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Mr. Richard Ottaway (Croydon, South): I am grateful to the hon. Gentleman for giving way. Having listened to him drone on for 40 minutes because his Whips cannot get enough speakers to fill the time allocated for the debate, we are at least entitled to an accurate representation of the Conservative party's policies. There is no question of cutting health, education, transport or police spending. We would make a darn sight better job

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of running those services than his party has done. Likewise, the tax cuts that we announced would be far more effectively targeted on those who genuinely need the help--the elderly and savers, in particular.

Mr. Lewis: I thank the hon. Gentleman for yet another example of the Opposition denying reality. Whatever the debates and disputes about the state of the economy, when the Government came to power in 1997, we inherited hospitals in crisis, schools that were crumbling, public services that were in a dreadful state, and a transport infrastructure that was a disgrace to a modern economy. That was the legacy not of four, eight or 12 years of the Conservatives, but of 18 years of unbroken government, when they had the opportunity to run the country in whichever way they saw fit. That is the situation that people faced in their daily lives on 1 May 1997, which may provide a miraculous explanation of why the Conservative party had the worst election result ever in the history of a major British political party.

Mr. Willis: Until the next election.

Mr. Lewis: I thank the hon. Gentleman for his confident prediction.

It is important to remember that, in four years, it is impossible to put right 18 years of under-investment, social division and the running-down of public services. That view prevails among Labour Members and others and explains why we were elected in such large numbers. Many people who had previously voted Conservative transferred their loyalties to the Labour party because they saw destruction on the ground and society crumbling in their communities.

The Budget redresses the belief that there is no such thing as society and that we are simply a collection of individuals. That was not just Conservative rhetoric; the previous Government tried to run this country on the basis of that belief. They divided the country from top to bottom and, having failed to deliver high-quality public services and a cohesive society, added to that between 1992 and 1997 by messing up the economy. They were deemed to be economically incompetent and unfit to govern.

Nobody believes that the Opposition have any new solutions to the country's fundamental problem. Everybody knows that, if they came back into power, it would be more of the same--cuts in public services and tax cuts for the few at the top of society at the expense of the mainstream majority. There is nothing new about that; it has been Tory philosophy throughout the ages and from one generation to the next.

I am proud to support the Budget. Having spoken to my constituents at the weekend and read newspapers that I am not normally inclined to read, I genuinely believe that it is a Budget for hard-working families and high- quality public services. It is a good Budget for pensioners and small businesses; it is a Budget of which the Government can be genuinely proud.

6.52 pm

Mr. John MacGregor (South Norfolk): The hon. Member for Bury, South (Mr. Lewis) droned on for so long, with so many travesties of the truth and the facts, making so much irrelevant comment about history--

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rewriting it and spinning--that he will forgive me if I do not follow his example. Indeed, the longer he went on, the more I realised that it was not worth following him and responding to his comments.

I have spoken in many Budget and Finance Bill debates, both as a Minister and a Back Bencher, during my years in the House. There was a pause only when I was a Minister in a certain Department. This may well be my last opportunity to speak in a Budget debate before retiring from the House, so I am glad to have had the opportunity of catching your eye, Mr. Deputy Speaker. I do not intend to cover the entire ground, only some key points, as I very much agree with my right hon. Friend the Member for Huntingdon (Mr. Major), not least about our strong economic legacy. I shall come back to that.

My overwhelming impression, as I listened to the Chancellor and looked at the Budget over the weekend, is that this is an itsy-bitsy Budget which, as in previous years, used the smoke and mirrors of the conjuror's art--I know something of that art--to deflect attention from what was really happening. There were little bits for everyone, but they did not add up to much. Nevertheless, the Chancellor got what he wanted: media coverage that made it look like goodies all round. I shall refer to smoke and mirrors later.

It has been widely recognised--and much commented on--that the Chancellor is apparently giving away, or, more accurately, giving back, only a small proportion of what he has accumulated during the past four years. That cannot be said too often because the Chancellor, the Prime Minister and others on the Government Front Bench tried to deny for some considerable time that there had been an increase in the overall tax burden--until, of course, the facts became irrefutable. Many studies by the House of Commons Library, accountants and others demonstrated that what the Government said was untrue. Now, the Red Book demonstrates that there has been a considerable increase in the tax burden, which, as a proportion of gross domestic product, has increased from 35.3 per cent. when the Government took office to 38 per cent. in the coming year. That is a measure of the increase in the tax burden, of which a significant proportion comes from fiscal drag.

My right hon. Friend the Member for Huntingdon was right to talk about the legacy of a strong economy. When history is written, that will be seen as one of the great benefits that the Chancellor inherited. To be fair, by and large he has not gone back to the policies of past Labour Governments, which would have dissipated all the benefits of the strong legacy that came about partly through the supply side reforms undertaken by my noble Friend Baroness Thatcher in the 1980s and the many other economic reforms during that period.

Mr. Geraint Davies: Will the right hon. Gentleman give way?

Mr. MacGregor: No, I have listened to the debate for a long time and I know that many of my hon. Friends wish to contribute.

During that period, there were strong economic policies, low inflation, and falling unemployment. As those of us who have worked at the Treasury know, those trends continue and others benefit from them--which is what has happened to the Chancellor. As I said, to be fair, he has not returned to the policies of the last Labour Government.

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One reason for the fiscal drag is that the Chancellor has indexed all the thresholds on direct tax, including inheritance tax and capital gains tax, and has not compensated for the substantial earnings increases and capital cumulation during those years. When I listened to the Chancellor, I was struck by an illustration of that. The starting point for the tax threshold for the 40 per cent. higher rate, taking into account the personal allowance, is about £34,000, which is only about £9,000 higher than average earnings. Someone earning £34,000 goes straight into the highest tax band, which is a big tax jump and particularly unfair for households with a single earner in the family. They start to pay higher rate tax at the comparatively low level of £34,000 and are particularly disadvantaged compared with two earners in the same family each earning £25,000. That is a similar point to that made by my right hon. Friend the Member for Huntingdon about the children's tax credit. That issue must be addressed. However, fiscal drag is not permanent and can soon wither--I shall return to that later.

The other reason for the big fiscal surplus is the collective stealth taxes, the bulk of which have been levied on companies and their pension funds, and also involve indirect taxes. Starting with the burden on companies and pension funds, the Chancellor has been able to give the impression that he has not increased the tax rate because the burden has been put on those who, if I may put it this way, are not ordinary voters, and on bodies where the effect of the tax increase will come much later. Some people therefore feel that because the Chancellor has not increased direct taxation, he has not increased taxes overall.

However, the disadvantageous effects of increases in stealth taxes are bound to come through, especially in relation to pension funds. In the past four years, £17 billion has been taken from pension funds and added to the Chancellor's revenue, giving him the opportunity for fiscal surplus. That £17 billion, which will continue to accumulate in coming years, will have severe effects on companies and pensioners. Speaking as the chairman of the House of Commons pension fund, I suspect that, before long, it will feel the impact; the surplus will disappear partly because of the change in advance corporation tax. There is already a severe impact on a lot of companies, which now find that they have to cut benefits, move to direct benefit pensions--rather than direct contribution pensions--and considerably increase their own contributions to pension funds. Damage is already becoming apparent, but we shall see much more.

As for indirect taxes, the one that really affected individuals was the constant increase in fuel duties. Looking at the Chancellor's environmental measures, on which I shall comment in a moment, he has now recognised that technological improvements have made a bigger contribution to our climate change targets and so on than any increase in fuel duty. In fact, the Chancellor's continued increase in the fuel duty escalator was simply for revenue-gathering purposes, not for any environmental reason. It was only because of the outcry last autumn that the Chancellor called a halt to that. The impact of indirect taxes such as those has been very severe indeed, particularly on rural areas.

It is because the collected stealth taxes do not make a direct impact on individuals that the Chancellor's figures suggesting that various households are better off are so misleading. His calculations in the Budget documents

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about people being better off refer only to direct tax. The situation looks very different if we take into account all the indirect taxes.

The Chancellor is at it again with the stealth taxes that were not announced in the Budget, but which leaked out later. The 7.5 per cent. increase in the upper earnings limit for national insurance contributions announced this week is an increase of three times the rate of inflation. Many individuals earning about £30,000 will be worse off as a result of the Chancellor's measures because that stealth tax was not announced in the Budget. We did not hear anything about it in the Budget for the simple reason that the Chancellor wanted to introduce it stealthily.

Another reason for the fiscal surplus has been the restraint on public expenditure in the Chancellor's first two years, to which my right hon. Friend the Member for Huntingdon correctly referred. That restraint was spun out by the treble counting that we kept hearing, year after year. Figures were repeated constantly by the spin doctors and by the Prime Minister, accumulating three years' increases in expenditure and giving the impression that they were being introduced all at once. That is one of the reasons why the public were unaware that many of the increases were nothing like as large as the Prime Minister and the Chancellor tried to pretend.

There has also been an underspend in the departmental expenditure limits, by £2 billion last year and £1 billion this year. That could be one of the reasons why a reluctant Chancellor managed eventually to allow the Minister of Agriculture, Fisheries and Food to announce changes to the amounts of agrimonetary compensation last week. The underspend no doubt made that very easy for the Chancellor. It is a pity that the announcement was linked to foot and mouth disease, because it has nothing to do with it and should have been introduced much earlier.

I also suspect that the underspend made it possible for the Chancellor to announce what I thought was going to be another smoke and mirrors announcement: the £1 billion increase in health and education. I was watching for an element of retreading or reannouncing of an announcement that had already been made. I grant that that did not happen on this occasion, but the three years' increases were rolled into one and made to look very much larger than they are. The increase in education, for example, is £290 million next year, a far cry from the impression of £1 billion that was given. I take the point made by the hon. Member for Harrogate and Knaresborough (Mr. Willis), who has just left the Chamber, that education spending as a proportion of GDP under the previous Government was higher than it has been under the Labour Government over the past four years.

I shall make one comment on part of the educational spend--the new £290 million--which is that I welcome the conversion to the way in which we approach education spending in terms of the direct payments to schools announced as part of the package. I notice that the Secretary of State for Education and Employment spoke today about greater delegation of budgets and giving more freedom to head teachers. Well, what a conversion. One of the most damaging things that he did was to abolish the grant-maintained schools approach, in which a large

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proportion of the spend was directly delegated to head teachers, who were given the freedom to spend it as they wished.

I agree with the comments by my hon. Friend the Member for Maidenhead (Mrs. May) about the way in which so many of the education initiatives have been ring-fenced and small, giving the impression of great initiatives and great activity, when they would have been much better directed if they had been given directly to the schools in lump sums.

On health, the reality on the ground and the spin relating to the amount of money are poles apart. A general practitioner in a small village called Brooke in my constituency is retiring. It is proving very difficult--indeed, I think that it will be almost impossible--to replace that GP. One reason is the shortage of money. When I tried to discover whether the relevant funds could be rolled forward into the next three years, I was told that the Norfolk area health authority and the primary care groups were under huge pressure in relation to their budgets. That is the reality on the ground, and the announcement made last week will not make a great deal of difference.

More smoke and mirrors, now. I noticed, when I started to read through the press releases, that many of the tax reductions and grants are, as in the previous Budget, in years two and three. The impression is given that all those goodies will be immediately available, but we shall have to wait for two or three years for them to come through.

Furthermore, press release No. 1 from the Inland Revenue is absolutely littered with proposals which, when we examine them, turn out to be proposals to consult on this, that and the next thing. They give the impression of substantial giveaways to companies--many of the proposals affect the corporate sector--while doing almost nothing at all. As a former Minister with responsibility for small businesses, I can say that the changes proposed for small and medium-sized enterprises are absolutely minimal. The spin is much greater than the reality.

Like my right hon. Friend the Member for Huntingdon, I want to give credit to the Chancellor on two counts. First, on the macro-economic front he has not, by and large, pursued old Labour policies. He has avoided the ludicrously high rates of tax and the reckless spending that we saw under previous Labour Governments. I freely acknowledge that, because of that and the continuation of many of the policies that we were pursuing, he has been able to make a significant repayment of debt. Any Chief Secretary to the Treasury--especially one of my political composition--would always wish to be in that position. In fact, I was close to getting to it myself when I was Chief Secretary, and my point about inheritance was that it was my right hon. Friend the Member for Huntingdon who inherited the opportunity to repay debt.

I acknowledge that the Chancellor has been able to repay that debt, very much for the other reasons that I have given. However, he is in serious danger of throwing away his advantage. I sometimes wonder why there are so many rumours about an imminent election. I suspect that it is because the Prime Minister and the Chancellor do not want to wait until the autumn because they are aware that, given the slowdown in the American economy, the difficulties in Japan and the possible repercussions of globalisation that we experience from

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time to time, the fiscal drag and the opportunity to repay debt might quickly start to move away. I suspect that that is one reason for having an early election.

However, we must also take into account the threat to the Chancellor's position on the repayment of debt. According to the Red Book--this point has now been well documented and commented on--in the next three years, the increases in public expenditure are planned at between 6 and 7 per cent. a year, with the three years growth estimated at very much less than that. Anyone who has been involved with the Treasury will know that, in terms of the surplus or the deficit--because we are talking about a small residual figure in relation to the expenditure numbers and the revenue numbers--if the economy moves into a slowdown, or if we spend much more than the growth in the economy, we can quickly experience a reverse in that repayment of debt and in the improvement that the Chancellor has been able to achieve on that front. That is the danger.

I also want to give credit to the Chancellor on the environmental front. I strongly welcome the reductions in fuel duty on ultra-low sulphur petrol, and a number of the other proposals in the Budget designed to improve the environmental aspects of transport generally. I remember clearly that I was Chief Secretary when my noble Friend Lord Lawson was Chancellor and we introduced the first reduction in duty on unleaded petrol. Although we were all in favour of that measure, we greatly underestimated the impact that that reduction would have on quickly moving everyone over to the use of unleaded petrol.

I generally welcome the Chancellor's proposals on environmental issues, but he is persisting with the climate change levy, with all the damage that it will do to the many businesses that will not be compensated by the national insurance reductions. He promises an aggregates levy next year, but that will be equally damaging to certain parts of our industry, and the threat of the pesticides tax to agriculture has still not gone away. If we read the small print, we discover that there is still the threat of a pesticides tax being introduced next year. I can think of nothing more harmful to our beleaguered agriculture industry at the present time than the continuation of that threat.

I have further detailed points to make. I believe that the climate change levy should not have been proceeded with and that the pesticides tax and the aggregates levy should not be introduced. I am sad that the Chancellor did not reverse IR35. When I was in California last September, I talked to a lot of Brits who work in the high-tech and biotech industries. Although California was the magnet that attracted British expertise from these shores, the spike of IR35 has greatly accelerated the trend and the visit to India made by the Minister for Small Business and E-Commerce provided one of the more ludicrous examples of its impact.

The Minister tried to recruit skilled consultants in the high-tech industries, for whom an accelerated immigration procedure was to be introduced, because we were losing our people. We have had to turn to others because IR35 has forced home-grown consultants from our shores.

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