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Mr. Bruce: The Liberal Democrats are trying to ensure that both the capital and income tax systems fall equitably and fairly according to ability to pay. We wish to lower the burden on people who have low capital gains and low income. That is a perfectly reasonable policy.

Apart from the discontinuity of statistics, there have, of course, been some controversial reactions to Government policies. Some have argued that the Bank of England,

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given its operational independence, has put up interest rates too sharply. Others say that the rise has come a bit too slowly. Personally, I take the latter view, but the important thing is not to second guess the authorities each month, or to criticise each twist in decision making.

There will always be controversy. Indeed, with a Monetary Policy Committee of nine members all expressing their opinions in public, we know that that debate will be carried out openly. It will be months or even years before the clear outcome of those policies can be determined, but the important thing is that monetary policy is now being run to meet the Government's inflation target, not the previous Prime Minister's re-election target, as happened two years ago. That has to be a welcome development.

Although the Chancellor has deservedly been praised for this new framework, particularly the monetary framework, he cannot entirely escape blame for our current economic problems. Although the post-election period has seen a big change in the structures, there has been much economic policy continuity, too. What was known as Clarkeism has given way to Brownism. As The Economist has argued, there is an element of continuity. I think that my hon. Friend the Member for Kingston and Surbiton described that as Clownism in the conduct of policy.

On fiscal policy, the deficit has come down, but the same relaxed approach to the taxation of consumption has continued. On the single currency, I get the feeling that the commitment to eventual EMU entry is shared more widely in the present Government than has been made public. Nevertheless, the wait-and-see strategy, or what I described once as the wait-and-wait-and-wait strategy, lives on. As a result, we suffer from the overvaluation and instability of the pound; that strategy is a substantial factor in that.

Of course, for the first two years of this Parliament, the Government's spending plans have remained fixed, preventing new measures to invest in education to start to tackle the skill shortages that are pushing up wages and threatening to abort the recovery. Education is vital not just for the quality of our society, but for our economic well-being, yet, on the Government's own figures, the proportion of gross domestic product that is spent on education has fallen from 4.9 per cent. before the election to 4.7 per cent. after, despite the fact that the Prime Minister said that education spending would increase in real terms as a percentage of GDP year on year under Labour--clearly a broken promise.

On that issue, I feel that both the Prime Minister and Treasury Ministers cannot go on getting away with trying to pretend that Liberal Democrat policies and priorities should be frozen in aspic as of 1 May last year, while Government spending and Government information are updated. We have, of course, made it absolutely clear that, on the basis of our commitments and the revisions that we have applied to those in the light of information that has become available since the general election, this party supports very much more substantial investment in education--and in health as well--than anything that the Government have pledged.

Mr. Darling: I do not like to interrupt this congruence of policy to which the hon. Gentleman has referred, but I cannot let him get away with what he has just said. What

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is undoubtedly true is that Liberal Democrat policy is not frozen in aspic--if, indeed, that is what people do with aspic--because every time we announce an increase in spending, the Liberal Democrats call for even more. We are spending more now, despite the fact that we said that we would hold to the inherited expenditure totals in the first two years. We are spending £2.5 billion more on education, educational maintenance and new building than the Liberal Democrats promised. It is true to say that, since then, they have upped the ante, and I expect that they will continue to do that. The difference between us and them is that we have to finance it and we are capable of financing it. I doubt whether the hon. Gentleman is.

Mr. Bruce: I must take absolute issue with the right hon. Gentleman on education. Our commitment on education is several times what the Government have so far pledged--[Interruption.] No; it always was. The commitment to put the equivalent of 1p on income tax for education over the entire Parliament is a substantially bigger commitment than the Government have made. That is a fact on which I stand firmly.

On the updating, the Chief Secretary to the Treasury is right. Of course, I accept that it is not credible to make pledges unless we are prepared to demonstrate where the money should come from, but, in the light of the improving finances that the Government have benefited from, we have certainly said that some of that money could and should have gone into health and education, whereas the Government have stuck to a policy of keeping the squeeze on those services in the first two years and then throwing substantially more money at them later, which we believe is damaging and may yet prove inflationary.

Already, the inflationary figures on which the Chief Secretary's forecasts are based have proved to be unrealistically low. He is running at a higher rate of inflation than the Chancellor's first Budget forecast and the inflationary pressures are upwards. If that continues, what will be the real effect on the commitment on expenditure on public services? Perhaps I could put it the other way around. At what point will the Government recognise that they have to review what their commitment will deliver? The argument is about not just who will spend more money--that is sterile and unproductive--but what we wish to deliver.

I accept that the Government are right to identify specific outputs or inputs, such as reduced class sizes and reduced waiting lists. Our contention is that, first, those have not been delivered and it may be difficult to deliver them. Secondly, they are modest aspirations which we wish to improve on. We have identified the fact that most people would like class sizes to come down well below 30 throughout the primary school sector, not just in the first three classes. Most people want hospital waiting times to be shorter, not just waiting lists. Those are all things that will require resources and the motivation of highly qualified, highly skilled people, who will not be retained in the public services if they face pay cuts year on year, which is this Government's policy.

Mr. Geraint Davies: Does the hon. Gentleman accept that the latest figure in the national accounts for quarter one GDP, year on year, is up 2.9 per cent., which is above the long-term GDP trend of about 2 per cent? The economy is booming above and beyond the rate set of

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2.75 per cent. for public expenditure, which was mentioned by the Opposition. The problem is keeping the economy on a stable, growing footing, not the problems that the hon. Gentleman mentions.

Mr. Bruce: The hon. Gentleman is right in the sense that, at the moment, the economy is doing well. There are clear concerns on the horizon about whether that can be sustained. There is so much that the Government can do; there are things that are outside their control. Our contention is that it would have been wiser to have a more even flow of funding into public services, rather than to keep the stranglehold on--and then attempt to push money into them perhaps faster than they can absorb, and when the economy may be experiencing greater inflationary pressures.

The Chancellor is very keen to squeeze boom and bust out of the management of the economy, and he has adopted policies that he believes will lead in that direction. We agree with him on that. Unfortunately, his policies on the public services run the risk of creating a bust and boom that may prove equally unsustainable. Our critique of the situation bears some examination, and I stand by our record.

To tackle our economic problems, we must invest more in education and training. Without that, each recovery burns itself out on higher wages and inflation. The pressures are appearing already, despite still high unemployment, particularly in certain regions.

The Chancellor has made grave mistakes on fiscal policy. He raised taxes substantially and predictably after the election. Had the Conservatives won the election, I suspect that taxes would have gone up in the same way, although they did not say that they would do that either. Sensitive to the promises made on tax, the Chancellor has put the burden almost wholly on hard-pressed businesses and on savers rather than on high-spending consumers. The only consumer tax rises have been modest. The balance that the Chancellor has struck has not helped to bear down on inflation, which is his main problem.

Dr. George Turner (North-West Norfolk): One of the tax changes that the Government introduced was the windfall tax. Its key objectives were to ensure that we had a better-trained work force and to give people opportunities. The Liberal Democrats opposed the tax. They want the spending, but they oppose the means. Does the hon. Gentleman support the spending, and how would his party have raised the money?


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