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Mr. Heathcoat-Amory: The hon. Gentleman shakes his head. He is taking issue with a document produced by his own Government. It is all here in black and white--an extra £2 billion a year. There may be no more policemen in our constituencies, but there are more special advisers in Government Departments. There may not be enough nurses in the NHS, but there are plenty of politicians in it, and they are all being paid for out of that extra £2 billion a year.
We have got to the secret in the Bill. Among all the verbiage, all the extra schedules and all its 500 pages, the truth is that it is a summary--practically an embodiment--of the Government. It taxes more and delivers less. That is why we shall oppose it.
5.29 pm
Mr. Giles Radice (North Durham): The Treasury Select Committee report is tagged to this debate, so I hope that hon. Members will forgive me if I say something about it. In the Budget debate, I warmly welcomed the measures proposed, including the increases in health and education spending, the working families tax credit, child benefit and winter fuel allowances. I repeat that welcome this afternoon, particularly because the measures have strong support in my constituency, which, as hon. Members will know, is in Labour's heartlands.
I want to speak in my role as Chairman of the Treasury Committee.
Mr. Quentin Davies: Will the hon. Gentleman give way?
Mr. Radice: I have hardly said a word yet.
Mr. Davies: That is precisely why I wanted to intervene now: I do not want to throw the right hon. Gentleman off when he has got into his stride--not that it is easy to do that. As Chairman of the Treasury Committee, will he note that paragraph 25 of the Committee's report on the Budget explicitly confirms the point that I put to the Chief Secretary, which he refused to acknowledge and tried to run away from? It says:
- there will be a discretionary loosening of the fiscal stance in each financial year over the period 2000-01 to 2003-04 . . .
Mr. Radice: I shall come to that point in a moment. The role of the Treasury Committee is not to provide opposition to the Government--which many political commentators think that we should do, because the official Opposition are not making much of a fist of it--but to make Ministers and civil servants open, transparent and accountable. That is what we try to do.
This is our third report on the Budget in this Parliament, and our fifth report this Session. We congratulate the Government on the effectiveness of the pre-Budget report
process as an aid to openness and consultation. The Government consulted on the 12 measures in the pre-Budget report, and all are in the Bill. Some changes have resulted from the consultation. That, I believe, is open government in action.We also congratulate the Government on "Analysing UK Fiscal Policy". That document is a useful background paper on which both supporters and critics of Government policy have drawn heavily. The Government have been questioned on their fiscal stance precisely because people have been able to read that document and see how the calculations are done. We asked the Government to show the distributional effects of the Budget. There are gains for families, but we would have liked the Government to go further and display the impact on all households.
I want to return to that hoary annual--the tax burden. Table 5 in our report showed clearly that, taking into account the Budget, the pre-Budget and last year's Budget, taxes are falling. The figure for the tax burden--the tax take as a percentage of gross domestic product--depends on whether we count working families tax credit as a tax. If we do--and the Government's preferred measure, the net tax and social security contributions, does--the burden falls between 1998-99 and 2000-01. If we do not count the working families tax credit, and use the measure of current receipts, which are in the Red Book, the tax burden rises.
To put that in context, and bearing in mind the presence of the former Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke), his plan in the November 1996 Budget was for taxes to rise higher, on the measure of net taxes and social security contributions, in 1999-2000 and 2000-01, than is predicted in the most recent Budget.
Mr. Geraint Davies: Did my right hon. Friend agree with the right hon. and learned Member for Rushcliffe (Mr. Clarke), the former Chancellor, when he described borrowing as deferred taxation in an earlier Budget debate? If we take borrowing and taxation together, that clearly shows that levels of taxation have gone down. If we were at the same level as in 1996-97, we would have had to raise income tax by 7p.
Mr. Radice: That is an interesting theory.
Mr. Radice: To put it more charitably, it is an interesting way of looking at the issue. It is also legitimate, and I have no objection to different ways of calculating the tax burden as long as they are laid out in the Red Book, as they are.
The working families tax credit is not counted as tax, according to present accounting conventions. However, as it is a new scheme and as the plan is to extend it to children and pensioners, in a move to what might be better termed a negative income tax, we say in our report that there is a strong case for reviewing accounting conventions and for considering whether it should be scored in as a tax.
We have not included my next point in our report, but to put the debate in context, the fact is that if one is going to bring down the public sector borrowing requirement, as the right hon. and learned Member for Rushcliffe did
and as my right hon. Friend the Chancellor has, taxes are bound to go up, as they did under the right hon. and learned Gentleman and--in the case of indirect taxes--in the first two years of this Government. Following on from that, it is obvious that fiscal drag and economic growth put up the tax burden and the tax take as a percentage of GDP. So we should not make such an issue of that point and, in our report, we tried to put it into context. After all, our job as a Select Committee is to try to shed some light on the debate.If one reads the background document that the Government produced, which analyses fiscal policy, one realises that there is a difference between a relative change and an absolute change. The relative change is the difference between the Budget stance this year and what was forecast in last year's Red Book. The absolute change is the difference between the Budget stance and last year's outturn. On the first measure, we will undoubtedly see fiscal tightening in 2000-01 and 2001-02, but on the second measure we will see what Kate Barker of the CBI, who gave evidence before our Committee, described as a "slight loosening" in 2000-01 compared with 1999-2000.
The question then arises of whether we can afford the increase in public spending that has taken place. My answer is yes, because since 1996-97 we have experienced a 4.2 per cent. tightening, which is the equivalent of £40 billion. The public finances are unquestionably in good shape. The further question arises of whether the fiscal stance is supporting the monetary policy. It is on that issue that some City economists and the IMF have raised some questions, although they have been a matter more of qualification than of outright criticism. If one accepts that some loosening has occurred, it has only been very marginal. Indeed, the Monetary Policy Committee did not change interest rates in March or April. As my right hon. Friend the Chief Secretary to the Treasury said, the deputy Governor of the Bank of England believed that the impact of the Budget on monetary policy was slight.
The debate was best summed up by Peter Riddell in The Times. Likening it to the question of whether a glass was half full or half empty, he pointed out that the relaxation was very small--much less than the tightening that happened each year since 1997, which the right hon. and learned Member for Rushcliffe, the former Chancellor, has described as too severe. That perhaps sets the matter in context.
Mr. Edward Davey: Will the right hon. Gentleman confirm that the specialist advisers to the Select Committee said that fiscal policy was not supporting monetary policy and that it was going in the other direction?
Mr. Radice: Some did, some did not: like special advisers everywhere, their opinions were divided. A slight divergence between fiscal and monetary policies may not be that important, and I assume that that is why the deputy Governor said that the Budget's impact on monetary policy was slight. We should probably heed his voice even more than the voices of our advisers--but that may be unfair to everyone involved.
The Select Committee report shows that fast growth has been combined with low inflation, and that the public finances are still in good shape. It supports the idea of
setting an inflation target for the Monetary Policy Committee of 2.5 per cent., which should be the MPC's prime objective. It is concerned about the strength of sterling and its impact on manufacturing--as anyone who studies the situation must be--but believes that most of that strength is due to the weakness of the euro, rather than to anything that the Government or the MPC have done, and that the problem may right itself over the next 18 months or so.
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