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Clive Efford: Will the right hon. and learned Gentleman give way?
Mr. Clarke: Not now, but I will when I deal with the NHS.
In order to make the personal taxation increase popular, the Government produced spending plans for one Department. It happened to be the very Department over which they were in a political panicthe one with responsibility for the NHS. The public rightly perceived that the health service had slightly deteriorated in the five years in which Labour had been in office. To sell the Budget and break the news about the penny taxation on income, it was necessary for the Government to bury the NHS under pound notes. No one had contemplated that that would happen to that extent over the next five years, but such expenditure is popular. However, the penny is not enough to pay for this, nor for a quarter of the other things that the Liberals constantly cite.
The penny on employees' national insurance is not the principal taxation increase in the Budget. The problem is the choice of taxation when the Government looked elsewhere to raise revenue. I was one of those Chancellors who always thought that taxes sometimes have to go up or down. I prefer low tax economies, but we make a ludicrous fuss trying to forecast what will happen to tax in future years. However, the Government chose a bad tax; they decided to put a penny on the employers' contribution to national insurance, rightly described as a tax on jobs.
The Government have been raising tax on business ever since they came into office. They have not just started doing that. They usually deny those increases and this time they have obscured the fact that they are raising tax on business. The effect on our competitiveness is too severe to contemplate if things get difficult for us and the Government carry on with their plans. We are losing one of our major advantages. I raised taxes when I was ChancellorI had to in order to leave Labour the legacy that it inherited, which I would defend again now were I living in the past to the same extent as Labour Members. However, I avoided taxing business and lowered the employers' national insurance contribution to strengthen the recovery in the economy and to get back to the full employment that 10 years' growth has nearly achieved.
The other problem that the Government face, and which they obscure, is the fact that they have lost tax receipts. The pre-election estimates were completely useless. One of the things that the Chancellor mentioned en passant in his Budget speech was that the forecasts for tax revenues that he made last year were £10 billion out. His receipts were £10 billion less than he had forecast in the last Budget because of the slowdown in the economy, and that is why he had to raise taxation. Even then, the Chancellor could not raise taxation to the extent that was necessary. Last year, I predicted that tax revenues would fall short, and I predict now that more tax increases will have to be made unless the Chancellor goes in for real prudence before the next election because he has probably not raised enough for the spending that he is now talking about.
The Chancellor has gone back to old Labour practices to get round that problem. He has increased the estimates of growth, which carries shades of every failed Chancellor for the last 10 or 15 years. The Chancellor claims that he will be helped out because, he has discovered, we will have a faster rate of growth than we have hitherto enjoyed. I have to be amused because that is a complete reversal of the prudent Chancellor who took over from me and dourly reproved me for my excess of optimism in saying that trend growth was 2.5 per cent. in 1997. He reproved me for recklessness and reduced that figure to 2.25 per cent. By 1999, he had quietly slipped back to 2.5 per cent., but everything in the Budget in front of us is based on 2.75 per cent.
The Chancellor looks back at the 1990s, a time of boom internationally, and then he peers forward into the 21st century and says that it is going to be better and conditions allow us to assume that trend growth is 2.75 per cent. I do not believe that. I will not go on about the protectionism in the world, the uncertainty of oil prices and the uncertain nature of US recovery and so on, but for the Chancellor to say that he has suddenly discovered in this Budget that the outlook is that trend growth will be faster is plain folly, and I trust that nobody in the Chamber at least is taken in.
I propose to discuss health so I will not spend long discussing other large costs in the Budget. The Chancellor has slipped tax credits into the Budget, but he has not made a great performance about them. They are a huge extension to the benefits system, but he does not count them as such. He likes tax credits because he does not have to count them as public expenditure, but they have an enormous cost. I know that tax credits are very redistributive and family-oriented, but we now have a bizarre system in which means-tested credits are being extended to 90 per cent. of all families in this country, including those with earnings of £50,000 a year. They are filling in their forms to get their means-tested tax credits.
I am told that the Chancellor's public spending colleagues are very angry with him for his obsession with tax credits. I certainly would be if I were the Home Secretary or the Secretary of State for Health. That system is costing about £4 billion, and he is persevering with it in this Budget. It is an enthusiasm understood only by the Chancellor, but it is a very great burden on small businesses that have to administer PAYE systems and on the Inland Revenue, which has to pay out. The Financial Times described the situation as ludicrous, and I will not, at this stage, expand on that judgment except to say that I greatly agree with it.
To distract us from all those aspects of the Budget, we are meant to be talking about the fact that we are now looking at five years of huge expenditure on the NHS, so the Leader of the House has decided that health must dominate the last day's debate on the Budget. One service has mysteriously been plucked out of what was meant to be an orderly public spending round, and we are given not three years' figures for it but five years' figures.
There is to be an immense increase in real terms spending on health. Why is that? It is a very expensive way of stopping people complaining about having to pay another 1 per cent. in national insurance employees' contributions, and looking five years ahead is a way of
I used to deliver Budgets that covered both tax and public spending, all public spending, at the same time. That was a very good thing and I regret the move away from it. Every year we used to make adjustments according to what had happened to the economy and to the services. That practice was cancelled by the new Chancellor, and it led to two years of savage cuts. Yet what he did had never been done by any Conservative Chancellor because, as the hon. Member for Truro and St. Austell rightly pointed out, Labour went for a squeeze on public spending beyond all imagining in its first two years in office. It moved to a three-year cycle, which some people like; I have not yet converted.
This Chancellor and this Treasury claim that they are responsible, yet to plan for five years for one Department on this scale is frankly irresponsible. I predict that whoever is in office in five years will regret being stuck with these immense figures for one Department. We have no idea what will happen to the economy between now and then. Mr. Wanless, soon to be Lord Wanless, seems to have a means of calculating that health spending will be 9.4 per cent. of GDP. I have never read such tosh. No one knows what GDP will be five years out, and no one knows how to compare health spending as a percentage of GDP with figures in Europe. That is not possible five years out, even for the finest academic economist.
Every other area of public expenditure, including local government, the police, the Prison Service and transport, is in hock to this enormous commitment to increase spending on health. I am not surprised that the Chancellor has had open warfare with the Home Secretary, and I am not surprised that the Prime Minister ensured that the Chancellor made some obligatory reference in his Budget speech to bits of money for the Home Office and education. Those Secretaries of State must be seething with rage, but it is nothing compared with what their successors will be like after the next reshuffle or two, when they find that they have to live with that health expenditure commitment.
The Budget is not deserving of its popularity, and that is the background against which we must regard what is meant to be a huge political breakthrough on health. The Government have been increasing health spending for three years and have very little to show for it. Most of the money has gone on pay, and public sector pay is running ahead of other forms of pay. Much of the money has gone on drugsthe drugs bill is out of control and is increasing by 10 per cent. a year, which is simply unsustainable. Almost £500 million goes on litigation and damages, and we have no idea how to stop money going in that direction.
Everything depends, as my hon. Friend the Member for Woodspring (Dr. Fox) said, on how the money is spent, but the Government have done a U-turn there as well, although I have not left myself time to deal with it adequately. The new NHS plan is the internal market