In 1997, Britain had a £28 billion deficit, a national debt that had doubled and rising inflation, and was at risk of repeating the old familiar cycle of stop-go. So in this pre-Budget report, which will address specific and immediate concerns, we will do nothing to put at risk the economic stability that has given this country the lowest unemployment for 20 years, the lowest inflation for 30 years, mortgages 4 per cent.—£1,000—below the average of the previous 20 years, and a Budget discipline that has enabled us to cut borrowing and to invest more every year in hospitals, schools and public services.

This hard won and newly won stability now gives Britain an opportunity that we can either seize or squander. It is the opportunity to achieve high levels of productivity growth, and so to ensure long-term prosperity not just for some, but for all. Yet every time the British economy has started to grow—as in the 1980s—Governments have made short-term decisions on tax and spending which have put inflation, interest rates and economic stability at risk. So Britain has a choice: the choice that underlies the pre-Budget report.

The risk for Britain is to repeat the 1980s mistake of taking economic strength for granted when we still have a large productivity gap with our competitors, and trying to run the economy at a capacity not yet achieved. Our choice—the choice of this pre-Budget report—is that we build economic strength by investing and, through tax incentives, encourage a new generation of entrepreneurs.

The risk for Britain is to repeat the late 1980s mistake of claiming that a surplus in one year could fund tax cuts for every year, and, by committing in tax what had yet to be earned, stoking up an unsustainable consumer boom and forcing interest and mortgage rates to rise. We will take no risks with stability. Our choice—the choice of the pre-Budget report—is to lock in stability by, as I shall announce today, prudently cutting debt and debt interest payments to keep inflation and interest rates low.

The risk for Britain would be to cut investment in education and infrastructure and to perpetuate decades of neglect and undermine our economy. This pre-Budget report makes a different choice: to move forward with our three-year spending plans, which will double public investment—from investment in education and health to investment in transport, policing and the environment; and, while continuing to cut unemployment and debt interest, to combine public spending with targeted tax cuts to do more for pensioners and, as I will show, to give families the lowest direct tax burden for 30 years. This pre-Budget statement sets out a balanced approach: first stability and prudence to keep interest rates low, secondly tackling under-investment, and then, when it is affordable to do so, making targeted tax cuts for the nation's priorities.

Let me deal first with the forecasts for the economy. Since 1997, our first and most fundamental choice has been—through Bank of England independence, tough controls on public spending and difficult decisions on tax—to build economic stability. There were those in the House who predicted that our policies would bring recession. I can report that this year inflation is meeting its 2.5 per cent. target, and that long-term interest rates are now the lowest for 30 years—the same as those in Germany, and lower than those in America. The economy is forecast to grow by 3 per cent. this year, and manufacturing—despite its difficulties—by 1½ per cent. Exports are growing by 8 per cent. and consumer demand by 3½ per cent., with living standards rising. Business investment has grown by 1 per cent. this year as we lock in a higher level of investment as a share of our economy—14½ per cent.—than at any time in 40 years. Investment is now a bigger share of our economy than it is of the American economy.

In total, fixed investment this year has grown by 2.5 per cent. With 1.1 million men and women in work, Britain now has the lowest unemployment since 1979, the lowest long-term unemployment since 1978, the lowest youth unemployment since 1975, and the highest employment ever among women. Unemployment is now lower in every region: today, there are 1 million vacancies spread across the country. This month, we plan to reach our promised target: 250 young people moved from welfare into work—[Interruption.]—250,000 young people.

It is precisely because we have taken the trouble to build the long-term foundations for success, and precisely because we have resisted short-termism that would threaten stability in interest rates, that I can report that, even in times of uncertainty for the world economy over oil prices and exchange rates, the Treasury forecast for next year is as follows: inflation will again meet its target of 2½ per cent; manufacturing next year will grow by between 2 and 2¼ per cent.; exports will grow by 7 to 7½ to per cent.; growth will range from 2¼ to 2¾ per cent.; consumer demand will grow by 1½ to 2 per cent.; business investment will grow by 1 to 2 per cent., and total investment will grow by 4¼ to 4½ per cent.

There were those who predicted our public spending plans would lead to higher inflation and that the economy would run out of control. Between 1979 and 1997, inflation averaged 6.2 per cent. Since 1997, it has been less than half as much—2.4 per cent. Interest rates averaged 10 per cent.; since 1997 they have averaged 6 per cent. Mortgage rates from 1979 averaged 11 per cent.; since 1997 they have averaged 7 per cent. Growth from 1979 averaged 2 per cent.; since 1997 it has been 2.7 per cent.

We have steered a course of stability, but we are not satisfied. Long-term prosperity for all is our objective. We want to achieve, in this decade, full employment, higher education for the majority of young people and sustained improvements in our public services. With an end to child and pensioner poverty, we want not just some but all of our citizens to share in rising prosperity.

That long-term prosperity depends on us reaching American levels of productivity growth. By removing the barriers, tackling under-investment and skill deficiencies, overcoming resistance to new technology and removing restrictive practices wherever they arise, we will build a stronger enterprise culture open to all. Today, as part of the Government's contribution to a new and necessary drive for higher productivity, I am proposing measures, to consult on, to encourage entrepreneurship and expand investment.

To make Britain the best place in the world for multinational companies to locate, we will build on our cut in corporation tax from 33p to 30p—the lowest of all major countries and the lowest in our history—by consulting on three major, additional changes. We propose to abolish from April 2001 the withholding tax, not only on international bonds, but normally on payments of interest and royalties between companies in the UK, and to relieve tax on sales of substantial shareholdings by companies. Finally, in line with the needs of the new economy, tax relief will be given for intellectual property and goodwill as we try to create the best environment for modern business in the world.

I can tell the House that this year corporation tax revenues are £2½ billion lower than we forecast. It has been put to me that North sea oil companies earning higher profits from higher oil prices should be subject to special taxes, but I can tell the House that I am determined not to make short-term decisions based on short-term factors. The key issue is the level of long-term investment in the North sea. This will be the approach that will guide Budget decisions in future.

My second set of proposals help small businesses, whose numbers have grown already by 150,000 since 1997. Last year we cut small company corporation tax—once 23p—to 20p and we introduced a new lop rate, an overall cut in small company tax bills of nearly 25 per cent. Today I am publishing for consultation with small businesses a set of proposals that simplify small business VAT; they will be of direct help to up to half a million small businesses. Capital allowances and tax credits to encourage investment have already saved over £800 million for business since 1997, a third of a billion pounds of that in manufacturing.

Because I understand and recognise the importance of manufacturing, I will now examine, for the Budget, further incentives to help the manufacturing sector: in particular the proposals from the Confederation of British Industry and the Engineering Employers Federation to extend the research and development tax credit.

To help smaller high risk and e-commerce companies recruit and retain the staff they need, we propose to expand tax relief for share options and to make Britain the most attractive environment for e-commerce. In future, all employees can benefit from our enterprise incentive scheme—up to a company limit of £2½ million worth of share options. For the period to May 2000, 1 propose to make provision for companies to limit and settle their liability for national insurance contributions on share options.

Having cut capital gains tax from 40p to lop for long-term investment, I now propose an even further widening of the scope of the 10p rate—to non-trading companies and to venture capital companies so that employees of all types of companies can now benefit from the 10p capital gains rate.

To enhance the contribution of institutional investors to the economy, we will consult on the Myners report proposals to reform the minimum funding requirement and to remove regulatory barriers to investing in venture capital.

To expand savings generally, and especially to double the number of low-income families who save, we will review all the capital limits that deter saving. Already, 9 million individual savings accounts have been opened, and £3 billion more is being saved in them by low-income savers. The tax-free limit for ISA savers has been set for next year at £5,000. I propose once more to set it at £7,000, a figure I shall set now for the next five years. To build enterprise and balanced economic development across all the regions and public investment, including public-private partnerships, we are proposing today that regional development agencies have greater freedom and flexibility to decide locally how money is invested for them to meet local needs.

The rate of small business creation in high unemployment communities is still one sixth of that in more prosperous areas, and unemployment is still twice as high. Future jobs and long-term prosperity will not come from benefit cheques or the old subsidies, but by a radically different approach—encouraging economic activity and business development along the lines proposed by the Cohen and Rogers reports.

I now propose a radical reform of tax incentives that is designed to raise business investment and economic activity in the high unemployment areas of the country by £1 billion. I propose to introduce stamp duty exemption for all properties in our most disadvantaged communities; accelerated tax relief for cleaning up contaminated land; VAT cuts to reduce the costs of residential property conversions; and tax relief to bring empty flats over shops back into use.

I propose to consult on further business rate relief for small businesses in the assisted areas, and a new and generous tax credit for community investment, including support for the creation of the first community development venture fund.

To assist the upgrading of listed buildings that are central to community life in all parts of the country, I can also announce that we are today asking the European Commission to reduce VAT from 17½ per cent. to 5 per cent. for repairs to churches.

I have one other proposal for a special tax relief. We will not only continue to work for the cut in third-world debt that this and other countries are fighting for, but we now plan to do more to meet the international targets of cutting world poverty by half and cutting by two thirds infant mortality, which, through preventable diseases, carries off one in seven of the world's children before they reach the age of five.

As one of a number of proposals that the Secretary of State for International Development and I are working on to tackle child poverty, the Government will investigate a new tax incentive and a spending measure to develop, cut the costs for and ensure the supply of anti-TB, anti-malaria and anti-AIDS drugs—drugs that could save lives and that are tragically still unavailable in the poorest countries, but drugs which have the potential, which must now be realised, to reduce avoidable suffering and unacceptable deaths.

I turn to the pre-Budget measures to meet our goal of full employment. In addition to making work pay through the 10p income tax rate, our working families tax credit and the new deal—which some would abolish, but which, as independent research shows, has cut youth unemployment by 40 per cent. more than would have happened without it—the Secretary of State for Education and Employment and I will work to intensify coaching help for the 50,000 young people who are still out of work. We will consult on introducing a new service that will help redundant workers to move quickly into new jobs. We will investigate how, with tax-free and, in some cases, free adult learning, we can help to upgrade fast-changing workplace skills.

We will extend the new deal for lone parents with our nationwide programme of choices starting next April, and extend to a further 150,000 lone parents not on income support the opportunity, in the programme of choices, to get back to work. We will agree a new partnership with the voluntary sector to help those with disabilities who want work to get it, while with a £200 million a year additional package that the Secretary of State for Social Security will announce tomorrow, we will take action to improve the living standards of those unable to work who are disabled, and of those who care for them. For each area, we will proceed to draw up local full employment plans addressing all barriers to full employment in their local areas.

High productivity and rising employment depend not just on ending decades of under-investment and targeting tax incentives on our priorities, but on entrenching a low-inflation culture that prudently keeps interest rates and mortgage rates as low as possible. It is because we have learned from the mistakes of the 1980s and before, that I can tell the House that, in spite of the demands that are being made to me, 1 have decided, in the interests of keeping interest rates and mortgage rates as low as possible, to lock in over the coming years a fiscal stance that is the same or tighter than we set at the time of the Budget.

Let me give the House the background and the full financial figures. Our first rule—the golden rule, which is necessary to keep interest rates and mortgage rates as low as possible—is that over the cycle there must be a current surplus. So, however tempting it may be for some to identify large temporary surpluses as an excuse for permanent injections of resources into the economy, our golden rule demands that there is constant prudence.

In the Budget, I forecast this year's current surplus at £14 billion. I now forecast it to be £16.6 billion. In the years from 2001–02 onwards, the current surpluses are forecast to be £16 billion, £14 billion, £8 billion and £8 billion—figures that will ensure that we remain on course to balance the current Budget over the economic cycle, even on the most cautious of cases.

Our second fiscal rule—the sustainable investment rule, which is a bulwark against short-termism that again helps to keep interest and mortgage rates as low as possible—is that while, over the cycle, we will borrow for investment, we do not borrow for consumption and we keep debt at a prudent and sustainable level below 40 per cent of national income.

After a doubling of national debt in the early 1990s, the ratio of debt to national income had by 1997 risen to 44 per cent. Having made the necessary and difficult tax and spending decisions, in the three years since 1997 we have reduced the ratio of debt to national income from 44 per cent., to 41.9 per cent., to 39.6 per cent., and now to 36.8 per cent. this April. I can report to the House that two decisions—first, the decision to use the proceeds from the spectrum auction to reduce our debt and, secondly, to use this year's surplus for repayment of debt—now make possible a further and even more substantial reduction in debt that will keep interest rates low.

Because we are, in total, cutting the debt by as much as one third, I can report to the House that the public sector net debt as a share of gross domestic product will now fall from 36.8 per cent. last year to 32.3 per cent. this year to 30.9 per cent. in 2001–02. In addition, from what was a debt to GDP ratio as high as 44 per cent. in 1997, I can report that this ratio is forecast to fall to 30 per cent. and remain there in future years. With long-term interest rates lower and debt well within that 40 per cent. ceiling, we are not only well placed to deal with the inevitable ups and downs of the economic cycle, but we have the best platform possible for years for sustained long-term growth.

Our budget forecast for net borrowing was a surplus of £6½ billion this year. Now, we forecast the surplus to be £10 billion, and £6 billion next year. In future, the deficits will be £1 billion, £10 billion, £12 billion and £13 billion as we borrow to invest. In every one of the next five years, adjusting for the economic cycle, there will be a fiscal stance that is the same or tighter than at the time of the Budget—and this year, with the spectrum proceeds, the net cash debt repayment will be £28 billion.

Our approach is to reject the old vicious circle of the '80s—rising debt, higher long-term interest rates, higher debt repayment costs, lower growth, higher unemployment, then enforced cuts in public spending. That was the old boom and bust. Instead, as we have promised, we have by our decisions created a virtuous circle of falling debt, lower long-term interest rates, lower unemployment, lower debt repayments and a stronger economy releasing more resources for public services.

I can report to Members that because of this virtuous circle, lower unemployment has brought savings in social security which, compared with the Budget, provide an additional £1.5 billion next year, and £2 billion and £2½ billion in the next two years after that. In addition to higher Government revenues this year from higher employment, higher earnings growth and from steady growth, debt interest payments are now lower than we forecast at the time of the Budget—by £2½ billion next year and £2 billion in each of the next two years after that.

When we came into Government, we were paying out more in debt interest payments than we were spending on all our schools in the country. Soon, as a result of cutting these debt payments, we will be able to spend 50 per cent. more on our schools than we do on debt interest. Over the past 20 years, 42p of every additional pound spent went to debt interest and social security. In the early '90s, it rose to 50 per cent. of every additional pound spent. Debt and social security will now require only 17p of every pound, and that leaves more than 80p in every pound of additional spending to go to hospitals, schools and vital services, and it enables us to tackle the long-term under-investment in Britain.

Because we have cut the costs of debt and unemployment—now costing £5 billion less than in 1997—and because we have secured sustainable growth, we are able to lock in the fiscal tightening and meet all our fiscal rules, and, within this prudent framework, we are in an even stronger position than in July to tackle under-investment and to target tax cuts on our nation's priorities.

Since July, I have received representations from many people in this House about public spending, including representations from the Conservatives, who propose spending growth only in line with 2 per cent. GDP growth a year. I have studied that proposal in detail. It would mean, by year three, cuts in spending of £16 billion—and after taking into account the measures I will announce on pensions today, more than £16 billion.

I have rejected those representations, and because the economy both needs and can afford to—and cannot afford not to—tackle the under-investment in our country, the Education Secretary will tomorrow, as part of allocating his annual 5 per cent. real-terms increase in education next year, announce new resources for the Learning and Skills Council.

Because investment is needed in our infrastructure not just for social but for economic reasons, the Minister for Transport will announce how every region, city and town will benefit from new investment in roads. With new funds from the spending review allocated to each region for economic regeneration, the Deputy Prime Minister will shortly publish his rural and urban White Papers.

As part of the 5.6 per cent. real-terms rise in NHS spending for the next three years, the Secretary of State for Health will announce for each of those years his allocation to health authorities up to 2004, giving them the stability and certainty that they want for their spending.

In addition to the statement on pensions from my right hon. Friend the Secretary of State for Social Security tomorrow, and the extra allocation that we have made to improve flood defences, my right hon. Friend the Secretary of State for Education and Employment will announce today additional allocations to our schools.

The windfall tax is money raised from the utilities specifically for the purpose of extending employment opportunity through the new deal and educational opportunity through renovating, so far, 17,000 schools. Such has been the success of the new deal in getting people back to work that the windfall levy account is underspent by £200 million. So my right hon. Friend and I have decided that, in addition to this year's rise in education spending, lower unemployment means that we can allocate new money to every school in every constituency of the country—money to be available this year for repairs and improvements; money to be paid direct to the school.

The head teacher of every primary school will receive a cheque for between £4,000 and £7,000. The head teacher of each secondary school will receive, for the smaller schools, £10,000, and for the larger schools, £30,000: prudence once again for a purpose, enabling us to target resources to our priorities and in a sustainable way. That prudence now allows us to match public spending increases by tax cuts targeted on the country's priorities, including making reforms in the tax treatment of transport and the environment, to which I now turn.

Between 1997 and 1999, retaining the fuel escalator introduced in 1993 helped cut borrowing by £30 billion, helping deliver lower interest rates. It enabled us to begin the long-overdue investment in transport, the NHS and schools, and it will have brought about a cut in carbon dioxide pollution by an estimated 1 million to 2½ million tonnes of pollution by the year 2010.

Today, like all countries, we are having to deal with the rise in world oil prices from $11 to $31. Because the Organisation of Petroleum Exporting Countries itself accepts that the world price is unacceptably high, our international efforts are geared to ensuring that production is raised and prices fall. Therefore, I recognise and understand the very genuine concerns that motorists and hauliers have. It is because we have already managed to cut our deficit, already set aside £180 billion for our 10-year transport plan, and already shown how we are meeting the Kyoto targets, that in the last Budget we removed the fuel escalator and made environmentally based cuts in car and lorry licence fees, and gave new incentives for environmentally efficient fuels. In line with the principles that we set down then, I am now able to show how we can complete those reforms and do more to meet people's concerns, without putting at risk economic stability, necessary investment in public services or the environmental gains. Indeed, the reforms that I propose today are tailor-made to meet our environmental obligations.

The annual rise in the price of fuel that would be automatically introduced on Budget day would raise £560 million, putting petrol and diesel up by about lip a litre. I propose, at that cost of £560 million, a freeze in excise duties—an across-the-board duty freeze on all fuels that would initially last until April 2002, and, if the oil price remains high between now and then, I can tell the House that there would be a duty freeze for a further year.

I intend to go further, however, in three vital respects. On top of the duty freeze that we had budgeted for in our fiscal arithmetic, the first of the proposals I will consult upon would itself involve additional expenditure of as much as £1,000 million and help to promote substantial benefit to the environment. Yesterday, we published a report showing the environmental benefits from the introduction of ultra-low sulphur diesel in reducing local air pollution. As a result of cuts we made in excise duty on ultra-low sulphur diesel, usage of that fuel has risen in Britain from 20 per cent. in 1997 to 40 per cent. in 1998 to 100 per cent. in 2000. It requires no change to be made in lorry and van engines. It now accounts for virtually 100 per cent. of the market for diesel in Britain today, and Britain is now leading in this cleaner diesel fuel.

We now need to build on that environmental achievement. The widespread use of ultra-low sulphur petrol would further and significantly improve local air quality. Crucially, it would require no change to existing car engines. It is now time to make this cleaner fuel available in every petrol station in the United Kingdom and to make the use of this fuel, which requires no change in any car, cheaper for everyone. To do so I propose to cut the excise duty for ultra-low sulphur petrol so that it replaces unleaded petrol in every petrol station and at a lower excise duty.

On 1 October, we reduced the duty on ultra-low sulphur petrol by 1 p a litre. I propose from Budget 2001 a further reduction of 2p a litre—making a cut of 3p in total on all ultra-low sulphur petrol. Because it is right to maintain the proper balance between petrol and diesel, I propose also from Budget day to match the cut in ultra-low sulphur petrol with a 3p cut in excise duties on ultra-low sulphur diesel, which will go to all diesel users. I expect ultra-slow sulphur petrol and diesel to account for 100 per cent. of the market next year. When the excise duty cut is introduced at Budget time, motorists using any petrol station in Britain should be able to benefit from this duty cut.

It is by giving this incentive for cleaner fuels that we can both advance our environmental principles and ensure—with the 3p cut per litre in all ultra-low sulphur duty—a cheaper cleaner fuel available in every garage, a better deal for drivers and cleaner air across Britain.

I can also announce that for all cars that still use lead replacement petrol—where there is no longer an environmental case for a higher duty rate—I propose from Budget day to end the differential and cut the excise duty by 2p a litre.

I now intend to go further to help the haulage industry, which is undergoing restructuring. I propose support for scrapping or converting older lorries, with a £100 million investment fund that will include help for buying the new lorries that meet the technological and environmental standards of the future and support for the introduction of logistics and computerisation in the industry. The Deputy Prime Minister will also announce help for an industrywide training and retraining scheme.

We can do more. So that foreign lorries pay their share of the costs of using our roads, we intend to introduce in Britain a vignette system, a British disc under which non-British companies and lorries pay their share to Britain for using British roads.

The Government have considered an essential-user rebate or blue diesel scheme for lorry diesel. However, such a scheme would be administratively cumbersome; it could be levied only on future purchases of diesel; it would have to be open to foreign lorries using British roads; it would not help hauliers where their fuel prices are directly passed on to customers; and it would have no environmental benefits in itself.

The scheme I am proposing is far better. Subject to consultation and legal clearance, I now propose to bring forward a much needed reform, begun last year, in vehicle excise duty for lorries. It will radically cut rates for larger lorries that have traditionally high licence fees. The scheme will be implemented in Budget 2001. It will sweep aside the 100 separate rates; it will consolidate them into only seven rate bands, which will be linked to environmental standards; and we shall cut the rates to match the lowest in Europe.

Lorries in the most competitive sector will save over £2,000. Over 250,000 lorries will each pay lower licence fees as a result of a £300 million total cut in licence fee costs. One hundred thousand lorries will save over £1,000. The average saving per lorry will be £715 a year. The cuts are equivalent in value to a cut of 3p in the price of diesel for the haulage industry—again, with environmental incentives built in to the new licence system. Our proposals for the detailed new scheme and licence rates are published today, and the Government are able to start the transitional arrangements to the new licence system immediately.

I have allocated £265 million for this financial year—half of the annual revenue raised from lorry VED—to be spent before March for a refund scheme that can repay lorry owners up to half of this year's licence fee. Two hundred and fifty thousand lorries and all large lorries will benefit from the refunds—they will be worth, for some of the largest lorries paying the highest fees, £1,000, and up to £4,000 this year. Refunds will be paid from next month, with payments to be completed by the end of January. The detailed arrangements will be announced by the Minister for Transport.

To help restructuring and investment in farming, the Minister of Agriculture, Fisheries and Food announced last week an addition to this year's £220 million packages of measures: agrimoney compensation for arable producers. In addition to freezing red diesel duty at its current rate, I intend in Budget 2001 to abolish vehicle excise duty on tractors and agricultural vehicles.

I now have a similar proposal for car licence fees. It is consistent with our environmental principle that we tax vehicle ownership less, and I now want to complete the environmentally based reform of vehicle excise duties for cars. The new licence fee that we are introducing for new cars registered from March 2001 is linked to environmental efficiency. For all cars under 1200 cc, there is now a lower rate licence fee with a £55 deduction on the standard fee.

While that change has been welcomed, many—especially those in rural areas—have put it to me that greater choice would be available to rural motorists and motorists generally if the £55 deduction could be accessible not only for cars under 1200 cc, but for cars up to 1500 cc, including the Focus, Golf, Astra, Escort and Rover 214. Therefore, I propose to extend the lower rate licence fee and the £55 discount to cars up to 1500 cc, to be paid out from July but to be backdated to today. All those who have a car from 1200 cc to 1500 cc—that is, an extra 5 million cars—will be entitled to £55 off their annual licence fee from today. In total, 8½ million existing cars—one in three—will now pay £55 below the standard fee.

So for motorists as a whole, with the duty freeze, the new reduced licence fee and the cut for ultra-low sulphur petrol, the proposed Budget package will make changes worth the equivalent of a 4p a litre cut while meeting our environmental objectives. By next year, for the haulage industry, there will be changes worth the equivalent of a cut of 8p a litre. In each case, we shall be meeting our environmental obligations and not putting at risk public investment in our vital services or the stability of the economy. Ministers are now inviting discussion of those measures in the pre-Budget consultation, which will take place as Ministers visit every region of the country.

I come now to specific measures of benefit to families and to pensioners. Our aim is that not just some, but every child has the best start in life and that we halve child poverty in the coming decade. Families need help most at the time when parents are bringing up their children. As we extend our new integrated system of child support—from £15 a week for every child to a maximum of £50 a week—our priority in the coming Budget is the new children's tax credit, which is a tax cut for families. This family tax cut, which replaces the married couple's allowance, will be paid on top of child benefit to around 5 million families at £8.50 a week, worth £442 a year.

On current figures, the proposals on which we are consulting would, if implemented, mean that overall the tax burden would not rise next year, and I will achieve my aim of next year cutting the direct tax burden on the typical family to below 20 per cent. It will fall to 18.6 per cent., the lowest level since 1972. However, I believe that in the coming Budget we can offer a larger tax cut for families. My aim is to increase the family tax cut to £10 a week, in total a £520 a year tax cut that will increase families' incomes.

Just as we are introducing a new system of child support based on the foundation of child benefit—at the heart of which is the working families tax credit and the children's tax credit—so too it is now time, based on exactly the same principles, to raise pensioner incomes by a tax and benefit reform that will have as its foundation the basic state pension, and will have as its building block—like the working families tax credit—a new and generous pension credit.

Our aim for pensions reform is both to end pensioner poverty and to ensure that all pensioners share in the rising prosperity of the nation. In a new world of rapidly diverging pensioner incomes—already, 17 per cent. of couples are retiring on more than £20,000 a year, a percentage which grows year by year—and where, as a result, inequalities between pensioner incomes are as great as inequalities within the population as a whole, we will best meet our obligations to pensioners by a new approach.

To plan for the future based on a flat rate earnings-linked rise paid to all, which would give exactly the same to those with incomes above £20,000 as to those on middle incomes—and because the income support system would do absolutely nothing for the poorest—would mean that by the time today's 45-year-olds were retiring, for every £6 billion extra spent on the earnings link, £2 billion would go to pensioners with incomes above £20,000 at today's prices. That would mean that less would be available for the middle and lower income pensioners in greatest need, who are our first priority.

We need a policy that does most for those who need most and at the same time ensures that all pensioners—the very poor, those on modest incomes and the relatively comfortable—share in the rising prosperity of the nation. Let me tell the House what the new system, which will integrate tax and benefits and build upon the basic pension a new pension credit, will look like in 2003, and then I will set out the transitional arrangements.

First, for those in and at risk of poverty, we will radically improve the minimum income guarantee. I can tell the House that the minimum income guarantee, which was £68.80 in 1997, is £78.45 today, and will be raised in April by £14 a week to £92.15. For thousands of our poorest pensioners, that will mean £700 extra a year. I can also tell the House that when the new system is introduced in April 2003, the minimum income guarantee will be set not at £92, but at £100 a week, £22 a week more than today. For the first time, a single pensioner will be guaranteed at least £100 a week. For couples, there will be a rise from £106.60 in 1997 to £154. Every year after that, I can tell the House that the minimum income guarantee will be raised in line with earnings.

With the winter allowance, there will be a 32 per cent. increase in pensioner income for this group even after inflation. That demonstrates our determination that no pensioner is left behind as the Government work to ensure that pensioner poverty in this country becomes a thing of the past. More than 2 million pensioners will benefit. People will be able to claim by phone. They will do so at the point of retirement, and adjustments thereafter would need to be made only when circumstances changed.

We have a second obligation—to millions of pensioners who, after a lifetime of hard work, have modest occupational pensions and modest savings, but receive nothing, and have received nothing over the years, from the system on top of their basic pension and have until now been penalised, not rewarded, for their savings.

These are people whom we meet every week in our constituencies, and this Government are determined that people who have worked hard and saved hard all their lives should now receive more.

Tomorrow the Secretary of State for Social Security's statement will outline the new integrated tax and benefit system—both the pension credit and the new pensioner tax arrangements. I said in the Budget that we wanted the beneficiaries of the new credit to be single pensioners with incomes of up to £100 and pensioner couples with incomes up to £150. I can now say to the House that pensioner couples with incomes below £200, and single pensioners with incomes below £135—many millions of pensioners—will now receive this new pension credit when it is introduced. I can also tell the House that, while the pension will rise in line with inflation, the new pension credit will also rise in line with earnings every year.

In this way, we will give recipients of the pension credit more than even the earnings link in the basic state pension would give them. The pensioners tax allowance will be set at April 2003 at an even higher level— £6,560 for the single pensioner before tax is paid—and for the next Parliament we propose the pensioners tax allowance will also rise in line with earnings.

For the vast majority of pensioners, therefore—middle and low-income pensioners—in Britain, the new system will provide extra cash on top of the basic pension: sums of between £1 and £23 a week extra. And we will achieve all our aims: for millions of the neediest pensioners, relief from poverty; for those on modest incomes, a reward for their savings and occupational pensions higher than an earnings link would give them; and ensuring that all pensioners can enjoy a share in the rising standards of living of our country.

As we move to this new and better system, the Secretary of State for Social Security and I have decided that the transitional arrangements should ensure that over the next two years, pensioner incomes should rise faster than inflation—indeed, faster than earnings—so from April next year we propose that, for the single pensioner, there should be a cash increase of £5 a week; and for a married couple, a rise of £8 a week. I can tell the House that in the following year we can also guarantee the pension will rise above prices—a cash increase of £3 for single pensioners and £4.80 for married couples. Over two years, therefore, there will be a cash rise of £8 for single pensioners and £12.80 for couples—for pensions, £2.6 billion more: more than the link with earnings would give; more each year, on top of more for health, education, transport, policing and the public services.

Those who would spend this money on tax cutting should now tell us which hospitals, which schools, which public services they would cut. The Government have made our choice: investment; targeted tax cuts; keeping mortgage rates low; more for pensions and families—a stronger, fairer Britain.

I have one final announcement. I have had representations to abolish the winter fuel allowance, and, indeed, to abolish the free TV licence for over-75s. I have even received representations to abolish the Christmas bonus. I have rejected such options, which would give with one hand and take with another.

I can confirm that, now and in future years, the free TV licence will remain for the over-75s as we have promised; the Christmas bonus will continue; and the winter allowance will be paid at £150. But the transitional arrangements to our new pension reform will start not next year but this year; indeed they will start this week. I can confirm that cheques are being sent out from Monday that will be paid to every pensioner household in Britain. The winter allowance will not be paid at £150 this year. Nor will it be abolished. For this year specially—the first year of the transitional arrangements—it will be paid not at £150, but at £200 for every pensioner household, free of tax.

I commend the statement to the House.

I begin by drawing attention to my declaration of Member's interests. This is the first chance that I have had to address the Chancellor since his wedding, and I should like to congratulate him and his wife and wish them both every happiness.

There is much in the right hon. Gentleman's statement which, on reflection, we will be able to welcome, particularly the changes in VAT on churches and the initiative that he announced today on aid to the third world. However, it was certainly not the statement that the Chancellor intended to make.

In all the Chancellor's public pronouncements, he boasts about how he always plans for the long term and how he abhors quick fixes. The statement was all about short-term tactics and quick fixes. [Interruption.] The Chancellor today was in full retreat. [Interruption.] Indeed, this was the statement that the Chancellor told us he would never—[Interruption.]

Order. The House must come to order.

This was the statement that the Chancellor told us he would never be able to make. Did not Ministers tell us time and again that they could give no concessions to pensioners and no concessions to motorists? [Interruption.] Yes, they did, because they said that that could be done only at the expense of closing schools and hospitals. Why did not the Chancellor repeat that spurious nonsense today? Can he tell us, as a result of the changes that he has made today, how many schools and hospitals he has had to close? Once again, the insincerity and spin of this Labour Government have been laid bare.

The Chancellor tells us that things have changed because he now has a large surplus. Whose surplus is it, anyway? It is the people's surplus. It has arisen because the people of this country have been overtaxed. The Chancellor has overtaxed the British people: £5 billion of that surplus has come from the taxes that he has imposed on pension funds; £5 billion has come from the extra taxes that he has imposed on business; and £5 billion has come from the extra duties that he has imposed on petrol and diesel.

Those foolish increases in duty led to one of the two problems that the Chancellor had to come to the House to address today. The fuel protest was in fact a revolt by the taxpayers of this country, who have been overtaxed by the Chancellor—people who are not well off and who have been overtaxed—but he proposes to tax them even more.

The Chancellor's figures revealed today confirm that there would be no room for tax cuts under a future Labour Government. [Interruption.] Today the right hon. Gentleman is in pre-election mode, but will he admit that his plans to raise public spending by more than the country can afford year after year mean that there will be tax increases year after year in the coming Parliament? Does he have any understanding of what the extra burden of tax and regulation means for our economy? [Interruption.]

Today's statement, like all the Chancellor's others, was characterised by a great deal of micro-economic meddling by a highly interventionist Chancellor who is fiddling while Britain slips behind. [HON. MEMBERS: "Nor] Oh, yes. The Chancellor was very selective in the figures that he gave us today. Why is it that since the Chancellor has been in charge—[Interruption.] Hon. Members should listen to this.

Order. I appeal to the House to allow the right hon. Gentleman to state his case.

Why is it that since the Chancellor has been in charge, Britain has grown half as fast as the United States? Why is it that, over the past three years, the growth in the British economy has been slower than it was in the previous 15 years? Why is it that under Labour, Britain's share of world exports is slipping fast? Why has productivity been cut by half under the Government, so that it is now half the United States rate? Those are the proper measures of Labour's lack of economic success.

Let me tell the Chancellor today that his changes to individual savings accounts will not help. This is the Chancellor who raided the nation's pension funds and abolished PEPs and TESSAs, and this is the Chancellor who has reduced the nation's savings to their lowest level since 1963.

Is it not ludicrous, too, that the Chancellor who abolished mortgage interest relief, and who has done more than any other to raise stamp duty year after year, now tries to pose as the house buyer's friend in inner cities? If he claims that cuts in stamp duty in inner cities will help householders and businesses, will he now admit how much damage he has done with the swingeing increases that he has imposed in the past?

For all the Chancellor's gimmicks, the simple fact is that, because taxes have been rising, real disposable incomes in Britain have not been growing. People noticed that before the economists did, and that is what the fuel protest was about, and that is when the taxpayers bit back.

The Chancellor loves to talk of stability, but he has delivered a standstill. He has delivered a Britain in which living standards are not rising and the traffic does not move. The Chancellor's proudest invention—the stealth-tax policy—now lies in ruins.

Was it not this Chancellor—let us all remember this—who not only caused the problem of the fuel protest, but the problem with the pensioners as well? It was this Chancellor, was it not, who insulted Britain's pensioners by raising their pensions by 75p? Was it not this Chancellor who, being far too clever by half, decided to raise the pension by 1.1 per cent. and fuel by 3.4 per cent., and claim that both were in line with inflation? I tell the Chancellor of the Exchequer today that Britain's pensioners will never forget what he did to them. [Interruption.] We welcome—[Interruption.]

Order. The hon. Member for Chorley (Mr. Hoyle) should not shout across the Chamber.

We welcome the extra money for pensioners, but here again there were short-term fixes. When will the Chancellor of the Exchequer come up with a long-term solution for properly funded pensions in Britain? Will not today's announcement dent the Chancellor's credibility even more? Is not this the man—and listen to this—[Horn. MEMBERS: "Oh!"] Well, I am going to quote the Chancellor. If hon. Members do not want to listen to the Chancellor, that's all right. Is not this the man who, addressing the Labour party conference before the last election, said, "I want the next Labour Government to achieve what in 50 years of the welfare state has never been achieved—the end of means-testing of our elderly people." Yet today he has announced the most massive extension of means-testing for elderly people. I remind Labour Members what means-stesting means. It means all the indignities and humiliations of filling out the form.

The Chancellor has done that in two ways. He has vastly increased the number of people who now have to apply for means-tested benefits, and, on top of that, pensioners with savings must now also be means-stested if they are to qualify for their credits. Is not the whole scheme typical of the Chancellor? It is a scheme so incredibly complicated that none of our constituents will be able to understand it, and none will know what they are entitled to.

Today, the Chancellor has announced the rates of pension that the Conservatives will inherit if we come to office in May. We welcome them, but we, the Conservatives, will do better. Under a Conservative Government, the pension next April would be £9.50 higher for a single pensioner over 60 or 65; £13 higher for a pensioner couple over 65; £11.60 higher for a single pensioner over 75; and £16.10 higher for a pensioner couple over 75.

We are perfectly straightforward about the fact that we would roll up the winter fuel allowance, the Christmas bonus and the free television licence for the over-75s, and we would use all that money, and the many millions of pounds saved in administration costs, to pay a higher weekly pension. Moreover—I want the Prime Minister to take this in—we would make that money tax free and we would adjust the income-related benefits as well.

The taxpayer revolt this summer marked a watershed, and the moment when people in this country realised that the Labour Government had betrayed them. Conservatives warned the Government [Interruption.] Oh, yes. We said that we should charge foreign lorries for driving on our roads. We voted against the duty increases and campaigned against them; we recommended a 3p cut for fuel, and the Chancellor would not listen. However, it seems that he has had to listen. It seems that he has had to listen to everything that we said. The vignette has been introduced today. It was a Conservative idea, as was the 3p cut for fuel. We accept the right hon. Gentleman's tribute to our policy.

The Chancellor proudly told the Labour party conference that he would not give ground to those who pushed the hardest and shouted the most. Does anyone seriously believe that we would have had today's statement if it had not been for fuel protest, the panic on the Labour Benches and the fact that the Government are planning an early election?

When the Chancellor first became a Minister, how did he lose touch so quickly with real life? When he increased the pension by 75p, how did he have so little understanding of what it is like to be a pensioner struggling to get by? How did he have so little understanding of what it is like to be a mother trying to take her children to school [Interruption.] Oh, they laugh—they laugh at mothers taking their children to school. How did the right hon. Gentleman have so little understanding of what it is like to be a mother having to find £50 out of her purse to fill the tank?

The right hon. Gentleman is truly the Chancellor who did not understand. He has come to the House today to shore up his political position. However, he has shown no sign of understanding, and he never says he is sorry. [Interruption.] That refusal to apologise diminishes the Chancellor. He is not half the Chancellor he was a year ago. [Interruption.]

Order. Once again, I must appeal for order in the House. There should be no shouting across the Chamber.

I do not believe that people will be grateful to the Chancellor for what he has done today. People will remember that he was the cause of the problems. He caused the fuel problem by overtaxing the British people; he caused the pensions problem by insulting our pensioners with the 75p increase. Today he has merely returned a little bit of the people's surplus, but he still plans to take it back through higher taxes if he wins the next election.

When the Chancellor stood up today, Britain had the most expensive petrol in Europe. Now that the Chancellor has sat down, Britain still has the most expensive petrol in Europe. That will be the verdict of the majority. The statement revealed a Chancellor in full retreat, blown about by public opinion, but still a man, who, even in those circumstances, could not come to the House and say, "I'm sorry."

I shall answer in detail every point that the right hon. Member for Kensington and Chelsea (Mr. Portillo) made. If he wants to compare our respective records, let us remember what happened when he was at the Treasury: 22 tax rises, interest rates at 15 per cent. for a year, interest rates above 10 per cent. for four years and the exchange rate mechanism debacle. He was the Minister who introduced the fuel escalator, put VAT on fuel, and introduced the airports tax and the insurance tax. He was even one of the brains behind the poll tax.

When the shadow Chancellor said that he welcomed some of our measures—the overseas development tax relief and some of our pensions measures—his silence on other matters was notable. Does he welcome our spending on schools? Does he welcome our spending on transport? The Leader of Opposition said yesterday that under-investment in transport was a problem in Britain. Does he welcome our spending on children's benefits? Does he welcome our spending on getting people back to work?

When the shadow Chancellor says that spending in this country should increase by 2 per cent., not 3.4 per cent; that the gap must be bridged by spending cuts; and that anything more than 2 per cent. is unsustainable and would lead to recession, he has a duty to tell the House how many nurses and doctors, and which schools, hospitals, public services and constituencies, including those of Conservative Members, would suffer as a result of the cuts. And he has no credibility when he says to the House that he will give tax cuts to the people of this country if he will not tell the country where those spending cuts will be made.

The right hon. Gentleman said that he supports some of our measures on pensions, but let us remember that Conservative policy is to abolish not only the winter allowance and the free television licence, which is now going out to several million pensioners, but the Christmas bonus. In 1987, when the shadow Chancellor was the Minister responsible for the Christmas bonus, he said: "Pensioners budgeting for Christmas need the assurance of that contribution to their expenses which this payment provides. The bonus is something to which the majority of the elderly look forward very much. What other people call fringe benefits are of substantial help to the poorest groups in our society."

I thought that Christmas was a time for giving but, under the Conservatives, it would be a time for taking. I can imagine the Conservative pledge card during the election campaign. It would say: "Abolish the new deal. Abolish the working families tax credit. Abolish free television licences. Abolish the winter allowance. And abolish the pensioners' Christmas bonus." The Conservatives would abolish good will for Christmas.

When the shadow Chancellor moved on to the question of the economy, I began to see the wisdom of the words of Lady Thatcher, who said, only a few days ago: "He"—that is, Portillo—"has become very confused. He no longer understands his beliefs." On 18 September, the shadow Chancellor was asked about the effect of public spending commitments on the economy, although today he has not lived up to his promise. He said, "We have to show how all the sums would add up. We have to make sure we have a coherent programme for reducing taxes—how we would save the money necessary to reduce taxes. We want to present that in detail and show how it all adds up together." Today, what did we hear from him? No specifics, no detail, no promises—not even an analysis.

When the shadow Chancellor imagines that he can go into the general election and promise tax cuts year after year on the basis of a year or two's surplus, he is making exactly the mistake—the fatal flaw—that the Conservatives made during the 1980s. His economic policies would return us to stop-go boom-bust. There were four fatal flaws in the Conservative policies of the 1980s, each of which are also flaws in his approach. There are no fiscal rules, so there is no budget discipline. He has given us no indication of the rules that he would follow, which is what produced traditional Tory boom and bust.

The shadow Chancellor told us that he would have tax cuts instead of investment, but the neglect of investment produced the problems in our supply side that meant that we could not sustain a consumer boom because there had been no investment during the 1980s. He has no inflation target—not even our symmetrical inflation target—and he even doubts whether he would keep the Bank of England independent if, as he put it, he could judge it to be incompetent. Most people have that view of him and his economic policies. In all those areas, the Conservative party's economic policy, by its sheer recklessness and irresponsibility, points to the fact that it has learned nothing and forgotten nothing. The Conservatives are ready to take this country back to boom and bust.

Who said that the Conservatives had made a mess during the 1980s? It was none other than the shadow Chancellor himself, who said, "Of course the Conservative party should be apologetic for mismanaging the economy."

The economy's growth rate is higher than under the Conservatives. We are tackling the productivity gap and this country's under-investment, and we are getting people back to work. We will not allow the new deal to be abolished, as the Conservatives plan to do. They have no policies for the economy's future. Their party would take this country back to boom and bust. Sixteen billion pounds of spending cuts and a return to boom and bust: the choice for this country has never been clearer.

Is my right hon. Friend aware that the Treasury Committee will want to question him in detail about the pre-Budget report? From what my right hon. Friend said this afternoon, it is clear that he has managed to combine very welcome increases in pensions with well-targeted help on fuel and sustained investment in education and health, and that he has done that without putting at risk the great prize that we have achieved of economic stability. Will my right hon. Friend confirm that he will maintain fiscal discipline and that he will not put any strain on Britain's very successful monetary policy?

I accept what my right hon. Friend said. He is Chairman of the Treasury Committee and I look forward to discussing these matters with him. Of course, the balance between monetary and fiscal policy decides the strength and growth rate of the economy. As the figures show today, we are running a surplus, repaying £28 billion of debt, and the fiscal stance is tighter or as tight in every year for the next few years, as set out in the Budget.

Of course, the Bank of England must make its own monetary policy decisions, and I look forward to hearing what it says when it makes the decisions tomorrow. The important thing is that by combining a tough fiscal policy with an independent monetary policy, we have moved this country from a permanent relapse in every cycle into boom and bust to a cycle that is capable of greater stability. I hope that even Conservative Back-Bench Members support what we have done to strengthen monetary policy in this country—as some do, I believe.

Hon. Members may have noticed that today's statement was not so much a pre-Budget consultation as a mini-Budget in its own right. The Chancellor's Labour predecessors introduced mini-Budgets in times of financial crisis precisely because of boom and bust, whereas the right hon. Gentleman introduces them at times of political crisis to bring in policies of bust and boom. Three years of cuts in public service are followed by a general election splurge to buy back the electorate.

The iron Chancellor has buckled in the face of protests from pensioners, Liberal Democrat Members and, indeed, some Labour Back Benchers, who said that he was wrong. The shadow Chancellor is wrong to ask for an apology for the fuel tax increases that his own party introduced. He should have asked for an apology for the measly mean-minded 75p on pensions that the Chancellor introduced only a matter of months ago. Today, the Chancellor has effectively had to admit that he was wrong to do that.

The Chancellor has left even more pensioners reduced to having to claim on the means test. For all the real pension increases that he announced today, which we welcome, he will leave millions of pensioners to the indignity of means tests. His so-called transitional announcement amounts to two years in which pensioners will get above-inflation pension increases only to go back to 75p inflation-based increases thereafter. That is the reality of the policy announced today, which is a policy of more means tests. Do not pensioners need real investment in long-term pension increases?

On fuel, the Chancellor must be aware that the policies that he introduced today are, lock, stock and barrel, those that we have been urging on him and his Conservative predecessors for nearly eight years. We have to wonder why those changes are coming now that the Chancellor faces a general election and fuel protests, rather than as part of a long-term strategy. He is not an iron Chancellor, but a Chancellor who buckles in the face of politics. That is no wonder, as the real hat that he is wearing today is the hat of the chairman of Labour's general election campaign.

Of course, some of the measures for business are welcome, but it is odd that there is total silence on the one issue that is really causing a crisis in British manufacturing and British farming—the high level of the pound. There was not a policy or a promise to help either of them.

Even after all the hype about this pre-Budget report—which was announced to the press 72 hours in advance and rolled out in the House of Commons as an afterthought—the Chancellor will still have spent in this Parliament less of the national cake on education and health than the Conservatives did, and will leave more pensioners reduced to the indignity of the means test. He has not had the guts to admit that his policy on pensions was wrong. Even today when he reversed it, he did not have the guts to apologise.

I do not know where the Liberal Democrat spokesman stands. He accuses me of buckling under pressure, including pressure from him, by giving away too much, and ends up telling me that I am giving away too little. He will have to work out what his position is on these matters. No doubt his position in one part of the country will be for more, and in another part it will be for less, as is usual with the Liberal Democrats.

On the specific issue of pensions, the Liberal Democrat spokesman—the champion of pensions—should remind himself of what he and his party said at the general election.

That was the last century.

That is right: the Liberal Democrats are living in the last century. Their 1997 manifesto said that the basic state pension would remain indexed to prices. The hon. Gentleman should congratulate us on what we have done, rather than condemn us.

As for our adopting Liberal Democrat policies, one which we have not adopted, and about which I do not hear him talking much when he speaks every week on economic matters, is the road fuel duty escalator of 8 per cent. a year in real terms. [Interruption.] The hon. Gentleman shakes his head. Presumably that is a policy for inner-city areas only, not for rural areas.

Having heard the Liberal Democrat spokesman today, I suggest that he works out whether he thinks we have given too much or too little, because he cannot make up his mind.

Earlier, I asked whether there was a doctor in the House, because I have never seen so many sick people as I saw on the Opposition Benches this afternoon while my right hon. Friend was speaking.

Will my right hon. Friend accept that from my political perspective this has been a welcome statement? Its implications for different parts of the country and different parts of the economy are far-reaching. It is innovative, and I applaud it. Does my right hon. Friend agree with me that, given the extraordinary statement from the shadow Chancellor, the choice facing the country has now been set? It is between investment in economic, social and human capital as set out in my right hon. Friend's statement, and the £16 billion of unspecified cuts proposed by the Conservative party.

I agree entirely with my hon. Friend. I know that he will welcome the measures we are taking for inner-city development and to create employment throughout the country in areas such as Liverpool. He is absolutely right that the country faces a choice between investing in our future or returning to the old stop-go, boom-bust of the past. Until the Conservative party, and the shadow Chancellor in particular, tell us where their proposed cuts will fall, the right hon. Gentleman will have no credibility either in arguing for tax cuts or in arguing that his is a coherent economic policy.

I remind the shadow Chancellor what the Leader of the Opposition said a few days ago—on the Jimmy Young show, of all radio programmes: "I have to present a coherent programme for government. It is my job to provide the country with an alternative government, not to ride around on whatever bandwagon from time to time. It is my job to present an alternative government, and that means we have to put forward a coherent programme." We are waiting for that coherent programme.

It gives me and others pleasure to hear the Chancellor continuing to use the language that he took over from the previous Government of "no return to boom and bust" and "stability." However, will he stop using it? He presents two Budgets a year, when he comes along in response to the latest events to ensure that no lobby group is left unsatisfied, that no pressure group is unpaid and, on this occasion, that Barbara Castle and the hauliers are allowed their triumph—all in the hope that he gets re-elected. Will he confirm that the only reason why he can reconcile all that with his previous fiscal forecasts and his estimate that debt-GDP ratios would go down to levels that we have not seen since the boom phase of the late 1980s is that he and the Treasury keep getting wrong their forecasts of the revenue that they are receiving? Will he repeat his warning to the House that those revenue forecasts can change rapidly—overnight—and lead to very great disappointment?

Will the Chancellor take a little look beyond his hopes of being re-elected at the next general election and accept that—after three years in which he has increased the tax burden and reduced public spending to the lowest percentage of GDP since the 1960s—he has embarked on tax-raising potential and spending programmes that will far exceed any likely growth of the economy? Why will he not admit that that is unsustainable, and that a new Government will have to go back to the drawing board to recover those very qualities of prudent management that he sometimes affects to scorn even in the Government whom he succeeded?

I am always interested to hear the former Chancellor, usually because he is in total disagreement with the current shadow Chancellor about the way forward. As for the statements made to the House in the course of a year, it was the previous Government who—because of protests that people made quite rightly, and defeat in Parliament—had to come to the House and rewrite all their legislation on VAT on fuel. Therefore, he is not the one to comment on our introducing proposals over the course of a year.

I should have thought that, on his general point on economic management, the former Chancellor would have been in agreement with me that the stop-go policies of the 1980s were not the right policies for the British economy. I remember—I wish that I had brought the quotes with me—his own criticisms of those policies. As he himself has admitted, in those times, excessive tax cuts were made in one year that could not be afforded in every year. There was also a neglect of investment in the supply side, so that, as the economy grew, we could not sustain the growth that we wanted.

Equally, the former Chancellor, as a supporter of independence of the Bank of England, knows that the lack of a tough and tight monetary policy that is absolutely explicit about where we are trying to go is another recipe for a return to the situation that we had in the 1980s.

I believe that, on those three matters, the former Chancellor and I would share common ground—if it were not for the fact that he also thinks he is preparing for a general election.

I congratulate the Chancellor on the measures that he has announced today. His measures will help to bring long-term prosperity to inner-city areas, which is in marked contrast to the years and years of dereliction caused by Tory policies. I also know that my right hon. Friend believes, as I do, that the future for inner cities lies in enterprise, not welfare, and in getting local people involved in their own companies, thereby bringing life to our inner-city areas.

Will my right hon. Friend confirm that the measures—all those incentives—that he has announced to encourage business, research and development and enterprise will be targeted particularly at some of our poorest and most deprived communities, to encourage them to share in the prosperity that is available to the rest of the people in Britain?

I am grateful to my hon. Friend, and I applaud the work that she does in securing regeneration in her own constituency and in the areas surrounding it. It is very important to recognise that the combination of public spending and targeted tax incentives will be necessary for the regeneration of areas which for too long have been left behind, and for people and places that have been too long forgotten. It is not only the measures that I have announced today but the measures that were announced in the public spending review that will give additional money to some of the hardest hit areas, so that they can meet higher standards in education, create more business development and, consequently, create more employment.

I believe that the challenge for the Government—having cut unemployment in the past few years and increased the numbers of people in employment by 1 million—is to go further. In every area of this country where there is still unemployment that is avoidable, we want with our measures to take the action that is necessary so that full employment becomes a reality for every region of this country.

I generally welcome the Chancellor's statement, but should like to deal with a couple of matters. First, I urge him not to get too rigidly locked into the perpetual surplus to which he referred, as there may be times in the economic cycle when he needs to be free of such a commitment.

Secondly, a moment ago, the Chancellor mentioned regional policy. Will he clarify whether there will be consideration of operating aids—particularly within objective areas such as Wales, Merseyside, South Yorkshire and Cornwall—to help secure inward investment into those areas? Will he also give an assurance that that package will be helpful for people in work but on low incomes, to increase GDP per head, which is a real challenge in so many areas?

Only a few weeks ago, I had the privilege of visiting Wales and talking both to the Welsh Pensioners organisation—I had a very interesting and constructive meeting with its members—and at a seminar of entrepreneurs and local authority leaders who were planning the next stages of the development of objective 1 projects. I consider that both the enthusiasm and the determination to make the projects work stands Wales in good stead for the future, and we want to back them up in whatever ways we can.

Extra money is available for the new deal in areas where unemployment is still high. The working families tax credit is the main means by which we can make work pay—as the right hon. Gentleman is asking us to do—in a part of Wales in which, in the past, a large number of people have been either on the minimum wage or just above it. The working families tax credit is specifically designed to make work pay.

The right hon. Gentleman asked about the level of regional development incentives provided by both the British Government and the European Union. We will do what we can to ensure that regional development in every part of the country can move ahead. The fact that the regional development agencies are today being given new powers and new flexibilities is a measure of that—and, of course, they were given new money in the July spending review. As the right hon. Gentleman knows, Wales was given a 5.4 per cent. real-terms increase in expenditure, not least to meet the needs of objective 1 areas.

After 18 years of Conservative Governments, this was a report worth waiting for. It used the language of social justice, and it also shot a good many Tory foxes.

I particularly welcome my right hon. Friend's ingenious approaches to the pensioner, the haulier and the farmer. In Deeside and throughout Wales, the increase in the basic state pension will be widely welcomed as a measure of social justice. May I say that we want the right hon. Gentleman to say loudly throughout the land that there is a choice between this report and £16 billion worth of cuts in public services?

I entirely accept what my right hon. Friend says. I know that he is a long-standing fighter for the needs of the pensioner community, as well as for the industrial needs of his constituency.

My right hon. Friend is absolutely right: the country will face a choice—the choice whether to invest in the future, or return to the stop-go of the past. The choice is whether we are prepared to make money available to expand our public services and help pensioners, or whether we are to return to a Conservative agenda that would cut a massive £16 billion from our public services.

The shadow Chancellor himself admits that that is the record of the Conservative party—a record that he is having to defend. As he said in his lecture to the Tory party conference in October 1997 that Tories were linked to harshness, thought to be uncaring about unemployment, poverty, poor housing, discipline and single parenthood and that they were thought to favour greed and the unqualified pursuit of the free market, with a devil take the hindmost attitude, I do not need to add any more to those remarks about the Conservative party.

Given the amount of the taxpayer's money that the Chancellor has had in his election war chest, does he accept that motorists in my constituency who must have cars to get to work, take the children to school and go shopping will be very disappointed by the parsimonious reduction of only 2p per litre? Will he confirm that the extra cost of sulphur-free petrol is 1 p a litre? Will he also confirm that he has put up the price of petrol by 15p per litre since he went into No. 11, and that, despite the latest reduction, our tax on petrol will still be the highest in the European Union? The right hon. Gentleman has proved today that he is an anti-motorist Chancellor in an anti-motorist Government.

I do not think that the hon. Gentleman heard the shadow Chancellor say that we had been far too generous. It is difficult to know what the Conservative party's position on these matters now is. Perhaps the Conservatives should call another meeting of the No Turning Back group, and try to reach a conclusion on whether they can agree on anything nowadays.

I have been following the hon. Gentleman's comments with considerable interest. It was he who said in the House two years ago, after that pre-Budget statement,

I believe that, in the United Kingdom, despite the Chancellor's optimism about growth next year, we face recession—[Official Report, 4 November 1998; Vol. 318, c. 913.]

I will think twice about whether to listen to all the advice that I receive from the hon. Gentleman in the future.

As for the cost of travel, I believe that motorists in the hon. Gentleman's constituency and throughout the country will welcome the fact that, while we are maintaining a very tough fiscal discipline—indeed, we are repaying £28 billion of debt this year, and have reduced the debt ratio to 30 per cent.—we are still able to help the transport and haulage industries. I wish that the hon. Gentleman had welcomed the justice for pensioners from which thousands of his constituents will also benefit, despite his failure to advocate their case.

I welcome my right hon. Friend's statement today. Constituencies such as mine were ignored by the previous Tory Government, but it is clear that they will benefit from today's further redistribution of wealth, which will devote more resources to those who need it most.

Pensioners in my constituency accept that this Government have done more than the Tories, but they expect more from us because we are Labour. They have got more today, which is why I welcome the statement.

Land in my area suffers badly from chemical contamination. My constituents will welcome the acceleration in tax relief that my right hon. Friend announced today. When he talks to my right hon. Friend the Deputy Prime Minister, will the Chancellor ensure that areas where there is chemical contamination of land get priority in that respect?

My hon. Friend describes the measures that he would like my right hon. Friend the Deputy Prime Minister and me to take up, and we will certainly examine what he proposes. We welcome what he says about the urban regeneration measures. I believe that we are tackling the problem in a way that will bring results.

I also welcome what my hon. Friend said about pensioners in his constituency. Our aim is to ensure that every pensioner shares in this country's rising standard of living. We know that the world has changed over the past 50 years, and that different groups of pensioners have different needs. We will raise the basic pension by £5 a week from April next year and by £3 a week the year after, and we also intend to raise the winter allowance. Our new proposals are very important, as they will do more than a restoration of the earnings link would do for those pensioners who need the help most and whose savings must be rewarded.

I hope that my hon. Friend will join me in getting that message across to the country.

Does the Chancellor believe that he has managed to abolish the trade cycle somehow? If not, what would happen if a recession occurred while the right hon. Gentleman was still Chancellor? Would he carry on with his supposedly immutable spending plans and run into uncontrollable debt, or would he have to introduce no doubt very massive tax cuts?

I am grateful to the hon. Gentleman. I understand that he is an Opposition Front-Bench spokesman, but his line seems completely different from that expressed by the Leader of the Opposition yesterday morning. The right hon. Member for Richmond, Yorks (Mr. Hague) said that there was more money around and that the Government should be spending it. He also said that today's announcement would not do enough, but today the hon. Member for Grantham and Stamford (Mr. Davies) says that we have done too much. The Opposition really must decide what their position is.

Answer the question

I do not know whether the hon. Gentleman heard me say that we had taken action, and that our surpluses and fiscal disciplines had left this Government better prepared than others in the past for the ups and downs of the economic cycle.

Of course economic cycles occur—growth is higher in some years than in others. However, we must avoid the mistakes by those members of the Conservative party who were in charge of macro-economic policy in the 1980s. They pushed the country into a violent recession in the early 1990s, when growth collapsed, because they had not invested. The previous Conservative Government made tax cuts that they could not afford, and they had no monetary or fiscal discipline.

The hon. Gentleman supported the independence of the Bank of England long before Opposition Front-Bench spokesmen even considered doing so. I hope that he, like the former Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke), will recognise that the Government have brought a monetary and fiscal discipline to the conduct of economic policy that did not exist in the 1980s. Because that discipline did not exist then, the country suffered from the policies of boom and bust that I have described. The hon. Gentleman supports the independence of the Bank of England: he should also support the Government's fiscal rules.

As Second Church Estates Commissioner, and on behalf of the Church, may I welcome my right hon. Friend's statement that VAT on church repairs will be cut from 17.5 per cent. to 5 per cent? I do not want to appear in any way bipartisan, but the campaign to reduce that charge has been all-party and has gone on for 30 years. I welcome the fact that my right hon. Friend is the first Chancellor in 30 years to have listened to the Church's representations.

Will my right hon. Friend devote his energies and endeavours to ensuring that any European Union directive that has to be modified or promoted in respect of the proposal comes into force as soon as possible, so that the VAT payable can be reduced?

I am grateful to my hon. Friend, who does a tremendous amount of work as a Church Commissioner.

I applaud the case that he has made for those changes; I know, too, that it is an all-party campaign. We will push the European Commission for a change in policy. We recognise that although churches receive money from the lottery and from other funds, particularly from the Department for Culture, Media and Sport, they have bills that must be met, in some cases in areas where they cannot raise money easily from charitable donations. We therefore want to do what we can to help.

It is part of our policy to preserve and advance community life in areas in which there are old buildings that should be kept in existence and undergo the necessary repairs. I have met the Archbishop of Canterbury to talk about these matters and we will continue to talk to the churches. It is our determination that they will have the additional money that is needed.

I welcome many of the things that the Chancellor has said today, especially about pensions. I am sure that pensioners will be well pleased with what they have heard. Of course, pensions are a continuing problem, and I am glad that the Chancellor has gazed into the future.

People in Northern Ireland are a bit aggrieved with the Chancellor. They feel that in matters of consultation, other parts of this United Kingdom have been listened to, while our farming community and the freight men did not get direct access to him.

The right hon. Gentleman has been on wheels. Northern Ireland is not so very far from his own country—it is just 20 miles over the sea, and there is a very good boat service, as he knows. As he carries out further consultations, will he—even if he cannot come himself—meet a deputation of farmers and freight men? The Chancellor talked about a virtuous circle. The farming community and the freight men in Northern Ireland are in a vicious circle.

Northern Ireland is the only part of this United Kingdom that has a land border with another country in the European Union. The number of men and women who have lost jobs on the border because of the price of petrol is fantastic. All one sees driving along the border is closed filling stations. Of course, the farming community—

Order. I am sorry to interrupt the hon. Gentleman, but he must understand that other hon. Members wish to speak. I think that the Chancellor has enough to work on.

May I just say in closing, Mr. Speaker, that the farming community and the freight men need the Chancellor's attention?

I am grateful to the hon. Gentleman for putting the case for the farmers and the haulage industry. The pre-Budget consultation will include visits to every part of the United Kingdom. Ministers will be visiting Northern Ireland and will listen to the concerns of farmers and hauliers. My good friend the Secretary of State for Northern Ireland has already invited me to come across to Northern Ireland to talk about some of those matters.

I thank the Chancellor for the equivalent of a cut of 4p per litre of fuel for drivers of smaller cars, such as myself, through the car tax discount of £55.

On pensions, is not the shadow Chancellor correct on one point, but one point only? Pensioners will not forget what the Government have done, because the Government have increased their incomes, particularly for the poorest and those with modest occupational pensions and savings.

Many pensioners in my constituency have asked me about the winter fuel allowance of £200. Can my right hon. Friend let them know the latest date by which pensioners in Tower Hamlets and across the country will have that cheque for £200 in their pockets?

The cheques will start going out on Monday. The intention is that they will be paid over November and reach people before Christmas. That is what we are trying to achieve.

On the general policy on pensions, I should have thought that there would have been all-party support for the view that, first, we should tackle pensioner poverty. By raising the minimum income guarantee, we are taking hundreds of thousands of pensioners out of poverty. Just as we want to make child poverty a thing of the past, we want to make pensioner poverty a thing of the past. That is possible through the actions that we take.

I recognise, however—and this is the second stage of our reforms—that we must help people who have saved all their lives and who get nothing from the system. It is all very well the shadow Chancellor criticising measures that he says are income related. Those are measures that encourage and reward saving—they tell people who have saved all their lives that we will do more to help them.

When people consider the proposals and look at the scale of the payments that can now be made, they will realise that the pensioner credit is a means by which we can give justice to middle and lower income pensioners and at the same time tackle the problem of pensioner poverty.

I hope that my hon. Friend's constituents will get the cheques that will start to go out from Monday. Equally, I hope that they will support our new pension reform proposals.

Can the Chancellor of the Exchequer explain why he has so little trust in pensioners to spend their own money? Why cannot the winter fuel allowance, the Christmas bonus and the free television licence fee be incorporated into the basic state pension?

First, the £200 winter allowance, which I assume that the Conservative party would not pay—[Interruption.] That is an interesting revelation. We have now had an admission that, even this year, the Conservative party would not pay the winter fuel allowance—even before the Conservatives get into power, they say that they would not pay it this year. I am sorry that attendance in the Chamber is low at the moment, but hon. Members here will note, as will everyone throughout the country in the next few days, that the Conservatives would not even pay this year's £200 winter allowance.

As for telling pensioners how to spend their money, we are giving pensioners that money to spend. The difference between the two parties is that the Conservatives would not even give pensioners the money.

I congratulate my right hon. Friend on his statement, in particular on what he intends to do about vehicle excise duty. The rural poor, who drive on average perhaps 8,000 miles a year, will benefit far more from a £55 cut in that duty than they would have benefited if he had simply cut the price of petrol. We are doing the right thing—enabling people to pay as they go when they drive. We are cutting the cost to drivers of getting on the road. That will help the poorest people and it will allow the rural poor in particular to drive as they need to do. Many of them have limited needs, which we should not exaggerate—they need their cars, but not for long journeys, and not on the scale that they would need them if petrol tax were cut as dramatically as some people have advocated, which the country could not have afforded and which would have denied money for schools, pensioners and other things.

My hon. Friend is the Chairman of the Select Committee on Trade and Industry and has been taking evidence on the matter. I know how vigilant he is when he represents the needs of his rural as well as his urban constituents. The important point is that for the past 20 years those in rural areas have been calling for tax on the ownership of a car to be less and saying that people should not have to pay such a high licence fee. Now that the new lower fee has been extended to cover vehicles up the cc scale to 1500 cc people have a real choice as to whether to pay the lower fee.

Our policy was based, first, on getting rid of the deficit, secondly, on ending the under-investment in transport and, thirdly, on doing nothing to hurt stability. Our fourth and fifth objectives were to meet the environmental needs that we have set down and to tax ownership less and treat motorists more fairly. Taken as a whole, the measures today achieve those aims.

The Chancellor will no doubt be delighted to hear that I agree with his strictures on spending temporary surpluses as though they were permanent features. I welcome the fact that he is spending at least part of the temporary surplus on repaying public debt and I hope that he will continue with that course until the public deficit is eventually eliminated. Does he agree that the fatal flaw of the Conservative party when in government was not that it undertook that course of action but that it entered the exchange rate mechanism? Those of us who objected to that policy object equally to any possibility of our entering the single currency.

That said, the measures that the Chancellor announced on the cost of fuel will go nowhere near meeting the real problems alluded to by the hon. Member for North Antrim (Rev. Ian Paisley) in respect of the border with the Irish Republic, where filling stations and many other businesses have suffered grievously. Much more will have to be done. Will the Chancellor give an undertaking that he will pay serious attention to that problem, and that the bill imposed on foreign lorries will also apply to hauliers from the Irish Republic?

We continue to investigate cross-border flows of petrol and diesel. Customs and Excise has been concerned about that and we shall keep it under review.

I shall not be drawn into a debate on the single currency, but simply repeat that our policy is—as it has always been—that in principle we see benefits in the single currency; in practice, the tests that we have set must be met.

As for the Conservatives learning the lessons of the past, one sees total opportunism from them; every time we make a spending announcement, they say that it will cause a recession, but when it fails to do so, they ask—on the day before the announcement—for huge sums of money to be spent. They have shown complete opportunism in this effort too. Neither Front-Bench nor Back-Bench Conservative Members have a clue as to what the Conservative policy or attitude is. They were certainly no wiser after hearing the shadow Chancellor.

Is the Chancellor aware that it is a pleasure to hear a Labour Chancellor setting out a long-term policy that will show, at the general election, that for the first time there will be fewer people on the dole under a Labour Government than when they came into office? That policy means that we are planning to spend money—unlike the miserable years of 1978–79, when a Labour Government cut public expenditure.

As my right hon. Friend is probably aware, last week I called for money for jobs in the regions and a big chunk of money for the pensioners. It would be churlish of me not to say thank you. We have a listening Government—especially to me. The Tories should be more inclusive; they should thank the Chancellor too, because he has reduced the tax on the Leader of the Opposition's flat-back lorry.

I think that the Leader of the Opposition has got rid of his lorry; he does not seem to be going about the country as much as he did in the past. [Horn. MEMBERS: "It has broken down".] It has broken down—like his party's policy.

My hon. Friend referred to jobs. We have created 1 million jobs, but that is not enough. We must do better and we will do more. We can help many people back into work through the new measures under the new deal that my right hon. Friend the Secretary of State for Education and Employment is pushing forward.

My hon. Friend has been a champion of pensioners over the years—especially in putting their case to me and to others. He thanks us for our efforts for pensioners; we should recognise that he has been a champion of their case. He says that he likes to support Labour Chancellors; I shall report that remark to one of our colleagues in the House of Lords.

The Chancellor has been bruised and battered by the haulage industry and by the protests calling for fuel tax cuts. Now that he is the U-turn Chancellor, will he make a further U-turn to abolish the hated IR35 in order to help the high-tech industry? Will he do a U-turn to help home owners by cutting stamp duties that he raised much too far? Will he apologise to pensioners for the big increase in taxes on them? Is it not true that, even after the statement, he is still the rip-off Chancellor in a rip-off Government?

Here it is: the shadow Chancellor saying that there should be a bit of prudence from the Conservative party and then someone who would like to be shadow Chancellor—perhaps he would like to be the party leader—saying that we should lose lots of tax revenue from IR35 and other measures. I do not know what the policy of the Conservative party is.

The right hon. Member for Wokingham (Mr. Redwood) is still a member of the No Turning Back group, so he is fighting his corner for the right-wing cause. He has always said that public spending increases would cause a recession; the only problem is that he is wrong.

May I congratulate my right hon. Friend on his statement? In particular, I welcome his comments on manufacturing and the proposals for the abolition of the withholding tax, the introduction of intellectual property and goodwill relief and for small business VAT simplification. I am sure that they are all measures that will be welcomed by industry.

Will my right hon. Friend tell us whether the stamp duty exemption in deprived areas will apply to all property types and not just residential ones? Will he consider extending the VAT reduced rate for churches to other types of property in deprived areas? Why do we have to wait until 2003 for the pensioners credit?

My hon. Friend has asked many questions. Detailed proposals are being published today for consultation, and I hope that he will join that consultation. He has been a great promoter of economic development in his region and he has had ideas that the Government have accepted in some cases because they were excellent proposals for industrial regeneration throughout the whole country. I ask him to examine in detail the proposal for stamp duty relief, which is worth about £120 million for industrial regeneration.

On VAT on churches, we are considering the matter of public buildings as a whole. On my hon. Friend's question about 2003, the pension arrangements will give a rise above inflation in basic pensions for the next two years. When we introduce the system in April 2003, we will get it right so that tax and benefit integration move forward. That is why the system will be introduced in 2003.

On my hon. Friend's general point about industry, I forgot to remind the House that the one of the last statements made from the Front Bench by the right hon. Member for Wokingham, the former Secretary of State for Wales was, "The Government are losing control of the economy." Once again, the right hon. Gentleman got it wrong.

Given that 99.6 per cent. of British businesses employ fewer than 100 people, that they account for 57 per cent. of the private sector work force and that they generate approximately two fifths of our national output, why is the Chancellor so proud of the fact that he has done nothing whatsoever today to reverse the tide of regulation which, thanks to him, is now deeper and more hazardous than any that British companies have ever faced?

First, we have taken measures to help small businesses. The hon. Gentleman has obviously not looked at the detailed documents or obtained them from the Library, which is not out of character for him when he asks a question in the House. He should look at the documents and he will find—

I have studied them.

Oh, the hon. Gentleman has studied the documents. Well, there is a VAT simplification scheme and it affects up to 50,000 businesses. We have cut small business tax, and he should recognise that fact.

As for the burden on business, the VAT scheme is a deregulation scheme; it is designed to simplify the system. I also remind him that the shadow Chancellor said of the Conservative party's record on regulation, "We were rather notable regulators. We passed volumes of new rules and laws, interfering with almost every aspect of business and social life." Perhaps, many of the hon. Gentleman's complaints are directed on this, as on other issues, to those sitting on the Opposition Front Bench.

Is my right hon. Friend aware that his careful management of the economy over the past three years has produced the brightest economic prospects for more than a generation? Will he make sure that his prudence with a purpose will now move a little more towards the purpose that he had in mind and, in particular, towards the investment and productivity that I know that he has very much at heart? They are important for the long-term future of his plans, which I hope to see realised.

I am grateful to my right hon. Friend. He was a Minister in a previous Labour Government and is always a strong defender of manufacturing industry. His speeches on the economy are always listened to by the House.

I agree that productivity is the central issue that we must address with work forces and managements. In many sectors, the issue is not what Government can do, but how management and work forces can tackle together the problems in skills and restrictive practices that they must address and how they deal with the areas in which new technology must be introduced. However, as I said to the TUC and the CBI, to whom I have spoken in the past two months, we must continue to address such problems. I believe that over the next few months, my right hon. Friend will see a number of initiatives in skills, benchmarking, management training and the introduction of new technology. A great deal more work is being done so that we can rival the world's best.

Was it political prudence or his economic judgment that led the Chancellor not once to mention the euro in his original statement? Was it because the economy is doing much better outside the eurozone than it could ever do within it, or is it perhaps because he was frightened that the voters would be scandalised were he to admit that he is wasting inordinate sums of public money on the changeover plan to the euro when, for example, my constituents have to endure interminable delays on the tube, and face the closure of the premier heart hospital in the United Kingdom, Harefield?

In that case the hon. Gentleman will be pleased that I talked in my statement about the health service, transport and all the other issues that relate to public services. Only the hon. Gentleman thinks that every debate in the House of Commons must be about the euro. Today we are debating public services and the pre-Budget statement.

As for European measures, I made a number of proposals for European economic reform to Finance Ministers this week. We published our updated report on euro preparations, and we will continue to pursue the policy of prepare and decide. The hon. Gentleman must make up his mind whether he agrees with the official policy of the Conservative party, which is not to be against the euro in principle, or whether he will hold to his own position, which is always to be against it, under all circumstances. He will find, of course, that the shadow Chancellor has not made up his mind on that either.

rose—

Order. Unfortunately, we must move on.

I beg to move,

That leave be given to bring in a Bill to establish an entitlement to a national minimum time allowance for training and educational purposes for people in employment.

It is particularly appropriate, in view of the report published a few days ago by the National Advisory Council for Education and Training Targets, that I have the opportunity to present my Bill. The report paints an interesting picture of the level of skills in the United Kingdom and, in particular, compares them with the skills of our major competitor countries. In light of the Chancellor's pre-Budget statement and the emphasis that he placed on raising productivity levels in British industry, it is relevant that my small Bill contains a proposal that would take a small but significant step towards achieving those higher levels.

During the past three years, the Government have significantly improved post-16 education and training in the UK. No Government in my lifetime—or, I would argue, this century—have put as much emphasis on the importance of post-16 education and training, lifelong learning, vocational training and retraining, as the current one. Following the important commissioning of the reports by Professor Fryer and Baroness Kennedy; the publication of the Green Paper "The Learning Age" and the White Paper "Learning to Succeed"; the measures contained in the Teaching and Higher Education Act 1998, which restored the important right of young workers to have day release once a week; and, more recently, the Learning and Skills Bill, which consolidates the multifarious streams of funding for post-16 education and training, we now have a framework for the delivery of lifelong learning that we have never had before. The two major colleges in my constituency have certainly benefited from the record investment that is being put into further education and vocational training.

However, in welcoming the importance that is now being attached to lifelong learning and the new investment in it, we must not underestimate the scale of the problem of a work force who are significantly less well trained and well qualified than our major competitors. That is why our productivity levels compare poorly with those of France, Germany, Japan, the United States and, indeed, many south-east Asian countries, and why we cannot shake off the problem of skills gaps and skills shortages.

The recent report by Sir Claus Moser suggested that 20 per cent. of the adult work force in the UK have serious literacy and numeracy problems. In Britain, fewer than half of all adult workers have qualified at national vocational qualification level 3 or above. In Germany, it is almost two thirds. In Britain, one quarter of workers do not have a single level 2 qualification. Let me clarify: that does not mean a full NVQ level 2, or five GCSEs at grades A to C; it means a single component of those level 2 qualifications—a single GCSE or a single NVQ2 module. Among older workers, the problem is more serious: one fifth of workers aged more than 50 have no formal qualifications at all and almost two fifths do not have a single qualification at level 2.

We must avoid the tendency to assume that those without specific job qualifications or general educational qualifications are inadequate in their jobs. However, the reality is that the rapidly changing labour market brought about by the impact of new technology and globalisation means that the number of people without formal qualifications and the number of jobs available requiring only very low-level skills are diminishing day by day. Therefore, the skills level of the labour force is not only an issue of productivity and competitiveness, but one of economic survival for the unskilled and their families. I would argue that a national minimum entitlement to training will, in time, be seen to be of equal importance to the national minimum wage.

The problem in Britain is not necessarily that we do not invest enough in vocational education, but that we do not get the best return for the money that we do invest. The most recent survey indicated that British industry provided 49 million days of training annually, at a cost of more than £10 billion. However, the distribution of that training is heavily skewed in two directions. First, larger firms are understandably better than smaller ones: the skill needs in Britain survey showed that more than 90 per cent. of firms with more than 200 employees provided on-the-job training, whereas only 20 per cent. of firms with fewer than 25 employees did so.

Secondly, the lion's share of training is taken by graduates and equivalent professionals. The recent labour force survey showed that almost 20 per cent. of those with level 4 qualifications had benefited from training within the previous four weeks, compared with little more than 5 per cent. of workers classified as "operatives". Therefore, those unskilled and semi-skilled workers who, as schoolchildren, were victims of a divisive and selective system of education find that, in the workplace, they are still at a disadvantage in terms of the training opportunities available. Training opportunities tend to be allocated to the cause of increasing the skills of those who already have higher levels of skill, at the expense of the unskilled and semi-skilled.

Other countries do things differently. Our major competitors realise that, these days, no nation that wants to prosper in the knowledge-driven economy can afford to be so casual or so elitist about the development of technical skills as the United Kingdom has been in the past. Let us remember that British industry invests more than £10 billion in approximately 49 million training days a year—an average of about 2 days for every adult of working age. Yet, despite that average allocation, millions of our workers have no access to training of any sort.

Many of our major competitors ensure that all workers benefit from training opportunities by establishing a national minimum allocation of training hours, or a right to paid leave for training purposes. Such schemes exist in Norway, Netherlands, Sweden, France, Italy, Belgium and Greece. In the United Kingdom, where 20 per cent. of adult workers struggle with basic literacy and numeracy and there are fewer than two thirds the number of workers with higher technical qualifications that there are in Germany, and bearing in mind my right hon. Friend the Chancellor's call for higher productivity in his pre-Budget statement today, there is a powerful argument in favour of introducing a basic entitlement to training for everyone.

Quality and quantity of vocational training in Britain is not a new cause of concern: it was identified as a serious national weakness more than 100 years ago by a royal commission and it has been the subject of continuous debate ever since. The publication of the "Aiming Higher" report by the national advisory council reinforces the message about the gap between skills in Britain and skills in our major competitive countries. Yet structures that had been patiently built up in the post-war period—industrial training boards, day release for young workers and the training levy—were demolished in the 1980s, along with the remnants of the old apprenticeship system. I am proud that the Labour Government are now developing a modern system of vocational training that will significantly increase opportunities for millions of young people in this country.

The thrust of the Government's new initiatives is, to a large extent, focused on expanding the supply of training, but I would argue that the British problem is not primarily a lack of supply, nor a shortage of training in aggregate terms. However, there is a distortion in the demand for training, and a skewed distribution of training that serves to increase the skill of the already skilled and to neglect the needs of the unskilled. The longer that happens, the wider our skills gap will be.

If we want seriously to tackle the problems of the low level of skills in British industry, the skills gap and the skills shortages, we must approach the problem from the demand side of the equation. That is why I believe that the establishment of a national training entitlement—building on the success of the national minimum wage—which is expressed in terms of an annual minimum number of hours of paid training time for every individual in employment is the most effective way of ensuring that the opportunities opened up by the Government's massive new investment in lifelong learning will be available to people in all walks of life. There will be vocational training for the many, not only for the few.

The national minimum wage established the right to earn. The national training entitlement would establish the right to learn. I commend the Bill to the House.