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Mr. Stinchcombe: If the hon. Gentleman will sit down, I will bring my remarks to a close.
I am sure that that solution will be welcomed by Conservative Members and especially by the right hon. Member for Kensington and Chelsea, who came to my constituency not long ago to talk about the problem of secondary schools there. He showed great concern, for which we were grateful. He went on local radio to talk about the cause of the problem.
I have a tape of what the right hon. Gentleman said. He was asked directly whether the Secretary of State for Education and Employment should have closed a local secondary school and, in the clearest possible terms, he replied:
- "It seems absolutely extraordinary that should have been decided . . . The whole thing seems to have been done without any foresight or imagination whatsoever, just to have been incredibly inept, and I think the people responsible for these really, seriously wrong decisions need to stand up and be brought to account."
The Tories made the mistakes that caused real pain to my constituents. Through our economic policies, we pick up the pieces, heal that pain and clear up the mess.
3.5 pm
Mr. Edward Davey (Kingston and Surbiton): Like the hon. Member for Wellingborough (Mr. Stinchcombe), I have constituents with children of secondary school age who have a problem getting a place, but that problem could be solved not by extra spending and building more classrooms but by overturning the Greenwich judgment.
Mr. Ruffley: Will the hon. Gentleman give way?
Mr. Davey: No, it is too soon.
If the Government overturned the Greenwich judgment, Kingston borough council could give priority to local residents, over residents of neighbouring boroughs, who want to send their children to local secondary schools. Just like the Conservative Government, they have failed to do that. I wish that they would do it, because that would certainly give good value for money and my constituents could have their secondary school places at no extra cost.
Mr. Geraint Davies: Is it official Liberal policy to abolish the Greenwich judgment, so that no pupil in Croydon, for example, would have the right to go to school in another borough; or is that simply the hon. Gentleman's view?
Mr. Davey: It is Liberal policy to overturn the Greenwich judgment, but the hon. Gentleman misrepresents the implications, as it would not prevent children living in Croydon going to school in other boroughs; they simply would not have priority or an equal right to places with those who live in those boroughs.
Residents pay council tax to their local education authority and, surely, in a democratic system, they should have priority. I am more than happy to confirm that that is my party's policy.The right hon. Member for Charnwood (Mr. Dorrell) made an important contribution to the debate on public expenditure. He argued that there was no problem with any Government continually reducing the tax burden and gave two major reasons why that burden as a percentage of gross domestic product must decline year on year: the need for competitiveness for the wider economy and the need to increase personal choice.
Many factors determine an economy's competitiveness, including the ability to have open markets and to trade freely across the world, the education system that underpins people's entrepreneurial and innovative abilities, and the amount of research and development being undertaken. The link between the tax burden as a share of GDP and an economy's competitiveness is very weak. Many other factors are far more important.
I agree that if the tax burden grew exponentially as a proportion of GDP, there would come a point at which the public sector would drive out the private sector and competitiveness would be compromised, but I do not think that we are anywhere near that. We need to get best value for money and resist large increases in the tax burden, but the right hon. Gentleman oversold the case on competitiveness.
Mr. Dorrell: The hon. Gentleman may remember that our rate of profits tax started the 1980s at about 50 per cent. and ended that decade at about 35 per cent., and that pretty well every other major European country cut its rate of profits tax, usually about two years behind us, in line with the precedent established by Nigel Lawson when he was Chancellor. Was that pure coincidence, or did the other countries feel subject to tax competition and need to cut their tax in order to remain competitive?
Mr. Davey: I do not seek to deny the importance of tax competition, but the right hon. Gentleman mentioned a specific tax and how it affected competitiveness and foreign direct investment. One may need to shift the burden of tax--for example, one may need to reduce the tax on our corporate sector and increase it on the causes of pollution--but that is a different issue from the overall tax burden.
Mr. Dorrell: Which specific taxes would be exempt from the general requirement? I would have thought that if one established a general requirement to reduce the burden of tax, it would flow through to specific taxes, but the hon. Gentleman seems to think that some specific taxes should not be subject to such tax competition.
Mr. Davey: It is clear that some taxes have more impact on international trade decisions, and thus competitiveness, than others. Corporate tax is more likely to affect corporations' decisions on where to locate than the level of income tax. It is obvious that different taxes will have different propensities to affect investment decisions. I have read much of the academic literature on the point, and there is no evidence to suggest that taxes on income, property or sales affect international decisions on the location of business.
Mr. Tyrie: Unfortunately, some economic illiteracy is creeping into the debate. An increase in tax anywhere
increases the costs on everybody else and on any other firm operating in the economy. Some firms may supply goods for the domestic market and some may supply them for export, but that is irrelevant to the effect of an increase in tax on the overall competitiveness of a country, because the effect will eventually feed through. That is why the only figure that should be considered in the making of comparisons is the level of the tax burden as a whole.
Mr. Davey: I shall conclude this exchange by reiterating my point that the share of a country's GDP that its tax burden represents is a small indicator of its competitiveness. The level of the tax burden is not an explanation of differences in export performance between countries.
The right hon. Member for Charnwood also made a point about personal choice, and that is one reason why the Liberal Democrats wish to decentralise much economic and tax power. In that way, local communities could have more say, through the democratic process, in how tax is spent. When it comes to collective provision of schools, roads and libraries, local people would have a much better opportunity to exercise their choice if the decisions were made at the grass roots. However, if one takes that approach too far at the national level, taxes would be reduced and, as a corollary, benefits to the poorest would also be reduced. If year on year--or Parliament by Parliament, whichever is Conservative policy this week on the tax guarantee--taxes were reduced, it would inevitably hit the poorest in our society.
Mr. Davey: In the right hon. Gentleman's analysis of the share of the national budget taken by different Departments, he failed to tell the House that social security takes by far the largest share. It does so to give some personal choice to those who are less fortunate in our society. If one were to reduce taxes to almost 0 per cent.--the right hon. Gentleman failed to say whether that was his eventual aim when I asked him earlier--the poorest would be hit the hardest. That is the inevitable corollary of the right hon. Gentleman's proposals.
Mr. Geraint Davies: Does the hon. Gentleman agree that tax not only constitutes the tax burden but is invested in quality of life issues? For instance, tax may be invested in the transport infrastructure and, therefore, if used wisely, tax could attract inward investment. The point that the right hon. Member for Charnwood (Mr. Dorrell) attempted to make is somewhat naive and simplistic.
Mr. Davey: I agree. Indeed, I welcome this debate because it is important for the House to debate public expenditure more often and in more detail. I refer the House to the speech I made on Second Reading of the Government Resources and Accounts Bill, in which I went into some detail on how the House should spend more time debating public expenditure and voting on it. This time last year, a similar debate, which would have focused on the public service agreement document published by the Government last December, was pulled because of the resignation of the present Secretary of State for Northern Ireland, the right hon. Member for Hartlepool (Mr. Mandelson). Therefore, this debate is long overdue and I welcome it.
We are in the run-up to the Budget, and to the second comprehensive spending review next summer. This debate will enable the House to give some advice to the Chancellor. I hope that the Chief Secretary will relay to the Chancellor the fact that the Liberal Democrats are delighted that he has taken much of the advice we have given him. For example, he gave independence to the Bank of England, which was in the Liberal Democrat manifesto but not in Labour's, and that was the most significant change in economic policy in this Parliament. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) mentioned the recent innovation of hypothecation of fuel and tobacco duties for extra spending. That is an excellent innovation that we welcome. The final policy that the Chancellor has stolen from the Liberal Democrats is free television licences for over-75s. I just hope that Ministers steal more Liberal Democrat policies, because that would be of great benefit to the country.
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