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8.38 pm

Mr. Stephen Timms (Newham, North-East): I am pleased to be following the right hon. Member for City of London and Westminster, South (Mr. Brooke). I was

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pleased, too, that he drew attention to the conference that he and I attended at Central hall, Westminster, earlier this week, which addressed the issue of the forgotten 30 per cent. Whatever the defects of its format may have been, it directed attention to a proper concern about the state of our nation.

The stark central fact facing the next Government, as they consider their policies for public expenditure, will be that Britain is more unequal today than it has ever been this century. The very rich have done brilliantly since 1979, but the hardest-up 10 per cent. are 17 per cent. worse off. That inequality is getting worse. Britain is becoming more divided and more troubled every day. At the coming election, the question facing every voter is whether to let that situation carry on getting worse, with the Conservative promises to scrap inheritance tax and capital gains tax--which are paid overwhelmingly by well-off people--or to elect a different Government who will put fairness first and will stop the huge handouts to the rich.

There is no doubt about the size of the task that we face. Study after study has found a growing gulf between the wealthiest and the poorest in Britain. The Institute for Fiscal Studies found in 1994 that the gap between the highest and the lowest wages in the United Kingdom was the biggest since records began. It reported that the wages of the top 10 per cent. of male earners rose from 1.67 times the median wage in 1979 to twice the median in 1993. Meanwhile, the wages of the lowest-earning 10 per cent. fell over the same period from 69 per cent. to 58 per cent. of the median.

Since 1980, earnings inequality has risen faster in Britain than in any other industrial country apart from the United States. We have the third highest proportion of low-paid workers after the United States and Canada. The top 20 per cent. of earners take 67 per cent. of total income, while the proportion taken by the bottom 20 per cent. has fallen from 14 per cent. to 9 per cent. The bottom 10 per cent. take just 2.5 per cent. of total income.

In a survey last year, 90 per cent. of people, including a majority even among the highest-earning groups, said that they believed that the gap between the highest and the lowest incomes was excessive. People know that that inequality is wrong. The Catholic bishops' recent document, "The Common Good", pointed out that a society in which the gap between the top and the bottom is so great is not meeting the common good. Having engineered the conditions in which inequality flourishes, the Government have stood aside and watched, refusing at times even to admit what has happened.

The Government's policies on public spending over 18 years have left a deeply divided nation. Crime flourishes as legitimate economic opportunities become scarcer and young people turn to other means to earn a living. The Deputy Prime Minister said--12 years ago, admittedly--that

He was right. I hope that he is as concerned as I am that in my borough of Newham in east London, 39 per cent. of young people under 25 are without a job and 45 per cent. of households contain nobody in employment.

The heart of my argument is that that yawning inequality harms everybody, not just those at the bottom of the scale. Through our taxes, we all pay for

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unemployment and the price of economic failure. We all suffer if people are scared to go out at night because they think that they might be mugged. We all have to pay for the extra security to protect our homes from burglary. It is a remarkable fact that, whereas in 1979 we spent twice as much on education as we did on the costs of unemployment, today we are spending more on unemployment. We must shift that priority back. The central objective in our public expenditure policy must be to address the deepening inequality.

I was interested to see an article in Monday's Financial Times by a former United States Secretary of Labor. Under the heading, "The menace to prosperity. Widening inequality poses a threat to the US and other societies", he rightly pointed out that

I have three central criticisms of the Government's public expenditure policy over the past 18 years, which has brought us to the position that we are in. First, too little has been spent on investment and too much on consumption. Secondly, too much has been spent on welfare and too little on education. Thirdly, in a rather different category, there has been too much secrecy around the decisions on how Government finances are spent.

There is a striking graph in last month's Bank of England inflation report, showing the proportion of gross domestic product committed to fixed investment in each year since the 1950s. It shows that since 1992, the proportion spent on fixed investment has been at its lowest levels since the mid-1950s. We have a desperately bad record on investment.

Mr. Brooke: I realise that the hon. Gentleman is talking in absolute sums, but I am sure that he would be the first to acknowledge that the absolute sum does not necessarily determine the return on the money.

Mr. Timms: I entirely accept that. My point is that the proportion of our GDP that goes in investment has been very low, particularly since 1992. That has made a big contribution to the problems that I am describing. My right hon. Friend the deputy leader of the Labour party pointed out--I think that I heard him correctly--that we are 19th out of 19 for investment in the OECD.

That is particularly true of public expenditure. The point has been made tellingly recently by Yvette Cooper of The Independent. Although the overall level of public spending as a proportion of GDP has not changed much in the past 20 years, the composition of it has. We are spending far less public money on investment--that can be explained only in part by privatisation having reduced the need for public investment--and far more on current consumption.

Yvette Cooper points out:

On privatisation, she goes on:

    "when assets were sold income streams were lost too, yet the money raised was not invested. Privatisation proceeds were used for tax cuts and to meet current spending bills instead. The gap between the value of the state's physical assets and its financial liabilities . . . has deteriorated badly as a result".

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    After what has happened, it is no wonder that Britain has had trouble meeting its bills and that the Government have been forced to raise taxes significantly since 1992.

The Government's principal response to the problem of inadequate publicly sponsored investment has been the private finance initiative. There are many questions about the way in which that initiative has been implemented and its effects so far. I have a number of questions for the Chief Secretary to the Treasury. The Treasury Committee said in January that it was sceptical about whether the £2.5 billion due to be spent under the PFI in the coming financial year would be achieved, given that by December only about half that amount had been committed. How much of that £2.5 billion has now been committed? According to the Red Book, even assuming that that figure of £2.5 billion is achieved, total publicly sponsored capital spending is due to fall by £300 million next year. Will the figure be even lower, because the £2.5 billion of PFI expenditure will not be achieved?

Another problem with the PFI is the undue secrecy that surrounds the deals. I shall come back to that point later when I talk more generally about the way in which the Government conduct the economy. I believe that hon. Members need to see the details of the deals that have been done, to establish the extent to which value for money has been achieved and to scrutinise properly the spending of taxpayers' money. The excuse for withholding the details from Parliament on the ground that the negotiating position of Departments' future deals would be compromised, is a licence for unnecessary secrecy.

I wonder whether the Chief Secretary will be able to say more about how the Government can justify that defence for secrecy. Will he confirm that the details of the Treasury building PFI redevelopment project will be released as soon as the final contract is signed? Many questions are being asked about that project.

In an earlier intervention, the Chief Secretary haltingly confirmed that not one of the major hospital PFI projects that have been announced has completed the financing deal. At the same time, transport projects under the PFI are surging ahead and apparently yielding 15 per cent. savings, which I welcome. That raises a concern about the extent to which spending priorities are being distorted by the PFI process. I wonder whether the Chief Secretary is concerned that some Departments where projects are well suited to the PFI model, such as Transport, are able to grab the lion's share of investment, while other key Departments are left starved of the necessary investment.

I am also concerned about the monitoring of future PFI commitments. The Department of Health said that it is not collecting the details of PFI commitments incurred by NHS trusts. If that is so, how are the commitments being monitored?

The fundamental problem with the PFI is that far too many square pegs are being bashed into round holes. We need a well-defined set of project types for which private finance is appropriate and those for which it is not--it must be understood by contractors and Departments--instead of the present assumption that everything should be privately financed unless it proves impossible to do a deal.

Another failing to which I want to draw attention is the fact that we spend too much money on welfare and too little on education. In 1978-79 we were spending

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6 per cent. of our GDP on education and training and 2.5 per cent. on income-related benefits. Last year we were spending 5.6 per cent. on education and training and 5.5 per cent. on income-related benefits. Given what was said about education by the right hon. Member for City of London and Westminster, South, I believe that it is important to emphasise that the proportion of our GDP being spent on education has fallen. This year, we shall be spending more on income-related benefits than on education and training. Those figures eloquently make the case for a windfall tax. We need to make a serious investment to shift people off welfare and into work, so that we can reduce the amount of GDP being spent on benefits and increase the amount going to education and training.

My third criticism is about the undue secrecy in the process. I believe that I am right to say that it was the current Secretary of State for Defence who announced in 1992 the process of fundamental expenditure reviews. We have only the haziest idea about what has happened to those reviews since that time. Very little has been published. The Treasury has published the results of its review and I congratulate it on doing so. The Department of Social Security has published a couple of background papers from its review, but beyond that, hardly anything has appeared.

There are big choices to be made about the future of our nation. We need a debate about what should be funded through taxation. Why are such debates permitted only in a closed Cabinet Committee? That is in nobody's interest. The Chief Secretary agreed with me yesterday in the Treasury Committee that there should be material in the public domain from the fundamental expenditure reviews, but it has not happened.

The next Government must do things differently and be much less secretive about such processes, because better policies will result. We could avoid such half-baked proposals as those which emerged yesterday on pensions. Pensions is a topic on which there needs to be consensus, not the bouncing about of semi-finished proposals.

I hope that we can go further and employ techniques such as citizens' juries or surveys using new communication technology and the world wide web. In that way, we can solicit proposals and views, to ensure that our policy proposals on spending are balanced, well thought through and, where appropriate, based on consensus.

Geoffrey Hulme of the Chartered Institute of Public Finance and Accountancy proposed recently that there should be the publication in early summer of information on departmental spending performances and plans. It could include information on how much average households in different income bands contribute to taxation and what they receive in services. Select Committees could comment on how the priorities should be adjusted.

It would be a bold step to publish the key elements of the dialogue between the Treasury and spending Departments, but discussions between the Chancellor and the Governor of the Bank of England are now published, which would have been unthinkable a short time ago. I hope that the new steps that I have suggested could be taken, because there would be great benefit from wider parliamentary and public discussion.

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The problems that I have identified with Government public spending policy are that we have had insufficient public investment and too much consumption, too much spent on welfare and not enough on education and far too much secrecy in decision making on public spending. The consequence of those problems is the deeply divided Britain that we have today. We need to set a new course for public spending policy, so that we can start to repair the damage that has been done.

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