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4.38 pm

Mr. Malcolm Chisholm (Edinburgh, North and Leith): I thank the hon. Members for Ruislip-Northwood (Mr. Wilkinson) and for Sevenoaks (Mr. Fallon) for their warm tributes to my hon. Friend the Member for Tottenham (Mr. Lammy) on his maiden speech. I join them in congratulating him on a superb speech, which included a moving tribute to the great Bernie Grant and highlighted the importance of public expenditure in Tottenham.

This week, we can all celebrate a massive expansion of public expenditure that is based neither on rising taxation nor on high levels of borrowing, but on the successful running of the economy during the past three years. One of the most interesting aspects of the public expenditure statement was the revelation that, under the previous Government, 42 per cent. of additional expenditure went on debt repayment and social security, whereas, in the coming period, by contrast, the figure will be 17 per cent.

We must emphasise the importance of increasing employment in enabling the public expenditure increase to take place. I will probably be the only Scottish speaker today, so I shall speak about Scotland as much as I can. We have in Scotland the highest number of people in work since England won the world cup--that also happened under a Labour Government. Contrary to what the Conservative party said would happen, that large expansion in employment took place after the introduction of a minimum wage and improved conditions in the work place.

If a choice has to be made about raising taxation, I would personally argue that that may be justifiable, because I agree with Larry Elliott's assertion in The Guardian this week that tax is the price that we pay for a civilised society; but it is most important to emphasise that, over the period in question, tax as a percentage of GDP will fall. As my right hon. Friend the Chief Secretary said, net borrowing over the period will be lower than at any point in the previous Parliament.

Conservative Members have emphasised what they call the macro-economic dangers of the Government's public expenditure stance, but it should be noted that the Bank of England's most recent quarterly inflation report, written at a time when it knew exactly what growth in public expenditure was planned, because of the Budget statement, said clearly that the Budget's macro-economic effects were unlikely to be large.

The minutes that have been quoted liberally and one-sidedly by Opposition Members today reflect some division between various members of the Monetary Policy Committee. For example, David Walton of Goldman Sachs, as quoted in this morning's Financial Times, pointed out that several members of the committee think

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that interest rates will be able to fall, even with this public expenditure projection, partly because average earnings growth has been slowing.

Mr. Ruffley: Does the hon. Gentleman accept that it is not just the aggregate increase in expenditure but its composition that the Monetary Policy Committee will have to consider when it meets next month to decide on interest rates?

Mr. Chisholm: I am just coming to the composition of public expenditure. Obviously, one of the virtues of increased public expenditure is that it can help the economy, and sustainable growth in particular. I am thinking particularly of my right hon. Friend the Deputy Prime Minister's statement today, in which he said that capital investment in transport was to be doubled. My right hon. Friend the Chief Secretary to the Treasury reminded us about education expenditure, which again is crucial for economic as well as other reasons. He informed us that the increase in education spending over the five-year period will be greater than in the whole 18 years of Conservative government. He also spoke about the important investment in science and research.

This is a significant moment, when public expenditure is once again set to climb above 40 per cent. of gross domestic product. I certainly hope that, when we have variations in public expenditure during the next decade or so, they will be within a spectrum above 40 per cent. of GDP, which is still significantly lower than in other European countries.

Public expenditure is important not only for economic efficiency but for social justice. One of the main points that my hon. Friend the Member for Tottenham emphasised was the importance of public expenditure for an anti-poverty strategy. Part of that strategy comes through the main spending programmes. Clearly, the attack on health inequalities is a priority both here and in the Scottish Parliament. I believe that it will be one of the targets in next week's health statement. There are many admirable new initiatives, which we have so far heard about only in relation to England, such as the children's fund and the neighbourhood regeneration fund. No doubt, we will hear about similar measures for Scotland in the autumn.

Sir Robert Smith (West Aberdeenshire and Kincardine): Does the hon. Gentleman think that one of the consequences of a stop-go funding policy for health is the creation of a serious crisis in recruitment? The problem with getting a radiology appointment is the shortage of radiologists. Spending extra money will not train them overnight.

Mr. Chisholm: The simple fact is that health funding has never stopped--even in the difficult first two years of this Government, extra money was found for health--but the hon. Gentleman makes the sensible point that it takes longer for health initiatives than, for example, for certain education initiatives, to come on stream.

Apart from the mainstream programmes, there are many specific initiatives in the anti-poverty strategy. The research last week by the National Institute of Economic and Social Research has been misrepresented. It confirmed the importance and success of the new deal,

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and of the working families tax credit and the minimum wage in terms of making work pay. All those initiatives would be threatened, if not abolished, by the Conservative party.

The figure of 17 per cent. as against 42 per cent. of additional spending on social security and debt repayment is important. I would prefer it if we could split up the social security budget so that the money going into unemployment benefit is separated from what Labour Members see as the desirable features of the social security budget. Many aspects of the social security budget are important in the formulation of an anti-poverty strategy.

We will obviously hear more about pensions in the near future, and I will not complain about not hearing more about them this week, as long as I hear more about them in the autumn. The Scottish Affairs Committee recommended the restoration of the link with earnings, which I applaud, and came up with the interesting suggestion that perhaps the working families tax credit could be improved if we dealt with the issue of the withdrawal of housing benefit. I hope that the recommendation for a pilot study will be considered favourably.

There are important parts of the social security budget that must be improved as part of an anti-poverty strategy, but that is not to take anything away from the great improvements in the spending Departments, many of which will impact directly on those living in poverty.

One of the reasons why we have no more Scottish speakers today is that the money for Scotland will not be distributed until the Scottish Parliament reconvenes in September, so all that we know is that we will get a global increase of 4.4 per cent. a year in real terms, which is a significant and welcome increase. The only decision that has been made relates to health, as the health announcement was made in the Budget.

I hear a lot of talk in public and in private about the Barnett formula, so I should share with English Members the fact that, in Scotland, as the Scottish National party keeps saying, the percentage increase that we are getting--health is the only one that we know about so far--is less than in England. That mathematical fact is not especially surprising, but a lot of English Members do not appreciate it. In other words, the Barnett formula is a convergence formula. As Scotland starts with a higher base and gets the same increase per head, that translates in each of the spending programmes into a lower percentage increase. People who criticise the Barnett formula should understand that. Even those who want to get rid of the formula surely would not want to pull the plug on Scotland--not unless they wanted to create an independent Scotland, which would be the general effect in political terms of slashing public expenditure in Scotland.

Some Liberal Democrat Members support the Barnett formula. However, another third of the party wishes to proceed to a new needs assessment for Scotland, while the final third supports fiscal autonomy for the Scottish Parliament. In the short term, it is better to stick with the Barnett formula, although I am not lacking in confidence about the ability of Scotland to argue its corner in terms of need.

In Scotland, the health budget is bigger per head than the English budget but is growing significantly more slowly. If we look at health from the point of view of

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need, the health needs in Scotland are significantly greater than in England according to all statistics, for the simple reason that people die significantly younger. All the health indicators are worse in Scotland than in England. Given that health accounts for one third of the Scottish Parliament's budget, it would be easy to put up a strong case for the levels of health expenditure that we receive.

What would be indefensible in a Scottish and UK context is to argue for the massive public expenditure cuts that are the implication of the Conservative party's arguments this week. I thank my right hon. Friend the Chief Secretary for pointing out, courtesy of a Conservative briefing, that £1.4 billion would be cut from the Scottish budget if the Tories were to have their way. I have yet to hear any explanation from the Conservatives of where they are to make cuts.

I almost felt sorry for the shadow Chief Secretary, who was sent round the television studios the other night by the shadow Chancellor. When asked how he would find £16 billion of cuts, all that he could come up with were a few political advisers. I do not know how much he thinks Labour political advisers are paid, but he will have to come up with something better than that.

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