What estimate he has made of the number of families in the north-east of England on middle and low incomes who will be affected by measures in his Budget aimed to support them. [53543]

Some 300,000 families with children in the north-east and 800,000 families with children in the north-west—around 90 per cent. of families—will be eligible for the child tax credit from April 2003 which, together with child benefit for those earning £50,000 or less, will deliver a minimum of £26.50 and up to £54.25 a week in support of the first child. That compares with a minimum of £11 and a maximum of £27.70 a week in April 1997.

I thank my right hon. Friend for that answer. Does he agree that the child benefit reforms will help to eradicate child poverty, and that the announcements of increased health spending will mean that it will amount to 9 per cent. of national income? Is not that good news for hard-working families in the north-east and for families everywhere who rely on a health service that is free at the point of delivery?

The question is, "What will benefit families in all regions of the country?" There is no doubt that the combination of the changes in child benefit through the new child tax credit and the increased resources available to the NHS means that the quality of life of all families is better. I am pleased that more than 90 per cent. of families will benefit from the child tax credit and that we will have been able to inject, by 2007–08, an additional £40 billion into the NHS. We will invest that money: other parties would make cuts.

Is the Chancellor aware that, for the north-west, the north-east and other regions of the country, new figures from the Office for National Statistics show that the poorest families pay a higher percentage of their income in tax than the richest families? The poorest 20 per cent of families pay 41.2 per cent. of their income in tax, compared with the 35.5 per cent. paid by the richest 20 per cent. of families. Does the right hon. Gentleman acknowledge that that is due primarily to the burden of council tax and indirect tax? When will he do something about that? When is he going to reform—indeed, abolish—council tax?

This is another proposal from the Liberal Democrats that one suspects would cost some additional sums of money. If the hon. Gentleman wishes to abolish the council tax in its entirety, he will have to replace it with something else. As for lower-income families, those in the bottom 20 per cent. are £2,400 a year better off as a result of all the measures that we have taken. The hon. Gentleman should start to recognise that the working families tax credit means, for the first time in our history, that those families are subject to a negative tax rate. They are better off as a result. The measure helps people to get back into work. In addition, the child tax credit means that we are relieving people from poverty. Those are exactly the measures that I wish the Liberal party would support.

Does the Chancellor agree that even his best efforts to improve the lot of those on lowest incomes cannot be delivered unless there is uptake of benefits? Has he any plans to increase promotion of uptake of the benefits that he has made available?

I am grateful to the hon. Gentleman, and I enjoyed my visit to Northern Ireland last week, when his concerns were among the issues that were raised. The working families tax credit is, for 400,000 more people than was the case with family credit, a benefit for families with children that goes with working. Increased numbers of people therefore receive that benefit.

Given his last three answers, is the Chancellor proud of the fact that the Budget was redistributive?

Money went to families and to people in employment. Therefore, it was a progressive Budget. It put money in the hands of families, as it should do, and in the hands of people who work. Thank goodness that we have got away from the situation that existed under the Tories, when child poverty rose and there were 4 million children in poverty in this country. Child poverty trebled under the Conservatives. The right hon. and learned Gentleman in particular should be ashamed of his record as Secretary of State for Employment, when unemployment went up by 1 million.

I remind the Chancellor once again that that was when we were in the exchange rate mechanism—a policy which he specifically supported. Why is the right hon. Gentleman so coy about using the word "redistributive"? Could it have something to do with the fact that on two separate occasions in answer to questions from Sir David Frost on 21 April, the Prime Minister specifically denied that the Budget was redistributive? Is not it utterly pathetic that there is such a chasm between the Prime Minister and the Chancellor that they cannot agree even on whether the Budget was redistributive?

The one thing that our Budgets have not been is what the Conservative Budgets were—totally regressive. [Interruption.] Let me tell the right hon. and learned Gentleman, so that he can say what the Conservative party position is—[Interruption.]—that first—[Interruption.]

Order!

Order. Let us hear what the Chancellor is saying. I cannot hear him speak.

First, a progressive Budget will transfer money to families. Does the right hon. and learned Member for Folkestone and Hythe (Mr. Howard) agree with our policy of eradicating child poverty? Will he support the child tax credit that is doing more to take people out of poverty now than ever was done under the Conservatives?

Order. The Chancellor should not be asking questions, he should be answering them.

This is a progressive Budget because it transfers money to families. I hope that the whole House will support the measures that give extra money to children and to families, and where more goes to those who need it most. Equally, the Budget transfers money so that people who are in work and on low incomes get extra income, and I hope that the whole House will support those measures too. This is a progressive Budget and, as the Conservatives have had to admit, it has the support of the people of this country.

What discussions he has had with Mr. Wanless since the 2002 Budget on the contents of the final version of the Wanless report. [53544]

In response to recommendations in Mr. Wanless's report, the Budget announced a five-year settlement for NHS spending—more than £40 billion extra by 2007–08. Because resources must be matched by reform, in line with Mr. Wanless's recommendations, the White Paper "Delivering the NHS Plan", published by my right hon. Friend the Secretary of State for Health, announced further major reforms. I have not met Mr. Wanless since he completed his report.

I thank the Chancellor for that extremely courteous reply. However, is he aware that in my constituency, the Queen Elizabeth hospital is facing serious shortages of radiologists, radiographers and nurses? Given that inflation in the NHS is running at 4.5 per cent., that 45 per cent of its budget goes on wages, that many employees who will be worse off as a result of the Budget will want inflation-busting pay increases, and that the NHS, as an employer, will have to pay out much more in national insurance contributions, what guarantee can the right hon. Gentleman give my local hospital that the much-needed resources will go to patient care? Surely it would have been better if Mr. Wanless had been asked to look at all aspects of health funding, as then we could have had a proper, constructive debate on the future.

If the hon. Gentleman wants more money to go to the hospital in his area he should support the Budget, which puts an extra £7 billion a year into the national health service next year and £40 billion extra by 2007–08. Perhaps he should be telling the shadow Chancellor that the Conservative party should change its position on the Budget.

I am sure that my right hon. Friend will recall the Wanless report concluding:

"Success or failure will ultimately depend on how effectively the health service uses its resources."

As my hon. Friend knows, side by side with the Budget were the proposed reforms of the national health service that were agreed by the Secretary of State for Health and announced by him the next day. One set of proposals covers statutory audit, statutory inspection, the statutory right of patients to make complaints and for them to be dealt with independently, an annual report that has to be published each year for Parliament by an independent regulator of the health service, as well as local reports and prospectuses that must be published by each health authority. Information, the power to scrutinise and to carry out proper audit of the use of money, is enshrined in the way in which the health service works for the first time in its history. Equally, we have set national standards but are giving hospitals locally, through rewards for better performance, incentives to do better.

The Liberal Democrats would have preferred an increase in income tax rather than national insurance. However, we welcome the money that is being put into the NHS and the fact that the Government have at last admitted the obvious—that saving the NHS needed investment, which needed tax rises.

Not at all. We set up the Wanless inquiry in 2000; it worked through 2001 and made its interim report in December 2001. When we received its final report, we made a decision on what resources were needed. The more sensible way to go about things is to consider what resources are needed, to make a decision on what we need for the next five years, and then to make a decision on how to raise the money, but I know that that is not how the shadow Chancellor makes policy for the Liberal party.

Will my right hon. Friend keep in mind the views of business on Wanless? The Select Committee on the Treasury received a submission from the CBI stating that £10 billion was lost in workplace absences in 1999. Does my right hon. Friend agree, therefore, that the huge cash injection will be good for both employers and employees, getting more people back to work and giving us a healthy nation?

I am grateful to the Chairman of the Treasury Committee for putting those views. We know that business loses about £10 billion a year as a result of people being unable to go to work due to ill health. We also know that in every major health care system in the world employers as well as employees make a contribution. The contribution of 1 per cent. from employers and employees is, in our view, the fairest way of going about funding the health service for the long term.

The Budget's fiddled assumptions can no longer conceal the £7 billion black hole in the Chancellor's NHS spending figure for five years' time. Will he confirm to the House whether taxes will have to rise, borrowing will have to rise, or both will have to rise, if he is to fill that black hole?

Once again, the hon. Gentleman, who is also a member of the Treasury Committee, does not conduct his research properly, despite the fact that he was a political adviser—[Interruption.]—probably because of the fact that he used to be a political adviser to the Conservative Government who failed to be re-elected. As was pointed out to him at the Select Committee, the costings for the NHS are given up to 2007–08. It is stated that, prior to the spending plans being set in the 2004 spending review, the fiscal projections assume departmental expenditure limit growth after 2005–06 of 2.5 per cent. in real terms, supplemented by an addition to allow for the five-year health settlement. That should answer the hon. Gentleman's question—as he should have known before he put it.

Does my right hon. Friend agree that when the Liberals open their mouths, we expect them to talk as their belly warms? On this occasion, they have already announced that they want to get rid of council tax at a cost of several billion pounds. They have been very revealing. Will my right hon. Friend comment on their policy? Would he adopt it? They have just announced that it would be a good idea to raise money for the national health service by increasing income tax. There are 11 million pensioners and about half of them probably pay income tax, so the Liberals are calling for a policy to tax pensioners.

It is absolutely correct that the national insurance change means that pensioners do not have to pay the tax rise. People who have served the community all their lives and who need the national health service will not have to make the additional contribution that they would have to make if there were an income tax rise. The shadow Chancellor who lives in Truro, as opposed to the shadow Chancellor who lives in Folkestone, must face up to the fact that he spends all his time going around the country talking about local decision making, but he wants to abolish the local taxation available to local councils through council tax. It is time that the Liberals thought out their policy before announcing it.

I am disappointed that the Chancellor has not met Mr. Wanless since the Budget. Was not Mr. Wanless appointed on the basis that his report would be the beginning of a debate on reform of the health service rather than the end of that debate? Is not it clear that Mr. Wanless is saying that unless there is reform in the health service, much of the extra investment will be wasted? Does the Chancellor recall that the Secretary of State for Health stated that public service agreements

"set out the concrete improvements to be delivered in return for the extra investment we are making"?—[Official Report, 24 June 1999; Vol. 333, c. 458W.]

The improvements are taking place and will continue to take place, and the reforms that we have made as a result of the Budget will ensure that the £7 billion extra a year and the £40 billion extra by 2007–08 secures the value for money that is necessary, but sooner or later hon. Members will have to face up to their responsibilities in this matter. If Conservative Members no longer believe in a health service free at the point of need, they must tell us which charges they would introduce, who would have to pay private health insurance and what they would charge to visit GPs and hospitals. They must face up to the fact that the health service has to be paid for in some way and, if that is not done through taxation, it has to be done through charges or private insurance, which is now their policy.

What steps are being taken to prevent the loss of tax revenues through the use of offshore tax havens. [53545]

We are determined to tackle tax evasion and tax avoidance, including the use of tax havens, on as wide an international basis as possible. As we made clear at the European Council in June 2000, we believe that greater international co-operation—in particular, the exchange of tax information—is the key to tackling cross-border tax evasion and avoidance.

I thank my right hon. Friend for that reply. I also applaud the Government for the measures they are proposing in the Finance Bill to deal with tax evaders abroad. There are principally two kinds of people who use offshore tax havens: terrorists, such as al-Qaeda, who seek to destroy government by violent means; and multinational corporations, such as News Corporation, which seek to undermine government by not paying for it. Is my right hon. Friend satisfied with the international co-operation that he has received on this matter? We need to do a lot more about both those groups.

My hon. Friend is right. Progress is being made in international co-operation against tax evasion. The OECD issued its conclusions in June 2000 and asked all countries to agree to produce information where tax evasion was an issue. Since then, most countries, including all our dependent territories and our overseas territories, have agreed to produce that information. Seven countries remain unco-operative, and they were named in April this year. In addition, we want to ensure not just information on request, but the exchange of information as the basis of future tax policy. That is why we are making progress with the savings directive, among other things, in the European Union. We will continue, as we did in the Budget, to take further measures as necessary to tackle tax evasion.

Will the Chancellor give an assurance that Her Majesty's Government will maintain the fiscal autonomy of the Isle of Man and the Channel Islands—if need be, against the European Union? May I remind him that the Isle of Man balances its budget by law and has a rate of unemployment of less than 1 per cent.? Were it not to have fiscal autonomy, it would be a drain on the British taxpayer, rather than the contrary.

I am surprised that the hon. Gentleman refers to the Isle of Man and the Channel Islands under a question that is about offshore tax havens, because the Isle of Man and the Channel Islands have brought themselves into line with the OECD recommendations. As for the savings directive. however, which requests the automatic exchange of information, I hope that all the dependent territories and all the overseas territories that are affected will agree to play their part in exchanging information on an automatic basis so that we can make progress on the directive. In case they do not, I have taken measures in the Budget announcements last month whereby we will take action if they remain unable to help us.

How far has international co-operation extended since 11 September on offshore tax havens? Does that co-operation bring nearer the date when it will be possible to operate an international tax on currency speculation?

Those are two separate issues. On tax havens, because of the events of 11 September, many countries are very keen to move forward with the exchange of information as the basis on which we can reach agreements about how we deal with tax evasion, as well as money laundering and tracking terrorists' finances. The United Kingdom has agreed that it would be the first country to be subject to international surveillance of the measures that we have taken in that area. I hope that other countries will agree that international surveillance of what they do is very much part of an international system of co-operation to deal with tax evasion. We are taking action on those matters.

What discussions he has had with the Department for Health about how the increase in class 1 national insurance contributions announced on 17 April will affect costs in the medical profession. [53546]

What estimate he has made of the impact of the proposed change in employers' national insurance contributions on services' company profitability for financial year 2003–04. [53548]

What discussions he has had with ministerial colleagues about how the increase in class 1 national insurance contributions announced on 17 April will affect workers in the public sector. [53555]

It is estimated that the changes to employer national insurance contributions announced in the Budget will add around 0.7 per cent. to pay costs on average next year. The cost to the public services will be just over £1 billion, which compares with a planned rise in spending on public services of nearly £20 billion. The changes will, of course, help to fund improvements in public services and a real-terms increase in spending on health over the next five years of over 40 per cent.

Will the Chief Secretary confirm that, according to the House of Commons Library, within those figures —217 million of the increase in national insurance contributions relates to the national health service? On the public sector generally, does he expect that higher employers' national insurance bills in the public sector will be financed by Departments or passed on to public sector workers in the form of lower pay settlements? Can he explain to me specifically how hospices up and down the country will cope with the big increases in national insurance contributions, given that they are run by the voluntary sector and largely on voluntary contributions? They will not, therefore, be the beneficiaries of his supposed NHS largesse.

If the Conservative party is suggesting that the public sector should somehow be exempt from national insurance contributions, that is an extraordinary proposition. When the Conservatives increased employees' contributions 10 times and employers' contributions five times, I do not remember them ever addressing the question of the impact on the public sector. The money will be found from within the additional resources that we are making available—departmental expenditure limits are increasing by £19·5 billion.

The service sector of industry employs a huge number of people. As the service sector is not made more profitable by an increase in employers' national insurance contributions, is it fair to say that this sector is one of the major net losers? If not, which business sectors are the major financial losers, or is this the first Budget in history when absolutely everyone is a winner?

As we have made clear on many occasions since the Budget, we believe that the national insurance increase is a fair way to fund the much-needed improvements in the national health service, which even the Conservatives claim they recognise are necessary. On the impact on the service sector, I remind the hon. Gentleman that for the average small business, the rise in national insurance contributions is substantially offset by cuts in corporation tax.

I wonder how the Chief Secretary would reply to public sector workers in my constituency to whom I have spoken recently. First, I spoke to two policemen in Newark who doubt that, with the increase in national insurance contributions, they will be able to continue serving in the police force. Secondly, I spoke to nurses in Tuxford—not surgeons or doctors but the lowest-paid of the national health service workers—one of whom said to me that the Chancellor's catchphrase should not have been "Enterprise and fairness" but "Physician heal thyself'.

The nurses, doctors, police officers, firefighters and other public service workers to whom I have spoken recognise the crucial importance of the extra investment in the national health service. They recognise that that has to be paid for, and national insurance is a fair way of doing that.

I represent one of the largest groups of NHS workers outside London. They all say, "Yes, we will pay more national insurance but, for goodness sake, get on and tackle the health inequalities that mean that people in the north-east of England live seven to 10 years less than people in the south-east of England." The direct and indirect costs of those health inequalities far outweigh the direct costs of 1 per cent. on national insurance. Is my right hon. Friend the Chief Secretary getting that message too?

I certainly am. It is already a well-established commitment of the Government that health inequalities are a key priority. Indeed, analysing those factors featured large in the Wanless report. It is therefore crucial that resources go into prevention, community health and primary care, as they will do as a consequence of the extra £40 billion that we are making available over the next five years. In addition, we have the benefits of the working families tax credit, the child tax credit, the new deal and our other policies for sustaining high employment. As we all know, unemployment and poverty have long been a big factor in the health inequalities to which my hon. Friend refers. The Labour party is committed to tackling them while the Conservative party, which is unable to come here with any credible policies on health, would allow them to get worse, just as they allowed inequalities to worsen when they were in government.

My right hon. Friend will be aware that my constituency of Wimbledon has one of the highest proportions of professional and managerial people in the work force. There is a high degree of support for the Budget measures, because people understand and support the fact that money will be spent on rebuilding the NHS. Is it not the case that, even with the increase in national insurance contributions, Britain is still in a much more competitive position than some of our major competitors such as France and Germany? Is it not also the case that we are taking a number of measures to boost productivity and competitiveness? Finally, is it not the case that when we see the changes that the investment in the NHS will bring, we will find even more support from people in the work force for these measures than we find today so soon after the Budget?

My hon. Friend is right. The CBI pointed out that ill-health costs business in this country £10 billion a year. Even after this increase in national insurance contributions, business in this country will contribute on average £10 a week towards health care, compared with £60 a week in France and £30 a week in Germany. The contributions in this country are fair and, as my hon. Friend said, they will be welcomed by people in the business community. Anthony Stone of the British Chambers of Commerce said about the Budget:

"Any of us in business know that we get what we pay for. If we want a world class health service in the UK we need to pay more."

Does the Chief Secretary recall the words of Labour's 1997 election manifesto, which said:

"How and what governments tax sends clear signals about the economic activities they believe should be encouraged or discouraged"?

In our manifesto for the election in 2001, we made our position very clear. The manifesto said:

"Tax policy will be governed by the health of the public finances, the requirement for public investment, and the needs of families, business and the environment."

What estimate his Department has made of the level of UK exports if the pound-euro exchange rate fell 10 per cent.; and if he will make a statement.[53547]

The specific effects of exchange rate changes depend on the particular causes of each change. The Government appreciate the difficulties that the slowdown in the world economy and weakness of the euro have posed. However, as set out in the Budget forecast, stronger external demand and the anticipated pick-up in world trade should provide a significant boost to United Kingdom export growth, which is projected to increase markedly from the second half of this year and to rise by between 7.75 and 8.25 per cent. next year.

Does the Minister acknowledge that the Treasury's model shows that a 10 per cent. change in the exchange rate is the equivalent of 50,000 or 60,000 jobs in tourism alone? Does she agree with the assessment of the president of the German Bundesbank, who was in London last week, that the pound is over-valued and will have to be devalued before Britain can join the European monetary union? Do the Government's five tests allow for an appropriate exchange rate, and if so, how?

I am surprised at the hon. Gentleman's question. He knows full well that the Government are committed to Britain's national economic interest and will take a decision on the euro only if it is in our national economic interest to do so. We have clearly set out our approach to the five economic tests, and it will be rigorous and thorough. We are certainly not about to embark on a running commentary on the progress that is being made.

Does my hon. Friend recognise that in a constituency such as Burnley, where 36 per cent. of jobs are in manufacturing industry, there are concerns about the value of the pound against the euro? Manufacturing industry has to fix the price of its goods—and sell them—in euros and believes that it is important to join the euro as soon as possible. That would reduce instability and provide security and jobs, although obviously we need to join at the right rate and meet the economic tests.

I am glad that my hon. Friend recognises the importance of the five economic tests and that any decision on the euro will be taken in the best interests of Britain's national economy. Of course we are concerned about businesses and, in particular, manufacturing in my hon. Friend's constituency, which is similar to my own in many respects. That is why we are the party that is taking action to support manufacturing; why we are cutting corporation tax; and why we have made permanent 40 per cent. first year capital allowances for plant and machinery for small and medium-sized enterprises. It is also why we have reformed capital gains tax to ensure that this country is the best in the world for entrepreneurship and enterprise. The Budget went further by implementing research and development investment tax credits, and it will provide a platform for growth on which businesses can thrive.

May I point out to the hon. Lady that the five economic tests do not include an examination of the exchange rate, which is what the question is about? What is the reaction of her Treasury colleagues and her former colleagues in the Bank of England to the fact that economists at home and abroad almost unanimously argue that before Britain can practically think of joining the single European currency, the pound sterling will have to be devalued by between 20 and 30 per cent?

I have already explained that the assessment of the five economic tests will be thorough and rigorous and will include all relevant economic considerations, including the durability and sustainability of economic convergence. The best way to achieve a stable and competitive exchange rate, to which we are, of course, committed, is to have a framework for monetary policy that removes the political control of setting interest rates and gives it to the Monetary Policy Committee at the Bank of England. It also needs a fiscal framework that keeps debt under control, something that the Conservatives manifestly failed to do during their years in power.

Does my hon. Friend accept that not just the pound but the dollar is overvalued? I am sure that she is aware of speculation in the past week that both the pound and dollar are not only over-valued but likely to depreciate significantly in the coming months and perhaps for the next year or two. Does she agree that that would put enormous pressure on an already deflated eurozone economy, probably force nations in the eurozone to break through the boundaries of the growth and stability pact, and force a fundamental rethink of economic policy in the eurozone?

I thank my hon. Friend for pointing out something that we recognise: some difficulties experienced by manufacturers are caused by the weakness of the euro. In fact, sterling has depreciated against the dollar since 1997. We are committed to a stable economic framework in this country and I have set out the policies that we have put in place to ensure that we have one. As a result, the number of people in employment has increased by 1.5 million since 1997, we have the lowest inflation rate since the 1960s, and the lowest interest rates since 1964. I am sure that my hon. Friend agrees that we have a platform for sustained economic growth.

In addition to the president of the Bundesbank, two members of the Monetary Policy Committee, Christopher Allsopp and Sushil Wadhwani, have recently said that the pound is overvalued and that devaluation is necessary. They say that that could work and need not be as disruptive as the Treasury fears. If the Government are unprepared or unwilling to act, perhaps they will consider doing with the exchange rate what they did with interest rates by giving the policy to the Bank of England so that we can get the exchange rate that we need.

What we do not want to do is return to the days of artificially manipulated exchange rate depreciations. We saw what happened when that policy was attempted in the past, and saw the results of policies that led to boom and bust in the 1980s. We are determined to create a platform of macro-economic stability in this country and have introduced policies to make that programme work. We are committed to maintaining a framework that does just that.

Does my hon. Friend accept that a fall in the value of the pound against the euro would give an enormous boost to manufacturers in the north-east, which is striving to achieve the Government's target of full employment in every region? Does she agree that a fall in the value of the pound is essential if we are ever to join the single currency?

I think that my right hon. Friend will agree that the best thing that we can do for manufacturers is to have economic stability in this country. Once we have a platform of economic stability we can build on it by promoting competition, productivity and enterprise. That is why the Budget set out measures to support manufacturing and introduced a generous volume-based research and development tax credit for large companies, building on work that has already been done to support small companies. That is also why the Budget included exemptions for capital gains on substantial shareholdings in trading companies; why we have increased funding for regional development agencies so that they can act as drivers for growth and productivity throughout the regions; and why we are determined to tackle gaps in the market for finance by setting up regional venture capital funds across the country. Those are the conditions that manufacturers need to thrive and grow but, most important of all, we must avoid a return to the days of boom and bust that manufacturers had to endure for a long time under the Conservatives.

In view of what the Minister has just said about manufacturing, why has the rate of productivity been falling ever since Labour took office?

Perhaps the hon. Gentleman would accept that in a period of rising employment—I have already pointed out to the House that the employment figure has risen by 1.5 million since 1997—there may be a cyclical variation in productivity growth. In the longer term, measures that we have put in place will increase productivity growth. I point out to him that the only year in which productivity fell in this country was when his party was in power.

Does the Minister accept that an artificial devaluation of the pound would make imports more expensive and thus be inflationary? Does she accept that the real problem is the fact that the euro has collapsed in value, and that that is hardly a sign of success? Does she agree that if we wish to avoid returning to boom and bust, we cannot have any artificially manipulated devaluation?

I thank my hon. Friend for his comments. Economic stability must underpin all the action that we take on the economy. If we get the platform of stability right, we can take the measures essential to help enterprise and build a climate of competition and productivity growth in Britain. That is what we are doing.

What assessment he has made of trends in manufacturing output in the south-west since January 2001. [53549]

The Government's latest assessment of developments in the manufacturing sector, based on all relevant factors, was published on 17 April in Budget 2002. Manufacturing in the south-west, as in the rest of the United Kingdom, was clearly influenced by the synchronised global slowdown in the aftermath of 11 September. Manufacturing output fell back in March, but is expected to accelerate during the second half of 2002 and well into 2003 as stronger global demand feeds through.

In light of the CBI's great pessimism for the south-west, how significantly will the Budget measures this year contribute to at least reversing the current trend in manufacturing, jobs and optimism? How will the measures redress the balance between the housing boom and the failing manufacturing sector?

The hon. Lady will appreciate that the cuts in corporation tax, the R and D tax credit, the simplified package of VAT for businesses, and the action that we have taken across the piece to create, through the regional development agencies, a climate of enterprise in the south-west and elsewhere will all contribute to the improvement in manufacturing in the south-west. She is wrong to suggest that the CBI is pessimistic about the south-west. Only today, Mr. Doug Godden of the CBI stated:

"There are signs that the worst is over. Manufacturing is expecting to increase production in the months ahead."

The Government take great credit for the fact that unemployment has fallen month by month over the past 12 months, but in my constituency it has risen month by month in the past 12 months. More than 5,000 manufacturing jobs have gone in Opto Electronics. How does putting a tax on national insurance help in an area that suffers from high unemployment and wants more jobs, when a tax on income may well have helped my area?

Both business and the country as a whole are agreed that it is important that we invest in our public services. There is a direct feed-across between public health and business. Business gains when health is delivered in ways that reduce absenteeism, business gains when the health of the nation is improved, and business is prepared to make its contribution to what we are seeking to achieve in the national health service—a major contribution from that service to the health and well-being of the entire nation.

It is only three years since the Chancellor of the Exchequer came to my constituency with a great fanfare of new Labour trumpets to open the expanded Dyson bagless vacuum cleaner factory in Malmesbury, a town of 4,000 people. Mr. Dyson announced recently that he would lay off 1,000 people, not as a result of what is described by the Minister as a synchronised global slowdown, whatever that may be, but because he cannot continue to manufacture vacuum cleaners in the United Kingdom. What is the Minister's explanation to the people of Malmesbury as to why his right hon. Friend's mate Mr. Dyson has laid off 1,000 people in my constituency?

The hon. Gentleman must get real and appreciate what is happening across the globe in manufacturing and the global economy. That is what is synchronised—it is happening in all continents post-11 September. He also needs to understand, in relation to his specific example, that Dyson's is upping its R and D investment in our economy. That is what we are seeking to achieve: high value and high skills. That is good for the economy and good for Britain, and it will be good for the hon. Gentleman's constituents.

How the Budget will affect the funds available to local authorities for emergency planning. [53551]

The Budget has had no effect on the amount specifically made available for emergency planning.

I thank my right hon. Friend for that answer and welcome the previous increases on the low base that we inherited from the last Government. However, in evidence to the Select Committee on Defence, local authority representatives claimed that there was a 15 per cent. cut this year for English local authorities, and Portsmouth is receiving a reduction of 5 per cent., from £78,000 to £74,000. Will my right hon. Friend reconsider the means of funding for dealing with civil emergencies—perhaps the issue could be dealt with through the standard spending assessment—to enable the public to have more confidence following 11 September?

I know from my time as a Minister of State, Home Office that my hon. Friend takes a great and proper interest in civil defence and emergency planning in his constituency. That is very much to be welcomed. He will be glad to know that the total amount given to local authorities in civil defence grants increased by 36 per cent. in 2001–02, rising from £14 million in 2001 to £19 million in 2001–02. That is a substantial increase. Where there are specific issues in relation to the administration of the civil defence grant, that is a matter for my right hon. and hon. Friends in the Cabinet Office, but I shall certainly draw to their attention the concerns that my hon. Friend expressed.

A recent survey of county emergency planning officers found that 93 per cent. of the 30 officers questioned felt that emergency planning in local government was severely underresourced. Given the wake-up call that we received on 11 September, surely the Government can do more to find resources for the people who are so crucial in planning for our safety.

I share the hon. Gentleman's belief that we need to ensure that those who plan for our safety and who play such an important role in securing the welfare and safety of us all have proper recognition. That is why my right hon. and hon. Friends in the Cabinet Office and my right hon. Friend the Chief Secretary have given the matter the attention that it deserves, and why counter-terrorism is now specifically treated as a mainstream priority and is being handled through the spending review 2002. The points that the hon. Gentleman and my hon. Friend the Member for Portsmouth, North (Syd Rapson) have properly made will no doubt be taken into account in that review.

May I also express my concern about the size of the emergency planning budget, especially in view of its failure to keep pace with increases in other spending? In Staffordshire, the fire service co-ordinates the emergency service for all the district councils, Staffordshire county council and Stoke-on-Trent city council, and we now have only seven full-time emergency planning officers. This year, the amount available was settled only in April, meaning that people are now employed on temporary contracts. May I urge my right hon. Friend to tell the Cabinet Office that we need certainty for local authority spending during the next five years so that we can rely on our fire service and its officers to provide the emergency service that we all know is needed after 11 September?

I am grateful to my hon. Friend, not least for the interest that she takes in this subject. She will know that no decisions on the other elements of local government funding have yet been made. They will be announced in the spending review in the summer. I am sure that my hon. Friend will join me in welcoming the

What analysis his Department has undertaken on the impact of (a) the slowdown in the world economy and (b) the exchange rate with the euro on the tourist industry in the south-west of England. [53552]

The Government fully appreciate the difficulties that last year's world economic slowdown, the tragic events of 11 September and the persistent weakness of the euro have posed for businesses dependent on tourism in the south-west and in the rest of the UK. However, the Budget forecast is for a considerable strengthening of the world economy during 2002 and into 2003 and, alongside a number of initiatives that the Government have introduced to promote British tourism, that should help the industry to recover.

May I ask the Minister to concentrate on the impact of the exchange rate on the tourism industry, especially in the south-west? Does she recognise that irrespective of whether this country enters the euro, the euro has now entered this country, and is having a dramatic impact, not least on the holiday industry? Has she examined the study published in October 2001 by Caledonian Economics for the British Tourist Authority, and does she accept its conclusion that if we had a realistic exchange rate, the holiday industry could generate 51,000 more jobs and increase its earnings by £1.76 billion?

I point out to the hon. Gentleman that 80 per cent. of visitors to tourist attractions in the United Kingdom are domestic tourists, so the most important thing that we as a Government can do is to create the conditions in which domestic tourism will thrive. Of course we recognise the impact of the slowdown in the world economy, the weakness of the euro and the tragic events of 11 September. In fact, since 1997 the value of the pound has depreciated against the dollar, and American tourists, who are so vital to certain aspects of the tourist industry, should have been encouraged by the exchange rate effects that the hon. Gentleman mentioned.

Although the Minister's comments on euro policy were typically enlightening, does she agree that they were not as enlightening as those made earlier this week by a senior Minister at the Department of Trade and Industry, who is sitting not far away from her, and who said that within two years we would have joined the eurozone?

I have already explained to the House the Government's policy on the euro. That policy will be determined by Britain's national economic interests. We must carry out a rigorous and thorough assessment of the five economic tests. Then, if those tests are satisfied, we will have the triple lock of Cabinet, Parliament and the country through a referendum. That is the Government's policy, which remains unchanged.

If he will make a statement on how his plans for investment in public services will affect Scotland. [53553]

The Government announced in the Budget substantial increases in provision for Scotland as a consequence of the increases in health spending in England. The increases in 2003–04 through to 2007–08 are £224 million, £858 million, £1·6 billion, £2·3 billion and £3·2 billion.

The £8 billion increase in public expenditure that that amounts to is welcomed by my constituents and will, I am sure, be welcomed throughout Scotland. Does my right hon. Friend agree that Scotland can benefit from those increases only if the UK economy as a whole is soundly managed? Can he tell me what he considers would be the effects on future public expenditure trends in Scotland if it were to go along the road of fiscal autonomy, which is the latest wheeze being dreamed up by certain people among the nationalists and others?

My hon. Friend is right about the benefits to Scotland of good management of the United Kingdom economy as a whole. The stability that we have put in place, the 1.5 million extra jobs and the expansion in public investment that we can fund demonstrate how Scotland benefits both from being part of the United Kingdom and from devolution and the ability to control matters in the areas that are devolved to the Scottish Parliament and Executive. My hon. Friend is right that those who argue for independence would bring about an economic calamity for the people of Scotland.

Given that health spending in Scotland over the past five years has risen by 28 per cent. in real terms, but that in precisely the same period the average waiting time in Scotland for an out-patient appointment has risen by 25 per cent., why cannot the right hon. Gentleman accept that simply spending more public money without fundamental reform of service delivery will not achieve the improvements that we all want?

Not for the first time, the hon. Gentleman is wrong. Waiting times in Scotland are one month less than in England. He reveals that the Conservatives will look for any excuse to stand at the Dispatch Box and run down the national health service, deny the funding that we are providing and remind their constituents that their agenda is the privatisation of the NHS. People will ask. "How much will we have to pay for private insurance, operations or a visit to the doctor under the Tories?" They will never trust the Tories with the NHS again.