The challenge a year ago, amid global turbulence and predictions of recession. was to steer a course of stability. Now, with this year's pre-Budget report, the challenge is to lock in that stability and—by pressing ahead with our economic reforms—to set the course for a Britain of stability and steady growth.

The reforms made and the reforms to be made today reflect our resolve that Britain must leave behind the sterile, century-long conflict between enterprise and fairness—between the left, which promoted the good society at the expense of the good economy, and the right, which promoted the good economy at the expense of the good society, and too often achieved neither. Only by pursuing enterprise and fairness together—enterprise and fairness for all—can we equip all of Britain for our future and secure rising living standards for all.

Having laid the foundations with our monetary and fiscal reforms, Britain can now aspire to a new economic ambition for the next decade: a faster rise in productivity than our main competitors, as we close the productivity gap.

Making the most of our economic potential depends on employing all the talents of all the people. So, building on our education reforms and £19 billion of investment, the Government's second ambition for the next decade is that all people gain the highest qualifications that they can, with a majority of our school leavers for the first time in our history going on to degrees.

Having modernised with the new deal and with our reforms to make work pay, Britain can now reach for a third ambition in the next decade: a higher percentage of people in work than ever before.

Because a fair society and the strongest economy depend on leaving no one behind, Britain must now build on the reforms taking nearly 1 million children out of poverty and give every child the best possible start in life. So our fourth ambition is that by the end of the next decade child poverty will be reduced by half, on our way to ending child poverty within 20 years. These are decisions for a decade of reform to create a Britain of prosperity for all as together we create a Britain where there is opportunity for all.

The foundation—our first priority yesterday, today and tomorrow—is to lock in that fiscal and monetary stability. The economy of 1997 was characterised by inflationary pressures, unsustainable consumer spending and a large structural deficit in the public finances with public sector borrowing of £28 billion. Indeed, Britain was set to repeat the old, familiar cycle of boom and bust. Since then, we have created and rigorously adhered to a new framework of modern economic management: a clearly defined inflation target and clear fiscal rules backed up by legislation for an independent Bank of England and a regime of fiscal stability.

Over the past year, inflation has remained at or around our target. Today, underlying inflation is 2.1 per cent. Expectations of inflation 10 years on, which were 4.3 per cent. when we came to power, are now at 2½ per cent. Having come this far, we will not relax our discipline. Our pre-Budget report is based on meeting the inflation target of 2½ per cent. not just this year but next year and the year after that.

Early action on interest rates now prevents a return to the drastic action of the past. Those who would refuse to take the necessary pre-emptive decisions to meet our inflation target would risk returning our economy to the days of inflation out of control, unbalanced economic growth and 15 per cent. interest rates. Under this Government, Britain will not return to the boom and bust of the past.

Discipline is even more essential because of the changed global context. Last year, north America was the engine for world growth. Now this year, Europe and Japan are once again making their contribution. Although the 1998 challenge to avoid recession has been met, the new challenge is to grow while controlling inflation, and that must make us all vigilant.

I come to our economic forecasts. Last November, I said that I expected growth in 1999 to be 1 to 1½ per cent.—a forecast that I reaffirmed in the Budget that I presented last March. I have been re-reading the debates that took place at the time. There were predictions of recession from experts, and others, but the whole House will be pleased to know that, as the Government forecast, the economy has continued to grow.

The Treasury forecast is that growth this year will be 1¾ per cent. I can also report to the House that the Treasury forecast for next year is that the economy will grow by 2½ to 3 per cent, and that in 2001 and 2002 it will grow by 2¼ to 2¾ per cent, at all times consistent with meeting our inflation target. Britain is steering a course of stability and steady growth, and we will not take risks with the future of our economy.

In our first two years, public borrowing has been reduced by £30 billion—a cumulative fiscal tightening of 3 per cent. of gross domestic product. We will continue to lock in that fiscal tightening by keeping the public finances under control.

Our first fiscal rule—the golden rule—is that over the cycle there is a current surplus. At this stage in the financial year, I can provide an interim update on the Budget figures. The Treasury forecast for this financial year—1999–2000—is that the current Budget will be in surplus by £9½ billion. I have said that we will not make the old mistake of confusing a cyclical surplus with a structural surplus. In subsequent years the surplus is forecast to be plus 11, 13, 13, 12 and 11. I can therefore report that, based on prudent and cautious assumptions audited by the National Audit Office, we are on course to balance the current Budget over the cycle.

Our second fiscal rule—the sustainable investment rule—is that debt is set at a sustainable and prudent level. Under the previous Government, national debt doubled from £166 billion to £348 billion. In the past three years, debt's share of national income has fallen from 44 per cent. to 42 per cent, to an estimated 38. 2 per cent. at the end of this financial year and to 37 per cent. next year.

Over the economic cycle we will keep debt below 40 per cent. of national income. As a result of falling levels of debt and lower long-term interest rates, interest payments are down each year by more than £4 billion—money available for public services.

For all those who have an interest in economic and monetary union, I can report—in the tradition set by my predecessor—that this year and in future years Britain will be well within the Maastricht criteria.

Having inherited a deficit of £28 billion, I can now report that, in the year ending March 1999, we repaid debt by a total of £2½ billion. This year we expect to repay debt by a total of £3½ billion—a total of £6 billion in debt repaid in two years, at the right time in the economic cycle.

Consistent with our fiscal rules that we balance the current budget and borrow only for investment, our forecasts for public sector net borrowing in future years are minus 3, minus 3, plus 1 and plus 4. The British economy is clearly on track to meet our fiscal rules.

In the past, as figures for surpluses and deficits were reported, Budget debates too complacently focused on dividing up the national wealth. Today, in a competitive global economy, Budgets must meet the long-term challenge of helping to expand the national wealth. Indeed, living standards can continue to rise only if Britain continues modernising. Therefore, on the foundation of monetary and fiscal reform, we must build a pro-investment, pro-competition, pro-enterprise Britain to meet our first ambition to raise our productivity to the world's best.

For too long British investment has been too low, productivity increases too slow, the potential of new markets and new technologies too often squandered. Today, Britain still has only half the rate of business start-ups and only half the rate of share ownership of the United States, where nearly 50 per cent. of people own shares. The British economy needs high levels of investment and entrepreneurship, and I now propose new measures to encourage more investment and to give more people the chance to invest.

We have already cut small companies tax from 23p to 20p, introduced a starting rate of small business tax at lop in the pound, cut mainstream corporation tax from 33 per cent. to 30 per cent. to its lowest ever level, and introduced first-year investment incentives that are of special help to manufacturing.

I now propose to go further. Under Governments of both parties, capital gains tax for every investment, from the most productive to the most speculative, has been at 40 per cent. For years as a country we have debated why long-term investment in Britain has been so low. A 40 per cent. rate of tax on long-term investment discourages the capital formation and sustained reinvestment that Britain needs to reach its full potential.

In the 1998 Budget, we took the first step, reducing capital gains tax on investments of 10 years or more. Subject to consultation on the details, the Budget will make a more radical reform to promote not just high-technology investment but long-term investment across the economy in Britain. To Britain's prospective and actual investors and entrepreneurs I say: invest for three years and the capital gains tax rate will be not 40 per cent. but 22 per cent.; invest for five years and the tax rate will be not 40 per cent. or 22 per cent. but 10 per cent.

Having cut taxes for individuals who invest in business, my second major tax reform is to cut taxes for companies which invest. In competitor countries, growing companies do well because large companies invest in them. Tomorrow, my right hon. Friend the Secretary of State for Trade and Industry will give full details of a substantial tax incentive to generate new jobs in Britain from corporate venturing. Large companies that invest in growing companies for a specified period will, from next year, receive a tax relief of 20 per cent., underwriting one fifth of their investment, and companies which reinvest gains in new ventures will be able to defer tax on capital gains. That £100 million incentive can bring additional investment of hundreds of millions of pounds every year in Britain.

I turn now to the details of a third tax reform designed to create both a high-investment economy and a wealth-owning democracy open to all. I can announce that, under our new employee share ownership reform, all shares held by employees for five years will be exempt both from income tax and capital gains tax. From April, only four months from now, employees will be able to receive shares worth up to £3,000 in their companies, free of income tax, giving a tax saving of up to £1, 200. Employees will also be able to purchase £1, 500 of additional shares from their pre-tax salary, giving a tax saving of up to £600. For those who purchase shares, employers will be able to award an additional £3,000 of shares, another tax saving of up to £1, 200.

This is the most generous all-employee shares incentive a British Government have ever introduced, and there is only one condition: it is open to everyone in every firm. I urge employers and employees together to consider long-term investment in their firm's success—in preference to inflationary wage rises, which in the end bring higher interest rates, choose investments in the future, which can bring real gains.

Enterprise for all calls for a larger number of small businesses doing well, so the pre-Budget report provides details of new incentives for small businesses, which are the backbone of our economy: a new enterprise grant, enterprise incentives for managers and a new research and development tax credit targeted at small businesses, which is the most generous the country has seen and worth £150 million a year. Enterprise for all demands balanced economic growth across all the regions and the nations of Britain so, through regional development agencies and the work of the Scottish, Welsh and Northern Ireland Administrations, locally based venture capital funds will now be set up in every region of our country, from north to south.

Yesterday, the Massachusetts Institute of Technology announced that it will locate its European centre in Britain. From next year, the new regionally based enterprise centres attached to our universities will be able to draw on the management and research expertise of the new MIT-Cambridge partnership and put it to work for manufacturing and industry in every region of our country.

Enterprise for all depends on opening up competition to all, and it is time to build on the Government's decision to create a new independent Competition Authority. For cartels and anti-competitive behaviour, the Office of Fair Trading will, from March next year, be given new investigative resources and trust-busting weapons, including the power to impose fines of up to 30 per cent. of turnover. For banking and financial services, the Financial Services Authority will now, for the first time, be required to facilitate competition with a new scrutiny role for the competition authorities.

For the professions, the Government will examine how best to ensure that the rules of professional bodies do not unnecessarily restrict or distort competition. For the regulatory system and following the Cruickshank interim report, the Government will consider how to scrutinise regulatory bodies and review existing and proposed regulations to ensure that they are promoting, not impeding, new entrants and competitive forces. For the planning system, my right hon. Friend the Deputy Prime Minister is today announcing a series of changes in planning guidelines that will, for the first time, facilitate the formation of high-tech clusters in industry. For the first time, the planning system will be required to promote competition.

For high-tech businesses that need key skills, we will reform the rules on work permits and open them up to essential workers in information technologies and to entrepreneurs. For the utilities, the forthcoming utility reform Bill will explicitly require the regulators for gas, electricity and water to promote competition. In sum, Britain will be more open to competition, fair to consumers and at the leading edge of change.

We are determined also that Britain will break out of the closed circle that has too often restricted the opportunities of enterprise to a few. We want to encourage those who start with nothing and who, in the past, thought that they could never reach higher or rise far and tell them that there is not only a chance for them to do better, but no limit to their ambitions for themselves and their children. Our poor communities do not need more benefit offices; they need more businesses creating more jobs, so we are resolved to extend the opportunities of enterprise to people and places that the economy has too often forgotten.

The new deal will now offer help for long-term unemployed men and women to become self-employed and to start a business—for the over-50s, up to £3,000 during the first year in business and in work. Help for prospective businesses will be available from a new enterprise development fund that we are creating, and we will also provide cash help for people moving from benefits into a business, including support for micro-loans for small business investment.

Our proposals will also include new scholarships for dynamic business men and women in our poorest areas to learn new management skills. To encourage the next generation of entrepreneurs, we aim to double to 200,000 the number of pupils able to benefit from entrepreneurship courses in our schools. With support that has already been pledged to us from many of our most successful business men and women, we will launch a new national campaign for enterprise under which schools and colleges will be directly partnered with local companies.

Britain needs radical improvements not only in enterprise but education, as we are ensuring. We are determined to achieve another ambition by the end of the next decade: to realise the Prime Minister's commitment to education—the highest standards in our schools, all young people gaining the highest possible qualifications, and the majority of school leavers gaining degrees. So, in addition to the university for industry, individual learning accounts, the expansion of further and higher education places by 800,000 and the meeting of new targets for literacy and numeracy in our schools, my right hon. Friend the Secretary of State for Education and Employment, who has pioneered the reforms, will announce a major new expansion in IT education and skills, including 50,000 new college places. In the new knowledge economy, no one should be left out.

Our ambition is work for all—a higher percentage of men and women employed than ever before. After two and a half years of this Government, unemployment is lower than at any time in the past 20 years. This Government have delivered not only the new deal but new jobs: 700,000 more since 1997. The minimum wage and the working families tax credit are making work pay, but we need to go further. There are today 1 million job vacancies waiting to be filled. Vacancies are at record levels, not in one region alone but in every region of the United Kingdom. We need to equip the unemployed with all the skills that they need for the jobs that exist.

So, I can announce that the new deal, first introduced for the under-25s, will be extended to all those over 25 years old in every part of the country. Options will include the offer of a job with a private sector employer, self-employment, work-based retraining or college training, backed up by advice, counselling and mentoring—honouring our commitment to tackle long-term unemployment.

I can also announce new choices for lone parents to gain new skills, go to college and go to work. From now on, lone parents will not only be able to train for jobs while receiving income support, but will benefit from college-based child care places for 10,000 more children—making a total of 37,000 places. All lone parents with children over the age of three will receive notice of those new choices.

In 1909, Britain created the first labour exchanges in the world in order to link potential employees to vacant jobs. Today, with 1 million vacancies throughout the country, Britain must use the most modern technology in order to match those jobs without workers to the workers who have no jobs. We shall create a national jobs phone line whereby, for the first time in every locality, the Employment Service will continuously update unemployed men and women about new vacancies that are suitable for their skills. For every constituency in the country, the Government will provide assistance to enable Members of Parliament, irrespective of political party, to bring the unemployed and potential employers together.

Our reforms since 1997 have cut youth and long-term unemployment by half. A return to full employment was once a dream. Now, it is not only a promise and a possibility, but, in the next decade, if we stay the course, it can become one of our country's proudest achievements.

As we extend opportunities to those who are out of work, we will extend the responsibility to take up the work on offer. The informal or hidden economy is draining billions of pounds in fraudulent benefit claims and unpaid taxes. That loss of revenue, this incidence of fraud, the waste of resources, cannot be allowed to continue, especially when there are jobs that benefit claimants could take.

Lord Grabiner QC will chair a task force, bringing together the Treasury, the Inland Revenue, Customs and Excise and the Departments of Social Security and for Education and Employment. He will investigate the scale of the problem and the cost to the taxpayer, recommend a plan of action and set a timetable to crack down on the hidden economy. He will examine ways to move economic activity from illegitimate to legitimate businesses. He will consider increased fines for fraud, and new requirements specifically for those suspected of being in the hidden economy to sign on for benefit not every fortnight but every single day.

I say to the unemployed who can work: we will meet our responsibility to ensure that there are job opportunities and the chance to learn new skills; they must now meet their responsibility to earn a wage. We are ensuring that work pays more than benefits. All our measures, taken together, mark a new dividing line. The Government believe that the way to help the unemployed is by extending the new deal, not abolishing it.

As we pursue our ambitions for growth and jobs, we can and must keep our environmental commitments. Under my right hon. Friend the Deputy Prime Minister, Britain took the lead in successfully negotiating the Kyoto agreement, and I am today announcing the results of our consultation with business on the climate change levy. Our original proposal was to cut environmental pollution by 1. 5 million tonnes a year by 2010. Our consultation has shown that we can cut environmental pollution even further by 2010—by more than 2 million tonnes a year—and at the same time cut the levy from £1. 75 billion to £1 billion.

I have decided that renewable energy sources and combined heat and power will be exempt from the levy. The main rate per kW hour will be cut from 0. 21p to 0. 15p, and there will be an 80 per cent. discount to energy-intensive sectors signing energy efficiency agreements. Taken together, those changes approach a 90 per cent. discount on the levy published at Budget time in return for agreed industry action to cut emissions.

All the revenues raised will be recycled to business. I can confirm that every business will receive a tax cut of 0. 3 percentage points in employer national insurance contributions. I have ensured not only that that package is revenue neutral for business and revenue neutral between manufacturing and services, but that even after the national insurance change there will be no gain to the public purse.

In the run-up to the Budget, we will consult on a new 100 per cent. first-year investment allowance for companies moving from environmentally unfriendly to environmentally friendly technologies and processes. I propose to make available not, as originally announced, £50 million, but in the first year a total of £150 million to support energy efficiency in British industry. With all those measures taken together, Britain is on track to meet our country's Kyoto target.

The fuel escalator was inherited from the previous Government. [Interruption.] The Conservatives cannot deny their history. Since 1997, the escalator has been needed to reduce the £28 billion deficit that we inherited, as we put in place our new measures to protect the environment. Those who have opposed the escalator—including some of those who originally imposed it—have to explain how, without it, they would have cut the deficit, made money available for public services and met our environmental commitments in the past two years.

Having cut the deficit and introduced our new environmental policies, we are now in a position—instead of the pre-announced 6 per cent. escalator—to make our decisions Budget by Budget, with the following commitment: if there are any real terms rises in road fuel duties, they will be lower and the revenues will go straight to a ring-fenced fund for the modernisation of roads and public transport.

Now that the return-leg exemption from air passenger duty has been declared in breach of single market law, I am today starting a pre-Budget consultation on replacing it with a new lower rate for lower fares. The changes will be revenue neutral.

Today I am also implementing recommendations that have come from Martin Taylor to prevent, detect and punish tobacco smuggling. Smuggling now costs us £2. 5 billion a year. The pre-Budget report contains details of our decisions—new scanners at major ports to detect contraband goods, new cigarette pack marks, and new and tougher fines and penalties for those who smuggle and those who sell smuggled goods.

Our next ambition is to reduce and then abolish child poverty in Britain. The promise of the next decade should not be just for some children but for every one of Britain's children. By April, child benefit for the first child will be £15. By the next April, for the typical family, child benefit and the children's tax credit will be £23. With our lop starting rate of income tax and the cut from 23p to 22p in the basic rate, the tax burden—national insurance and income tax—for the average family will be cut to its lowest level for 25 years.

Our intention is to integrate the children's tax credit and the child elements of the working families tax credit and income support into one single credit paid direct to the mother, and built on the foundation of universal child benefit. At today's prices, that would mean child payments starting at £15 a week, in contrast to £11 in 1997, and, for the poorest child, rising to more than £40 a week.

Our pre-Budget consultations will also examine whether through the working families tax credit or other measures we can give more help to the mother who wishes to stay at home in the first months after her child is born. Government must do more, but Government on their own cannot win the war against child poverty—it can be won only by the combined energies of public, private and voluntary sectors working together. We need not only cash but care. Therefore, the pre-Budget report will consult on new reforms to support the community organisations that are closest to people and where dedicated staff and volunteers can offer one-to-one help.

First, we will set up a new children's fund which will provide project grants for community action to tackle all aspects of child poverty. Secondly, so that we can develop new and innovative ways to support families and children, sure start will now see resources devolved not just to local government but to local partnerships led by neighbourhoods and the voluntary sector.

Thirdly, for too long the voluntary sector has been held back by outdated tax laws. We propose that, in future, for every £1 a British citizen donates to charity, the Government will contribute to that charity an additional 28p. For every £1 contributed through payroll giving, the Government will contribute 50p worth of tax relief. There will now be tax relief not just for cash donations but for gifts of quoted shares. The British people's willingness to give can give all our children a better chance, and all of us a better society.

From a platform of a stable economy and sustainable finances, we are delivering £40 billion extra for health and education. It is only by continuing our policies for stability and steady growth that we will be able to achieve a further ambition for Britain—to build the best public services for the long term. In our second comprehensive spending review, to be completed next year, we will match investment with reform, increasing the amount of resources available for the NHS and education in our public services. I can announce two decisions that can be made now.

Through the windfall levy, 5,000 schools throughout Britain have already been modernised. With the addition of a further £150 million to the £4 billion already allocated for schools capital, my right hon. Friend the Secretary of State for Education and Employment will be able to treble that figure. By 2001, the number of schools modernised or being modernised will total 15,000—half the schools of Britain—benefiting more than 5 million pupils.

There is a strong public health case for year-on-year, real term increases in the price of cigarettes. While we will now make our decisions Budget by Budget, I can announce a new approach: the extra revenues from a 5 per cent. real terms rise in cigarette duties would go straight to additional investment in the national health service, worth £300 million a year—that is £300 million extra for hospitals and health care which could start next April.

I have a further announcement to make. From this week, the £100 winter allowance is being paid to every pensioner household in Britain. My right hon. Friend the Secretary of State for Social Security will announce later today that the winter allowance will be paid not just this year but next year, and every year from now on. For pensioners with incomes above benefit level who are not wealthy, we propose a better deal on savings. The elderly especially will benefit from my proposal to cut the starting rate of tax on savings from 20p to 10p—some 1. 5 million pensioners will benefit.

I have one final announcement. All Governments have agreed that we ought to provide the most help for our most elderly citizens—those over 75 or 80 who are more likely to be in poverty and more likely to have special needs. Some have suggested a new age-related addition to benefits. Some have suggested that the way to do this is to provide the very elderly with a reduction in the television licence fee. I have rejected that option. Instead, from next autumn, every pensioner aged 75 or more will receive their television licence free of charge. At a cost of £300 million a year, every one of the 3 million households with a pensioner aged over 75 will be able to save £101 a year.

This Government are demonstrating that enterprise and fairness can go hand in hand. This Government's work for Britain has only just begun. I commend the pre-Budget report to the House.

This statement has one purpose, and one purpose only—to capture tomorrow's headlines. It will do nothing to reverse the underlying damage that the Chancellor's policies are doing to our economy.

Under this Chancellor, saving has fallen by a half and productivity growth has fallen by two thirds. The burden of tax under this Chancellor is rising by more than in any of our competitor countries in Europe. In opposition, the Prime Minister and his party opposed every reform that has made Britain competitive. His policies since the election have chipped away at the dynamism that took 18 years to build. This statement does nothing to rebuild that dynamism.

Will the Chancellor now admit what even the Prime Minister has let slip, and what the Organisation for Economic Co-operation and Development confirmed last week—that the burden of tax in Britain is rising, more quickly than anywhere else in Europe? Extra taxes total £40 billion, or £1, 500 for every taxpayer. There are extra, rising taxes on motoring, marriage, mortgages, saving, giving, pensions, enterprises, the new economy, dividends, property, insurance, travelling and retirement.

Only one Labour Member is prepared to speak the truth about taxes—the hon. Member for Brent, East (Mr. Livingstone). It is no wonder that the Prime Minister is trying to suppress the hon. Gentleman, or that he does not want him to have a voice. The hon. Gentleman has said:

"We haven't increased the top rate of tax and the standard rate of tax, but we have increased a lot of other taxes, and we have done it with all these stealth taxes. I just think it would have been better to have honestly told people beforehand. "

The reality is that the more that the Chancellor denies that he has raised taxes, the less people will believe him. Is not his decision today to climb down and make some concessions on the energy tax an admission that the environment was never anything but a cover for new taxes? The Chancellor has admitted that these new taxes will inflict severe damage—that is why he is making the concessions—so why can he not bring himself to abandon them altogether?

The Prime Minister said earlier this year that it was irresponsible to abandon the automatic road fuel duty escalator. The Chancellor said that to do so was impossible, and in fact he has dramatically increased the escalator since the election—three times in two years, so that it is now well above the level that he inherited. Does not that amount to an admission that it was nothing more than a stealth tax to raise extra money? Is not today's statement a belated admission of the damage that he has done to hauliers, so many of whom have already moved abroad? That business is now lost to Britain, and it will not return just because he has made this belated admission.

All those taxes erode Britain's competitiveness. Is not the world already tough enough for businesses without them having to carry the Chancellor on their backs as well? The House can rarely have heard—[Interruption.]

Order. I ask the House to come to order. The right hon. Gentleman must be given a proper hearing.

The House can rarely have heard a Chancellor speak so complacently of an economy that, last year, missed recession by a whisker and where manufacturing was in recession. [Interruption.] The Chancellor laughs, but 190,000 people in manufacturing in constituencies represented by Labour Members lost their jobs. The number of business failures has risen and is continuing to rise. Even the Chancellor cannot be smug about that.

What has happened to productivity growth—the test that the Chancellor set for his policies? The OECD has already shown that it has fallen since the Chancellor took over. He thinks that it is funny, but it is the test that he set for himself. The OECD figures show that productivity growth has fallen by two thirds since he took over. In case he wants to trash that as being only the OECD number, as he trashed the tax numbers, let him look at his own paper—published yesterday—on the trend rate of growth and the graph that shows that productivity growth has plummeted since he took over. He can postulate a long-term increase in the productivity rate to justify his higher rate of growth only by taking an eight-year average—by including the whole of the period of the previous Government during which productivity did grow by more than 2 per cent. a year. That growth just about offsets the catastrophic fall in productivity since then.

Let the Chancellor answer this: given his sustained attack on people who save, is he surprised that the rate of saving has fallen by a half? Does he think that that matters? Does he think that it is trivial to the future of Britain's economy?

The Chancellor has made much of his so-called measures for enterprise, including capital gains tax. We have seen all this before—a few concessions to catch the headlines and distract attention from the real damage being done to business. Was not the president of the Confederation of British Industry right to say that any cuts in business taxes

"are more than offset by the windfall tax, the loss of the dividend tax credit, and now the climate change levy. The sums they give back are trivial by comparison"?

Of course, we support schemes to increase share ownership, but what has happened since the Chancellor took over? When we left office, 15 million people owned shares—today, it is 12 million. Now, the right hon. Gentleman claims to be the champion of share ownership. If he really wants to help the self-employed, instead of fiddling little schemes, why does he not scrap IR35, his new stealth tax? It is already driving thousands of entrepreneurs abroad—congratulations, a new Labour brain drain.

It is no wonder that four out of five firms now think that Labour is hostile to them. The Chancellor has been beating them over the head with higher business taxes and more regulation. He offers them half an aspirin and expects them to be grateful. They do not want half an aspirin; they want him to stop beating them over the head with the higher taxes and extra regulations.

"The Chancellor hopes that we will oppose his plans to spend more money on health and education, but I am going to disappoint him…we welcome…money for those priority services."— [Official Report, 14 July 1998; Vol. 316, c. 195-96.]

I said that last year and I say it again today. We support increases in health and education spending. It is just a pity that waiting lists are longer; it is just a pity that class sizes are higher; and it is just a pity that there are fewer police on the beat and that crime is rising.

What happened to the Prime Minister's famous pledge that Labour would

"cut the bills of social security"?

Cut them? They are up by nearly as much as health and education added together. The Government said that they would reform welfare. Well, that did not last long.

The Chancellor ought to target help on those who cannot help themselves—that is the common-sense approach. He punishes people who try to help themselves. He punishes people who want to do the right thing, who want to work and save, who tell the truth.

This Chancellor claims to be prudent. He is only prudent with the truth. He says one thing, he does another. He talks pro-business, he acts anti- business. He talks less regulation, he imposes more. He claims taxes are falling when everyone knows that they are rising. Anyone independent who tells the truth, he rubbishes. Any definition that is inconvenient, he changes. Any statistic he dislikes, he fiddles. He is the salesman who says, "Don't worry about the fine print, just look at the slogans. " He is the man in the pub who says, "Give me a fiver and I'll buy you a pint. "

There is a new corruption infecting British politics today: the corruption of the smug few who are trying to make mugs out of the many.

I will deal with each point that the shadow Chancellor made in turn, but let me ask him first about misleading the House. Last year, he said that there would be a recession; there has been 2 per cent. growth, so he has got that wrong. Last year, he said that investment would collapse; investment has been rising 6 per cent. this year. He got that wrong. Last year, he said that unemployment would rise dramatically. It has fallen by 100,000, and he got that wrong. Last year, he said that savings would collapse. Savings are rising; he has got that wrong. Last year, he said that we could not afford £40 billion on health and education. We can afford £40 billion, so he got that wrong.

The only thing that is certain about the right hon. Gentleman's predictions is that he always gets them wrong. He is extreme and incompetent; so far right, and now exposed as so far wrong. [Interruption.] They do not like it. His words were "fantasy forecast", "Peter Pan economics", "Wonderland politics", "false and fairy tale figures" and "reckless gambles"—and he accuses me of trying to make the newspaper headlines.

The shadow Chancellor's first question was about tax. The tax burden is falling. [HON. MEMBERS: "Oh.] Yes, it is: 37. 4 per cent. to 37 per cent. to 36. 8 per cent. It is falling beyond the plans that we inherited from the previous Government. If people want to understand why it is falling, there is a 10p tax rate—a Labour tax cut. Income tax has fallen from 23p to 22p—a Labour tax cut. Corporation tax is down to 30p—a Labour tax cut. Small business tax is 10p a Labour tax cut. Today, there is capital gains tax at 10p—a Labour tax cut. The people who put up taxes are the Conservatives: 22 tax rises. That is why no one will trust anything that they say on tax.

I listened to what the shadow Chancellor said about what now passes for a Conservative economic policy. The Conservatives opposed Bank of England independence and put at risk stability. They opposed the necessary interest rate rises and put at risk inflation. They now opt for top-rate tax cuts, just like in 1988. In fact, their economic policy is 1988 all over again. Boom and bust—that is the Tories' economic policy on which they will fight the general election. It is hardly surprising, because he was one of the architects of boom and bust. He was at the Treasury from 1990 to 1992, as spending went out of control and interest rates were at 15 per cent.

On the Conservative policy on taxation and spending, the shadow Chancellor tells us that he opposed the £40 billion spending on health and education last year. [Interruption.] The shadow Chancellor opposed spending £40 billion on health and education. He said that it was reckless, wasteful and that we would have to go back a bit and cut public spending. To pay for the tax cuts that he announced yesterday, he would have to cut public spending. Tax cuts for the few to pay for public spending cuts for the many. Over the next few months, the Conservative party must tell us which hospitals they would close, which schools they would shut, how many and which teachers they would make redundant and how many nurses in which constituencies they would put out of work.

This is not theory. The Conservative health spokesman is going round the country telling people that he would have private medical insurance for people and would cut out non-urgent operations from the national health service. Already his friend, the shadow Home Secretary, has said that she wants new charges in the national health service.

So that is the dividing line. The Tory party—stop/go. Labour—stability and steady growth; Labour creating employment. The Conservatives are the party of unemployment. Labour is the party that helps working families with child benefit, the working families tax credit and our cuts in taxation. The Conservatives would hurt working families. Labour is the party of public services. The Conservatives are the party that would privatise public services. Tax is falling in this country. The party that would put taxes up is the Conservative party.

My right hon. Friend has received international acclaim for his responsible handling of the economy. Many knew that that was likely to be a prelude to action, and we waited two and a half years to see what my right hon. Friend would do. What we have had today is an astonishing range of proposals. It will obviously take some time for us all to digest them. What does my right hon. Friend propose to do about some parts of the infrastructure, especially transport, which will have to underpin so much of his imaginative statement today?

I am grateful to my right hon. Friend, who is a distinguished former Chairman of the Public Accounts Committee and has done a great deal to promote the cause of British manufacturing industry. He is right to say that our three-year expansion on transport is necessary to improve an infrastructure that was left neglected for 20 years. He is right to say that the new announcement today that any real-term rises in fuel duties will go directly to a fund for roads and public transport is a step forward for transport. My right hon. Friend the Deputy Prime Minister is preparing new plans on transport so that we can improve the infrastructure of this country. We inherited an infrastructure that was out of date and neglected, and we are in the business of improving it.

May I be the first to congratulate the Chancellor on his new appointment to run the Labour party general election campaign? I am sure that his colleagues on the Back Benches will feel that he has made a good start, but patients, parents and those who are disabled may feel rather differently when they discover at the end of all this that class sizes for the over-eights will continue to rise, that hospital waiting lists for out-patients will continue to rise, and that those who heard that they were to have their incapacity benefit cut and will see that happen tonight will find that the Government are pressing ahead, despite the tax breaks for millionaires that the Chancellor has announced today.

Is it not a fact that, despite small amounts for health and education, the Chancellor is continuing to build his war chest? Why is he not using the substantial funds available to him to tackle rising waiting lists, cut class sizes for the over-eights and restore the benefit cuts for disabled people?

Can the Chancellor confirm something that appeared in his statement but may have been missed? Is the comprehensive spending review—the prudent decision to set spending over a three-year period—to be torn up a year early? Having announced that the CSR is coming forward a year, will the Chancellor confirm that the third year of the existing plans will remain, or whether he intends to increase spending as he approaches the general election?

I hope he does.

We all hope that the right hon. Gentleman does.

Does the Chancellor realise that on the figures that he gave today for growth in the economy, the proportion of the national wealth devoted to education, which was 5 per cent. in his original plans, will have lost some £2 billion?

In relation to tax, does the Chancellor agree with the editorial in today's Financial Times, which accuses him of endless tinkering with the tax system, and of introducing "meddlesome tax privileges"? Surely recent experiences have taught us that simplification, not complication, is the answer.

In relation to the environment and the announcement that the planning system will be required to take competition into account, does that include retail? If so—to talk about the friends of the Chancellor and of the Prime Minister—is that the payback for sherry at No. 10 for the Wal-Mart executives?

The Labour Government claim to be for the many—not the few. However, is it not true that many millionaires will benefit from today's tax loopholes, while a few of the poorest disabled people will lose from tonight's legislative decisions? The Chancellor has amassed a war chest, as the figures will show when people examine them in detail. His announcements on education and health will do nothing to cut class sizes for the over-eights; they will do nothing to cut waiting lists for out-patients. They will not deliver what people voted for at the last general election. Is not the Chancellor taking his election job too seriously and his chancellorship too lightly?

I welcome the hon. Gentleman as the Treasury spokesman for the Liberal party. We shall be meeting on the joint consultative committees—we should leave a section of our meetings for education on basic facts in today's economy. The hon. Gentleman says that the Liberals would spend more on education. At the election, they promised £1. 8 billion a year—we are spending more than £7 billion extra a year. At the election, they said that they would spend £500 million on health—we are spending £7 billion extra a year. It is about time for the Liberals to admit that what we are doing is far beyond whatever they propose, or could deliver.

The hon. Gentleman should be absolutely clear about incapacity benefit and should not incite fears throughout the country. No person claiming incapacity benefit at the moment is worse off. It is completely mischievous of the hon. Gentleman to give any other impression.

In relation to the general position of the Liberal party on public spending, the hon. Gentleman now tells us that we should spend more. The weekend press was full of headlines that he would clamp down on public spending claims made by the Liberal party. He stated:

"We always doubted that the Government would maintain its position"—

that is, being tough on public spending over three years. The hon. Gentleman continued:

"The worry is that this was designed to allow a relaxation of policy to make headlines in advance of the election. "

Far from being a person who wants to spend more money, the hon. Gentleman poses, in the Financial Times, as someone who wants toughness and less spending. I gather that he proposes a pledge card for the Liberals at the next election. Pledge one will be to tell some people that they are increasing public spending, while pledge two will be to tell other people that they are cutting it. I look forward to that. Pledge three will be to raise taxes, and pledge four will be to tell other people that they are cutting taxes. I look forward to future debates with the Liberal party.

The Select Committee on the Treasury will want to question my right hon. Friend on his important and detailed statement, especially on jobs, share ownership, child poverty and pensions. Does he agree that the key to flourishing enterprise and to high-quality public services is a stable and strong economy, with the low inflation, low unemployment, steady growth and healthy public finances that, currently, we so fortunately enjoy?

I am grateful to my right hon. Friend, who chairs the Treasury Select Committee; I look forward to meeting the Committee to discuss the details of my statement as well as other matters. I entirely agree with him. During the past 30 years, this country has lacked stability and steady growth. That requires us to move away from the stop/go of the past, and our policies are determined on that course. That is why we are tough in our fiscal discipline and why we are determined, with our new monetary arrangements, to meet our inflation target. The rewards are rising investment in our public services.

Does the Chancellor recall that the first thing he did on taking office was claim to discover that the target figure for safely sustainable growth was, at 2½ per cent., too high and, in the name of prudence, to reduce it to 2¼ per cent? He now seems to have found bogus reasons for putting it back to 2½ per cent. Is that not a cynical exercise in lowering expectations and then raising them again, so that he can ridiculously oversell the current modest recovery in the economy? Although he can say with relief that we missed a recession by a whisker, does he accept that for six months last winter there was no economic growth in this country, that manufacturing went into recession and that agriculture is in recession?

The Chancellor's new figure of 1¾ per cent. growth this year means we are being outperformed, not only by the United States of America, but by France, Germany and Spain, despite his inheriting the fastest growing major economy in western Europe. When he rises to explain the reason he is now so proud of our underperformance relative to the performance of our competitors, compared with whom our productivity and competitiveness are falling, will he acknowledge that it is the result of his placing a burden of tax on business, on pensions, on savings, and on fuel which no number of gimmicky announcements of new tax breaks—which, when the details emerge, will yet again turn out to be little or nothing in practice—can correct? The Chancellor has set the country on a course of lower expectations for future economic growth and uses smoke and mirrors to present it as a triumph.

I know that the former Chancellor of the Exchequer cannot be seen to agree with me—at least, not in the House in Commons. He mentioned the first thing the Labour Government did, but the first thing we did was make the Bank of England independent. It is interesting that the right hon. and learned Gentleman supports that policy and has said so; it is only his right hon. and hon. Friends on the Opposition Front Bench who continue to oppose it. The reason we made the Bank independent was to tackle his central point, which is that the average annual growth of the economy over the previous 20 years had been less than 2 per cent.

It is to deal with the failure to achieve growth under the Conservative Government that we have introduced our measures. First, we must achieve stability, which I believe the right hon. and learned Gentleman values. That is why we took tough action to prevent the economy that he bequeathed to us from getting out of control. Secondly, we have introduced measures to encourage investment in the economy. He will have noticed that, even though this year's rate of growth has been low, for the first time in this part of the economic cycle, investment in our economy has kept up and is currently running at 6 per cent.

The right hon. and learned Gentleman mentions the productivity challenge, and I accept that challenge. However, when the Conservatives left office, this country was falling down the world productivity league; we are determined to reverse that fall. I hope that, just as he now supports our policies on the Bank of England, the right hon. and learned Gentleman will, in time, come to support our other policies to improve productivity in the economy.

How will my right hon. Friend's statement on the climate change levy change for the better the position of the steel industry? He will know that my constituents from Shotton steelworks and I took a deputation of management and labour to see Treasury Ministers.

May I also tell my right hon. Friend of the constituent who visited my constituency surgery with his wife and child? He told me of his astonishment and pleasure at how the working families tax credit had given his family £28 a week more. If that is redistribution by stealth, may we please have more?

My right hon. Friend draws attention to the working families tax credit, which is giving many thousands of people in this country up to £50 a week more—money that is necessary to lift them out of poverty and give them a decent weekly income. I wish the Conservatives would end their opposition to the working families tax credit and the minimum wage, so that we in this country could enjoy a consensus on them.

My right hon. Friend also mentions the climate change levy, which, with others, he has raised before. I believe that the sector for which he puts the case will be pleased to learn that we have achieved the 80 per cent. discount and that there are lower main rates for the levy, equivalent to a 90 per cent. reduction in the levy rates published at Budget time. In addition, that sector can claim on the energy efficiency fund that we are creating and benefit from the new proposal for 100 per cent. capital allowances for moving to more energy efficient products and processes.

I believe that the welcome that will be given to our measures on this matter today will show that it is possible to build a consensus in this country, that we can make changes in the taxation regime to deal with the environmental commitments negotiated by the Deputy Prime Minister, and that we can do so in a way that is fair to all.

Does the Chancellor think that there is a possibility that those entering the country with an IT work permit may notice those who are leaving the country in the opposite direction because of IR35—or is the former policy intended to mask the effects of the latter?

The right hon. Gentleman, who has a considerable reputation in the House, should not mislead people about the new measures on personal services companies. As he knows, we have listened to the consultations on this matter, and a few weeks ago we published new proposals. Those proposals have been generally welcomed by people who understand what we are trying to do.

Rubbish.

The only thing that I can say about the shadow Chancellor is that he wants to create a situation where, even when people may be earning thousands, or hundreds of thousands of pounds a year, they pay no national insurance on their earnings. We are taking the necessary action, and if the right hon. Gentleman wants to make changes in these measures he must tell us now: is he opposing the payment of national insurance contributions by people who have personal services companies? Yes or no?

May I congratulate my right hon. Friend on his statement? I was one of those who had misgivings about the climate change levy, and in large measure my right hon. Friend seems to have listened to what we were saying. Given the opportunities that are now available to companies and trade associations to enter into negotiations with our right hon. Friend the Deputy Prime Minister, there is no reason why most of them should not be able to arrive at reasonable settlements, in view of the reduction offered by the discount and the lower rate, the opportunities for combined heat and power, and the £150 million for energy efficiency investment, as well as the capital allowances.

We must congratulate my right hon. Friend because, although many of us criticised him, he listened; and I believe that most of us are relieved and almost happy.

I am grateful. My hon. Friend is Chairman of the Select Committee on Trade and Industry, and I have met him on that basis. Of course, he may be happier on Saturday when we attend the Scotland-England football match at Hampden together. He rightly points to the changes that have been made as a result of the consultation period, but I stress to him that we have managed to cut emissions by a greater amount than previously proposed in addition to halving the levy. I believe that most people throughout the country will welcome that.

Eight European countries have, or are about to have, a climate change levy or a similar measure. I believe that we must accept that that will happen, but I also believe that it can be a done in a fair and balanced way. We have put forward these measures in order to achieve that, and there is no revenue gain whatever to the Government from meeting those environmental commitments.

Will the Chancellor make it clear that he will not now proceed with a pesticides tax, which would further devastate an already devastated agricultural industry?

While he is working that one out, will the Chancellor admit that, contrary to the impression that he tried to give earlier, he has substantially cut the road programme and other transport expenditures?

On the fuel duty escalator, would it not have been much better if the Chancellor had said that he would not increase fuel duties now at all, given that fuel duty is much higher in this country than in other European countries? If he does proceed with the fuel duty increase, will he make it clear that the expenditure hypothecated for roads and other transport programmes will not be offset by reductions in the transport programmes financed by public expenditure generally?

When the right hon. Gentleman makes these points, I suspect that he is really welcoming the fact that we are creating a ring-fenced fund for roads and public transport and wishes that his colleagues in the previous Government had done exactly what we are proposing. When I say that this is money for roads and public transport, I mean that it is additional money for roads and public transport.

Once Conservative Members have stopped their knee-jerk reaction of opposing everything recommended by the Government, I hope that they will accept that this is a reasonable way forward. It was, after all, the previous Government who introduced the escalator on fuel duty in 1993, where it remained until 1997. It is we who are reforming it, by putting in place new environmental measures that are best for the country.

Is the Chancellor aware of how welcome his statement on the climate change levy will be in the steel communities, in response to the delegations that he has received from companies, Members of Parliament and trade unions?

Does my right hon. Friend agree that his very ambitious proposals on employee share ownership will take us from passive share ownership to an active partnership stake in many more of our firms? Will he ask his fellow Ministers in the Department of Trade and Industry and the Department of the Environment, Transport and the Regions, as well as members of employer organisations and trade unions, to build employee share ownership into their thinking, so that we have an active stakeholding economy in which the many have a stake in the firms of this country, not just the few?

I am grateful to my hon. Friend, who was one of the Members of Parliament in a delegation which made representations in our consultative period on the climate change levy. I believe that we have created a pattern in which it is possible to consult on such measures and to listen to what is being said by various sectors of British industry before a Budget. My hon. Friend will be pleased to know that the steel industry will benefit from the 80 per cent. discount, the lower main rates of levy, the trebling of Government assistance to business for energy efficiency measures and some of the exemptions. It is important to recognise again that these measures have no revenue benefit to the Exchequer; all the money will go back into business.

As for my hon. Friend's second point, our aim over the next few years is to double the number of companies with employee share schemes. I believe that the proposed package of measures to be introduced in April will show immediate results. I hope that trade unions and managers can get together to work out how they can move this forward.

The Chancellor had some fun attacking the forecasts of my right hon. Friend the Member for Horsham (Mr. Maude). The right hon. Gentleman should perhaps be a little more careful. I remember when, as shadow Chancellor, he said after a Conservative Budget that it would lead to increases in unemployment month after month after month. In fact, those measures led to reductions in unemployment month after month after month until this Government came to power, when the right hon. Gentleman gained from the reduction.

The Chancellor's speech started with a resonant phrase. He said that his proposals were designed to promote enterprise and fairness, and nobody can disagree with that aim. So will he please explain how £30 billion of extra taxation on business helps enterprise, and how his £5 billion a year raid on pension funds helps fairness?

The fact is that we have cut corporation tax, which is falling from 33p to 30p. We have cut small business taxation from 23p to 20p. Conservative Members do not want to know, because they refused to make the corporation tax cuts that we have been prepared to make to encourage new investment. Instead of dismissing our changes to capital gains tax, the Conservative party should welcome them. We are making it possible for long-term investment in our economy to expand in the next few years, as is the case in other countries.

It is true that enterprise and fairness are the themes of this pre-Budget report. It is a pity that neither enterprise nor fairness is part of the Conservative party's policies.

Is my right hon. Friend not surprised that Conservative Members are still expressing their opposition to the windfall tax, which redressed some of the excessive profits made by the privatisations and rip-offs for which the previous Government were responsible? Has that not underlined the importance of the new deal and Labour's policy of getting people to work, the extension of which, as announced by my right hon. Friend today, is to stop paying people to be out of work and to get them back into work by regenerating the economy?

I agree. The only people who oppose the windfall tax are the Conservatives. People recognise that the windfall tax dealt with the excess profits of the utilities that followed the Conservative Government's botched privatisations. At the same time, it has made possible the creation of new job opportunities for the 500,000 people who are on the new deal. It is sad that the Conservatives want to abolish the new deal and that Front-Bench spokesmen say that it is a fraud. If the new deal had got just one or two young people back to work, it would have been a start. In fact, it has got 170,000 people back to work. It is time we had some support from the Conservative party.

If, as the Chancellor said in his statement, the underlying inflation rate is 2. 1 per cent., what was the justification for raising interest rates last week to nearly three times that figure?

The Monetary Policy Committee makes decisions—I thought that the Conservative Party understood this—18 months to two years ahead. Decisions do not have an immediate, day by day impact on inflation. Last week's decision will have an impact over the next year or two years. The MPC should be supported in what it is doing, as the alternative is a return to the boom and bust days of the Conservative Governments, and we are not prepared to let that happen.

I wholeheartedly welcome my right hon. Friend's statement, especially the announcement of free television licences for the over-75s. Will he examine, however, the economic situation in the north-east of England, possibly considering a Barnett formula mark 2? The region is not booming and has been depressed since losing major industries including coal, steel and shipbuilding. We are in recession, and another 1,000 job losses are in the pipeline.

My hon. Friend has been, and continues to be, a strong advocate for the north-east economy. He is right to say that there have been huge changes as coal and shipbuilding have been affected by what has happened in the world economy. However, the Government are trying to ensure that resources go to the north-east, which is one of the biggest beneficiaries of the new deal. My hon. Friend will know that the minimum wage and the working families tax credit are helping thousands of people in the north-east.

Meanwhile, the new deal for communities announced by my right hon. Friend the Deputy Prime Minister is making a difference to some of the worst unemployment areas in the north-east. There are currently 50,000 vacancies in the region, twice as many as there were at the peak of the 1980s boom when the Conservatives were in office. We want to ensure that people who can fill the vacancies have opportunities to gain the skills that they require. That is why we are introducing changes to the new deal today. The north-east will be one of the biggest beneficiaries of the changes that I have announced.

Last week, the Chancellor told The Guardian that

"we've always been clear that the tax burden had to rise".

Is that process now at an end?

The right hon. Gentleman can quote what he likes, but I have said today that the tax burden is falling from 37. 4 per cent. to 37 per cent. to 36. 8 per cent. No doubt he will read out that quote in full at a later date, but that is what I have said.

The Chancellor's statement will be welcomed by many people, particularly for the tax benefits that will encourage greater charitable giving. However, the most radical part of his statement may prove to be the hypothecation of taxation of cars and cigarettes, on which I congratulate my right hon. Friend. Is that the way in which taxation will move in future so that people may see that their taxes are used to improve the services that they expect?

I am grateful to my hon. Friend, and can say that that is the way in which taxation on petrol and cigarettes will go in future.

Why did the Chancellor say at the beginning of his speech that productivity rates were rising when they are in fact falling?

I said that we had to increase productivity to the world's best. [HON. MEMBERS: "Ah. "] There we have a Conservative party that presided for 20 years over an economy in which the average rate of growth was below 2 per cent. The Labour Government are making changes that will increase the rate of productivity growth in our country. Instead of opposing every measure to increase productivity, the Conservative party should support them.

I congratulate my right hon. Friend on his statement and especially on the measures to eliminate child poverty. Has he considered investment in London transport? Did he read the City corporation's claim that it could find £2 billion to build crossrail? Will my right hon. Friend bind it to that commitment so that crossrail gets built this time?

Millions of pounds are being invested in London transport as a result of the measures that the Deputy Prime Minister proposes. Today's decision about the future of fuel duties means that more money will be invested in transport in London and in other parts of the country.

I thank the Chancellor for his refreshing honesty in admitting at last that the fuel duty escalator is about raising taxes and not about the environment. Does he understand the anger that he will provoke in Scotland by continuing to apply a fuel duty escalator, and does he sympathise with the annoyance that there will be because the money that has been collected will not be used for new investment in our public services in Scotland? It was vital for such investment to be announced in the pre-Budget report.

The hon. Gentleman is wrong on both counts. It is the Scottish National party's plans that would increase taxes in Scotland. It fought an election campaign on increasing the rate of tax. Taxes are falling through the Government's actions; taxes would have risen under Scottish National party policies. The party's failure to promote its policy successfully is one of the reasons for the Labour Administration in the Scottish Parliament.

On the hon. Gentleman's second point, moneys will go on road and public transport in the whole of the United Kingdom, which includes Scotland and will continue to do so.

I offer my thanks and compliments to my right hon. Friend for his positive observations on the give-as-you-earn scheme. That scheme has enabled many non-governmental organisations and voluntary organisations to fund worthwhile projects for the poor in this country and in the third world. Will my right hon. Friend seriously consider raising the amount of money that an employee can pay over a year through the scheme?

I have some reservations about unemployed people having to attend agency centres more frequently. If such a development occurs, it must be handled with considerable compassion. The overwhelming majority of unemployed people in my constituency are desperately anxious to find work.

I can confirm that the payroll giving scheme will be more generous and give greater help to charities, especially those that receive money from employees. I want to provide maximum help to third world charities, which my hon. Friend mentioned. We are removing a series of restrictions that prevented charities from getting the money that they needed and that also made the system difficult to understand. The new system is simplified and will enable more money to go to charities.

On my hon. Friend's second point, I said that Lord Grabiner QC will examine methods of ensuring that action is taken against the informal economy. Only those who are suspected of being part of the informal economy may be required to report every day.

Would the Chancellor read the front page headline of the Staffordshire Newsletter, which states, "Our schools betrayed"? There is a photograph of the Prime Minister below the headline. Why are all the public services—including the health, local government, social and education services—in Staffordshire in crisis? Will he explain that to my constituents, the House, and perhaps also to Rodney Bickerstaffe, Bill Morris and John Edmonds? Will he also explain the connection between the 3 per cent. deficit— to which he referred earlier—and the Maastricht treaty, and why the people of this country do not get the services that they believe they should receive?

The hon. Gentleman is now posing as a champion of public expenditure—which will sit strangely with the views that he expressed during the last Parliament. This Labour Government have put £20 billion extra into education. Without this Government, that £20 billion would not have gone to education and the £19 billion extra would not have gone to health. We have just heard this afternoon from the shadow Chancellor that he opposed putting that £40 billion in—

rose—

Oh yes—

On a point of order, Mr. Deputy Speaker. The Chancellor has deliberately and absolutely misrepresented what I said.

Order. Perhaps the right hon. Member for Horsham (Mr. Maude) will raise his point of order after the statements.

I am grateful, Mr. Deputy Speaker. I repeat: the shadow Chancellor opposed putting £40 billion into health and education. He and his colleagues will not be allowed to forget that. They called that expenditure reckless and wasteful. They said that we would have to cut back and that we could not afford it. That was the position of the Conservative party, and that is what the Conservatives are all about.

Does my right hon. Friend agree that it is not surprising that Conservative Members have not uttered a single word this afternoon about child poverty? They threw children into poverty and we are correcting that situation as quickly as possible. Does my right hon. Friend agree that we must deal with the problem facing unemployed single mothers who cannot find child care during the hours of work offered by prospective employers? What are the Government doing for responsible mothers who cannot work at present for perfectly sensible reasons involving child care?

I am grateful to my hon. Friend, who has been a champion of action against child poverty for many years. As I have said, our proposed measures will take nearly 1 million children out of poverty. I recognise that we must do more and that child care is important for lone parents who are looking for work or who wish to attend college courses. Through the 37,000 child care places that will be available in colleges, we are determined to increase the ability of lone parents to gain the college qualifications they need.

We want to increase the number of child carers, and there is money available for that. We want to increase the accessibility of child care, and there is money available to expand the number of child care places. Under the child care element of the working families tax credit, there will be more money to help families pay for child care.

I ask this question as the chairman of a small and medium-sized enterprise. For companies such as mine, the savings on corporation tax are peanuts compared with the burdens that have been imposed on us in the past few years. I refer to the cost of derv for delivery vans, the cost of petrol for representatives' cars, the working time directive, the 48-hour week, paternity rights, the part-time directive, the social chapter, and the administrative costs associated with the working families tax credit, the child tax credit, the disabled tax credit and student loans. Does the right hon. Gentleman believe that such measures increase competitiveness and job creation or reduce them?

The hon. Gentleman seems to oppose any improvement in maternity rights and in other measures designed to help working people in this country. He should congratulate the Government on creating the stability that is necessary for small and other businesses to move forward. That certainly did not happen under the Government whom the hon. Gentleman supported.

On a point of order, Mr. Deputy Speaker.

Order. Points of order are not taken until after statements. I shall take the right hon. Gentleman's point of order after the statements.

I should like to make a short statement on the annual uprating of benefits. I also want to set out how we are delivering a better deal for pensioners.

First, on uprating, I can confirm that most national insurance benefits will rise by the retail prices index, which is 1. 1 per cent. That means that, to protect the basic state pension from inflation, we shall increase it in line with prices to £67. 50. For couples, that rises to £107. 90. Most income-related benefits will rise by the Rossi index—1. 6 per cent.—in the normal way. I shall place details of the uprating in the Vote Office, and I shall arrange for the figures to be published in the Official Report shortly, in the usual way.

Today, we have already announced significant help for children. I now want to set out the additional help that we are giving to pensioners. The help will mean that our oldest, poorest pensioners will be more than £500 a year better off since we came to power. That is real help from this Government for those in real need. We are determined to tackle pensioner poverty, because retirement should be a time in life to look forward to. For many it is, but for too many it is not. We are determined to help every pensioner to have a secure and fulfilling retirement.

However, we inherited two problems. The first is a problem for the future. If we had done nothing, one in three people could have depended on means-tested benefits in retirement. That was the legacy we faced, which no Government could tolerate. So, we are tackling that with our reforms for the long term. We are reforming the state earnings-related pension scheme—SERPS—with the state second pension, and we are introducing the new stakeholder pension schemes. Because of our proposals, people can look forward to a decent income in retirement after a lifetime of hard work.

However, the second problem that we inherited is immediate, and it needs to be confronted now. Since 1979. pensioner incomes as a whole have increased, but the gap between the better-off pensioners and the poor widened dramatically. The incomes of the 2 million better-off pensioners rose by two thirds, but the 2 million poorest pensioners missed out, their incomes rising by only a third.

Too many pensioners have spent the past 20 years living in poverty, afraid to turn on their heating, struggling to make ends meet and sometimes living in fear and isolation. That cannot be right, which is why we are acting now by delivering a fair deal for pensioners with more cash help for the poorest, help with fuel bills and action to tackle isolation.

Our priority is to direct help to those hardest hit over the past 20 years, those who missed out in the rising national prosperity. That is why we have introduced the minimum income guarantee, which will provide extra help for those who need it most, and that is why we are increasing the minimum income guarantee in line with earnings from next April. Therefore, it will be worth £78. 45 for single pensioners and £121. 95 for couples. For single pensioners aged between 75 and 79 that rises to £80. 85, and to £125. 35 for couples. For those over 80 that increases to £86. 05 and to £131. 05.

The universal basic state pension remains the foundation of pension provision in this country. However, Governments over the past 50 years have known that the basic state pension would not do enough on its own. That is why the graduated pension scheme was introduced in 1961 and why SERPS was introduced in 1978. That is why we are introducing radical reforms for the future, and it is also why we have already introduced the minimum income guarantee, which gives direct cash help to the poorest now and helps those who would otherwise have to live on the basic state pension with no income from a funded pension to top it up.

An across-the-board increase in the basic state pension would not begin to tackle the pensioner poverty that we inherited. The poorest would lose their benefit pound for pound, and they would be no better off as a result. That is why our approach—providing extra help for the poorest pensioners—is not only the right thing to do; it is the only fair thing to do, and it is the only way seriously to tackle pensioner poverty today. So, that is why I can announce today that we shall increase the minimum income guarantee in line with earnings each and every year during this Parliament.

We are helping 1. 5 million of our poorest pensioner households more than ever before, because we are determined to make sure that retirement is a time to look forward to, and of course for most pensioners it is. However, it can be difficult for pensioners on fixed incomes to meet the cost of one-off annual bills. Older pensioners can find that particularly hard, since they are more likely to be living on low incomes. Nearly half of pensioners over 75 are among the poorest third in relation to incomes.

To solve that problem and to address the particular needs of older pensioners, the Chancellor today announced free television licences for pensioners aged 75 and over. That will provide help for pensioners who need extra help after a lifetime of hard work and caring. It will help 3 million households from next autumn and will be worth up to £101. The measure will help to prevent isolation and it will help older pensioners to keep in touch and to stay informed. We are helping to make sure that older, poorer pensioners have access to something that so many of us take for granted. Details of how we shall do that will be published shortly.

We are helping the poorest through the minimum income guarantee and we are helping the oldest with free TV licences. It is those pensioners who have most to gain through the winter fuel payments. This year, around 10 million pensioners in about 7. 5 million households will get £100, paid, for the first time, before Christmas. The first of this year's winter fuel payments were sent out yesterday.

Today we can go further. I can confirm that the £100 winter fuel payment will be paid each and every year from now on. That is on top of cutting VAT on fuel and on top of the home energy efficiency scheme, which will help the poorest with up to £2,000 to fit central heating from next year. All those measures have been taken by this Government. We are delivering lower fuel bills and providing pensioners with direct help to pay for them.

We always knew that the retail prices index would be low in September. We not only predicted it, we pre-empted it with all the additional help announced today: the increase in the minimum income guarantee in line with earnings for the rest of this Parliament; free television licences for pensioners over 75, and the fivefold increase in winter fuel payments paid every year from now on.

We have a lot more to do, but we have made a good start on preventing pensioner poverty in the future by reforming the system for the long term, and on tackling pensioner poverty now by delivering for today's pensioners an increased minimum income guarantee, winter fuel payments and free television licences.

We are building a better quality of life for all our pensioners by investing more in the national health service, tackling crime and taking two thirds of pensioners out of tax altogether. We are spending £4 billion on pensioners as a whole while, at the same time, we are getting the greatest help to those pensioners in the greatest need. That is all new help; it is all from this Government and it all delivers a better deal for pensioners. I commend the statement to the House.

I begin by welcoming one of the few new announcements that we have had today. The Chancellor referred to the measure, but it was strangely missing from the Secretary of State's statement. I refer, of course, to the proposed new regime for unemployed benefit claimants who, we are told, will be required to sign on daily.

I recognised that policy announcement, and I think that it may be the first victory for the common-sense revolution. Only three weeks ago, we said:

"If unemployment claimants look as if they are working and claiming, or not taking jobsearch seriously, they will have to sign on at their Jobcentre on a daily basis. "

We therefore welcome the announcement. It is a pity that the Minister of State denounced that at the time as right-wing madness, but three weeks is a long time in politics. If the Secretary of State wants any advice on how to deliver that policy, we are, of course, willing to oblige.

Most of what the Secretary of State said was repeats. We had the minimum income guarantee for pensioners that we had heard about before. We had the winter fuel scheme, which is also a repeat. Stakeholder pensions are a repeat. The second state pension is a repeat. The home energy efficiency scheme is a repeat. In fact, it is no wonder that the TV licence is the centrepiece of the right hon. Gentleman's statement, because all he is showing is repeats.

What was conspicuous about the right hon. Gentleman's statement was the complete absence of a strategy for dealing with pensioner poverty. He began his statement by saying that if things had carried on, one in three pensioners would have been dependent on means-tested benefits. He then announced an increase in the basic pension of 1. 1 per cent. and—I should be grateful for his confirmation of this figure—an increase in the minimum income guarantee, which he does not like to call a means test although it is one, of 4. 9 per cent.

We should like to hear from the Secretary of State how many more pensioners he estimates will be brought within means-tested benefits as a result of the statement today. He cannot say in the same statement that he is trying to address the problem of more pensioners being dependent on means-tested benefits, and promptly announce a further increase in means-testing for pensioners.

Does not the right hon. Gentleman remember the Chancellor saying to the Labour party conference when he was in opposition:

"I want the next Labour Government to achieve what in 50 years of the Welfare State has never been achieved: the end of the means test for our elderly people"?

What a contrast between what he said then and the statement today.

Elderly people will not let the Secretary of State off the hook with a 75p increase in the basic pension, when in his Department's expenditure plans published only in March, he assumed a 1. 3 per cent. increase in the basic pension—not the 1. 1 per cent. announced today, but a £90 million saving from pensioners, which he has simply pocketed.

Meanwhile, the right hon. Gentleman is hitting pensioners with a range of measures that take money away from those who had the prudence to save—the £5 billion a year attack on pension funds through advance corporation tax; the abolition of dividend tax credits which hit 300,000 pensioners who are not even within the range of income tax; the scrapping of the married couples allowance, with no replacement for the pensioners who will find in future that their age allowance has been taken away from them, at a cost of £500 in tax a year.

The Government are taking from prudent pensioners who saved, in order to finance a further increase in means-testing. It is the wrong way to go.

May I also ask the Secretary of State about his policy on benefits and assistance for families? For the past year, he has fought to get through the House a measure, the working families tax credit, for which the central argument was that it was important for benefits to be delivered through the tax system. Has he any evidence whatever that paying a benefit of given value through the tax system rather than the benefits system has any effect on incentives or behaviour?

Perhaps the penny has dropped for the Chancellor. He announced today that a year after the working families tax credit comes in, he will promptly extract from the tax credit all the payments in respect of children, and convert them back into a benefit to be paid, usually, to the mother. After one year of the tax credit being paid through the tax system, a significant chunk of it will return to the benefits system. I should be interested to hear from the Secretary of State how he can defend that as a consistent and coherent strategy for dealing with incentives for families.

Finally, as he hears the Chancellor arguing the case for lower marginal rates for entrepreneurs, does the Secretary of State have a pang of guilt about the fact that later today he will impose a 73 per cent. marginal rate of tax on people in receipt of incapacity benefit, simply because they had the prudence to save?

On the last point, I am particularly pleased that we will increase the amount of money that we give to young severely disabled people by £26 a week. The Conservative party did nothing about that for the 18 years that it was in power.

The hon. Gentleman asks about our strategy. Let me remind him of the strategy. He complains that some of what I say is repeated, but good stories are worth repetition. Thanks to Conservative policies, one in three people were heading towards retirement on means-tested benefits because they were getting so little through the pension system that we inherited.

The changes that we are making—reforming SERPS and increasing the amount of money that lower paid workers get—will mean that most people, after working for a lifetime, will be able to retire above the means-tested level. Most people would consider that a strategy worthy of support.

Let me also set out what we are doing for today's pensioners, about which the hon. Gentleman also complains. As is clear from what the shadow Chancellor said last year, the Conservative party opposes all the additional expenditure that the Government have put in place since taking office. We are facing up to the fact that, during the past 20 years, more than 2 million pensioners lost out as a result of the Conservative party's policies.

The hon. Gentleman has told us time and again that he is against the minimum income guarantee. That means that the 2 million pensioners now receiving the minimum income guarantee would be £8 a week worse off as a result of Conservative party policy. He complains that we are bringing more people into the minimum income guarantee, and, yes, 25,000 to 30,000 people will come into the minimum income guarantee, but the point is that they will be getting more money as a result. I am willing to stand at the Dispatch Box again and again to defend giving more money to the poorest pensioners in Britain—those who lost out under the Tory Government.

As the shadow Chancellor has made clear, the Conservative party is against the winter fuel payment, £100 for every pensioner household, which benefits the poorest pensioners most. The hon. Gentleman has not told us what he thinks about free television licences for 75-year-olds. Presumably, if all Government expenditure is reckless, he must be against that as well.

The point is that, unlike the previous Government, we are determined to tackle pensioner poverty. We are not prepared to put up with a situation where people who have worked hard all their lives and have spent a lifetime caring for people end up with so little money that they are frightened to turn up their heating and do not know whether they can make ends meet. I am more than happy to go into the next election defending what we have done for today's pensioners, as well as the reforms that we are making for tomorrow.

I warmly welcome my right hon. Friend's statement today, during which he rightly condemned the Conservative party for allowing one in three pensioners to be dependent on means-tested assistance, but what will that proportion be when our programme for pension reform is fully implemented?

My right hon. Friend knows that the proportion of people on means-tested benefits during the course of their retirement will fall. It will take some time for our pension proposals to take place, because we are talking about saving over the next 30, 40 and 50 years. [Interruption.] It must have occurred even to Conservative Members that it takes some considerable time to build up a pension. They may have managed to go a long way towards running down pensions in the 20 years that they were in power, but we have put in place reforms to the pension system which will mean that those who have worked hard throughout their lives will be able to retire on a pension above income support levels.

The Conservative party is still committed to a policy of wholesale privatisation of the pension system—ideological nonsense. We are ensuring that we help today's pensioners as well as pensioners in the future.

I commiserate with the Secretary of State for having to listen to the Chancellor give away the goodies on television licences and then having the humiliation of announcing a pathetic 75p increase in the state pension. Can he confirm that that is the lowest ever state pension relative to the means test? Can he also confirm that, if council taxes for pensioners rise by £40 next April, as they did last April, that will take up the whole of the pensions rise, leaving pensioners with nothing for any other price increase next year? What did the Secretary of State mean when he said that most national insurance benefits will rise by 1. 1 per cent.? Will any rise be less than 1. 1 per cent.? Can he confirm that he plans to take action on the disincentive to save in the means-tested benefits system? So far he has told us that he will be pushing more pensioners on to means-tested benefits and penalising those who have saved. Is he content to be the Secretary of State who has brought Britain the lowest ever pension figure relative to the means test?

Even for the Liberals, that takes the biscuit. Let me make one or two things clear to the hon. Gentleman. He asked about the uprating of benefits. No benefits will go up by less than the Rossi index or the RPI. He may be interested to know—I am grateful to him for allowing me the opportunity to point this out—that the amount of money paid under the minimum income guarantee goes up by considerably more than an inflationary increase, and the child benefits and child premiums go up considerably more than they would have done under inflation, both of which measures I would have hoped the Liberals would have supported.

The hon. Gentleman mentioned pensions. I make no bones about the fact that the Government's strategy is primarily geared to helping those pensioners who need help most—those who lost out over the past 20 years. An across-the-board increase, whether prices or earnings related, would not help the pensioners on the lowest incomes because they would lose it pound for pound. That is why we have introduced the minimum income guarantee, the winter fuel payment and free television licences for the poorer pensioners aged over 75, most of whom live in some of the poorest households. Had pensions been earnings linked this year, they would have gone up by slightly more than £3 a week, but because of what the Government have done most pensioners will receive slightly more than £4 a week. They have done better as a result of the policies that we have put in place. His proposals, which he published about two months ago, involved abolishing the state earnings-related pension scheme and would have ensured that the state second pension was not put in place. They would have completely undermined the pensions programme. That sounds like a particularly mad proposal, even for the Liberals.

I welcome my right hon. Friend's announcement. Can he confirm that our manifesto committed us, particularly with regard to pensioners, to considering the restoration of the link with earnings as and when we could afford it? His announcement that the minimum income guarantee each year will be increased in line not only with prices, but with earnings, is a start. All the pensioner households in my constituency will certainly welcome the announcement of free television licences for over-75s.

I am grateful to my hon. Friend. Most Labour Members are determined to do as much as we possibly can for pensioners, particularly those who lost out in the Tory years. We have linked the minimum income guarantee to earnings. That will help the poorest pensioners—all of us have come across them in our constituencies—who did particularly badly in the Tory years. I am sure that the free television licence will benefit older pensioners, many of whom live in households whose incomes are particularly low, feel isolated and cannot keep in touch. They find meeting the cost of a one-off bill, such as that for the television licence, a disproportionately heavy burden to bear. We are making progress because we are determined that all pensioners should share in this country's rising prosperity, but we have a clear obligation to tackle pensioner poverty, which the Conservative party did nothing about during the 20 years in which it had the opportunity to do so.

How does the relatively modest increase of 1. 1 per cent. in universal benefits, such as the basic state pension, compare with the relatively generous increase of 4. 9 per cent. in means-tested benefits, such as the minimum pension guarantee? Will that make it more or less likely that Mr. and Mrs. Prudence will make provision and save for their old age?

Most people are making provision not only for their old age, but for other things. As the Chancellor made clear in his pre-Budget statement, we want to encourage that. I find it interesting that the Conservatives increased pensions and other benefits in line with prices for 18 years. It is most curious that, after two years in opposition, they seem to be hinting that they would have a different policy today. I doubt it.

I represent more than 30,000 pensioners. Having met their representatives yesterday, I can tell my right hon. Friend that they welcome their £100 winter fuel payments for this year, next year and the year after, but what more can the Government do to ensure that pensioners who are entitled to do so receive benefit so that they can take advantage of the minimum pension guarantee?

My hon. Friend makes an important point. We think that about 500,000 pensioners who ought to be receiving benefits to which they are entitled are not claiming them. Three weeks ago I published research highlighting the scale of the problem and I hope to announce, in the not too distant future, proposals showing the Government's determination to ensure that people entitled to help—through the minimum income guarantee or other benefits—receive it.

I am very pleased that the Secretary of State has made such a point, because the minimum income guarantee is based on the fact that people claim that to which they are entitled. Does he therefore accept that the many people who are eligible for benefits but are not claiming them will be left with nothing more than a 75p increase as a result of his statement?

The pilot studies of take-up seem to have fizzled out. It is urgent that the Secretary of State takes action to remedy the problem before he can be safe in the assumption that he is tackling pensioner poverty. The Government have said that they are looking at capital thresholds for means-tested benefits. Increasing such thresholds would be an easy way of addressing the problem.

The hon. Gentleman raises several points. On the latter, the Government have made it clear that we are concerned about capital limits. We want to encourage people to save, and they ought to be rewarded for doing so.

On take-up, the pilot projects have not fizzled out. They are being assessed and, as I said to my hon. Friend the Member for Harwich (Mr. Henderson), we hope to announce the conclusion of them before announcing further steps to ensure that pensioners who are entitled to the minimum income guarantee and other benefits receive them.

Yes, the basic state pension's value is being maintained, but the minimum income guarantee goes to those poorest pensioners who lost out. I would have hoped that the hon. Gentleman would agree that our concern must be particularly for pensioners who have received the least over the past few years. The winter fuel payment—quite significant help—will be going to every eligible pensioner household in the next few weeks. In addition, of course, from next year, there will be free television licences for over-75s. I remind the hon. Gentleman, too, that we took 200,000 pensioners who were paying tax out of such a bracket. All that adds up to valuable support for pensioners who, as I say, were neglected for far too long under the Conservatives.

As one of the 100 Members of Parliament who have long campaigned for the restoration of the link between pensions and earnings, may I congratulate the Government on giving benefits to pensioners that are at least equivalent to—and possibly higher than—the amount that they would have received had the link been restored? None the less, there is a serious problem, and the campaign to restore the link must go on.

At least 500,000 pensioners do not claim the minimum income guarantee, although they are the poorest pensioners. The reason is that they have worked all their lives, never claimed any benefit, made contributions at the rate of inflation for 45 years or so and will not demean themselves by filling out forms and claiming a hand-out. They see the basic state pension as a right. There is therefore a great difference between increasing it and giving more hand-outs.

Although the Government are right to give prime attention to helping the poorest pensioners, the Minister and I were elected on a pledge that all pensioners would share fairly in the growing prosperity of the nation.

We must address the fact that a group of the poorest pensioners are losing out before we return to the country to ask for their support.

My hon. Friend is right that everyone on the Labour Benches was elected on a pledge to ensure that pensioners shared fairly in the country's rising prosperity. We are delivering on that. I think that my hon. Friend would accept that we are right to concentrate the additional money that we are making available—some £4 billion—on the poorest pensioners who have lost out over the past 20 years. An across-the-board increase does not help the poorest pensioners, because they lose any such increase pound for pound. Many at the top end of the scale would not of course notice the difference in their weekly income.

I do not regard claiming an entitlement from the state as in any way demeaning. We must ensure that we make it far easier for people who are entitled to claim something from the state to do so. I readily agree that the Benefits Agency and the Department of Social Security have some way to go in doing that. However, having given people a right under the minimum guarantee, I am determined to ensure, as my hon. Friend would agree, that every single pensioner who is entitled to receive MIG and other benefits does so. The steps that we shall be announcing in the not too distant future will ensure that that occurs.

Undoubtedly, pensioners will welcome the statement about the television licence and the help with winter fuel bills. However, does the right hon. Gentleman realise that his other comments will sound hollow to them, especially after next April, bearing in mind what they said when the retail prices index figures for September were announced and they discovered that their increase would be only 75p a week, despite the fact that they will face additional council tax bills and higher retail prices? Pensioners will be confused by the idea that a Cabinet Minister can proclaim a 1. 1 per cent. increase as such a good deal, because they know that his pay has increased by more than double that rate.

The hon. Gentleman is the first Conservative—and, for all I know, the only Conservative—to welcome the introduction of free television licences and the help with winter fuel bills. I am glad that he has done so, although it will no doubt occur to him that there is something contradictory in welcoming those while denouncing our public expenditure plans—[Interruption.] Is he saying that he does not denounce our plans? A rebel already!

Secondly, the hon. Gentleman cannot both criticise the increases that I have announced today, and back the shadow Social Security spokesman, who is pledged to slash social security spending. As nearly half social security spending goes on pensions, if the Conservatives really want to slash that spending, they will have to tell us which pensioners will lose out and what benefits will go.

I am still a few years away from my own entitlement to the free television licence for those over 75, but may I say how enormously welcome it will be to thousands of my constituents. Is it not increasingly clear that the Conservatives would snatch that free television licence from thousands—no, millions—of pensioners?

I said that retirement should be a life to look forward to, and my hon. Friend has a long time to look forward to it. He is right; the Conservatives, because of their opposition to our public expenditure plans, would remove the winter fuel payments. They are also against the minimum income guarantee, so their policy would cost the poorest pensioners about £8 a week—and they would deny the funding for the free television licences. They are therefore in no position to say that if they were in power things would be better. People will look back at what they did over the past 20 years; the Conservatives are the reason why there is so much pensioner poverty today.

Pensioners in Northern Ireland will welcome the £100 winter fuel payment, and no doubt those over 75 will welcome the free television licence. However, partly because of the high unemployment that we have had, and also because of the lack of opportunity to invest in private pensions, they are among the poorest pensioners in the United Kingdom, and there will be disappointment at the bottom end of the income scale. Can the Secretary of State assure me that every effort will be made to ensure that those in Northern Ireland who qualify for the minimum income guarantee will be encouraged to apply for the benefits to which they are entitled?

I am sure that people in Northern Ireland will welcome the minimum income guarantee in particular. The hon. Gentleman is right to say that many pensioners there did very badly during the 18 years that the Tories were in power, and those people will look to the minimum income guarantee to protect them. As for the take-up campaign, as the hon. Gentleman will be aware, social security in Northern Ireland is a matter for the Secretary of State for Northern Ireland, but I am sure that my right hon. Friend will want to take appropriate action there as well.

I thank the Secretary of State for his statement. However, will he confirm that the Government's objective is to reduce the proportion of state expenditure that goes on pensions from 60 to 40 per cent. over the next 50 years? Does he not understand that the refusal to uprate the basic state pension in line with earnings has created much ill feeling among many pensioners organisations, and that his argument that to do so would lead to extensive clawback is a self-fulfilling prophecy? If he altered the rules on clawback of other benefits, the benefit that pensioners would derive from an increase in the state pension in line with earnings, rather than an inadequate 75p increase, would do much to eliminate pensioner poverty. Above all, it would guarantee an adequate level of state pension for the future, which his current system does not do. All it does is create an expensive minimum income guarantee, which is costly to administer. A basic non-means-tested rise would be much cheaper to administer.

Let me deal first with the Government's long-term plans, which are to encourage moderate and higher earners to get funded pensions, because we believe that they will then be far better off. History shows that that is the case. We will spend some £10 billion, despite the changes that we are making, but our policy is clear—we want as many people as possible who can get funded pensions to get them. Alongside that, through the reforms we are making to the state earnings-related pension, with the state second pension, we are ensuring that those on low earnings—less than £9,000 a year—double the amount of pension they will get. I hope that my hon. Friend welcomes that.

My hon. Friend also asked about the earnings link. Restoring the earnings link would, by 2020, cost some £18 billion. That would have to be funded, so we have to ask whether that is the best way to help pensioners. I believe that the best way to help pensioners is to continue the policies that I have announced today and ensure that we give most help to those pensioners who have lost out—today's pensioners who have done so badly over the past 20 years—and for the future, to encourage future pensioners who can save to do so. For those future pensioners now on moderate or low earnings, we will give additional state help.

The Red Book published in March at the time of the Budget predicted that social security spending would increase dramatically in every successive year up to 2002. Is that forecast still valid?

Social security spending is rising at well under half the rate that it rose under the Conservatives. That is because we have public expenditure under control, and we are not spending money on economic waste because of high unemployment. We are spending far more money on those people who should be supported—those who lost out under the Conservative party during its 18 years in office.

I am reassured that my right hon. Friend wishes to reduce the proportion of pensioners reliant on means-tested benefits. As a measure of the success of the Government's policies, will he introduce targets for the reduction in the number of pensioners living below the poverty line and the number reliant on means-tested benefits?

In case my hon. Friend has not had the opportunity to read the report we published in September, which set out the Government's strategy for combating poverty and the causes of poverty and promoting opportunity for people, I can tell her that it sets out targets for pensioners and the rest of the age range. If she has not read it, I strongly commend what I believe to be an excellent document.

Given that the oldest pensioners tend to be the poorest pensioners and that the Government intend to target the television licence fee concession on the basis of age, why has not the Secretary of State taken the opportunity of this statement to announce a long-overdue increase in the age addition for the over-80s, which has not been increased from 25p since 1971?

I should have thought that a £100 television licence was quite an increase from the 25p the hon. Gentleman mentions. I think that he would agree that we have done much more to help older, poorer pensioners than the proposals made by his party's spokesman would achieve, which would have been paid for by abolishing SERPS and would have undermined today's pension industry—something that I would have thought would cause concern to most reasonable people.

I congratulate my right hon. Friend on the policies he has adopted to try to help pensioners. Will he continue to try to explain to the British people—and, as seems necessary, to the British Parliament—that pensioners are not a homogenous group of poor people? Some pensioners are rich, some are in the middle and some are poor. The fact that my right hon. Friend is pursuing a variety of policies means that we can target help on pensioners who need it, without wasting money on those who do not.

My hon. Friend is right. Too often, people assume that all pensioners are the same. In the past 20 years, the income of pensioners as a whole has risen by more than that of any other sector of society. The problem is that, although the income of the 2 million better-off pensioners went up by two thirds, the income of the 2 million at the other end of the scale went up by less than a third, in some cases.

The Government have to devise a pension strategy that meets the needs of all pensioners and takes pensioners as we find them today. That is why we have introduced the minimum income guarantee for the poorest pensioners. The winter fuel payment benefits all pensioners, but disproportionately benefits those on lower incomes. In addition, the free television licence will benefit the older, poorer pensioners.

The changes that we have made to take 200,000 pensioners out of tax will benefit those who are better off. The Government's pensions strategy is therefore designed to deal with the needs of today's pensioners, no matter who or where they are.

I commiserate with the Secretary of State on having only one new announcement to make at the Dispatch Box today. Clearly, his statement that pensions will rise only by a measly 75p this year is very unpopular with Labour Back Bench Members.

I welcome the Chancellor's announcement of free television licences for pensioners over 75, as will Sir Denis and Lady Thatcher, who will be beneficiaries of the proposals. However, I remind the Secretary of State of what my hon. Friend the Member for Havant (Mr. Willetts) said about the Government's figure for the rise in pensions. The right hon. Gentleman spoke of a rise of 1. 3 per cent., but does he accept that the true rise, as my hon. Friend said, will be of only 1. 1 per cent., and that £90 million will have been taken out of the mouths of pensioners?

Talking of Lady Thatcher—which we sometimes do—I seem to remember that she was head of a Government who, some years ago, took concessionary television licences away from an awful lot of pensioners. I suspect that those pensioners will remember that. They will not be consoled by the fact that there are now two Conservatives prepared to welcome the Government's initiative in providing free television licences for all 75-year-olds.

However, the hon. Lady will have to have a word with the Opposition spokesman, the hon. Member for Havant (Mr. Willetts). At the Tory party conference, he pledged that a Tory Government would slash social security spending. [Interruption.] No wonder she is pointing at him. Her welcome for the steps that we are taking, and his policy pledges, are totally inconsistent.

How does the Secretary of State justify the fact that, by the year 2001, an estimated 300,000 taxpayers, including 90,000 sole earners, will have to pay a marginal tax rate of 46 per cent. because of the tapering of the new child care element of the working families tax credit? Is the right hon. Gentleman proud that he intends to plunder the pockets of the people in that way?

I am very proud of the fact that this Labour Government introduced the working families tax credit. What is more, I am proud too that the Government reduced the marginal rates of tax effectively being paid by people who, when they went into work, found themselves worse off because of the Tory benefit rules.

I shall also be very happy to go into the next election pointing out that Conservative Members have pledged to get rid of the working families tax credit. That will mean a huge tax increase for the many people who have gained under this Labour Government.

I welcome the announcement of free television licences for pensioners aged 75 and over, although I should be happy to explain sometime to the Secretary of State how licences could be done away with for every age group.

I congratulate the Secretary of State too on the way in which he very carefully did not say that every pensioner household would get the minimum income guarantee, as the House was told last year. Will he say how many million pensioner households on lower incomes will not get that guarantee, and whether he intends to raise the capital limits? Also, will he say how it can be fair that a 64-year-old man who spends £8,000 on a car before he retires will get the extra increase and the minimum guarantee, whereas the guy who saves his money will not? Surely that is not equitable among pensioners.

The Tory edifice is crumbling. The hon. Gentleman is the third Tory in a row to oppose the Conservative Front-Bench line on spending. He wants even more free television licences. He cannot have it both ways. The Conservative party opposes our public expenditure plans—those plans that are introducing the minimum income guarantee, free television licences, winter fuel payments and all the other help that is going to pensioners. For the avoidance of doubt, the minimum income guarantee goes to those pensioners who qualify for it. That is as plain as a pikestaff—even he should be able to see that.

At the end of the day, Opposition Members have to face up to the fact that for 18 years they did nothing for the poorest pensioners, who lost out as a result. It is this Government who are helping the poorest pensioners through the minimum income guarantee, winter fuel payments and free television licences. Britain's poorest and oldest pensioners will be £500 a year better off as a result of this Labour Government.

In reply to my hon. Friend the Member for Havant (Mr. Willetts), the right hon. Gentleman said that he was particularly proud of giving additional money to young disabled people. Is that pride tinged with a little shame that the money to pay for that is being taken away from older disabled people on slightly above the minimum income?

No, it is not. While Tory Back Benchers are willing to welcome free television licences for the over-75s, we have had not one word about it from those on the Front Bench. We can take it that the reason that Front-Bench Conservatives are saying nothing is that that is something else that would be cut under any future Conservative Government.

As for disability, I repeat that we are giving more money to the young severely disabled. We are giving nearly £40 a week more to three and four-year-olds who have difficulty in moving. In addition, we are spending more on the disabled person's tax credit, on the disability income guarantee, and on providing pensions for disabled people with broken work records and for carers, all of which is opposed by the Tory party, which shows yet again that the Tories' opposition to the Welfare Reform and Pensions Bill is opportunism pure and simple.

The Government have an excellent record. We are helping people who are disabled, helping pensioners, helping people get back into work and tackling poverty—something that the Tory party never did and never would do.