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Mr. Tyrie: I give way to the hon. Gentleman for a second time.
Mr. Love: I thank the hon. Gentleman for giving way again. How does he square the fiscal tightening of which he talks with the Conservative amendment and the tax guarantee about which Conservative Members talk so much?
Mr. Tyrie: I do not have the amendment in front of me, but the Red Book suggests a loosening of policy. If anything, fiscal policy should be tightened. If the hon. Gentleman will forgive me, in my remaining minute I shall not go into the territory of the tax guarantee, although I am fascinated by tax guarantees and would love to debate them on another occasion.
I want to make another brief point by asking a question. Could the announced spending increases be sustained in the event of a downturn in economic activity? That is the other big question about the Budget and there are two pointers as to why that might not be the case. The first is the growth forecast. The whole Red Book is based on a forecast of above-trend growth, followed by our slipping back to trend growth; nowhere is there even the hint of an idea that we might be below trend.
Some Front Benchers are mathematicians, and will know that trends are averages: there must be a period a bit below the trend for there to be a period a bit above it. The Government's, it appears, is a unique trend, in that there is never anything below the line. That is a problem for the Government. If there is any downturn below trend, the numbers in the Red Book simply will not add up.
The second factor that should be taken into account in an assessment of whether the spending can be afforded is the net borrowing figure. [Interruption.] If the hon. Member for Nottingham, North (Mr. Allen), who is grunting on the Front Bench, looks at page 146 of the Red Book, he will see that the rise in net borrowing is very fast over the planning period. That, I think, gives cause for concern.
The structure of the economy is still sound, but it is slowly being chipped away. The Chancellor has taken risks, partly for electoral purposes. He is fuelling the beginnings of a political cycle with his fiscal policy, and in that sense he is undermining the good work that he did when he tried to dissociate politics from the business cycle by making the Bank of England independent.
9.21 pm
Mr. Howard Flight (Arundel and South Downs): I am sure that all Members will join me in welcoming the tremendous improvement in the performance of the UK economy since 1992. As I think everyone knows, and as the Prime Minister has implicitly admitted, this is essentially the result of the supply-side reforms of the 1980s, the development of a venture capital industry, the return to entrepreneurship, and the key measures introduced by the Thatcher Administration.
Mr. Geraint Davies: Is the hon. Gentleman aware that between 1990-91 and 1996-97 net debt as a percentage of gross domestic product grew from 27 to 44 per cent? Am I not right in saying that if the Tories ever returned to office with their tax guarantee, all that would happen would be more and more borrowing, more and more debt, and the indebtedness--again--of the British economy?
Mr. Flight: It is about time that the hon. Gentleman matured a little. I was referring to the growth rates that have been achieved and the new industries that have developed. Indeed, comments made by the Prime Minister--the leader of the hon. Gentleman's own party--underline much of what the Government have done and most of the reasons why Labour has changed its spots so dramatically.
What has happened in this country and in America, and to a lesser extent in Europe, has been very much the result of supply-side improvements.
Mr. Davies: Will the hon. Gentleman give way?
Mr. Flight: No. [Interruption.] I ask the hon. Gentleman not to interrupt. I said that I would not give way.
The Chancellor has made an ill-conceived attempt to take credit for the good performance of the UK economy and for what we all hope will continue to be good growth rates during forthcoming years. He is also unwise to believe that he has abolished the business cycle, for
reasons that have been illustrated by recent events in the stock markets, and also for reasons given by my hon. Friend the Member for Chichester (Mr. Tyrie).I feel that the general thrust of the Budget is somewhat mistaken. The International Monetary Fund has said that it is uncomfortable about the Government's decision, at this stage in the cycle, to increase fiscal expenditure by some £4 billion over 2001-02, and by £15 billion by 2003-04. The IMF is saying implicitly that the Government run the risk of creating a return to boom and bust. That, too, was mentioned by my hon. Friend the Member for Chichester.
I am, however, more worried by the fact that the overall thrust of the current Administration continues to be more Government involvement, more Government expenditure and higher taxes to finance this. In July 1998, the Chancellor lectured us about the great virtues of prudence and said that he would stick to his three-year spending targets, but, as my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) said, he has thrown that out of the window with the current Budget without a by-your-leave.
I also point out to the hon. Member for Shipley (Mr. Leslie) that the last Conservative Administration did freeze Government expenditure: it was at £13.3 billion in cash terms in 1994-95 and £13.29 billion by 1997-98. It has increased by £2 billion in cash terms since then.
Mr. Leslie: Will the hon. Gentleman give way?
Mr. Flight: No, I will not. We have debated the issue.
Mr. Leslie: Will the hon. Gentleman admit that, when looking at central Government expenditure, it is better--he should suggest it to the right hon. Member for Wells (Mr. Heathcoat-Amory)--to use real terms than cash terms? They show that the present Government are reducing those costs.
Mr. Flight: It is rational to look at both, but the point that I was making was that in the last three years of the previous Administration, there was prudent economy in managing Government expenditure: we held the sum in cash terms.
The truth, as the electorate is becoming increasingly aware, is that the Government have put up taxes by the equivalent of 8p on income tax. The average family is paying some £13 a week, or £670 a month, more. Perhaps they would not mind if the delivery of services improved, but, as women in our community in particular are well aware, class sizes and waiting lists are up, police numbers are down and crime is rising. It is the failure to deliver which we attack and over which the Administration are increasingly being rumbled.
The pledge was simple: taxation was not going to be increased at all; education and health were going to have a lot more spent on them and to be greatly improved; and the economies were going to come from reductions in the social security budget. The reality is that the latter is going up by some £30 billion over the current Parliament.
Both the Chancellor of the Exchequer and the Chief Secretary to the Treasury have continued to reveal a somewhat compulsive addiction to presenting incomplete data--and indeed, on some occasions, perhaps unwittingly, an addiction to misrepresenting data--and to hiding fiscal nasties as far as possible from Parliament. It is no accident that the director general of the British Chambers of Commerce commented on the recent Budget:
- It is becoming incredibly difficult for Business to match the Rhetoric with the Reality.
The biggest of the lot is not even in the Bill: IR35, which is budgeted to add some £900 billion of revenue. [Hon. Members: "£900 billion?"] Would that the Government were so lucky--I mean £900 million of revenue. There are also national insurance contributions applying to venture capital companies on the exercise of employee share options.
The Government have taxed pensions, business, insurance contracts, the self-employed and enterprise. As the hon. Member for Kingston and Surbiton (Mr. Davey) has pointed out, through their changes to the capital gains tax regime they have created something that is impossibly complicated for ordinary citizens to deal with. Allegedly, the Government are providing incentives to companies to make available shares to individuals who work in those companies, which Conservative Members welcome greatly, but the tax effects of the Bill as it stands are mind-blowingly complicated for such individuals.
Mr. Gardiner: Does the hon. Gentleman not accept and welcome the fact that capital gains tax has been cut to the lowest level not only that this country has ever seen but in the western economy? Does he not recognise that the simplicity of planning over a four-year cycle--knowing that capital gains tax will be at 10 per cent. after four years--is welcomed by businesses up and down the country?
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