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9.41 pm

The Chief Secretary to the Treasury (Mr. Alistair Darling): I shall start by referring to the former Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke), which is more than the shadow Chief Secretary has done. I apologise to the right hon. and learned Gentleman for not being able to be in the Chamber to hear his speech; as I told him earlier, I had to be elsewhere when he caught the Deputy Speaker's eye. I make the same apology to the Liberal Democrat economic spokesman, the hon. Member for Gordon (Mr. Bruce). It is unfortunate that both were called at around the same time. I also pay tribute to all my hon. Friends on the Labour Back Benches who have supported the Government, especially my hon. Friend the Member for Luton, South (Ms Moran), who wanted to speak but, unfortunately, time was against her. It is frustrating to sit listening to the whole Budget debate, only to find that one has been pipped at the post.

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The Budget is widely recognised as being radical and reforming. It builds on our determination to deliver economic stability, which is built on a commitment to prudent monetary and fiscal rules. We have made a commitment to low inflation, because we believe that stability is the essential precondition for long-term sustainable growth. It is a Budget to encourage work and to make work pay. It is the biggest modernisation of the tax and benefits system for 20 years. We are extending the new deal and providing child care support--recognising, unlike the previous Government, that the labour market has changed dramatically in the past 20 years. The Budget encourages enterprise: we are continuing our reform of business taxation to boost investment and especially to encourage small developing businesses. We are encouraging savings, promoting research and development and helping universities to develop their research into profitable production.

The Budget builds a fairer society: it supports families, and protects the environment. Rigorous control of public spending has allowed us to invest more in schools, hospitals and transport. We are supporting families by increasing child benefit by the largest amount since its introduction almost 20 years ago. We have helped pensioners: this winter, we not only cut VAT on domestic fuel, whereas the Conservatives would have increased it to 17.5 per cent., but gave pensioners a major package of help. Pensioners received £20 and the poorest received £50, which is something that would not have happened but for the change of Government. This is also a Budget that demonstrates the new Labour Government's belief that fairness and enterprise go hand in hand. It is a Budget that delivers our political and economic objective, which is to raise the long-term sustainable growth rate, to increase employment, to promote a fairer society, and to reduce the inequality which grew during the term of office of the Tory Government.

I want to start with the question of stability. We listened to the right hon. Member for Wokingham (Mr. Redwood) referring to the golden age of Conservative rule. It seems to me that the Tory party continues to delude itself about the past. The right hon. Gentleman talked about a golden age for the countryside. People remember what the Conservatives did to the countryside: the deregulation of buses, the closing of post offices, and BSE which ruined many farmers. People also remember the 22 tax rises designed to pay for economic failure. They remember the high interest rates. So much for a golden age.

Our inheritance was a national debt that had doubled in six years because of Tory economic failure. We will not repeat the mistakes of the late 1980s, when the economic signals were misread, when a surplus became a £50 billion deficit, when inflation hit double figures, when interest rates doubled in two years, and when an "economic miracle" turned into the deepest recession since the war.

Whenever they are asked about public spending, Liberal Democrats tell us to spend more on education, transport, the police, law and order, benefits, councils and just about everything else. Frankly, their position is incredible--although I do understand it. They have decided to become the old tax-and-spend party, only without the taxation bit. There is a stateable case for tax and spend, but tax and spend without the tax is an implausible stance.

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There is no question of our building a war chest. We are ensuring that the public finances are maintained in a stable way so that we can provide the public services that we all want. We are still dealing with what we inherited: spending £25 billion a year to service the debt that the Tories left behind. That is more than we are spending on schools.

Last July my right hon. Friend the Chancellor began the process of cutting that debt. In May of last year we found that the Tories had pledged to spend £19 billion more than they were going to get in. That was typical of their approach to the economy. We have cut that gap. We have cut the deficit this year to £5 billion and we will move into balance in two years' time.

So we are providing the stability that brings with it long-term job opportunities. We are providing low inflation. We inherited inflation heading for 4 per cent.--way above the Government's target of 2.5 per cent. That is why we had to take action to bring inflation down. Thanks to our reforms to the Bank of England, we now have the most open and accountable monetary policy framework in the world. More than that, we have the lowest long-term interest rates for 33 years. The last time they were so low was under a Labour Government in the 1960s.

We are providing a stable platform for the future. If we are to achieve an efficient and fair society we need to encourage work, to increase employability and to make work pay. Not just here, but right across the world, the same lessons are being learnt. The modern work force needs to be highly skilled, trained, motivated and adaptable. In a world where people will have many jobs between starting out in the labour market and retirement, it is the Government's job to encourage those who can work to do so, and to foster an environment where people can see the benefits of their work.

Mr. Kenneth Clarke: The right hon. Gentleman appears to have finished with macro-economics already, having dusted down his election speeches yet again. Before he relies too much on mythical figures, such as the £19 billion deficit to which we were supposedly pledged and the 4 per cent. inflation which was supposedly looming, will he deal with current reality? I refer to the underlying inflation rate of 2.6 per cent. which the right hon. Gentleman inherited. I also ask what he proposes to do about the considerable strength of sterling, which has dominated today's debate and which is doing great damage to our manufacturing base. What is he going to do about five successive months of falling industrial production? What does he propose to do to prevent a manufacturing recession and an excessive slowdown of the economy? Or has the right hon. Gentleman not yet noticed these developments?

Mr. Darling: I realise that the right hon. and learned Gentleman does not like to be reminded that he left us with a deficit that cost £25 billion per year to service, and that he left us in a position where inflation was heading to 4 per cent. and above, because he had ignored the advice of the Bank of England to do anything about it in the six months before the general election. He will also bear it in mind that sterling appreciated far more before 1 May 1997 than it has since.

Manufacturing industry will recognise that the Government are taking action to ensure that we look to the long term and achieve long-term economic stability--

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that we do not return to the boom and bust that we inherited. In addition, unlike the previous Government, we will not be buffeted around by short-term pressures, reacting to the day's headlines.

This Government are prepared to take the right steps in the country's long-term interests, so people broadly support the stance that my right hon. Friend the Chancellor has taken. His judgment in the Budget was right. There is significant fiscal tightening, amounting to almost 2 per cent. of national income, and most commentators recognise that my right hon. Friend made the right judgment.

Mr. Kenneth Clarke: Will the right hon. Gentleman give way?

Mr. Darling: I shall give way once, but then I shall return to the subject of encouraging work--something that the previous Government did nothing about either.

Mr. Clarke: The Chief Secretary is extremely generous and I am indebted to him for his courtesy, but do I take that long rant to mean that he has no idea what to do about strong sterling and does not think that it has anything to do with him or the Chancellor?

Mr. Darling: To put it succinctly, in language that the right hon. and learned Gentleman will understand, he was wrong and we are right in the position that we are taking.

I return to the subject of encouraging people into work, because the centrepiece of the Budget is reform to the national insurance system to remove barriers to work for the low-paid, and to cut the compliance costs on business. As a result, all employees pay £66 less per year from 1999. Employer and employee national insurance contribution entry fees and the steps in employer national insurance contributions will be abolished.

We are extending the new deal for young people; for the long-term unemployed; and for the partners of the unemployed, who have been excluded from help until now. We are extending the new deal for those communities that have seen the worst, and fared the worst, in the past 18 years. We are extending the new deal to disabled people.

We are introducing the working families tax credit, which will help make work pay, and we are taking other measures to reduce child poverty.

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