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5.50 pm

Mr. Clive Betts (Sheffield, Attercliffe): I want to deal with two major aspects of the Budget. I shall first consider the Government's claim to have found a miracle cure for the ills of the British economy. I believe that the economic recovery is based on shifting sand--far from being a miracle cure, the recovery of the past few years has not been even marginally satisfactory. Secondly, I wish to show that the Budget simply repeats the broken election promises that have littered the Government's record during the past five years.

The recovery that we are now seeing in this country is very fragile. The Government's forecast shows that it is based wholly on growth in consumer expenditure, not on a fundamental improvement in the economy's long-term prospects. I still have some manufacturing and engineering industries left in my constituency--

Mr. McAvoy: You are lucky.

Mr. Betts: As my hon. Friend says, I am lucky. In many parts of the country, the manufacturing sector was largely wiped out in the 1980s. Manufacturing output in this country is slightly less than 2 per cent. higher than it was in 1990--before the recession. That is not a recovery.

Even worse, and even more alarmingly, manufacturing investment has fallen by 14 per cent. in the past year. Far from a recovery led by investment--the base for long-term continual improvement that we should have--the current growth in consumer expenditure could quickly lead to overheating in the economy and the Government having to take measures to deal with it.

All of us with manufacturing industries in our constituencies that should be encouraged to develop are worried about the fragile nature of any consumer boom that the Government may be stoking up. The fragility of the economy also worries consumers, who want higher living standards, but not if they are based on an increasing trade gap as we suck in imports because we cannot produce the goods at home.

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A couple of years ago, firms in my constituency pointed out that, as exporters, their markets were growing--many of them have done relatively well, which is to be welcomed. But the problem was that the growth in exports was based almost wholly on the fact that the Government's economic policy, on which they set so much store at the last general election, collapsed within a few months, when there was a massive devaluation of sterling. That was why our exporters started to do relatively well.

It is also a matter of great concern that, as the pound starts to rise--only a few days ago in the House, the Chancellor was talking up the value of the pound--it will make life much more difficult for our exporters in the months ahead. There is almost certain to be a rise in interest rates to reflect the concerns of the market, both about increasing consumer expenditure and about the unsustainability of that rise. An interest rate rise will have an effect on home owners and a long-term impact on our exporters. The improvements that exporters have seen in the past few years may prove to be short-term and unsustainable.

Mr. Alan Duncan (Rutland and Melton): If a high exchange rate is detrimental to our exports, why has Germany been such a successful exporting country over the past 40 years?

Mr. Betts: That depends on which way round it occurs. The deutschmark has been strong because Germany has had a successful economy. If the hon. Gentleman were to consider the issue that way round, he would answer his own question.

Conservative Members like frequently to refer to Britain as the enterprise centre of Europe, but none of them can seriously doubt that Germany's economy is fundamentally much stronger than this country's. It is simply not good enough for Conservative Members to talk about this country being the enterprise centre of Europe, as though saying it makes it true. It is not true. One only has to consider Britain's place in the international skills table--it dropped to 42nd in 1996--or in the world prosperity league--it has dropped to 18th--to show the true position that it has attained under this Government.

We do not simply have to be concerned about the Budget, its impact and the fact that it does nothing to deal with the problems of manufacturing investment. It has had a bad effect on investment in the public sector.

At the last election, the Government promised to make Britain the best housed country in Europe. That is a sick joke for those in this country who live in appalling housing conditions--the 1.5 million people who live in unfit homes, and the homeless families who visit their local authorities every day to ask for housing. Germany has a bigger gross domestic product per head than this country, but we spend less than half of what Germany does on housing. Despite the fact that, since the last general election, the Government have cut by half the public expenditure on capital investment in housing, the Budget included a further cut of more than £500 million.

We know that the Government do not like local authorities or local authority housing. If they were honest, they would presumably say in their next election

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manifesto that they intend to get rid of local authority housing. They used to believe in the provision of housing through housing associations, but even that seems to have gone by the board. The housing association movement will suffer most from the reduction in housing capital expenditure contained in the Budget.

Next year, housing associations will be allowed to start fewer than 30,000 new homes. In the same week as the Budget was announced, the Secretary of State for the Environment came to the House with new projections showing how many new homes needed to be built in this country. He broadly accepted the recommendations of the Select Committee on the Environment, which said that this country needed about 250,000 new homes each year, of which 100,000 should be in the social rented sector.

There will therefore be a gap of more than 70,000 between the Select Committee's projections of what is needed in the social rented sector and what the Government are prepared to allow. The Government are not making available the necessary funds for housing associations to build new homes.

That is why it is right that the Opposition have made a commitment to release the set-aside capital receipts from the sale of council houses that total about £5 billion. Those receipts are with local authorities, and they are willing to spend them. The Government gave that commitment when they introduced the right-to-buy legislation in 1980. The present Deputy Prime Minister gave a clear commitment that those funds would be made available for local authorities to spend. A future Labour Government will honour that commitment.

Mr. Duncan: Is the hon. Gentleman happy to say that it is Labour party policy immediately to add that £5 billion to the public sector borrowing requirement as a result of releasing those council house receipts?

Mr. Betts: The hon. Gentleman should be aware of accounting conventions, which are the same as those that existed when his right hon. and hon. Friends in government promised to do exactly that with the capital receipts when the right-to-buy legislation was introduced--they promised to allow local authorities to spend them.

Only three years ago, the then Chancellor had a moratorium on the freezing of capital receipts, and allowed local authorities to spend them for a period of 18 months. We have clearly stated that those receipts will be released on a phased basis, so that the construction industry can cope with the increased demand. They will be released, in terms of current accounting conventions, to deal with this country's housing problems, which he and the Government he supports have done nothing to tackle.

Mr. Duncan rose--

Mr. Betts: I shall not give way again to the hon. Gentleman--I have done so twice already.

The other issue relating to public investment is the private finance initiative, which is now merely a device. The Government originally introduced it as a means of adding to public investment, but it is now simply a substitution for investment programmes that were

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previously in the Red Book and have now been taken out. A cut of £2 billion was made in a previous Budget, and that has been continued in this Budget.

Mr. Graham Riddick (Colne Valley): Will the hon. Gentleman explain why, when he was leader of Sheffield council, he decided to spend millions of pounds on the world student games rather than on building new houses, as he is now saying he wants to do?

Mr. Betts: It is interesting that the hon. Gentleman asks that question. In fact, the money was spent not on the world student games, but on infrastructure and investment for new leisure facilities. One million people each year use Sheffield's international swimming pool as a public service. The arena is a major attraction and forms part of the economic regeneration of the Don valley area of Sheffield.

At the same time as we were doing that, Sheffield city council entered into an arrangement with Nationwide building society and various banks and housing associations to create a housing partnership scheme which built more than 2,000 new homes in Sheffield. After we signed that deal, the Government specifically brought in regulations to stop other councils doing the same thing, because we in Sheffield were so successful at building new homes by those methods. I hope that that answers the hon. Gentleman's point.

The PFI is now a substitution--but not an effective substitution--for the cuts in public investment that the Government have previously planned. Go and talk to anyone in the private sector--or, indeed, the public sector--and they will talk about the bureaucracy and delays; the one hospital instead of the 12 that should have been delivered; and the fact that the Government have been unable to deal with the transfer of risk problems on so many schemes. In fact, there is a real problem in the health service related to the transfer and privatisation of clinical responsibilities.

If the Government ever get their plans off the ground, they will be establishing a massive problem of deferred expenditure, with no proper monitoring system--especially in the Department of Health--for accounting for future expenditure commitments. Financing is more costly--at least 2 per cent. more than direct public borrowing. The Treasury accepted, in a note to the Select Committee on the Treasury earlier this year, that there is no difference, in macro-economic terms, between borrowing through the PFI and borrowing directly through the public sector.

Finally, the public finances as presented by the Chancellor are in an appalling state. The Chancellor now says that his aim is to get the public sector borrowing requirement balanced by 2000-01; but every year the Chancellor makes that promise, he moves on by another year the date by which it is to be achieved. Achievement of the target gets no closer as each Budget comes and goes.

The PSBR forecast this year is £26 billion. At the time of the last election, the forecast for this year was £6 billion. That £26 billion figure is £4 billion more than the Chancellor forecast in last year's Budget. Even the forecasts we have contain three elements that are not necessarily sustainable. First, there is the PFI forecast, which has enabled the Chancellor to cut forecasts for

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direct public investment. Is that sustainable, or will we simply not have certain public services if the PFI fails to get off the ground?

Secondly, we have the Government's commitment to deal with tax loopholes, but there is no direct comparison between the money that the Government say they will spend and the money that they say they will save. That calls to mind the "Alice in Wonderland" joke that the Chancellor threw back at my right hon. Friend the Member for Dunfermline, East (Mr. Brown) only a few months ago. The Government are assuming £12 billion in saved revenues over three years, but nobody is quite sure how that will be done.

Finally, we have the sleight of hand in respect of unemployment forecasts for benefits. This is the first time ever that a Government have produced unemployment forecasts--if only hidden ones--so that they can project a reduction in benefit payment costs. That has never been done before: the convention has always been that the Government have based forecasts on unemployment as it stands, not on future reductions that they believe will happen. Such assumptions have never before been made when making forecasts for public finances. That demonstrates the precarious nature of the public finances that the Government are leaving for their successor to deal with.

I have one further issue to deal with--broken promises on taxes and education. Whether the Government promised at the last election to reduce tax year by year, over the lifetime of a Parliament, or overall, or whether they promised to reduce direct taxation, does not really matter, because they have broken all four of those promises, and have done nothing to redeem them in this Budget.

My right hon. Friend the Member for Sedgefield (Mr. Blair) said immediately that, over the lifetime of this Parliament, the average family will have paid more than £2,000 in additional taxation. The increase is clear in terms of the percentage of gross domestic product that is paid in taxation: at the last election, that was 34.25 per cent., but at the next election it will be 36.25 per cent.--an increase of 2 per cent. of GDP.

All that the Government can say in their own defence is that we should be making comparisons with the tax year 1991-92, instead of 1992-93. The Government should face the fact that the last election took place in the tax year 1992-93. That is when they went to the public and made their promises, so it is against the base of that tax year that they should be judged.

On Saturday, The Guardian published an independent analysis of the tax implications of the Budget produced by Coopers and Lybrand--I doubt that the company is a paid-up member of the Labour party. Every salary group--whether single people, married couples or couples with children--paid more tax under this Government. They would all pay more tax in the next tax year than they had paid in the tax year in which the last general election was held. [Interruption.] One or two Conservative Members are muttering, but few people are now willing to challenge the assertion that the Government have broken their promises on taxation, and that people will be paying more in tax at the time of next general election than they were at the last election.

Let us now turn to education. The pretence that there is more money for education in the Budget is a confidence trick played on schools, parents and pupils. The

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Government's statement that standard spending assessments have risen by 3.4 per cent. or £591 million does not produce any new money for education. The SSA system is simply a means of distributing grant among local authorities. In terms of what local authorities can spend in total, the reality is that the spending limits of English counties with education responsibility will, on average, rise by a maximum of 2.2 per cent., and those of the metropolitan districts by 1.8 per cent.

My own authority, Sheffield, will have its capping level increased by only 1 per cent. If the authority decided to spend 3.4 per cent. more on education, it would have to cut all other services--including services to the elderly, libraries and refuse collection--by between 4 and 5 per cent. in real terms. An increase of 3.4 per cent. is roughly what schools need to stand still, all other things being equal, because of rising pupil numbers. That is not a possibility for Sheffield and most other authorities.

The Government therefore have not produced new money. They have told local authorities that they can go ahead and spend more on schools, but they have not mentioned that the price will be cuts in all other services, including social services.

In addition, the Government have held down grant allocations to local authorities to an average of 1.5 per cent. Given that the average capping level rise is only 2 per cent, to provide increases of 3.4 per cent. in education, authorities will have to make cuts in other services. Authorities will also have to impose council tax increases of 6 per cent. to compensate for the inadequate increase in total Government grant.

The Budget headlines are a trick of mirrors or sleight of hand to try to make people believe that there is more money for education, but that those wicked local authorities--of which the Tories now control so few--are preventing the money from getting through to schools.

During Prime Minister's Question Time recently, the hon. Member for Sheffield, Hallam (Sir I. Patnick) claimed that Sheffield, as an authority, was somehow holding back far more than other authorities in terms of central services for education. He got the figures wrong: he quoted a figure of £350 per child for administration in Sheffield's education service, and that is totally untrue.

The £350 figure includes expenditure on items such as supply teaching, psychiatric and welfare services and other important services. The primary head teachers in Sheffield have said that they would rather the local authority provides those services, because the schools get a better deal that way. The actual cost per child of administration in Sheffield is £39. It is £1 above the average--nothing like what the hon. Member for Hallam said, and nothing like the difference that could allow more resources to be released into schools if only the local authority wished.

There is little in the Budget for the unemployed. The Government promised to reduce and eventually abolish capital gains tax and inheritance tax. That will benefit a few richer people. On the other hand, the unemployed and the poor suffer cuts in the training and enterprise council budget and in benefit entitlements.

The Budget does nothing to tackle the economy's underlying failings. It does nothing to repair, or even effectively disguise, the broken promises on tax, housing

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and education, for which the Government are responsible. The electorate will hold the Government accountable for those economic failures and broken promises as soon as they are prepared to put their record to the test of a general election.

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