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9 Apr 2003 : Column 293—continued
1.51 pm
Mr. Charles Kennedy (Ross, Skye and Inverness, West): I begin by extending my personal congratulations to the Chancellor and to his wife Sarah and wish them good luck. Their news is very good indeed.
This has been an example of not only a buck-passing Budget but a cross your fingers and hope for the best Budget. That is the reality of what the Chancellor has been up to. When we look at all the problems that we all encounter as constituency MPs, the jobs that are being lost and the sectors of the economy that are in difficulty, not least manufacturing, there is a sense of denial in the Chancellor's amazing account of how every indicator puts us well ahead of the pack internationally. He should stop blaming the rest of the world and feel chastened this year, because the British people are paying the price for mistakes and they deserve more than excuses. The current problems are not simply due to the inevitable downturn that has taken place in the world economy, because the British economy has been doing significantly worse than those of many of our principal competitors. That is proved by some key facts.
Business investment has fallen at record rates. In 2002 it fell faster than in any major economy, unless one counts Iceland as a major economy. All the other countries have faced the same economic downturn as we have, but all are investing more than the UK in their long-term recovery. One cannot pay for the future if one does not invest now. That has to be a central criticism of the Chancellor's approach.
Manufacturing employment has fallen by more than 500,000 since 1997. Manufacturing has been in the longest recession since the second world war and output has fallen in seven of the past eight quarters. The Chancellor is now presiding over the biggest deficit and lowest growth rate since the Conservative Government lost office.
The Chancellor has announced some measures that may help, not least the reductions in red tape and bureaucracy for the business sector. We have all had serious and sustained representations to that effect. We welcome those proposals and will obviously study them in detail as the Finance Bill progresses. We certainly want to see greater simplification in tax. This is the Chancellor's seventh Budget and, as in each of the other six, more and more complication and detail is being built into the system as he unveils the various schemes and initiatives. That will have to be examined carefully, too.
As a country, we should be doing more to prepare our way for entry into the euro. We certainly look forward with considerable interest to the statement at the beginning of June to see whether white smoke emanates from No. 10 or No. 11, depending on what is going to happen—
Lembit Öpik (Montgomeryshire): Or both.
The Chancellor is right to press ahead with his spending plans, which, as he knows, we support. We were critical of the Government in the earlier years for not investing more sooner. There is much to be done and no time to waste. It is sound to borrow more when there is a downturn, so long as the economy remains in balance over an entire economic cycle. On that, we are with the Government in the broad parameters. We certainly reject the Conservative alternative, whatever it proves to be. It is difficult to have a debate with the Conservatives at the moment because we do not know the basis for their plans.
The Government's pension credit comes in this autumn. It may be well intentioned but it is something of a bureaucratic nightmare. It is estimated that 1 million older people who are eligible will end up not claiming. That is not good enough. It would be better to scrap that and rely instead on a £5 increase in the basic pension, plus big increases in the age additions: £10 for the over-75s and £15 more for the over-80s. All the indicators demonstrate that the poorest pensioners are inevitably the oldest pensioners. That is where we should be front-loading our support with a view to the future.
What about council tax rises? It is now estimated, on the basis of figures that have come out today, that this year the overall increase in council tax that families pay will be £2 billion. That is a gigantic increase to spread across the economy at a time like this.
Matthew Taylor (Truro and St. Austell): A stealth tax.
Mr. Kennedy: As my hon. Friend points out, it is a stealth tax.
Mr. Jon Owen Jones (Cardiff, Central): Can the right hon. Gentleman confirm that the cost of getting rid of council tax would, on average, be a 3 per cent. rise in income tax—at least that is what it says in an internal Liberal Democrat document that has come into my hands? Will he refute the section of that document that says:
- "However, we don't want to be drawn extensively into this"?
The best of those costed policies contributes that bit more. After all, that group of earners constitutes only 1 per cent. of the tax-paying public. One could have a fairer system of local government funding and greater student opportunity than we have at the moment. Those will find a positive echo with people between now and 1 May.
Mr. John McFall (Dumbarton): The right hon. Gentleman mentions tuition fees in Scotland, but he knows as well as I that tuition fees are delayed in Scotland. Indeed, in my household this week, we had a notice for the tuition fees for two years' education for my youngest son, so let the right hon. Gentleman talk on the real planet.
Mr. Kennedy: I do not agree with the hon. Gentleman's interpretation of the policy to which his own party has been a signatory in Scotland. If this is the argument that the Labour party in the House of Commons is advancing, I suggest that the hon. Gentleman have a word with someone called Jack McConnell, because that is certainly not what he is arguing in Scotland. [Interruption.]
Mr. Deputy Speaker: Order. I hope that the debate can be conducted in a more orderly manner than this.
Mr. Kennedy: I shall try to behave, Mr. Deputy Speaker.
This is a disappointing Budget on four counts. It is a buck-passing Budget, and it is a Budget that invites unfavourable comparisons with the past and will undermine many people's hopes for the future. People want a more transparent system of fair taxation. They want it to be devoted—properly and efficiently, through more local accountability—to vital public services, and they want less of the smoke and mirrors that has been such a defining feature of the last six years.
That is the approach taken by the Liberal Democrats. We are willing to confront people with the fact that one cannot get something for nothing in life, and that the days of the apotheosis of Thatcherism are over. The idea that it is possible to reduce taxation steadily while magically delivering improved public services just does not add up. We have continued to present that argument, but the Government have yet to respond to it—and they certainly have not done so adequately in what we have heard today.
Mr. Deputy Speaker: Order. I must inform the House that Budget resolution No. 28, entitled "Employment income (provision of services through intermediary)", is incorrectly printed. The correct version will shortly be available in the Vote Office, and will appear in tomorrow's order of business.
2.1 pm
Mr. John McFall (Dumbarton): I congratulate the Chancellor on presenting his Budget against a delicate international and national background—a background of which Opposition speeches have made no mention. The real problem internationally is a weakening of demand in both the United States and Asia. We are mindful of the fact that the US has been the leading world economy since the early 1990s, but already the labour market statistics for February and March show a big fall in not just employment but consumer confidence and industrial output expectations. As for Asia, a severe lack of confidence has been caused by both the stand-off with North Korea and the severe acute respiratory syndrome affecting Hong Kong and other areas.
As the Chancellor suggested, the background in Europe is sclerotic. Europe is lagging behind Japan for the second year running, Germany has the worst unemployment on record, and the economic reforms required by the Lisbon agenda have made little progress. In the eurozone, economic growth rates are now down to 1 per cent. There is cause for alarm, because the eurozone is the largest market for the United Kingdom: 60 per cent. of our manufacturing exports go to those countries, and just over 40 per cent. of our total trade is with Europe. The European Union forecasts a fall in eurozone growth from 1.7 to 1 per cent., which would reduce gross domestic product in the United Kingdom by a quarter of 1 per cent. and add £2 billion or £3 billion to next year's public sector net borrowing.
There are also a number of domestic threats. Retail sales have been weakening, and are now at their weakest for 10 years. Industrial investment is nearing a 20-year low, and the finance industry is still recovering from the dotcom crash famously described by Alan Greenspan as "infectious greed".
That, however, must be balanced against the macro-economic essentials, which are sound: the UK has the lowest inflation for 50 years and the lowest interest rates. It is also comforting that we have the lowest unemployment among the G7 countries. It is forecast that next year the United Kingdom will be the top country, possibly overtaking America.
Notwithstanding the criticisms levelled at the Government, this is the time for fiscal loosening. There is a sound economic case for extra borrowing when the risks are all on the downside. When interest rates are low, inflationary pressures are almost non-existent and the national debt is, as the Chancellor pointed out, very modest, we do not want the imposition of a fiscal straitjacket on a cyclically depressed economy. We need the Budget deficit announced by the Chancellor for investment, and for general support for the economy. Let us take advantage of automatic stabilisers, which ensure that borrowing takes the strain when the economy weakens and we need not raise taxes or cut public spending. The Chancellor has remained faithful to that idea.
There are a number of things about which we can be optimistic. We have cheap money, and we have the lowest interest rates. Interest rates are negative in the United States, and barely positive in the eurozone and the UK. We have cheaper oil. One positive aspect of the conflict over the past few weeks—not much is positive in terms of damage and injuries—is the fact that the oil price has not zoomed up. I think that its highest level has been about $30 a barrel. The link between oil and GDP, and economic growth, is important.
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