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Mr. Beard: Liberal Democrat spokesmen have told us many times that, in the hypothetical event of their taking office, they would not have tried to get rid of the £29 billion deficit left by the previous Government, although such an attempt should have been a given. They would have compounded that decision by spending ever more on services. It is guaranteed that, within 18 months of their taking office, there would have been a financial crisis on the foreign exchange markets, and the whole show would have closed down, as we have seen before. How does the hon. Gentleman say that he would have

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escaped, like Houdini, from such a situation? Some type of austerity was necessary initially to put right the public finances.

Mr. Taylor: The hon. Gentleman's question is easy to answer. First, the Government have followed the same fiscal rules that we proposed--and I do not knock them for that. Secondly, we--unlike the Labour party--proposed independence for the Bank of England. We can claim some credit for that proposal. Therefore, we would have followed the same process of building up the economy.

There is, however, one fundamental difference between the two parties' approach. We would have been able to invest more at the start of the Parliament--not by ruining the economy or spending money that was not there, but by making small, costed tax increases to guarantee the health, education and other spending increases that we outlined. Those changes would have been made at the start of the Parliament and formed a baseline for subsequent economic development. It is not difficult to understand that point. Our approach would have led to precisely the same balanced position that the Government have achieved, because we would have balanced spending and taxes.

Several hon. Members rose--

The President of the Council and Leader of the House of Commons (Mrs. Margaret Beckett): I do not want to impede any of my hon. Friends from intervening, but I think that someone should just remind the hon. Gentleman that he and his colleagues opposed the windfall tax. So, all this talk about everything that they would have done and all the resources available to a Labour Government being available to them is just so much nonsense.

Mr. Taylor: The right hon. Lady is wrong. We did not support the windfall tax, but we set out our spending proposals with our tax proposals, making it clear that, in the early years of this Parliament, we would have been able to spend more than the Government did. Additionally, subsequently, our proposals would have enabled a higher expenditure baseline. Consequently, our tax take would have been a little higher during this Parliament--[Interruption.] I do not deny that the tax take would have been higher than it has been under Labour.

Mr. Beard rose--

Mr. Taylor: The hon. Gentleman should sit down, because I am not going to take another intervention now. He has asked a question and he will have an answer.

The result of our policy is that people on above-average incomes would have been paying the penny in income tax, balanced by tax cuts for those who are on low incomes. Those who are on high incomes would have been paying at the 50 per cent. rate, rather than the 40 per cent. rate that they are paying under Labour or the 60 per cent. rate that they paid under Baroness Thatcher. They would have been paying a little more tax. Consequently, we could have made the improvements for which we have argued.

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The fact is that the Government, contrary to the Labour manifesto, have cut pensioners' share of the national cake. In the early days, they also cut spending on schools and health. Over this Parliament, they are spending less of the national cake on all those services than Conservative Members did when they were in office.

I return to the nonsense that we heard today from the shadow Chancellor. The fundamental point is that, by proposing those cuts, the shadow Chancellor is proposing to achieve even less than the previous Conservative Government achieved. There are only two ways in which he can implement his proposals. He will have either to cut spending on health, education and pensions below that achieved under his previous Government; to raise taxes, which he says he will not do; or--as we must suspect Conservative Members would do--run up a huge deficit, as they did when they were in office. The truth is that deficits are simply deferred taxation. Conservative Members are saying, "You can have your cake now, but pay for it later." They are proposing mortgaging the future. However, if one continues to mortgage the future, the future becomes unaffordable.

It is no wonder that the shadow Chancellor left the No Turning Back group, as it was Baroness Thatcher who spelled out the Tory philosophy that one cannot spend what one does not have. Now, rather than belonging to the No Turning Back group, the right hon. Gentleman is out there offering cake and not charging for it. He is saying, "You can have something for nothing and tax cuts without service cuts."

Look at the nonsense that Conservative Members are offering as examples. They say that the Government are spending an extra £1.8 billion on bureaucracy, and that there is a surge in bureaucracy under Labour. The cash figure, however, is simply the inflation increases paid to people. The truth is that, in real terms, the cost of bureaucracy has decreased under Labour. What are Conservative Members going to do--cut people's pay? Are they going to cut the number of civil servants whom they could not be without when they were in government?

Industrial injuries benefit is another example. Conservative Members say that they want to cut tax on business, but what will they deliver? They are proposing to privatise industrial injuries benefit. Excuse me, but what does that mean, other than that businesses themselves will have to pay benefits that are currently paid for by the state?

Mr. James Clappison (Hertsmere): The hon. Gentleman is beginning to answer the question that I was going to ask him. He started by saying that Conservative Members would cut spending on health and education. Now, he is putting his own interpretation on the items that we propose cutting--such as bureaucracy and waste. However, my right hon. Friend the shadow Chancellor has clearly stated our commitment to spending on schools and hospitals.

Mr. Taylor: The hon. Gentleman's figures on so-called waste and bureaucracy are equivalent to the cost of 10 per cent. of all United Kingdom civil servants. I do not believe that Conservative Members could possibly make such a cut. The shadow Chancellor has gone even further, however, by saying that they would not make cuts in certain parts of the bureaucracy, such as the Home Office

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and social security, but increase them. Those parts of the bureaucracy account for 35 per cent. of the total spent on it. It seems, therefore, that the rest of the system will have to be cut far more.

Conservative Members' proposals are built on a fundamental error in their thinking. They think that spending has increased, whereas, in real terms, it has decreased. If they cannot understand the difference between nominal and real expenditure, they really do have to go back to school.

The list goes on. On each of the Conservatives' proposed cuts, their figures do not exist, add up or work. However, we do not have to take the Liberal Democrat or Labour view on the issue; we can take the shadow Chancellor's view. The first thing he did when announcing his £8 billion tax cut package was to admit that he does not have £3 billion of the package.

Lord Skidelsky--who was a member of the Conservatives' Front-Bench team, which he left because of a disagreement on foreign policy, not economics--is reported today by The Times as suggesting that £1 billion of the £5 billion that the shadow Chancellor claims to have come up with is "bogus". Moreover, that £1 billion is composed of savings on social security fraud. However, as that is exactly the same sum that they had found before the Government announced that they too were going to cut £1 billion in such fraud, presumably they have found another £1 billion that they had not noticed before. Lord Skidelsky called such cuts

The shadow Chancellor had the cheek to say that the Conservatives were going to increase pensions by £9.50. Half of that sum is composed of increases already announced by the Government--so there is no surprise there--and the rest comes from ending the winter fuel bonus, the free television licence, the Christmas bonus and other benefits. Although those benefits are large, combining them and adding them to the basic pension will not make pensioners any better off. Pensioners were not born yesterday. They know that they are not any better off if someone takes a pound from one of their hands and puts it in the other.

The country has a choice about levels of tax and spending. The Government have taken their choices. Liberal Democrat Members have made a different set of proposals which entail asking people on above-average incomes to pay a little more, to fund better education, health pensions. The Conservatives are trying to sell a bogus policy, claiming that taxes can be cut without a corresponding cut in services. It is fatuous and it does not add up. No wonder that every time the shadow Chancellor relaunches himself, he has to withdraw the policy that he announced the previous time.

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