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Mr. Bruce: I was not criticising the Chancellor--his position was clear. I was criticising the Prime Minister and other members of the Government for trying to avoid admitting that the fiscal stance had been tightened and what that meant. The Chancellor was quite clear about it. My speech will make it clear that I am not in favour of relaxing the fiscal stance.

The Liberal Democrats have, as every year, produced an alternative Budget. I shall not detain the House with the details--[Hon. Members: "Go on."] Well, I could detain the House with the details. It has been extremely well received in the country. [Laughter.] Oh yes, it has. I am assured that the small print of the latest poll shows that the public's confidence in the Conservatives' management of the economy has gone sharply down since the Budget and their confidence in the Liberal Democrats' economic policies has gone up.

Mr. Salmond: Sharply?

Mr. Bruce: Sharply, but, I admit, from a small base.

We have clear priorities that we believe are right for the country. We hoped that the Government would address them. They pretended to address some of them, but, as I shall point out, did not really do so.

Contrary to Government claims, the Budget does not invest in education and training, bring down long-term interest rates or make a significant contribution to the reduction of the deficit, as we would have liked. I know that the hon. Member for Carshalton and Wallington (Mr. Forman) is fond of asking for the explanation, so I should tell him that it continues to be our contention that the complete independence of the United Kingdom reserve bank, as we would like to call it--the Bank of England as it is now called--would contribute towards bringing down interest rates and consequently reducing the cost of borrowing by a worthwhile amount. We pay a premium for the privilege of allowing politicians to interfere with interest rates on a day-to-day basis.

The Budget does not make any particular contribution to assisting people to get back to work, by reforming the benefit system in such a way that people are not actively encouraged to get back to work, and by not making a serious cut in the tax on jobs, which we would have liked to do as part of our environmental tax switch. Incidentally, the Government claim to have introduced some green taxes, which, in principle, we might support, but we object to their just using those taxes as another form of raising revenue without any corresponding offset to ensure that people's habits are changed. The environment is being used as an excuse for taking more money out of people's pockets.

The Financial Secretary to the Treasury (Mr. Michael Jack): Does the hon. Gentleman not agree that raising the starting point of tax and, indeed, expanding the range of the 20p band, which, as my hon. Friend the Member for Fulham (Mr. Carrington) adverted to, effectively precluded a further 400,000 people from paying tax, was a contribution to the work incentive?

Mr. Bruce: I am in favour of such a principle. Indeed, the Liberal Democrats' Budget would have taken 750,000

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people out of paying tax and financed it entirely by a 50 per cent. tax band on earnings over £100,000. Although, of course, I cannot deny that I regard such an effect as a boost to living standards and assisting people back into work, the Financial Secretary is missing my point.

There is a built-in disincentive for people to move from benefit into work because of the risk, especially if jobs are short-term, of losing benefit while they have to reapply for it. The Government must recognise that that is a real factor for people on low incomes, which makes them very unwilling to take jobs that do not have a real prospect of either substantially better earnings than the benefits that they receive or substantially greater security of earnings capacity. As we proposed in our policy documents, that issue could and should have been addressed.

We are recovering from a deep recession, which is, of course, welcome. There cannot be anybody who does not want recovery and want it to continue. I dispute, however, the Government's claim that the recovery has been an economic miracle. What has happened has been a welcome recovery from a recession. The recovery is not a miracle because of the circumstances that surround it--the biggest and most important being the growth of the national debt. The fact remains that, since the Prime Minister took office, the national debt has increased from £160 billion to £340 billion; it has more than doubled in six years.

Mr. Jack: As a proportion of gross domestic product?

Mr. Bruce: It is all very well for the Minister to say that, but the national debt remains a substantial burden that we have to service; it costs all of us. The public sector debt per taxpayer has risen from less than £5,900 to £13,000 since the Prime Minister took office.

Mr. Carrington: I recognise that the debt has gone up, but the hon. Gentleman must recognise that we are one of the few countries in the European Union that will have a sufficiently low debt:GDP ratio to meet the Maastricht criteria. We shall be one of the few countries, on the Maastricht criteria, which could--if we choose to--join the single currency.

Mr. Bruce: I agree with regard to debt, although we have some difficulty with inflation, interest rates and one or two other aspects of the criteria, including--potentially--current borrowing. The hon. Gentleman's intervention is very complacent, given that his party prides itself on sound money and accuses Opposition parties of irresponsibility if they suggest that there is some room for relaxation. The increase in debt since the Prime Minister has been in office has been exceeded only in Germany, which has had to cope with the consequences of reunification. In such circumstances, our relative performance is not good. The fact that others start from a higher base does not justify our not addressing our own problems.

The Chancellor of the Exchequer himself has described borrowing and debt as deferred taxation. Ultimately, such borrowing has to be repaid. In that sense, there ought to

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be consensus across the Floor. The shadow Chancellor acknowledges that there is no room for any relaxation of the basic approach to public expenditure, although we may have differences of view about priorities and the ability to deliver public spending cuts. There is a tendency, even for Conservative Chancellors, to put the deeper cuts further into the future and somewhat to massage the figures in the short term to try to reduce the pain, especially when an election is coming down the track.

As I have said on numerous occasions--the Financial Secretary will have been present on several of them in the past week--there is a tendency for both the major parties to try to defy gravity and suggest that it is possible to get borrowing, inflation and taxes down, while increasing public expenditure, especially in the areas that, apparently, people want. That does not ultimately add up. It certainly cannot be achieved unless we sustain growth for a significant number of years, at a level that no Government--Labour or Conservative--have delivered. That is where I take issue with the Chancellor. He has been rather over-optimistic in his forecast, to try to justify his position, to which the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) drew attention.

The Red Book forecasts that the public sector borrowing requirement will be £26.5 billion, compared with last year's forecast of £22.5 billion. It may be down from last year's outturn, but it is up significantly from last year's forecast. For the following year, the forecast is £19 billion, whereas last year that forecast was £15 billion. For the year after that, the forecast is now £12 billion, compared with the previous forecast of £5 billion. That is a significant alteration, to our disadvantage. The Chancellor's wise men and women, the independent forecasters, are slightly less optimistic. [Interruption.] I am talking only about the average. Such forecasts suggest that the Government are still failing to bring public sector borrowing under control.

I particularly want to draw attention to the scale of the failure in tax cuts. The net tax cuts in 1997-98 will be £735 million, but the tax rises will be £1,085 million for tobacco and petrol, and higher council taxes amounting to between £700 million and £900 million a year. It is no good the hon. Member for Fulham and others saying that that is all to do with irresponsible Labour and Liberal Democrat councils--which the public elected because they were so dissatisfied with the Tories--because that is what the Red Book expects the council tax effect to be; it is what the Government have allowed for and what they are acknowledging will pass through the system. They are therefore recognising, presumably, that, without such latitude, local councils would effectively--probably--go bankrupt.

When one takes the package together, the net tax change is a tax rise of £1,050 million on this year's calculation. That is £41 per annum per income tax payer. The Budget is therefore not a tax-cutting Budget, and the Government are not a tax-cutting Government. I am criticising the Government only on the claims that they have made about themselves. Although the Conservative party claims to be cutting taxes, it has increased taxes and, indeed, is forecasting further increases in the Red Book year on year for the next two to three years. That is not very impressive. The Government have not delivered what they set out to deliver or have claimed to deliver.

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A headline cut in the standard rate of income tax impresses nobody when people realise that more is being taken back through indirect taxes. My contention is that, whatever the justification for the switch from direct to indirect taxes may have been, it has lost its appeal among the electorate, who have begun to see through it at current levels. Cuts in income tax, paid for by rises in indirect tax, hit people on lower incomes harder than they hit people on middle and upper incomes. That is unfair. The Chancellor has also found that indirect taxes are more avoidable than he thought they would be, and that suggests that income tax is still a useful means of raising money. Income tax is, in fact, still the single biggest contributor to the Exchequer.

The Government are now suggesting that tax and social security contributions, as a percentage of gross domestic product, will rise from 35.8 per cent. of GDP in 1996-97 to almost 38 per cent. in 2001-02. That is an extraordinary proposition for a Government who said that they would bring it down. I do not suggest that that rise is wrong, but it is dishonest and disreputable to suggest that the Government were going to do something different. They have not succeeded in bringing taxes down, and there is no sign that they even know how to do so. That is why they have run out of credibility with the electorate.

Government spending also lacks credibility because it is based on unrealistic inflation forecasts. In those circumstances, we could quickly reach a situation in which spending cuts would have to be much deeper and more real if the Government were to stay within their targets. For the Government simply to say that they hope that the revenues will compensate does not bear out the experience of the past two or three years.

I agree with the deputy leader of the Labour party that the initiative of the Deputy Prime Minister--his "spend to save" wheeze--is exactly the sort of approach for which the Government criticise the shadow Chancellor, but they have now decided to adopt it as a policy in their dying months in office.

Nobody denies that improving tax collection and eliminating fraud is worth doing. It is worth spending some money on that and, indeed, it makes me wonder why so many people have been made redundant in Customs and Excise over the past two years. It is, however, questionable whether one can justify a projection of £6 billion of revenue from clearing up a fraud that has not yet been identified.

I wish to conclude my remarks on the particular dishonesty of the Government's claims on education. The Government have claimed that there is a notional increase of £875 million in funding for education, including £830 million extra for schools. The increase, of course, is only in the context of the total standard spending for local authorities going up by 2.5 per cent. The Government, by definition, are saying that local authorities must make drastic cuts elsewhere to fund education. But the Government also want local authorities to increase funding for the police, the fire services and care in the community, and the public expect local authorities to maintain basic services such as planning, economic development, leisure, recreation, social services and home helps. It is dishonest to suggest that that can achieved without serious pain or that the increase in council tax is anything other than a small contribution.

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Local authorities will have to cut essential services and raise council tax to get anywhere near delivering that figure.

It is easy for the Chancellor of the Exchequer to say that he will allow local authorities to spend more--even though it is less than they are already spending--but he will not provide any contribution. In fact, he will give the local authorities less and he will put a cap on what they can tax. He will then claim that he is not responsible for the consequent cuts in services, but the public no longer accept that that is true.

Central Government have a stranglehold on local authorities. The overwhelming majority of local government expenditure comes from Government grants, from taxes paid by the citizenry of this country to the Exchequer. The Government have refused to allow local authorities access to their own revenue and funding, and the consequence is that the Government cannot be held blameless for the effect. The Government wanted tight control over local authorities, and they cannot have it both ways.

As a party, we believe that education is so important that it requires additional investment. In my constituency, in the local authority area of Aberdeenshire, we have rising school rolls and an expanding population. I do not know how we can possibly meet current needs--to build a new academy and expand existing schools--with falling resources. It will not be possible, and the Government fail to take account of the reality in their calculations.

That is why my party opposes putting money into tax cuts. We suggest that the priority is education, and that is why we shall vote against the income tax cuts that are proposed by the Government. We shall divide the House and invite the Opposition to join us, to demonstrate that a credible education policy cannot be funded unless we know where the money will come from.

The proposal to reduce VAT from 8 per cent. to5 per cent. is not our preferred way to help people with fuel poverty. We believe that the utilities have the resources to do much more than that themselves. Indeed, our calculations suggest that the utilities could reduce the average bill by around £85 a year, whereas the benefit of the VAT reduction would be only about £15 a year. Although the VAT cut is not our policy, we recognise the strong feeling across the House that it would help people on low incomes, and we are prepared to support it for that reason.

This is not the Budget of a successful Government who have delivered on their promises. It is an admission of failure from a Government who, after 17 years, have not been able to cut taxes but have increased them, and have not been able to control borrowing but have given us a mountain of debt. They are a Government of failure and it is time that they went and gave way to a Government who can set the right priorities and explain to people how investment in education will be funded honestly, and not by deceit, smoke and mirrors.

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