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Mr. Jim Cunningham (Coventry, South): When the right hon. Gentleman was in government, does he recall the representations that were made about changes to the formula that would have meant extra provision for social services and the fact that his Government refused to make those changes?

Sir George Young: I regard that as a spent conviction. Yes, I remember receiving an unending series of deputations. Any Member of this House with any ingenuity can develop a case showing that his local

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authority has had a raw deal under the revenue support grant system. I am sure that the hon. Gentleman did not lack ingenuity in making his case, and I hope that he was listened to sympathetically.

Let me return to the strategic problems of social services. There is a net loss of beds in residential and nursing homes, which has a direct impact on the performance of the NHS. The net loss of beds in Hampshire in the past three years has been 62, 277 and 279, with 400 likely this year. So the debate that has been launched must embrace both the NHS and social services.

I hope that the Government's response to the two strategic issues that I have outlined is not to turn their back on the development of a complementary scheme alongside the NHS. I am slightly worried that the Government see a frantic programme of administrative reform of the NHS as an adequate substitute for the more thorough debate that I outlined. The problems are not likely to be put right by a further round of turbulent administrative reform.

The problems that confront the NHS are pay awards and other costs rising faster than the inflation uplift; the formula for distributing funds around the country, which is hopelessly flawed; staff recruitment and retention, which leads to the excessive use of agency staff; and delayed transfers of care, which mean that hospitals have to treat more people than they should. The real debate on the NHS should focus on those problems and the broader issues of funding. There is an appetite outside the House for a proper debate on how we fund the NHS and health in this country. I hope that the Government are listening.

9 pm

Mr. Frank Field (Birkenhead): My hon. Friend the Member for Halton (Derek Twigg) reminded the House that although many of us want to concentrate on the health service, the debate is on the funding of public services. Like him, I have just finished visiting all the reception classes in my constituency. Their one message is, as he said, that schools have never had so much money to spend in the way in which they wish to spend it. The extent to which we freed up the ability of schools to make decisions is a lesson that we can learn in the health debate, because we have not given that freedom to our local hospitals.

I hope that my hon. Friend will forgive me if, like other hon. Members, I concentrate on the national health service. I also hope that the right hon. Member for North-West Hampshire (Sir G. Young) will forgive me for suggesting later in my short contribution that his comparison between the way in which pensions have developed in this country and the way in which health might develop is, I fear, flawed.

Within the space of a week, we heard two towering performances by the Chancellor of the Exchequer. He is one of the great princes of the platform. He is also one of those politicians who rarely uses his skills, and does so only if he wishes to present a message and, as is often the case, to reposition his party. During the past week, we saw the Chancellor use those considerable skills to reposition the governing party with regard to its views on taxation. Although that debate holds great promise, it also holds great dangers, both for the NHS and for Labour as a governing party. Like all hon. Members, I want more to be spent on health and, certainly like all Labour Members, I want more to be spent through the NHS. I shall dwell on the dangers later in my contribution.

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I did not share the euphoria with which some of my Labour colleagues greeted the announcement that we were going to increase direct taxation. I remember fighting, and losing, elections in which we wanted to increase direct taxation. We won in 1997 for a number of reasons: for instance, the Tory Government had been in office for far too long and we had a leader in my right hon. Friend the Prime Minister who was, and still is, a winner.

We also won because we made two specific pledges on taxation. We said that in the first stage we would keep to Tory spending plans for the first two years and would not increase direct taxation. Those are the achievements of my right hon. Friend the Chancellor of the Exchequer. Without my right hon. Friend the Prime Minister and those two pledges by the Chancellor, I do not believe that we would have won in 1997 or obtained the majority that we did in the last general election.

Dr. Evan Harris (Oxford, West and Abingdon): Will the right hon. Gentleman give way?

Mr. Field: As the hon. Gentleman has stopped squirming, I will certainly give way.

Dr. Harris: The right hon. Gentleman's contribution is thoughtful, but he is basing his comments on two assumptions: first, that it was necessary to make such pledges to beat the Conservative party in 1997 and 2001, and secondly, that there is an implied commitment to put up direct taxes. Is not the problem that the Government hint that they will put up taxes, but the only ones that they will not raise are fair, direct, income-related taxes? The fear is that they will put up unfair, indirect, stealth taxes instead.

Mr. Field: The Chancellor has made it clear that we will, if need be, increase direct taxation. If the hon. Gentleman has not learned that, he has not been paying much attention to the debate over the past seven days.

It is important for Labour Members to read carefully what our electorate tell pollsters, and what they tell us during election campaigns. Voters in Birkenhead, as elsewhere, love the game that they play with pollsters. When they know that there is no possibility of a party that will increase direct taxation being elected, they tell pollsters that they would love to have a party that will increase direct taxation. The response from voters to a Government who feel it necessary directly to increase the contribution to the NHS will be totally different. My experience during the election was that most people feel that they already pay a very large part of their income in tax; some believe that it is far too much, and many do not believe that they get value for money.

It is against that background that we come to a debate about protecting and enhancing the position of the NHS. There is a real danger of some Members in the House reading too simply the messages about Europe. Opposition Front Benchers read the position wrongly in looking to advances in Europe to support their argument that we can increase choice by increasing the numbers of people in this country using private medical care. There is one significant difference between this country and most countries in Europe: in Europe there is an abundance of doctors and nurses, and in this country there is a shortage.

If one suggests that more people in this country should go private, the resources—apart from the consultants, doctors and nurses who might work extra overtime to

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meet that demand—can come only from the NHS itself. One would be moving the demand around. That is different from the situation in most European countries, where people have paid handsomely in the past for a very large number and an easy supply of doctors and nurses, and where such a policy might be pursued.

As the right hon. Member for North-West Hampshire seemed to imply, there is no major difference between the role that pensions play in Europe and the role that the health service plays in this country. In Europe, it is impossible for Governments to cut back on state pensions. In post-war settlements, pensions have played a part that they do not play in this country. That is why the finances of those countries in the everyone will experience such difficulties in the decade ahead. Germany, France and Italy are planning levels of expenditure for public pensions which are not sustainable, yet when any of those Governments try to cut provision, people move into the streets and the Government quickly withdraw.

That is totally different from the position in this country, where people do not get het up about whether they are to have a private pension, a company pension or a state pension. In this country, the part of the post-war settlement which voters care about is the national health service, and they will vote for parties that support their views on the NHS. The live rail that kills politicians in Europe is pensions, and the live rail that has in the past killed politicians in this country, and might again, is the NHS. Politicians grapple with the NHS with an ever- present sense of danger. Although there is considerable desire for the NHS to be reformed and services to be made more adequate, there is not yet agreement among the electorate on what the level of expenditure should be, or on what steps need to be taken to ensure that the sort of freedom that is beginning to operate in our classrooms begins to operate in our hospitals.

Although the Opposition were rather foolish to describe the NHS as they have this evening, it is fair to say that it is our last nationalised industry and the only one that this country has ever cared about. We face not only the question of funding, but the question of how to use that funding to change a centralised, centrally directed, ration book-type health scheme into a system that far more effectively reflects consumer preferences, in a way that we experience in almost every other part of our lives. If people find that difficult to envisage at the moment, the electorate will teach us the lesson very soon.

My final point follows on from the theme that I have been presenting. The age in which we can have unhypothecated tax increases and easily win elections is over. That is not to say that I do not welcome the debate, or that I do not have views on ways in which additional funds for the NHS can be raised, but if Labour Members think that voters will agree to increases in direct taxation proposed under the banner of the NHS without those increases being directly linked to increases in the size of the health budget, we have another think coming.

We already have a form of hypothecated tax in this country. I implore the Government, when they are giving serious consideration to the alternatives in an open debate on how to raise the necessary revenue, to think carefully about using the national insurance base as the means by

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which additional funds are raised. However, Labour Members have been peddling three fallacies about that way of proceeding.

Those who read the Prime Minister's interview in The Independent on Sunday will know that he warned of real dangers in using the national insurance base as the means of funding future increases in the NHS. There are employers and employees contributions, and our experience in Europe tells us what increasing employers' national insurance contributions does. However, it is possible to have increases only in employees contributions. Reading the Prime Minister's interview, I was reminded of the statement supposedly made by Sidney Webb when, after the fall of the Labour Government in 1931, the coalition Government led by the Tories immediately came off the gold standard. He said, "Nobody told us we could come off the gold standard." My message to the Government tonight is simple: it is possible to increase only employees national insurance contributions if one decides to adopt the route of having an hypothecated tax for the NHS.

Secondly, it is argued that we should not adopt that course because national insurance contributions would be cyclical. One only has to say it to see the fallacy. Income tax is cyclical and there is no evidence in the figures that are produced that national insurance contributions are more cyclical than revenues from income tax. In fact, if the cyclical argument is to be deployed against using national insurance contributions to raise additional funds for the NHS, the Chancellor's suggestion this evening is also faulty. Direct taxation is not more buoyant than national insurance contributions.

The third reason why I want us to adopt that approach is that although MPs might think that national insurance contributions and income tax are the same thing, our constituents and the electorate do not. One of the reasons why the Conservatives got away for so long with being regarded as a tax-cutting party is that they reduced income tax while more than making up for it by increasing national insurance contributions, and most people in this country did not regard increases in national insurance contributions as increases in direct taxation.

The Labour party has crossed an important threshold. If we are ready to contemplate raising direct taxation, if necessary, to finance the increase in funds needed to secure the future of the NHS, I hope that we will do so carefully and mindfully. I hope that we do not believe our rhetoric about all the things that the Opposition are supposed to be concerned about, or that voters are keen on increasing taxes. We have been in a dreamland where, thanks to a buoyant economy and the skill of the Chancellor, there has been a surplus in the budget. That surplus is about to disappear during this Parliament and, when it does, choices will have to be made and we will have to defend to our constituents the need to increase revenue—I believe that we will have to do so—to finance the NHS and secure its future. Voters may tell pollsters one thing about paying increased taxes when they know that they will never have to do so but, in that difficult terrain, may behave differently when faced with those increases.

On the difficult journey on which we are now embarking, I hope that the Government will not dismiss out of hand a hypothecated approach to our financing. As I said earlier, the age of being able to shove up direct taxes and think that people will vote for us is over. Now,

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we have to negotiate, increase by increase, with the voters; we could not have a better subject on which to begin those negotiations than the NHS.

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