Before I call the Chancellor of the Exchequer, it may be for the convenience of hon. Members if I remind them that at the end of the Chancellor's speech, copies of the Budget resolutions will be available in the Vote Office.

Introduction

It is a great honour and privilege to deliver a 10th Budget. Hon. Members may be aware that the last Chancellor to deliver 10 Budgets in a row was Nicholas Vansittart in 1822. In order to win the House's indulgence to be able to deliver so many Budgets, he did of course have to agree to abolish income tax. I regret to inform the House that that is a precedent that I do not intend to follow—at least this year. I can also tell the House that, for Mr. Vansittart, being Chancellor was preparation for his next important position in government: Chancellor of the Duchy of Lancaster.

The British economy is strong and strengthening. I can report that inflation is currently 2 per cent. and on target. From the latest quarter, the economy is growing at an annual rate of 2.5 per cent. and on target, as we enter the 10th year of growth under this Government—the only Government in British history to be entering the 10th consecutive year of uninterrupted economic growth. With the world's pace of economic change accelerating, this is a Budget to strengthen Britain further for the global opportunities ahead: to lock in stability, but also to lead the world in new industries and technologies, which will increasingly shape our future; for British people, higher skilled jobs with higher wages, but also new choices for parents to balance work and family life; to invest in and reform public services, housing and infrastructure; and, building on the climate change levy, to meet the energy and environmental challenges. Most of all, this is a Budget for Britain's future to secure fairness for each child by investing in every child—a modern Britain that leads on enterprise and prosperity, because we lead in opportunity and fairness.

For 50 years, Britain's economy was prone to high and volatile levels of inflation, and our first challenge was and is not just achieving low inflation today, but entrenching a culture of stability that allows Britain to invest for the long term. I can report that we have met our inflation target this year and every year since 1997; and looking five years and 10 years ahead, under current policies, inflation is still expected to be in line with our target. In just a decade, long-term inflationary expectations have virtually halved to 2 per cent., and today long-term interest rates are the lowest they have been for 40 years, at just 4 per cent.

Indeed, even when facing in succession the Asian crisis, the IT bubble, an American recession, euro area stagnation and, most recently, the challenge of the oil shock and house price inflation—challenges which in previous decades led to British recessions—our economic framework for stability has proved resilient, robust and prudent.

On Black Wednesday in September 1992—not so long ago, as the Leader of the Opposition will remember—interest rates reached 15 per cent. Since 1997, interest rates have averaged 5 per cent.

Mortgage rates, which averaged 11½ per cent. between 1979 and 1997 have since then averaged just half of that at 6 per cent. I have said before: no return to boom and bust.

In new measures, I propose to entrench stability today. We will continue to have the strength to take the long-term decisions that matter.

First, since 1997, my approach has been that day-to-day management of monetary policy be independent of Government and the same principled approach be applied in other areas: to competition policy, industrial policy, small business policy and the management of debt. Today, I am publishing a new remit for the debt management office. Last year, our stability enabled us for the first time in a generation to issue bonds with maturities of up to 50 years. I can announce that in the next issue, long-dated gilts will increase from just under half to just under two thirds, reflecting the benefits we now gain as a country from long-term stability.

Today, I am also publishing the detailed proposals, modelled on Bank of England independence, for official statistics to be the responsibility of an independent board, and for enhanced accountability to Parliament.

I am also publishing today the new memorandum of understanding between the Treasury, the Bank of England and the Financial Services Authority so that Britain has in place the most up-to-date early warning and response system to deal with any risk to financial stability.

We will continue to be vigilant over global imbalances and oil prices.

We will take no risks with inflation at home. The public sector pay settlements will show settlements this year averaging just 2¼ per cent., combining fairness in pay, with more for nurses, with vigilance and discipline in the fight against inflation.

It is Britain's new economic stability, and also our commitment to free trade, open markets and scientific progress, and our willingness to invest, that make our country better placed than ever to be one of the global economy's success stories. A year ago, some said that the doubling of oil prices would push our inflation far beyond target and that a recession was required to slow the increase in house prices. Instead, I can confirm to the House, as stated in the pre-Budget report, that growth will be 2 to 2½ per cent., followed in 2007 and 2008 by growth of between 2¾ to 3¼ per cent.

Domestic demand is expected to grow this year by 2 to 2½ per cent., strengthening to 2¾ to 3¼ per cent. in 2007 and 2008. As industrial production grows, exports are projected to rise by between 5 and 5½ per cent. and 4¾ and 5¼ per cent. in 2007 and 2008.

Since 1997, economic growth in the euro area has averaged just 2 per cent.—in France, just over 2 per cent; Germany, 1.4 per cent.; Italy, 1.4 per cent.; Japan, just over 1 per cent.—but in Britain, growth has averaged 2.8 per cent. a year since 1997. Britain stands with the USA and Canada as the fastest-growing economies of the G7.

This is the 10th successive year that we have grown faster than the rest of Europe.

In fact, we have not only achieved growth in every quarter of every year since 1997, but, averaging 2.8 per cent., our growth rate now is significantly higher than the 2.1 per cent. average of the period 1979–97. Before we came to office, Britain was seventh out of seven in the G7 for national income per head. Figures published today show that since 1997, as a result of stability and sustained growth, Britain has risen from seventh to sixth, then to fifth, fourth, then third, and we are now second in the G7—second only to America in national income per head.

The test of our monetary policy is that we are achieving sustained stability and growth not just for a year or two, but for the long term. The test of our fiscal policy is that we match a commitment to balance the current budget over the economic cycle with the ability to make the necessary long-term investments. Figures for the current budget from now to 2010–11 are minus £11 billion, minus £7 billion and then surpluses of £1 billion, £7 billion, £10 billion, and £12 billion in successive years.

So we meet our first fiscal rule—the golden rule—and we do so by a margin of £16 billion. This £16 billion surplus contrasts with a deficit in the last economic cycle from 1986 to 1997—a deficit of £157 billion under the previous Government, and we are well placed to meet our golden rule in the next cycle too.

The purpose of our second fiscal rule, the sustainable investment rule, to keep debt at a prudent and sustainable level of income, is to end the situation where, under Governments of both parties in the past, Britain was plagued, as everybody knows, not just by stop-go in the economy, but by stop-go in capital investment. So meeting our second fiscal rule allows us to combine stability with the necessary long-term investment in transport infrastructure, health, education and science. As a result of our success so far, total net public investment, which was just £5 billion a year in 1997, is this year £26 billion—five times as high.

Schools capital investment, which was just £600 million in 1997, is £6 billion this year, and even after inflation we have invested £32 billion since 1997 in modernising our schools in just nine years, compared with just £14 billion in the 18 years before. We have invested twice as much in half the time. To meet the infrastructure needs of business we have been able to double investment in skills, transport, and science, yet even with such levels of investment vital to our economy, we are still comfortably meeting our second fiscal rule.

Net debt is now 47 per cent. of national income in France and in America, 62 per cent. in Germany, 83 per cent. in Japan and 100 per cent. in Italy. This year in Britain it is 36.4 per cent. of national income. I can report that in future years debt will be 37, 38, 38, 38, and 38 per cent. of national income successively, so we meet our second rule over the cycle, and we do so by a margin of £26 billion.

Net borrowing, which was £90 billion just over a decade ago, will be £37 billion this year, £36 billion next year, then £30 billion. It will fall to £25 billion, £24 billion and £23 billion in 2010–11 as we borrow to invest, borrowing in that year 1.5 per cent. of national income, compared with 8 per cent. just over a decade ago. In line with what I said in the pre-Budget report, net borrowing adjusted for the economic cycle will fall in future years from 2.4 per cent. of national income to 1.9 per cent. and then in successive years it will fall to 1.6 per cent., 1.6 per cent., 1.6 per cent. and then 1.5 per cent.

For this Budget I received representations to increase investment in skills, transport, infrastructure and science. I also received representations that we should adopt a third fiscal rule, that over the economic cycle and regardless of the needs of the economy, infrastructure and services, public spending and investment must, as a matter of principle, always rise more slowly than growth. Having analysed this proposal against our published plans, I have found that it would require in the coming year public spending £17 billion lower than this year and £16 billion lower the year after, closing off the possibility of additional investment. I have rejected these representations.

We are consistent that facing the economic challenge ahead we still, as a country, need to invest more. Meeting our fiscal rules and in line with our published plans, public investment to meet our infrastructure needs will rise from £26 billion this year to £29 billion next year, then 31, 32, 34 and 36 billions in the years ahead. And gross investment will rise from £48 billion this year to £63 billion in 2010–11. That sustained long-term investment in our education and infrastructure and in our future is possible because of the stability that we have achieved. So, Mr. Deputy Speaker, we can meet our fiscal rules, support the needs of business and make necessary long-term investments in, first, science, innovation and enterprise, secondly, infrastructure and transport, thirdly, security and the defence of our country and fourthly skills and education.

I turn first to science, enterprise and innovation. With the right long-term decisions, I believe that Britain can lead in some of the fastest growing and highest value-added sectors—City and business services, education and health, creative industries and science-based industries. Once small, now one third of our whole economy and one third of our exports, soon those industries will have a much higher share of jobs and wealth. In each one of those areas, I am proposing today to do more to support the dynamism and enterprise of our businesses.

I start with the importance of Britain's leading in scientific invention and discovery. The Secretaries of State for Health and for Trade and Industry are today announcing that to strengthen medical science and excellence in basic research, Britain will in future have a single budget for the Medical Research Council and NHS research, which will be worth at least £1 billion a year. America has its path-breaking national institutes of health, and we will now build agreement on the right design and institutional arrangements for a British model. To make best use of the additional £1.5 billion a year we invest in scientific discovery, we are proposing today a change of policy. We are setting out plans for a radically simplified allocation of the research funding that goes directly to universities.

We are continuing our policy of making industrial policy more independent and at arm's length from Government. We will refocus around business's own priorities, and £180 million is now available for investment in cutting-edge technologies. Every advanced industrial country knows that falling behind in science and mathematics would mean falling behind in commerce and prosperity. So the Secretary of State for Education and Skills is announcing today a comprehensive programme for recruitment, retraining, retention and reward of 3,000 science teachers, a new entitlement to study the full range of science subjects at GCSE level and the funding of after-school science clubs starting in 250 schools. And to ensure that that investment is matched by performance in our schools, we will benchmark science results just as we now benchmark English and mathematics.

Britain's stability and our commitment to openness and free trade make us well placed to attract business investment from around the world. In the past 10 years, business investment has grown on average at 5 per cent. a year, compared with 3.4 per cent. in the previous 10 years. Ten years ago, British business investment was £77 billion a year; this year it is £113 billion. We expect that in the next two years business investment will grow faster than the economy at 4.5 to 5.25 per cent. in 2007 and 2008, rising to £126 billion in 2008.

Since 1997, there are more than 500,000 extra new businesses, and there are an additional 105,000 self-employed men and women. There is growth in every region, reflecting the dynamism and breadth of Britain's growing entrepreneurial culture. In the cycle that ended in 1997, productivity growth averaged 2 per cent. a year. In the current cycle, it is 2.3 per cent., which is a rate of productivity growth higher than at any time since the '60s—the result of our stability. After decades behind, Britain has caught up with Germany in productivity, is ahead of Japan and has halved the gap with France.

In total, there are now 4.3 million businesses and 3.7 million self-employed. To meet and master global challenges, it is right today to do more to back our enterprise culture.

To boost creative industries—soon to be 10 per cent. of our economy—as well as modern manufacturing, we are expanding the successful R and D tax credit by doubling the size of companies that can claim higher credit. With the aim of trebling our education exports, which will soon be £50 billion of our economy, we are signing new education partnerships with India, Russia and South Africa and China. To make Britain more attractive for overseas students, from May this year the Home Secretary will make it easier for those with specialist skills who graduate from English universities to work here for one year.

Alongside a new City of London taskforce to promote British financial services globally, and backed by a new British advisory board and council, the Foreign Secretary and the Secretary of State for Trade and Industry are announcing a revamped UK Trade and Investment, which will set new targets for expanding trade with China, India and emerging economies, and for making Britain the location of choice for international business.

Growing companies need venture capital, so we will refocus tax incentives for venture capital, with a 30 per cent. relief for investments in venture capital trusts. From today, twice as much investment as before will be eligible for income tax relief in enterprise investment schemes.

Since 1997, corporation tax has been cut from 33p to 30p, small business tax from 23p to 19p, and capital gains tax for long-term business assets from 40p to 10p—a corporate tax system that we will continue to discuss with business and keep internationally competitive. I agree with employers who have suggested that for low-paid workers there is a case for better alignment of the national insurance and income tax systems, so we will conduct a review in time for a consultation after the pre-Budget report.

Small firms with high growth potential also need equity finance, so I can announce £100 million of new money to double enterprise capital funds. Modern manufacturing in Britain will benefit not only from expanding the R and D credit, but the growing role of the manufacturing advisory service and a smaller number of business services offering more targeted support.

Today I can announce the formation of a national enterprise network of more than 200 schools: new summer schools in enterprise, including scholarships to American business schools for young British entrepreneurs.

In the last Budget, I announced that Britain would pioneer risk-based regulation. Today, the Government publish our code based on a legal requirement for inspection only where there is risk. Risk-based regulation will work best if it is applied not only here, but in the European union. We are asking the European Council tomorrow to adopt the same risk-based approach in the interests of British and European competitiveness.

Incomplete liberalisation of energy markets is one factor in high gas prices. So, again at the European Council tomorrow, we propose that all energy and other sectors which fail to liberalise and open up to competition be subject to independent investigation and enforcement.

Nowhere does the current restructuring of the global economy impact more than on jobs and on skills. A Britain that thinks long term and thinks globally will not compete on low skills but invest in the higher skills. The new deal enacted the principle of an active labour market policy for any person out of work, and the economy has generated 2.4 million additional jobs since 1997. The claimant count, which was 1.7 million then, is today, even after recent rises, 920,000—800,000 lower. Britain has 75 per cent of adults in work, which is a higher rate than America or the European Union, and there are 170,000 more people in work than when I gave my Budget a year ago. If we had Euro areas levels of employment, we would have 3 million fewer jobs.

But while other countries have yet to succeed in the fight against mass unemployment, the new deal in Britain is now rising to a new challenge. Today, the British economy has just 9 million highly skilled jobs. By 2020, it will need 14 million highly skilled workers. And of 3.4 million unskilled jobs today, we will need only 600,000 by 2020. Employers rightly tell us that their greatest long-term need is a skilled, flexible labour force. With the typical worker changing jobs seven times during a working life, investing in skills and the ability to re-skill will make Britain the most flexible economy of the future. So this Government will not abolish the new deal, which has helped more that 1 million people into jobs—we will strengthen it as a new deal for skills and jobs. The Leitch review is now considering a far-reaching proposal under which Britain can lead in skills: how to bring together at a local level employment and training services for not only the unemployed, but all who seek new skills.

Thanks to the national employer training programme, 100,000 women workers are gaining skills for the first time. Following the recommendations of the women and work commission, I can today announce new help for working women who want a wider range of career choices offering higher earnings and to close the pay gap with men. We will double available training for women with low skills, we will increase the work credit, and from October we will increase the minimum wage to £5.35 an hour. And we will address the unacceptable discrimination in women's pay.

As the cities paper published today shows, our cities and largest towns are our biggest job creators, but they are also the home of most unemployment in our country. So the Ministers with responsibilities for communities and for work are setting out measures, first, to help 30,000 more lone parents into work and, secondly, to pilot partnerships with the voluntary sector and local authorities for thousands more jobs.

We are well on our way to meeting our objective of 2 million new homeowners since 1997. After 160,000 new homes built last year, there are now already an additional 1.8 million homeowners—something that has been possible because of low mortgage rates. But Government must also help to balance supply and demand. Our priority, as the Barker report recommended, has been: first, to speed up planning; and secondly, to release more public sector land, now and in the future, to build 100,000 more homes. To attract more capital into house building, we are now legislating to introduce for Britain the real estate investment trusts that are so successful in the USA. To help finance necessary new infrastructure, our policy is that local communities should retain more of the planning gains that are generated in their area.

Britain is pioneering shared equity to bring home ownership within the reach of first-time buyers. The Deputy Prime Minister is today allocating £970 million for shared equity that will help 35,000 new homeowners get their first step on the ladder of home owning in this country. The Minister for Housing and Planning is inviting housing associations, local authorities, builders and building societies to offer shared equity, and we will now pilot minimum holdings as low as 25 per cent. We will also pilot a new scheme so that instead of tenants continuing to have to use housing benefit to pay their rent, the same money is used to bring sites back into use and to build new homes.

The climate change levy, the resulting climate change agreements, and the Carbon Trust funded by it have cut carbon emissions in this country by a total of more than 28 million tonnes. That is why we are already able to meet our Kyoto targets. In each of the next five years, these climate change measures will cut emissions by more than 6 million tonnes, and, as the Prime Minister said, they will account by 2010 for 40 per cent. of our total carbon reductions.

Because of the climate change levy, 10,000 businesses have signed climate change agreements. Under the Carbon Trust funded by the levy, 3,000 businesses have reduced their emissions. Enhanced capital allowances have underwritten investment in 13,000 energy-saving products. So I reject representations to abolish the climate change levy. I can confirm today our resolve to continue to reduce emissions, including through the climate change levy. Having kept the climate change levy at its original level for its first five years, it is my intention that for 2007 we index the climate change levy in line with inflation. As before, we will continue to return its revenue directly to business, and we will consult them on the most effective way of doing more to support investment in energy efficiency and the environment.

Our supply of energy should be stable, secure, competitive and environmentally sustainable. With 98 per cent. of emissions occurring outside Britain, climate change is a global issue which demands global solutions. Our first ambition is an international framework, and I can tell the House that at the heart of this is this Government's plan to strengthen and extend beyond 2012, as the Environment Secretary has said, the EU emissions trading scheme.

The developed world has a responsibility also to help developing countries meet their energy needs, so at the World Bank meetings in April, we will propose a World Bank facility—a $20 billion fund—for developed economies to invest in alternative sources of energy and greater energy efficiency for developing countries.

We want also to be a world leader in the discovery and development of new energy technologies. Following a joint study with the Norwegian Government, we have found that carbon capture and storage in the North sea can reduce emissions from gas and coal power stations by 80 per cent. So we are today publishing proposals for industry-wide consultation to move this important environmental advance, which will cut emissions, from research to commercial development.

Britain also has a unique opportunity to lead the development of all low-carbon technologies to meet the challenge of climate change. After discussions in recent weeks with some of the world's biggest energy companies, they have agreed to work in partnership to create for Britain a new energy and environmental research institute. For it to become, for Britain, at the cutting edge of science and engineering, our aim is that the public and private sectors together raise finance of £1 billion.

Britain must lead not only in environmental research, but in the exploitation of new sciences. So to help British companies to commercialise new environmental technologies, we are setting aside an initial sum of £20 million as seedcorn finance for the first enterprise capital fund for the environment.

The energy used in buildings accounts for nearly half of UK carbon emissions, so our next ambition is for Britain's homes and businesses to be the most energy efficient in the world. Regulations to take effect next month will improve the energy efficiency of new buildings by 40 per cent., compared with 1997 standards. But we will now do more. In the climate change programme review published next week, the Secretary of State for the Environment will announce additional incentives and cash support to pilot smart metering and a new labelling scheme highlighting the energy efficiency of consumer goods. And I can announce today, following an agreement reached this week with energy companies, a major extension of help for insulation—an additional 250,000 homes over the next two years. With every pensioner and low-income family eligible for special help, from 1997 to the end of this Parliament a total of 2 million more British homes will have been insulated.

I can also announce a fund, initially £50 million, for microgeneration technologies which make it possible for homes and businesses to generate their own renewable energy. The purpose of this fund is to show how we can make these technologies, from wind turbines to solar heating, affordable to schools, housing associations, including local authority tenants, and businesses. Initially, it will cover 25,000 buildings.

While half of carbon emissions come from buildings, a quarter come from vehicles. So today I want to do more to encourage cleaner fuels and cars. I propose to radically reform vehicle excise duty. I am introducing, to take effect tomorrow, a zero rate for a small number of cars with the very lowest carbon emissions, which will pay no duty at all. Instead of £75 for cars with low emissions, we will have significantly lower rates of £40. Duty rates from today will be zero, £40, and then £100, £125, £150, £190 up to a new band of £210 for the small number of new cars that are the most polluting—1 per cent. of all cars. This will help to pay for 5 million more fuel-efficient cars to have their duty cut. As a result of our decisions, and at an eventual cost of £10 million a year to the Exchequer, the duty paid on 50 per cent. of cars will be frozen or reduced from tomorrow. Instead of just 300,000 motorists paying £100 a year or less, 3 million will now pay £100 or less.

To reduce carbon emissions further, 5 per cent. of fuel will be made from biofuels by 2010, with support and incentives that will, with the 20p duty differential, be worth up to 35p per litre by 2008. 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 emissions and to fund our public services. But for the fourth successive Budget, because of high and volatile prices in the oil market, I propose to defer the usual inflation increase until 1 September. I will maintain the duty differential for rebated oils. And next week, when she publishes the climate change review, the Secretary of State for the Environment will set out her plans for a proposed annual carbon report. I can tell the House that the measures we announce today are essential for the progress in cutting carbon emissions that we all want to make.

The Budget task is to strike the right balance between tax cuts that are affordable, investments that are essential, and stability that is paramount. In striking the balance between tax, spending and borrowing, I am able to do more for hard-working families. Taken together, child benefit and the child tax credit effectively mean no income tax liability for a two-child family with earnings up to £425 a week. So 3 million of Britain's 7 million families with children have their income tax liability effectively wiped out by this family tax cut.

I have examined which tax decision could do most for families in future. We are raising the personal tax allowance from £4,895 to £5,035. One option would be to raise that personal tax allowance further. But spending £500 million on a family tax cut in this way would give a two-child family on median earnings of £24,000 a year £22 a year more, or 40p a week. However, using the same resources to raise the child tax credit will give that same family a family tax cut worth £140 a year more, over six times as much: £2.70 a week. So the best way to do most to help low and middle-income families with children, the best family tax cut, is to do as I will do today: to raise the child element of the child tax credit. Over the next three years, I will improve it by 14 per cent. For a family with two children, the child tax credit will be worth up to £88 a week in 2009, or £4,500 a year, a far bigger family tax cut than we could give if we used the same money to improve personal tax allowances or to cut the tax rate. Every one of Britain's 7 million families with children will gain as we raise child benefit on 10 April this year to £17.45 a week.

Since 1997, we have also recognised that a rising economic tide does not automatically lift all people's living standards, and that over and above securing economic growth, we as a Government have a responsibility to address and cut child poverty. Because of investing in the child tax credit, child poverty has fallen by 700,000 in our first seven years. But we want to do more. It is by raising child benefits, as we have done today, and encouraging more single parents into work—as we have also announced today—that 300,000 children will no longer be growing up in poverty. Instead, they will have better chances.

It is also our intention that every child born and growing up in Britain is not only freed from poverty but also has assets to their name. Since September 2002, every child born in Britain receives £250—for lower income families, £500—for their own individual child trust fund, to encourage savings. Today, with 1.5 million accounts already in being, I can announce that for these same children, additional payments of £250 and £500 will be made at the age of seven as well. This is an investment in the future, and in a savings culture among young people, that will in time allow all young people to have more of the choices previously available only to some.

I understand the very real pressures that mothers and fathers face in affording safe, high-quality child care. In 1997, there was almost no direct help available for child care at all, other than for workplace nurseries. From April, working mothers and fathers can receive help through the child care tax credit worth up to £240 a week or, with the support of their employers, through the employers child care vouchers. That means help is available for working mothers and fathers at every income level, and it is the first time in Britain that we have made an offer of universal help for child care.

The Childcare and Work and Families Bills will provide new rights to nine months' paid maternity leave and establish a new duty on local authorities to ensure child care places. But today I am also raising the value of the tax-free child care voucher from £50 to £55 a week. I am making capital grants available to medium and small employers to establish workplace nurseries, which will complement the rise from 6 April in the child care tax credit and the expansion of Sure Start children's centres from 700 now to 3,500 by 2010. Overall, that is an increase in child care places for families to 1.2 million—90 per cent. more than in 1997.

I am able to take further decisions on taxation. On insurance premium tax, the aggregates levy, air passenger duty and corporation taxes, I propose that rates remain unchanged. On cigarettes, my decision is, for public health reasons, to go ahead with the annual inflation rise of 9p a packet from tomorrow. I will freeze duty on whisky and all spirits for the ninth successive year—for whisky, the longest period without an increase for half a century. I will implement, from midnight on Sunday, only the normal annual inflation rise of 4p on wine and 1p on a pint of beer. But in anticipation of World cup success this summer, I am freezing duty on champagne, and on British sparkling wine. I will also freeze duty on cider.

On VAT, I will continue to help churches and faith groups by refunding VAT paid on renovation of church buildings, monuments and other sacred places. I will extend the special VAT scheme for horse racing. I hold to our pledge not to extend VAT to a number of items: food, books and newspapers, public transport fares, children's clothes and children's shoes, including flip-flops.

I am publishing today a full updated list of the goods and services now subject to the reduced VAT rate of 5 per cent, and measures to tackle VAT fraud and avoidance. Last year, I proposed that the European Union should raise the duty free allowance for bringing goods into this country from outside the EU. This year, the European Commission has proposed to increase it from £145 to £340, but I am submitting proposals today for a further increase to £1,000.

The tax-free limit for ISAs will remain £3,000 cash and £7,000 in total. I can report that £190 billion has already been invested by 16 million people. I can confirm as usual the tax-free winter allowance of £200 for pensioners and £300 for the over-80s. Further support for pensioners will be contained within the forthcoming pensions White Paper. I will raise the exemption on stamp duty to £125,000, which means, with the last Budget's measure and this, we have taken 400,000 homeowners out of stamp duty. I will raise the amount of inheritance exempt from tax over the next four years from £275,000 this year to £325,000—94 per cent. of estates pay no tax.

Meeting all our fiscal rules, I have been able this year to cut vehicle excuse duty, continue the freeze on fuel duty, freeze spirits duties, take more people out of stamp duty, extend the family tax cut, child tax credit, and give more employers and employees tax incentives to cut the cost of child care, while at the same time improving tax allowances for business research, development and investment. Because of the strength of our fiscal position, I could cut further taxes while still meeting all my fiscal rules.

In each Budget, instead of dogmatically imposing a third fiscal rule, I look at the merits of the case to get the balance right between tax, spending and borrowing. Therefore, in doing so, it is also right to consider the case for additional investment in the national interest. I turn to our priorities: finance for our important educational reforms; plans for the Olympics and sports; and, first, defence, law and order and national security.

This is the first Budget since the attacks and tragedies of 7 July, a day when the nation stood as one against terrorism. We will never forget those who lost their lives and those who were injured. Today, we are allocating funds towards a memorial that will reflect the wishes of the victims' families. We will also support with an initial endowment of £1 million the creation of a new charitable fund to support British citizens injured in or affected by terrorist acts at home and abroad.

Since 11 September, we have also doubled the budgets for security here at home from £1 billion to £2 billion. The country depends on the strength of our security services and our armed forces. To support our armed forces who serve us so well in Iraq, Afghanistan and other international commitments, I am allocating an additional £800 million. To promote peacekeeping in the most troubled countries of the world, I am today also setting aside an additional £200 million. I can also announce that the UN emergency relief fund, with starting finance of $250 million, will, at the instigation of the Secretary of State for International Development, immediately provide as its first major disbursement $30 million in famine relief to the horn of Africa, building on our own emergency contribution of $60 million.

To deliver on the promises made at Gleneagles on aid and transparency, to move forward our international finance facility, and as part of the doubling of aid to Africa, I and fellow Finance Ministers from the IMF and World Bank will set out in Mozambique next month a new initiative that will be launched by President Mandela—and we are grateful to him—to finance new, detailed 10-year plans so that we can meet the millennium development goal of free schooling for every child by, and if possible before, 2015. Those initiatives are founded on keeping our promises to increase development aid each year to reach 0.7 per cent of national income.

As the Prime Minister has said, 2006 must also see an ambitious outcome for the world trade round. To ensure that developing countries can both support the round and be beneficiaries of it, we will contribute to an aid-for-trade fund that will help build the infrastructure and capacity to trade in developing countries that are urgently in need of our support.

The 2012 Olympics will be a proud moment for London and the whole of Britain. Together, the Greater London Authority, the Government and the national lottery have already agreed funding of £3.4 billion. I am able to announce the next stages. We will invest now in our 2012 Olympic champions. Recent results in Melbourne—and today, again, in India—have shown the outstanding sports talent that exists in our country. For training and facilities for world-class athletes of the future, I can announce £200 million of public money to be matched by raising £100 million in sponsorship, and, with another £300 million from the lottery, over £600 million will be available in total as world-class funding for world-class athletes in our country.

The Olympics will inspire young people across Britain and we must open up to them new opportunities to take part in sports. So we are also announcing that each year, from now until 2012, there will be a schools Olympics. Starting in Glasgow this year, and in a different city each year, we will fund annual national competitions in Olympic events open to all schoolchildren throughout the United Kingdom.

The 2012 Olympics is for athletes to excel in, but it must also be an event in which all in Britain can share. Today, we are also announcing an Olympic trust fund for nationwide cultural and sporting events, which will take place alongside the Olympics. The games will end in 2012, but their legacy must continue, and it should benefit not just London but the whole country.

Because we want the 2012 Olympics and, beyond that, any English bid for the 2018 World cup to regenerate sports across our country, I want us to build in every area over the next decade public-private partnerships that can locally renovate and extend sporting facilities at the grass roots. We are today announcing initial funding of £34 million for a new national sports foundation. It will start next week, modelled on the Football Foundation's success, and will bring together public and private finance for new local sports facilities and grass-roots participation. I am also setting aside £2 million for a new venture between police, premier league football clubs and community groups, with the Football Foundation, to offer young people evening sports and to tackle antisocial behaviour.

Following the Russell commission which I set up two years ago, the new gap-year and volunteering scheme, youth national community service, will be launched in May with 26 company partners, a budget of up to £150 million and a target of 1 million young volunteers. It will be backed by youth community service on environmental projects, to be financed by an expansion of the landfill tax credit scheme.

But we must also do more to invest in youth and community facilities, both for the future—where banks and building societies have agreed, unclaimed assets will go to finance new facilities—and from next month, when in each local authority with budgets averaging half a million pounds, young people will for the first time decide on their own local services. I propose that we extend that with a new challenge fund open to all young people proposing innovative projects for youth and community facilities in their area—additional cash to reward innovation and spread best practice across the country.

Further to support that and the voluntary sector as a whole, which are at the heart of the life of every community, we will now set up in the Treasury an office for the voluntary sector, including faith as well as non-faith charities. It will advise on gift aid and futurebuilders, and will conduct a nationwide consultation with the voluntary sector to inform our spending decisions.

But as well as making these additional investments, this Budget will now start the process of setting out our priorities and plans for the next spending round and the years ahead. Our aim must be to ensure by our investment that hard-working families are the beneficiaries of this era of great change. It is right to have the fullest possible debate on spending priorities.

A decade ago, our first comprehensive review reflected the British people's priorities for education, health and public services. Today I am publishing plans to begin a public debate on our second comprehensive spending review. But there are already two areas in which, by setting out our direction now, we can best deliver our priorities in the future.

In order to release new resources for our priorities—central to which is building world-class schools and education—we are reviewing the use of assets in all areas. After asset sales reported at £6 billion last year, we plan total sales by 2010 of £30 billion, releasing finance for our front-line priorities. In addition, I can confirm that the sale of Westinghouse will be completed in the next year, and we expect it to raise £3 billion.

The Government will move ahead in the coming year with the sale of the Tote. To diversify risk further and after the energy review has reported, we are prepared to sell part of our stake in British Energy and related energy assets. We will publish plans for the sale and release of public spectrum. All those decisions will release new money for our priorities for the future.

Also published today are the figures for the first £6 billion of Gershon savings, including a reduction in civil service posts of 40,000. And I can announce today further savings in the years of the next spending round from 2008 to 2011.

The Home Secretary has agreed that we can invest more in priorities like policing and security, while making savings in other areas within a three-year budget at its 2007–08 real-terms level. Her Majesty's Revenue and Customs, the Treasury, the Department for Work and Pensions and the Cabinet Office have also agreed that necessary modernisation will be funded from an innovation fund, and alongside this the spending review for those four Departments will proceed on the basis of minus 5 per cent. a year in real terms below the baseline of 2007–08—efficiency savings that will allow us to focus new and additional resources on front-line priorities.

To meet and master the global challenge, the most important investment in our economy and our future and the most pivotal reforms we can make will be in the education of our children and young people. I, like so many people, am grateful for the inspirational teachers and the high quality of education from which I benefited. And just as I had the best chances, my aim is that all young people from whatever background have the best of chances.

There are two priorities where, in this Budget, Britain can speed up our progress and advance even more quickly towards our ambition of world-class standards and excellence. With China and India turning out 4 million graduates a year, we can no longer afford to write off the talent or waste the potential of any British young person. So the Secretary of State for Education and Skills is announcing today that those who have missed out on their first chance in education will have a second chance to make the best of themselves. We are setting aside resources so that, for the first time, up to the age of 25, further education all the way up the scale to A-level standards will be free of charge.

That new right to free learning will be backed by adult learning grants to help with costs of living. And with financial help also for school leavers who have fallen through the net—and whom we want to help make the transition into training and work—our aim is a Britain where all young people stay on in part-time or full-time education, and gain skills throughout their working lives.

But 80 per cent. of the 2015 work force is already in work, and to make a reality of second chances in education for all ages, we must also strengthen our further education colleges—centres of learning that have been neglected in the past, but must be at the forefront of future success. So we are announcing for each college a step change in employer involvement, so that we can match the demand for skills to the courses on offer. The Secretary of State is also announcing new powers to redirect resources from failing courses to the best courses, the ones that individuals, employees and employers want to use.

We will match these further education reforms that promote individual choice, increase local accountability and business engagement and reverse failure with £500 million of capital investment and an annual budget worth £7 billion by 2008. As with other allocations, separate announcements will be made for Scotland, Wales and Northern Ireland.

But while we have a duty to ensure that there are second chances, we also have to ensure for every child the best first chance. Even with a doubling of investment, Britain's share of national income spent on education is still behind America and other major competitors.

We know the educational benefits of more individual attention, small group teaching and tuition, and we know that they are easier to get when the overall teacher-pupil ratio is low. In private schools there is one teacher for every nine pupils, compared with one teacher for every 16 in state secondary schools. To secure better results, we have improved the pupil-teacher ratio and doubled the money spent per year for the typical pupil from £2,500 to £5,000.

But that figure of £5,000 per pupil still stands in marked contrast to average spending per pupil in the private sector of £8,000 per year. Our long-term aim should be to ensure for 100 per cent. of our children the educational support now available to just 10 per cent.

So to improve pupil-teacher ratios and the quality of our education, we should set as an objective for our country that stage by stage, adjusting for inflation, we raise average investment per pupil to today's private school level. And I can start immediately in the coming spending round by closing today's gap between capital investment for pupils in private schools and in state schools, so that all schools and all pupils have world-class IT and world-class equipment, teaching materials and buildings. So in the coming five years, investment in schools will rise from £5.6 billion a year to reach £8 billion a year—a 50 per cent. rise, making a total of £34 billion of new investment over five years.

By 2011, annual investment in the typical child's education will be over £1,000 per pupil, matching in state schools—in IT, equipment and buildings—what private schools spend today, and demonstrating, fully within the discipline of our fiscal rules, that by investing more in education and investing not a lower share of our national income but a higher share, we can make a practical reality of our goal that every child should have the best possible start in life. It is a goal we could not achieve if bound by a fiscal rule that cut investment, but a goal we can achieve if we build a national consensus around a rising share of investment in education.

I have further announcements to make. This Budget's choice is to invest more, not less, in schools and families; to strengthen the new deal, not abolish it; to maintain the climate change levy, not remove it; and instead of cutting investment, to hold firm and not waver on the principles that have given Britain stability and jobs, and now allow us to do even more for our priorities.

To tackle crime and the fear of crime, there are already a record 140,000 police officers and 6,000 community support officers. In 1,000 neighbourhoods, there are full community policing teams. But the Home Secretary and I want every community to have a community policing team as soon as possible. So, at an additional cost of £100 million, we will ensure by April next year that we more than double the number of community support officers from 6,000 to 16,000, and ensure that there will be neighbourhood policing in every community in England and Wales.

From 1 April there will be free local bus travel for every pensioner and for disabled people, but we believe that there should also be free national bus travel. So the Transport Secretary is announcing today, from April 2008, at a cost of £250 million, for every pensioner and for disabled people free off-peak national bus travel in every area of the country.

I have one further announcement. In 1997, there was no payment at all direct to primary and secondary head teachers. With £270 million extra from April, rising to £440 million next year, I can today put much more money than before direct to our schools for tuition, teachers and teaching support. There are those who say—as with the £1.5 billion that I have already found for law and order, policing, security, environment and the Olympics—that this £440 million for education should be used to cut taxes. I could, of course, afford to do so, but I say: investing in education comes first, and investing in education is this Budget's choice. So for the typical primary school, up from this year's £31,000, £44,000 will go direct to the head teacher. For the typical secondary school, up from this year's £98,000, from next week £150,000, and next year £190,000—twice what it is now. For the largest secondary schools with the greatest needs, from £260,000 to £365,000 next week, rising to £500,000 next April. Next year, £440 million more will go direct to schools, helping pay since 1997 for 30,000 more teachers.

Excellence in education, my priority; more investment and reform, not less; a strong and strengthening economy; this is a Budget for Britain's future and I commend it to the House.

Provisional Collection of Taxes

Motion made, and Question,

That pursuant to section 5 of the Provisional Collection of Taxes Act 1968, provisional statutory effect shall be given to the following motions:—

(a) Rates of tobacco products duty (motion No. 2)

(b) Rate of duty on Beer (motion No. 3)

(c) Rates of duty on wine and made-wine (motion No. 4)

(d) Vehicle excise duty (rates) (motion No. 8)

(e) Stamp duty land tax (unit trust schemes) (motion No. 61)—[Mr. Gordon Brown.]

put forthwith, pursuant to Standing Order No. 51 (Ways and means motions), and agreed to.

I now call on the Chancellor of the Exchequer to move the motion entitled "Amendment of the law". It is on that motion that the debate will take place today and on the succeeding days. The remaining motions will not be put until the end of the Budget debate, next week; they will then be decided, without debate.

Well, we wondered today whether we would get a Budget or a leadership bid, and I have to say that we did not get much of either. One can tell how big the crisis in the health service is—the health service did not even get a mention. If we cut through all the rhetoric, what we have is a Chancellor who has taxed too much, borrowed too much and is the roadblock to reform. He is a politician completely stuck in the past.

Of course, there are some things in the Budget that we welcome—not least because we proposed them. I particularly welcome what the Chancellor had to say about independent statistics and youth volunteering. We will look carefully at the detail, but I like what is happening: I come up with the ideas and he puts them in his Budget. [Interruption.] Bye-bye.

The Chancellor made a lot of the changes to the climate change levy, but he still has not addressed the real problem: it is a tax on energy, not a charge on carbon, which is why carbon emissions keep going up.

The Chancellor has just announced a new environment institute, but this is the same Chancellor who is closing the very laboratories that do the research into climate change. This was not a genuinely green Budget, and that is not surprising, because this Chancellor has not made a single major speech on the environment in 11 years. In a carbon-conscious world, we have got a fossil-fuel Chancellor.

I congratulate the Chancellor on what he had to say about the Olympics. I do not want to overdo it, however, as he has just spent an hour congratulating himself.

The Chancellor told us that his borrowing forecasts were correct. Yes, he correctly forecast that the public finances are in a mess. He is borrowing £37 billion this year. He told us that his economic growth forecasts were correct. Yes, he correctly forecast that Britain would grow more slowly than the United States, Canada, the G7, Spain, Ireland, the countries of the Organisation for Economic Co-operation and Development, and Australia. [Interruption.] I know that the Chancellor and the Prime Minister get to talk to each other only once a year, on Budget day, but they ought to listen to this bit.

We will study the rest of the Budget carefully because, after 10 Budgets, we know that this Chancellor's Budget speeches bear very little relation to the Budget itself. He told us about the savings culture, but why did he not tell us that according to page 238 of the Red Book—or, in the Prime Minister's case, the unread book—the savings ratio is only 5.75 per cent.? That is half what it was when he took office. Why did he not tell us that business investment, at 9 per cent., is at a record low? And he did not tell us that today he has revised the figure downward compared with three months ago. [Interruption.]

Mr. Deputy Speaker, there are two central facts that tell us the real story of this Budget. [Interruption.] First—

Order. I am sorry to interrupt the right hon. Gentleman. The Chancellor was listened to with very—[Interruption.] Order. The hon. Member for Glasgow, North-West (John Robertson) will be removed if he behaves like that. One expects a certain reaction to these things, but the Chancellor was heard in relative silence and the same courtesy should be offered to the Leader of the Opposition and to the leader of the Liberal Democrats afterward.

There are two central facts that tell the story of this Budget. First, the tax burden is at its highest ever level in the history of this country: higher than when Denis Healey made the pips squeak; higher than when Ramsey MacDonald sat where the Prime Minister is sitting now.

People who listened to the Budget will have noticed the second fact: even with the highest tax burden in Britain's history, the Government are borrowing £175 billion over the next six years. I know that the Chancellor is a man in a hurry, but that is no excuse for belting out figures like a supercharged bookmaker. Let me go through the figures in turn. He is going to borrow £37 billion this year, then £36 billion, then £30 billion, then £25 billion, then £24 billion, then £23 billion. That is £175 billion over six years. This Chancellor is mortgaging this country's future. That is more than £6,000 of debt for every household in this country. Those are the facts. After all the years of spin about enterprise and prudence, we have finally got to the truth. He is an old-fashioned, tax-and-spend Chancellor, and that approach is completely out of date. The story of this week is of a Prime Minister and a Chancellor up to their necks in debt, making promises that they cannot keep and not knowing whether to work together or fight with each other as the ship starts going down.

The real challenge facing this country is competing in the new global economy. The Chancellor has given us the biggest tax burden in Britain's history, and cannot be the right person to meet that challenge. We used to have the 10th lowest business taxes in the developed world, but we now have the 10th highest. The Chancellor has had 10 Budgets to boost science, but science departments in our universities are closing. He has had 10 Budgets to improve transport, and some of our motorways look like car parks. He cannot be the change that this country needs, because he is the architect of the policies that have put us where we are.

This country also faces a huge challenge to reform public services. The Chancellor, who has squandered billions of pounds on unreformed public services, cannot be the right person to meet that challenge. He has doubled spending on the health service but this weekend one hospital sacked almost 1,000 staff. Deficits across the NHS have now reached £1 billion. The Chancellor has doubled spending on education, but more than half of our children leave school without attaining the required standard.

Billions of pounds have been raised and spent, but we have no idea where the money has gone. With a record like that, the Chancellor should be running for treasurer of the Labour party.

In his Budget, the Chancellor mentioned pensions. After everything that he has done, millions of people in this country will think that he has got a nerve. This is the Chancellor who took £5 billion out of the nation's pension funds, and whose means testing destroyed savings. No mention was made of whether his pre-election bribe of £200 would be continued: I expect that we will have to find that in the Red Book.

This is the Chancellor who caused the right hon. Member for Birkenhead (Mr. Field)—the Government's first pensions Minister, and the only one who was any good—to say:

"When Labour came to power we had one of the strongest pension provisions in Europe and now . . . we have some of the weakest."

The Chancellor who smashed up the pension system cannot be the right person to rebuild it.

Labour MPs may think that the Chancellor is their salvation from the mess that they find themselves in this week, but the big policy failures of this Government—as opposed to the sleaze and the spin—are his failures. The failure to spend money wisely, to reform public services, to protect people's pensions, and to prepare for Britain's future—those failures are made in Nos. 10 and 11 Downing street.

The Chancellor may see himself as the rock on which Labour can rebuild its church. Instead, he is the roadblock stopping Britain from meeting the challenges of the future. He is an analogue politician in a digital age. He is the past. [Interruption.]

It is a fearsome task to follow such a constructive contribution as the one we have just heard, but I must begin by congratulating the Chancellor on the presentation of his 10th Budget. That he did so with great enthusiasm is hardly surprising, as he has a particular affinity for the number 10.

Let us look at the Chancellor's legacy. Levels of inequality are worse than under Mrs. Thatcher. Our pensions system is in crisis, and consumer debt is at £1 trillion. In spite of what the right hon. Gentleman has said today, there is complacency about the threat to the environment, and he presides over a Treasury that cannot manage even its own tax credit system.

Of course we welcome the changes in child tax credit and acknowledge the stability in inflation and employment, but we are entitled to remind the Chancellor that that stability is based on the independence of the Bank of England. The right hon. Gentleman derided that policy throughout the 1997 general election campaign, but he implemented it within 48 hours of entering the Treasury. Against that background, there is no room for complacency or time to tread water.

I return to the issue of inequality, to which our mutual friend John Smith would have attached the highest priority. The wealthiest 1 per cent. in this country owns 23 per cent. of the assets—more than in 1997—while the poorest 50 per cent. own only 6 per cent.—less than in 1997. The top 20 per cent. of earners pay less of their income in tax than the bottom 20 per cent., while the tax system remains unfair and complicated.

Why does the Treasury tinker with a tax system that is so fundamentally unfair and requires such radical reform? Every time that it does so, it adds layer upon layer of complexity and creates an incitement to, and opportunity for, fraud.

The most unfair and regressive tax of all remains the council tax. Having read the Red Book, we can confirm that it contains no provision for the £200 rebate made available last year. If there is to be no council tax rebate, we know that some of the most vulnerable will suffer. They will ask why they deserved help immediately before a general election, but not a year later.

The lack of reform to the council tax is not the Chancellor's only failure to act. Under this Government, green taxes have fallen as a share of overall taxation. The measures announced today will make little impact on that. If the Chancellor needs any external reference, he need only examine yesterday's report from the Environmental Audit Committee.

We need simplicity in environmental taxation, and a proper system of green economic incentives that encourages people to change their habits and the way that they live. Such a system should express and implement the principle that the polluter should pay. It was notable that, in the course of his observations about the environment, the Chancellor made no reference to the impact made by aviation, nor to the crying need to address the problems of continued expansion in the aviation industry.

The fact is that CO ₂ emissions are higher now than in 1997. The additional vehicle excise duty to be paid by drivers of 4x4 vehicles applies only to new vehicles. By my reckoning, it is rather less than the cost of half filling the petrol tank. That is hardly likely to operate as a disincentive for people sufficiently well off economically to be able to afford such vehicles.

As for public spending, the Chancellor prepared the ground well in his pre-Budget report. He conceded the error in his growth predictions, changed the economic cycle, pointed out that he was going to raise taxes and acknowledged the slowdown in public spending. He got a lot of cheers today when his speech seemed to foreshadow increases in public expenditure. What many of those who cheered did not realise is that the spending plans pencilled into the pre-Budget report will mean that there will be announcements of real-terms cuts in many Government Departments next year.

Despite all the extra investment, public spending is still not reaching the front line. Treasury targets have led to NHS trusts, and to the drive to reduce waiting lists at all costs that has meant that care in other areas has been cut.

Of course, tough choices have to be made and spending prioritised. For example, the industrial subsidies that the DTI has been giving to the nuclear power industry could be cut, and the money going to what is colloquially described as the baby bond scheme—on which the Chancellor enlarged today—would be much better spent on early-years education now than on a bond in the future. In addition, the right hon. Gentleman could decide not to proceed with spending millions and perhaps billions of pounds on an identity card scheme that is unnecessary and unworkable.

The British people want better public services and are willing to pay for them. What they do not understand is how so much can have been spent with so little to show for it. Operations have been cancelled, wards closed, local hospitals threatened and nurses have even been made redundant.

It is clear that trust in fiscal policy must be restored. That could have been achieved by widening the remit of the National Audit Office so that it can provide transparent and independent scrutiny of all Budget assumptions and forecasts. Some progress has been made today in respect of statistics, but that is not enough. The Chancellor has a good record of listening to our advice, rejecting it, and then accepting it. Perhaps, on this occasion, we will once again prevail.

I welcome what the Chancellor said about housing and the shared equity fund. The question is whether any of that represents new money. We have to address the issue of those who simply cannot afford to make the contribution that is necessary to participate in a shared equity purchase of a house.

I declare a retrospective interest in the Chancellor's provisions for the Olympic games. It is essential that those games are a success for London and the whole of the United Kingdom. He will have universal support for what he announced in that regard. However, it is not true to say, as has been rumoured, that my hon. Friend the Member for Falmouth and Camborne (Julia Goldsworthy) is already positioning herself to make a bid for the British team.

One issue that the Chancellor said nothing at all about was that of personal debt. Consumer debt is now approaching £1.2 trillion—practically identical to the gross domestic product of the United Kingdom as a whole. Of course, consumer debt has underpinned the economic boom, but the legacy for many families will be disaster. Nearly a fifth of all income is being used to service debt. That means that it is back to the level that it was at when the economy crashed under the Conservatives in the early 1990s. The immediate signs of that stress are clear: rising bankruptcies and rising repossessions.

The other side of that is the poor recent record of private business investment. Under its current leadership, the CBI has been a great deal more supportive of the Government than in previous years, but I suspect that it will react to this Budget more in sadness than in anger—sadness at the way in which regulation and tax complexity are squeezing British business. The Budget does nothing to deal with that. Enlightened British companies understand the need to pay taxes for investment in education and infrastructure; what they do not understand is why those taxes do not deliver the goods.

The Budget failed to deal with the most glaring issue before us today: the crisis in pensions. Last week we learned—the Leader of the Opposition already referred to this—that the Government would not follow the ombudsman's recommendations and compensate those who were foolish enough to believe in Government information. The ombudsman said that the Government had provided information that was

"inaccurate, incomplete, unclear and inconsistent"—

if I may jog the Chancellor's memory. If an independent report had made a similar judgment about the actions of the Tory Government when the Chancellor was in opposition, his wrath would have been wondrous to behold.

We know that there is a broad consensus of agreement around the recent report by Adair Turner and that there is an existing blueprint for pensions reform that is available and capable of implementation. It seems that it is only the Treasury that stands in the way. Of course, chairmen of commissions cannot expect automatic acceptance, but Adair Turner is entitled to a real sense of grievance. The problem of pensions is set to get worse as the demographic balance of this country changes.

The Budget was an opportunity. In a period of relative stability, with low inflation and stable employment, the Chancellor had an opportunity to show his worth. He could have tackled the unfair tax system; he could have made the environment a priority; he could have faced up to the pensions crisis; and he could have addressed the problem of personal debt. He has declined to do any of those things. This a legacy from which it will be difficult for him to escape. [Interruption.]

Order. Will Members who are leaving the Chamber please do so as quickly and quietly as possible?

It is a pleasure to contribute to the debate. I congratulate the Chancellor on his 10th Budget. He spoke for about 60 minutes and enlightened us. Sadly, the Leader of the Opposition spoke for eight minutes, so he has an awful long way to go to give us an insight into what the Conservative party's thinking is on the economy. It must be the shortest speech on record. I think that that is rather disgraceful and a discourtesy to the House.

In 1997, The Times described the Chancellor's first Budget as a

"common sense budget that deserves support".

We can echo that today, 10 years later. I note that he broke with tradition then. He held his Budget on a Wednesday and eschewed the traditional right of a Chancellor to drink Scotch whisky when he presented it. Instead, he favoured Scottish mineral water. I congratulate him, though, on being consistent on Scotch whisky and having a freeze on duty for all these years. That is good news for constituents in my area, where we have whisky plants. I also note that the FTSE 100 was 4,751 on the day of the Chancellor's first Budget and is now 5,985. That underlines a decade of economic prosperity and stability.

I also note that the Chancellor described 2005 as being the toughest year of his chancellorship, with the virtual doubling of oil and commodity prices, as well as a slow-down in the UK's main export market, which is Europe, and the country having to adjust to a more sustainable house price growth in the UK housing sector.

Is the right hon. Gentleman aware that since 1997, our stock market has been one of the worst performing stock markets of any major industrialised nation in the western world? Does he think that the Chancellor should take some responsibility for that?

Only in the past week or two, I had the opportunity to have meetings with people from the London stock exchange and such comments never passed their lips. In fact, they said that they are on a high, that equities are good and that they are looking forward to keeping themselves independent and not having NASDAQ or Macquarie coming in. The vibrations from the City are very good. I suggest that the hon. Gentleman follows my example, goes to the City, speaks to people and gets an understanding of what the City is about.

In addition to the Leader of the Opposition's speech being the shortest that any of us can remember, does my right hon. Friend agree that it was also the most feeble, because it failed at any point to respond to any of the measures that the Chancellor had outlined?

I would not want to be discourteous to the right hon. Member for Witney (Mr. Cameron), but what I can say is that I was left bemused about the future direction of the Conservative party on economic policy. We all found that. It is about time that the Conservatives came up to the plate and explained to us what their actual policies are. As one politician said in American, where is the meat? That is what we are looking for.

I welcome the investment in education that the Chancellor announced today. I did not hear about this from the official Opposition, but the fact that we have an ambition to match spending in public schools with that in private schools must be a good thing. I hope that they go back and, in their clubs and social events, mention that the country has made a great innovative move. There are other people in society who will benefit from their education in the same way as they have done. I can only commend that move by the Chancellor.

I also commend the extra investment in science and infrastructure. I speak as a former science teacher and I know that, as someone from a science and engineering background, I am in a minority in the House. If we are to tackle the competitive issues that face the country, which the Chancellor has outlined, we need to ensure that we increase the number of science and engineering graduates in this country. We should be mindful of the fact that the Chancellor said that China is producing 4 million graduates.

I would be interested to know what the right hon. Gentleman feels about the Government not supporting Sussex university, which is to close its five-star chemistry department.

It is a matter for universities to decide what they do and on what particular issues they focus. What I would be concerned about is if the country as a whole—UK plc—was not facing up to and addressing the national shortage of science and engineering graduates. We must focus on the big picture.

As well as the science infrastructure, I welcome the investment in the Olympics, as the right hon. and learned Member for North-East Fife (Sir Menzies Campbell) mentioned. It is important to give our young people opportunities and ambitions. That investment, as well as the investment in child tax credits and child trust funds, can only be well used. Inculcating the savings habit in young people is increasingly important, and ensuring that those on lower incomes enjoy being involved in the savings environment is also extremely important.

Does the right hon. Gentleman agree that as the Chancellor of the Exchequer inherited the strongest economy in Europe, he should have been in a position to deliver the first target for the reduction in child poverty by 2004–05? Does he join me in decrying the fact that hundreds of thousands of children remain in poverty when the Government had the means and stated the aim of doing away with it?

I am aware that in 1997 the Labour Government inherited an unemployment rate of 3 million. Since 1997, we have produced 2 million jobs, and that is the best antidote to poverty. I speak as an ex-school teacher, as I mentioned earlier, and one of the sad features of life when I was teaching in the 1970s and 1980s was meeting young people five or 10 years after they had left school who had yet to get a job. If people do not have a job, they are not fulfilled and they do not contribute to society—it is a spiral of decline. It is important to provide jobs, and I commend the Government on those extra 2 million jobs.

This was the first Government with the stated aim of reducing child poverty. The Chancellor mentioned the 700,000 who had been lifted out of poverty, and that can only be a good thing. Is there a bigger hill to climb? Of course there is, and I would like to think that we could all tackle it together.

Would not comments from the Opposition about child poverty have greater credibility if they would make the pledge to eradicate child poverty in a generation and match our commitment to help the poorest families out of poverty? Is not the reason they do not do that because under their third fiscal rule they would not make the spending available to conquer poverty?

I agree that if we could achieve our aims and ambitions on a consensual basis it would be good. The Leader of the Opposition has still to flesh out his economic policy, and that is one suggestion that he could take on board.

Perhaps we should be more understanding of the Leader of the Opposition's position. He has asked the right hon. Member for Wokingham (Mr. Redwood) to discover his economic policies for him over the next two years. Until the right hon. Gentleman has come up with the plan, it will be hard for the Leader of the Opposition to respond to any Budget. However, the third fiscal rule will make it very hard for the Conservatives to match our pledge on education spending. If they intend to cut spending as a percentage of GDP, it will result in lower spending on science and education.

I look forward to the recommendations that the right hon. Member for Wokingham (Mr. Redwood) produces, because to use skiing terminology, he is exciting and he goes off piste a lot. I am sure that we may look forward to some innovative suggestions in the future.

The Treasury Committee is considering savings issues at present and recently examined the issue of tax credits. Tax credits are a good scheme, but they must be delivered in practice. My right hon. Friend the Member for Birkenhead (Mr. Field) gave evidence to the Committee and I know that my right hon. Friend the Paymaster General has read the transcript, but it is worth underlining what he said. I suggest that trying to modify the tax credit system runs the danger of it starting to perform like the Child Support Agency. The choice is between a flexible system or a fixed award. As my right hon. Friend the Member for Birkenhead pointed out, if we change to the fixed award, Members of Parliament will be inundated with complaints about the unfairness of a scheme that does not quickly take into account changed circumstances. I suggest that my right hon. Friend the Paymaster General stays the course.

The Committee visited Preston to examine the IT in the tax credit office. From our experience and that of our constituents, we know that not all the information is on the computers when they telephone that office. The IT system is in much need of repair, so I hope that my right hon. Friend takes up the comments made by the Committee on that point.

The Committee is also holding a short inquiry on the Turner report and the pension recommendations. It will be short because we want to be able to publish our report before the White Paper is produced. Our focus will be on the design of the national pension savings scheme and the role of financial services regulation.

I am delighted that the right hon. Gentleman has raised, openly and transparently, the matter of pensions. Would he comment on the tens of thousands of people in occupational pension schemes who have lost their pensions, especially since the Chancellor took more than £5 billion a year from them, from his first Budget onwards, by the changes to advance corporation tax? Does the right hon. Gentleman think that it would have been a good investment, among the Chancellor's largesse today, to allow those people to benefit from the findings of the parliamentary ombudsman, Mrs. Abraham, in their favour, due to maladministration by the Government?

The hon. Gentleman has conflated two issues. On the first issue, I believe that some 85,000 workers are involved, including some of my constituency. One can have nothing but real sorrow for their plight. However, when it comes to macro- economic issues and Government commitments on public expenditure, it is evident that neither the Government nor the Opposition are willing to make a proposal. My right hon. Friend the Prime Minister asked last week whether the taxpayer should pick up the bill for those schemes. I accept that point, but I hope that discussions will continue because it was only yesterday that many of those affected came to lobby us on that issue.

Does the right hon. Gentleman share my disappointment that pensioner poverty was largely ignored in the Budget? In particular, the opportunity was lost to introduce a decent state pension for all pensioners. Many of those eligible do not claim the means-tested pension credit, so should not the proposals by Adair Turner be implemented instead?

The hon. Lady and I share a constituency boundary: she represents East Dunbartonshire and I represent West Dunbartonshire—

West is best.

That may be so, but the hon. Lady's constituency is more affluent than mine. Irrespective of where I go in my constituency, including social clubs for pensioners, people are grateful for the pension credit that the Government have introduced. There is now much more money in pensioners' pockets. If the hon. Lady is suggesting that there is a case for examining the position in the medium and long term, I agree, but a short-term solution has been found to pensioner poverty. We may have to embrace the medium and long-term issues in the pension report.

Does the right hon. Gentleman agree that 1.7 million pensioners who are entitled to pension credit do not receive it and that that is a scandal that needs urgent attention?

I recommend that the hon. Lady does what I and several other hon. Members have done. In conjunction with the Pension Service, we have held meetings in our constituencies to encourage people to apply for the pension credit. The Department for Work and Pensions has been very helpful to me and other hon. Members in organising such open days.

The Turner commission report raised two or three other important issues, including industry regulation. We know that the industry's commission-based model has produced inherent conflicts of interest that successive Governments have used regulation to manage. The mis-selling scandals led to tighter regulation, which, while protecting some consumers, has increased distribution costs and made it uneconomic for the long-term savings industry to service consumers on below-average incomes. Embracing the needs of lower-income consumers is one of the issues with which Turner, the Government and others will have to grapple. As Turner pointed out,

"it is very difficult for the financial services industry to sell pensions to people of average earnings and below, working for small and medium size companies, or even to sell pension schemes to their employers, at annual management charges sufficiently high enough for them to make a profit but sufficiently low enough to represent good value for money for the person saving".

That highlights the need for two solutions: first, the Government need to make the pension system simpler, to reduce the cost of regulated advice; and secondly, the industry needs to develop and encourage the take-up of simple, low-cost stakeholder products for that larger market.

The Financial Services Authority has a role in that regard. It did not go as far as it could on simpler regulation for stakeholder products—we have to get regulation right before we start considering the management costs, which must be low. Turner recommended 0.3 per cent. and at the weekend Aviva became the first insurance company to propose a figure, which was 0.6 per cent. However, we should be striving to reach Turner's figure.

The fiscal policy framework has stood the test of time. The Chancellor mentioned that the golden rule had been met, but the Treasury Committee and the International Monetary Fund consider that current fiscal rules may need strengthening towards the end of an economic cycle, to reinforce the credibility of the framework. The Committee will reconsider that issue over the next few months.

Some of the challenges to the framework will come in the form of the spending pressures to which the Government will have to respond in the 2007 comprehensive spending review. Their capacity to do so successfully will be enhanced if their preparations are transparent and Members and Select Committees can both examine and contribute to the process, so I welcome the announcement about independence for the Office for National Statistics. I received a letter about the proposals from my hon. Friend the Financial Secretary to the Treasury, which stated that the Government are

"entrenching independence in legislation . . . introducing direct reporting and accountability to Parliament, rather than through Ministers".

So I presume that it will be through the Treasury Committee. The letter noted that the Government were

"placing a statutory responsibility on a new independent governing board to assess and approve all National Statistics against the code of practice, also backed by statute"

and

"making key appointments to the board through open and fair competition".

As the Minister knows, an open and fair appointments system is important. Next year will be the 10th anniversary of the establishment of the Monetary Policy Committee, which may be a good time look at openness and transparency in appointments to such bodies. Given our experience of the work of the MPC over the past 10 years, I want Ministers to anticipate issues and problems, so that if they come up in Parliament the appointments system can be seen to be open and fair.

It is important that statistics services are seen to be independent. In February, a MORI survey of public opinion on statistics for the Statistics Commission found that there was

"little consensus on whether the statistical service is subject to undue influence from the Government. Many, in particular those with a connection to Parliament, are confident that the statistical service operates independently and with integrity".

I am sure that we would find that view in the House—but it is not the House that matters, it is the outside world. The survey continued:

"However, for those outside the 'Westminster sphere of influence', there is far more scepticism as to whether this is actually the case. While most still regard the ONS as an authoritative, trusted source of information, there are doubts over the validity of figures produced by individual Government departments."

As the Finance Bill goes through the House, it is important that Ministers take account of that point, which will also be of interest to Members in Committee.

The Chancellor was correct to stress the measures we need to adopt to enhance the UK's global competitiveness. That is welcome, not least for women. The women and work commission produced a report in February, "Shaping a Fairer Future", which set out 40 practical recommendations to tackle job segregation and the gender pay gap, which still exists despite 30 years of equal pay legislation. The only way that we will respond to global challenges on competitiveness is to ensure that we upgrade our skills, so I welcome the continuation of the new deal and the upgrading of skills, especially for women in low-paid employment.

The Treasury Committee has been seized by what globalisation will mean for the UK. We have undertaken an inquiry into globalisation, to which both the Governor of the Bank of England and the Chancellor have agreed to give evidence. Part of our inquiry will look at the role of the IMF. The Chancellor and the Governor—in a speech a month or so back—have both focused on the IMF, about which there are a number of fundamental questions.

What is the fund for? Do we need an IMF? Is there a role for a multilateral monetary system and, if so, what is it? In 1946, the international monetary system was built around fixed exchange rates and controls on capital investment, and each country met its international responsibilities by running a balanced current account. That is a world away from the situation faced by financial services in the 21st century. The IMF is increasingly seen as the lender of last resort, and until the repayment of loans by Argentina and Brazil, 70 per cent. of its outstanding loans were to only three countries. The IMF lending book is the lowest that it has ever been, and we can be sure that the Asian economies, including Japan, having built up their foreign exchange reserves, will not be coming back to the IMF. They were scarred by the experience of the 1990s.

The IMF has a number of tasks, especially at a time of such massive global imbalances. It should be a forum for transparent discussion of the way forward with national Governments about risks to the world economy. Recently, the Treasury Committee visited the United States where we had the opportunity to talk to a wide number of people. One issue relating to economic risk is trade protectionism, and the possibility of its being translated into policy change in the US should not be dismissed. It is a risk and a Bill proposing further protectionism is currently before Congress. However, it is important that we emphasise to our US colleagues that protectionism will not get us anywhere.

There is also a risk of sharp adjustments in US current accounts spilling over to sharp adjustments in assets, markets and energy prices. The high and volatile energy market remains a concern in a globalised world where new alliances are being formed in the global economy.

A new world order has been established, as people have indicated, and the US economic hegemony is being challenged by the rise of the new economic superpowers, so an understanding of global economic development no longer needs to begin in Washington—hence the Treasury Committee in its inquiry has already visited China and, in June, hopes to visit India, which has been labelled the new China. I will not go over all the statistics on China—most hon. Members are familiar with them—but the UK needs policy responses to them.

The Government have indicated that they have a UK-China task force and have identified five key issues, with which I agree—energy, financial services, water, health care and information and communications technology—but I suggest to Ministers that we should also take on board both education and legal services. On a visit to Hong Kong in September, at the invitation of the Hong Kong Government, it was obvious that there are opportunities in education and legal services, and Hong Kong is a good base for us to be involved in that exercise.

We have globalisation at a time of threats in the US and in Europe. We saw the almost xenophobic response by people in France and Belgium to the possible takeover of the steelmaker Areclor by Mr. Mittal. We saw the US reaction to the P&O takeover by Dubai Ports World. Only in the past couple of weeks, we have seen the locking out of an Italian energy company by the French, who designated 11 sensitive sectors that must be safeguarded against foreign bids.

We must avoid a perilous collision between nationalism and globalisation. Therefore, it is very important to have a cross-party view on the issue so that we can respond to the long-term challenges, which have a habit of coming sooner than we expect. The Chancellor is right to focus on those long-term challenges, but we also have short-term challenges, on which the Treasury Committee will, no doubt, examine the Chancellor. Over two and half hours, all of us who serve on the Committee will have an opportunity to pinpoint those issues.

The right hon. Gentleman is the Chairman of a very important Select Committee and he has just referred to international business takeovers. Does he think that the people and Governments of countries must take a view on globalisation and decide whether every takeover will be beneficial? Does he agree that they should consider not only the long-term survival of the company in question, but the impact on employment in the communities where the companies are being taken over and the benefits or disbenefits that the takeover might bring to those localities and countries? That is not just nationalism, it is good sense.

I agree with the hon. Gentleman. At the end of the day, globalisation has been a good thing. For example, consumers have found that electrical goods and clothing have been cheaper as a result. US consumers have been able to spend because China and other Asian countries are holding the dollar as their foreign exchange reserves. There are good aspects to globalisation, but there are drawbacks as well. Increasingly over the years, some of our communities will be affected by them.

Do we have a policy response to the trends that will take place in the future? It is important to have such a debate now. The Treasury Committee is looking at the issue now and we share our information with the House. There is no doubt that a number of us will experience the local effect of the downsides of globalisation, but I am sure that we can debate that as time goes on and consider those issues with a common view, so that we find both an understanding of what is happening in the world and an appropriate policy response for our country, which will help both its competitiveness and prosperity in the future.

I have declared my interests in the Register of Members' Interests, and I should like to remind the House that I am a director of companies in both services and manufacturing and I am a director of a pension trustee company of one of those companies.

It is a great pity that the Chancellor of the Exchequer presents his case in such a selective way. I certainly welcome in his remarks today the proposition that we should have a independent eye cast over how the figures are compiled, and I hope that that independent eye will also be able to give advice to the Chancellor, which we can know about, on how the figures should be presented on big occasions such as this. It makes for a much better debate if we have an honest and full account of what is going on in the economy. For our part, we can accept that not everything is bad, but we would like the Chancellor to agree that not everything is good.

It is extremely good that we are debating the economy yet again against the background of continuous months, quarters and years of output growth, since we righted the economy after the bad mistake of the exchange rate mechanism—a policy recommended by Labour to the then Conservative Government, but a policy that Labour seems to have forgotten that it was part father and mother to. Since we came out of that most unfortunate experiment and since the Conservative Government put in place the foundations of fiscal discipline and greater productivity growth, the economy has grown extremely well. The continuous growth under Governments of both parties is extremely welcome.

If we look at the Chancellor's views on growth, we must accept—I trust that Labour Members will accept—that we are reviewing a disappointing year. In 2005, the Chancellor tells us that output growth was down to only 1.75 per cent., compared with, as he helpfully tells us, real GDP growth that averages 2.5 per cent. in the major seven countries and 4.5 per cent. in the world overall. So that shows Britain growing not only at under half the world average rate, but at considerably below the growth rate of large, advanced countries.

If we turn to the Chancellor's forecasts, we see that he thinks that the economy will grow by between 2 and 2.5 per cent. this year. If we are charitable and say that he thinks that it will grow at 2.25 per cent.—I fear that he thinks that it will grow at 2 per cent.—that compares again with what he thinks will be a rather better performance by the major seven countries, with growth at an average of 2.5 per cent., and an overall world performance of 4.5 per cent. yet again.

The first question that we need to ask in reviewing the Budget measures is whether the Chancellor is now planning to put in place measures that are sufficient to get Britain at least up to the average growth rate of the major countries in the world, or even better, to get us above the average of the major countries of the world, because we have clearly slipped some way below them in recent months and recent quarters.

The Chancellor also gives us the latest projections on his borrowing. The Leader of the Opposition, my right hon. Friend the Member for Witney (Mr. Cameron) gave a superb response to the Budget, and its brevity was matched by its brilliance. There is no need for the Leader of the Opposition to give a very long speech if he has gone to the trouble of preparing an excellent short speech that makes all the crucial points. One of the crucial points on which my right hon. Friend immediately homed in, although he did not have very long to read the documents, was the way in which the Chancellor intends to borrow so much money over the review period set out in the Budget forecast that we have just received.

My right hon. Friend said that the Chancellor plans to borrow £175 billion, on the published figures, through the public sector accounts over that period. Like my right hon. Friend, I think that that is very dangerous. If we are going to live through a period of reasonable growth, surely that is exactly the point in the cycle where we should cut public borrowing rather more sharply than the Chancellor forecasts, preferably by the growth in revenues from faster economic growth, but also from pursuing the initiatives that the Chancellor always promises that he is taking to gain greater efficiency in the public services and public sector and to cut the public overheads.

The Chancellor suggests instead very slow progress indeed: £37 billion of borrowing in the year just finishing; £36 billion of borrowing in the year about to start; and another £30 billion of borrowing in 2007–08. If only that were the end of it, I suppose that it would meet the wishes of the Labour party, but of course that is not the end of it because we know that there will be an awful lot of off-balance-sheet borrowing, too. There is no reference in the stock of debt figures to the £20-odd billion of borrowings and guaranteed moneys that have already been pushed the way of the effectively renationalised railway company. Strange accounting procedures are followed for all the private finance initiative and public-private partnership projects in which the Government have indulged on a grand scale.

Does my right hon. Friend agree that many British taxpayers will get a nasty shock over the coming years when they find that they suddenly have to start paying for hospitals that they thought that their new and extra taxes had already paid for?

My hon. Friend makes an excellent point.

From rough mental arithmetic, the published figure of £175 billion represents about £3,000 for every man, woman and child in the country. The Chancellor is thus asking every one of us to sign up to an additional £3,000 mortgage. On top of that, there will be additional mortgages for PFI, PPP and off-balance-sheet items, including the railways, which will probably be another £1,000 or £2,000. There will thus be a substantial increase in the national mortgage per head on top of the billions that the Chancellor has already borrowed and accounted for and those for which he has not accounted. Given that there is already quite a lot of debt in the private sector, the Chancellor should be more careful when building up public debt. After all, public debt is tax deferred; we or our children have to repay all that money with interest.

I would be interested to hear my right hon. Friend's comments about the fact that up to £800 billion might be held off balance sheet. Should not the Chancellor be far more transparent in his accounts? Is that not the issue with which we should be dealing?

My hon. Friend is right to extend my argument even further. He is pointing out that we should account properly for not only borrowings that are guaranteed but not in the documents, such as the railway borrowings, and the contingent liabilities of all the PPP and PFI projects, but the massive contingent liabilities in the pensions area throughout the public sector.

I will accelerate my argument because of my hon. Friend's question, although I was going to refer to this matter later. The Government have just said to all private businesses that they must not only have recent calculations of the deficits in their pension funds, but write those deficits on to their company's balance sheets. I understand the logic of that, and FRS 17 is the standard under the Government's requirements. My plea is not that the rule is changed for companies, but that the same rule is applied to the Government. It is obvious that the Government have a massive deficit on the pension account because they—Governments of all parties have done this over the years—have built up huge liabilities, but not provided any assets on the other side of the account to pay for them. We need honest public accounts that match the clarity and honesty of private sector company accounts to show us the contingent liabilities of all the pension funds.

The Government may well counter my point by saying that one can deduce, by reading carefully the Red Book and other sources, the annual payments under the PFI and PPP contracts. However, that is not sufficient because it is a flow—an income statement—for each year. We need to know the contingent liability, which is how many times the income must be paid to get rid of the contract, or how much would have to be paid to rescue the contract if the company went bust or the contract went wrong. It is how much would need to be paid to reinstate the service if there was a breakdown. We need an accurate figure for that kind of contingency.

We know that sadly such contracts go wrong from time to time. We can expect new Governments to be elected who would like to change the arrangements, but there would be a substantial price for doing so. For example, it might prove penal to get out of the London tube contract because it is very bad. We need on the face of Government accounts a clear statement of what the contingent liability costs of all the private arrangements would be, in addition to the guaranteed borrowings and the pension liabilities.

My concluding point on debt is simple and echoes the comments of my right hon. Friend. We are borrowing too much as a nation both through the public accounts and outside the public accounts under Government initiative and with Government encouragement. As a period of moderate to reasonable growth of the economy is forecast, we ought to rein back that debt more quickly.

I think that the right hon. Gentleman has been drawing on the information in table 2.4 on page 31 of the Red Book. If he looks at the back of the Red Book, he will see a table on previous borrowings. The Conservatives were in office between 1979 and 1997, and during 11 of those 18 years, the percentage of GDP that borrowing represented was considerably higher than it has been in any year under this Government since 1997. I think that I am right in saying that in all those 11 years, borrowing was well over 40 per cent. of GDP. Does the right hon. Gentleman decry the past of his party, during some of which time he was in government.

I have already said that an economic mistake was made during the Conservative years. The mistake was backed and encouraged by the Labour party, but I never supported it. Yes, we borrowed more than we would have liked because of that mistake. The hon. Gentleman makes a party political point while I am trying to give a sensible analysis of the true position, so I would say that quite a lot of that debt was incurred to clear up the mess that Labour left behind in 1979, when we inherited a grossly over-borrowed and overtaxed country. Of course, the borrowing was especially high because Labour did not want to confess just how much it had to put up taxes to pay for the spending on its accounts.

Perhaps I can help my right hon. Friend in answering the question raised by the hon. Member for Wolverhampton, South-West (Rob Marris). The problem goes back to the point about transparency that I made earlier. If one adds together the money that is off balance sheet and the amount that is on balance sheet, it comes to roughly £1.3 trillion, which is 105 per cent. of GDP, not 35 per cent.

Once again my hon. Friend makes his point extremely powerfully. I note that the amount has gone up by several hundred billions while he has been sitting next to me. I have seen the figure of £1.3 trillion in public commentaries and the press. It must be right if it has appeared in the newspapers, must it not? Although I have not done the calculations myself, the figure feels about right. We can leave the House with the clear understanding that there is £1 trillion or so of liabilities, many of which are not stated in the figures. Such liabilities are serious for all taxpayers and our children, so a more honest recognition of the situation would be helpful.

I will make a final comment on the fiscal balances in table 2.4. It is a great pity that we do not have an honest account from the Chancellor of exactly what the cycle is. It is also a great pity that he does not stick to the same cycle each time he presents his figures because that would give far more cogency.

I want to be sure that I have not misheard the right hon. Gentleman. Did he say that he thought that there was £1 trillion of off-balance-sheet liabilities?

I am saying that there are about £1 trillion of liabilities, which are mainly pension liabilities. The hon. Gentleman should realise how expensive many public sector pensions will be and that practically all of them are without a fund. Fortunately, the House of Commons is not in that category because we have a properly funded scheme to which Members contribute and local government is also not in that position, although there are some deficits in local government schemes. However, there is nothing but deficits when it comes to all the unfunded schemes, and there should be a recognition of that in the accounts.

Just to be accurate, I believe that approximately £436 billion is on balance sheet and about another £150 billion is off balance sheet, which is where we get the figure of £1.3 trillion from— [Hon. Members: "What?"]

rose—

Not £450 billion; £850 billion.

Order. Despite the enthusiasm of the hon. Member for Braintree (Mr. Newmark), the right hon. Member for Wokingham (Mr. Redwood) has the floor.

I am grateful to you, Madam Deputy Speaker, for your usual courtesy.

The hon. Member for Eastleigh (Chris Huhne) should do some more homework. I know that he has been busy losing the leadership of his party, but he should do a little bit of reading. If he reads the figures in the Red Book on the amount of outstanding national borrowing and adds to that the pension deficits of the funded public sector schemes, the PFI and PPP contingent liabilities, the debt that has not gone through the books that should have done so, and the very large figure for unfunded pension liabilities, he would not have change out of £1 trillion. It is a good round figure that should help to inform the debate. I will leave it at £1 trillion because I have not myself done the calculation down to the second decimal point. However, I have looked at the general arguments and I am satisfied that that is the order of magnitude to which the Chancellor needs to face up.

That brings me to box 2.5—a fascinating little aside in the Chancellor's rambles through the state of the British economy—with the catchy title "Low yields and the Government bond market". Normally, one's eyes would glaze over and one would pass hurriedly on, because it is usually a subject for anoraks only and I do not regard myself as being in that category. [Hon. Members: "Oh!"] I know that I have been regarded as an interesting skier off-piste, which I found fascinating as I have never taken to the slopes on the continent of Europe in that way.

However, I am interested in that box, and the House should be interested in it, too, because there is a serious danger that we are living through unnatural times in the bond market. Those unnatural times are already having a dramatic impact on the real economy, and they could have an even more dramatic and adverse impact on the real economy if the problem is not handled well.

The problem began when the Chancellor, encouraged by the Prime Minister no doubt, thought that he had discovered that elixir of Labour Chancellors—a stealth tax that would raise a huge amount of money which would do no damage and which no one minded. He introduced a tax on the dividend income of British shares held through pension funds and other charitable funds. He has never published an accurate figure for how much that takes.

It is £5 billion.

The general £5 billion-a-year figure is in common circulation. It started at rather less than that, to be fair to the Chancellor, but it is probably now more. It is growing. Let us take it at £5 billion, however, because he will not give us the accurate figure. He would, I am sure, concede that it is a large sum.

If we take £5 billion a year out of pension funds for, say, 10 years of the policy, before Labour loses power, that is £50 billion out of pension funds. That is £50 billion that has not been invested, so perhaps another £20 billion would have been made on that from investment gain in income if it had been available to reinvest. We should then factor in the obvious point, which I made at the time, that the change was bound to hit share values—share prices valued as a stream of income from a company—and that if we tax that stream of income more heavily, it is worthless. I did a back-of-the-envelope calculation when the Chancellor proposed the tax and said that with the market valuing income at 20 times its rate, as it did at the time, the £5 billion off the stream of company income would mean a £100 billion fall in share values. Compared with the fall going on elsewhere in the German, French and American markets at the time, the fall in London was about £100 billion extra for a variety of global as well as national reasons.

Basically, the Chancellor decided to hit the pension funds by about £170 billion over a 10-year period as a result of capital loss income and income reinvested forgone. We now see that the actual deficits may be a bit lower than that, I am pleased to say, because the stock market has started to pick up some of the lost ground that the hit and other factors caused originally, and companies have put a lot of extra money in to try to make good some of the losses caused by the Chancellor. I think that everyone agrees, however, that there is still a serious pension deficit problem.

Just so that I can follow the right hon. Gentleman's argument, perhaps he can explain something. It is curious that he should say that there was a fall unique to the UK market given that we do not have capital controls, thanks to a move that I am sure he supported. Surely foreigners would have been buying our shares if they were such tremendous value, and there would not have been such a fall in the UK market.

The main holders of UK shares at the time the change was made were British people and companies, especially their pension funds. There was bound to be a weight of selling to adjust the market value of those shares which exceeded the appetite from abroad. Hon. Members should remember the background. A fall in the world market took place shortly afterwards, so there was not a great appetite for what foreign companies perceived to be higher-risk overseas shares in a foreign currency at the time when adjustments were made in British portfolios to reflect the diminution in share values.

indicated dissent.

I do not think that the hon. Gentleman understands the situation. It is obvious that share prices were going to fall. He does not have to believe me; he merely has to look at what happened. What is the explanation for the additional fall of the London market if it is not the Chancellor's tax policies, taking income out of the hands of companies and savers?

Will the right hon. Gentleman give way?