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Dr. Murrison: My hon. Friend the Member for Epsom and Ewell (Chris Grayling) has already pointed out that our hon. Friend the Member for Woodspring (Dr. Fox) dismissed the American model as a possibility. Presumably, Labour Members have done the same thing, so the hon. Gentleman is talking hypothetically.

John Mann: I am making a contribution to the debate by suggesting that there are three models: the United Kingdom model; the European continental model, which is a higher-tax model; and the American model. Of course, there are nuances and variations in each model, but they are the three options. There are no other alternatives, and we have to decide on one of them.

Chris Grayling: With respect, the continental model is not a higher-tax model. In no part of the rest of western Europe does any state attempt to fund its health care system wholly by taxation through one large national bureaucracy. That is the difference in this country, and the Conservatives are challenging the status quo because we see no sign that it is delivering the kind of improvements that other countries enjoy.

John Mann: In France, employers pay more than the national insurance contribution in this country—about twice as much. There are different ways of funding, but those employers and employees pay more. There is no such thing as a free meal ticket, so expanding the NHS—or private health, or whatever alternative is proposed—requires more expenditure. That expenditure does not come from anywhere else, unless a Government unwisely borrow money that they have not got and pretend that they can spend money now, although doing so will become a legacy for years to come.

Thankfully, the Government have definitely chosen not to borrow. That is a difference from the past. Of course, increases in national insurance contributions are no new thing. What happened in 1981 and 1984? National insurance contributions went up in both those years. After the 1979 and 1983 general elections, national insurance contributions rose. I cannot recall whether they went up

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later, under the right hon. Member for Charnwood, but national insurance contributions repeatedly rose throughout that period.

Let us consider the tax burden under the Conservatives—the so-called business party. In 1980, 8.4 per cent. of the total tax take came from corporate income. By 1990, the figure had risen to 11.6 per cent. and, by 1997, to 12.2 per cent. In other words, a higher burden was repeatedly placed on business. It is no surprise that so much of the country's wealth had to be spent on paying for unemployment benefits and on the debt repayments involved in borrowing money to try to hold the nation together. This Government's major achievement is having moved away from both those positions.

Under the Government's proposals, tax will rise as a proportion of national income from 37 per cent. in 2001–02, to 38.3 per cent. in 2005–06. That figure is still lower than those recorded in virtually every year of Margaret Thatcher's prime ministership. The difference is that the Government have stable spending plans based on real money, not on borrowing with hyper-inflation and high interest rates. There is a stable economy, and they are using real money, not theoretical money with a price to pay in the future. That is why the national insurance increases will not seriously damage the British economy.

Mr. Ian Liddell-Grainger (Bridgwater): I am intrigued. The farmers in my constituency are trying to recover from last year's foot and mouth outbreak, and the one thing that no one in rural areas wants at the moment is another tax increase. We are an eternally taxed economy. Unemployment is very low, but people are being driven out of jobs in rural areas. Will the hon. Gentleman accept that?

John Mann: I was living on a beef farm during the foot and mouth crisis. My constituency is primarily rural. Some 360 square miles of it are rural, so I am very aware of the rural economy. People in the rural economy tell me that they want a health service in which they are not discriminated against. A big problem in rural areas is that people have to travel further to facilities. Such areas do not have the concentrations of support that exist in more urban areas, so people in rural areas do not get such a good service. That is precisely what the new investment will address.

In my constituency, three new health centres—in Warsop, Harworth and Worksop—are already beyond the planning stage and moving to implementation, and that is happening before the increase. That is what the rural economy wants: good services with a rational calculation of how to pay for them.

Of course this is a tax increase—no one has suggested that it is not—but it is popular and it will not damage the economy because of the strength of the economy. We have the fastest growing economy in the G7. We remain a low-tax economy, especially compared with our European competitors. There is a 3 per cent. difference between us and the EU average tax rate. The main rate of corporation tax—30 per cent.—is lower than that in any other major

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European country. Of course the low tax position is even better for small businesses such as the one in which I have been involved.

Mr. Hendrick: Does my hon. Friend agree that, contrary to what the right hon. Member for Charnwood (Mr. Dorrell) said earlier, this country can afford this tax increase because corporation tax and other business taxes in this country are lower than those of our European competitors? We can afford this small increase.

John Mann: Our economy is growing well. Interest and inflation rates are at their lowest since the 1960s. The unemployment rate—3.1 per cent.—is the lowest since August 1975. An extra 1.5 million people have been employed since May 1997. We have a strong and stable economy, so it is a question of choices.

I shall end on the choices that are available. Private health care is like travel insurance, and we all know what happens with that. We can insure against delays, but we all know about the opt-outs in the small print and how difficult it is to make claims. We can make baggage claims, but we do not take many bags with us and we all know what the baggage excesses are. What we really pay for is emergency health insurance while we are away.

Everyone in the country knows what the private health care premiums would be for themselves or their families. We all know that the more infirm people are, the higher the premium they pay. If people have had a serious illness, if they have just come out of hospital or if they are pensioners or disabled, their premiums are higher and the exclusions in the small print are greater. That is the only other real option; it is the American system, and we do not want it here.

What we want here is a system where people do not have to read the small print first or calculate the excesses and do not have to beware of the opt-outs. From the cradle to the grave, in sickness and in health, I want health professionals to identify the most effective treatment for me, not to calculate the profitability of my life.

6.28 pm

Adam Price (East Carmarthen and Dinefwr): I should say at the outset that the hon. Member for Cardiff, West (Kevin Brennan) accused me of lacking a spirit of generosity towards the Government. On reading the Hansard report yesterday, my generosity towards the hon. Gentleman was dimmed slightly, possibly by his comments.

We are pleased to support the Government in this ways and means resolution because we accept the central tenet. As the Wanless report accurately stated, we have had 30 years of underinvestment in the health service in particular, under successive Labour and Conservative Governments. We have some reservations about the means that the Government have used to generate the extra investment, but anyone who is familiar with our public services could not fail to support any measure, however imperfect, that would generate extra investment in those services.

I listened with great interest to the contribution made by the right hon. Member for Charnwood (Mr. Dorrell), which was, as ever, interesting. He very successfully demolished any lingering doubt as to whether this is anything other than a rise in personal taxation. It is clearly

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a tax increase, although perhaps there has been an attempt by those on the Front Bench to mystify things, and perhaps there might be a greater degree of honesty in the attitude to public finances.

Where I disagree is that I cannot see any correlation between competitiveness and economic success and the level of spending in the public sector. If we consider the index of competitiveness, which Conservative Front-Bench spokesmen have always been keen to use, perhaps until this week, we realise that there is no linear or non-linear correlation between the level of taxation and public expenditure across various countries. There are high-tax, high-public expenditure countries that are economically successful, and, admittedly, there are low-tax economies with low spending in the Government sector, which are also successful. The issue of taxation and expenditure is not principally one of economic efficiency but one of political decision. Society ticks in terms of the relative allocation of resources between personal or family consumption and social or collective consumption. Tax and spend works both ways—it can be personal tax and personal spend.

We welcome the additional resources going into the national health service. I am the second Welshman to contribute to this debate on national insurance. The predecessor to the right hon. Member for Llanelli (Denzil Davies)—Jim Griffiths, who was Minister of National Insurance—came from my home town of Amanford. Of course, we have all dusted down the National Insurance Act 1946 and the National Assistance Act 1948. We should not forget that Lloyd George, another illustrious Welshman, did some of the ground work in 1911.

As I understand it, the original Act provided for mandatory contributions from employees and employers that were principally aimed at supporting benefits, although a small proportion went into the health service. It was anticipated that the Government would take up the shortfall. We are now in the opposite situation—I am sure that the Government would argue that it is down to their sound management of public finances—in which the national insurance fund has a record surplus of more than £15 billion, according to the latest figures that I have seen. We are now using the national insurance fund to support general Government expenditure. The former Member for Llanelli might have had difficulty with that because it cuts across the contributory principle that lay at the heart of the national insurance system, which was an earmarked social insurance system.

We have already heard from the right hon. Member for Charnwood that even next year, with around £8 billion raised, only £2.4 billion is going into the national health service. Clearly, that figure will increase in years to come. Even when we are talking about national insurance increases, however, we are not talking about any form of hypothecation. The Treasury Committee is absolutely right to argue that it is wrong to exclude unearned income. If we accept the argument that there is a case for greater contributions through personal taxation, direct taxation is the most socially equitable means of raising those funds. That point was made eloquently last night by the hon. Member for Birmingham, Selly Oak (Lynne Jones).

National insurance is also a tax on a social good—employment. According to the figure from Oxford Economic Forecasting, it may reduce jobs growth by about 100,000 over the next few years. Other economic forecasters may have different views, but that one has

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been echoed by all the main business organisations. Even the Secretary of State for Trade and Industry said that it had been a most unwelcome surprise—I presume that she included herself in that.

We support the objective of renewing the public services through extra investment. We would have liked the Chancellor to go further and faster in undoing underinvestment by successive Governments. That is why we may reconsider the issue of exempting the public sector from the employers' contribution. The Government have been very careful to herald the increase in public spending, but they kept a little quieter about the proportion of the money that will be clawed back through the employers' contribution—£1.2 billion a year, as we heard. The employers' contribution will cost the NHS some £26 million a year in Scotland, and some £11 million in Wales.

If we accept that the central tenet of the Budget is to renew the national health service, it seems curious to use the payroll tax for that purpose. As we know, the national health service is the biggest employer in Europe—apart from the Russian armed forces, I believe—with 1.5 million employees. The payroll tax is therefore probably the last policy tool that should be used to effect an increase in new resources available to the national health service in the short term. Of course, other public sector employers will also be hit badly. Consignia— I presume it is still in the public sector—is losing £1.5 million a day and, I believe, it is coming before the Welsh Affairs Committee. It will have to pay an additional £35 million to £40 million a year on top of that, thereby adding to its financial difficulties. As we have heard, local authorities have particular problems in the care sector, which the Chancellor addressed specifically through the Budget. Because of the revolving door of Government revenue, however, whereby the Chancellor gives with one hand and takes away with the other, local authorities in Scotland are losing about £35 million and those in Wales are losing some £15 million.

Apart from the clawback, there is also a danger that the employers' contribution will add further to worries about wage inflation in the public sector. The value of the extra money going into the NHS could be lost to inflation. As the King's Fund told the Treasury Committee, 40 per cent. of the extra cash for the NHS could go straight into higher pay and prices. We are aware of the comments of one of the City economists, Michael Sanders of Schroders, that public sector wage inflation is already increasing apace—an average of 4 per cent. compared with 2.3 per cent. across the economy as a whole. That has implications in terms of the Chancellor's stated aim of increasing the NHS budget by 7 per cent. in real terms. If inflation in the public sector is higher owing to wage increases and the fact that the Government are less reliant on cheaper imports, it could eat considerably into the 7 per cent. increase.

To a certain extent, the pent-up demand in the public sector for wage increases is understandable. For 20 years, public sector employees were treated as the poor relations. Their pay was restricted, their conditions were undermined, and their status was downgraded to a certain extent. It is therefore no surprise that the Government find it difficult to recruit the doctors, teachers, nurses and police needed to staff existing services, let alone the huge increases of 35,000 extra nurses and 30,000 extra therapists that the Secretary of State for Health has talked about.

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The Secretary of State for Health has said that pay is not a something for nothing arrangement. The same applies to recruitment. The only way to recruit that number of people in what is admittedly a tight labour market is to offer serious additional incentives in terms of public sector pay. That, on top of the changes in employees' and employers' national insurance contributions, will make a very difficult environment for the public sector in the next few years. The fear is that the extra spending will be swallowed up by salaries and additional inflation that is unique to the public sector. Therefore, although the increase in investment is necessary, it is insufficient to deal with 30 years of underinvestment in the health service.

Of course, what is true for the health service is true right across the board for the public sector. Although I do not want to stray into wider territory in terms of the economy, there are widely expressed doubts about the Chancellor's arithmetic in terms of economic growth. The Government's own figures from last week show a 0.1 per cent. increase in the first three months of this year, and that comes on top of a zero increase in the last three months of last year. That clearly suggests that the economy will not meet the Chancellor's growth forecast for this year. If that develops into a wider economic problem, it will impact seriously on the public finances. The Institute for Fiscal Studies and the National Institute of Economic and Social Research have also pointed to the hole, as they see it, in the Government's arithmetic for the public finances even if the Chancellor meets his economic targets.

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