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4.42 pm

Denzil Davies (Llanelli): I shall speak briefly on the resolution, which, as my right hon. Friend the Chief Secretary to the Treasury told the House, is a paving measure for the legislative framework to increase national insurance contributions in order to raise much-needed extra investment for the national health service.

None of us is so naive as to believe that money alone can solve the problems of the national health service. Structures must be reformed and there must certainly be a cull of many aspects of bureaucracy. None the less, without extra investment there will be no hope of solving the problems and of recreating a world-class national health service.

The last time that I spoke in the House when the Government of the day were seeking to raise national insurance contributions to benefit the public sector was

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25 years ago. I am sorry to say that that was in 1977. I had the invidious task of winding up a debate on something called the national insurance surcharge.

My right hon. and hon. Friends on the Treasury Bench may be interested to know that, at that time, unfortunate Ministers were unable to obtain any real briefing from the civil service, because the Department of Social Security said that the surcharge was a tax but the Inland Revenue said that it was not. Ministers were able to overcome those problems, however. I am sure that they no longer exist and I certainly do not want to engage in the sterile—almost metaphysical—argument as to whether national insurance is a tax.

Many hon. Members may remember, although they were not here at the time, that the surcharge was a direct and immediate consequence of the Rooker-Wise amendment. That amendment was forced through the Committee that considered the Finance Bill in 1997 by two Labour Back Benchers: Lord Rooker, as he is now—he is also a Minister of the Crown—and Mrs. Audrey Wise, who is sadly deceased.

Although it was said at the time that perhaps the voices that enunciated that amendment were clearly those of Rooker and Wise, the hand behind it all was said to be that of Mr. Nigel Lawson. I do not know whether that is correct, but the Rooker-Wise amendment was agreed to in Committee at about 3 o'clock in the morning, when the then Labour Government had a majority of two. Of course, the two Members who went across to the other side at that occasion were Rooker and Wise.

The amendment was about indexation, and it enabled personal allowances to be indexed at a time of very high inflation. Unfortunately, as a result of what happened in the early hours of that morning, the possible loss to the Labour Government was about £3 billion. A very distinguished economist, Mr. Nicholas Kaldor—or Lord Kaldor, as he became—was the special adviser to the then Chancellor of the Exchequer. In those days, special advisers were special. He was very special indeed; he came up with the splendid invention of the national insurance surcharge—presumably not very different from an increase in national insurance contributions.

However, times have changed—the wheel is turning full circle, and the Chancellor announced in his speech, as has been mentioned, his decision that for the next year at least personal allowances will not be indexed. Indexing came in 25 years ago and I do not know whether it is going out now, but with very low inflation there may be an argument for not indexing personal allowances. With next year's non-indexation, another £700 million will be available, according to the Red Book, for public expenditure and the national health service, but I merely mention the fact that all the funding for the NHS will not come from this ways and means resolution or from non-indexation; funding will also come from borrowing.

Just as indexation is on the way out, the old public sector borrowing requirement is coming back. Most hon. Members have perhaps never heard of it; its name has changed over the years, but I will still call it the public sector borrowing requirement. Looking at table 2.7 on page 33 of the Red Book, I see that it has another name—it is called a treaty deficit. That is all right; what is in a name?

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I notice, en passant, that the treaty deficit column is headed "treaty commitments". I will not develop that point, but I take it that that is uncharacteristically sloppy drafting by the Treasury because, of course, the figures listed are not treaty commitments. They will not be treaty commitments until we sign up to the dreaded growth and stability pact under the Maastricht treaty. Leaving that to one side, the PSBR is now called the treaty deficit.

I see from table 2.7 that, taking the first full year, the treaty deficit—the PSBR in my language—will be 1.1 per cent. of gross domestic product next year. The following year, it will be 1.1 per cent. of GDP. In the year after that—let us take a three-year period—it will be 1.4 per cent. of GDP.

Now, let us take GDP as shown in table C3 on page 211 of the Red Book. In fact, that table shows the GDP that the Treasury uses for the public expenditure assumptions. My mathematics may not be terribly good, but we come up with a figure of about £12 billion next year and about £12 billion the following year. The sum then jumps, because of the 1.4 per cent. figure, to about £17 billion in the third year. That is about £42 billion worth of PSBR—treaty deficit—within three years.

To return to the Chancellor's Budget statement, he said:

he said it with some flourish—

Of course, that is right. Those who were here at the time, and who debated the provisions ad nauseam, know that the Maastricht criteria for the euro require a rate of 3 per cent. The world has moved on since the Maastricht criteria, however, because we now have an absurdly named growth and stability pact—or is it now the stability and growth pact? I think that the name is changed every year depending on how the European economy goes. The growth and stability pact is a fearsome pact because it says that we cannot borrow at all—or virtually not at all—at this stage of the economic cycle. That is one of the problems faced by Germany with its 2.7 per cent. of GDP borrowing, which it must eliminate by 2004—it does not matter whether Herr Stoiber or Chancellor Schroder wins the election, or what the German people want to vote for.

I was not surprised to note that the Chancellor did not refer to the growth and stability pact in his Budget statement. Despite some heroic attempts at reinterpretation, interpretation and analysis of the growth and stability pact by the Chancellor—who has done his best—we are not within the growth and stability pact on the basis of the figures to which I referred. On those figures, if we were part of the euro, we would have to find £42 billion over three years.

Mr. Hendrick: Would my right hon. Friend accept that, although we are not within the euro, this country is subject to treaty provisions for the multilateral surveyance of budgets, as are Sweden and Denmark? Would he also accept that it makes sense, when a country has such a low ratio of debt to GDP as Britain has, that countries should be able to borrow for investment in times of declining growth?

Denzil Davies: I do not want to prolong this debate, but, first, surveyance is different from being forced to do something. Secondly, although there may be various

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interpretations of this treaty, there must be almost balance at this stage of the economic cycle, and we do not have it. I merely hope that we will not find ourselves, some time in the future, with another hole in the public sector finances, for which we have to find £42 billion. I would not wish my right hon. and hon. Friends to have to introduce another national insurance surcharge to cover that hole, which some of us had to try to cover years ago.

In 1977, the motion was carried—no doubt because of the brilliance of the Minister replying to the debate—by a majority of two. It was said that those two happened to have been Mr. Brian Walden and Mr. John Mackintosh, who were very distinguished Members of the House at the time. They did not always find their way into the Aye Lobby, but, thankfully, they saved the illustrious career of the Minister winding up—they found the Aye Lobby at around 11 o'clock at night and registered their votes. I understand that my hon. Friend the Paymaster General is winding up tonight, and I think that she will secure a better majority than two. I trust, hope and believe that she will have a slightly gentler winding up than her counterpart 25 years ago.

4.54 pm

Matthew Taylor (Truro and St. Austell): Although we have some criticisms of what the Government have done—I shall come on to them—it is our intention to support the resolution for two fundamental reasons. The Conservative party should consider both reasons.

The first fundamental reason is that we do not want to stand in the way of the investment that will improve the health service, attract the doctors and nurses that it needs and free up beds for the elderly by funding improvements in local authority spend so that people can leave hospital and go into nursing or residential care or receive care in their own homes. Given that the Conservative party's spokesman, the hon. Member for Aylesbury (Mr. Lidington), has agreed that such things are important, it is odd that that party should stand in the way of such investment.

The Conservative party accepts that money is needed and it has identified areas in which it could be spent. If we care about patients in the national health service, surely the proper thing to do is to release funding into the health service. If the Conservative party wishes to propose different reforms from those that the Government have put forward, it can make that case. However, given the size of the Government's majority, the chance of there being an election in the next three years is extremely slender. There is an urgent need for expenditure in the NHS now, and the Conservative party should support such expenditure given that it accepts the need for it.

The second and even more fundamental reason why the Conservative party should support the resolution is that it is not about the national insurance increases but, in effect, about the hypothecation to the NHS of the money derived from those increases. It will specifically allow the increase in the national insurance take to be devoted to the NHS. That is a requirement under the legislation covering the national insurance fund, but that requirement appears to have escaped the Government. That is why we are having to go through this somewhat awkward procedure of debating Budget resolutions and then this resolution before we get on to discussing the national insurance legislation. Nevertheless, that procedure must be followed.

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The Conservative party is worried about tax rises and how they will be used, but this is one occasion on which the House can have a direct say about how money is spent and make sure that it is devoted to the NHS. The House hardly ever takes that opportunity, because we hardly ever debate in detail the way in which money raised is devoted to specific expenditure. Parliament devotes some days of the year to such discussions, but the debates are hardly ever put to a vote. The last time that a specific vote took place was when the then Lord Chancellor decided to redecorate and add a bathroom to his residence. I do not, of course, refer to the current Lord Chancellor, because that took place many years ago. In the past century, the House has hardly ever taken the opportunity to put such matters to a vote, so the Opposition should welcome this opportunity to nail the Government's feet to the floor and ensure that the money goes where they say it will go.

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