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Mr. Darling: Will the right hon. Gentleman give way?
Mr. MacGregor: No. I am almost finished.
Labour is trying to con the electorate into thinking that it would be a low-tax party as well because Labour Members know that that is politically attractive. However, when one examines the totality of their proposals, it is clear that that could not happen under a Labour Government. They would be back to high tax, high borrowing and high spending. On 10 November, the game was given away on "Clive Anderson Talks Back" by the right hon. Member for Chesterfield (Mr. Benn), who said that at present the Labour party did not want to cause trouble internally because it wanted to return to government, but that when
Mr. Deputy Speaker:
Order. Mr. Malcolm Bruce.
"we come to power then you'll find the Labour Party is the same Party it's always been."
That is true. Therefore, the charge of the Labour party being a high-spending party--
7.29 pm
Mr. Malcolm Bruce (Gordon): Following the right hon. Member for South Norfolk (Mr. MacGregor), I support the principle of cutting the roads budget, although we think that the money should have been switched to public transport. I agree with him, however, that that cut should not be at the expense of long-overdue bypasses. It would have been extremely damaging if, as was suggested a little while ago, the Government had frozen all road projects that had not been started. I live in a part of the world where the population has grown by 50,000 in the past 10 years. A number of planned bypasses are just at the point where they should be started and I hope that they will not be further delayed.
I apologise to the Minister who will reply to the debate because, due to a previous engagement, I will not be here for his speech. No discourtesy is intended. No doubt he will take a free kick at the open goal.
This is a cautious Budget because it had to be. The Chancellor of the Exchequer knows that the economy is so sluggish that the most important thing that it needs is a drop in interest rates. The Chief Secretary to the Treasury alluded to that and I understand that today the Confederation of British Industry called for a cut in interest rates. I hope that enough room has been created for that to happen. In my alternative Budget, I made it clear that getting interest rates down was the single most important economic priority.
The other problem and the reason why the Budget had to be cautious is that, although not quite in the terms that the Chief Secretary set out, to some degree, borrowing is out of control. If the Chancellor was not to cause alarm bells in the markets, he had to demonstrate that any changes that he was going to introduce were properly balanced and properly funded.
Having said that, there is a degree of dishonesty in the way in which the Budget has been constructed and presented. The most specific point is that the borrowing position does not justify the standard rate of income tax cut that has been driven by a political imperative that does not square with the Government's analysis last year. The Chief Secretary's predecessor, speaking in the Budget debate just one year ago--bearing it in mind that he was talking about a forecast public sector borrowing requirement deficit of £21 billion for the current year, which is £1 billion less than his successor is forecasting for next year--said:
The Chancellor's own wise men have given him some sort of shot across the bows. In the Financial Times today, Mr. Gavyn Davies of Goldman Sachs says:
Apart from that, the dishonesty involves the fact that on analysis the education commitment is nothing like as generous as the Chancellor sought to make it. The Chief Secretary stated that this was the commitment--from central Government sources, it appears that all that the Government are offering is funding for their pet schemes: the assisted places scheme and the nursery voucher scheme. All the rest of the funding must come out of the local government settlement.
The Chancellor wished to portray himself as a one-nation Tory keen to protect public services when in reality the best that he has done is hold the health budget just about to real health inflation. Although he has put some additional money into increasing the number of police officers, it is a phased introduction and £20 million is not a huge sum in the context of the Budget and it is against the background of cuts elsewhere in the Home Office budget.
Nevertheless, we welcome and will support some modest measures in the Budget. In particular--here I take up the comments of the right hon. Member for South Norfolk--the threshold adjustment and the help for the elderly who need long-term care are needed. Some imaginative new proposals, which again were alluded to, go in the right direction for encouraging people to make provision for themselves and for giving them an incentive to do so.
Not surprisingly, I welcome the 27p reduction in duty on spirits. The Chancellor of the Exchequer did not acknowledge that that was a reversal of the 26 per cent. increase that he introduced last year in a fit of pique after he was defeated on the VAT on fuel issue. Over time, whisky has consistently been our biggest export and home sales have suffered. I am not sure that the Chancellor was being that magnanimous because the indications I have are that his revenue fell as a result of the impact of the tax last year. I hope that he will stop there, listen to the Scotch Whisky Association and reduce duty on spirits so that it is more in line with the alcohol content and the gap is narrowed between beer and wine.
Overall, the Budget is something of a damp squib. For the reasons I have stated, the cut in the standard rate is not justified. We have consistently stated that we believe that education could be funded. We have said that, if necessary, we would increase taxation for it and we will vote against the 1p reduction in income tax and challenge others to support us in so doing.
The Budget's most alarming feature was the uprating of the Government's borrowing forecast. That took even independent commentators by surprise. We knew that it was bad, but not as bad as that. The Chancellor is forecasting that next year's borrowing deficit will be greater than his forecast for the outturn this year. This year's outturn is forecast to overshoot by £7.5 billion. The 1997-98 figure shows borrowing at £15 billion, which is three times the level forecast in last year's Budget. In the past 10 years, the average error in PSBR forecasts has been £11 billion per annum, so it is a big variation and not a firm foundation for definite decisions.
Frankly, the figures are awful and for the reasons that I have stated they could turn out worse. In addition, the wise men do not agree with the Chancellor's forecast that he can achieve 3 per cent. growth. They forecast 2.7 per cent. I hope that the Chancellor is right because clearly we want the economy to sustain higher levels of growth.
After 16 years in government, the Tories have not found the holy grail of sustained economic success. Some things are being done. Reform of the trade unions has been very much for the better and my party supported most of those proposals.
Mr. MacShane:
It would, wouldn't it?
Mr. Bruce:
Indeed it would because we believe in democracy, in industrial democracy in particular, and that the country has been dramatically improved as a result of those industrial relations reforms. I understand that the leader of the Labour party and Labour Front-Bench Members also support them, although they fought them all the way at the time.
The Government have also perhaps helped to deepen the understanding of certain fundamental economic realities such as that enterprises must ultimately make a return on capital if they are to survive. Having said that, the Red Book confirms that the post-war average growth rate of 2.5 per cent. is all that has been delivered under 16 years of Conservative rule. Although there are some important improvements in the underlying economic indicators, we have not yet got to the point where we can say that there is real confidence that permanently low inflation has been achieved.
When the Prime Minister says that inflation is in the box, he is being a little complacent, given the sluggish state of the economy, which is a major fact or in keeping it under control. As a result of that, the Government have not got to the point where we can say that we have stable and competitive interest rates. One of the reasons is that the Government insist on keeping interest rates under political control. All the indications are that that keeps them at a higher base rate than they would be if they were taken out of the immediate political arena, as we Liberal Democrats would wish.
Those may be some of the reasons why investment is low--and it is low, historically, across the board. Last year the Treasury and Civil Service Select Committee was sceptical about Government claims that business investment would be 10.75 per cent. Sure enough, that figure was revised to 3.25 per cent--and the investment forecast for the whole economy was revised from 5.75 per cent. to 1 per cent. Although manufacturing investment is on the increase now, that is after a deep recession. As a percentage of GDP, it is still at an all-time low.
The Government are cutting their own capital spending as a means of helping to get their borrowing under control and trying to justify tax cuts. The private finance initiative has been launched many times, and was originally hailed as a way of boosting public capital spending. The hope was that it would unlock additional resources.
However, the Red Book shows that the forecast increase in the PFI is exactly offset by the forecast cut in the Government's contribution to capital expenditure, so the PFI is now directly substituting for what the Government would have done, and there is no net benefit in terms of the capital expenditure that might have been delivered.
The Chancellor and the Government talk about getting expenditure below 40 per cent. of GDP, but unless they are prepared to explain it, that is a meaningless figure plucked out of the air. If it is to be achieved by economic success, that means reducing unemployment and increasing earnings so that there is less call on the welfare budget, which is obviously the biggest single factor outside the Government's control.
If that is the plan, we need to know what policies the Government have, which they have not shown us over the past 16 years, to achieve that transformation. But to date they have totally failed to deliver. If there is no such magic new policy--there is certainly no evidence of one--the Government can mean only that they favour transferring more of the cost of health, welfare and public service provision to the consumers of those services. Presumably the provision to some of the most vulnerable people in our society will be reduced too--witness today's earlier benefits statement.
If that is what the Government are about, their argument may be perfectly honourable and justifiable, but it is not honest simply to call for public expenditure to be cut to 40 per cent. of GDP or below, without explaining how to achieve that. The Budget was a blatant attempt to sell a false prospectus.
First, the Government claim that there is room for justifiable and sustainable tax cuts, when patently there is not yet. They also claim that spending on health, education, and law and order has been increased. Health has been protected, but spending on law and order has been frozen and, unless the Chief Secretary to the Treasury can clarify the position for me, I shall continue to believe that real investment in education has, if anything, been barely maintained, and may still end up cut.
The Government claim to be providing a big funding boost for education, but they are doing nothing of the kind. That confidence trick involving education makes Liberal Democrats especially angry, because in our alternative Budget we made a commitment to a £2 billion boost as a minimum requirement for education--to deliver the nursery education that all parties claim to want, but for which only the Liberal Democrats are prepared to identify the funding, to reduce class sizes, and to provide more funding for books and materials, and better-quality further and higher education.
The Government claim that education will be boosted by £878 million. But the direct Government contribution will be enough only to finance their pet schemes, nursery vouchers and assisted places. All the rest is to come from the local authorities. The trouble is that this year's allocation to local authorities does no more than reverse last year's cuts. The Government are simply putting us back where we were a year ago.
Even working on the proposals for this year alone, the figures do not stand up. The Government say that there will be a 3.1 per cent. increase from last year's reduced total Government grant support to local authorities. Out of that, plus their council tax income, local authorities are expected to find an extra 4.5 per cent. for education. As education accounts for about half local authority spending, that means that 2.25 per cent. of the 3.1 per cent. increase should be earmarked for education.
"at those levels of borrowing, no prudent domestic or international observer of the British economy should have expected to see tax cuts . . . it is far more important . . . to be right than to be popular."--
[Official Report, 30 November 1994; Vol. 250, c. 1237.]
That is obviously true until one gets to within 18 months of a general election, when clearly it is far more important to be popular than to be right. In the circumstances, inevitably the Chancellor of the Exchequer has been pulled in that direction.
"The target for the public sector borrowing requirement next year . . . is too high, and should not really have permitted sizeable tax cuts. Also, we have probably reached the point where spending plans have been cut so much they become implausible."
That is where the Chief Secretary's mettle will be tested. It is much easier to cut off the forecast figures than to deliver them at the end of the day. I am not saying that
he will not achieve that, but the specifics of how it will be done have not been set out. In a pre-election year, when unpopularity faces the Ministers who preside over cuts, I predict that he will have difficulty delivering them. Consequently, his borrowing forecasts may yet turn out, as they did last year, to be more optimistic than he hopes.
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