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8.5 pm

Mr. Mark Hoban (Fareham): Before the Budget, I wrote to more than 1,000 businesses in my constituency to find out the issues that they faced, and the action that they wanted to see in the Budget. The overwhelming message that came back was about the burden of taxation—both in terms of the level of taxation and of the administrative burden. It was with that in mind that I listened to the Chancellor's speech last Wednesday afternoon. Yes, there were measures in that speech that the businesses in my constituency might welcome. The optional flat rate for VAT is something that many businesses tackling VAT administration would wish to see. The lower corporation tax rate for smaller businesses was also a welcome change.

In a way, I welcome the money that the Government are providing for the electronic filing of Inland Revenue returns. It is a recognition of the problems imposed on business by the Government that they have had to introduce the payment of that money. The problems facing businesses include the administration of measures such as the working families tax credit, and the collection of repayments of student loans. Those are burdens that have been imposed by this Government. I welcome, therefore, their conversion to the recognition that businesses need help in this area, but it would have been better if the Government had tackled the causes, rather than the symptoms, of the work load that they have imposed on small businesses.

The Government's failure to grasp the issues facing businesses was demonstrated by the imposition of the tax on jobs—the increase in national insurance contributions. That will hit the cost base of businesses and erode their profitability, and they will, of course, adjust their pattern of performance depending on how much they use labour. I am conscious that banks and supermarkets with very thin profit margins will be particularly impacted by the

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increase in employers' national insurance costs, and will seek to restructure their organisations to bring about the shift from labour to capital that was mentioned earlier.

I am particularly concerned about the plight of small manufacturing companies. Many of those in my constituency exist because they have been able to target a niche market, perhaps one that requires a short lead time for production or short volumes. Because of the nature of the niche in which they operate and the techniques that they use, those businesses are dependent much more on labour and less on capital. I fear for the small manufacturing sector in this Budget, which was presented by the Chancellor as a Budget for enterprise. The effect that the increase in national insurance contributions will have on every employee, employer and self-employed business demonstrates that it is definitely not such a Budget.

The tax increases in the Budget were introduced to fuel the growth in public spending. I want to talk briefly about health and education. On education, the Chancellor announced that an increased amount of money was to go directly to schools. I do not know what strings are attached to that money, but it is very rare for this Government to give schools any money directly without specifying its purpose.

John Mann: Will the hon. Gentleman give way?

Mr. Hoban: I will not give way. I have only 10 minutes to speak.

Having talked to many of the head teachers in my constituency, I know that they are increasingly frustrated by the extent to which funds received from the Government are ring-fenced. A few weeks ago, I spoke to a head who was complaining that she had money in her capital budget, but nothing to spend it on. Meanwhile the resources that she received for the national grid for learning had almost been exhausted by the broadband access fees that she had been forced to pay. That epitomises the Government's failure to trust heads to spend money wisely. They are for ever interfering with how heads spend money, forcing them to become either creative accountants—

John Mann: Will the hon. Gentleman give way?

Mr. Hoban: I am not giving way to the hon. Gentleman.

The genuine needs of schools are not met, because the money is not in the right pots.

Mr. Kevan Jones: Will the hon. Gentleman give way on that point?

Mr. Hoban: I am not giving way.

To spend the extra money wisely, we must consider public services reform, and no sector requires change more than the health service. The Science and Technology Committee, of which I am a member, reported last month on how money earmarked by the Government for cancer care is not reaching front-line services. That shows the need for change.

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Parts of the Secretary of State for Health's document "Delivering the NHS Plan" appear to have been written by right-wing think tanks, as they are full of covert references to free markets, choice and enterprise, cloaked in the language of partnership, diversity and pluralism. Reading the document shows the conversion that the Government have undergone. Chapter 6 refers to encouraging overseas profit-making health companies to come to this country to supplement NHS provision, which shows that the Government are embracing the market to an unexpected extent. We should welcome that.

I suspect that Labour Members and the trade unions will have an extensive debate with the Secretary of State about the conditions in which those private sector profit-making companies will operate and on what terms and conditions they will employ staff to provide services. Notwithstanding that, "Delivering the NHS Plan" shows that the NHS alone cannot deliver the health care that this country needs and that the Government recognise that the private sector's role will grow.

The document also suggests that primary care trusts will have genuine commissioning power, but I suspect that the reality will be somewhat different. Paragraph 4.11 says that the Government will

The autonomy of PCTs will perhaps be undermined by a Secretary of State who cannot resist the urge to meddle in the health service. If the Government want to devolve power to the front line as they say, they should trust PCTs to spend the money that they give them wisely. The reforms will fail if PCTs are not given the financial muscle to meet needs and deliver the health care that people in their area want.

That example shows that the Secretary of State has lost his nerve, and there are others. PCTs may buy services from acute hospital trusts on the basis of volume, quality and appropriateness, but no price competition will be allowed. I find that slightly surprising.

A couple of weeks ago, I was in the Chamber when the Secretary of State for Trade and Industry said that price fixing is against the interests of consumers because it inhibits efficiency, productivity and competition, but it seems that the Secretary of State for Health does not understand her message. I suggest that she remind the Secretary of State for Health that price competition is effective in delivering extra services. Another aspect of the failure to pursue the logic properly is that efficiency savings are to be retained by the hospitals and not passed back to PCTs, so how will PCTs gain the resources needed to commission the new services?

Although "Delivering the NHS Plan" is riddled with contradictions, it recognises the fact that, after five years of centralisation, power should be decentralised. However, the caveats and qualifications show that the Government have yet to grasp the full importance of change. Until they do so, the taxes raised in the Budget will not be spent wisely and we will not have the health care that Britain deserves.

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8.14 pm

Mark Tami (Alyn and Deeside): Thank you, Mr. Deputy Speaker, for giving me the opportunity to contribute to this important debate. I welcome the Budget, which is probably the most significant since our election in 1997. It sets out and offers substantial year-on-year increases in investment in the NHS—investment that has been needed for many years and which was and is possible only because the Government have successfully managed the economy.

Much has been made of the 1 per cent. national insurance contribution increase for employees and employers. The Conservatives and some of their friends in the media claim that it will be the end of the world for business and, in some strange way, a tax on jobs. We have heard it all before. I recall that the Conservatives said that the minimum wage would lead to massive rises in unemployment and drive companies out of business. Equally, they said that giving workers fair and decent rights in the workplace, not to mention paternity and maternity leave, would be a disaster. They were wrong then, and they are wrong now.

Some people may have short memories, but others have not forgotten the days of 15 per cent. interest rates and mass unemployment, which did not create a fertile climate in which business could grow. Those conditions made investment precarious, to say the least. Of course, those were the years of Tory government and Tory economic mismanagement.

In contrast, under this Labour Government there has been sustained growth, a stable and expanding economy, the lowest interest rates for more than 40 years, the highest employment of any major European country and the lowest inflation in Europe. The cycle of boom and bust, which typified the Tory years, has finally been broken by a Labour Government. In this economy, business can invest with confidence and prosper.

I represent a constituency that depends heavily on manufacturing industry, so I recognise that growth in that sector is important if we are to maximise the successful expansion of our economy. Manufacturing suffered terribly under the Tories—nearly 3 million jobs were lost and output fell. For manufacturing to succeed, it must be at the forefront of innovation and change. We must be able to respond to changing demands and pressures, but we must also add value to our products if we are to remain at the front of the field.

I welcome the Government's recognition of the country's productivity gap. The problem, which has been with us for many years, results from a failure to invest in new technology and, importantly, to invest in the ongoing training of our work force. Recognising that we have a problem is one thing; doing something about it is another. We must be honest—we have a large productivity gap to bridge if we are to catch up and ultimately surpass our main international competitors.

Closing the gap requires the Government to establish the right environment for industry and business. Equally, industry and business must recognise that, if they are to succeed, they too must invest, not only in machinery and equipment, but in people—the employees. Industry's approach to training and retraining its work force has been woeful. It has too often considered training to be an avoidable cost rather than a necessary investment.

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When a business hopes to expand, rather than use its own employees whom it had the forethought to train, it looks to poach from others. In essence, the management think, "Why waste money and time training our own staff when we can try elsewhere? Someone else will train them for us." Unfortunately, too many of our companies have taken that approach. Some old nationalised industries provided many trained people, but now that those companies are in the private sector they train considerably fewer.

In our expanding economy, we are all too quick to talk about how skill shortage inhibits growth and adds to our costs, but industry does little to address the problem. When times are difficult, we tend to make matters worse rather than better, but I applaud the sharply contrasting attitude of Airbus at Broughton in my constituency. Following the events of 11 September, it faced a major downturn in the industry and reduced aircraft orders, but in partnership with its employees—the trade unions—it approached the problem with a common goal in mind, which was to minimise job losses and secure the long-term future of the business.

As part of that approach, one of the company's first actions was to write to all its hundreds of apprentices, including those yet to start their training, and guarantee their continued employment with the company. It is refreshing to see a company, even in a downturn, look to the future—the long term—rather than just deal with short-term considerations. If we are to succeed in manufacturing, we must follow that approach, which is in sharp contrast to the traditional approach of British industry. According to that, a letter would also have been written to the apprentices to say that they no longer had a job or a future with the company, as they were a cost and their removal would improve the bottom line.

If we are to bridge the gap in productivity, we need to address our deficit in training and to encourage innovation. I welcome the CBI-TUC productivity working groups, which have identified key areas that need to be tackled. Their support for Investors in People is particularly welcome.

The extension of the research and development tax credit to large companies is an extremely positive development. At a qualifying rate of 125 per cent. of all R and D expenditure offset against corporation tax, that should further encourage companies to invest for the future.

However, I ask the Secretary of State to consider the Treasury's definition of R and D expenditure to ensure that it conforms to the realities of industrial investment. We must ensure that the incentives we provide are to the maximum benefit of our industry, especially industries such as aerospace. That is an important issue, and we must get it right if we are to deliver the maximum benefits that we all hope for.

For smaller and medium-sized businesses, the Budget offers further positive incentives, and shows Labour's continued commitment to that sector. The reduction in the starting rate of corporation tax from 10 per cent. to zero will benefit more than 150,000 companies. It is the lowest rate of such tax in Europe. In addition, the reduction in the small companies' rate will benefit hundreds of thousands more businesses.

I am pleased that the VAT arrangements for small business have been simplified, because we must create the right environment for those businesses to prosper.

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The problems associated with VAT returns are regularly raised with me by businesses in my area. I ask Ministers to consider the difficulties faced by small and medium-sized companies in applying for grant aid. We must simplify measures in that area to speed up the processing of applications. Time is vital, and delays to applications can sometimes lead to the collapse of the business before the grant has come through.

The Budget is a Budget for all sectors of our economy. The most important factor for any business is stability. The Budget continues to deliver that aim.

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