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7.47 pm
Dr. Stephen Ladyman (South Thanet): As I have only 10 minutes, I shall not deal in detail with the speech of the hon. Member for East Londonderry (Mr. Ross). However, he made a plea for the winter fuel allowance and the free television licence for the over-75s to be scrapped and the money added to the basic weekly state retirement pension. If we did that, poorer pensioners would lose the benefit of that money from their income support. We would have to change the rules for income support as well. In the mean time, at least the Government's proposals are a convenient and simple way of channelling resources to poorer pensioners and giving a boost to other pensioners.
We have heard a variety of pleas from the Conservatives. I have heard a plea to spend money on gold rather than schools. I have heard a plea to support oil companies rather than the British coal industry. I have heard a plea that we should give favourable treatment to the tobacco industry almost in preference to the health service. However, I have not heard a justification for the tax guarantee.
One or two Conservatives have touched on one of the major flaws in that policy by talking about the economic cycle. The Conservatives appear to have forgotten--or not
to have worked out yet--that for every 1 per cent. below trend growth in the economy, £10 billion will be wiped out from receipts, which means that £10 billion of savings must be found. If the Conservatives believe that we have not got rid of boom and bust and that one day the economy will slow, they must also accept that they are going to go into an election promising that, even in those years, they will cut further the money available for public spending. A 1 per cent. cut in the tax burden means a further £10 billion of cuts.
Dr. Ladyman: I shall give way later. I should like to make some progress first. It would take £10 billion of cuts to make 1 per cent. of savings, and £10 billion to deal with the fact that the economy was growing at a 1 per cent. slower rate than expected. Suddenly, they would have to find £20 billion of cuts.
We have heard this week that the Conservatives now think that our spending on the health service is a good thing, and Conservative spokesmen outside this House have, I believe, said that they believe that our spending on education is a good thing. Their savings must therefore come from the social services budget, as it is the only significant pot of money left for public spending.
When the Secretary of State was speaking, Conservatives laughed at his comment that there was good spending in the social services budget and bad spending. Bad spending, he said, was money spent on keeping people out of work. Good spending was the money that we were spending to encourage people back into work and making work pay.
Mr. Paterson: Will the hon. Gentleman give way?
Mr. Paterson: Will he give way on that point?
Mr. Deputy Speaker (Mr. Michael J. Martin): Order. The hon. Gentleman is not giving way.
Dr. Ladyman: Bad spending is something over which the Government have no control. It is money that must go to those people who are out of work. At a time when the economy is slowing down, unemployment will either be steady or will rise, so that the spending of bad money will be increasing. Therefore, the savings that the Conservatives would have to find to honour their tax guarantee would be from the good spending in the social services budget, such as the working families tax credit and the child care benefit.
Mr. Paterson: The hon. Gentleman talks about good and bad spending. The Red Book shows that spending on social security benefits is increasing from £93.3 billion to £104.5 billion in 2001-02. Is that good or bad spending, according to his definition?
Dr. Ladyman: The position was set out clearly by the Secretary of State, who defined the measures that the Government have taken to make work pay as good
spending. I believe that to be good spending. The Tories' tax guarantee would force them to cut that money at a time when the economy was slowing down--when that money could do the most good.
Mr. Nick St. Aubyn (Guildford): Will the hon. Gentleman give way?
Dr. Ladyman: No, not with the 10-minutes rule.
Mr. St. Aubyn: On a point of order, Mr. Deputy Speaker.
Mr. Deputy Speaker: I hope that this will not be a point of order about interventions.
Mr. St. Aubyn: It is a serious point of order. The hon. Member for South Thanet (Dr. Ladyman) said that his time was limited. Would you confirm that time spent on interventions--
Mr. Deputy Speaker: Order. The hon. Gentleman knows the rules as well as I do. I am not here to run O-level classes in interventions.
Dr. Ladyman: I am grateful, Mr. Deputy Speaker. The time limit would allow the hon. Member for North Shropshire (Mr. Paterson) to intervene, but I would then have to answer him, and lose more time.
Another criticism of the Budget has concerned exchange rates. One of the easiest ways of dealing with the problem would be to join the euro--something that the Conservatives have made clear they do not want. I share their view that the time is not right to join the euro.
Those hon. Members who have made a plea to join the euro should answer this point. They come from regions of this country where manufacturing is being hardest hit. To convince me that the time is right to join the euro, they must show that they have a robust way of sharing out the public spending that must be provided within euroland in such a way that we in this country would not have to cut our public spending to control the inflation caused by increased public spending in some of the less-developed regions of Europe. Until they can answer that question, they cannot offer a convincing argument to their own constituents as to why joining the euro would benefit their regions.
I wish to refer to the effect of this and previous Budgets since we came to power. By April 2001, the average household will be £460 better off; on average, families with children will be £850 better off; a single-earner family with two children on £25,000 a year will see a 10 per cent. rise in living standards; a single-earner family with two children on £12,500 a year will see their real living standards increased by around 20 per cent; the poorest two-child families on income support will be £1,500 better off; 1.2 million children are to be lifted out of poverty; a 75-year-old on the minimum pensioner income guarantee will have an annual income that is £950 a year higher.
These are the achievements of this Budget, taken in the round with previous Budgets. Conservative Members can scoff as much as they like, but these are the facts. They can try to confuse the issue as much as they like,
but my constituents are counting the extra money in their pockets, and they will take that into account at the next election.I do not often use the words of Baroness Thatcher to support my case, but she once said that the Good Samaritan was able to help only because he had the money to do so. One thing that has annoyed me about the response to the Budget has been people saying that it is a redistributive Budget for the Labour heartlands. They forget that the previous two Budgets from the Government prepared the way for this Budget. In effect, they were equally redistributive, because they allowed us to earn the money that we are using in this Budget to make this a fairer and more prosperous country.
I congratulate the Chancellor on the cut in amusement machine licence duty. My hon. Friend the Member for Morecambe and Lunesdale (Miss Smith) referred to that earlier, and said that it would boost the seaside arcades in her constituency. It will be a boost to arcades in my constituency also, but, more importantly, the world's two leading companies manufacturing these machines are in my constituency. I can tell the House that there are several hundred workers in my constituency breathing a huge sigh of relief that, thanks to the Budget, they know that their jobs are safe.
I thank the Chancellor for the extra resources that he is giving to combating smuggling. We have a real problem in east Kent as a result of the build-up of smuggling and the fact that organised crime is becoming involved. I am delighted to see that the Government have started to address that.
This is a Budget for fairness and to increase prosperity. It is a Budget for the health service and for schools. It is a redistributive Budget that I am proud to support.
7.57 pm
Mr. Andrew Tyrie (Chichester): I would like to say a few words about the Red Book, which very few people seem to talk about. That is not surprising, since it is virtually impossible to understand. I am not sure that anybody knows the relationship between all the numbers in the Red Book. Maybe some of my right hon. and hon. Friends will help me out. I wish to say a few words about the affordability of public spending in general, and health spending in particular.
Everybody welcomes increases in public spending, but they are only worth having provided that they are affordable over the cycle and that the higher spending in the long run does not end up lowering the long-run growth rate. That can happen either because of the disincentive effect of the taxation that has to be brought in to pay for the spending, or because that taxation is distortive, which itself will reduce the growth rate.
I see virtually no understanding of the possible relationship between higher spending and poorer long-run economic performance in the Red Book, and we heard virtually nothing from the Chancellor about that. It is back to the old days of taking growth for granted, and that is a dangerous road to go down. Control of public spending is very difficult to manage and easy to lose. It takes only a small flicker over the business cycle--a downturn in overall economic performance--and public spending becomes extremely difficult to control.
The problem is that Labour is in a state of complete denial about the existence of cycles. The Government say that they have put an end to boom and bust and that somehow they are not in a business cycle. The Red Book says that everything will return to trend; that could be above trend for a period and then suddenly get straight back to trend.
Hidden in the Red Book are some interesting spending figures. Over the next couple of years, spending will increase from 38 per cent. to 40 per cent. of gross domestic product, although the outer years are not given and there is no explanation of how that will be paid for, except perhaps if one looks closely at the borrowing line. There is a table showing an increase in borrowing in the outer years to £13 billion.
What will the Bank of England say when it has had a good go at trying to understand the Red Book? It will not just sit there and watch spending, taxation and borrowing rise. It will take these facts into account in taking its decisions. Overall, it is likely to conclude that the Budget will require interest rates to be raised, perhaps not immediately, but soon. That will mean a higher exchange rate, which will bring more problems for manufacturers.
Part of the price of higher spending--including health spending--will be an exacerbation of some of the problems that have already been caused by the strong pound. That will not be the only factor that the Monetary Policy Committee takes into account. It will ask why we should have above-trend growth for a while and never need to go below trend, and why the Government believe that they have abolished a swing around the average, when all other Governments and economies worldwide have always been vulnerable to it. That will make it cautious in its judgment on the Budget.
The MPC will also consider several of the accounting fiddles in the Red Book, the biggest of which is how the private finance initiative is treated. If PFI did not exist, each year's capital spending implied by it would be added back in the first year to the budget lines of the individual spending Departments, and spending would look several billion pounds higher for each year in the Red Book. The MPC will do its internal accounting on that basis, not on the basis of PFI pushing liabilities back to future years.
Will we get anything for the extra spending? My hon. Friend the Member for Havant (Mr. Willetts) gave an excellent explanation of why it is unlikely that we will get much in social security. We will have a lot of extra spending without any clarity on how better to allocate it.
The massive announcement of 6 per cent. per annum growth in health spending for the next four years has been accompanied by the biggest load of waffle that I have ever heard from a Prime Minister to explain the reforms that are supposed to make effective use of the money. There is a great danger that a high proportion of it will be swallowed up in higher pay. I do not necessarily begrudge health workers higher pay, but there is no point in raising public spending if that is where it all ends up. I am very concerned that the increase in health spending may in any case prove undeliverable if there is a downturn in the cycle. We should have had greater clarity on what the spending was designed to achieve.
It has often been said over the past few days that the increase in health spending is unprecedented, which is true over the four years, but the Conservative Government increased health spending by 6 per cent. for a run of two
years, between 1991 and 1993, and that increase was a spectacular success because it was accompanied by the introduction of the internal market, which generated a huge increase in productivity.Generally agreed tables have been published for productivity in the health service, derived from Department of Health statistics, and they show that increase very clearly. The figures have been published since about 1985. I predict that, when the figures are published for the outturn from the latest increases, we will find that productivity has fallen dramatically. I would not mind betting that productivity could be negative for a time.
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