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9.5 pm
Dr. Lynne Jones (Birmingham, Selly Oak): I agreed with much of what the hon. Member for Eltham (Mr. Bottomley) said. During his speech, I wondered whether he was planning to join my hon. Friend the Member for Stratford-on-Avon (Mr. Howarth) on our Opposition Benches.
I would single out the point that the hon. Member for Eltham made about overseas aid. Like most hon. Members, I have had much lobbying from constituents who are concerned at our failure to honour the commitment to spend 0.7 per cent. of GDP, the United Nations target, on overseas aid. This year it is 0.31 per cent. of GDP and it is set to fall. It will be no relief that the leaked figure of a 12 per cent. cut turns out to be more like 5 or 6 per cent.; that is still far too high. We should increase the overseas aid budget.
I also listened to the speech of the hon. Member for Macclesfield (Mr. Winterton) and, like him, I congratulate the Chancellor of the Exchequer on resisting the calls earlier this year from the Bank of England for an increase in interest rates. I also share the hon. Gentleman's feelings about the scale of the tax cuts that have been announced in the Budget. Many Conservative Members must have been severely disappointed by the low rate of giveaways in the Budget but, in one sense, perhaps the Chancellor was more responsible than most of his Back Benchers wanted to him to be. To that extent, I congratulate him.
Another way of looking at the Budget is to say that the economy is in a far worse state than Conservative Members are prepared to acknowledge and that the Chancellor could not risk giving away more than he has because of the concern that that would have caused in the markets. The priority of most business people is a cut in interest rates, not taxation. That is because they do not share the Chancellor's view, which I think he mentioned five or six times in his speech, that Britain was the enterprise centre of Europe or that we have a modern dynamic economy.
The view of business and finance is more along the lines of the west midlands business survey produced by Price Waterhouse, a Birmingham-based company. The survey showed the lowest level of business confidence since the winter of 1990, and said:
That is hardly in line with the Chancellor's view that all the factors are in place for a continuing recovery.
Although the Conservatives had the bonanza of North sea oil and privatisation receipts, our economy does not have the fundamentals in place.
Mr. Jack:
If life is so bad, why did the Chancellor say in today's statement that investment in manufacturing industry had risen year on year by 12 per cent.?
Dr. Jones:
It is because we must consider the base from which it is rising. In the fourth quarter of 1994, business investment was at its lowest since 1955. Although there has been an increase since the recession, it is still not up to the business investment that we had in 1990. We cannot be proud of that record.
Mr. George Stevenson (Stoke-on-Trent, South):
Does my hon. Friend agree that one of the fundamentals of the Chancellor's speech was his blatant attempt to convince the country that the Government had been in power for only the past three years and not for 16 years, during which time they have created most of the problems which the Chancellor now claims credit for trying to put right?
Dr. Jones:
My hon. Friend is right. The Chancellor claims credit for the recovery after the Government steered us into a recession, first by joining the exchange rate mechanism at a sterling rate that could not be sustained. When we were finally bounced out of that, he claimed that the Government were responsible for the recovery. The policies responsible for the recovery were the exact opposite of those that the previous Chancellor of the Exchequer claimed were important to maintain low inflation and our competitive edge.
We have had export-led growth but, because of the failure to invest in our economy--business investment and public sector investment in research and
development--we do not have the fundamentals in place, which is why the recovery is now faltering. That is why the Chancellor maintains that he has succeeded in slowing down the growth of the economy to a more sustainable rate. He means a sustainable rate of growth of some 2.5 to 2.75 per cent., which is lower than the growth that we have experienced in the overall post-war period. It is certainly not the rate of growth that we need to tackle unemployment and put confidence back into the economy.
The slump in the housing market and the failure to invest are caused by lack of confidence. People are worried about their jobs. Those in work are worried that they may lose their jobs, and the Budget has done little to deal with unemployment. That is why we must look at the whole tenor of the Government's policies over the past 15 or 16 years. The Chancellor said that a low-tax regime was important for a successful economy, but nothing could be further from the truth. Business taxation has been low under this Government, but that low taxation has not been used to invest in our economy. In other countries, where business taxation is higher, those businesses have for some reason maintained much higher investment than exists in this country.
I urge the Government to look at the reports produced by both the Trade and Industry Select Committee and the Science and Technology Select Committee, in which they have suggested measures to encourage investment and the long-term view to be taken by our financial institutions. I am disappointed that the Government did not look at ways of managing business taxation to give incentives for long-term investment. That does not necessarily mean a cut in business taxation; one could argue that increasing business taxation in line with that in more successful economies such as Germany and Japan would bring in some revenue. That would also provide scope for tax incentives for the retention of earnings and long-term investment. Many hon. Members on both sides of the House believe that there is a need for capital allowances to get our business community to invest.
Even if we succeed in upping our investment rate, it is likely that that would not create more jobs. That policy would, however, succeed in stemming the haemorrhage of jobs from manufacturing and would ensure that the manufacturing sector grows and output increases. That is a priority for the wealth-creating base of this country. That policy would, however, merely ensure that unemployment did not increase in the manufacturing and the wealth-creating sectors. It would do little to create more jobs.
We should look for job-creating opportunities through investment in infrastructure projects, for which the business community is desperate. There is a great need for investment in transportation and construction, particularly housing. That brings me on to the private finance initiative.
I believe that the PFI is nonsense. It is a device designed to massage the public sector borrowing requirement to make it look as though Government borrowing is coming down. If we used private finance, all the signs are that, in the long term, it would be more expensive to the taxpayer. One need only consider what has happened in the social housing sector to appreciate that.
For some time, housing associations have been able to borrow on the private markets to top up the Government grant, and thus provide social housing. Those associations have to pay a higher rate of interest to provide those
homes than would be charged to a local authority were it permitted to do the same. It is pure dogma that prevents local authorities from borrowing on their capital assets.
I know that, in my city of Birmingham, the private sector would be only too willing to lend to the city council to finance projects that reaped returns in income from rents and the benefit of getting people back to work. Birmingham, as in many other parts of the country, has thousands of empty houses. Conservative Members have perpetuated the myth of large numbers of empty council houses. In Birmingham, there are about 1,800 empty council homes--1.8 per cent. of the stock. That is about the minimum number when stock is subject to normal turnover, and most of those properties are let within days or weeks. There are, however, 16,000 empty homes in the private sector in Birmingham. That is due to the slump in the housing market. The Budget contains nothing to shift those homes in the market so that people can live in them.
There is insufficient demand in the private market. Councils such as Birmingham should be given permission to repurchase a proportion of those homes and make them available for letting. That would provide homes for those who need them and create work in the construction sector, and get people off the dole. That policy would take some excess homes out of the market and help to create more demand in it.
No such policies have been proposed in the Budget. Not even minimal help has been offered, for example, by allowing local authorities to spend their accumulated housing capital receipts. I admit that Birmingham city council does not have very much in the way of such receipts, but it certainly has the ability to raise capital on the market, and it should be allowed to do so.
Problems would also arise if private finance were used to fund transport infrastructure projects. If private finance were used to invest in the railways, in the end the cost of raising that private capital would be a great deal more than if it had been raised by the public sector. Who would have to pay? Either the taxpayer, in the form of subsidy, or the rail passenger, in increased fares.
It is time that the Government looked at the way in which they define our public sector borrowing requirement. It is right that we should reduce our borrowing; we should not borrow for consumption or to pay for benefits. But borrowing to pay for investment in our future is common sense--any business would agree. If we are to reduce unemployment, we need public sector investment in infrastructure.
We also need investment in another public sector, and I shall spend a few minutes talking about next year's local authority budgets. We have heard the much-lauded announcement of an increase in spending on education which, on the surface, is to be welcomed. But, overall, the resources that go to local authorities are to be increased by about 0.5 per cent., which is insufficient to deal with pay and price increases and the other unavoidable consequences of factors such as pay increments.
In Birmingham, it is estimated that, with those sort of spending targets, we would face a cut of between
£60 million and £68 million in our budgets next year, on top of the £45 million-worth of cuts last year. Nearly 40 per cent. of the budget involves education. Birmingham city council already spends £21 million more than the
Government standard spending assessment. That figure is taken care of in the increase in spending on education. But what is given in one hand is taken away with the other.
It will be impossible for a council such as Birmingham to make cuts of £60 million and maintain its commitment to the £21 million that it is likely to spend over and above the SSA--we would like to spend even more. We shall be spending at the Government SSA level, but that will mean big cuts. That is a kick in the teeth to the council in Birmingham, which has given top priority to education at the expense of other services, including social services which have faced big cuts. Those cuts will result in job losses.
The Government always say that it is important that people should keep more of their own money and that they want to give taxpayers their money back. That may be true of spending that comes out of taxation, particularly unnecessary spending due to high levels of unemployment. If the Government had invested the wealth of North sea oil and had encouraged business investment in wealth creation, we would not have the current high levels of unemployment for which the taxpayer has to pay: the taxpayer pays for the Government's economic failure.
There are other spheres of expenditure where the taxpayer receives poor value for money. I can single out expenditure on the military, which is considerably above the European average. It would have been far better if the Government had, over time, switched money from the defence budget--which is not really a defence budget but a military budget--as happens in other parts of Europe. No one in the House would wish unnecessarily to reduce our military spending so that we do not have a reasonable defence capability. We still have 26,000 troops in Germany. There is scope for moving expenditure and investing in civil employment. There is plenty of scope for us to reduce the defence research and development budget and invest the money in civil R and D--we should do that. We could transfer funding to the DTI and science budget.
Although I would change some aspects of Government spending, however, the taxpayer generally receives excellent value for money. Taxation is a good buy, and by reducing Government spending in some areas we are not doing our best by our citizens. We spend about 6 per cent. of gross national product on the health service, while America, whose citizens rely on private insurance, spends double that amount.
In the case of services in which over-provision leads to inefficiency, collective provision through the taxpayer is the most efficient method. Even after the Government's introduction of the internal market--an unnecessary bureaucracy--our national health service is still effective. The same goes for many services that are provided through local authorities, such as social services and education. Cutting the funds with which local authorities provide those services does the taxpayer no favours: rather than having more money in their pockets, people will have to fork out far more than they have contributed in the past.
As a result of last month's decision to remove the safety net for unemployed people with mortgages, the Government expect to save some £200 million in a full year. Those affected, however, are no longer confident that they will be helped with their mortgage interest
payments if they lose their jobs, and are having to take out private insurance. Notwithstanding one building society's initiative, the majority of societies cannot provide mortgage protection policies free of charge, and premiums will be £4 or £5 a week for the average mortgage. That cut in public expenditure means that citizens will be worse off.
It is said that we cannot afford to maintain the welfare state as we have in the past. The example of long-term care has been cited. The Chancellor announced some changes in the way in which people will pay for such care. Many people must now sell their homes to pay for accommodation of that kind--not just residential care but nursing care. In the past, the national health service made long-term care available, but apparently we cannot afford that now.
What use is a reduction in inheritance tax to people of modest means whose only capital asset is their homes?
Now they are having to sell those homes. It is good that they can now keep a little more money than they could before, but why should they have to pay for nursing care?
Why should they have to give up their modest savings?
The Government are setting up future business for the private insurance companies. The Chancellor's partnership plan is entirely in line with proposals advanced by a company called PPP, or Private Patients Plan, as can be seen in a parliamentary briefing paper entitled "Long-term Care and the Role of Private Provision". It is making the sort of proposals that the Chancellor of the Exchequer is suggesting today--a partnership scheme where the Government will top up private sector insurance.
What will people have to pay for such insurance? The document says:
All the time, whenever there is an undermining of public sector provision and its replacement by private insurance, people get a much worse deal than through the state provision. For example, people moving out of the state earnings-related pension scheme are discovering that they are far worse off as a result of taking out private insurance plans.
Private insurance companies are rubbing their hands with glee because, as a result of the erosion of the welfare state, people are having to take out private insurance policies to cater for all sorts of eventualities that previously would have been paid for from the welfare state. When, therefore, the Government talk about getting
off the backs of taxpayers, they should tell people that they may get tax cuts--although under this Government, because of the Government's economic failures, people have had only tax increases--but that they will have to pay several times over for those cuts in making private provision. They will pay more and receive less, and that is just typical of this Government and of the 16 years of misrule that they have presided over. The Budget will not do anything to recommend the Government to the electorate. The sooner we have a general election, the better.
"Continuation of this for a further six months could constitute the prelude to a recession."
"Savings of £60,000 will be needed to cover the cost of care for a five year period as opposed to a single insurance premium of
£9,000 or £70 per month".
The failure to maintain the fabric of our welfare state is resulting in ordinary individuals of modest means having to take out private insurance policies, and paying out about £70 a month. Tax cuts of the magnitude that we
have had today will not make up for the sort of sums that people are having to pay for these private insurance premiums.
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