At the core of this pre-Budget report is the belief that the Britain of long-term economic strength will be the Britain that at a time of rapid economic change and uncertainty locks in our economic stability for the long-term; the Britain that, as by 2015 Asia acquires a growing share of low-cost production, resolves to invest in high-value-added, high-technology manufacturing and services, and achieves world leadership in science and technology; and the Britain that, with enterprise and high-skilled jobs now the key to long-term prosperity, takes the tough decisions to achieve American levels of business creation and has, at every level, the best educated and most flexible work force in the world. In other words, it is a Britain of opportunity for all that, with this pre-Budget report's long-term measures to support families, ensures that every child and young person has the best start in life.

I turn first to the measures to entrench stability. In last year's Budget I forecast growth for this year of between 3 and 3½ per cent. When I made our forecast, the Leader of the Opposition said that it was not just wrong but a deliberate misrepresentation of Britain's economic position and that not to meet it would destroy credibility. I can report today to the House that growth this year will be, just as I forecast, above 3 per cent.— 3¼ per cent. In other words, Britain will extend the longest period of uninterrupted growth in the industrial history of our country.

Let me give the House the detailed figures. Even after the doubling of oil prices, inflation this year is 1¼ per cent. In any other decade, a 100 per cent. increase in oil prices, a 50 per cent. increase in industrial materials prices and a 70 per cent. increase in metal prices would have led to British inflation and British instability. But with continued and necessary discipline among wage bargainers in the private and public sector and with the resilience of the monetary and fiscal framework, inflation is expected to be just 1.75 per cent. next year and 2 per cent. in the years to follow.

All policy makers will keep a close eye on continuing risks from global trade imbalances, from exchange rate movements and from an uneven world recovery, but with manufacturing output growing this year and next, British business investment is also expected to rise—this year by 5¾ per cent. and next year by 4 to 4½ per cent.

With the expected moderation of house price inflation now under way and as export and industrial production strengthen, domestic demand, which has been growing by 4 per cent. this year, is expected to grow by 3 to 3½per cent. in 2005; and we expect consumption to grow by 3¼ per cent. this year and by 2¼ to 2¾ per cent. in 2005.

Overall domestic investment we expect to grow next year by 6¾ to 7¼ per cent. We expect exports to rise in line with world trade at more than 6 per cent. and, with inflation—as I have said—below its target, growth overall is projected for 2005 at 3 to 3½ per cent., in line with the average growth of G7 countries.

We will remain vigilant to inflationary pressures, both globally and in Britain; but it is the success of the Bank of England's forward looking approach that is the key to sustaining growth with low inflation, just as since 1997 it has maintained both inflation and interest rates at historic low levels. Thepre-Budget report shows that since 1997 interest rates have averaged 5.3 per cent.—half the 10.4 per cent. average from 1979 to 1997. Mortgage rates have averaged 6.1 per cent since 1997, almost half the 11.4 per cent. average from 1979 to 1997.

Since 1997, Britain has 1.2 million additional home owners, and as we take forward the Barker review and the Deputy Prime Minister publishes his five-year housing and sustainable communities strategy, we will also pilot mixed communities in deprived estates and, therefore, provide further support for first-time buyers in our country.

Since 1997, mortgage rates have been lower than in any seven-year period since the 1960s. Interest rates have been lower than in any seven-year period since the early 1960s. Inflation has been lower than in any seven-year period since the 1930s. Employment has been higher than in any seven-year period since records began.

Let me sum up for the benefit of the House.

"Inflation is low. Unemployment is low. We're growing faster than many other European countries."

That is not, Mr. Speaker, exaggerated gloating, but the words of the Leader of the Opposition, speaking to an employers federation only two weeks ago.

The strength of our economy is matched by the strength that comes from the decisions we made after 1997 to cut our national debt. Yesterday, I was able to announce £520 million more for the special reserve for Iraq and our international obligations; and I thank our armed forces for their dedication and their courage. Having since 11 September doubled the budget to 2008 for security at home, I am also releasing today a further £105 million for necessary security measures to counter terrorism, to enhance surveillance at our ports and to improve civil resilience.

The pre-Budget report also sets out detailed savings achieved of £2 billion in procurement, an additional one third of a billion saved in NHS drugs procurement and, on target, the reduction of the first 9,000 civil service posts, as we implement the Gershon principles, a £21 billion efficiency saving that we have achieved while at the same time accepting his recommendation that to go beyond that figure of £21 billion could put the delivery of front-line services at risk.

I can also announce the relocation of 1,230 Ministry of Defence posts from the south-east to Yorkshire; 2,300 Department for Work and Pensions posts to Liverpool, Wrexham and Newcastle; 600 from the Office for National Statistics to Wales; and 220 from the Revenue and Customs to Cardiff, Liverpool, Bournemouth, Truro and Manchester. Those are further steps on the way to a total, by 2010, of 20,000 civil service jobs relocated to our regions.

Sir Michael Lyons is also setting out today departmental guidelines for the disposal by 2010 of £30 billion of public assets. And because there is scope for further rationalisation of public sector spectrum, I have asked Professor Martin Cave to lead an audit of public sector spectrum with the aim of releasing the maximum amount of spectrum to the market.

Lower debt has meant that debt interest payments each year are £4 billion less than in 1997 and because we have more people in work than other countries—75 per cent. of adults in work in Britain, compared with 71 per cent., in the United States, 69 per cent. in Japan and 65 per cent. in Germany and France—social security bills for unemployment are also down by £4 billion a year since 1997.

Having previously set both the fiscal numbers and the detailed spending plans for the years 2005–08, the public finance projections I have set out today are based on our cautious view of trend growth in the years to 2010 and on public spending rising from £579 billion in 2007–08, to £606 billion in 2008–09 and then to £634 billion in 2009–10.

When, in the Budget, I estimated borrowing for the year to April 2004 at £37.5 billion, some external commentators suggested that that was an underestimate. At the same point in the economic cycle 10 years ago, the equivalent figure was £90 billion, but I can report that our final outturn for the year to April is not £37.5 billion; it is £35 billion. And even after taking into account additional expenditure on defence and security, and other decisions that I will announce today, including on fuel duties and council tax, the cash figures for net borrowing for this year will fall to £34 billion, and in future years, fall further to £33 billion, falling again to £29 billion, then falling to £28 billion, £24 billion and £22 billion.

The deficit in 2004 is 3.9 per cent. of GDP in Germany, 3.7 per cent. in France, 4.4 per cent. in America and 6.5 per cent. in Japan. In Britain, the figure is 2.9 per cent., and in future years, it will fall to 2.7, 2.2, 2 and 1.6 per cent., falling to 1.5 per cent. of GDP. For those who take an interest in these matters, it is well within the Maastricht criteria of the European Union.

Our first fiscal rule is to balance the current budget over the economic cycle. For the years to 2009–10, the current balance is minus £13 billion, minus £7 billion, then plus £1 billion, plus £4 billion, plus £9 billion and plus £12 billion. So we are meeting our first fiscal rule in this economic cycle, and we will meet it in the next economic cycle, too.

Our second rule is our sustainable investment rule—that we should borrow for investment, while keeping debt at a low and sustainable level. Because of the world downturn, debt has now risen to 45 per cent. of national income in France, 48 per cent. in America, 55 per cent. in Germany and 85 per cent. in Japan, but in Britain this year, our debt is 34.3 per cent. of our national income. In future years, it will be 35, 36, 36, 37 and 37 per cent., meeting at every point our rule that debt should be kept below 40 per cent. of national income.

So with our deficits lower than our competitors' and lower than in past decades, and with our debt lower than our competitors' and lower than in past decades, we are meeting both our fiscal rules: in this cycle, our first rule, with a margin of £8 billion and our second rule, with a margin of £59 billion, and we are therefore on course to meet both our rules in this cycle and in the next cycle, too.

The measures that I now announce for this pre-Budget report are informed by the Treasury's assessment, published today, of long-term global economic challenges to 2015. To succeed in the global economy, Britain should build on our strengths—our stability, our scientific genius and our world-class universities and our global reach—with a concerted national mission to invest long term and establish world leadership in science, education and skills, and enterprise.

To build on our new 10-year science framework and the £2.5 billion investment in science and to make Britain the best place for research and development, we will continue our reforms to re-examine the R and D tax credit for mid-sized science-based firms; to remove tax barriers to the formation of university spin-off companies; and to pilot a matched-funding scheme to help universities to build up their resources through new endowments. To benchmark progress in raising business R and D, we will establish an industry-led science forum chaired by the chief executive of AstraZeneca, Sir Tom McKillop, and as part of their £100 million technology investment programme, the northern regional development agencies are together announcing that they will promote science cities for the north, starting with Manchester, Newcastle and then York.

By 2015, Asia will be responsible for as much as 25 per cent. of world trade, yet, today, only 1 per cent. of British exports go to India and only 1 per cent. of our exports go to China. So having set an objective to build trade links with Asia that match those that we have with America and Europe, we propose that the China-UK financial dialogue now expand its role, with enhanced private sector participation, and that the new UK-India dialogue is also broadened to include private business. And a new Asia taskforce will bring together experts to focus on boosting British exports to, and investment in, Asian countries in the years to come.

In the years to 2015, the greatest number of new jobs will come from a larger number of small businesses, and that is why we must achieve American rates of business creation and success.

For long-term investments, I have already reduced capital gains tax from 40p to 10p. I have cut corporation tax from 33p to 30p and cut small business tax from 23p to 19p. We will legislate for tax relief for the renovation of empty business premises in our 2,000 enterprise areas, and through deregulation and self-certification of business angels we will remove barriers to high net-worth investors, enabling them to invest directly in small businesses. We will align the tax treatment of leasing with other forms of finance. For new and ambitious start-ups and high-growth businesses, we have asked the development agencies to make available in every region tailored coaching and support. Building on the success of Britain's first ever national enterprise week, detailed guidance is being issued for schools on the content of enterprise lessons.

In recent Budgets, we have removed the independent audit requirement on small firms, introduced a simplified VAT flat-rate payment scheme, and I am today publishing the interim report of Philip Hampton on rationalising inspection and enforcement regimes. Having concluded that outside high-risk areas, the regulatory focus should be on advice, not inspection, and that data-sharing should avoid duplication of requirements on business, his final report will include recommendations to reform the regulators charged with inspection and enforcement and to reform the penalty regimes.

In parallel, the new executive chairman of the Inland Revenue and Customs and Excise, David Varney, is also today announcing the creation of a small business unit, consulting on the scope for a single tax return that would bring together all taxes, and setting as his long-term objective a single account for payments by business.

I am also announcing further detailed reforms that include deregulation in the financial services industry and common commencement dates from 2005 for all new health and safety, company and consumer legislation. Building on what the Foreign Secretary has already announced, he is setting out new rules guiding implementation of European Union regulations.

In the coming decades, as populations age and the dependency ratio grows, the most successful economies will be those that encourage the maximum number of people of working age into the labour market. Alongside greater local and regional pay flexibility, the Secretary of State for Work and Pensions and I agree that it is time to do more to attract into the work force incapacity benefit recipients with the capacity to work and lone parents who at the moment are not able to work.

By extending our successful in-work credit, 250,000 lone parents throughout our country will be offered a £40 a week—that is £2,000 a year— first-year return-to-work bonus. Incapacity benefit claimants, under the successful pathways to work scheme, will have a £40 a week return-to-work credit allied to rehabilitation help, which has been the most effective way of helping incapacity benefit claimants into work. This will now cover a third of the country, on the road to making this a nationwide offer. We will build on successful experience by also locating employment advisers in GPs' surgeries. We are allocating today £30 million more to expand the numbers who can benefit from the new deal for disabled people.

To make work pay, I am also raising the national minimum income guarantee for a single earner couple with one child to a guaranteed income in work of £258 a week, and a lone parent working part-time with one child on the minimum income guarantee will receive £199 a week, the equivalent in work of £12 an hour.

With unemployment among ethnic minorities still twice that of the rest of the population, and the proportion in work just 59 per cent., I have asked the National Employment Panel, working with the Ethnic Minority Business Forum, to report by Budget time on measures to address what is a waste of potential by encouraging employment, self-employment and the growth of small businesses.

Because of the environmental challenges that all nations confront, our 2005 G8 presidency is going to give priority to climate change. It is the view of this Government that all industrialised nations—from the smallest to the largest—must accept their responsibilities and each must bear its share of the burden in reducing greenhouse gas emissions.

Oil prices have declined from the peak of $50 a barrel, and today are $42. They are well above the long-run average of $23, and they make promotion of energy efficiency and alternative lower carbon sources of energy far more urgent. For Britain's part, the Secretary of State for Environment, Food and Rural Affairs is going to review the innovative technologies and policies that can deliver that step change in energy efficiency. As a first step, she is announcing today measures to accelerate innovation in energy efficient technologies, with the creation of a development fund of £20 million managed by the Carbon Trust.

It is our policy that, each year, fuel duties should rise at least in line with inflation as we seek to meet our targets for reducing polluting emissions and fund our public services. But this financial year, because of the sustained volatility in the oil market, I propose to match the freeze in car vehicle licence duty with a continuation of the freeze on the main road fuel duties. While we will not set a duty differential this year for sulphur-free fuels, we will go ahead with the 20p per litre lower duty differential for bioethanol on 1 January 2005, matching the equivalent differential for biodiesel. Because of oils fraud and the tax evasion that has resulted from the lower rate of duty for rebated oils, it is not right to delay the planned increase on this duty, but I will set it not at the expected 2.4p per litre but at just 1p a litre.

Further anti-avoidance measures published in detail today include action against avoidance on contrived remuneration arrangements, on financial and international transactions, on VAT and on the abuse of the 1992 film tax legislation.

The limit on the value of overseas purchases from outside the European Union, brought back into this country through customs duty and tax free, has been set by the European Union at £145, excluding alcohol, tobacco and perfume. I have written today to the European Commission and member states stating that this limit was last revised in 1994, is now out of date and that we should now raise it.

With the Commission for Africa reporting next year and with the focus for our G8 presidency on debt relief and development, the Secretary of State for International Development and I have written to G8 Finance Ministers saying that our priorities for 2005 will be to institute the international finance facility; 100 per cent. multilateral debt relief; to develop the development round in trade; and, as the second largest donor in the fight against HIV/AIDS, to maximise efforts to develop an infrastructure for co-ordinating research for a cure for AIDS, increase funding for AIDS research and develop innovative advance purchasing agreements for drugs for both AIDS and malaria—Britain making its G8 presidency count to meet the needs of the developing world.

Also, 2005 is the year of the volunteer. To encourage voluntary work, the Home Secretary and I are ready to take forward the Russell commission's proposals for a national youth volunteering and community service. I will report back in the Budget.

The long-term review of English local government finance under Sir Michael Lyons will report next year, but it is also right to take action where there are immediate pressures this year. In order that English council tax rises will be substantially below last year's 5.9 per cent., I am able to release the following: an extra £125 million resources for England, alongside £521 million reallocated to local councils from Government Departments and a further one third of a billion reallocated from the reduction in ring-fencing and other obligations—in total £1 billion to reduce pressures on the council tax. The Minister for Local and Regional Government will later this afternoon give full details, including on the position of pensioners.

Since 1997, 1 million pensioners have been lifted out of poverty. Raising the basic state pension by earnings would have provided an average of £5 a week more for the poorest pensioners. But the pension credit and our other measures have ensured that many are over £40 a week better off. I can confirm that, next year and in the spending round, the pension credit will rise faster than inflation—by average earnings—meeting our obligation to take hundreds of thousands of pensioners out of poverty in this country.

To help savers, it is right to extend the tax free advantages for the first £7,000 of savings—£3,000 for the cash component—in individual savings accounts each year. So I am consulting, prior to the Budget, on extending the ISA limit for another five years to 2009. We will proceed from April with the low cost savings and investment products recommended by the Sandler report, and we will now extend our savings gateway—the scheme where the Government match the savings of low-income families—to a wider range of income groups.

Two million families still have no bank account. It costs them more to pay their bills, credit costs more and it makes it harder for them to do many things, including, on some occasions, getting a job. I can announce that the banks and Government have agreed to work together to reduce by half the number of families without bank accounts. To expedite this, we are setting aside £120 million to tackle financial exclusion, including more face-to-face money advice, supporting local citizens advice bureaux, support for not-for-profit lenders and with the possible extension of the community investment tax relief.

Our child trust fund will build savings and wealth for every child in the country. In addition to the £250 and £500 down payments that families will receive early next year, we will now consult on extending the child trust fund so that, at the age of seven, we add to the £250 and £500 with another £250 and another £500 for the poorest child in poverty. I hope that, given the long-term commitment that this proposal involves to invest in every child in our country, every political party in the House will now support the child trust fund.

It is because of sustained growth and, after 1997, the prudent reduction of debt and debt interest payments that we can make extra resources today available to local authorities, we can meet the costs of Iraq and the fight against terrorism, we can freeze fuel duties to deal with the impact of the oil price rise, do more to equip the country for the challenges of the long term and are still able to meet all our fiscal rules, with levels of debt and deficit below all our main competitors.

Within the overall fiscal figures, I am now also able to move forward our long-term agenda for opportunity for all: to make Britain ready to meet the global challenge by moving people from low-skilled jobs to high-skilled jobs, with a new programme to improve skills and employment in our country and to ensure opportunity for every child while meeting the demands of modern family life—a 10-year child care strategy for Britain.

Since 1997, with education maintenance allowances, modern apprenticeships and the new deal, our priority has been to ensure that no teenager in the United Kingdom after 16 should be outside employment, training or education. With the Queen's Speech legislation to extend benefits to teenagers staying on in unwaged training as well as in college or school, we are removing from teenagers the remaining financial barriers so that every young person can stay on in education or training after 16 to get the qualifications that they need.

But we know also that 80 per cent. of the 2015 work force have already left school and are in the world of work, and it is their skill levels and their qualifications that will, over the next decade, determine the prosperity of our country. So a policy of opportunity for all must provide opportunity for those who have missed out and who should, in the economic interests of the country, have a second chance.

Today 30 per cent. of employees have very low skills or no skills at all. We have, unfortunately, the highest proportion of unskilled of any major European Union country. The unskilled worker is four times less likely to be offered training in work than the highly qualified. For decades, low skills have been an Achilles heel of Britain as a modern economy and the post-war laissez-faire training system has not, and will not, meet the skills needs of our future.

Learning from successful training policies among our European competitors and building on the 100,000 individual success stories of those given time off for training through what have been called the employer training pilots in Britain—the majority who have benefited from them are women, the majority of them have no prior skills and the vast majority of them successfully attain their qualifications—we are able to announce today their roll-out to the whole country, creating for the first time in Britain a national employer training programme, with employers recognising their responsibilities to offer time off, employees recognising their responsibilities to take up the opportunities and the Government recognising our responsibilities to play a part in funding the training.

Since the Budget, lower spending on unemployment has released resources, which means that, together with additional money reallocated by the Secretary of State for Education and Skills, the funds are now available for every employer to make an offer to every adult employee without skills. In future, every adult who has missed out at school will have the funds and the opportunity to acquire skills, starting with a level 2 qualification equivalent to GCSEs at A to C, through time off, free training provision and the help on offer from employers.

With that national employer training programme, combined with the new deal for skills, the offer is, for every adult without skills, in or out of work, a skills check-up and free training provision to achieve level 2 qualifications. And to extend this offer more widely to the unskilled out of work and on benefit who, up until now have been debarred from training by the 16-hour rule, we propose to pilot an additional £10 a week learning allowance.

Britain's future as a productive nation depends on a shared determination, from parents and teachers to management and trades unionists, that the acquisition of skills by all and their continuous upgrading is a shared national purpose. In furtherance of this, the Secretary of State for Education and Skills and I have asked the chairman of the National Employment Panel, Sandy Leitch, to build on today's decisions, report on the long-term skills needs for intermediate and degree level skills in the economy, and work with employers throughout the country to ensure that every employee is offered those new opportunities.

The successful economies and societies of the next 20 years—[Interruption.] They have some rethinking to do. The successful economies and societies of the next 20 years will also invest in the potential of all children. We want to transform the way parents are enabled to balance work and family life. A long-term strategy for children and child care starts from recognising two facts of modern life: that the life chances of children are critically determined by the care, support and education they can receive in the years before five as well as after five; and that while 50 years ago fewer than a third of married women were working, today over two thirds of two-parent families have two earners striving to balance the needs of work and family life. The Government's response to this new reality must start from the enduring principles of the Beveridge report: that the family is the bedrock of society; that nothing should be done to remove from parents their responsibilities to their children; and that it is in the national interest to help parents meet their responsibilities.

As part of the new 10-year framework that we are announcing today, the Government set out and make the choice to allocate funds for new reforms in the coming Parliament. First, parents should be able to stay at home longer when their child is born and have the means to do so; secondly, parents should enjoy more flexibility in the workplace when their child is young; thirdly, parents should be guaranteed more accessible, affordable and safe child care while they are at work; and, fourthly, at all times their children, no matter what their background, should enjoy the highest-quality education and care—a welfare state that is truly family-friendly for the first time in its history.

The first choice that parents want is more choice to stay at home. Building on the extension of maternity leave from 18 to 26 weeks, the increase in maternity pay from £56 a week to more than £100, and the introduction of two weeks' paid paternity leave already in this Parliament, we will for the first time respond to the case made to us for greater choice, and we will make paid maternity leave transferable from mothers to fathers. Parents want more flexibility to be with their children not just in the infant years but as their children grow up, so the Secretary of State for Trade and Industry will consult on extending what has been the successful right to request flexible working, which has already helped 800,000 parents, to parents of older children, again creating more choice and more flexibility for today's parents.

Secondly, having taken the best educational advice about the learning needs of children, and building on the successful introduction of free nursery education this year for three and four-year-olds, the Secretary of State for Education and Skills and the Minister for Children, Young People and Families will, from April 2007, extend our free nursery education to 15 hours a week, as we move towards our long-term goal of 20 hours of free nursery care for 38 weeks a year for every three and four-year-old child.

Thirdly, improvements in the availability, affordability and quality of pre-school and after-school child care are indeed required to meet the needs of working parents struggling to balance the demands of employment and of family life, so the Secretary of State for Education and Skills is today setting aside additional resources to enable schools to remain open from 8 am to 6 pm and to improve the quality and career prospects of those who undertake child care. It is right that parents make a contribution towards out-of-school child care costs, but it is also right, in the interests of both the economy and parents, that we do more for all parents. From April, employers will be able to offer employees, right up the income range, £50 a week extra for child care free of any tax or national insurance. For those on lower and middle incomes we will raise and extend the child care tax credit. It will cover up to 80 per cent. of child care costs, up to £170 a week for the first child and £300 for two or more children, benefiting families on incomes up to £59,000 a year. For a two-earner household on median earnings of £34,000 with typical child care costs, it will be worth an extra £700 a year.

Our fourth goal is that every child should have the best start in life. There are now 600 Sure Start children's centres, and anyone who has visited them knows that they provide not just children's services but a great focus for community life. By 2008, instead of 600 centres we plan 2,500; and today I can go further and announce that by 2010 in England alone there will be 3,500—one for every community, and on average five children's centres in every constituency in the country. As a result of these announcements there will be another 1 million new child care places by 2010. That is a commitment to children and child care worth in total £600 million more by 2007–08—money that could not be delivered if public spending plans were cut by £35 billion.

I have one further announcement to make for families. So that mothers and fathers can spend more time at home with their young children, I am today allocating £285 million, so that from April 2007 we will extend paid maternity leave. Instead of the four and a half months maximum in 1997, it will rise from six months today to nine months, and we will set a goal of an entire year of paid maternity leave. I can also announce that where the maximum maternity pay and child benefits for mothers at home with their first baby in 1997 was just £2,610 for the first year, it will rise by 2007 to £8,300. Even after inflation that is £5,000 more—the most generous maternity support and support for young children ever in the history of our country.

A society is judged by its generosity to its children and the elderly, who have served the community all their lives. I can also announce that next year, at a cost of an additional £260 million, for those over 70 we will add to the winter fuel payment with an additional £50 payment. Pensioners aged over 70 will receive a total of £250, and pensioners over 80 will receive a total of £350.

Stability is the foundation; more investment, not less; now and into the next Parliament; opportunity not just for some but for all and a progressive Britain we can be proud of. I commend this statement to the House.

The Chancellor seems to have noticed that the Prime Minister's friend, Commissioner Mandelson, recently warned him against "exaggerated gloating", but he does not appear to have heeded the advice. He prefers to slide over inconvenient facts. He did not take much time discussing the figures for current borrowing, and he did not take much time discussing the golden rule either—and no wonder: it has been alchemy in reverse, and the golden rule has turned to dross in his hands. The golden rule was meant to be a guarantee that the Chancellor would borrow only to invest—all talk: he is borrowing to spend. His current borrowing for the first seven months is almost twice as high as his last prediction for the year as a whole, and he has just announced borrowing of £170 billion over six years. Why do the ITEM Club and the Institute for Fiscal Studies say that he has a black hole in his finances of £10 billion? Why do the International Monetary Fund and the National Institute of Economic and Social Research say that he has a £12 billion black hole? Why do the CBI, the Organisation for Economic Co-operation and Development, the British Chambers of Commerce and the all the rest say that, on his spending plans, he will have to raise taxes? Why do 20 of the 21 economists on the Treasury's own panel say the same? Does not the Chancellor feel a little isolated?

The fact is that the tide is going out on the Chancellor's credibility. The tragedy is that the Chancellor is spending, borrowing and taxing so much because he is not getting value for taxpayers' money. He says that he has a plan to cut waste. Whose waste? It is his waste. We have paid all the taxes. Where has all the money gone?

This is the Chancellor—[Interruption.]

Order. Let the right hon. Gentleman speak.

This is the Chancellor who paid for £1,000 chairs for Ministry of Defence civil servants, each of which would have paid for three flak jackets for soldiers serving in Iraq. That is not the holy grail of value for money. He is not Sir Lancelot, he is Sir Wastealot. The Chancellor's plans to save money are like his promise to borrow only for investment—all talk.

Last year, the Chancellor's plan for cutting bureaucracy increased civil service numbers by 12,000. This year, he is doing even better. In just five months, in just one newspaper, his bureaucracies advertised 4,000 new jobs. That is a salary cost of more than £150 million. Talking of advertising, is the right hon. Gentleman proud of having increased the Government's advertising budget by £100 million? That is 17,000 heart bypass operations. And that is not the only thing he has increased. He has increased the number of tax collectors twice as fast as the number of nurses; he has increased the number of bureaucrats and support staff in education twice as fast as the number of teachers; and he has increased the bill for management consultants by £1 billion a year.

The Chancellor says that Britain is working, but it is the bureaucrats, the administrators and the management consultants who are at work. Our public services are not working. After 66 stealth tax rises, why are there 1 million people on hospital waiting lists? Taxes have gone up by £5,000 per year per family in Britain, so why are 5,000 people a year dying from infections picked up in dirty hospital wards? These are fundamental failures of public service delivery. The Chancellor cannot mask them by making grand speeches about the long-term future of the economy, particularly when he himself is jeopardising that future with his taxes and regulations.

Our friend, Commissioner Mandelson, wants to know why our productivity is not better, and the commissioner is right to ask that question, because the Chancellor has presided over an economy whose productivity growth rate has dropped by a third, an economy that has slipped from fourth to eleventh in international competitiveness, and an economy that has grown more slowly than that of any other major English-speaking country. The Chancellor cannot make up for his failures of public service delivery by parading new schemes. His pledges to pensioners and council tax payers today will not make up for 70 per cent. increases—[Interruption.]

Order. If the hon. Member for South Shields (Mr. Miliband) wants to carry on a conversation, he should go outside the Chamber. As a Minister, he should know better.

I am grateful, Mr. Speaker, but I fear that the irritation of those on the Government Benches may grow. Labour Members do not want to hear it, but the plans announced today will not make up for the 70 per cent. increase in council tax that have driven many pensioners to despair. The Chancellor's plans for financial exclusion cannot make up for the fact that the savings ratio has dropped by a third.

The Chancellor's grand statements about science will not make up for the fact that 100 university science departments have closed. His scheme for child care will not make up for the lack of discipline in schools. The Chancellor's plans for training will not make up for the fact that one child in three leaves primary school without being able to write properly. The Chancellor's plans for academic research will not make up for the damage he caused when he created the rules that he is now abolishing.

The country faces great challenges in the years ahead, not least from the emerging economies of the sub-continent and the far east. We have the capacity as a country to meet those challenges, but we will not succeed if we are held back by failed schemes, fat government and excessive regulation. We will not succeed if economic growth is siphoned off to pay for bloated bureaucracy that fails to give value for money. The long and the short of it is that the Chancellor's failure to give Britain's taxpayers value for money will be the terrible legacy of this Government.

Why did not the shadow Chancellor tell us the truth? He said on the radio this morning that his plans involve £35 billion of cuts in public spending. Why does he not tell us that the dividing line between his party and ours is that even if he sacked every civil servant in the land he would still have to find £20 billion in public spending cuts before there was even a hint of a tax cut for Opposition Members? Why does he not admit that his policies involve a £1.8 billion cut in transport, a £4.8 billion cut in local government, a £1.6 billion cut in the Home Office and an £800 million cut in international development?

Sooner or later, Opposition Members will have to face up to the statements being made by the shadow Chancellor, who, while he speaks in the House about waste, bureaucracy and administration, is committing his party in every constituency to sack nurses, teachers, child care workers and home helps.

We will not take lectures on bureaucracy and waste from the shadow Chancellor, the architect of the poll tax. That was the biggest single administrative cost to the country—£7 billion for poll tax registration officers, poll tax collection officers, poll tax repayment officers and poll tax compliance officers. The shadow Chancellor is still proud of the poll tax, which was an administrative nightmare.

As for the economy, does not the right hon. Gentleman accept that productivity is rising, not falling, and that we have closed the gap with Japan, and are closing the gap with Germany and France? Even his shadow Minister for deregulation, in a statement made to private businesses, praises this country and says:

"Places like . . . the UK . . . attract because their tax rates for business are low."

So why should we take lectures on the economy from a shadow Chancellor who was an adviser to a Government who had 15 per cent. interest rates, 10 per cent. inflation, 1.25 million people in negative equity, and who caused two of the worst recessions to hit our country?

When the shadow Chancellor speaks about nurses and doctors in the national health service and compares them with tax inspectors, does he not know that 70,000 people in total were employed in the Inland Revenue, and the increased number of nurses alone under this Government is 79,000, and that there are 20,000 more doctors in the NHS? Again, we will take no lectures from the shadow Chancellor about front-line public services and their improvement. He ought to tell us the truth—that the cuts that he proposes are not in administration, but go right to the heart of public services, and that he has always believed in privatising health and education. Conservative Members should go back to their constituencies and think again.

Last week, the Prime Minister gave us the politics of fear, and this week the Chancellor has given us the economics of complacency. I have always been happy to acknowledge the contribution that the Chancellor has made to economic stability and steady growth, although an awful lot of people who have been caught up in the boom-and-bust cycle in the housing market or in unrepayable debt and collapsing pension funds would be less charitable than I am. It is now clear, however, that there is an additional problem in relation to the Budget. All the independent forecasters say that there is a deficit; it might be a small deficit, but there is a consensus. The Chancellor says that there is not, so who are we to believe?

There is an issue of credibility and trust, and we cannot have a continuation of a situation in which the Chancellor sets his own tests and then marks them. What we need is the equivalent of a thorough Ofsted inspection of the Government's accounts. The Chancellor already agrees that the National Audit Office should examine some of his Budget assumptions. Why does he not agree to let all of them be examined and to see whether the golden rule has been met, and thereby re-establish some credibility? What has he got to hide?

It is clear that there are some serious loose ends in Government public spending. The Chancellor has confirmed that he is providing an extra £500 million for the war in Iraq. The total cost to the British taxpayer of the successful first Gulf war was £500 million—the same sum—and 80 per cent. of the costs were fully paid by grateful European and Arab allies. The current war has cost seven times as much—£3.5 billion—and is growing at £125 million a month, with no end in sight. If the forces are to stay in Iraq until the beginning of 2006, as the Prime Minister said, will the Chancellor confirm that that will cost an additional £1 billion, which he will have to find?

What about the identity card? Its cost was originally put at £3 billion. On Tuesday, the Home Office said that the card was going to cost £5.5 billion. Yesterday, the Prime Minister did not know. Can the Chancellor tell us how much it will cost and who will pay the cost overrun?

It is because the budget is tight that we simply cannot afford a reckless George Bush-style tax-cutting spree of the kind that the Conservatives have trailed in the Daily Express. I am told that the proposals were considered so implausible that more cerebral and moderate newspapers such as The Sun and the Daily Mail would not even publish them, but since the proposals are essentially about titillation rather than satisfaction, it is perhaps appropriate that they have found a home in Mr. Desmond's publications.

On taxation, what is required is simpler and fairer taxation. The Chancellor has endlessly tinkered, and has created a complete mess as a result. There is a very revealing table in the Adair Turner report on pensions showing that 40 per cent. of all pensioners are now paying a marginal tax rate of more than 50 per cent. Some 1.5 million hard-working families are now paying a marginal tax rate of more than 60 per cent. The Government criticise the Liberal Democrats because we propose that very rich people should pay a marginal tax rate of only 50 per cent. So why does the Chancellor think that this situation is tolerable for millions of pensioners and hard-working families?

While I am on the issue of unfair tax, let me conclude with this question. The Chancellor said today that he has found £500 million to cut the growth of council tax rates. Has he dropped his proposal from last year to compensate pensioners with a £100 payment towards their council tax? Will he also say where he got the £500 million from? Is it true, as is reported, that cuts are now having to be made in the education and health budget in order to fund that increase? Would it not be much more sensible to deal with this grossly unfair and regressive tax by getting rid of it altogether and replacing it with a tax based on ability to pay?

Let us be clear on where we agree. As the shadow Chancellor told the "Today" programme:

"The Government's introduced a very good system of independent management and monetary policy . . . They've also introduced some very sensible rules for taxation and which relating to debt and the deficit and they've largely stuck by them."

I hope that he will accept that, on debt and deficit, the credibility of this Government and the figures that he was contesting today are well established over many years.

As for the hon. Gentleman's next point about the costs that have to be met, he will know that there is a reserve, and it is the reserve from which we pay for Iraq. As far as identity cards are concerned, the Prime Minister announced the figures yesterday. On the pensioners winter allowance, I have announced the figures today; £250 will be the payment for over-70 households, and it will be £350 for over-80s.

What the shadow Chancellor does not seem to understand is that it is because we rejected the other policy proposals that he put forward that we now have a successful economy capable of creating growth and generating revenues. It is because we rejected his policy to abolish the new deal that we have cut unemployment, so the bills from unemployment are down by more than £3 billion a year. It is because we did not accept his proposals to raise the national debt in our early years that we have reduced it and the bills from interest payments are down £4 billion a year. It is because we are generating growth, not by following his policies, but by following our policies, that more people are in work, there is more growth in the economy, businesses are investing and we are therefore generating the revenues to pay for our public services. It is for that reason that we are both meeting our fiscal rules and able to sustain the public spending commitments that we made.

I suggest that the Liberals need to do some thinking at this stage as well. Yesterday, I pointed out that the hon. Gentleman said that he was going to fix the share of public spending in national income at 2003–04 levels—41 per cent. If he were to do that, he would have to cut public spending by £10 billion now. Yesterday, he conceded to go half way in that direction, and said that he would have to cut public spending by £5 billion. Will he be honest enough to tell every constituency in the country about the £5 billion of cuts that a Liberal party election manifesto should be making?

I welcome the assurance that the Chancellor has given that the fiscal rules will be observed. No doubt, we will have further questioning on that in the Treasury Committee on 15 December. The child care and family policies that he has introduced are particularly welcome. Surely, as a result, no child in any of our constituencies will be left behind.

On financial exclusion, the £120 million is most welcome for families who are both socially and financially excluded. Will the Chancellor indicate how the banks and not-for-profit organisations such as credit unions are going about this business? Does it not make it even more essential that the consumer credit Bill is implemented in the next few months?

I am grateful to the Chairman of the Select Committee, who has taken a big interest in this issue. Of course, he has been meeting the banks and financial institutions to look at issues of financial inclusion. The £120 million is precisely to do what he wants done—provide better advice to people; help people escape the loan sharks and others who have been charging interest rates that are too high; and create a range of potential providers of low-interest loans and credit for people from low-income families. I hope that he will be able to work with citizens advice bureaux and other organisations, which I think will welcome this new package for financial inclusion. I thank the banks for co-operating in what is a joint effort to persuade more people to open bank accounts and get the benefits that come from having a bank account, and not to be dependent on private and sometimes unsavoury loan agencies. I shall write to him about his first point. The important point is that we welcome the work of the Select Committee on financial inclusion.

The Chancellor introduced the institution of pre-Budget reports. Is it really sensible to turn it into this annual ritual whereby he comes along with a string of detailed policy announcements about education, health and other domestic areas that he would like to have more charge of and produces a great deal of political rhetoric about Conservative Governments of the 1980s and about what Conservatives might do if they came into power now in order to obscure discussion of the mounting problem of the public finances, which are his principal responsibility? Does he accept that, if his critics are right—there are now myriad critics—that public spending is rising at an unsustainable level, that tax revenues are failing to meet his forecasts year in, year out and that public borrowing figures are getting more and more worrying as the situation deteriorates, this not only challenges his ingenuity in trying to demonstrate how he is meeting his fiscal rules but poses a very real and growing threat to the future health of the British economy, which somebody will have to deal with if he continues to be in denial about it for very much longer?

I have a great deal of respect for the former Chancellor, but I remind him of what he said in The Mail on Sunday on 21 June 1998:

"Our gloomy Chancellor is going to bust our economy without any risk of a boom coming first. I have been forecasting doom and gloom for the British economy in my column in Financial Mail for most of the past year".

He has been predicting exactly what he said today for almost every year since 1997.

The former Chancellor is not the only one who has come to the House to make announcements on health, education and other matters. He said that he would not have frozen public spending for the first two years, but we did, and I hope that he agrees that we have been raising public expenditure and getting it to the vital public services. He should support our policies, against Conservative Front Benchers.

I congratulate my right hon. Friend on today's statement. Does he agree that many so-called forecasters have been mis-selling pensions and other financial services for a long time, and that they are as bad at selling as they are at forecasting? Although it is worth while and important to look towards international challenges from India and China, we have serious industrial challenges at home. He has correctly identified that those industrial challenges are not having a dramatic impact on inflation; none the less they impact on a number of businesses that depend on energy. Now that the emissions trading scheme is coming into play, will he re-examine the climate change levy, in order to reduce the burden on energy-based industries in this country and to allow businesses that are alive, well and working at the moment to survive?

I am grateful to my hon. Friend, who chairs the Trade and Industry Committee. I know that his work is part of his determination to ensure the future strength of British manufacturing industry. As he knows, we have frozen the climate change levy and look forward to the successful working of the emissions trading scheme. At the same time, he must recognise that when we introduced the climate change levy, it was part of a package agreed with business and the Government following the Marshall review. We cut national insurance for employers at the same time as we introduced the climate change levy. If we are to secure changes in both energy efficiency and the reduction of emissions, we must move forward with measures such as the climate change levy. I hope that my hon. Friend will continue to support the climate change levy, which is essential for a balanced policy for both the environment and the economy.

When the Chancellor was calculating the figures for his statement, did he remember that when he sold more than half of this country's gold reserves, I repeatedly warned him that he was selling at the bottom of the market? Now that the price of gold has risen by about $200 an ounce, will he apologise for costing the British taxpayer some £1.5 billion by not accepting my warnings?

I do not accept that point. The previous Government, who failed to balance our reserves by making the gold sales a lot earlier, should take responsibility. It is right to have a proper balance in our reserves, which we have now achieved. The hon. Gentleman will have noticed that every other major country, apart from America, has been involved in gold sales. That includes France, which has announced gold sales in the past few months. I have always been willing to listen to the hon. Gentleman's advice, but whether it is on the Bank of England or on public expenditure, his record shows that he invariably gets things wrong.

I congratulate the Chancellor on his long-term commitment to science and technology, on which this country's future prosperity and global competitiveness depends. Is he aware that York university now receives more research funding per academic than any other university in Britain? Will he tell us a little more about what York's designation as a science city will mean when it comes into force?

I am grateful to my hon. Friend, who has taken a huge interest in York's future economy, and I have worked with him on a number of related issues. The northern regional development agencies, One NorthEast, the Northwest Development Agency and Yorkshire Forward, have formed a partnership. As part of their new investment in technology, they are announcing today that they want to designate as science cities those cities and towns that have a cluster of scientific research and business research expertise, and a major interest, through universities and colleges, in the knowledge economy, and to invest more in their future development. That is in tune with what has been happening in the United States of America.

The Kok report, which was published in the past few days for the European Union, recommends the creation of science and technology cities throughout the EU. The northern development agencies are leading the way. I hope that through working with them, the specific proposals for York will expand science and technology-related jobs and ensure the long-term future of my hon. Friend's local economy.

Will the Chancellor think about Scotland for a second? That would be a good idea, because burgeoning oil revenues are needed to pay for the Prime Minister's wars and the Home Secretary's identity cards. Will he explain why his boasts about the performance of the UK economy are not matched by the performance of the Scottish economy, where unemployment is significantly higher and growth is significantly lower? The Scottish economy even went into technical recession in 2001 and 2002. Who is responsible for that failure? Is it the Chancellor, or the hapless Scottish Executive?

The hon. Gentleman has predicted doom and gloom for the Scottish economy at every point since 1997. He must face up to the fact that employment, growth and living standards in Scotland are up, that more people own their homes in Scotland, that more people in Scotland are getting skills, and that more are going to universities and colleges. That is the result not of Scottish National party policy, but of the Labour Administration in the Scottish Parliament and the Labour Administration in the UK.

I congratulate the Chancellor on his child care policies, which are affecting all our constituencies, and welcome their extension today. To afford those policies, it is critical to maximise our revenue income, so I ask the Chancellor to re-examine his proposal to cut 16,500 jobs within Customs and Excise and the Revenue. Individual customs officers now bring in £12.9 million per post. Surely this is not the time to cut those posts.

I respect the work of customs officers and Inland Revenue officials and pay tribute to their work securing our ports and, along with Inland Revenue inspectors and tax collectors, ensuring that revenue flows to the Exchequer. Partly because of new technology, however, David Varney's proposals to bring together the Inland Revenue and Customs and Excise will cut the gross number of jobs by 16,000. By redeploying some of the people in the Inland Revenue and Customs and Excise, the final figure will be 13,500. That decision is right, because it means that more resources will go to other front-line public services.

I hope that my hon. Friend understands that as we expand health, education and the other public services, it is necessary, where new technology gives us the opportunity to do so, to change employment patterns. Although the Gershon proposal of 84,000 jobs is a very big number, it is a necessary means by which we can build a modern set of public services and get the resources to the front line.

Will the extra money to support local government come from health and education? In order to resolve the debate on whether, as the Institute for Fiscal Studies and the International Monetary Fund claim, a structural black hole of up to £10 billion exists, is the Chancellor prepared to commission the National Audit Office to audit his assumptions?

First, I have just explained to the Liberal shadow Chancellor why our public finances can not only sustain the public expenditure to which we are committed, but meet our fiscal rules. That is because we have cut employment and debt interest payments are substantially below their 1997 level. Because growth and rising employment are generating revenues, we can meet our public expenditure commitments and our fiscal rules. The hon. Gentleman should be satisfied that the figures that I am giving him on the future development of the economy are accurate and right. On the NAO, this Government, more than any other Government, have opened up the management and scrutiny of economic policy. However, decisions on taxation and public spending are rightly decisions for Parliament. The Government make a recommendation and Parliament decides. As for the hon. Gentleman's question about local government, we have to ensure that social services, education and health departments get the money that is necessary at the front line. That is the reason for our decisions.

As the representative of a famous science city, I warmly welcome the continuing and increased investment in science. I also welcome the Chancellor's announced intention to remove tax barriers to spin-offs, which is an important move. Has he made any assessment of what it would mean to have a £500 million cut to business support in the Department of Trade and Industry budget?

I have seen recommendations from the Conservative Opposition; one of the people on the James review said that it would not matter if research councils were abolished in their entirety. That type of thinking does huge damage not only to the future of our country but to the morale of the scientific community. I wish that we could achieve an all-party consensus on the development of science, support for the research councils and support for the innovation and technology changes for which the DTI is responsible, some of which were announced today.

As for university spin-off companies, I hope that my hon. Friend will find that our detailed proposals solve a problem for scientists with shares in companies that are created as a result of university spin-offs. We are determined that companies that spin off from universities are given the best support possible because they, like many other companies that are starting up, are important to the long-term economic health of my hon. Friend's city—Cambridge—and the economy as a whole.

With regard to fuel, the Chancellor mentioned fraud involving rebated oils. As he will know, in Northern Ireland that fraud puts tens of millions of pounds a year into the hands of paramilitary organisations. Could not he make that fraud much more difficult by ending the rebates and instead allowing people such as farmers to reclaim the tax on the fuel? That would not eliminate the fraud but would make it much more difficult, which might be helpful.

Also in relation to Northern Ireland, the Chancellor will have noticed that the number of adults who are in employment there is significantly below the UK level. He said that 75 per cent. of adults were in employment, but the percentage is much lower—in the mid-60s—in Northern Ireland. Is not part of the reason for that differential the fact that several of the Chancellor's measures to encourage people into work are not being fully applied in Northern Ireland? Will he consider that, especially with regard to the new measures that he mentioned?

As for the right hon. Gentleman's very interesting ideas for children, particularly with regard to nursery schools, will he have a word with his right hon. Friend the Secretary of State for Northern Ireland to persuade him to follow the same policies there?

I am grateful to the right hon. Gentleman, and I shall be happy to meet him to talk about customs duties in Northern Ireland. We have stepped up the activities of Customs in dealing with this pernicious fraud, which has lost substantial sums of money and in some cases, as he alleged, helped forces that support terrorism.

As for the right hon. Gentleman's point about employment, the new deal is designed to raise the level of employment, and I am happy to work with him and others to see what we can do to make it more effective in Northern Ireland. That could form part of the meeting that we have on these issues.

As for children's services, I hope that everyone now recognises the importance that is attached, not only by the Government but by people who have looked at all these issues, to the education, care and support of the under-fives in particular. That is why we are making today's proposals.

I welcome the Chancellor's new announcements about additional support for science in the north, although I am disappointed that at this first stage Liverpool has not been designated as a science city. Can the Chancellor assure me that the high-level scientific research at Liverpool university will be supported, including its joint projects with the Daresbury laboratory?

I am grateful to my hon. Friend, who takes a huge interest in the economy of Liverpool and has been promoting several initiatives to make it stronger. I believe that Liverpool university is now the biggest single employer in Liverpool; that shows its importance to the city and its future. Liverpool is the culture city of the future and may over time become a science city as well. I am very happy to meet my hon. Friend and her colleagues to discuss what we can do to promote economic development in Liverpool in that way.

As always, the figures that the Chancellor did not talk about tell the real story about the risks to the economy. Since he has persistently underestimated the size of Government borrowing, and since tax receipts this year are coming in very much lower than his estimates at the time of the Budget, can he tell whether that is because of forecasting errors by his Department, or political interference in those estimates? Either way, will he subject to independent audit the definition of his so-called golden rule, and the reasons for those very serious forecasting errors?

That is a bit rich, given that the right hon. Gentleman was a Minister in the Conservative Government. We have opened up the auditing of public spending and revenue assumptions far more widely than they were ever prepared to do, and called in the National Audit Office to help us, which the Conservatives never did. He tells us that we must do more in this regard, yet he was not prepared to do anything.

As for the position on revenues, the right hon. Gentleman will see in the published documents that, because of rising employment and growth in the economy, revenues from income tax and VAT have risen, and that in key areas revenues from corporation tax have risen according to forecast. We will have to consider other areas over the next few months. He will also find that, although the former shadow Chief Secretary said yesterday that the borrowing figures would be around £40 billion, if I remember him rightly, in fact they are below £35 billion, at £34 billion. The shadow Secretary of State for Work and Pensions said at the Dispatch Box yesterday that the borrowing figures would be deteriorating, but they are improving every year.

I congratulate the Chancellor on his firm stewardship and enlightened redistributive policies. I also echo his comments about the Scottish National party's continuing pessimism on the Scottish economy, given that I am sure that the hon. Member for Banff and Buchan (Mr. Salmond) shares with me the lowest unemployment in his constituency for 25 years.

One of the problems in business start-up and development is that there is still a lack of free risk capital available to small companies. In my constituency, £50,000 has been applied for to develop an e-commerce project, and some nanotechnology projects require £3 million or £4 million. The trouble is that more money is spent on advice and bureaucrats than on freeing up risk capital for such enterprises. What might the Chancellor do to free up some of that capital for ventures that are of long-term benefit to the economy?

As my hon. Friend knows, regional venture capital funds have been set up throughout the United Kingdom. They are designed to encourage the provision of capital for new and dynamic businesses that are being created. That is a start, but there is a great deal more to do, because venture capital was previously aimed at support for management buy-outs rather than new ventures. I shall be happy to meet my hon. Friend to talk about the development of such industry in Scotland—and as for SNP Members, I think that the unemployment they are most worried about is the loss of their seats at the general election.

Will the Chancellor remind taxpayers that last time he talked about sustainable growth before the election, they were hit by an increase in national insurance contributions after the election? Will he come clean with the country and admit that all this borrowing and extra spending means that sooner or later taxes will have to go up?

Again, the hon. Gentleman, who sits on the Treasury Committee, has been predicting gloom and doom year in, year out since 1997. Does he not accept that cutting debt interest payments and unemployment, together with the high growth that has been sustained in the economy and high levels of employment, have enabled us to meet our fiscal rules and to provide the public finance necessary to deliver a high level of public services? The hon. Gentleman should be most worried about his shadow Chancellor's proposal to cut £35 billion from public spending.

My right hon. Friend knows that the Secretary of State for Work and Pensions has a genuine problem because of the 60,000 people who lost out through the idiotic Pensions Act 1995, and that £400 million has been allocated over 20 years to deal with that. Will he confirm that he has the flexibility to act if more than 60,000 people have lost out through that poor legislation? If the average loss is greater than £3,000, does he have the scope to effect appropriate compensation for those people?

It is indeed a scandal that people who lost their jobs lost their pensions at the same time. We are the first Government to take action to deal with the problems of thousands of pensioners who, as my hon. Friend rightly said, were deprived of what they had saved, and lost both jobs and pensions. As he also said, the sum set aside is £400 million. He asked whether we would review the figure. We have committed ourselves to doing that: after two or three years, we will review the arrangements. I assure my hon. Friend that the review will take place.

The Chancellor will be aware of the growing sense of insecurity in many families because they know that their endowment policies will not produce enough money to repay their mortgage, or that their money purchase pension will not give them the standard of living that they expected. The only announcement on long-term savings in the Chancellor's statement referred to individual savings accounts, which are not popular. Will he review the tax treatment of endowments and money purchase pensions to ascertain whether there is a way of leaving more of the investor's money in those funds, to work harder for the needs of those who want to save and thus meet their long-term objectives?

I would take the former Treasury Minister more seriously if he had not suggested that ISAs were a failure through unpopularity. More than 16 million people have an ISA. Surely all the protestations of doom and gloom that the Conservative party made when ISAs were introduced have been proved wrong. One in five people on low incomes, instead of one in seven, have ISAs. Twice as many young people under 25 have ISAs as had TESSAs and PEPs. The right hon. Gentleman should welcome, not belittle, the success of the ISA scheme. Of course I shall examine his comments on other matters, but he should know that the Turner commission is considering the future of pensions.

On behalf of my constituents, I warmly congratulate my right hon. Friend on his investment in families, especially the extension in child care, the coming extension in paid maternity leave and, of course, the extra money for child care. I invite him to see for himself evidence of his investment in our future, and ask him to visit the brand-new children's centre in Elland in my constituency, which is due to open in January, and witness the best practice of the local Sure Start initiative. That has already made a considerable difference to local people.

I take that as an invitation to visit my hon. Friend's constituency, and I shall be happy to do that. By 2010 there will be 3,500 children's centres. I have visited many Sure Start centres. The more that is known about their success, the more people will want to support them. I believe that, over time, we might be able to persuade even our opponents that Sure Start is a good investment. Investment made before the age of five is crucial to determining a child's future, and it is important that the country begins to recognise the value of investments such as that in my hon. Friend's constituency.

Earlier, in answer to Conservative Front Benchers, the Chancellor rightly reminded the House about the disaster of the poll tax. Not only was it unfair, but it collapsed, partly because it involved an attempt to construct a register of the population, and where everyone lived, on a daily basis. Does the right hon. Gentleman recognise that many of our constituents, who are already suffering at the Government's hands through their handling of tax credits and the Child Support Agency computer system, will believe that the £5.5 billion that he is setting aside for identity cards would be better spent now on front-line security, to provide better security by having more police and better border controls?

The hon. Gentleman was giving a balanced account of events—before he started speaking about tax credits. Six million families have tax credits, and many millions more children benefit from them. Instead of opposing tax credits, why does the Liberal party not start supporting them? They are the main reason why millions of people are being taken out of poverty in this country.

rose—

Order. We must now move on.

With permission, Madam Deputy Speaker, I should like to make a statement about local authority revenue finance for England in 2005–06.

The settlement that I am announcing for 2005–06 will be the eighth successive one in which we have provided local government with grant increases above inflation. That is a real terms increase of 33 per cent. over the past eight years, which contrasts with a 7 per cent. real terms cut in the last four years of the previous Government.

Total support from Government grant and business rates in 2005–06 will be £60.1 billion. That is £3.5 billion, or 6.2 per cent., more than in 2004–05. It contrasts with a total of just £35.9 billion in 1997–98, in the last settlement announced by the Conservative party. The total of £60.1 billion includes £26.7 billion of revenue support grant, £18 billion of business rates, £4.3 billion in police grant and £11.1 billion in specific grants. Of those totals, £49 billion will be distributed by formula to local authorities—an increase of £2.6 billion, or 5.6 per cent. I shall announce the detailed allocations today.

The figures include the extra provision to help local government meet pressures at reasonable council tax cost that my right hon. Friend the Chancellor of the Exchequer announced earlier. They demonstrate the Government's continuing commitment to both local government and council tax payers.

I can confirm that we propose no changes in the grant distribution formulae for 2005–06. That is consistent with the formula freeze that we announced for three years from 2003–04. It provides councils with a measure of stability, which is essential for forward planning.

I have already referred to the totals available in specific grants. They perform a valuable role in, for example, targeting funds in a way that the main formula cannot. We are bringing forward the announcement of the allocation of many of those grants to help councils plan ahead with more confidence.

For several years, we have applied guaranteed minimum grant increases—floors—and upper limits on grant increases, known as ceilings, to help pay for floors. Floors are well accepted. Unlike the position when the Conservative party was in power, councils are no longer faced with losing grant from one year to the next. There is no wish to do away with the floor mechanism but there has been lively debate about how the cost of the floor is to be paid.

Let me be plain. The cost has to be found within the total of grant available, and it follows that if authorities that would otherwise receive less than the floor are to benefit from enhanced grants, the remaining authorities with larger grant increases must contribute.

Over recent years, we have operated a system of ceilings, putting a maximum limit on grant increases, thereby ensuring that those authorities due to receive the largest increases contributed most to the cost of the floors. However, I have been impressed by the arguments put by authorities, especially in areas with rapidly growing populations, that imposing a ceiling is especially hard on them as they are never likely to receive the additional grant that a rising population, and hence rising pressure on services, would otherwise provide for them. Having said that, exempting population growth areas from ceilings would not be the best approach, as it would be bedevilled by arguments about exactly where to draw the line.

I have therefore concluded that we should abolish the grant ceiling. Floors will be financed entirely by scaling back grant increase above the floor. All authorities above the floor will make a contribution, but none as great as the ceiling authorities used to make.

For 2005–06, the grant floors will be as follows: for authorities with education and social services responsibilities, 4 per cent.; for shire district councils, 2.5 per cent.; for fire authorities, 2.5 per cent.; and for police authorities, 3.75 per cent. For the third consecutive year, every authority in England will receive an above-inflation increase on a like for like basis.

As in previous years, we will adjust the floor scheme to provide support to authorities with increased levels of capital investment as a result of new capital allocations issued by the Government. We will also, this year, adjust the floor scheme to provide protection for councils that lose grant under the amending report for 2003–04.

We will, as we did last year, ensure that every authority with education responsibilities receives an increase in its formula grant at least as large as the increase in its schools formula spending share. Again, as last year, we will expect all authorities to pass their schools FSS increase on to their schools budget other than in wholly exceptional circumstances. We have adjusted the FSS totals within the planned total to reduce the pressure of passporting and to increase growth in the environmental, protective and cultural services block, in recognition of the importance of the local services covered by it.

We are rigorously applying the principle that, if Government policies impose new spending burdens on local government, Government will make provision to fund them.

The Government are more than doubling our contribution to the cost of local authorities' civil protection activities from 2005–06. That will significantly enhance the capacity of local authorities to respond to a wide range of emergencies, whether caused by natural disasters, accidents or terrorism.

We listen carefully to local authorities' views on the costs of implementing new initiatives and act on them where appropriate. In response to concerns expressed by local authorities on the fee levels of the new licensing scheme, my right hon. Friend the Secretary of State for Culture, Media and Sport has agreed a substantial increase in earlier estimates, and the latest proposals are now out to consultation. She has also given an undertaking that there will be an independent review 12 months after the new regime has become fully operational.

From April 2005, authorities will be given further opportunities to increase locally raised revenue through the local authority business growth incentives scheme. That allows authorities to retain a proportion of growth in business rate revenue, with total freedom to spend this on locally determined priorities. It comes on top of the substantial additional freedoms extended to local authorities, including the prudential borrowing regime, new freedoms to trade and to charge for discretionary services, and continued reduction in ring-fencing in 2005–06, which will see ring-fenced grants fall to below 9 per cent. as a proportion of overall Government grant, which is even better than I promised last year.

A number of councils have expressed concerns that they are facing a substantial increase in pension contributions. We have listened to their concerns, agreed to amend regulations to ease certain pressures and issued advice to enable them to manage the outcome of the 2004 actuarial revaluation in the most effective way over the next three years.

In common with the rest of the public sector, councils need to be remorseless in the pursuit of efficiency. Following the Gershon review, the Government have set a target across the whole of the public sector to deliver more than £20 billion of efficiency gains a year by 2007–08. Local government is expected to contribute significantly to that, delivering at least £6.45 billion of efficiency gains. However, we believe that higher gains are attainable by local authorities, and Departments will work in partnership with them to help to achieve maximum efficiencies. This is a win-win scenario, as efficiency gains will be retained locally and can be used for reinvestment in front-line services.

With substantial additional funding, real scope for efficiency gains and the additional flexibilities that I have outlined for councils, there is no excuse for authorities to set excessive increases in council tax. The average increase in council tax in 2004–05 was 5.9 per cent. Although that was less than half the previous year's increase, and the lowest in almost a decade, there is still considerable scope for authorities to do better. We expect to see substantially lower increases next year, with a national average increase of less than 5 per cent.

The Government used our reserve capping powers for the first time this year to deal with excessive increases. We will continue to use those powers to ensure that council tax payers do not face unacceptable increases. We are prepared to take even tougher action in 2005–06. That applies to all authorities, including police and fire authorities.

We will continue to support local authorities in promoting take-up of council tax benefit. We are including information about the benefit in this year's winter fuel payment letters, which go out to about 8 million households, and we are following that up with regional and national press advertising. We will also encourage local authorities to include clear information about council tax benefit with council tax bills and, where appropriate, a simple coupon to return indicating a wish to claim benefit. Looking ahead, my colleagues in the Department for Work and Pensions are developing proposals to streamline the claims process for pensioners when more than one benefit is claimed, so that they do not have to provide the same information twice.

As my right hon. Friend the Chancellor of the Exchequer has announced today, the Government will repeat next year our help for pensioners aged 70 or older, by giving them a £50 payment to help them with their council tax bills. The amount reflects the fact that we expect a substantially lower average increase in council tax next year.

The Government have demonstrated our continued commitment to local government. We have increased investment year on year: £24.2 billion since 1997–98, and a further £3.5 billion this year. We have ensured once again that every council has an above-average increase in formula grant. We have given councils more opportunity and flexibility to raise and deploy local resources to meet their priority needs. In return, we expect, and all taxpayers expect, that local government will continue to deliver improving services at an affordable cost. If they do not, we are prepared to take tougher capping action. I commend the settlement to the House.

I thank the right hon. Gentleman for early sight of his statement and the accompanying documents. Such release of information is entirely typical of him, and it makes for much better debate.

Over the past four weeks, I have been due to share a platform with the right hon. Gentleman or other Ministers on no less than three occasions. Each time, the relevant Minister has cried off at the last minute, because of some reversal of the Government's fortunes, much to the disappointment of the audience and myself. Given the nature of the Chancellor's financial allocation to local government, I am sure that the whole House will share my relief in finding the Minister in his customary place today. Who would have blamed him if he had decided to absent himself? Indeed, the Deputy Prime Minister has sought to create as much physical distance as possible between himself and today's statement by travelling to China. That seems a little excessive, but it is no doubt a comfort to the great man.

This statement is nothing more than a poor attempt to paper over the cracks of a crumbling council tax policy, a fiddled financial settlement and an abandoned balance of funding strategy. It is a dawn raid masquerading as a strategy. So ill thought-out are the measures that they have provoked a senior Government official, in the pages of today's Financial Times, to use a four-letter word to describe the measures, and pejoratively to invite the Government to depart. I am sure that that anonymous mandarin, in both his choice of words and his sentiment, speaks for the whole nation—in spades.

The record clearly shows that the Opposition have been more accurate in predicting levels of council tax than the Government. The Government's winter boasts are soon drowned out by April misery for the taxpayer. I have with me a full list of the Labour Government's predictions on the adequacy of the settlement, and the folly that they produced. I shall let just one speak for the many. Last year, on the settlement, the Minister said:

"We have provided a good settlement, on the basis of which local authorities can plan for future improvements in services without unreasonable increases in council tax." —[Official Report, House of Commons, 19 November 2003; Vol. 413, c. 789.]

That settlement did not even have to wait until the spring to be proved inadequate. In a few short weeks, the Chancellor had to bung in an extra £340 million. What is the status of that £340 million? Has it been carried forward to next year? If so, given that £350 million relates to ring-fencing, the Chancellor's £1 billion bung begins to look very small—it begins to look like about £250 million.

Last year, because of the Government's insistence on passing on increases to schools—which they are repeating this year—14 local authorities were left with no additional money for their other services. Will that be repeated next year, and how many councils will be affected? The Minister can talk all he likes about floors and ceilings, but he cannot hide the fact that under his Government council tax has gone through the roof. Further unbearable increases are in the pipeline as a direct result of this settlement.

In its small print, the July review predicted that the locally financed council tax element of local government would increase from £18.6 billion in 2004 to £19.8 billion. That represents an increase of 6.7 per cent., or three times the rate of inflation. Will the Minister confirm that on page 209 of the Chancellor's pre-Budget report, issued today, council tax receipts are projected to soar by £1.6 billion? Will he confirm that page 23 forecasts inflation at 1.75 per cent.? We are looking at an increase in council tax receipts over four times the rate of inflation.

The change in council tax receipts clearly mirrors the increase in council tax demand. Since 1997, receipts have risen by 80 per cent., and in England council tax has risen by 70 per cent. The figures clearly marry.

The settlement does not seem to recognise the unavoidable pressure on local authorities. The Local Government Association has measured it at about £1 billion. Let us examine three pressure areas. The Minister referred to certain pressures on pensions. His solution is to try and put it off for a couple of years, but how are local authorities to manage with pension costs due to rise next year by an extra £300 million and the year after by an extra £900 million? Pressure from the growth in waste levels, waste taxation and waste legislation will cause costs to escalate from £225 million this year to £480 million next year.

Do the Government really want Hampshire to raise council tax by £4 million, Devon by £4.4 million or Tandridge by 2.2 per cent.? Perhaps they do, as much of the money will go straight back to them.

There will also be more children receiving social care. The Children Act 2004 places additional burdens on authorities. Why are the Government not making adequate plans to meet the growth in children's services with an increase from £94 million next year to £587 million in 2007?

Local government leaders have long argued that the retail prices index is an inappropriate measure to gauge local costs. On 24 June, the Local Government Association met the Chief Secretary to the Treasury, who agreed to start work on a price index for local government. What progress has been made so far?

Then there is the question of the census. The amending revenue support grant report for 2003–04 was published on 18 November, but the issuing of the report for 2004–05 has been postponed until next year to ensure that all possible revisions of the data used in the 2004–05 settlement will be included.

The House will rejoice at the recognition of the disservice done to the Manchester and the restoration of its missing citizens. They will receive an extra £7.8 million. Other areas are less fortunate, however. Worcestershire will lose £1 million, and Norfolk nearly £500,000. The South Yorkshire police authority will lose nearly £1 million. Worst of all, Surrey will lose £2.3 million. On 25 November, the leader of its county council wrote this to the Minister:

"Under your proposals, Surrey stands to lose £2.23 million in respect of 2003–04, a greater loss than any other council in the country . . . Why should the people of Surrey pay for a mistake made by central Government?"

The hon. Member for Manchester, Blackley (Mr. Stringer) put it more robustly when he suggested earlier this year that the national statistician could not count up to 60 million.

What justification can there be for asking council tax payers to pick up the tab for central Government's own blunders? Every year Labour promises a generous funding settlement for local councils, yet every year under this Government council tax has soared by three times the rate of inflation. This year the average council tax bill in England is over £1,000, an increase of 70 per cent. or almost £500 since Labour came into office. That is equivalent to almost £100 a month from people's take-home pay or pensions.

The reason is simple: the Government have chosen to use the council tax for a purpose for which it was never intended. They have transferred burdens and duties to local authorities without resources. The council tax has become their stealth tax of choice.

The Minister knows that what he has announced today will store up massive council tax increases for the future. His strategy for the council tax is now in tatters; all that remains is for the electorate finally to bury it in May.

It was interesting that the hon. Gentleman managed to keep a straight face during some of his remarks. He remembers what life was like when his party was in government. He remembers the settlements that Conservative Members announced from this side of the Chamber. Those settlements did not give grant increases to local government; in some years they actually cut grant, and in no year did they match inflation. I do not know how he has the cheek to attack a Government who have provided huge increases.

Let me remind the hon. Gentleman of the figures. In the 1997–98 settlement, the last that his party presented to the House, £35.9 billion was given to local government. This year's total is £60.1 billion. That is thanks to a Government who have been increasing funding, supporting local government and listening to local government, and who are taking action to tackle the problem of authorities—and some Tory authorities have a poor reputation in this regard—that are charging too much council tax. We have made it very clear that we will use tough capping powers to deal with authorities that increase council tax unduly.

Last year, Labour authorities increased council tax by 4.7 per cent., Tory authorities by 5.4 per cent. and Liberal Democrat authorities—I concede to the hon. Gentleman that their record is the worst—by 6 per cent. If Tory and Liberal Democrat councils had matched the performance of Labour councils, council tax increases last year would not have been 5.9 per cent.: they would have been below 5 per cent., a target that I would expect most sensible people to endorse.

The hon. Gentleman did not have the gall to admit that his own county of Essex is looking forward to an extremely good settlement—a 6 per cent. increase in its grant in the coming year. I am sure that when he talks to Lord Hanningfield, he will be able to discuss all the things that Essex county council will now be able to do thanks to the generosity of a Labour Government. That is nothing like what the council experienced under a Conservative Government.

The hon. Gentleman asked about the status of last year's £340 million increase by the Chancellor. It should be seen in the context of our £3.5 billion increase in total spending in the current year: that is £3.5 billion, not £340 million.

The hon. Gentleman asked a very interesting question about the consequences that would appear in next year's settlement. I think that most Members expect a general election between now and then. It was interesting to note his tacit concession that his party did not have a prayer—that it did not have a chance of winning the election, and expected to remain in opposition with no influence on next year's settlement. I must tell him that his party, were it to come to office, would not offer a £3.5 billion increase. It has said quite openly, and the shadow Chancellor has said it repeatedly, that it would freeze local government expenditure. That would be a recipe first for cuts in services, and secondly for massive council tax increases. That is what the Conservative party stands for.

The 6.7 per cent. figure that the hon. Gentleman cited—probably not he but his researchers had delved into the more obscure aspects of the Red Book and other documents—fails to take account of the increase in council tax, so in any case it is not an accurate projection, but if he were to redo it on the basis of today's settlement, the figure would be 3.6 per cent. The Red Book is a reflection of historical patterns of council tax increases, and as further reductions in council tax levels occur as a result of this settlement, we will see a further reduction in the projection.

On pensions, we have already taken action to ease pressures in the coming year, and as the hon. Gentleman should surely be aware, we are already consulting on longer-term changes to enable local government to meet its responsibilities under the local government pension scheme, while at the same time not facing unreasonable costs.

On pressures on social care, the hon. Gentleman obviously has not looked at the details. Otherwise, he would know that the children's services that he claims we are underfunding will receive a 7.6 per cent. increase in resources in the coming year, which is well above the average.

I remind the hon. Gentleman that local government asked us to do an amending report if it turned out that the census figures had to be adjusted, and that Conservative authorities such as Westminster were in the forefront of asking for such a report. Local government knows that such a report does not put in additional money; it simply amends a previous settlement in the light of changed figures, so if authorities such as Manchester deserve an increase because former census projections underestimated their population levels, it is of course right and proper that there be an amending report, which means that there must be an adjustment for everyone. That is the inevitable consequence, and that is what local government as a whole asked us to do.

Finally, although the hon. Gentleman did the best job that he possibly could in the circumstances, he knows in his heart that this is a good settlement for local government, which provides the basis for local authorities to continue to deliver improved services with no need for large council tax increases.

rose—

Order. We have other business before the House later today, so may I ask Members to be brief in their questions and responses?

I thank the Minister for the statement, but I hope that his answers now will shed rather more light on what is actually planned. He suggested that there was new money for councils and for police and fire authorities, so that they can keep council tax down, but is it not true that, far from there being significant new money from the Treasury, most of this cash is coming from cuts elsewhere? Will he now list the cuts being made to fund this attempt to massage council tax downwards before the election?

Is it not true that Departments from education to environment are the losers? For example, is it not true that cash has been found by reducing recycling? Every year we see a last-minute attempt by Ministers to patch the council tax problem. Does that not show a Government in permanent crisis over the unfair council tax? When will they act for the long term, scrap council tax and stop resorting to short-term panic measures?

The Minister will doubtless claim that the extra money is not a pre-election fix. If so, can he confirm that it is permanent and not a repeat of last year's one-off grant? Does he accept that, even if Ministers succeed in manipulating council tax rises lower than last year's, such rises are likely to be higher than inflation? Can he confirm that an average council tax increase of 5 per cent. will be nearly four times the inflation rate used today by the Chancellor? If so, what will he say to pensioners on fixed incomes whose pensions go up only by the rate of inflation? Can he confirm that all pensioners' council tax bills will rise by £50 a year at the very least? Will he also admit that by forcing councils into one-off raids of reserves and into putting off resolving issues such as pension liabilities, Ministers are merely scheduling a massive council tax rise for after the election? Is this not the calm before the storm?

The Government know that the council tax system is in a mess; they wasted 15 months on the balance of funding review just to confirm that fact. Now, they have asked Sir Michael Lyons to sort out that mess, but by December next year—after the election. Why, then, will the Minister not admit that this statement and the Lyons review are simply stop-gap holding measures to get Ministers through the election before they tell us what they really think—if they win?

We have heard today that the Government plan to reform council tax benefit to increase take-up, but do they really expect the House to believe that an advertising campaign will make any significant difference? Some 40 per cent. of pensioners fail to claim the Government's pension credit, even though many millions have been spent on advertising it. Does the Minister really believe that council tax benefit take-up will be any better than that for the pension credit?

Will the Minister also explain why county councils in particular are being hit by this settlement? Why did he take the perverse decision to use 1991 census data for the 2005–06 grant? He knows that using 13-year-old data cost the counties more than £100 million, thereby adding 2 per cent. to their council tax bills. Why has he done that?

On the police settlement, of which we do not know the full details, does the Minister realise that pressure on police authorities from the rising pension bill is likely to make that settlement at best a standstill, and for authorities on the floor, a recipe for front-line cuts? Given the priority of law and order, can he not ensure that police authorities know his capping criteria in advance?

Can the Minister also explain why he continues to favour businesses over pensioners? He has given businesses certainty in respect of the revaluation of non-domestic rates by capping increases. Why has he made no such commitment to fairness in the forthcoming council tax revaluation? Is it not true that lurking behind this statement is the huge threat of council tax revaluation? Why do the Government refuse to say how such revaluation will work before the election? Does the Welsh experience not show that millions of taxpayers will experience massive rises in their council tax bills if revaluation goes ahead?

This is a pay now, pay more later settlement. Ministers have put off difficult decisions and are hoping for calm before a post-election storm, yet the council tax is so unfair that the storm is closing fast.

I have to laugh at the Liberal Democrats' efforts to present this as a bad settlement.

The hon. Gentleman asked a perfectly fair question about the extra money. Some £637 million of additional money has been secured through discussion with the relevant Departments, all of which have an interest in good local government delivering services, be they health or education services, as my right hon. Friend the Chancellor rightly emphasised. There has been a cross-Government response to ensure that local government has the means to deliver the services that are needed, without an adverse impact on council tax. I would have expected him to welcome the additional money—totalling approximately £1 billion—and measures to ease pressures on local government.

The hon. Gentleman asked a number of specific questions. He said that the council tax is unfair and asked why we are not scrapping it. The Liberal Democrats are extraordinary on council tax. Their proposal would inevitably produce a massive increase in bureaucracy. They want separate local income tax rates for each local authority in the country, which would entail not only a huge increase in bureaucracy but huge pressure on the Inland Revenue. The document in which they announced that proposal also states that in order to make savings,

"we will scale back the running costs of the Inland Revenue by . . . reducing the number of local tax offices."

Their own left hand does not know what the right is doing. That shows the attention that we should give to their entirely unconvincing approach to local income tax.

The hon. Gentleman clearly did not listen to what I said about measures to ensure that pensioners receive the help to which they are entitled. My colleagues in the Department for Work and Pensions are looking at specific ways of simplifying the process through which pensioners receive the benefit, in order to avoid the need for duplicate claims.

The hon. Gentleman says that the county councils will be hit, but he clearly has not looked at the figures. How is it, therefore, that Cambridgeshire is receiving an increase of more than 11 per cent., and Wiltshire a 9.4 per cent. increase? Such huge increases would have been unthinkable when the Conservatives were in government. Why does he not talk to his colleagues in Milton Keynes? Its Liberal Democrat-controlled authority is receiving a grant increase of more than 11 per cent. because of this Labour Government. He ought to give some credit where credit is due.

The hon. Gentleman asked about the settlement for police authorities. He will know that, as always on these occasions, it is announced separately by my colleagues in the Home Office.

On capping, we made it clear that we will apply capping principles across all groups of authorities and that there will be no exceptions.

The hon. Gentleman's final point was about revaluation and I must tell him that he should not draw any conclusions from the Welsh example, because it was decided in Wales to add an additional band at the top, but not at the bottom. Inevitably, that influenced the outcome in respect of the revaluation. There is no question of any commitment to a revaluation on that basis in England, so the hon. Gentleman should draw no conclusions whatever from what happened in Wales.

I congratulate my right hon. Friend on securing a very good settlement indeed. I also congratulate him on the £50 for pensioners and on the take-up campaign that will be run. Will he recognise, however, that many pensioners had difficulty paying this year's bills, as they are cash-poor while being capital-rich? Is it not time that we put in place in this country an equity release scheme to enable pensioners, who in many cases have seen huge increases in the value of their properties, to free up some of that money to pay their council tax bills?

First, I thank my hon. Friend, the well known and experienced Chairman of the Select Committee who knows a great deal about these issues, for his kind comments on the settlement. He has better experience of what a good, as against a bad, settlement is. He will be pleased to know that his own authorities, Stockport and Tameside, are receiving grants increases of 5 and 4.9 per cent. respectively.

My hon. Friend asked about the position of pensioners who are capital-rich but asset-poor. He raises an important issue, which I know is being looked into carefully by the Lyons review. Sir Michael Lyons is an expert in this field and we believe that it is right for the complex issues of local government finance to be considered very carefully before decisions are taken. I have the utmost confidence in Sir Michael Lyons and his ability to produce sensible suggestions to tackle the real problem that my hon. Friend has identified.

Does the Minister realise that constituents will see the Government's further attempts to provide specific moneys to relieve council tax pressure at the expense of cuts in health and education as underpinned by a sense of guilt for the pressures they have placed on counties such as Bedfordshire? In recent years, that county council has suffered from extra costs, increased burdens from Government pressures, the transfer of moneys away from the shire counties to other places and problems stemming from the inability to use appropriate census data. Does the Minister not expect constituents to recognise cheats when they see them?

I would expect the hon. Gentleman to recognise that his own county of Bedfordshire has received a 6.5 per cent. increase—[Interruption.] I would also suggest that the hon. Gentleman moderates his language in future—[Interruption.]

Order. The hon. Member for North-East Bedfordshire (Alistair Burt) might want to rethink his statement.

I would not want to apply that statement to any Government Members, Madam Deputy Speaker. I was referring to the process by which this extra payment has been arrived at—through cuts in other budgets—and I stand by what I said earlier.

I regret, Madam Deputy Speaker, that the hon. Gentleman has not seen fit to withdraw an allegation that is wholly unfounded and does no justice to a settlement that has given his county a 6.5 per cent. grant increase. Most balanced Members of Parliament would acknowledge and recognise that. I tell the hon. Gentleman as I have told others that the Government have discussed the best ways to ensure that local government is properly financed in the years ahead and, more particularly, for the year 2005–06. We have done so on the basis of ensuring additional funding for local government, but without the threatened cuts that the hon. Gentleman talks about in other service areas. This is all about improving the delivery of services by local government, which impacts on all Government Departments—particularly the Department for Education and Skills and the Department of Health, because we hold education and social services very dear indeed.

I congratulate my right hon. Friend on his continuing support for local government. I would like to draw to his attention two sectors where pressures can be felt. The first is environmental protection and cultural services, for which the recycling of material and waste management are important and the second is health and social care. Local government is looking for additional support in those respects and I hope that my right hon. Friend will continue to give his support to those units. Will he also take note of police service demands for additional funding to meet their commitments?

My hon. Friend has taken a close and long-term interest in local government funding and particularly advocated the interests of the special interest group of municipal authorities. I am sure that he will be pleased to know that his own authority of Wakefield receives a 5.5 per cent. grant increase in this settlement. He asked about the EPCS settlement, which I know has been a matter of concern to many authorities. He will be pleased to know that, as a result of our work, we have increased the formula funding share provision for the EPCS block from £11.1 billion last year to £11.385 billion in the settlement for 2005–06—a 2.5 per cent. increase, which is much better than previously anticipated on the basis of the original spending review. We certainly recognise the importance of the EPCS block and the need for continuing investment in the matter of liveability.

One of the major concerns of the two district councils in my constituency is the burden placed on them by central Government when they have to deliver certain services, but the Government do not provide them with enough money. The Minister mentioned the Licensing Act 2003, in respect of which the fee income will probably lead to a major shortfall. East Dorset district council recently raised with me the access to information policy, whereby it can recover only 10 per cent. of the cost of the information that it provides. The disabled facilities grant is another problem. The Government office for the south-west has made a blanket 2 per cent. cut this year and the council might also lose more than £100,000 in respect of the planning delivery grant. Can the Minister reassure council tax payers in my constituency that they will not be burdened with yet more Government expenditure in the name of the local authority?

Yes, I can. The hon. Gentleman raised four issues. On freedom of information, the Local Government Association suggested in its initial submission that there would be an extra cost to local government of £125 million. When we analysed the figures with the association, it transpired that it was talking about the total cost to the whole public sector and the actual cost to local government is very much less. Following discussions between my colleagues in the Department for Constitutional Affairs and the LGA, the actual cost to local government was agreed at well below £20 million. That is the informed decision about the actual burden and it is provided for in the settlement that I have announced today.

I have already referred to the significant increase in licensing fees, which are currently the subject of consultation, and to the pledge by my right hon. Friend the Secretary of State for Culture, Media and Sport that there will be an independent review in any case, after the first year of the scheme. On disabled facilities grants, the hon. Gentleman will know that they have increased enormously during the past eight years. The level of grant has almost doubled over that time.

On planning delivery grants and planning fees, when the hon. Gentleman looks at the fine detail, he will realise that the Government are acting to make it easier for local authorities to deliver a good quality service and to receive support where they achieve the higher performance targets. The fees will also allow them to recover their costs, whereas there has been genuine concern in the past that that was not possible. On all the hon. Gentleman's points, there is a good news story and I hope that he will welcome his authority's 6.1 per cent. grant increase. Local government in Dorset will want to do its very best with the good settlement that it has received.

I listened carefully to my right hon. Friend's statement and he said that he had listened carefully and had been impressed by the arguments of authorities in areas with rapidly growing populations. Can he reconcile those comments with the fact that Northampton borough council, the largest district council in England and the town of his birth, has a settlement of 2.7 per cent.—just above the floor? Why then should I support his proposals? Why should I not object to his Department's proposals for an urban development corporation in that area, and why should not Northampton borough council withdraw its support on the same basis?

My hon. Friend will know that the settlement has given South Northamptonshire a significant increase of 8.3 per cent. as against the 2.7 per cent. increase for Northampton itself. That will reflect changes in demography and population, and it is right that those changes are taken into account. The position of all district councils is protected with a 2.5 per cent. floor so that all district councils have the means to deliver services with a settlement that is above the rate of inflation. My hon. Friend will no doubt want to welcome the fact that Northamptonshire county council has a 6.1 per cent. increase, which is a very good increase indeed.

Is the Minister aware that in my constituency, which has one of the highest proportions of retired people, many pensioners are already finding the level of council tax unsustainable and many are forced to eat into their capital to pay it? What is contained in the announcement today that will result in a reduction in the council tax for the thousands of pensioners in Bognor Regis and Littlehampton who may not qualify for benefits but still cannot afford the tax even at its current rate and even with the promised £50 voucher?

I would have hoped that the hon. Gentleman had heard when he was listening to the earlier exchanges that decisions on council tax are taken by local authorities. Conservative authorities do not have a universally good record on that. We have seen higher average council tax increases from Conservative authorities than Labour authorities. Only the profligate Liberal Democrats exceed Conservative authorities in a tendency to push up council tax.

The settlement gives a good increase to all local authorities. They all have an above-inflation increase. The hon. Gentleman will have heard my comments to the hon. Member for North Dorset (Mr. Walter), who asked about action to tackle pressures on local government. This settlement involves not just increased funding for local government, but a series of measures designed to tackle the genuine pressures that local authorities face. In return, we expect authorities to budget prudently for low increases in council tax. We expect increases to be lower in the coming year than last year and to be below 5 per cent. in aggregate across the country.

I welcome the settlement that my right hon. Friend has announced, especially the £1 billion extra, which was precisely the figure that the now Conservative-led Local Government Association was asking for today. Will my right hon. Friend give me an assurance that if authorities such as mine in Sheffield can show in due course that they had substantial under-recording of the population on the census, as Manchester has proved, it will receive an increase in grant to reflect that fact?

I thank my hon. Friend for his kind remarks about the impact of the settlement and the fact that it meets the concerns that have been voiced by local government about the adequacy of what was expected before it was announced. As for the census, we can make only one amending report for any year. There is no question of reopening the 2003–04 settlement. We are still looking at the position in respect of 2004–05. It has always been our position that if the Office for National Statistics makes adjustments to population figures we are prepared to reflect them in the settlement so that authorities who have had their population under-enumerated can receive compensation.

Why does this genial and generally affable Minister not deliver a statement that the council tax payers of South Staffordshire and every other district in the country can understand? Why do we have this jargon-led nonsense of "pressure of passporting", "prudential borrowing regime", "ring-fencing" and the ghastly "win-win scenario"? Why does the Minister not speak English so that the people of this country can understand what he is saying?

If I may say to the genial gentleman, for whom I have a great deal of respect, his councils are in a win-win situation. South Staffordshire, in which I know that he takes a close interest, has a 9.6 per cent. increase in grant and Staffordshire county council a 5.3 per cent. increase. That is surely a cause for congratulation. I apologise to the hon. Gentleman that the technicalities of local government finance are such that a number of concepts such as floors, ceilings and passports are now common currency. I think that the hon. Gentleman will find that most of his local authority officials are familiar with that language. I hope that he will forgive me for using language which is relatively familiar in local government circles.