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Mr. Willetts: Perhaps I might take this opportunity to say what I think the Chancellor should have done. He missed an opportunity when he came to office. He could have achieved everything that he wanted to achieve with the family credit. He did not need to go through four years of structural turbulence and change. All that he needed to do was put more money into the family credit.

We argued all along that there was no evidence to support the view that it was important to deliver the in-work top-up through the payroll. We asked the Treasury about the mystical significance of paying benefits through the payroll, but it did not provide any empirical evidence to support its approach. No such evidence exists.

In this Budget, in one respect at least, the Chancellor is following the advice that we offered him. He is returning to paying most family payments to the caring parent. He has abandoned the belief that that money needs to go through the payroll, but he has unfortunately created a new payroll benefit instead. The working tax credit, which will largely go to a different group of people, has been carefully designed so that it does not go to the people who tend to be poor. He has excluded the under-25s and they tend to have particularly low incomes. He has created a new payroll benefit, but most family payments will go back to being the benefits that they should have been all along. It is a pity that we have had to have this elaborate detour in the course of which many hundreds of thousands of people who are entitled to the tax credits have not been able to receive them.

Lynne Jones: Although the hon. Gentleman is correct to say that the take-up of family credit was higher than for the working families tax credit, the evidence is that that occurred merely because the family credit was in existence for longer. His solution would still face the problem of inadequate take-up. For family credit, take-up was about 75 per cent.

Mr. Willetts: The take-up of family credit was, indeed, rising, and I hope that the take-up of the tax credits will rise. The increase in the take-up of the family credit is another reason why the Chancellor's policy in 1999 was a mistake. He had something that was becoming widely understood, and the take-up of family credit was up to 91 per cent. However, instead of sticking with the credit, he believed in a year-zero fallacy. Labour Members believed that nothing had happened before 1997 unless it was terrible.

The Chancellor could not bring himself to say that the incomes of people in low-paid jobs had already been boosted by family credit and that he wished to put more money into it. He had to pretend that there was no help for low-paid families before 1997, and that is why he had to have a new benefit with a new name so that he could write family credit out of history. That is part of what he did, and the losers are those who have suffered from the

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catastrophic fall in take-up. I hope that the take-up of the Chancellor's new tax credits will rise. However, the chances of the take-up of the new working tax credit becoming high are pretty slim. Let us hope that he achieves a high level of take-up.

I am trying to argue that the problem is not a one-off. I am arguing that exactly the same can be seen with productivity—the other thing with which the Chancellor is preoccupied. His record on productivity is exactly the same as with all his credits—endless initiatives, with the aim of improving the productivity of the British economy.

As with the attempt to reduce child poverty, it would also be a very good thing if our economy's productivity were to increase. We would like productivity to improve, and in every Budget—this one is no exception—we see a long list of specific measures that are supposed to improve the productivity of the British economy. Meanwhile, what happens to its productivity? The answer is that it is somewhere around average and, if anything, its performance is declining compared with our historical record of the past few years.

The Chancellor's measures to increase productivity are having no effect whatsoever on productivity. Given that we as a country spend rather more on information technology and have been at the head of its introduction—ahead of many countries in euroland—we would expect, other things being equal, our productivity performance to exceed theirs. In fact, our productivity performance is roughly similar to the European average, despite unusually high spending on IT, suggesting that we are significantly underperforming in all other respects. So we have exactly the same phenomenon—we have endless fiddling, tinkering interventions, with no impact on the thing that the Chancellor claims he is trying to address.

The pattern with this Chancellor is that he is best at the things in which he is not interested. His biggest single triumph as Chancellor was to take his hands off monetary policy and give independence to the central bank. [Interruption.] Yes, we now recognise that that has been a great success. We support it and believe that it has significantly improved the conduct of British macro- economic policy. The Chancellor's giving the conduct of monetary policy to an independent central bank has worked. Since then, however, he has put his restless intellectual energies and those of his Department into other objectives—productivity and the tax credits—and that is where he is failing to deliver. He is best at the things that he gives to others and worst at the things that he insists on fiddling with himself.

Mr. Steve Webb (Northavon): For the record, will the hon. Gentleman remind the House of which of the three main parties included the independence of the central bank in its 1997 manifesto?

Mr. Willetts: I thought that there were only two main parties. I presume from the hon. Gentleman's leading question that perhaps the party that he represents advocated an independent central bank. My right hon. Friend the Member for Fylde (Mr. Jack) is in his place, and he will know that we had already made progress towards that policy before 1997. Nevertheless, it has been a great success, but if the Chancellor looks at his table on long-term interest rates, he will clearly see that those rates were already falling in the mid-1990s, as we gave greater operational independence to the Bank of England.

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I will not cavil, however. We welcome the achievement of the independent central bank, but the Chancellor should not then have started to fiddle with other things instead. The more attention a policy gets, the less successful its delivery. That is the tragedy of his chancellorship. We would like the Chancellor or the Secretary of State to tell us about some of the other things about which they promised they would be radical, but on which the Budget was almost completely silent.

What has happened to the savings gateway and the child trust fund? We were told that that was the transforming idea for this Parliament and that it would change the nature of the welfare state. Needless to say—this is typical of the Government—there are three pilot projects in obscure parts of the country, with a report due in two or three years. The Government got their headlines during the last election campaign by promising radical delivery of that policy, but absolutely nothing has happened.

What about pensions? In the past few months, there has been a catastrophic decline in people's prospects of enjoying an income from their funded pensions when they retire, as one company scheme after another has closed to new members. That is a direct consequence of the decision that the Chancellor took in his 1997 Budget to impose a new tax on pension funds. What does he have to say about that in his Red Book? He says that

He can say that again.

The prospect of millions more people being dependent on means-tested benefits in future as a result of the closure of their final salary pension schemes is the most important single change currently taking place that will affect the Department for Work and Pensions, so the Government's being concerned is really not good enough. I hope that the Secretary of State will attempt in his speech to say what the Government will do about that very serious problem.

The Conservative party has been open-minded about the reform of health care. The Chancellor's Budget statement, the Red Book and today's statement make it clear that the Government have a closed mind. They do not believe that we can learn from the continent of Europe how to organise health care in future. I think that we can learn from Europe. The Budget represents a missed opportunity, and the reason why the Opposition will not support the Budget tax increases in the Divisions on Tuesday is very simple.

The Chancellor looks to the continent of Europe when it comes to increasing the tax burden, regulating the labour market and imposing new burdens on business. In other words, he copies the worst aspects of the continental European model. However, when it comes to how health care systems are organised in continental Europe and how those systems ensure the mixed financing of health care, which clearly works and is a success story, he closes his mind and rules out options that can be developed by learning from how things are done on the continent. He has got things exactly the wrong way around. He should learn from the things on the continent that work, not from the things there that do not work. That is why we oppose the Budget.

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