he prepares for government.

There are many wise men and women in the House today, but another, John Locke, wrote that

“an unerring mark of the love of truth is not entertaining any proposition with greater assurance than the proofs it is built upon will warrant”.

To put it another way, experience tells us that the Budget is counting on chickens with a poor record of hatching. As a giver of candid advice, I therefore say to those on the Treasury Bench, as many of us have many times, that public faith in public services will not withstand public failures to deliver genuine reform, which is what we need and want.

The price of failure to deliver productivity gains and efficiency savings will be paid in higher taxes and higher borrowing. That price is paid by us all, but, as I said in last year’s debate, the burden is felt most by those who can least afford to bear it—the poorest and most vulnerable members of society.

As hon. Members know, I believe that there is a strong moral case for lower taxation, especially for those least able to pay. Some hon. Members agree and others have yet to see the light. However, I believe that few hon. Members would dissent from the equally strong moral case for removing inefficiency and waste from public services. That is the case that we fought to further in our Committee.

To give them credit, those on the Treasury Bench accept more than 90 per cent. of our recommendations, and hundreds of millions of pounds are consequently saved. That is an example of what parliamentarians can achieve when we work together, especially when we are supported by the National Audit Office. However, our scrutiny of public spending happens only after the event, to revert to the point that my hon. Friend the Member for Banbury (Tony Baldry) made. We can encourage those who come next to imitate the good and avoid the bad, but we cannot head the problem off at the pass. That is true of many issues.

Today, the non-doms issue was mentioned. Evidence on that is mixed. I have heard anecdotal evidence to suggest that many middle-income earners are leaving the country. I welcome the concessions in the Budget statement, but, in a sense, I disagree with my right hon. and learned Friend the Member for Rushcliffe, who speaks with all the authority of a former Chancellor, because I believe that pre-Budget scrutiny would help resolve such issues.

We have debated the taxation of family cars. The public are only just waking up to the fact that their small family cars, not the large gas guzzlers, will be taxed. There was insufficient debate about the cost of the Iraq war and the Afghanistan operation. There is nothing more boring than listening to people saying, “I told you so”, and my right hon. and learned Friend and I voted against the war. However, it has cost the Government £5 billion and it has cost the US Government $3 trillion. Another £2 billion is set aside for what will happen in Afghanistan and Iraq. All such issues need to be debated more often and in more detail in the House as the Budget goes through.

Let us consider what happens in Congress in the US. I believe that opportunities to unleash the collective wisdom of the House are far too limited compared with what happens in Congress, where the President proposes, but Congress disposes. There are literally hundreds of hours of line-by-line debate on the Budget. What emerges from Congress is different from the President’s proposals. Our powers in the House are far too limited. It is true that we have the Budget debate and three days of debate on the Supply estimates. However, the Budget confirms spending plans that are set out in the comprehensive spending review, of which there is almost no systematic scrutiny. The estimates are debated only after the beginning of the year in which the spending takes place. There is therefore little opportunity to influence the Government, even if they are listening.

Hon. Members who serve on departmental Select Committees will also recognise the difficulties because they have so much more to do on policy issues. They have difficulty in consistently devoting sufficient time to spending proposals—indeed, they hardly consider them. Parliament was created hundreds of years ago primarily as a financial watchdog on the Government. It sat mainly during the whole Budget process. That power has atrophied and there is a huge scrutiny gap.

Let me suggest a modest solution. I believe that the House should establish a Select Committee on the Budget, with the normal powers of Select Committees—I ask for no more—but with the specific purpose of considering the Government’s spending plans. To allow the good sense and good faith of Members to have the greatest influence, hearings should be held well before plans take on the formal force of estimates. After all, voting against the supply of funds is tantamount to bringing down the Government. I do not suggest that; there is no nuclear option here. We need far less than that. My proposal would not shake the foundations of the constitution, nor would it significantly inconvenience the Executive. The Government would need to produce spending reviews by the summer recess—a feat achieved in 2002 and 2004, and missed last year only because of the then Prime Minister’s extended goodbye. Annual updates would not be difficult to provide. The NAO would be willing—I know, because I have asked—to assist the House by analysing the information and providing a commentary for the Committee to consider at hearings each autumn.

I hope that the Liaison Committee will shortly have the opportunity to consider my proposal. I hope that the Government’s attitude will be welcoming. Two years ago, in the regular debate on the work of the Public Accounts Committee, which assimilates events that, sadly, too few hon. Members turn up for—I encourage them to do so—the then Financial Secretary to the Treasury, the hon. Member for Wentworth (John Healey), recognised that the scrutiny of public spending is fundamental to our democracy. He also said that

“we need to introduce a more systematic and challenging parliamentary scrutiny of spending plans.”—[Official Report, 18 July 2006; Vol. 449, c. 289.]

I hope that the commitment given by the Treasury then to work with Parliament holds good today. Indeed, I know that it does, because the Treasury is doing a lot of useful work.

Establishing a Budget Select Committee would reinforce the rights and privileges of this elected House. It would also reflect the truth in the words of Benjamin Disraeli, that

“all power is a trust; that we are accountable for its exercise; that from the people, and for the people, all springs”.

Establishing such a Committee might even help the Chancellor in his quest for those savings from the public purse on which the success of the Budget so obviously depends.

18:31:00

Frank Dobson (Holborn and St. Pancras) (Lab)
I can safely say that I have considerable sympathy for the points that the hon. Member for Gainsborough (Mr. Leigh) made about the need for the House to reassert control over the raising and spending of tax. However, his was a somewhat unique contribution from the Conservative Benches. To listen to the criticisms that have been made of the Budget one would not realise that under this Government, with the stability that they have managed to achieve, we are close to almost any definition of full employment, and that we have the highest levels of employment ever, the highest ever living standards and record numbers of pensioners and children raised out of poverty, partly through the national minimum wage, which both opposition parties opposed, and tax credits.

I am always a bit reluctant to accept homilies from those on the Tory Benches about putting money by for a rainy day. After all, the previous Tory Government took in £70 billion in capital takings from privatisation over 18 years, treating that money as revenue, which would be regarded as dodgy by even the slackest accountants in the private sector.

I was struck by some of the earlier references to wealth creation. The definition of “wealth creators” that a lot of people use is a little narrow. A report was published yesterday outlining the cost to business in this country of sickness, which was estimated at about £100 billion a year. The people who reduce that level of sickness contribute hugely to wealth creation. Were those in the national health service not doing their job, a lot of the wealth being created could not be created.

Let me give just one example. Sir Harold Ridley, who died just after the millennium, having received what might be described as a belated knighthood in the millennium honours list, invented the artificial lens that has made cataract operations possible. I do not think that anybody in the City of London has ever made as big a contribution to wealth creation in this country as Sir Harold Ridley did.

My right hon. Friend the Secretary of State is responsible for regulatory reform, which I want to address. When people talk about regulatory reform, they normally want to reduce regulation, but I believe that we need massive regulatory reform of the banking system, which includes introducing tougher and more effective regulation, both nationally and internationally. The Government are trying to hang on to the stability that has made the improvements over the past decade possible, but that is being severely undermined by the current earthquake in international banking.

It is no good the Tories trying to blame the Government for the current earthquake in international banking. The international banking crisis has been created almost entirely—certainly 99 per cent.—by the people who operate the international banking system. The trouble with the bankers, and their useless auditors and even more useless risk assessors, is that the mess that they have created will affect everybody. In all probability it will affect people’s mortgages, and it may affect their pensions, savings and jobs. I know that Conservative Members smile whenever I attack the banking industry, but I believe that most people in this country are disgusted by what has happened. All the achievements of the stability that the Government seek are at risk because of the banking crisis—a crisis brought on by the practice of the banks.

It was not long ago that bankers had an image of being a rather careful lot of people. They were careful with their own money and with our money—“prudent” or “conservative” were not the words for it. however, that has not been the case in recent times. A substantial number of people now involved in international banking have behaved more like a collection of wide boys, trying to con the others, who were idiots, but they have not been playing with their own money; they have been playing with other people’s money and jobs. Those bankers have not been wealth creators; they have been wealth manipulators. As they were not risking their own money, their main objective was to maximise their bonuses and then leg it as quickly as possible, with little regard for anyone else.

That does not apply to everybody in international banking or everybody in the City. However, virtually all of them have become dedicated followers of fashion. They say, “Well, we’ve heard that A, B and C are on to a good thing, so we can’t possibly not get on to that good thing ourselves.” That is how so much of the British banking system joined the United States in being exposed to the famous sub-prime mortgage market, although the situation is not so bad here. It is usually said that the amount of money made available for mortgages in this country has increased to meet the increased cost of houses. However, I believe that the process has generally been the reverse—that prices have risen to meet the amount of money that the financial system has been willing to lend.

Again, it was not so long ago that building societies would lend people only 2.7 to three times their annual salaries. Lo and behold, most house prices were set at around 2.7 to three times people’s annual salaries. However, then the fashionable lot took over in the financial services industries and offered people mortgages that were four, five and, extraordinarily, even six times their annual salary, with no deposit—and, knowingly, mortgages that were higher than the value of the property to be purchased. What has been the result? Prices have risen in line with the availability of the mortgages.

Mr. Angus MacNeil (Na h-Eileanan an Iar) (SNP)
While all those events were happening, the present Prime Minister—the former Chancellor—sat idly by. Does the right hon. Gentleman agree that he should take some responsibility?

Frank Dobson
I certainly think that the regulatory authorities have some responsibility. Above all, however, it has to be the responsibility of the practitioners—or, in this case, what might be described as the malpractitioners. They were seeking to maximise the amount of money that flowed across their desks because they always got a percentage of that money. If the price of a house went up, say, from £100,000 to £150,000, they would get at least a 50 per cent. increase in their rake-off. I believe that we need further constraints and a much more powerful Financial Services Authority in order to constrain such practices.

Mr. Jeremy Browne
Will the right hon. Gentleman give way?

Frank Dobson
No, let me go on.

It is not only in the housing sphere that the financial services industry has developed a greater influence. For example, when people buy a washing machine or deal with a water company, it is a novel experience if their letterbox is not overwhelmed with brochures for insurance for their washing machine or insurance policies against the possibility of leaks developing. It gradually becomes clear to anyone with a grain of sense that these companies make more money out of the insurance than out of the washing machine, and that they make more money by insuring people against a risk that is unlikely to happen than by selling people water. Everything seems to be shifting towards financial services in that way.

Then we come to the dreaded US sub-prime mortgages and collateralised debt obligations, which were offering something for nothing. I understand that the Financial Services Authority said recently that the public needed financial education and that schools should be doing more to provide such education for young people. Above all, it said that we needed to get across the message that we cannot get something for nothing. Well, all I can say to the Financial Services Authority is, “Why don’t you go and tell that to the bankers who got involved in the sub-prime mortgage scandal?” We have a worldwide system based on people trying to get something for nothing, promoting extravagant borrowing by hedge funds and private equity, and promoting a system of general speculation. 

One of the most hopeful developments recently was the news that the International Energy Agency is going to look into the effect that these borrowing-financed speculators have on the world price of oil. It is not old-fashioned, old-Labour me who is saying that the speculators have been driving up the price of oil; it is Governments around the world, the International Energy Agency and the United Nations. It would appear that the speculators, not content with their ruinous lending policies, are now driving up the price of fuel.

Mr. MacNeil
Will the right hon. Gentleman give way?

Frank Dobson
I would rather get on, so that other people can get in.

If we are to avoid banking crises in the future, I do not believe that we can leave national or international regulation in their present enfeebled state. I do not believe that the banks can be left to their own decisions. These are the people who appear on television and on the radio and who are lauded on the business pages of newspapers. “Oh, he’s the chap from Merrill Lynch. We’d better listen to him.” Yet Merrill Lynch lost $22 billion on sub-prime mortgages. Or it might be someone from that great Swiss institution UBS, which lost $18.7 billion. I was also struck by the fact that, at least according to the latest list, Bear Stearns has lost $2.6 billion on sub-prime mortgages, yet its rescuer, JPMorgan Chase, has lost $2.9 billion on sub-prime mortgages. So the great heroic firm that bailed out Bear Stearns has actually lost more money than the bank it was bailing out. My submission is that we simply cannot leave these matters to people with such a dreadful record of ruining the economy.

Mr. MacNeil
Will the right hon. Gentleman give way?

Frank Dobson
No, I need to get on.

Then we come to the people who have been doing the risk assessment. Standard & Poor’s was asked by some of these people in the financial services industry to advise them on the packaging of their products. Then—surprise, surprise—it gave a treble-A rating to the products on which it had given advice. And what about the auditors? Did they not spot anything? Did they not see that risks were being taken? The large firms of auditors claim to be multinational, so one might assume that such firms in the United States and Britain would have learned from what was happening in other countries. Might not the companies with offices in Barcelona and Madrid as well as in New York and London have spotted the fact that under the Spanish banking system people were not allowed to get involved in sub-prime mortgages, because that was against the law in Spain? Did it not occur to them that there might be some merit in the Spanish law, and that it might offer some protection? Did they not realise, in other words, that the Spanish might be on to something?

Mr. Jeremy Browne
rose—

Frank Dobson
I will not give way.

Mr. Browne
Go on, you’ve got lots of time.

Frank Dobson
Oh, all right, I will give way.

Mr. Browne
I am grateful to the right hon. Gentleman. It is a constant source of wonder that Tony Blair found space for him in his Cabinet. I actually share some of his concerns about some of the practices in the banking sector, but I believe that his explanation for why house prices rose so dramatically is far too narrow. Were there not other factors involved, such as an increase in marital break-ups, people living longer, and rising population numbers? Another important reason is that more households have two incomes. All those factors contribute to driving up house prices. It is not just to do with malpractice in the banking sector, as the right hon. Gentleman suggests.

Frank Dobson
I do not think I said that the situation was caused exclusively by the stupidity of the banks’ lending policies, but I believe that that has made a major contribution. I do not think that anyone could demonstrate that the increased amount of money available for mortgages rose to meet house prices, rather than house prices rising because of the increased availability of money for mortgages.

Perhaps I am very old Labour—I sometimes describe myself as heritage Labour; I am thinking of putting in a bid to the Heritage Lottery Fund to restore my façade at public expense—but I must emphasise that the people of this country will not tolerate this House failing to recognise the fact that these horrors are being visited upon us as a result of the stupidity, ignorance and greed of a large number of people in the financial services industry. That is why we need to reform the regulations, and to insist that all the international bodies of which we are a member do the same, so that the stupidities of the banking industry are not visited on ordinary decent people all over the world.

18:50:00

Tony Baldry (Banbury) (Con)
It is always a joy to follow the right hon. Member for Holborn and St. Pancras (Frank Dobson)—a self-proclaimed member of heritage Labour. When he actually said that bankers could not be left to their own decisions, he wonderfully took us back to good old clause 4 old Labour, with public ownership of the means of production, distribution and exchange—the authentic voice of old Labour. Little wonder that when the right hon. Gentleman stood as the candidate for Mayor of London, he did not find much support in or among Londoners.

The right hon. Member for Coatbridge, Chryston and Bellshill (Mr. Clarke), who is no longer in his place, said that this was a Budget for hard-working families. He was absolutely right, but it is a Budget to hammer hard-working families. It is a bad-news Budget that adds £110 a year to the tax bill of every family; and the tax take will be £2.8 billion a year higher by 2010. It is a Budget for kicking families when they are down because new taxes announced for the next three years will put an extra £1.5 billion on all alcoholic drinks, hitting 43 million people; £1.6 billion extra on drivers, even with the delayed fuel tax rise; and £1.7 billion extra on businesses.

The background to the Budget is that during the years of plenty, the Government, whose economic management was then in the charge of the man who is currently Prime Minister, squandered the national riches rather than put them aside for the years of difficulty. Sadly, the poorest people are about to be stung by the Prime Minister’s swan-song as Chancellor—the abolition of the 10 per cent. tax band. 

There is, of course, growing uncertainty around the globe, and we have no protection here for a rainy day, let alone for the global economic storms that seem to be blowing across the Atlantic. Inflation is rising because the previous Chancellor chose for so long to debauch the currency by expanding the money supply at an unhealthy rate, and the present Chancellor admits to a rise in borrowing to the ugly level of £43 billion next year.

Mr. MacNeil
Does the hon. Gentleman recall that the present Prime Minister and former Chancellor was the man who said that he would put an end to boom and bust? Does he agree that those words seem very hollow at the present time?

Tony Baldry
The hon. Gentleman makes a very good point, but there are a number of phrases that the Prime Minister was wont to use on many occasions—“boom and bust” is one that no longer appears from his lips, as even he can see the irony of it—that no longer apply. I am not quite sure what has happened to Prudence. I am very concerned about Prudence, but she seems to have been debauched. She has disappeared and we now hear nothing more about her. She has gone and the new girl on the block is Stability. That is what we are in love with nowadays and I suspect that the irony of praying to the mantra of “stability” will be so evident in a few months’ time that even the Prime Minister will not allow the word to cross his lips.

Economists have warned that voters face the equivalent of up to 3p more on income tax after the next general election. An analysis of last Wednesday’s Budget by the Institute for Fiscal Studies showed that spending would have to be slashed by billions if the Chancellor does not want to break his economic rules. The IFS has said that it could mean Ministers having to plan tax increases to avoid cutting back on schools and hospitals if they should perchance win the next general election, which I think is increasingly unlikely.

The IFS added to the gloom around the Budget in pointing out that middle-income households have been hammered by rises in tax for drinkers and family car owners. Robert Chote, director of the IFS, has said that details hidden in the Budget report reveal that the annual growth in spending will be cut to 1.8 per cent. in 2012-13, meaning a reduction in spending by around £8 billion by 2013—which would be equivalent to an income tax rise of 3p in the pound. That will be the result of the very substantial cut of £8 billion in public spending. No wonder that polls since the Budget reveal that fears about rising prices in food, fuel and taxes are people’s biggest worries. Soaring gas and petrol prices, higher council tax and bigger supermarket bills were among the recurring themes of those who commented on The Times online response to the Budget, to which 2,500 people contributed. People expressed concerns about the rise in energy and fuel costs, coupled with ever-increasing food prices.

Not surprisingly, when YouGov did a survey, it found the following responses to various propositions: 86 per cent. of those surveyed agreed that their bills were rising faster than the Government said they were; 84 per cent. agreed that energy firms ripped them off and should have been hit with a windfall tax; 78 per cent. agreed that the Government wasted huge amounts of taxpayers’ money—a point made very effectively by my hon. Friend the Member for Gainsborough (Mr. Leigh), the Chairman of the Public Accounts Committee, and reflected in the concerns of many of our constituents; 66 per cent. agreed that the Government spent too much in the good times, so they were raising taxes now; and 74 per cent. agreed that green taxes were just an excuse to raise more money. It has not escaped the attention of most people that the Chancellor is not offsetting the green taxes raised in one place with taxes elsewhere; he is simply taking the green taxes as additional taxation.

The main cause, I suspect, of the swing in the opinion polls to the Conservatives is the collapse of faith in the Prime Minister’s and the Chancellor’s stewardship of the economy. Just 21 per cent. of voters say that they would trust the Government more than the Opposition to raise their families’ living standards; the Conservatives have a decisive lead on that issue. The overwhelming majority—83 per cent.—believe that the economy will either grow more slowly over the next 12 months or slide into recession. There is no question of people having to talk about this; the fact of the matter is that our constituents are genuinely concerned about what is happening to the UK economy. They find it rather depressing when all that the Prime Minister and the Chancellor can do is simply repeat the mantra of “stability” in the hope that if they say it often enough, it might actually happen.

The Government’s reputation for economic competence is now at its lowest since Jim Callaghan went cap in hand to the International Monetary Fund in 1976. At 28p in the pound, the UK has one of Europe’s highest rates of corporation tax. This Government’s spending binge has seen the size of the state balloon—from 37 per cent. to 45 per cent. of gross domestic product. Under this Government, the cack-handed expansion of means-testing has seen the savings ratio plummet from 11 to 3 per cent., with consumer debt now a staggering 156 per cent. of household income.

The reality is that after the recent years of strong global growth, other countries such as Germany now have a budget surplus. Yet when it comes to fiscal management, the UK’s so-called prudent Government have been outclassed by the allegedly profligate Italians and French, as Britain’s budget deficit at 3.2 per cent. of GDP is by far the biggest of any major economy. That is why last week’s Budget imposed a net tax rise of £2.5 billion—the precise opposite of what is now needed.

It is important to understand the extent of the Government’s borrowing. This time last year, when the Prime Minister delivered his final Budget as Chancellor, he said that the Government would borrow £30 billion during 2008-09—the fiscal year about to begin. Yet in his first pre-Budget report, the present Chancellor raised that estimate to £36 billion—an alarming increase. Last Wednesday, the Chancellor jacked that amount up even more, announcing that borrowing in 2008-09 would, in fact, be £43 billion. In other words, in just 12 months, the Government’s borrowing estimate for next year has increased by no less than £13 billion, a jaw-dropping 43 per cent. rise.

Looking further into the future, the numbers barely improve. The Prime Minister told us last year that he would borrow £28 billion in 2009-10. The Chancellor has just raised that figure to £38 billion. During 2010-11, the UK will increase its liabilities by another £32 billion—way higher than the Prime Minister’s £26 billion estimate last year. In sum, our borrowing totals for 2008-09 to 2011-12 have gone up by £20 billion since the Chancellor’s pre-Budget report. That is a staggering sum of money, which has not hitherto been accounted for.

Mr. MacNeil
Listening to the Westminster Government’s catalogue of disaster, I can only think of the oil fund that Norway put away in the good years, or perhaps of a lesson from the Old Testament about getting ready in the seven years of plenty in Pharaoh’s time for the seven years of famine. Given the catalogue of disaster and mismanagement at Westminster, does the hon. Gentleman agree that Scotland would have been far better off in Norway’s position, building an oil fund and, of course, being independent, while being a good friend of England’s at the same time?

Tony Baldry
I am sure that the supporters of this Government will pay an electoral price in Scotland, as they will everywhere else in the United Kingdom, because every part of the United Kingdom has been hit by their inability properly to manage the economy.

In the quiet watches of the night, even Ministers realise how bad is the present state of the economy. If we look at the detail of the Red Book, we see that the Treasury expects house prices to fall in real terms in the coming year, causing the first fall in stamp duty revenues since 2001. It is stated that due to

“sluggish or flat house price growth, receipts related to property such as stamp duty land tax, inheritance tax and capital gains tax, are expected to be £2.25 billion lower in 2008/09 than in the Pre-Budget Report.”

The Treasury also expects to generate less from the City and business as the credit crunch and impending economic slowdown hit enterprise. What does the Chancellor do in response? He increases taxes and puts up the Government’s borrowing to the highest rates for more than a decade.

As a consequence of the Budget, middle-income groups will be hit by a national insurance stealth tax. In every Budget that this Government introduce, various things are not apparent on the day. However long and soporifically the Chancellor drones on for, we often discover a lot of the nasties either in press releases issued by the Treasury afterwards or in the small print. This year was no exception. The Chancellor made no mention during the statement of the rise in the earnings ceiling for national insurance by £100 to £770 a week, but it was in the details of the Red Book. Analysts suggest that from 6 April next year, the 11 per cent. band will apply to earnings up to £40,040. Anyone on £41,000 or more will therefore pay about £500 a year more. That change will bring the Treasury additional revenue of almost £2 billion a year.

Instead of helping people out in the Budget, the Government have hit them again with big increases in alcohol prices, big increases in the purchase price of many family cars and big increases in taxes on business hidden in the small print of the Budget. Our constituents have to pay more for their drink and their cars. People are being kicked while they are down.

According to number crunching by the ever-vigilant Taxpayers’ Alliance, nearly nine in 10 cars will attract higher rates of tax under the Chancellor’s proposals. Fewer than one in 10 vehicles will benefit from the new system, and the biggest losers will be family cars. As a result of the reforms in the Budget, however, it is stated that

“the majority of motorists will be better or no worse off in 2009.”

It is unbelievably difficult to relate that assertion to the fact that nearly nine in 10 cars will attract higher rates of duty. The vehicles hit will include modest family cars and people carriers, so that drivers of Skodas, Ford Mondeos and other models costing up to £20,000 will be hit almost as hard as those paying 20 times as much for their Rolls- Royces, Bentleys and Ferraris. Mondeo man, whom the Government courted to get into power more than a decade ago, is paying the price of filling the Government’s borrowing black hole.

The Prime Minister’s much-trumpeted green effort seems to have a very ad hoc quality. With regard to carbon emissions, the Government seem to be focused more on the targets that are the most visible than on those that are most at fault on carbon emissions. There is also a certain degree of gimmickry—for example, the non-tax on plastic bags. The Chancellor announced the possibility that next year he would propose a law to require retailers to charge for plastic bags and transfer the profits to charities. That is rabbit-out-of-the-hat stuff to distract people from what is happening to the economy.

It is not surprising that Tony Juniper, the executive director of Friends of the Earth, commenting on the Budget, said that it

“falls a long way short of not only what is necessary, but also what was possible to do…we need far more substantial measures to encourage waste minimisation and recycling.

Green tax measures would be more popular if they were linked to cuts in taxes on people and jobs…

Given New Labour’s reputation for slick communications it seems that it was not a lack of creativity that was at fault, but a lack of leadership, vision and imagination.”

The whole Budget demonstrates lack of leadership, vision and imagination.

The Budget is bad for small businesses. The Government deployed one of the oldest rhetorical approaches: when in trouble, they simply talked a good game and pretended that everything would be fine. On the day of the Budget, a new enterprise strategy was launched, regulatory reform was promised, and the Chancellor pledged to do more to help small firms get access to the finance that they needed. Business will not be deceived. The Chancellor is imposing more than £1 billion in new taxes on small firms at just the wrong moment in the economic cycle. He appears oblivious to that. He delayed a further £200 million tax rise on family businesses only because he realised at the last moment that it would not work. Those entrepreneurs and people in small business have already been hit by the scrapping of the 10 per cent. capital gains tax rate, and the Government will now reward only the first £1 million of wealth created—anything above that will be taxed at 18 per cent.

Mr. Prisk
My hon. Friend rightly highlights the burden of the Government’s proposals on small businesses. As he has said, what the Government referred to as an entrepreneurs’ relief set a cap on the ambitions of those entrepreneurs. Does he agree that it is a peculiar approach on the part of a Government who claim to support enterprise to penalise anyone who is successful above £1 million?

Tony Baldry
The treatment of capital gains tax has been and continues to be a fiasco. Clearly, the Government have arrived at a compromise between wanting to get the greatest possible tax take and not wishing to frighten off the business community too much. The Government have recognised that the business community have understandably fallen out of love with them, and are trying to mitigate the damage. 

Business owners have also been hit by reforms to capital allowances, which will raise billions for the Treasury. That makes the giveaways in the Budget—a small £30 million enterprise capital fund, a £12.5 million fund to invest in female-run businesses, and a £60 million increase in the small firms loan guarantee—appear to be exactly what they are: token gestures.

While it is true that businesses will receive more than £680 million-worth of tax relief from the Chancellor over the next three years, it is also true that £1.4 billion worth of new taxes will eat away at any gains that they may make. For most businesses, the rate of capital gains tax will rise from 10 per cent. to 18 per cent., a rate that the Chancellor said would be introduced next month as planned. Britain’s corporation tax income from companies is higher than that of any other countries except Japan and Canada. Bill Dodwell, a tax partner at Deloitte, has said:

“Businesses are worried at the rate at which things are taxed but also on what they are taxed. They are taxed on far more… than in other countries”.

Businesses have been hard hit by this Budget. Let me take up what the hon. Member for Selby (Mr. Grogan) said about the tax on beer. As James Clarke, managing director of Hook Norton brewery in my constituency, has observed,

“A duty increase would not significantly affect off-trade prices, but would be devastating for pubs… Beer sold in pubs contributes to local economies, and often the pub can be the only retail outlet in a community, but obviously this still needs to be a viable business. Pubs are under increasing pressure from energy and food prices, as indeed we all are, so freezing duty on beer would not only be a real benefit, but it would also be seen as such.”

Of course, the Government did not freeze the duty on beer; they put it up.

In my constituency, businesses will be asking “What next? We are seeing post offices being closed, hospital services being downgraded and village pubs disappearing. What will we see next under this Government?” I do not have time, notwithstanding the generous allocation that the House has given me—

Mr. Andrew Love (Edmonton) (Lab/Co-op)
Will the hon. Gentleman give way?

Tony Baldry
No. I have no time to do so, or to draw the House’s attention to the fact that nothing has been done to help business with red tape. Labour pledged to cut red tape in their 2001 manifesto, but even after three Acts of Parliament the regulatory burden on business is worse than ever.

This is a bad Budget for business, for jobs, for enterprise and for our constituents, and a particularly bad Budget for the families who are being hammered by this Government.

19:12:00

Mr. Michael Meacher (Oldham, West and Royton) (Lab)
I do not propose to comment on what was said by the hon. Member for Banbury (Tony Baldry), because he repeated large amounts of what we have already read in the newspapers. What I will comment on, before I come to my main point, is the principal line that the Opposition appear to be taking in the debate. It was taken by the hon. Member for Rutland and Melton (Alan Duncan), by the right hon. and learned Member for Rushcliffe (Mr. Clarke), the former Chancellor, and by the hon. Member for Gainsborough (Mr. Leigh), the Chairman of the Public Accounts Committee. Their argument was that the Government were at fault because they could have prepared earlier and better for the downturn. My argument is that this is not a normal downturn in a regular business cycle, and it is disingenuous and simpliste to suggest that that is so when the two central factors in the crisis are the United States sub-prime fiasco, for which the United Kingdom Government are not responsible, and—linked to that—the massive shift to securitisation and the opaqueness of trade assets. Because of the complete failure in the role of the credit rating agencies, the toxic effect of that was discovered too late.

I am not saying that the Government are not responsible in some ways. The Financial Services Authority could have acted more quickly in respect of Northern Rock, and there are other aspects of the crisis in the United Kingdom that we need to examine, but I believe that the main responsibility lies elsewhere. It is very easy in opposition, and in retrospect, to blame the Government irrespective of any real analysis of the situation.

Mr. MacNeil
rose—

Mr. Meacher
The hon. Gentleman came into the Chamber in the middle of the debate, and he keeps popping up, presumably to assure Hansard of his presence. I will give way to him, but perhaps he should have come in earlier and made his own contribution instead of 10 interruptions.

Mr. MacNeil
I am most grateful to the right hon. Gentleman. His right hon. Friend the Member for Holborn and St. Pancras (Frank Dobson) pointed out that the Spanish Government had controlled mortgage lending far more responsibly than the United Kingdom Government. Does that not illustrate the way in which the United Kingdom Government sat idly by as the pressure was building and the pot was boiling?

Mr. Meacher
I accept that when we come to review all this we shall find aspects for which there is some responsibility on the part of any Government, although I think that that is arguable and that different judgments can be made. But my main point is that merely saying that this massive crisis, this downturn which may turn out to have cataclysmic proportions, is somehow the fault of the UK Government is absurd. That is absolutely not the case. The situation is much more complex and much more unpredictable than that. In a situation of such gravity, it would be better for the House to refer to a real analysis of the facts than to try to gain cheap political capital.

Mr. Philip Hammond
The right hon. Gentleman must not suggest that the Opposition’s critique of the Government’s economic policies is being expressed only in the context of the credit crunch, which, as he said, was not created by this Government. We are running a higher fiscal deficit than all but three developed countries. We have an economy that has grown in an extraordinarily unbalanced way over the past few years, with a housing market that has been spiralling out of control. Does the right hon. Gentleman not believe that, in the absence of the credit crunch, we would still have faced a downturn at some point as those effects inevitably unwound?

Mr. Meacher
I recognise that there were issues of long-term sustainability, some of which the hon. Gentleman has mentioned. In fact his intervention has helped me, because my main argument will pick up some of what he has said.

There was one rather odd omission from the Budget. It contained next to nothing about dealing with tax avoidance. That is quite surprising given the difficult state of the public finances—to which the hon. Gentleman rightly drew attention—the Chancellor’s obvious need to close the gap, and the current international campaign led by Germany to tackle the scandal head-on, which I consider very important.

As we know, the hole in public revenues amounts to some £40 billion. That is a large amount, and it is increasing. The Treasury forecasts that the figure will be £7 billion higher than was suggested in the October pre-Budget report. The Chancellor had every incentive to claw back tax avoided and evaded to help balance the books without raising taxes for the rest of the population.

A recent pamphlet produced by the Trades Union Congress and written by the tax accountancy expert Richard Murphy found that tax avoidance and tax planning—by which I mean fabricating plans artificially in order to pay little or no tax, a device employed by very rich individuals—now account for about £13 billion a year, while the same device employed by companies in rather different ways accounts for a further £12 billion a year. There is obviously plenty of scope for much tougher anti-avoidance measures that would benefit everyone else. If such persons can be made to pay their due and proper taxes, others will need to pay less. Moreover, Inland Revenue statistics show that those who are paid more than £100,000 a year, who constitute less than 1 per cent. of the population, now receive £8 billion in tax reliefs and allowances.

Another important factor that could well have propelled the Chancellor towards a Budget assault on tax avoidance, which I think is long overdue, is that the international atmosphere is much more conducive to tougher action than it has been for decades. Germany, as we have read, believes that it is losing nearly £25 billion a year in tax evasion by rich Germans holding anonymous trusts in Monaco and Andorra, in addition to others who, rather curiously, were outed by a whistleblower as having secreted huge sums of money in another tax haven, namely Liechtenstein. Germany is now demanding cross-national action to force countries with banking secrecy to share information. That is a favourable climate for the UK to participate and take the lead.

Since there is considerable evidence that super-rich British people also use these and other tax havens—notably the Cayman Islands—for the same purpose, a crackdown on those avoiding their tax responsibilities could produce big benefits for the UK Treasury and, my goodness, there has never been a time when the UK Treasury needed big benefits as it does now.

Why was that not done in the Budget? I suspect the reason is the stranglehold exerted by the City on the Government—particularly on the Prime Minister, I have to say—who have been persuaded that the financial enclave of the City of London is central to the economic interests of the UK as a whole. I submit that of course it has an important role, which I would not downplay for a moment, but the idea that it is central to the UK economy is quite another proposition.

By bending over backwards to encourage hedge funds and private equity firms through the most egregious tax liberality—I refer to the absurdly low 18 per cent. basic tax rate on income from the carry, or share, of the gains on these massive deals, which is less than half the income tax rate payable by top earners—and as a result of other measures, the Government have in effect turned the UK, or more specifically the City of London, into a gigantic tax haven for the internationally mobile business élite. The problem is that, by sucking talent and capital from other parts of the economy, the remarkable successes over the past 10 years, which I am the first to praise, have been bought at a very high price—I would say too high a price.

As the credit crunch is now exposing, City profits on invisibles cannot and never could compensate for the steady, continuing decline of Britain as a manufacturing nation—and that is the basis of wealth for all industrial countries. The volatility and excesses of the finance sector are outweighed by the 1 million jobs lost in manufacturing over the past decade, the stagnant industrial output, the £7 billion-a-month trade deficit, and the weakness of manufacturing investment and of the so-called knowledge economy—R and D—which is confined to a very few sectors. Those also have to be taken into account. My point is not that the City of London does not have a key role, but that it cannot be allowed to exploit that role at the expense of reducing the capability of Britain as a sustainable industrial base.

Even when other countries have recently made what can only be regarded as a very serious effort to counteract some of these excesses in tax avoidance, the UK has taken a lead in blocking them. The UK has for example regularly refused to allow the deduction of tax from interest payments within the EU, which would hugely restrict the effectiveness of tax havens because the basic rate of tax—presumably about 20 per cent.—would already have been deducted from the income before it reached the tax haven. There can be little doubt that this withholding tax proposal of the EU was stymied in order to preserve the UK as a tax haven, given the City of London links to the overseas protectorates and Crown dependencies.

If I may I shall give just one more example of what I think is an industrial and financial way of life that is not sustainable. Maintaining fiscal independence from Europe may be a populist move—clearly it is in this country—but in reality it enables the international corporations to play the EU and other countries off against each other in constantly bargaining for lower tax rates.

The credit crunch and the approaching downturn, which some people, even today, believe may have very serious consequences, show that a different approach is now necessary. Not only is closer regulation of the financial markets clearly now imperative to prevent future damage to the international economy—the precipitate collapse of Bear Stearns is clearly not the last of it—but the UK in particular can no longer afford either the prohibitive cost of the tax privileges of the City or, just as importantly, the collateral manufacturing damage inflicted on Britain as an industrial nation. [Interruption.] Before the hon. Member for Runnymede and Weybridge (Mr. Hammond) gets carried away, let me remind him that Winston Churchill, as Chancellor in 1925, said that he would rather see industry with head held high and finance less proud. He was absolutely right, and that applies just as much now.

In particular we need a fundamental change in the tax culture in this country so that corporations and super-rich individuals no longer regard it as a duty—as we learned from Tesco in the press a few weeks ago—to minimise tax by any artificial devices that can be dreamed up to secure private gain. It is surely, by contrast, a responsibility that they make a fair contribution to the overall public gain of which they are a part.

There are several ways to achieve that. Obviously a key one is to seek to eliminate tax haven abuse. The non-governmental organisation Tax Justice Network calculates that the total assets now held by the wealthiest people in the world in tax havens amounts to a staggering $11.5 trillion, at a potential cost to world Governments in tax forgone of about $255 billion. To put that in context, the money lost to Governments worldwide is more than two and a half times total global aid flows last year.

Mr. Prisk
The right hon. Gentleman is talking about the amounts that high net-worth individuals have, which he says are lost to Government. How would he comment on the contributions of people such as Bill Gates, who give a huge proportion of their income to the very aid that he is trying to support? Governments do not have to do that on their own; individuals can contribute to it.

Mr. Meacher
That is fine. I know that some of the richest people such as Gates, Warren Buffett and, to some extent, Richard Branson have made substantial contributions, which is extraordinarily creditable, but that is not an argument for saying that very wealthy individuals should not pay their full, proper and due tax.

In the UK alone, the tax amnesty for those holding accounts with the offshore branches of some UK high street banks in the main Crown dependencies—I am thinking of Jersey, Guernsey and the Isle of Man—is expected by the Treasury to yield a recovery of about half a billion pounds in tax from just 60,000 people, or 0.1 per cent of the population, who admit to undeclared income in these places. That shows the sheer scale at present, and it is unacceptable.

I am not against amnesties; I understand why we have had one now, and I think it is succeeding. Instead of just having occasional amnesties, however, all UK dependencies and protectorates—particularly the Cayman Islands—should now be required to use the same standards of disclosure and accountability as the UK itself. The UK standard should also be tightened by requiring all UK-registered companies to report annually on all their overseas subsidiaries, including their revenues and how many people are employed. If we were to introduce that transparency, it would dramatically improve the prospect of fair and balanced tax collection, and I intend to table an amendment to the Finance Bill to that effect—if the Government do not do that first. [Interruption.] Yes, I think that that is unlikely, which is why some of us need to assist and nudge an arm or two.

There are several other ways of dealing more effectively with tax avoidance and evasion. We should look at the tax reliefs and allowances that accrue to those earning over £100,000 a year—the richest 1 per cent. of the population. One might ask: what is the justification for enhancing by means of tax reliefs an already enormous salary, when that will mean that others will have to pay more to compensate?

Mr. Love
I agree with many of my right hon. Friend’s points, although I must say that we ought not to set manufacturing and finance in competition with each other; both must flourish within our economy. How does he respond to the classic argument that is made against his case for proper taxation of the wealthy, which is that they are so mobile that they will simply move outside the jurisdiction of the UK authorities?

Mr. Meacher
I shall come on to that. [Interruption.] I know that many Members say that when they might not intend to do so, but I do intend to—in the brief time that I have left.

I was talking about how we might deal with offshoring, and I also wish to talk about the domicile rule. Frankly, it is indefensible. If it were abolished, that would recoup more than £4 billion in lost taxation. Abolition might not be the answer, but there should certainly be a considerable reduction in its application. As for so-called capital gains on all assets held for less than a year, they are clearly not capital gains but a form of income, and they should be treated as such and be subject to income tax. That would save about half a billion pounds in otherwise lost tax. Also, the tax authorities should make it absolutely clear that they are deadly serious. The UK should co-operate with other countries, particularly in Europe, to ensure that tax is paid where the taxable economic activity occurred. That would largely stop misallocation of profit to tax havens.

More complex tax avoidance should be tackled by enshrining in law the general principle that wherever an otherwise commercial transaction is added to any arrangement the sole or main purpose of which is to reduce tax liability, Her Majesty’s Revenue and Customs should disregard the artificial addition and tax the transaction accordingly. Counter-productively, HMRC is being run down by 25 per cent. in the five years to 2010. In order that corporations and super-rich individuals understand that tax avoidance does not pay, it should instead be built up substantially, as the Treasury calculates that each member of HMRC staff recovers 96 times their full cost of employment.

Artificial tax avoidance and tax evasion are a cancer on the body politic. Economically, this is the best time for decades to launch a systematic campaign to eradicate that, and I look to the Treasury to set it in place.

19:35:00

Mr. Bernard Jenkin (North Essex) (Con)
It is not an unalloyed pleasure to follow the right hon. Member for Oldham, West and Royton (Mr. Meacher), although it does present me with an opportunity to thank him for sponsoring my private Member’s Bill to deal with the problem of fly-tipping, which was introduced under the ten-minute rule. I fear that his speech was a return to the fantasy land of 1970s extreme socialism, when Anthony Wedgwood Benn used to say, “The Government should grab the pension funds from the City and invest them in industry,” as if those vast pension funds were somehow the plaything of the rich.

The right hon. Gentleman truly misunderstands the mobility of modern capital and of individuals in the global economy. He talks about billions of pounds being raised by dealing with tax avoidance, but those billions of pounds will simply disappear from the UK’s jurisdiction. I do not apologise for one moment for the fact that we have made London and the United Kingdom a tax haven for a great many rich people, who come here and pay modest taxes in this country instead of higher taxes elsewhere. Hundreds—if not thousands, or tens of thousands—of individuals bring their talent and wealth to London and this country not just because it is a great country to live in, but because it is worth their while financially to do so. We will be casting them out.

It must be placed on the record that the mooted alterations to the status of the so-called non-doms have already done great damage to the UK’s reputation for stable tax policy. Stable tax policy—predictability in terms of the tax burden—is vital for businessmen to be able to plan and invest for the long term. If the right hon. Gentleman’s proposed amendment were to pass, he would effectively be creating probably the most unstable tax regime in the whole of the OECD, which would be guaranteed to drive a lot of inward investment and talent away from the UK, at great cost to the Exchequer. We should have learned over the past 10, 15 or 20 years that lower tax rates in fact yield higher tax revenues, and a benign tax regime is good for economic growth, for tax revenues and for the very public services that he and I both believe in.

Mr. Meacher
The hon. Gentleman has just repeated the theory of the Arthur Laffer curve, for which there is not the slightest supporting evidence. On non-doms, is he aware that the Treasury has estimated that of the 120,000 persons with that tax status probably only about 3,000 would seriously think about leaving? Moreover, how far is it justified to build the wealth of a country on the extreme wealth of a tiny number of people, at the expense of manufacturing industry and the general prosperity of the rest of the country, and of poorer people who have to pay far more in order to compensate?

Mr. Jenkin
The right hon. Gentleman made three points in what was a rather long intervention, and I shall try to deal with all of them. First, it is impossible for the Treasury or anyone to predict how tax changes—on the non-doms, for example—will affect people’s behaviour. Tax changes very often create unintended consequences, which, had we understood at the time, might have changed our view of the changes. Treasury officials and Ministers tend to take a rosy view of how much revenue tax changes will yield. They rarely underestimate how much extra tax revenue will be gained by a tax increase, but there is a tendency to underestimate by how much tax revenues will rise when we cut taxes.

That brings me to the right hon. Gentleman’s second point—we will just have to disagree about the Laffer curve. It is an extremely logical and provable relationship that lower tax rates increase economic growth and tax revenues. His final argument about there being a trade-off between a low tax regime that attracts talent from around the world and manufacturing is completely fallacious. The fact that the UK is responsible for 90 per cent. of the currency and bond trading in the European Union although we are outside the euro, and that the Sarbanes-Oxley Act has resulted in our attracting much of the equities and derivatives trading to London seems to pass him by. The idea that if we clobbered the City, closed it down as the world’s premier financial centre and drove all that offshore, there would then be an instant revival in traditional manufacturing is fantasy—it bears no relation to the real world in which we live.

Mr. Jeremy Browne
This is an interesting ideological discussion. Does the hon. Gentleman share my dismay that in the whole of his 20-minute speech, the right hon. Member for Oldham, West and Royton (Mr. Meacher) concentrated all his attention on a relatively small number of people earning a large amount of money and said precisely nothing about the millions of people in this country on very low earnings who are paying marginal rates of income tax of about 70p in the pound?

Mr. Jenkin
I would like to pick up on a point made about the abolition of the 10 per cent rate. Only last week, my surgery received a visit from a pensioner couple who could not understand how they have been caught by a grievously punishing tax increase. The lady is a non-taxpayer on a modest pension; the gentleman did pay 10 per cent. tax but will now pay 20 per cent. tax, and there is nothing that they can do about it. It is monstrous for this Government to claim that they are eradicating poverty when they treat categories of pensioner in that way. I hope that the Chief Secretary to the Treasury will take heed of the point that the hon. Member for Taunton (Mr. Browne) and I have made in this debate and respond to it, because I cannot for the life of me see how that policy can be greeted as fair.

The main burden of my comments centres on whether the Government are properly prepared for the economic downturn. I listened to the comments made by the right hon. Member for Oldham, West and Royton, and I should like to make a correction: no one is blaming this Government for the sub-prime crisis in the United States—I am happy to put that on the record and I am sure that my Conservative colleagues would assent to that. We cannot pin that one on the Government. What we can point out, however, is that over the years people have warned about a forthcoming credit crunch. For example, in evidence to the House of Lords Select Committee on Economic Affairs on 7 November 2006, Professor Tim Congdon said that

“the current high rate of money growth is largely responsible for the buoyancy of asset prices and mini-boom conditions in the UK’s service industries…asset price weakness, including falls in house prices, is a probable feature of the adjustment to slower money and demand growth in late 2007 and 2008.”

He did not foresee a credit crisis, but he certainly foresaw a correction that would be reflected in falling asset prices or lower growth in those prices.

An even earlier piece of evidence, published in 2005, was a book entitled “Crunch Time for Credit?”, by Edward Chancellor, the financial historian. That book noted:

“The credit bubble that has developed in the UK and US economies over recent years is unsustainable and has ‘badly corrupted’ the economies of the two countries, with potentially serious destabilising results, says a major new study of the economic and investment implications of the build-up of debt in the two countries.”

The book refers to the great depression of the 1930s and the recent experience in Japan and Korea as examples of what could be happening in the United States and the United Kingdom. He wrote:

“The growth of credit has created an illusory prosperity”.

The Government have to take their responsibility for that. He continued:

“It may well end in either an extraordinary deflation…or an extraordinary inflation.”

When discussing the UK economy in particular, he said:

“The UK economy has become ‘increasingly vulnerable’ to a credit crunch”.

So this particular crisis did not come out of the blue as a bit of bad weather. Anybody who knows anything about economics knows that straight lines do not continue for ever.

The hon. Member for Dundee, East (Stewart Hosie), who was briefly in his place on behalf of the Scottish nationalists, discussed the words used in the voluminous book that we still call the Red Book although it has been disguised as a sort of pamphlet that puts the argument for all the Government’s polices. It contains pictures of schoolchildren, a dear old lady, somebody building a house, somebody recycling their rubbish and somebody carrying a bicycle, but it is meant to be a serious document. Budgets have become increasingly unintelligible; they talk about, “Sustainable growth and prosperity” but it is difficult to find a Government table illustrating debt, borrowing and spending, given the chapter heading:

“Fairness and opportunity for all”.

I wish we would get back to more intelligible Budget documentation. Nowhere does the book refer to the end of boom and bust, which is what we were promised. No matter how many times the Prime Minister promised an end to boom and bust when he was Chancellor of the Exchequer, any sensible person knew that no Government could promise that. Thus, in the good times one is meant to prepare for the bad times. One thought that that was what the golden rule was all about—it was meant to be about building up the capital in the good times so that we could weather the bad times, but that did not happen.

What has happened over the past 10 years is that the Government have substantially increased public expenditure. It has risen from 37 to 42 per cent. of gross domestic product, which is a 40 per cent. real terms increase over seven years and has the effect of overcalculating GDP. A useful table produced by Reform shows that GDP is inflated by about 7 per cent. merely by increasing public expenditure.

As the right hon. Member for Holborn and St. Pancras (Frank Dobson) said, nurses and doctors create wealth too. If more money is spent on nurses, doctors and teachers, that contributes to the GDP. Unfortunately, the large increases given to health and education over the years have not produced the commensurate increase in output and productivity—in fact, productivity in the health service has collapsed. That is one of the reasons why some of us prefer the private sector over the public sector when it comes to deciding how to modernise public services. Interestingly, even this Government are importing all kinds—[Interruption.] The Chief Secretary is looking suspicious, but she might ask herself why treatment centres are to be run by private companies. She supports bringing the private sector into the health service, and that is one of the policies that we will need to examine.

Peter Bottomley (Worthing, West) (Con)
My hon. Friend is referring to the growth of public spending. I hope that he will remind the House that we must wait until the last two pages of the Red Book—pages 203 and 204—before we discover table C14, on the historical series of public sector balances, receipts and debt, and table C15, on the historical series of Government expenditure. It is all laid out, but, surprisingly, Ministers did not include it earlier in the book.

Mr. Jenkin
Those tables used to be what Budgets were about; now they are about all the rhetoric and guff at the front. One must wait two or three days before the real truth of the Chancellor’s Budget emerges. I do not intend to waste any more time anatomising the Chancellor’s Budget statement.

The big increases in public spending have not produced the transformation of public services for which many had hoped. They have produced a rising tax burden—I understand that we are talking about an extra £1,250 per person in this country over a 10-year period. Of course, taxation has lagged behind the increase in spending. Taxation has only grown from 35 per cent. to 37.5 per cent. of GDP, which means that we have moved from a fiscal surplus of 1.7 per cent. at the beginning of the period to a fiscal deficit of 2.7 per cent. That is at a time when we should have been paying off our public debt, not increasing it. When we compare those figures to other countries, we see that Australia’s 3.7 per cent. deficit during that growth period is now a surplus of 1.3 per cent. In New Zealand a 0.2 per cent. deficit in 1999 is now a 3.3 per cent. surplus. Whereas other countries have been building up their funds for the inevitable correction in the markets that takes place after any period of sustained economic growth, our Government have been storing up economic problems for the future, so that we are in the worst position to deal with whatever crisis the international markets throw at us.

It is worth pointing out that the increase in taxation and spending, and the lost productivity that tends to happen in the private sector, has led to a consistent overestimate of tax revenues. In each of the last seven years, as the Taxpayers’ Alliance demonstrates, tax revenues have come in substantially below forecast and Government spending has overshot. The Government have shown very little discipline with public spending, even overshooting their own forecasts. Substantial increases in spending of 4.3 per cent. per annum on average over 10 years have outstripped economic growth. Consequently, the debt to GDP ratio has risen from 30 per cent. to 37 per cent.

Now we have the credit crunch, which was entirely predictable. The Library has kindly provided me with figures for household debt in relation to GDP for the US and the UK. In the US, where the sub-prime mortgage crisis has occurred and triggered everything else, household debt was 66 per cent. of GDP in 2005 and rose to just under 100 per cent. of GDP in 2006. It has continued to worsen in the last two years so that it is now more than 100 per cent. geared to GDP. We keep hearing how irresponsible the US financial system is, but precisely the same has happened in the UK. It is an extraordinary coincidence, but in 1995 household debt was 66 per cent. of GDP and in 2006 it had gone up to £1.3 trillion, equivalent to 100 per cent. of GDP. It has continued to get worse and the Government have done nothing about it. They are responsible for monetary policy through the Bank of England, and it is no good disclaiming responsibility for it.

Monetary growth has fed the credit boom, and excessive monetary growth will now suffer from the correction. There are only three ways to deal with accumulated debt. The Government can inflate their way out of the debt, so that everybody’s debt is devalued by inflation. People can work to pay their debt off, but the markets have decided that there is so much debt out there that defaults are likely. It is not surprising that we now have a crisis in the banking system. Of course, I share the cynicism of some Labour Members about why some of those people in those institutions make those decisions. I should declare an interest in that I used to work in the City in the venture capital markets, but the responsibility of investors is to make good and sound investment decisions and to walk away from the deal when it becomes too expensive. Markets behave like herds in such instances, and it is the responsibility of the Government and the regulators to ensure that such excesses do not occur.

What should the Budget have been about? It should have been about stability. We heard the word “stability”, but it was an invocation with remarkably little power behind it. Public expenditure will be on a tighter rein in future years, but it will only stabilise at around 42 per cent. of GDP, which displays a continuing upward trend. That is assuming that economic growth and tax revenues match the Government’s anticipated figures, which is unlikely. It also assumes that we meet the tighter spending targets, also unlikely under this Government.

The Budget has put off the fiscal responsibility that is required to stabilise our public finances. The national debt will continue to rise. The Budget has not been about addressing the economic crisis or competitiveness: it has been about increasing taxation on ordinary people in this country. It has been about hoping that something will come up between now and the next election to bail out the Government and prevent them from having to face the consequences of being a tax and spend Government, as all Labour Governments turn out to be. The Government have squandered the economic inheritance that they received from the Conservatives; failed to reform the public services as many sincerely hoped that they would do; and failed the British people.

19:56:00

Mr. David Anderson (Blaydon) (Lab)
Several hon. Members have spoken about the technicalities of the Budget, but I want to talk about the impact it will have on people and how we can address some of the problems facing those who will feel the impact of the decisions that will be made by the House tonight.

I welcome some aspects of the Budget. First and foremost, as a former apprentice mechanic, I was pleased to hear that we will continue to support the development of apprenticeships, which should be welcomed by every hon. Member as a way to address the problems of our young people and provide them with better and different types of education. The lowest number of apprenticeships ever was 25,000 in 1992. Many of the industries that many of us had grown up with had been destroyed, and there was no one to provide apprenticeships. Thankfully, that has been turned round.

We have also done well in supporting 250,000 children who have been taken out of poverty, although there is clearly much more to do. I also want to focus on pensioners. It is noticeable that Age Concern and other groups have welcomed the fact that 600,000 pensioners will no longer pay tax, through the changes made last year, and the increase of the minimum income guarantee to £124. The positive moves on the heating allowance are also welcome, but they would have been a bit more positive if they had been made last year—2006-07—when some of us were arguing for a £100 increase in the heating allowance for people aged over 60. It is a shame that that has not been followed through this year.

The biggest impact on pensioners, especially those aged between 60 and 64, will be the removal of the 10p tax band. That is the one issue that pensioners and low-paid workers raise with me, and we must address it in the coming months and years. The £50 on the heating allowance for those aged between 60 and 64 will be more than eaten up, because they will pay at least £2 a week more in tax, according to letters I have received from the Treasury. They will get £50 in one hand and have £100 taken from the other. That is not the way to make progress.

I come back to the issue of the reinstatement of the link between earnings and pensions, which has been discussed before and forms part of the Pensions Bill. We must stop debating whether it will happen, and the time that it will happen should be brought forward, because by 2012 many people will be out of the loop as they will no longer be with us. The other aspect to that is that once the link is restored, it will not be enough to leave it at that, because 15 or 16 per cent. of the average salary in 2012 will be much less in 2020 in cash terms. Although the percentage might be the same, the National Pensioners Convention estimates that in 2012 the link will be worth 15 or 16 per cent. but that the gap will be about £500. Ten years beyond that, if there is not an uprating mechanism, the gap will be nearer to £1,000, and that is not acceptable. I have suggested to the Treasury that when the link is restored we should put in place a commission such as the one that monitors the national minimum wage, which would consider all the factors that impact on pensioners’ lives and say that we should uprate pensions above and beyond the current link.

Another positive move, which has not quite gone far enough, is the good news about smart meters. Smart meters are the way ahead for the energy companies, for the green agenda and to help people in this country save money. Reports out this weekend have estimated that, in the north-east alone, if every household had a smart meter put in it would save people £50 million and reduce carbon emissions by 300,000 tonnes. That could be replicated across the country, but we need some impetus. The small discussion in the Budget, although it is welcome, is not enough. We should have the same mental attitude as we had in the 1960s, when we converted every house with gas from ordinary gas to North sea gas. We did not let anything stand in our way. We should say to the utility companies, “If you want to carry on making money in this country, you must work with the Government and put in smart meters as a matter of urgency.” I suggest that the utility companies would be up for that; we should be up for it, too.

We must also do something about prepayment meters, because people are being robbed by them. I am glad that the Budget has made moves in that direction, but an Energywatch report this year showed that people were being charged up to £300 more for the same amount of electricity as others simply because they cannot afford or have access to direct debits. That is out of order.

Over the past week or two, there have been a number of programmes on the TV about how alienated white working class people feel in this country. That is a valid point, but it is not only white people. Ordinary working class people in this country feel disengaged from the political process and that they are being overlooked. I believe that our Government should look to the future. 

I have three practical cases that we could pursue to bring back those people who feel that they have been left out. First, I suggest that we consider introducing free school meals for every child in this country. It would at a stroke reduce the stigma for those who have free school meals at the moment. It would obviously increase uptake. It would develop healthy eating habits. It would, I hope, give children a more educated outlook about what food is and the importance of a balanced diet. It might also mean that some children would get at least one good meal a day.

I also suggest that we should consider keeping children in schools at lunchtime. It might not be popular with children, but it would certainly be popular with local people because it would reduce antisocial behaviour and litter. It would also give teachers more time to spend with the children and encourage them to develop the children as human beings. There will be a cost, but I believe that the benefits will outweigh the cost. Obviously, some parents would gain financially if they no longer had to pay, but the long-term health benefits and the importance of a healthy diet should outweigh that.

The second issue that I ask the Treasury to consider is the fact that for more than 30 years we have been committed to equal pay for men and women, but for more than 30 years we have failed to address the problem properly. Last year, one in five employment tribunals were about equal pay. Unison and GMB between them have 60,000 cases lodged at employment tribunals against the NHS and local authorities. Some negotiations have seen some success, but ultimately the lack of resources from national Government has prevented real movement. Even the most successful cases, which have been negotiated, are being unravelled by no win, no fee lawyers. The Government and employers have a duty to ensure that pay audits are performed and that they deliver equality. Only real Government support can address the issue.

We have put this off for 30 years. It is 11 years since the single status agreement was agreed in local authorities. It is nearly five years since the agenda for change was agreed in the NHS. If we as a Government do not find the resources to give to public authorities, the probability is that the employment tribunals and the courts will make it their responsibility. Neither the NHS nor local authorities will be capable of funding the bills that they will be landed with. Again, as well as doing the right thing we will make working people know that we are on their side.

Finally, I want to put forward a policy that my party and my Government are committed to, at least on paper: the development of a real role for councils in the provision of social housing. Some 2.5 million people have rejected the privatisation of their homes under various ballots for arm’s length companies, or arm’s length management organisations—you name it. Many more left in-house provision because they were given little, if any, real alternative. In Sunderland, for example, they were told, “Your houses need an investment of £250 million. If you don’t vote for it, you won’t get any investment, but your rents’ll go up £5 a week.” Obviously, people did what they thought they had to do.

The truth is that policy debates, political promises and procrastination have been the hallmark of the past few years. While we sit and talk about it, 1.6 million people are on local authority waiting lists. It is the biggest issue that I face in my constituency, and we have decent council housing. My surgery, postbag and phone calls every day bring cases of people with housing issues: they cannot get a house, they cannot get the house they want, they want to be out of the one they are in or the one they are in needs upgrading and they are waiting for it to be upgraded. I am not saying that we have not done anything about that—we have. The truth is that if we want to be faithful to the working backbone of this country, we must give local authorities the tools they need to deliver good social housing.

The official impact assessment that accompanied the new Housing and Regeneration Bill suggests that councils will be allowed to build only 2,500 houses a year, yet the Government have committed to build 3 million. Do we not trust councils? Do we not think that they can deliver? Do we not have faith in them? We should have—they are our people. They are democratically elected to do the job that ordinary working people have asked them to do. We should tell them to get on and do it.

If we do that, I believe that ordinary working people in this country will say yet again, “Yes, the Labour party and the Labour Government speak for us. They believe in what we do.” We have aspirations. I do not believe that “aspirations” is a word that can be used by only one side or another of this House. We should all have aspirations to make this world a better place for the people we represent, no matter what their background.

In my community, no one has yet said to me, “Dave, how much extra inheritance tax will I leave to my children?” We have some decent houses where I live. We have people who will leave £1 million and more. The issues that working people in my constituency bring to me are those that affect them day in, day out. I spoke yesterday to a gentleman who runs a local pub, and he said, “What on earth are you doing? Are you trying to drive us out of business?” An increase of 4p on a pint of beer might not sound like much, but the smoking ban—whether we like it or not, and I think we made the right decision when we imposed it—has had an impact on pubs. People can go down the street and buy 24 litres of beer for £16. If the guy who runs the pub wanted to sell 24 litres of beer, he would have to charge £100, which would give the Government and the country a lot of VAT that they would not get from the supermarkets, so we lose in every sense of the word.

We have to realise that we are alienating the people who we would say were our core supporters. We need to look at things like the fact that not only are we putting 4p on beer but we are committed to put it up by 2p plus inflation over the next period. That will not impact on binge drinking or disorder. People are not going to stop going out and getting smashed just because we have put 4p on a pint of beer, but that increase might close community locals where people are just hanging on by their teeth. Surely that is in nobody’s interest.

Finally, I want to say a word or two about the people who keep this country ticking over—the police, prison officers, nurses and everyone who works in our public and civil services. Over the past year, they have asked us time and again, “What are you doing to us? Why are you not paying us what we are worth? Why are you cutting our jobs and starting to pay us regional pay?”

Tens of thousands of civil service jobs have been lost, and it has been announced that another 12,000 jobs in the Department for Work and Pensions are to go. We ask fewer staff to do more work for less pay, so it is no wonder that they ask, “Where is our Government going?” It is our responsibility to look after them, because they carry out the work that we decide must be done. If we do not look after them properly, how can we expect them to look after our people properly?

I hope that this Budget, and the one next year, will give us a chance to resolve some of the problems that I have outlined. I am saying not that we should ignore middle England but that we should give priority to the issues that ordinary working people feel are not being addressed—their pay and conditions, their sense of equality, the houses that they live in and the homes that they are proud to have been brought up in. Those homes have been denigrated in this House, and people who live in social housing sometimes feel like second-class citizens. That is not how the Labour party and a Labour Government should behave.

I do not believe that the Conservative party will stand up for this country’s ordinary working people. No one knows what the Liberal Democrats would do if they were in charge but, if we do not get our act together and start looking after our working people, we might find out.

20:11:00

Mr. Mark Prisk (Hertford and Stortford) (Con)
It is a pleasure to follow the hon. Member for Blaydon (Mr. Anderson), who spoke powerfully and sincerely about the matters that concern people in his constituency. I hope that the Minister was listening. I suspect that politically, there are things that will divide us, but the hon. Gentleman made a very powerful point about aspiration. That is a subject that has not been mentioned much in the debate, although I hope to talk about it in a moment.

I was also interested to note that the hon. Member for Blaydon was the fourth Labour Member to speak negatively about the effect of the proposed beer tax changes on small businesses, pubs, clubs and local community groups. Again, I hope that the Minister was listening carefully.

Last Wednesday, the attention of British business and economic commentators was focused on what might be in the Chancellor’s Budget statement to the House, but in the long term, it would probably have been better if it had been focused on events in New York. While we focused on the contents of the Red Book, the fate of Bear Stearns—Wall street’s fifth largest investment bank—was beginning to unravel. This debate has been going on since last Wednesday, and in that time Bear Stearns has been sold off, for a price that represents just 6 per cent. of what its value was last week. Last week most of us may not have been intimately familiar with Bear Stearns, but its fate has repercussions for us all. Many hon. Members have mentioned the credit crunch, but the fate of Bear Stearns shows that, far from being over, the crunch has merely embarked on its next phase.

Sadly, as various hon. Members have noted, this country is not well placed to cope with the coming financial storm. Indeed, we are more vulnerable than many of our competitors. Higher personal debt, low private savings and a record balance of payments deficit have left this country exposed, because we rely so much on other people’s money.

However, the debate has made it clear that it is the level of Government borrowing that is exposing us to the worst of the bad economic weather. We have had 15 years of steady global growth. Over that period, any sensible Government—like any sensible business—would have taken the opportunity to build up their position and put something in reserve. Not this Government, though: instead of entering the downturn with a healthy surplus, they have built up a huge deficit. At 3 per cent. of GDP, our budget deficit is worse than that of all our major competitors—unless, of course, the Government now wish to count the Egyptian economy as a major competitor.

What a wasted opportunity it has been. Having inherited a golden legacy, Labour could have—should have—used the past decade to invest for the long term and prepare for the downturn. What have we had instead? The Government have not taken the long, strategic view; rather, we have had a decade of petty tinkering and meddling, of petty targets and stealth taxes. I suppose it was no surprise that last Wednesday, with the global financial markets in turmoil, the Chancellor dithered over whether we should have a ban on plastic carrier bags. That was the extent of the vision in the Budget.

One result of the Government’s obsession with fiscal tinkering is that this country now has the longest and most complex tax code of any major economy. Since 1997 “Tolley’s Tax Guide”—the principal compendium of all our tax regulations—has doubled in size and is now nearly 10,000 pages long. Ministers claim that they want to simplify the tax system, but their policies are achieving the reverse.

The Red Book—I shall carry on calling it that, although my hon. Friend the Member for North Essex (Mr. Jenkin) was right to say that both its colour and its purpose have changed—contains all the principal measures in the Budget. Two pages are devoted to tax simplification, but they are accompanied by tax law explanatory notes 270 pages long. Indeed, the explanatory notes on all the changes are longer than the entire Red Book itself. By tinkering and meddling with dozens of taxes, rates and thresholds the Chancellor—and inevitably, of course, the Prime Minister before him—has created a hideously complex system that wastes the time and money of every taxpayer and business in the land.

That leads me to the Government’s peculiar approach to so-called tax abuse. I am sorry that the right hon. Member for Oldham, West and Royton (Mr. Meacher) is not in the Chamber at present, as he gave us a fascinating description of how he thinks we should clamp down on anyone who is successful. Hon. Members will know that until 1997 there was tax avoidance and there was tax evasion; one was legal, the other was not. The Prime Minister, when he was Chancellor, rejected that approach. He believed that too many people were abusing the system and not paying what he thought that they should. He therefore devised the new notion of tax abuse, which sits somewhere between evasion and avoidance and, peculiarly, straddles both legal and illegal activity.

For example, the IR35 rules were brought in to tackle freelancers who the Prime Minister, when he was Chancellor, thought were abusing the system. We were told that millions of pounds of taxpayers’ money would be recovered, but the reality is very different. For example, of the 1,400 cases taken out against freelance members of the Professional Contractors Group—a body that represents just one part of the marketplace—only three have been prosecuted successfully by the taxman.

The same misguided thinking can be seen in the so-called “income shifting” proposals. Over the last few years, Her Majesty’s Revenue and Customs—sanctioned by Ministers—has spent nearly £500,000 on a single vindictive case against Mr. and Mrs. Jones of the Arctic Corporation, over an alleged liability of only £40,000. There was a good use of public money: spending £500,000 on a case to reclaim a £40,000 alleged irregularity. Ministers lost the case, both on appeal and in the High Court, so what did they do? They decided to change the law, with the result that they now seek to interfere in every family business and to decide the value of what different owners bring to that business.

Mr. Jeremy Browne
Does the hon. Gentleman share my grave concern that if the family business is a farm, it is very difficult to quantify what each member brings to it? There is the farmer, and his wife may help with bread and breakfast, while his son, daughter or son-in-law may help with mending farm machinery or with the harvest at the appropriate time of year. The Government have deferred implementing the proposal for a year, but they have not scrapped it altogether. The problem is that it will be massively intrusive, and will lead to a huge rise in bureaucracy for small businesses.

Mr. Prisk
I agree with my hon. Friend—I mean with the hon. Member for Taunton (Mr. Browne), although he has been present in this debate for so long that he is becoming a friend to those of us on the Conservative Benches. The hon. Gentleman is right: how will the Government implement that proposal, other than by using clipboards and intruding unnecessarily into every family business?

I welcome the decision by the Chancellor to delay the proposals by a year, but it would be far better if common sense prevailed and they were dropped altogether. The perceived abuse is smaller than Ministers have been told, and as the hon. Member for Taunton suggested, the costs of trying to resolve the problem—economically and, if I may say so to the Chief Secretary, politically—will prove far greater than the benefits the Government seek. Rather than creating a vicious circle by creating new laws and then trying to clamp down on the changes that are made as a result, Ministers should make our tax laws simple, clear and constant. By doing that, they would tackle the root of the problem; they would remove the desire and the opportunity to evade one’s obligations. A simpler and fairer tax system is what the UK needs, and I am pleased to say that that is what my party is proposing.

Last Wednesday the Chancellor announced not just the Budget but, as we heard from the Secretary of State earlier, the Government’s latest enterprise White Paper. Like his predecessor, the Chancellor talked glowingly about the importance of small businesses and highlighted a number of policies that he obviously hopes will begin to restore their confidence in him. Well, if I were him I would not hold my breath.

After the last year small businesses have lost whatever faith they may have had in the Government. First came the increase in small company corporation tax, then rising business rates, then an extra £10 billion in new regulatory costs and finally the £900 million capital gains tax bombshell. The result of all that is that from April—in just a few weeks—the tax bills of small businesses will rise by £1,000 million per annum, and from April 2009 they will rise by £1,500 million per annum. Given the economic downturn, why increase tax bills for 99 per cent. of businesses? Given that small businesses employ more than 10 million people, why make their finances worse, just when the economy needs all the help it can get?

As I said, the Budget was accompanied by a White Paper on enterprise. Ministers describe it as a “strategy” but in fact it is the usual new Labour hotch-potch of warm words, photo opportunities and good intentions. To be fair, there are some good points in it—on procurement and invoice finance, for example. I am pleased that the Government finally accept that some small businesses should be exempted from some regulations. For the past seven years, since I have been a Member, Ministers have fought tooth and nail against that principle, but now that they have accepted it we shall see whether they mean what they say.

On female entrepreneurship, we heard from the Secretary of State earlier that it is important to increase the proportion of women who start and run their own firms. I entirely agree. It is a sad truth that British women are only half as likely to run their own firm as their counterparts in America. However, we have heard that language from Ministers before. In the 2005 Budget the Prime Minister, who was then the Chancellor, announced a new women’s enterprise task force. We were told that it would turn things round in three years and make demonstrable progress, yet 11 months after the announcement Ministers had not even appointed a chairwoman to run it. With less than 12 months left to undertake the earlier initiative, we have another announcement and another initiative. The truth is that such Whitehall-led, top-down initiatives rarely work, and those that show promise are never given the long-term commitment needed to make a real difference.

In his opening remarks, the Secretary of State for Business, Enterprise and Regulatory Reform proudly pointed to the rise in the number of small companies as a sign that our entrepreneurial culture is increasing. However what he did not say is that the increase has been slower than the growth in our population. The start-up rate has actually fallen, from 3.2 per 1,000 people in 1997, to only three per 1,000 last year. The other critical measure of that activity—total entrepreneurial activity—has also dropped, from 7.7 per cent. in 2001 to 5.8 per cent. in 2006. Despite what the Secretary of State claims—and, I suspect, hopes—the culture of entrepreneurship is reaching a smaller and smaller proportion of the country; it is a culture that is shrinking, not spreading.

Similarly, small firms are growing more slowly. All the leading independent statistics show that the proportion of small firms achieving turnover at the critical figure of £1 million after five years has fallen—from 48 per cent. in 1997 to only 16 per cent. in 2006. In fact, in the UK it now takes an average of 14 years for a company to reach a £5 million turnover.

Of equal concern is the fact that fewer small businesses employ people than 10 years ago. The most recent statistics show that the figure has fallen to only 28 per cent. of SMEs. In other words, after 10 years of Labour Government, seven in 10 small firms no longer employ people. When Ministers produce whatever their next set of employment regulations may be, they might just want to reflect carefully on why fewer businesses want to employ people.

The Chancellor and other Ministers talk about promoting small businesses, but their policies are holding them back. While DBERR—the Department for business—is publishing its enterprise White Paper, the Treasury is simultaneously raising small firms’ bills by £1 billion. The sad conclusion, which I hear all the time from the business community, is that DBERR Ministers—business Ministers—are increasingly irrelevant. Last year, when asked about corporation tax rises, the Secretary of State for business merely referred people to the Treasury. He said that he had nothing to say. When the Chancellor announced the capital gains tax rise he did not even consult the Secretary of State for business. What use is a Secretary of State for business and enterprise who is completely overlooked by the Treasury when business taxes rise?

Over the coming months our economy faces a stern test, but I am sorry to say that it is one for which the Government have left us ill-prepared. I want business to prosper and entrepreneurs to thrive, but I fear that with the current incumbents in Downing street—at No. 10 and No. 11—British business and British entrepreneurs will have to compete with one hand tied firmly behind their back.

20:26:00

Ian Lucas (Wrexham) (Lab)
I am grateful for the opportunity to contribute to the debate. I want to talk about the reality of the British economy today, in particular in my constituency in Wrexham in north-east Wales. The reality bears little resemblance to the words of the prophets of doom on the Opposition Benches. The Government’s record over the past 10 years in building the foundations for a strong economy is testament to their being a Government of great economic reform.

Today the A380, one of the most magnificent examples of British engineering, landed at Heathrow after its first commercial flight. The wings for the A380 are built at the Broughton plant in north-east Wales and are testament, first, to the engineering skill of the people of north Wales but also to the Labour Government’s investment in the Airbus company and the British economy generally. That work is also testament to European co-operation, something that the Conservatives certainly do not believe in.

Airbus employs 13,000 people in the UK—about 8,000 at the Broughton plant in north-east Wales. Several hundred people from my constituency work there. In addition to the contribution that the civil aircraft sector has made in the past few years, Airbus has announced in the past fortnight that the air tanker project commissioned by the US Government, worth £3 billion, is to be awarded to the European Aeronautic Defence and Space company—EADS—and Airbus. Again, that is a huge vote of confidence in UK manufacturing industry, and it shows the reality of the manufacturing sector in north-east Wales. The sector extends further than aerospace; Sharp, the Japanese manufacturing company, manufactures photovoltaic cells in my constituency and has invested in the manufacture of those cells for export to the UK market. That investment came to the UK in preference to any other country in western Europe because north-east Wales and the UK was the best place to invest, manufacture and export.

The pharmaceutical sector has invested in Wrexham, too. An Indian company, Wockhardt, is investing in the manufacture of pharmaceutical products in Wrexham, and a French company, Ipsen BioPharm, is investing in Wrexham so that it can export to the US market. All those investments have been made in the Wrexham economy in the past five years. The reality for the people of Wrexham is that the rate of unemployment has declined since 1997, when, under the Conservative Government, about 2,000 people in my constituency were registered as unemployed. That figure has halved; it is now just over 900.

The reality of manufacturing industry—I have focused only on manufacturing—in my constituency under the Labour Government is that it has been successful, has developed and strengthened, and is prospering. We should listen less to the doom-mongers on the UK economy and recognise progress when it has been made. I say quite candidly to the Conservatives that it would be extraordinary to listen to their lectures about running the economy. I was born in the same town as my hon. Friend the Member for Blaydon (Mr. Anderson), I think, and I experienced what a Conservative Government did to the UK economy between 1979 and 1997. I remember when, in the early 1980s, 3 million people were unemployed. I was seeking work in the north-east at the time, but I went to Germany to work during a summer holiday because there were no jobs available in the north-east. Unemployment was at 3 million not just once but twice under the Conservative Government. Lives were wasted and set aside for 18 years, so I do not listen at all to the arguments put forward by the Conservatives; they can give no lectures whatever about the economy and how to run it.

Mr. David Anderson
Does my hon. Friend agree that the unemployment experienced in the 1980s was not an accident, but was the result of a policy of which the Conservatives were actually quite proud?

Ian Lucas
Absolutely, and it was a policy of waste. We should remember that during all those years when 3 million people were unemployed, each of those individuals was being paid benefits. A dependency culture developed, and we are still struggling with it today. There are individuals who were put on the incapacity benefit scrapheap by the Conservatives and who are still on incapacity benefit today. That dependency culture cannot be cured overnight; we are working to defeat it, and we are making real strides towards doing so. The most important stride that we are taking is in creating an economy where work is available—something that did not happen under the Conservative Government.

Mr. Philip Hammond
If the hon. Gentleman does not want to take any lectures on the UK economy from us, what does he think about Alan Greenspan, the Prime Minister’s adviser, who says that the UK economy is “more exposed” than that of the US to financial instability, or Goldman Sachs, the Treasury’s appointed adviser, which says that

“The UK is slowing more than the rest of Europe”,

or the OECD, which says that the slow-down will be larger in the UK than elsewhere?

Ian Lucas
I should be delighted to invite the hon. Gentleman to visit my constituency of Wrexham, with which I believe he has some familiarity. I invite him to see the prosperity, which is built not on public sector investment—although there has been such investment in Wrexham—but on the inward, private-sector investment in north-east Wales that I described. Retail investment is going into the north-east Wales economy from the private sector because it has confidence in the UK economy and the people who are bringing prosperity to the manufacturing industry and the area.

I refer to one specific proposal in the Budget relating to child poverty—

Stewart Hosie
Before the hon. Gentleman moves from manufacturing to child poverty, may I say that I welcome what he said about north-east Wales and I am delighted for his constituents working in those industries, but he should not be complacent about the 650 employees at NCR who were laid off last year or the 100 at Michelin in my constituency, the closure of the Yorkshire Fittings plant in my constituency, the wheelchair company that moved production to China, and Patak’s Foods? There is not a universal picture. A million manufacturing jobs have been lost, including 1,100 across Dundee in the past year. The hon. Gentleman must realise that the picture that he paints is not uniform across the UK.

Ian Lucas
I speak of my constituency, and I realise, of course, that companies close in all constituencies, including mine, because we live in a globalised economy. We must confront the challenges of competitiveness and low-wage economies. We must progress and constantly improve our manufacturing base. The way forward has been shown by companies such as Airbus and Sharp UK, which have invested in high-technology products.

I could also speak about the development of the apprenticeship network, which is strong in north-east Wales. Apprentices were a lost breed under the Conservatives, but are now resurgent. When I go to my local further education colleges, I see local companies employing apprentices and planning and investing in the future. That is how we will compete as an economy in the future.

I wish to mention a specific aspect of the Budget that I welcome. Mrs. Sheila Harrison, who is the manager of my local citizens advice bureau in Wrexham, approached me last year and suggested that it would be a major step forward in tackling child poverty if the Government considered disregarding child benefit for the purposes of calculating housing benefit and council tax benefit. At that time, I wrote to the Treasury and to the Department for Work and Pensions. I also tabled a parliamentary question and established that it would cost about £300 million to implement that. I tabled an early-day motion, which I am sure had an inordinate effect.

I was delighted to read in the Budget that from next year the Government will implement that very proposal. Mrs. Harrison rang me up, having been apprised of it by the citizens advice bureau network. I take this opportunity to thank the Government for taking the wise words of advice from Mrs. Harrison. No doubt other individuals made representations to that effect. It is heartening indeed to hear that we have a Government who are committed to eliminating child poverty by 2020 and halving it by 2010, and who are taking steps year by year in that direction.

The difference between the present Government and the Conservative Governments is that when the Conservative Governments were in power, they did not even regard that as a goal that they wished to achieve. I am proud that we have a Government who are creating manufacturing industry that is developing and prospering in north-east Wales, and who are confronting and attacking child poverty in our midst.

20:38:00

Mr. Philip Dunne (Ludlow) (Con)
It is a—I was about to say a pleasure to follow the hon. Member for Wrexham (Ian Lucas). I note that in many of the references that he made to the success of Wales in attracting high-tech manufacturers he did not give credit to the Welsh Development Agency and the political skill that Welsh Labour MPs in particular have in persuading it to support business in Wales. On the other side of the Welsh border we notice that to our cost. The hon. Gentleman is to be congratulated on the role that he plays in that.

Ian Lucas
On a point of information, I should point out that the Welsh Development Agency no longer exists.

Mr. Dunne
I am grateful for having been brought up to date on the extent to which Wales keeps ahead of other regions of the country in developing its support for industry.

I should like to focus most of my remarks on the macro aspects of the Budget. Many speakers have discussed the extent to which the Chancellor is in denial of the events surrounding this country. So concerned has he been to convince us that all is well with his stewardship of the economy and that all is stable in his hands, that he failed to recognise—and barely mentioned in his speech—that the stable door has been blown open by the financial storm coursing around the globe, and is left flapping in the wind.

In opening the debate, the Secretary of State for Business, Enterprise and Regulatory Reform repeated the mantra about stability; apparently, the problems are all the Conservatives’ fault for talking the economy down. However, we did not cause the credit crunch, as was generously acknowledged in one of the Labour contributions. We did not cause the crisis; nor are we talking it up. However, we do believe that the Chancellor needs to wake up to the consequences of these unprecedented events, as many commentators warn that he should.

What is the Chancellor’s reaction to the shocks? In his speech last week, he talked up the resilience of the UK economy and today Ministers and the few Back Benchers who have turned up to support the Chancellor have been parroting that mantra too. However, what is there to be so resilient about in an economy whose house price inflation is among the highest and most resilient—in that sense—in the world? Our household debt levels are at record highs and our consumer saving ratios are at record lows. The day after the Budget, Roger Bootle, a leading economist, wrote:

“Our housing market is one of the most over-valued; our consumer saving ratio has plunged to levels only exceeded by the US; we are heavily exposed to the global economy, which is threatened; we are heavily dependent upon international financial activity, which could be severely hit; and our scope to take expansionary fiscal action is limited by our recently lax fiscal policy. On balance we are relatively badly placed to weather the storm.”

That says it all—far more than the Chancellor has acknowledged in his assessment of how we are placed to cope with the financial crisis.

It is not only our own economists who are spreading cautionary tales. The managing director of the International Monetary Fund, Dominique Strauss-Kahn, was quoted in the papers as saying:

“It’s a problem for economic growth. We clearly face a situation in which the risks to economic growth are more and more serious.”

I hope that he passed that message on to the Prime Minister and the Chancellor when he met them today.

Today, the Bank of England published its latest quarterly review. In commenting on activity in the sterling financial markets in February, it pointed out that the

“difficult conditions in bank term funding markets would continue for some time, which would be likely to lead to a reduction in the supply of credit to the economy generally…This could act as a drag on economic activity, and in turn could prompt further deterioration in the quality of banks’ assets and limit their ability and willingness to lend”.

One example of the speed of change is that the central forecast in the Budget is for house price growth of 2.5 per cent. per annum. Figures for last month show that house prices have already declined, after five successive months, to an annual rate of only 1.4 per cent. So, before the year has even begun, we are considering an optimistic annual house price assumption in the Red Book.

Where does that leave Government finances and the Chancellor’s forecasts? It leads to an overwhelming lack of credibility. The Chancellor chose to downgrade his GDP growth range for 2008 to a range of 1.75 to 2.25 per cent., rising back to trend after 2009. However, he did that on the back of consensus economic forecasts, which looked to 1.5 to 1.7 per cent. The bottom of the Chancellor’s range for growth in GDP in the year that is about to start is marginally above the consensus average. Independent commentators, who gave evidence to the Treasury Committee on Monday, raised particular anxieties about that. Bridget Rosewell from Volterra Consulting described the Chancellor’s forecast as complacent. She said:

“The particular form of optimism that I find most disturbing was not that overall headline number, where even the bottom end of the range is above the current consensus, which seems odd, but also the discussion about the UK’s resilience to economic shocks and how this is expected to have increased. It was the complacency surrounding that which I found particularly disturbing.”

What does that forecasting optimism mean for the public finances? The Government, especially the Chancellor’s predecessor, have form on forecasting the public finances. Every year since 2003—seven years in a row—the year in which public finances cross over into Budget surplus has been pushed out. In the 2003 Budget, it was predicted to happen in 2005-06. Only last year, in the 2007 Budget, the date was pushed to 2008-09. The pre-Budget report, which was published only last October, pushed it to 2009-10 and the Red Book now says that it is to be 2010-11.

The public sector net debt, excluding Northern Rock and the international financial reporting standards—IFRS—changes, to which my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) referred, has increased by £20 billion over the period of the Red Book. What impact does that deterioration in public finances have on the Government’s famed sustainable investment rule? It places it perilously close to a breach. Table C5 on page 184 of the Red Book shows that public sector net debt reaches 39.8 per cent. of GDP. How much headroom does that give us? Headroom of 0.2 per cent. is equivalent to only £2.8 billion. That compares with a £13 billion to £14 billion average forecasting error since 2003. That leaves a high probability of a breach—a 50:50 chance, according to the experts who spoke to us on Monday. Where is the discussion about what happens in those circumstances in the Chancellor’s explanation of the Budget? It appeared nowhere in his speech or in the Red Book. The Chancellor is crossing his fingers that it will not happen.

Of course, the figures completely exclude the impact of Northern Rock, which the Office for National Statistics declared will have to be added to the public debt yet the Chancellor conveniently decides that he can ignore. The ONS calculated the Northern Rock debt at 30 June as adding 6.7 per cent. to the public sector net debt as a proportion of GDP, blowing us way off the sustainable investment rule. Yet that has not been discussed and there has been no explanation of what the Government will do.

The figures also exclude the impact of moving the public accounts on to an IFRS basis. The Government have agreed to that but decided to defer doing it for another year. That is likely to add a further £30 billion of PFI off-balance-sheet debt to the public sector net debt. Again, there was almost no discussion of that in the Chancellor’s presentation.

Let me consider briefly the specific measures that the Chancellor proposes. We are debating a tax-raising Budget. Much has been made of the fact that it is fiscally neutral and, technically, it is, but only for the year that starts in April. Measures to be introduced in April 2009 raise just short of £800 million and those to be introduced in April 2010 raise a further £1.8 billion. When taken with measures that were announced in the Budget in 2007 and since, the figure rises by a further £1 billion to £2.8 billion in the third year of the Budget, so we are talking about a tax-raising Budget, not a tax-neutral Budget.

By and large, the measures in the Budget are puny—that point was well made by the hon. Member for Taunton (Mr. Browne). Of the 52 measures set out in table A.1, which shows the fiscal impact of the policy decisions in the Budget, 42 have a fiscal impact in the first year of plus or minus £25 million or less. Indeed, many have either a zero or an insignificant impact. By 2010-11, some 34 of those 52 measures will continue to have a minimal impact. Those measures amount to tinkering at the edges and have little significance on the national accounts.

Overall, the measures are also regressive. Almost everybody earning less than £18,000 will be worse off under the proposals, particularly if they drink, smoke or drive. The more significant measures have been shambolically introduced. Other hon. Members have talked about the capital gains tax changes, which were announced in the pre-Budget report. It was then announced that there would be a rethink, but the rethink was delayed. Finally, the proposals were confirmed a few weeks ahead of the Budget, giving business men very little opportunity to arrange their affairs before the end of the tax year.

The Secretary of State for Business, Enterprise and Regulatory Reform had the gall to argue that the Budget is a Budget for entrepreneurs that, to use the expression that I think he used, abandons short-termism. In fact, the Government’s capital gains tax proposals abandoned the very incentives that encouraged long-term investing. Is it any wonder that the Government’s reputation for economic competence has now been exposed as blowing in the wind?

20:52:00

Paul Flynn (Newport, West) (Lab)
It is a pleasure to follow the hon. Member for Ludlow (Mr. Dunne), which is part of Wales’s Sudetenland, as he knows, not that we have any plans to re-conquer it. I am sorry that I did not hear an expression of the spirit of generosity that we have seen from the English rugby XV, following recent events on the other side. We have heard what seems to be a Meldrew approach to the Budget. I was also delighted recently to see something that I had not noticed before—that the English rugby team has “O” and “2” on its kit. Apparently, that is the answer to the question of how many times certain countries have won the triple crown in the past five years: two times for Wales and zero, sadly, for England. However, it is nice of England to do that for us.

The hon. Member for Hertford and Stortford (Mr. Prisk), who has just left the Chamber, made some selective points about entrepreneurship. It is only fair that I should cite some facts about entrepreneurship that he unfortunately omitted. The UK is now third in the G8 ranking for early stage entrepreneurship, which is very creditable, up from fifth in 2001. That is a considerable improvement. The proportion of the working age population expecting to start a business in the next three years has increased by 70 per cent. Again, that is very creditable and a good story. The proportion of the population who believe that they have the skills to start a business has increased by a quarter, from 40.2 to 49 per cent.

That is extremely good news, and I do not see why the Opposition should be blind to it. I delight in the fact that in my constituency and in my country, Wales, there is now a spirit of entrepreneurship that did not exist historically. In the past, Wales has seen itself as a country of employees rather than of employers—a country with the branch factory rather than the headquarters.

Let me give just one example of a company in my constituency that is firmly rooted in Newport and Wales. It is a firm with enormous promise named Lifeforce, which has world patents on a process for parking the immune system—that is, extracting the white cells from blood transfusions and placing them in three different locations, to be stored for a lifetime if necessary. They can then be brought out for use if the person’s immune system is under attack or has been damaged by chemotherapy or by a disease such as AIDS. The white cells can then be used to re-infuse the healthy immune system into the body. This is an exciting development. It would have enormous repercussions for our health if we could re-infuse a healthy immune system into the body when it comes under attack.

The Nobel prize was won by Martin Evans at the university of Cardiff. He is a specialist in mammalian genetics. That, too, has great promise for the future of science and our health. We need to capitalise on those developments. Lifeforce, the firm that I mentioned earlier, already has a link with the Bill Gates Institution and with a firm in America and another in Germany. Its procedure is now a practical proposition that has been approved by the Medicines and Healthcare products Regulatory Agency in this country and by the Food and Drug Administration in America. Those two regulatory bodies have given their approval to its science, which could be of great benefit to our future life expectancy, and it has commercial prospects as well.

I should like to suggest a way in which the Government could raise money through the Budget. Sadly, the proposal is not in this one, although I have suggested it in the past. They could raise a good £2 billion in a manner that would be painless as well as popular and just. It involves the national insurance scheme, which is very unfair at the moment. People like me, who are in the happy position of having reached retirement age but are still working, pay no national insurance contributions. However, people in this happy situation have reached a time of life at which we could certainly afford to do so, but those of us in that position pay nil per cent. Most hon. Members pay about 1 per cent., because our earnings are high, but people at the bottom end of the pay scale can pay up to 10 per cent. of their income in national insurance contributions. It is a hugely unfair tax.

If they wished, the Government could change the law so that those who were still enjoying the pleasures of a working life after reaching retirement age would continue to pay national insurance contributions. Indeed, they are receiving some of the benefits of the national insurance scheme that others might not live long enough to enjoy. That would be a just measure, and it would raise the sum of £2 billion. Those fortunate enough to be in that happy position would find such a tax acceptable.

The national insurance scheme is in a bizarre situation, because it has been building up huge surpluses. The actuaries insist that there should be a surplus of about £17 billion, to allow for a serious increase in unemployment. However, we have built up a surplus that is way beyond that amount in each year over recent years, and we now have a surplus of about £48 billion. If we were to continue in that way, by 2013 we would have a surplus in the national insurance scheme that could fund a rescue in another Northern Rock crisis, if there was one.

The current situation is unfair because the money is being used as though it were ordinary taxation revenue. It is being used in the same way as other taxes are used, but it has been raised unjustly, because it is a tax that falls more heavily on the poor and the low paid than on those who are very well off. I would like those on my Front Bench to consider my proposal and to change the whole nature of the national insurance scheme so that we no longer build up those surpluses.

A great deal has been made by the Leader of the Opposition of last year’s UNICEF report that was critical of the progress that had been made on tackling child poverty in this country. It is a great shame that the same people who exaggerated the effect of that report did not look at UNICEF’s report from 2004. It came from the same body from the same source—the Innocenti centre in the Piazza della Santissima Annunziata in Florence—and said that of the 25 richest countries in the world, the country that had achieved most in reducing child poverty was Great Britain. That report was totally ignored by the press. I tried to get some attention drawn to it in an early-day motion, because it had had no coverage whatever, as positive news tends to be something that people do not want to hear. We do not see headlines in the papers about that sort of thing, but it gave impressive recognition of all that the Government had done to take children out of poverty. It is, of course, the negative news that gets the attention.

The leader of the Conservative party recently wondered how we could allow child poverty to happen and how we could have got ourselves into such a position, but given the extent of child poverty under the 18 years of Tory Government from 1979 to 1997, he should be more careful in his remarks. When the Tories came into office, by the same measure, one in seven children were in poverty; but by the time they left office, it was one in three. That is a terrible record of indifference to the relative poverty of those at the bottom end of the scale.

We should also look at certain enterprises that the Government have entered into and we should become more critical of the Chancellor’s involvement in the nuclear industry. An extraordinary answer was given to my hon. Friend the Member for Blaenau Gwent (Mr. Davies) a fortnight ago. It revealed that an enterprise that had been opposed by hon. Members in speeches and in early-day motions and by environmental groups such as Greenpeace and Friends of the Earth nevertheless had the support of every party in the House. The amount of money spent on that flawed proposal, on an evidence-free and unscientific basis, was £473 million.

There was no great mystery behind the opposition, because everyone who opposed it said clearly that the cause was impossible: it could not work; it was impractical and it had no rational basis. It was intended that the mixed oxide plant at Sellafield would produce 120 tonnes of uranium fuel every year. It has been in full production for five years now, yet it has produced only 5 tonnes—a monumental failure. It is difficult to go back through our industrial history and find an investment that has failed as spectacularly as that, yet we still put this faith in nuclear power—mainly, I think, because most Ministers and others involved in the enterprise feel themselves to be scientifically semi-literate or illiterate and do not question the claims made by the nuclear power lobby. We already know that the bill for clearing up the mess from nuclear power over the long term is something in the order of £73 billion.

The affair reveals the extraordinary gullibility of the House. This is not ancient history either; it happened over the past eight years. It was in the year 2000 that the great debates about the mixed oxide plant were taking place in this House. Every one of the arguments put forward by the environmentalists and others in the House turned out to be justified, and the arguments supported by those on the Front Benches of all parties turned out to be false.

The Lib Dem spokesman mentioned the farming industry earlier, and I would like to make another point about it. There is lobbying at the moment about problems in the farming industry, particularly in pig farming. Almost ignored, however, is the enormous amount of money being made by the grain industry, whose profits went up 70 per cent. one year and nearly 50 per cent. the next year. Those are huge sums. When we talk about additional burdens on the farming industry because of the price of grain, why do we leave out the fact that there have been those huge increases in the incomes of grain farmers on account of that? That is not mentioned—we do not get a morning chorus of whingeing on the “Farming Today” programme about the huge windfall profit enjoyed by grain farmers. If sections of the farming industry are doing exceptionally well, there should be a virement to those sections that are under pressure. We should not continue uncritically to support the whole farming industry as we have in the past. The traditional subsidies are no longer supported, particularly given their effect on the developing world countries. Sadly, one man’s subsidy is another man’s poverty in another part of the world.

Opposition Members have mentioned the Office for National Statistics. An official launch will be held by Michael Scholar to celebrate the ONS’s new independence. It was suggested that the Act that introduced that independence was of great importance, which it is, given the cynicism about national statistics. Under that Act, the full independence of the ONS will be guaranteed. The office is located in my constituency, and I remember being approached many years ago by statisticians who felt that their work and their integrity were being undermined by a previous Prime Minister, who was moving the ONS from one Department to another, and who had a vested interest in seeing that the figures might be fiddled in some way. I had a letter from Margaret Thatcher at the time, saying what an unworthy thought that would be. But there was that possibility and suspicion throughout that time. I look forward to the fact that when we debate these issues in future, we will know that the statistics provided by the ONS are genuinely independent and objective.

21:07:00

Peter Bottomley (Worthing, West) (Con)
I shall not speak for long.

Labour Members have been talking about employment and employment rates. Much to most people’s surprise, I spent six years as a junior Minister ending in 1990, when the employment rate was higher than it is now—that is my guess from the charts in the Red Book. I shall speak mainly, however, about trying to get more consistency into the Red Book.

Will Ministers discuss with the Statistics Commission whether it is appropriate to have such odd runs of years in its figures? Obviously, figures on projections for population growth over the next 30 years are rather different from those on the balance of payments over the past 30 years. However, I shall give some illustrative examples, which will not be very exciting.

On page 11, in charts 1.1 and 1.2, on Government expenditure by function and Government receipts, it would be useful to have a run showing percentages, to illuminate how we are letting Government spend money. On page 18, chart 2.1 on inflation performance and expectations from 1990 to 2008 gives an 18-year run of years. Incidentally, in some of the graphs, it would be useful to have a log projection, rather than just a linear one, when the figures have changed significantly.

I will not go through the whole list, although I would if I had more time. The chart on meeting the golden rule has a 14-year run of years, and the chart on protecting investment has a 33-year run of years, I think, unless I have misread my own figures. On page 29, the chart on meeting the sustainable investment rule has a 16-year run of years. So it goes on. I could go through a whole series.

I suggest that Ministers ask whether those different runs of years were put in because they asked for them, or because the officials suggested them. I suspect that political advisers said before Ministers saw them, “I don’t think the Minister would want people to see that. If you don’t show the Minister, they can deny that they were the ones who made the decision.” I ask for an explanation of the run of years, preferably in advance of the Red Book coming out.

Instead of just having a list of tables and charts at the back of the Red Book, it would also be useful to have a list of boxes. I should like to see an index, and in particular I should like to see the cost of the Red Book reduced from £45 to about £20. We do not need the photographs, although it is nice to see ethnic balance. Of the 10 people pictured, five are not white, five are, and there is one random hand floating around—but we do not need that kind of thing, however balanced it may be.

Perhaps Ministers could ask an archivist to show them a Red Book produced, say, 30 years ago, and ask what the cost would be of printing it in that format. They would find that it would be substantially lower, which would reduce the costs incurred by those who want to see what we are doing.

I should like to know whether a chart is available to Ministers showing where the economic cycle starts each year. We know that there have been changes, so why not provide the information? I also wish that the Government had managed to include a chart explaining the retail prices index. The consumer prices index is a separate thing: we know perfectly well that it is at 2.5 per cent., although it would have been at 2.2 per cent. if the methodology had been different. The retail prices index is at 4.1 per cent., which matters more to my constituents. The information that the price of strawberries went down in February is not much use to them, nor is information about the drop in the price of hobbies and games. They are interested in the real prices of real things, and the retail prices index matters to them.

21:11:00

Greg Clark (Tunbridge Wells) (Con)
It is a pleasure to follow my hon. Friend the Member for Worthing, West (Peter Bottomley), whose speech was admirably concise. I am grateful to him for that.

I want to say something about child poverty, which has featured in speeches by Members on both sides of the House since the beginning of the Budget debate. On Thursday, a source of contention between the two Front Benches was how Government and Opposition could aspire to reach the 2010 as well as the 2020 target. I think it both possible and desirable to eradicate child poverty in a way that fulfils the Government’s commitment. If we define 60 per cent. of median earnings as the poverty threshold, it is entirely possible to raise people from below that level to above it.

There are two ways of doing that. First, there is what I would call the sustainable way. That involves creating circumstances in which people’s earnings carry them from below the threshold to above it. The second way is to regard child poverty as an entirely fiscal phenomenon and to make financial transfers from one group to another, thus topping up poorer people’s incomes and raising them above the threshold. That is not a sustainable method, and I think we should draw a distinction between the two. Our ambition to eradicate child poverty should go hand in hand with enabling people to stand on their own two feet, and to earn enough from the product of their labours to sustain themselves and their families.

I find it slightly depressing that in recent weeks the debate about child poverty has concentrated purely on the fiscal transfer, as if that were the only possible way of addressing the problem. If, through a wave of the Chancellor’s magic wand in subsequent Budgets, we were to increase the contribution of state benefits to take everyone who is currently below the 60 per cent. level above it—so that, technically, poverty would have been abolished—would we see an absence of all the social problems that we associate with poverty? Absolutely not. Many of them would continue to exist. The speech made today by the right hon. Member for Darlington (Mr. Milburn) made it clear that poverty is as much a symptom of other social problems as it is a self-contained phenomenon to be abolished. We need a more sophisticated understanding of it.

No one has captured that point better than my right hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith). He identified a range of contributors to child poverty, from poor housing through poor education and dependence on drugs to family breakdown. Those are the issues that we must tackle if we are to make a sustainable dent in child poverty and, ultimately, eradicate it.

This should not be an issue of contention between both sides. One of the remarkable contributions of the right hon. Member for Darlington today was to suggest that we take a broader view. In that, he is consistent. I was struck by a speech he made recently in which, like today, he quoted Professor Amartya Sen, the Nobel prize-winning economist who has noted that social equality is best tackled if we tackle the root causes not the symptoms. The right hon. Gentleman said that that must mean moving beyond simply correcting low wages and family poverty after the event towards policies that spread opportunity and help people realise their own aspirations for progress. Correcting low wages after the event should not be enough. It might be a temporary palliative, but we should have higher ambitions.

Peter Bottomley
I am sure that the right hon. Member for Darlington (Mr. Milburn) is right to say that we need to go beyond trying to make sure that when people start having children, when their incomes are low and their needs high, money helps, but is not it odd that a Nobel prize winner can be quoted with approval yet when Keith Joseph said roughly the same thing, the whole of the media and the Labour party jumped on him?

Greg Clark
As my hon. Friend points out, times change. I welcome the conversion of the right hon. Member for Darlington to the cause. At the moment, the debate is all about precisely what the right hon. Gentleman suggests we avoid doing: correcting low incomes after the event, rather than tackling the root causes. Last year 2.6 million families received tax credits, excluding the family element of the child tax credit. The number of people receiving this element of tax credit is double what it was in 2001 and treble what it was in 1997. The consequence is that 1 million children are above the poverty line by less than they receive in tax credits. Everyone must be relieved and grateful that they have been put above the poverty line and that their circumstances are improved, but do not let us pretend for one moment that the problem of child poverty has been solved. It has been masked or disguised. Those 1 million children are effectively in poverty and the state is intervening to drag them above the line. That is not a sustainable recipe. They need tax credits to escape poverty, so poverty has not diminished in that sense.

The Chancellor has a golden rule and a sustainable investment rule—a golden rule suggesting that we borrow only to invest, backed by a sustainable investment rule that makes sure that borrowing does not reach such a high proportion of national income that it dominates it. In tackling child poverty, we should have a rule that says that we must eradicate child poverty, but that the means of doing so should come from income and the ability of people to earn for themselves. That is the only true sustainable means of tackling child poverty. That makes economic and personal sense for the people concerned. It makes economic sense, because if we are to compete internationally the idea that we permanently have a sub-optimal equilibrium of a payment running into many billions of pounds that we have to sustain to keep society together is not acceptable.

That is the equivalent of the losses of the nationalised industries during the 1970s, when we accepted that companies such as British Steel and British Leyland could not possibly earn enough in their markets to sustain themselves and had to be given a permanent subvention from the Government. It is the equivalent today of the common agricultural policy, where rather than just protecting the incomes of farmers in times of volatility, it is permanently acting as a tax on every taxpayer in the EU and on the consumers of agricultural products.

These are measures that were meant to be temporary but have become permanent, and they all cost. If we are to be competitive, we must not get back into the way of thinking that these permanent drains on our resources are somehow acceptable. They should be temporary. Our ambition must be to get people back into jobs by equipping them with skills, incentives and motivation so that we regard it as a failure if, having eradicated child poverty in 10 years’ time, we have not also made sure that that was down to the sustainable abilities of people to earn their income, rather than transfers from the state.

21:19:00

Mr. Philip Hammond (Runnymede and Weybridge) (Con)
This has been an interesting debate, although it has not been particularly well attended by Labour Back Benchers. We started with 11 of them when the Secretary of State stood up, and at the low point of his speech we were down to six. He took what might be regarded as a sensible approach in the circumstances: he adopted the micro-economic approach to analysing the Budget. He focused on the enterprise White Paper, which some in the business community might think of as being akin to fiddling while Rome burns. He spent 20 minutes explaining the details of the well-meaning but rather small-scale proposals in the White Paper, when most of his audience were more concerned about the macro-economic backdrop, which seems to be deteriorating by the hour. Interestingly, he told us that the Government wanted to ensure access to finance for entrepreneurs, but then supported the slapping of an 80 per cent. tax increase on business angels. We know that he fought the cause internally, but ultimately the clunking fist won.

My hon. Friend the Member for Rutland and Melton (Alan Duncan) countered the Secretary of State’s narrow approach by focusing on the macro-economic backdrop to the Budget. He also reminded the House that following the Budget 73 per cent. of people believe that it will contribute to a downturn in the UK economy—perhaps showing us that the man in the street has a better grasp than the man in the Treasury, and also perhaps accounting for the recently published opinion poll showing that Labour’s standing on economic competence has fallen from 7 per cent. before the Budget to minus 8 per cent.—in other words, there is an 8 per cent. Conservative lead following the Budget.

The hon. Member for Taunton (Mr. Browne)—who has returned to the Chamber just in time to hear my next remarks—made an excellent speech. He described the Budget as a Budget with a hole, because the most important measures—the income tax changes—were not in it. He pointed to a lack of purpose or any sense of vision in the Budget, and he contrasted it with the Budgets and speeches of the big beasts who have occupied No. 11 in the past, comparing what they did with this Chancellor’s focus on the possibility of introducing a plastic bag tax at some time in the future. He described the Budget as a humiliation for the Chancellor—a series of micro-announcements that he was forced to make to pad out the allotted 50 minutes, with £1 million here and £1 million there. He also gave a highly entertaining, but completely inaccurate, list of supposed Conservative policies, and I am thinking of seeing whether we can book him as an after-dinner cabaret turn for a future Conservative party conference.

The right hon. Member for Darlington (Mr. Milburn) observed, with what might be described as classic understatement, that mid-term Budgets are never easy. He also described the Chancellor’s approach as calm, which is perhaps the friendly-fire version of the description of it as soporific by the hon. Member for Taunton. However, the right hon. Gentleman made a thoughtful speech, in which he focused on the need to support wealth creators—although when he did so, not all Opposition Members were quite sure that he was taking along with him on his journey the right hon. Member for Holborn and St. Pancras (Frank Dobson), who was sitting next to him. The right hon. Member for Darlington also confirmed candidly that the relationship between business and the Government had been sorely tested over the past six months, and he called for a renewed focus on social mobility, which certainly all Conservative Members would agree with. He pleaded with those on his Front Bench to ensure that the Government focus on being an empowering Government, rather than a controlling one. I am sure that the Secretary of State would be happy to accede to that, but I am not so sure whether the Prime Minister will have any truck with it.

My right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) made an excellent speech, agreeing with the right hon. Member for Darlington, but he described the Budget as a mini-Budget that did not move us any nearer to achieving any of the laudable goals that the right hon. Gentleman aspired to. My right hon. and learned Friend also set out a critique of the complacency in the Chancellor’s analysis of the strengths of the UK economy. He also contrasted the rapid resolution at Bear Stearns over the past 72 hours with the prolonged agony of dithering indecision that we have been forced to ensure as the Chancellor faced the Northern Rock crisis. He left us with an enduring and charming cameo image of the Chancellor presenting his Budget as the boy stood on the burning deck whistling the tunes of his predecessor. 

Sadly, the Chancellor is not here. He would probably be interested to hear the prediction made by the right hon. Member for Coatbridge, Chryston and Bellshill (Mr. Clarke) that we face a “winter of discontent” ahead. The Chairman of the Public Accounts Committee, my hon. Friend the Member for Gainsborough (Mr. Leigh), reminded the House that efficiency savings are easy to predict but difficult to deliver, and pledged his Committee’s continued pursuit of auditable efficiency gains.

The prescription of the right hon. Member for Holborn and St. Pancras—more regulation—was predictable. He wanted that applied to banks, markets, credit and mortgages. He took us on a trip down memory lane, describing himself as old-fashioned old Labour—and coining an elegant new description of himself as “heritage Labour”. Perhaps he thinks he will be preserved for eternity under that label. All in all, it was a nostalgic performance, reminding not a few of us of his speech in last week’s Northern Rock debate.

The right hon. Member for Oldham, West and Royton (Mr. Meacher) made a wonderfully old Labour speech that made the right hon. Member for Holborn and St. Pancras look like a dangerous moderniser. He took us on a tour of Monaco, Liechtenstein and the Canary islands, and he suggested an easy remedy for the Government Front-Bench team. Parroting the TUC line, he told us that the Chancellor could easily collect £40 billion of avoided tax, and lambasted him for not doing so. He helpfully confirmed that, as we have argued, there has never been a time when the Treasury needed big benefits as much as it does now, and he attacked the Chancellor and his predecessor, the Prime Minister, for turning the City into a tax haven, assuring the House that the financial services sector and, as he put it, the so-called knowledge economy, could never replace manufacturing as the mainstay of the British economy.

The right hon. Gentleman very effectively headed off what I believe he thought was going to be an intervention by me by citing to aid his case Winston Churchill’s words as Chancellor of the Exchequer in 1929. I suspect that some of my hon. Friends heard the unmistakable sound of flapping white coats as we reached the end of the speech—but that is for them to say, not me.

My hon. Friend the Member for North Essex (Mr. Jenkin) had a high-level economic debate with the right hon. Member for Oldham, West and Royton, after which he spoke about the pernicious effect of the doubling of the 10p rate on some of the poorest pensioners in his constituency. He also pointed out that the Government were repeatedly warned of a coming credit crunch threatening an economy that is increasingly built on debt, both public and private. I apologise if time does not permit me to recall the contributions of all other hon. Members.

I welcome the Chancellor to his place. When the present Prime Minister was Chancellor, he was fond of recounting an old Treasury adage that there are only two types of Chancellor—those who fail and those who get out early enough. He has gone, and the jury is out as to whether he got out early enough. So last Wednesday, it was this Chancellor who had to stand up to admit that at the end of a decade and a half of economic growth, his cupboard was bare, and he had no room for fiscal manoeuvre at a time when our competitors are responding to the economic slow-down by reducing taxes and boosting spending in a classic counter-cyclical response.

It was the Prime Minister who was responsible for the mismanagement of the economy that left the Chancellor with that empty cupboard. The Prime Minister was responsible for the piling up of public debt through the good years while our neighbours and competitors were fixing the roof while the sun shone, paying down debt and reducing deficits—some of them even set aside something for more difficult times to come.

Back in 1995, the Prime Minister wrote:

“Nobody should doubt my iron resolve for stability and fiscal prudence”.

Yet it is thanks to his policies that while Ireland and Australia have paid off all their net public debt, and a third of OECD countries are entering the downturn with a fiscal surplus, Britain has the highest fiscal deficit of any country in the world bar Egypt, Pakistan and Hungary, and the highest peacetime non-North sea tax burden.

There is therefore no room for manoeuvre. As a result, when the cost of regulation is rising and the corporation tax rate has gone from being the third most competitive in the EU to the 17th, the Chancellor is imposing an 80 per cent. tax increase on business gains. At a time when his own figures show that business investment is set to fall by two thirds, this Chancellor slaps a tax on it. When families are reeling from the effect of two years of falling real average earnings, rising mortgage costs and soaring prices, they are being hit with a total of £2.8 billion of additional tax burden in this year’s Budget, on top of the impact of the doubling of the 10p rate bequeathed to the Chancellor from the Prime Minister’s last Budget. Taken with all the other income tax changes announced in the Budget, and even after the tax credit changes, that will leave 5.3 million low-income British households worse off and, as the right hon. Member for North Tyneside (Mr. Byers) pointed out in the debate last week, will also drag another 145,000 people into marginal tax and benefit withdrawal rates in excess of 60 per cent.

Stability, I have to tell the Chancellor, is not only about sound fiscal policy. Stability is also about fostering balanced economic growth. One big problem that we face as we enter this economic slow-down is that our economy is seriously unbalanced, and consequently extremely vulnerable, because of an over-reliance since the beginning of the new century on three key drivers that have delivered between them effectively all of the net economic growth over the past few years. We have had rising public spending financed on the back of mounting fiscal deficits; a soaring housing market that has in turn underpinned a surge in borrowing and fuelled an unsustainable consumer spending boom, on the back of the £1.4 trillion of personal debt that has been piled up; and the dramatic growth of the financial services sector on the back of innovative new financial products.

The Prime Minister could see—and I suspect has been able to see for some time—that the party would have to come to an end. That is why he was so desperate to move next door at the earliest possible date. He will not have foreseen the scale of the credit crunch, leading to the collapse of mighty financial institutions and bringing the boom in financial services to a shuddering halt. But he will have well understood that the debt-fuelled spending boom of British consumers on the back of spiralling house prices had to come to an end. And he knew, too, that his “blank cheque” approach to public spending could not endure, as the current comprehensive spending review demonstrates, with a halving of the growth rate of public sector spending next year.

So Britain enters this period of economic slow-down uniquely vulnerable, with all of the principal drivers of economic growth slowing and the public finances in disarray. Last October, the Chancellor revised upwards his projection of how much he would need to borrow in the coming year to £36 billion, and last week he admitted that in the space of just five months, his estimate had risen by another £7 billion. Even that is almost certainly an underestimate. As my right hon. and learned Friend the Member for Rushcliffe reminded us, for seven years the Government have predicted that the public finances would move into surplus two years hence. Every year, that two years is put off by another year, so like the carrot on the stick dangling in front of the donkey, it is always tantalisingly in the future.

When the Chancellor says that Britain is well prepared for tougher economic conditions ahead because inflation is low, our constituents will wonder what planet he lives on. Does he ever go into a supermarket or fill up a car with petrol? Does someone else write the cheques for his gas and electricity bills? Because in the real world that the rest of us inhabit, inflation is not low and stable; the cost of living is soaring. Bread is up 15 per cent. in a year, eggs 30 per cent., petrol 20 per cent., mortgage interest 12 per cent., butter 36 per cent., and gas and electricity up by double digits in the single month of February—and that is all before the Budget. Of course, the Government are not responsible for the world economic slow-down or the acceleration in global inflation. No one is claiming that they are, although they were quick enough to claim credit when benign world economic conditions delivered steady growth and low inflation powered by the expansion of far-eastern economies over the past decade.

The Chancellor’s predecessor, the Prime Minister, is responsible for the woeful lack of preparedness of the British economy after a decade and a half of economic growth. He inherited a strong economy from my right hon. and learned Friend the Member for Rushcliffe, and his stewardship of it coincided with 10 years of sustained low-inflation world growth. Instead of leaving the economy lean and mean, the Prime Minister bequeathed the Chancellor nothing in the cupboard. There is no legacy from the 15 years of economic growth and nothing put by for the rainy day that threatens. The Prime Minister, as Chancellor, did not fix public services, close the skills gap or the productivity gap, or fix the welfare system.

If the backdrop to the Budget looked gloomy last Wednesday, it has darkened significantly over the past 72 hours. There are those outside who thought that the Chancellor’s downgrade of his economic growth forecast looked optimistic last week. Today they will be thinking that it looks like dangerous complacency.

I want to put a specific proposal to the Chief Secretary. In normal times, the Treasury, rightly in our view, sticks to the mantra that it makes forecasts of economic growth and fiscal projections only twice a year, in the pre-Budget report and the Budget. Given the scale and speed of the events that are developing around us, and the size of the change in the Chancellor’s estimate of the fiscal problem he faces, which he announced last Wednesday, will the Chief Secretary consult the Chancellor and see whether she can assure the House tonight that if the Treasury’s internal modelling significantly downgrades his estimate of economic growth, or upgrades his expectation of public sector borrowing, between now and the PBR in November, he will make an interim statement to the House so that Parliament is not kept in the dark on those most crucial issues for the best part of nine months?

Let me turn to the measures in the Budget that the Chancellor delivered. Most have already been well-debated. I detected a familiar pattern. As in previous years, after the Chancellor sat down the facts caught up with the rhetoric and the Budget unravelled. As many of my hon. Friends pointed out, the new tax on gas-guzzling cars, which was painted as an environmental measure, turns out to be a tax increase on seven out of 10 cars on the road—just another burden on hard-pressed families. It is a stealth tax, not a green tax, and there is a bigger percentage increase in the tax on a Nissan Micra than in the tax on a six-litre Hummer.

The pre-Budget spin of a fiscal assault on binge drinking turned out not to be a precision weapon aimed at problem drinking but a carpet-bombing of ordinary moderate drinkers. The tax rises that we heard about, it seems, are permanent, yet the increase in the winter fuel payment is for one year only, echoing the one-year pre-election council tax bonus paid to pensioners in 2005. The education spending announcements came with no new money. The rhetorical commitment to extra money for our fighting troops in Iraq and Afghanistan turned out to be a mere accountant’s note, transferring money that is already spent from the contingency reserve to the defence budget. The rest was a rehash of the Chancellor’s predecessor’s Budget announcement and the flotsam that survived the storm provoked by the PBR with a climbdown on non-dom tax, a U-turn on capital gains tax on business and a merciful postponement of the income shifting proposals. The only things that survived intact were the watered-down Conservative policies on inheritance tax and air passenger duty.

For 10 years, the Prime Minister has traded on a carefully cultivated reputation for having delivered economic stability that was actually the product of a benign world economy. But now that the world economy is slowing and inflationary pressure gathering, his chickens are coming home to roost. The public have spotted his squandering of the legacy that he inherited, and how he has wasted the window of opportunity presented by the decade of Chinese-fuelled, low-inflation world growth. Instead of preparing Britain for the future, as other countries have prepared themselves, instead of turning it into the lean, skilled, competitive and productive economy of his early rhetoric, the Prime Minister blew the lot, and some more.

Last Wednesday, we witnessed the miserable spectacle of the Prime Minister’s successor as Chancellor being left to pick up the pieces as we enter this economic slow-down less prepared and fit, and more vulnerable, than almost any other country in the developed world. That is Labour’s economic legacy for Britain. We are left steering into stormy economic waters, with a deficit that makes Italy look positively parsimonious and a Chancellor who has been forced to increase taxes when all his counterparts around the world are lowering theirs.

This is a bad Budget for Britain. It burdens millions of hard-pressed families and businesses just as the economy is slowing. It is a Budget that has been dictated not by economic logic but by fiscal necessity. The words and figures of the Red Book projections set out for all to see the economic incompetence of this Government and this Prime Minister in failing to prepare Britain for the challenges ahead.

21:41:00

The Chief Secretary to the Treasury (Yvette Cooper)
We have had a good debate, with generally thoughtful contributions from Members in all parties. I congratulate the hon. Member for Taunton (Mr. Browne) on his speech, and I agree with the hon. Member for Runnymede and Weybridge (Mr. Hammond)—for possibly the only time—that it was probably the most entertaining one to be made today.

I listened carefully to the speech made by the hon. Member for Rutland and Melton (Alan Duncan), who had much to complain about. I listened really hard, but I did not hear him put forward a single alternative policy, or even defend his party’s tax plans. However, that may be because the hon. Gentleman—like me and, I suspect, like the shadow Chancellor—is struggling to keep up with what those plans are.

The right hon. and learned Member for Rushcliffe (Mr. Clarke) made some substantive points, and I shall respond to them in due course. In his indomitable style, he lamented what he described as the “puritan” spirit that he said was pervading both public and media. Interestingly, he also called for an end to any pre-Budget consultation and said that measures should be announced and implemented straight away, with none of what I am sure he would call “fashionable” consultation.

My hon. Friend the Member for Selby (Mr. Grogan) made some important points about alcohol and fuel prices. My right hon. Friend the Member for Coatbridge, Chryston and Bellshill (Mr. Clarke) and my hon. Friend the Member for Blaydon (Mr. Anderson) also raised their concern about the impact of rising world energy prices on fuel bills. They welcomed this year’s introduction of the additional winter fuel payments for pensioners, but they also made some important points about the energy companies.

In respect of the matters raised by my hon. Friend the Member for Selby, I can tell the House that we have made it clear that we expect energy companies to reduce the differential between prepayment meters and standard tariffs and that we will use Government powers if they do not do so. We also expect them to do more on the social tariff. It is worth about £50 million at the moment, but we believe that it should be closer to £150 million. In addition, I can tell my hon. Friend that, if necessary, we will legislate to underpin the tariff.

My right hon. Friend the Member for Darlington (Mr. Milburn) articulated the importance of global markets, describing both the immense economic opportunities that they offer and the considerable risks that they can pose. He also made clear why it is so important that we work with countries across the world to get greater transparency about the risks involved in global markets so that we can respond to some of the challenges that we face.

The hon. Member for Gainsborough (Mr. Leigh) questioned the proposed efficiency savings. However, I can tell him that the Government have made £20 billion in savings already as a result of a previous comprehensive spending review, and that there have also been tangible net reductions of nearly 80,000 in the civil service work force. That has enabled resources to be redirected to improving services instead.

My right hon. Friends the Members for Holborn and St. Pancras (Frank Dobson) and for Oldham, West and Royton (Mr. Meacher) raised concerns about the impact of decisions in the City on the real economy. The hon. Members for North Essex (Mr. Jenkin) and for Hertford and Stortford (Mr. Prisk) merely complained about pretty much everything the Government have ever done. As my right hon. Friend the Secretary of State for Business, Enterprise and Regulatory Reform pointed out in response to their concerns, there has already been a significant increase in small and medium-sized enterprises since 1997 and the Budget sets out more help to support them in future.

Mr. Prisk
The Secretary of State could not answer my question, but perhaps the Chief Secretary can: if small businesses are so important to the Government, why are the Government increasing taxes on them by £1,000 million over the coming year? In a downturn, what is the economic logic for that?

Yvette Cooper
As Members are aware, we have set out long-term reductions in the tax burden through corporation tax. It is right that there should not be incentives for people to avoid tax and it is right, too, that we should support SMEs, for example through additional work in the public sector, through procurement. The consequences of our decisions are a big and significant increase in the number of SMEs, with a strong boost to enterprise as a result.

As my hon. Friend the Member for Wrexham (Ian Lucas) pointed out in his contribution, businesses have moved to Wrexham, where the result has been economic growth. I pay tribute to him and his constituent, Mrs. Harrison, for their campaign on the child benefit disregard, which alone will help more than 150,000 children out of poverty as well as improving work incentives.

Mr. Jenkin
Can the right hon. Lady explain what effect abolition of the 10 per cent. tax rate will have on the households that pay it? If the rate goes up to 20 per cent. does it not amount to a very large tax increase indeed?

Yvette Cooper
As Members are aware, our changes to the personal tax package, which comes in this year, include reduction of the basic rate to its lowest for 75 years. In addition, we have introduced the national minimum wage, which has raised the wages of people on low incomes, and the tax credit system, which has provided important support. Four in 10 families make no net tax contributions at all as a result of the reforms we have made to help people out of poverty and to become better off.

There is continued turbulence in the global financial markets. Banks are not lending to each other in the normal way and we have seen the consequences for one of the largest banks in the US. Every major country of the world expects repercussions as a result. As we predicted last week, the increase in world fuel prices is having an impact on domestic fuel bills and household inflation.

Alan Duncan
Can the Minister list any other countries whose response to the credit squeeze to which she has just referred has been to increase taxation?

Yvette Cooper
If the hon. Gentleman had read the Red Book properly he would understand that in fact we are putting money into the economy over the next 12 months, which is the right thing to do. Borrowing will increase over the next 12 months. We are delaying the introduction of fuel duty. We are putting more money into pensioners’ pockets through the winter fuel payment, and in addition we are introducing the lowest rate of basic tax for 75 years.

I appreciate the fact that Opposition Members do not want to hear the truth, but we are putting more money into the economy, which is the right thing to do. We have to make sure that over the long term we bring the level of borrowing down in line with the fiscal rules we have set. We shall continue to take responsible decisions to support economic stability.

Faced with the challenges, the Chancellor set out a responsible Budget. We start in a stronger position than many other countries. Inflation is lower than in the euro area, lower than in the US and far lower than it was in the ’80s or ’90s. Employment is at a record high. Government debt has fallen since 1997, and borrowing is substantially lower than it was in the early ’90s when it hit 7.8 per cent. of gross domestic product.

The Bank of England continues to support stability through its cuts in interest rates and through support for liquidity in the financial markets. We are working with the Bank, the Financial Services Authority, our international partners and the financial sector on ways to get the securitisation markets moving again and to help banks regain confidence in each other so that they begin lending again and get credit markets moving again.

Mr. Crispin Blunt (Reigate) (Con)
Will the Chief Secretary to the Treasury explain to the House why, between 2005 and 2008—after eight years of the Prime Minister’s chancellorship—the United Kingdom’s contribution to the wider European Union position has been to make it considerably weaker, not stronger?

Yvette Cooper
What we have seen is the Labour party’s strong commitment to working with our European partners. There have also been improvements in the long-term economic performance of the country. The right hon. and learned Member for Rushcliffe wanted to argue that Britain was somehow the worst placed country in the entire world to deal with the global economic challenges that face us, and as I have said, if he is drawing on his experience in government, one can understand why he came to that conclusion. Certainly, it is true that in the early 1980s and the early ’90s Britain was first into recession and slow-down and last out, and had a far deeper recession than other countries across the world.

Mr. Kenneth Clarke
The right hon. Lady should follow the Chancellor and refer to the economy that the Government inherited, not the economy of the late ’80s and early ’90s. We had come out of the recession and were well poised for growth with low inflation when her party took over. I suggest to her that the opportunity should have been taken to put forward some credible, new fiscal rules for the future, to give realistic estimates for future borrowing and, because of the threat of the economy, to decide that this was not the time to raise corporation tax for small businesses. The whole Budget lacks imagination and any strategy at all for facing the present crisis, and makes misleading statements about the past.

Yvette Cooper
I noticed the right hon. and learned Gentleman trying very hard, in a slippery way, to sidestep and disown the events of the early ’80s and early ’90s, and trying to cling on to the events of the middle ’90s, when he stoked up inflationary pressures, when corporation tax was substantially higher than it is today, and when the tax burden on businesses was higher as a result.

In the early ’80s the world economy slowed, but Britain did not just slow—it shrank. That was the case in the early ’90s, too. In the early ’80s, inflation hit nearly 22 per cent., unemployment topped 11 per cent., and borrowing hit nearly 5 per cent. In the early ’90s, inflation hit nearly 11 per cent., unemployment topped 10 per cent., and borrowing hit nearly 8 per cent. For the 10 years before 1997, we had the lowest gross domestic product per head in the G7. Eleven years on, we have seen continuous growth and the largest growth in income per head of any G7 country. We are no longer bottom of the league; instead, we had the second highest level of national income per head of any major economy last year.

Mr. MacNeil
The Prime Minister—the former Chancellor of the Exchequer—used to boast that he had put an end to boom and bust. Does the right hon. Lady agree that those words are hollow today, or does she actually believe that the Prime Minister put an end to boom and bust? Which is it?

Yvette Cooper
The fact is that as a result of decisions that we have taken we have had much greater stability over the past decade than we had previously. For example, when the dotcom bubble burst, and after the 9/11 attacks, world stock markets halved, but while the economies in the rest of the G7 shrank, the British economy continued to grow by over 2 per cent. We face serious global challenges and serious pressures in the financial markets. They will inevitably have an impact on the UK, just as they will on countries across the world, but we start off in a stronger condition than many of our European competitors and many countries across the world, in part because of decisions that were made on issues such as Bank of England independence, which the right hon. and learned Member for Rushcliffe always opposed, and on investing in Britain’s future.

Adam Afriyie (Windsor) (Con)
rose—

Yvette Cooper
I will make progress.

The Budget sets out clear plans to help pensioners and families with children. Even at a time of global challenges, we are able to help the oldest and the youngest. The Budget raises revenue from alcohol duty; that is what makes it possible to help pensioners with their fuel bills this winter, and to help families with child benefit and the child tax credit the year after that. So this is the right time to use that revenue to help pensioners. The average price of a bottle of wine has fallen from the equivalent of nearly £4.50 in 1997 to nearer £4 today. Even after the duty increase, it will still be significantly cheaper than in 1997. So yes, we are giving pensioners an extra payment of £50 for all pensioners and £100 for the over-80s. In 2009 we will use the money to help child tax credit and those on low and middle incomes.

The question for the Opposition tonight is whether they will back that. Will they back the increase in alcohol duty to fund the payment to pensioners this winter? Will they back the increase in alcohol duty to fund the child benefit increase and the child tax credit the year after? Or will they once again turn their backs on pensioners and on families with children, as they did for so many years when they saw child poverty double and a big increase in the number of pensioners in poverty? Will they once again turn their backs on those who are youngest and those who are oldest across society? It is indicative that the one thing that the Opposition have proposed to cut to fund their plans is Sure Start—one of the programmes that makes the greatest difference to those in greatest need. That is what the Conservatives want to cut.

What, then, are the alternatives offered in tonight’s debate? The hon. Member for Taunton set out what he thought was the Conservatives’ policy. He said that the hon. Member for Runnymede and Weybridge was proposing tax cuts in seven years. He pointed out that we had fought and won a war in less time. The hon. Member for Taunton is doing better than the rest of us if he manages to keep track of the Conservatives’ policies. They have said that they think borrowing is too high. They have also called for £10 billion of unfunded tax cuts that would push borrowing even higher.

This weekend the hon. Member for Runnymede and Weybridge said that the Opposition would not cut taxes for an entire parliamentary term, yet just three days before, on Budget day, they called for massive tax cuts to come in next month. It is still there on the Conservative party’s website. The shadow Chancellor calls on the Chancellor to bring in a massive series of unfunded tax cuts, including inheritance tax for millionaires in this year’s Budget.

Mr. Mark Harper (Forest of Dean) (Con)
rose—

Yvette Cooper
I will give way to the hon. Gentleman if he can tell me what on earth his party’s tax proposals are.

Mr. Harper
I want to ask the right hon. Lady a question about hers. Will she confirm that 5.3 million households—8,000 per constituency—will be worse off as a result of the increase in the basic rate of tax from 10 to 20 per cent.?

Yvette Cooper
I notice that the hon. Gentleman could not answer the question about his party’s tax proposals. We have set out a series of changes from which people will be considerably better off than they were in 1997 as a result of this Government. Three days after calling for massive tax cuts next month, his party and its No. 2 were telling The Sunday Telegraph that they could not introduce tax cuts for another five, six or seven years. Then, just a day later,

“a source close to Mr Osborne”

told the Daily Mail that

“cuts could come at any time”—

Mr. Speaker
Order. We refer to hon. Members by their constituencies, not by their names.

Yvette Cooper
I apologise, Mr. Speaker. I was quoting from the Daily Mail, which did not use our parliamentary conventions.

Perhaps the Opposition’s party leader could get a grip and set out the party’s policies. In his speech on Saturday he said:

“we need to get used to saying ‘no’ more often than ‘yes.’ That is the discipline that government demands and that is the discipline that this Party has always understood.”

But what else did he say at the same conference? He promised dedicated maternity nurses, scrapping the couple penalty, rewarding management and, because it was in the north-east, a new north-south rail link and the A1 western bypass. He does not know how to say no; he just keeps saying yes. Another day, another Tory policy; another interview, another economic promise. How can the Opposition support stability in the economy if they cannot even deliver stability in their own policies? Back the Budget and back stability in the economy.

Question put and agreed to.

Resolved,

1. Amendment of the Law

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

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

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

(b) for refunding an amount of tax,

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

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

(ii) so far as it is applicable to services, applies to services of every description.

Mr. Speaker then, pursuant to paragraph (3) of Standing Order No. 51 (Ways and means motions), put forthwith the Questions necessary to dispose of the further motions.

2. Income tax (charge and main rates for 2008-09)

Resolved,

That—

(1) Income tax is charged for the tax year 2008-09.

(2) For that tax year—

(a) the basic rate is 20%, and

(b) the higher rate is 40%.

And it is declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.

3. Income tax (personal allowances for those aged 65 or over)

Resolved,

That—

(1) For the tax year 2008-09—

(a) the amount specified in section 36(1) of the Income Tax Act 2007 and section 257(2) of the Income and Corporation Taxes Act 1988 (personal allowance for those aged 65 to 74) is replaced with “£9,030”, and

(b) the amount specified in section 37(1) of the Income Tax Act 2007 and section 257(3) of the Income and Corporation Taxes Act 1988 (personal allowance for those aged 75 and over) is replaced with “£9,180”.

(2) Accordingly—

(a) section 57 of the Income Tax Act 2007 (indexation), so far as relating to the amounts specified in sections 36(1) and 37(1) of that Act, and

(b) section 257C of the Income and Corporation Taxes Act 1988, so far as relating to the amounts specified in section 257(2) and (3) of that Act,

(indexation) do not apply for the tax year 2008-09.

And it is declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.

4. Income tax (abolition of starting rate)

Motion made, and Question put,

That—

(1) In section 6 of the Income Tax Act 2007 (rates at which income tax is charged)—

(a) in subsection (1), omit paragraph (a), and

(b) in subsection (2), omit “starting rate,”,

and accordingly, in the title, omit “starting rate,”.

(2) In section 10 of that Act (income charged at main rates: individuals)—

(a) omit subsection (1),

(b) for subsection (2) substitute—

“ (2) Income tax on an individual’s income up to the basic rate limit is charged at the basic rate (except to the extent that, in accordance with section 12, it is charged at the starting rate for savings).”,

(c) in subsection (4), omit the entry relating to section 12, and

(d) for subsection (5) substitute—

“ (5) The basic rate limit is £36,000.

(6) The basic rate limit is increased in some circumstances: see—

(a) section 414(2) (gift aid relief), and

(b) section 192(4) of FA 2004 (relief for pension contributions).”,

and accordingly, in the title, omit “starting,”.

(3) Omit section 20 (starting rate limit and basic rate limit).

(4) The amendments made by this Resolution have effect for the tax year 2008-09 and subsequent tax years.

And it is declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.

Division 125
18/03/2008 22:01:00
The House divided:
Ayes: 304
Noes: 242
Question accordingly agreed to.