To ask the Chancellor of the Exchequer if he will publish the representations he has received from business leaders regarding the windfall tax. [1585]

Companies have been invited to make representations. While I intend to follow the normal procedure of treating such representations as I would others for the Budget—namely, as confidential between the parties—if companies wish to make their views public, that is a matter for them.

Will my right hon. Friend—[Interruption.] Will the Chancellor confirm that in principle he is not in favour of retrospective taxation and that the one-off windfall tax is, indeed, one off?

I am grateful for the welcome that I received from the right hon. Gentleman—[HON. MEMBERS: "Right hon.?"] The hon. Gentleman raises the issue of the windfall levy and asks whether I support retrospective action. That is a question that he should ask of his colleagues who were in the House in the 1980s. Was not the first windfall levy imposed by a Conservative Government without ever being in a Conservative manifesto and without any advance consultation with the businesses affected? That windfall tax was imposed on the banks to deal with the costs of failure. We are imposing a windfall tax so that we can tackle a problem that the hon. Gentleman and other Conservative Members should be concerned about. Indeed, they should be ashamed that the previous Government did not act to tackle youth and long-term unemployment.

Does my right hon. Friend agree that, with the notable exceptions of Sir lain Vallance from British Telecom and Conservative Members, there is tremendous public support for the windfall tax throughout the length and breadth of the country? Will my right hon. Friend therefore undertake to introduce the windfall tax at the earliest possible opportunity so that we can begin to get our young people back to work?

I am grateful to my hon. Friend. The greatest opponents of the windfall tax are not the utilities, but the Conservative party. When a report today states that 500,000 long-term unemployed people in our country need proper skills and training to allow them to get back to work, people will be asking why the Conservative party is defending the utilities instead of the long-term unemployed.

"a windfall tax would require us to deal with the sins of those before us. A one-off tax is not inconsistent with that."

To ask the Chancellor of the Exchequer what estimate he has made of the impact of a national minimum wage on the cost of public sector pay. [1586]

A minimum wage is in principle both fair and efficient. The impact of the minimum wage on public sector pay will depend on the level at which it is set. That is a matter for the Government to decide, when we have the advice of the Low Pay Commission, taking into account the wider effects on the economy.

Will the Chancellor confirm figures given by the Foreign Secretary, when he was shadow Secretary of State for Health, that a minimum wage of £4 per hour would cost the National Health Service an extra £500 million a year?

First, I welcome the hon. Lady to the House. She was a distinguished parliamentary correspondent and is now a Member of Parliament, having moved from a larger Conservative institution—The Daily Telegraph—to a smaller one, the parliamentary Conservative party.

Is my right hon. Friend aware that there is a popular demand throughout the country for a national minimum wage, which was best exemplified in the mandate that we received at the general election? On several occasions, my right hon. Friend and others on the Front Bench have said that they will consult, among others, people in the business fraternity. As several trade unions have now passed resolutions for a minimum wage of £4 and over, including Unison at £4.42 yesterday, will my right hon. Friend guarantee that he will pay some attention not only to those in the business community but to the real wealth creators—the workers?

I am grateful to my hon. Friend for supporting the principle of a minimum wage. [Interruption.] I should have thought that Conservative Members would be listening to the electorate more by supporting the case for a minimum wage—[Interruption.]—than by defending huge salary rises in the privatised utilities. [Interruption.]

Order. Hon. Members must stop shouting.

The Opposition have learnt nothing from the past few weeks.

The Chancellor was very courteous to my hon. Friend the Member for Bromsgrove (Miss Kirkbride), but he quite deliberately avoided the point of her question. Will he accept that, unless the minimum wage is set at a level at which it makes absolutely no difference to any public sector pay, it will affect the cost of public services? If he sticks to his commitment not to raise public spending, the national health service and others will face a choice between cutting services or cutting jobs. Faced with the minimum wage, they will be able to do nothing else.

All those questions will be taken into account in setting the minimum wage. I remind the right hon. and learned Gentleman, who is trying to re-establish "one nation" traditions in the Conservative party, that his predecessors as shadow Chancellors and as leaders supported the principle of a minimum wage, and until the 1980s there was all-party consensus about the need for wage protection through wages councils.

To ask the Chancellor of the Exchequer what liaison arrangements he proposes between the Treasury and the Bank of England to ensure effective management of demand to ensure the attainment of the Government's commitment to growth. [1587]

The Government's central objectives are high and stable levels of growth and employment. Price stability is an essential foundation and the Government have introduced radical reforms to monetary policy arrangements to achieve this. It is the Government who set the objectives by setting the inflation target, and the Treasury and the Bank of England will continue to have regular liaison at all levels.

As the Bank of England's highest wisdom in any situation is to put up interest rates—it has already done so, despite the fact that real interest rates are at a record level and the pound is substantially overvalued—is not the Bank preparing the way for a manufacturing contraction, a rise in unemployment and a fall in growth next year? If we are to have an independent central bank, should not the Government at least appoint an expansionist Governor, and is the Minister aware that the shadow Chancellor might well be available for the job next week?

I think that the shadow Chancellor has another job in mind and would not want to rule himself out of that at this stage. My hon. Friend will accept that, if we are to achieve long-term sustainable growth, we must have low inflation and stability—something that Britain has not had for many years. We must avoid the situation that we have experienced in the past 18 years, when the Conservative Government delivered two of the deepest recessions since the war. If businesses and individuals are to be able to plan in the long term, we must have stability. My hon. Friend will have noticed that long-term interest rates have fallen since my right hon. Friend the Chancellor's announcement three or four weeks ago.

Why does the Chancellor think it wise to separate the management of fiscal and monetary policy? Is it that he rejects the advice of John Maynard Keynes and is embracing the policies of Philip Snowden?

No. My right hon. Friend made it clear why we have taken the decision to give the Bank greater operational autonomy. We believe that it is important that interest rates are struck with a view to the long term. I am sure that the hon. Gentleman, who has been in the House—and in politics indirectly—for a long time, will agree that when Britain's performance is compared with equivalent competitor countries, our record for stability is not so good as it should be. We believe that the steps that we have taken to give the Bank of England greater operational autonomy in support of the Government's economic policy—an important point, as my right hon. Friend has made clear—are the way to achieve the stability that most people agree is essential.

To ask the Chancellor of the Exchequer what steps he is taking to ensure that the Government's monetary policy objectives are met. [1588]

To ask the Chancellor of the Exchequer what steps he is taking to ensure that the Government's monetary policy objectives are met. [1589]

Last month I announced reforms which gave the Bank of England operational responsibility for setting interest rates. Today I have written to the Governor setting out the Bank's remit and how it will be held accountable for meeting its target.

The whole country will welcome the openness and firmness of my right hon. Friend's pursuit of the Government's objectives. Does he agree that such measures are essential if we are to create a climate of stability and confidence and break out of the cycle of boom-bust economics that was the Conservative Government's policy?

If we are to achieve our aims of high levels of growth and employment in the British economy and avoid the boom-bust economics that bedevilled people's lives during the period of Conservative Government, we need to set a target for consistently low inflation. The Conservative Government's inflation target was not met in any month in 1985 or 1986; average inflation under the Conservatives was 6.2 per cent. and in the 1990s it was 4 per cent. By setting our target of 2.5 per cent. and introducing the modern procedure whereby the Governor will write to the Chancellor if it is exceeded by more than 1 per cent., we are creating the most open and rigorous framework for monetary policy.

In 1979, manufacturing represented 30 per cent. of gross domestic product, but that is now down to less than 20 per cent. and thousands of jobs have been lost. This country is a net exporter of investment. What do the Government intend to do to improve the situation?

I agree with my hon. Friend. The reason why we have had, on average, high inflation and low growth over many years is lack of investment and lack of capacity in the economy. There is no long-run trade-off between inflation and growth. We need measures that will create a platform of stability on which industry and employees can build. It is precisely for those reasons that we have set in place a long-term framework for monetary policy. If the Conservative party does not believe that I am right to make these reforms in the Bank of England, will it pledge to reverse them in its manifesto at the next election?

Does the Chancellor acknowledge that what he has just told the House and explained to the Governor of the Bank of England is a clear departure from the Labour party's manifesto commitment? Under the heading "No risks with inflation", it said:

"We will match the current target for low and stable inflation of 2.5 per cent. or less."

I have tightened the framework and made the procedure more rigorous and open. Under the Conservative Government, the range was 1 per cent. to 4.5 per cent. Under this Government, if inflation goes above 3.5 per cent., the Governor of the Bank of England will write a letter to the Chancellor explaining his views and whether the circumstances are unique. If they are repeated over a period of time, he will write again three months later.

The hon. Member for Gordon (Mr. Bruce) is right. The Chancellor has just tried to slip in an important announcement on a day when the figures show that the Conservative Government hit the inflation target of 2.5 per cent. on the button as a result of our policies. How can the right hon. Gentleman deny that he is loosening the inflation target by moving from 2.5 per cent. or less to 2.5 per cent.? He has now introduced a new obligation on the Bank of England: he will hold it accountable if inflation is more than 1 per cent. below 2.5 per cent.

It is interesting to note the right hon. and learned Gentleman's nostalgia for the old Ken and Eddie show. Instead of an ad hoc, personalised and often chaotic system, we have introduced rules based on principles and a rigorous approach. One week the shadow Chancellor argues that our approach is too rigorous, and the next he says that it is too soft. The difference between the Conservative party and the Labour party is that the Conservative party met its inflation target in only 11 months out of 55. It did not meet its target at all in 1985 and 1986. Everyone knows that the only reason why the target was met last month was because of the fall in the exchange rate. We have established a framework that is open and will last. I believe that that is our best long-term chance of having consistently low inflation, and is the means by which to achieve high levels of growth and employment.

To ask the Chancellor of the Exchequer what new measures he is proposing to improve the private finance initiative. [1590]

I immediately moved to ask Mr. Malcolm Bates to carry out a complete review of the private finance initiative process with a view to streamlining it, and I abolished the requirement for universal testing which gunged up the process under the Tories.

I welcome my hon. Friend's encouraging reply. Is he aware that the Conservative Government spent £30 million on consultants' fees, yet not one PFI hospital was built? Does he agree that the private finance initiative process is in urgent need of improvement?

My hon. Friend is absolutely right, and we are giving it that improvement. I am pleased to say that the legislation that we have introduced to enable NHS trusts to become involved in PFI projects is making good progress in another place—or will do next week. I am also pleased to say that, immediately after Question Time, my right hon. Friend the Deputy Prime Minister will introduce a Bill to enable local government to enter into positive public-private sector partnerships for the benefit of the country.

Will the Minister assure us that PFI companies will never have any responsibility for the hiring and firing of teachers, the provision of books and equipment and the delivery of the curriculum? Will he give a categorical assurance that those responsibilities will remain with local education authorities, schools and governors, where they belong?

I can give the hon. Gentleman a categorical assurance that none of those aspects features in any of the proposals for private sector investment in education that I have seen; nor would they be approved by me.

Was not the former Chancellor guilty of extraordinary political incompetence, in that he screwed up the whole PFI process over a three-year period? Is it not now crucial for my hon. Friend to cut through the swathe of bureaucracy and put bulldozers on sites, particularly the site of Bishop Auckland hospital in my constituency?

As my right hon. Friend will appreciate, I cannot give any undertaking in relation to the Bishop Auckland health trust, but I assure him that we are moving to cut through the swathes of bureaucracy, as he so aptly describes them. I can tell him that the measures that we have taken via the review—such as getting rid of universal testing—and the legislation that we have introduced have done more to encourage the PFI in five weeks than the Tories did in five years.

I welcome the Paymaster General to his post. Can he confirm that purchasing services with the maximum risk transfer will remain the key objective for the private finance initiative? Can he also confirm that financial reporting standard FRS5 and standard of accounting practice SAP21 will remain the standards by which the viability of the PFI is judged?

There the Opposition go again, getting bogged down in a whole lot of details and losing sight—[Interruption.] That is precisely why their bureaucratic, pettifogging approach has delivered no PFI deals on hospitals or local government. The right hon. Gentleman ought to be ashamed of his record.

Elsewhere in Europe, public investment which creates a tangible public asset does not count against the public sector borrowing requirement total. Will my hon. Friend therefore consider bringing Britain into step with the rest of Europe by changing to that form of public accounting? Will he bear it in mind that, as the markets already acquiesce in it throughout Europe, there is no reason to suppose that they would not acquiesce in this country as well? An added advantage would be that Scottish local authorities could raise private money to invest in remedying the housing crisis which afflicts so many people in my country.

I hear what my hon. Friend says. We shall, of course, consider those matters, but it would be wrong for my hon. Friend to think that we had any immediate proposals for change.

To ask the Chancellor of the Exchequer if he will list the companies that will be liable for the windfall tax. [1591]

To ask the Chancellor of the Exchequer what time span he will use to assess the excess profits on which he plans to levy a windfall tax. [1595]

To ask the Chancellor of the Exchequer over what time scale he will calculate the excess profits for the windfall tax. [1602]

To ask the Chancellor of the Exchequer on what measure of profits he will base his windfall tax. [1605]

I will announce details of the windfall levy in the forthcoming Budget.

I am obliged to the Chancellor for that highly detailed answer.

Yes.

Despite what the Chancellor has said about the details being released in the Budget, he is surely aware that the Prime Minister admitted in the House yesterday that he knew which companies would be liable for the windfall tax. Bearing that in mind, will the Chancellor now say whether British Telecom is included? If it is included, will the right hon. Gentleman say in what years—if any—he regards British Telecom as having made an unfair and excessive profit as a return on capital?

The hon. Gentleman ought to be patient and wait until the Budget statement. I should remind him that, when the Conservatives introduced their windfall levy on the banks, they did not even announce the names of the companies in the Budget statement. Of course, the information will become available at the time of the Budget.

"We note that in the five years after privatisation the water companies made profits totalling £7.4 billion, and the regional electricity companies profits of £8.7 billion, and that in both cases the profits were in excess of the level that the respective Directors General had judged it reasonable to allow for in the future."

Will the right hon. Gentleman tell the House how he intends to raise a windfall tax from owners of capital who have passed their ownership to subsequent shareholders since the industries were privatised?

Unlike the Conservatives' windfall tax on the banks, we have made our determination to have the windfall levy known, not just for one or two years but over the past five years. People have been aware over that time of our intention to legislate in this way. Given what happened at the general election, I should have thought that Conservative Members would be better spending their time advancing the cause of the young and the long-term unemployed who will benefit from the measure than defending the excesses of the privatised utilities.

As the Chancellor is proposing a one-off levy, how can he fund a continuing public expenditure requirement on welfare-to-work? His sums simply do not add up.

The one-off levy is to raise money for the Parliament; I made that clear before and during the general election campaign and I make it clear again. I know that the Conservative party is obsessively interested in the needs of the privatised utilities, but it is about time that Conservatives got interested in the needs of the young unemployed.

Is my right hon. Friend aware that, when he quoted from the report of the Public Accounts Committee, he could have gone much further? In a series of reports since 1983, the Committee has shown that each of the utilities was sold at a price which was less than could or should have been obtained. Is he further aware that these matters can be looked at clearly in the reports of the PAC and that they show that the windfall tax is entirely due to the previous Government's actions?

I am grateful to my right hon. Friend, who has been Chairman of the Public Accounts Committee for a long time. The report of March 1997, which deserves wide publicity, stated:

"the replacement values of the assets of the water and sewerage companies are now estimated to be £138 billion, … sale proceeds were … £3.6 billion … we and our predecessors expressed concern that the shares in the companies have been underpriced."

Does my right hon. Friend agree that, as there are now 1 million fewer jobs than when the Leader of the Opposition first became Prime Minister, it is essential to introduce a windfall profits tax and use the revenue to help move 250,000 young people off welfare and into work?

As a result of Labour's windfall levy proposals, there are fewer jobs in the House for Conservative Members as well. I direct the House's attention to this morning's report which states that half a million of our young and long-term unemployed are without the basic training skills necessary for them to get jobs. It is a scandal that, over the past 18 years, when the Conservative party could have taken action, it failed to do so. This Government will take action to help both the young and the long-term unemployed.

Does my right hon. Friend agree that, instead of the Opposition display of heart bleeding for the privatisation fat cats, it would be better to ask my right hon. Friend to list the constituencies in which young people who have long been out of work will benefit? Mine is one such constituency in which people are looking forward to the results of this action.

I agree entirely. In some constituencies, 30 per cent. of working-age households or families have no one earning a wage. They include young people, the long-term unemployed and single-parent families. It is again a scandal that, on average in Britain, 20 per cent. of working-age families have no one in work. That situation should not be sustained on social or moral grounds, and it is bad for the economy. We are determined to take the action that the Conservatives have failed to take over the past 18 years.

I invite my right hon. Friend to ignore the bleatings of those on the Conservative Benches, the friends of the fat cats, and pay attention to Yorkshire. Is he aware of the anger there at the profits made by those privatised monopolies? People want that tax to be used to create jobs, and there will be considerable anger if there is any diminution of the well-flagged intention of the Labour party, now in government, to use the tax fairly and justly.

I am grateful to my hon. Friend. When the country finds out that some of these water companies, despite six or seven years of privatisation and record profits, have paid not a penny in mainstream corporation tax, it will be annoyed. Ordinary men and women are paying 23p or 40p in the pound when many water companies have paid absolutely nothing. That is another reason why the action that we have had to take to help to tackle the problem of unemployment, because of the failure of the Conservative party, is both necessary and urgent.

Given that the programme on which the Chancellor is going to expend this money is unlikely to be completed in the time scale that the windfall taxation is available, how does he intend to fund that expenditure in future years?

The one-off levy will be raised in the Budget and for a Parliament. The action that we take over the next few years will bring down unemployment, save on social security costs, and enable us to reduce social security bills so that we can meet our long-term objective, which is to transfer resources from social security and welfare to education and training. I want every young person to have the chance of proper training and education after the age of 16, so that we can have a nation at work, instead of many thousands of people on the dole.

To ask the Chancellor of the Exchequer if he will make a statement on his policy towards value added tax on domestic fuel. [1593]

To ask the Chancellor of the Exchequer what plans he has to reduce VAT on domestic fuel. [1597]

To ask the Chancellor of the Exchequer, what recent representations he has received on the level of VAT on fuel. [1599]

To ask the Chancellor of the Exchequer, what plans he has to reduce VAT on domestic fuel. [1601]

The Government have a manifesto commitment to cut VAT on domestic fuel and power to 5 per cent., and we intend to keep that pledge.

That is very good news. I am pleased to hear it. Members of the Lydney and district area pensioner forum will be particularly delighted with that excellent news. Does my hon. Friend remember the former Prime Minister making a pledge, before the 1992 election, that he would not put VAT on fuel? Does she also remember that, after the 1992 election, the Conservative party immediately broke that pledge and imposed VAT on fuel at 8 per cent? Will she confirm whether the Labour party will keep its election pledge on VAT? [Laughter.]

Madam Deputy Speaker—[HoN. MEMBERS: "Oh."] Madam Speaker, my apologies. I assume that Opposition Members are shocked at my hon. Friend's suggestion that 'a Government should keep their election pledge. As she has said, the previous Government gave pledges and broke them. Our pledge will be kept and pensioner households will be the better for it, and warmer in winter.

Is my hon. Friend aware that many pensioners regard the reduction of VAT on fuel as important, given that they have been neglected for the past 18 years?

The Government's promise to reduce VAT on fuel, particularly for pensioners, demonstrates clearly that we are committed to a fairness agenda and to assisting pensioners. Instead of sniggering at the questions, perhaps Opposition Members would consider assisting the Government in meeting that target.

Does my hon. Friend recall the statement made by the former Chancellor before the last election in which he said that the challenge was to increase VAT on fuel to 17.5 per cent? Is my hon. Friend aware that that statement is of particular interest to my constituents who would pay significantly more for fuel under Conservative policies?

My hon. Friend is correct to remind the House that the Conservative Government imposed VAT on fuel and that the former Chancellor said that he was committed to raising VAT on fuel to 17.5 per cent. The Opposition should now withdraw that commitment and support our target of reducing VAT to 5 per cent.

Does my hon. Friend agree that, if the Conservative Government had not shamelessly broken their promises on VAT after the 1992 election, there might be a few more than 164 Conservative Members now?

Yes, I do agree. However, I believe that, even without that broken promise, there would be so few of them now as to put us in government.

Does the Minister agree that, when VAT on domestic fuel is reduced from 8 to 5 per cent., prices should come down? Does she agree also that, when the windfall tax on utilities is introduced, if any charge is passed on to consumers, prices from those utilities—particularly from the energy companies—will increase? Will the Minister give a guarantee that gas and electricity prices will not increase when the windfall tax is introduced? If she cannot do that, pensioners will be no better off, and Labour's election pledges will be revealed as a big con.

That is rich coming from an hon. Member who voted to impose VAT on fuel in the first place. He did not care then whether extra charges would be passed on to pensioners and the low-paid. I assure him that a cut in VAT on fuel will mean a reduction in fuel prices for pensioners, the low-paid and everyone else.

On a point of order, Madam Speaker. In view of the unsatisfactory nature of that answer, I give notice that I intend to raise the matter on the Adjournment.

It was not the hon. Gentleman's question, so he cannot make that point.

Does the Financial Secretary recall that, on 27 March last year in this place, she supported a reduction in the rate of VAT on energy-saving materials, describing it as a matter of justice, jobs and democracy? Does she still support that policy?

Under the Finance Act 1997, a review is being conducted—[HON. MEMBERS: "Oh!"] The review is being conducted as a result of a Labour amendment to the legislation. We intend to pursue that review vigorously and report to the House. This Government keep their promises: the Conservatives did not.

Can the hon. Lady confirm that the cut in VAT will benefit the poorest and the wealthiest in the land? What proposals does she have to target benefits on the real poorest in order to combat and cut fuel poverty?

The average household will benefit by £4.50 a quarter, and the poorest will benefit by even more as a proportion of their income. It is quite clear that our method is the most effective way of delivering that reduction. I impress upon the hon. Gentleman the fact that our commitment through the environmental task force and our strategy on energy efficiency will assist those households further and deliver real benefits to them instead of pious promises.

Does the hon. Lady remember back to 23 January 1995, when my party's amendment aimed at reducing VAT on domestic fuel to 5 per cent. was described as a cynical ploy no fewer than three times by the right hon. Member for Edinburgh, Central (Mr. Darling)? It was stated that there was never any chance of reducing VAT on domestic fuel to 5 per cent. What has happened to change the Minister's mind? What realistic promise is she now holding out? We do not want to take a cynical attitude—we want to be convinced that there will be genuine reductions.

There was a cynical ploy, which put at risk the reduction to 8 per cent. that we had already secured on the Floor of the House, thereby stopping the Conservative Government pushing ahead with a rise in VAT to 17.5 per cent.

To ask the Chancellor of the Exchequer what representations he has received about his proposed reforms to City regulation. [1594]

My right hon. Friend the Chancellor's announcement regarding reforming the regulatory system has been widely welcomed. It was the result of some four years' work and wide consultation. I am pleased to report that work is well in hand to take the Government's plans forward.

Does my right hon. Friend agree that we should condemn the previous dilatory authority that allowed Andrew Regan to be considered a fit person to run a bank, when only a few days later he was condemned by a High Court judge as being unfit and "clearly dishonest" in his dealings with the Co-operative Wholesale Society? Does my right hon. Friend further agree that it is time that there was a new authority that will ensure that people who want to run their businesses properly and decently can do so free from the influence of crooks?

My hon. Friend will appreciate that it would be inappropriate for me to comment on the case of Andrew Regan, as I believe that it is now sub judice. On his general point, for many years there has been concern that the regulatory system has not been capable of cleaning up those parts of the industry that needed to be cleaned up. People who were guilty of quite serious misdemeanours—which reflected badly on the industry as a whole—were not properly dealt with.

To ask the Chancellor of the Exchequer when he will next announce changes to departmental public expenditure totals. [1596]

I explained to the House yesterday our policy regarding the comprehensive spending review. I also explained that, during the general election campaign and since, we have made it clear that Departments are expected to work within their departmental totals.

Following yesterday's statement, I want to ask a question for the purpose of absolute clarification. If, for example, the Social Security Department and the Minister for Welfare Reform find savings in the social security budget and the Government bring down the social security bill between now and April of the year after next—as everybody hopes that they will—and if, in the same period, the demand for the health service rises and the obvious cost of running the service is more than the figure that the Tory Government set—a figure to which the Labour Government are adhering—will there be any chance of money being transferred from a reduced social security demand to a clearly increased demand for the health service?

Unlike the Liberal party, this party and this Government have been very clear that, before we allocate and spend money, we must know where it will come from. The whole purpose of the comprehensive spending review process, which is now under way, is that my right hon. Friends examine their budgets and determine how they can be better spent. As I explained yesterday, we have already started the process in the health service and in education, and we intend to continue the process.

If the Barnett formula is to be reviewed, will the Chief Secretary assure the House that any amended formula will ensure that public expenditure is distributed to the different parts of the United Kingdom on the basis not only of population but of genuine need, and that any additional revenue raised by the Scottish Parliament will be available for additional expenditure within Scotland?

As I told my hon. Friend the Member for Linlithgow (Mr. Dalyell) yesterday, the Government will make our proposals on funding the Scottish Parliament in a White Paper, which will be published in time for the referendum campaign and the referendum itself. We have always made it clear that it is important that all parts of the United Kingdom should be funded on the basis of need and in an acceptable manner. That is our intention, and there are no difficulties about it. My hon. Friend the Member for Falkirk, West (Mr. Canavan) will see our proposals in the White Paper, and I am sure that he will think that they are very satisfactory.

In spite of that review, will the Chief Secretary confirm that the current arrangements for exemptions from paying prescription charges will remain unchanged?

I am interested in the right hon. Gentleman's sympathy for those in need, because the House will remember the review that he conducted in the 1980s. I made it absolutely clear yesterday that all aspects of Government expenditure must be reviewed; there is no question about that. As he will well know, to exclude any part of expenditure would mean that the review cannot be effective. Conservative Members should remember that, unlike them, the Labour party is committed not only to the principles underpinning the national health service but to fairness—which is something that the Conservative party cannot even begin to understand.

Will the Chief Secretary ensure that any review of departmental spending is collective and that there is a careful analysis of issues that are dealt with by more than one Department? If he does so, will there not be a real opportunity of ensuring that hard issues—such as poverty, adding value to people and helping communities to aspire to a new future—have a chance of being successfully addressed?

My hon. Friend is quite right. It is absolutely essential that the Government examine the entire range of services, not least health services, for which we are responsible. There is, for example, a relationship between poverty and health and between quality of primary care and subsequent need for hospital acute care. I can assure my hon. Friend not only that will there be reviews across Departments but that the entire process will be reviewed by the Public Expenditure Committee. I am sure that he will be pleased to know that my right hon. Friend the Chancellor and I will supervise that process.

To ask the Chancellor of the Exchequer if he will make a statement on his policy on the appointment of special advisers to Her Majesty's Treasury. [1598]

The Government's policy on the appointment of special advisers was agreed by the Prime Minister, on 19 May, in the attachment to his letter to Cabinet colleagues. A copy of that letter has been placed in the Library of the House.

I thank the hon. Lady for that reply. Will she acknowledge two matters that should make the Chancellor's job rather easier? First, he has inherited a booming economy from the outgoing Conservative Government. Secondly, he has relinquished one of his principal responsibilities—deciding monetary policy—to the Bank of England. Why is it therefore necessary for him to increase the number of his special advisers by one third?

I am grateful to the hon. Gentleman for raising that point, because the reality is that we have found UK public expenditure to be a mess. The state of public expenditure prompted yesterday's announcement by my right hon. Friend the Chief Secretary. Moreover, I detect a whiff of hypocrisy in the position adopted by Conservative Members on special advisers. Since 1974, special advisers have been serving well the United Kingdom and Governments from both parties.

Will the my hon. Friend the Minister ensure that the special advisers to the Treasury read the study recently completed by Sheffield university's energy study group, which shows that there is a need for a change in the tax regime in the United Kingdom continental shelf? The study also shows that had we, for example, been matching the Norwegian system, the revenue per barrel between 1984 and 1995 would have been an additional £5.5 billion. As we move to a second hydrocarbon boom—

Order. The hon. Gentleman is miles off the point. We are dealing with the appointment of special advisers. I believe that Mr. Radice wished to ask a question.

Does my hon. Friend agree that it is sheer humbug to talk about politicising the civil service when a few additional special advisers are appointed and when in fact it was Mrs. Thatcher, when she was at No. 10, who suborned the integrity of career civil servants by making them her political playthings—so much so that they were not accepted back into the civil service?

I am grateful to my hon. Friend for making that point, because there is clear evidence of humbug among the Opposition. Indeed, I well recall that, under the previous Government, it took the intervention of the Cabinet Secretary to ensure that the then Secretary of State for Scotland did not use the Government press office to disseminate Conservative party propaganda. The appointment of special advisers is specifically to guarantee that the civil service does not become involved in party political issues.

The hon. Lady talks about humbug in relation to the politicisation of the civil service. Will she comment on reports that the Prime Minister has offered Mrs. Rachel Lomax, a career civil servant, the job of a special adviser as head of his policy unit? Will she further comment on the fact that the lady concerned, who is an intelligent civil servant, has very sensibly turned down the job because she does not want to be tainted by it?

The hon. Gentleman is indulging in speculation. My right hon. Friend the Prime Minister's policy unit is a matter for him but, in the few weeks that we have been in government, we have had reason to believe that the civil servants serving the Government are all intelligent, and we have every confidence in them.

To ask the Chancellor of the Exchequer what plans he has to raise the annual sum of money an employed person may donate to charities by way of the give-as-you-earn scheme; and what has been the cost of the scheme to public funds since its inception. [1600]

The payroll giving scheme has cost more than £30 million. The limit for donations under the scheme is a matter for the Chancellor in his Budget.

The upper limit of £1,200 per annum was set some time ago. Does my hon. Friend agree that it should be raised to, say, £2,000 per annum, as donors and charities would welcome such an increase and the latter would be able to plan their projects systematically? Incidentally, has my hon. Friend any idea how many hon. Members pay the maximum £1,200 per annum?

I do not have any idea how many hon. Members are contributing the maximum. There are more than 10 million people in pay-as-you-earn schemes who could give to charities. It is up to the charities to ensure that those people are donating. Any increase in the allowance is a matter for my right hon. Friend the Chancellor in his Budget.

Does the Minister share my concern about the funding of charities? If so, will she urge the Chancellor of the Exchequer not to change advance corporation tax? Would she like to explain why it would have a negative impact on charities, and undertake to talk to the charities about any such proposals?

I am sure that my right hon. Friend the Chancellor heard that and will take it as a Budget representation. All hon. Members will want to ensure that charities are properly dealt with in the tax system.

To ask the Chancellor of the Exchequer what steps he is taking to improve financial regulation. [16031

I explained a few moments ago the Government's policy on the reform of the regulatory system. We are making good progress towards the reforms that we want to achieve.

I thank my right hon. Friend for that reply. Will he agree to keep the House fully informed about future developments on the Securities and Investments Board? Will he also ensure the maximum possible protection for pensioners and savers?

I can certainly give the House those assurances. Not only will we keep the House informed through parliamentary questions, but the legislation required to implement our reforms on the Bank of England's role in monetary policy decisions and its supervisory role will be introduced in the near future. I am sure that there will be many hours of debate on the Floor of the House and in Committee to enable hon. Members to contribute their opinions in the normal way.

Will the Chief Secretary confirm that the most difficult questions will be those relating to whether a bank in difficulty will be allowed to fail or whether the risks to the system as a whole mean that it should be assisted? Will he clarify whether such decisions will be for the Chancellor of the Exchequer, the new financial regulator or the Governor of the Bank of England?

The position will be made clear in legislation. The hon. Gentleman is right. When there are problems with banks, the public and the banking system need to know where responsibility lies. The Bank of England is the lender of last resort, but with problems of the magnitude of the collapse of Barings bank—I do not think that the hon. Gentleman was at the Treasury at the time, but I may be wrong and he may be well aware of the arrangements—the Chancellor has always been consulted. That happened with Barings and with Johnson Matthey in the 1980s.