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9 Apr 2003 : Column 354—continued
Mr. Dorrell : My hon. Friend touches on an important point about foundation hospitals. They will provide an opportunity for the Secretary of State for Health and the Prime Minister—who have clearly been persuaded of an argument that they rejected in the 1990s—to ally with the Conservative party to carry forward a programme of health service reform that goes even further than what was planned by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) in the early 1990s. That is where the logic of the Government's policy is taking them.
Mr. Mitchell: My right hon. Friend is right. When he was Secretary of State for Health, he wrestled with many of the problems and reached fairly similar conclusions to those of the current Secretary of State. The difference is that in those days the Labour Front Bench did not support him, whereas today Opposition Members are offering help and assistance. We are the only developed country in the world with waiting lists of 1 million, so the huge increase in health expenditure is clearly not working.
On education, the picture is more mixed, but it remains true that, although we currently spend £4,900 per pupil, 17 per cent. of children leave school functionally illiterate and 23 per cent. leave functionally
innumerate. So much for education, education, education! Worse, we now hear that one in five teachers are so demotivated that they want to quit the profession in the next few years. The same applies to law and order, another area in which the Prime Minister has promised so much. Next to Sweden, the UK is now the most crime-ridden society in Europe, and London is more violent than New York. As the Audit Commission has made clear, there is no link between the level of resources and the performance of our police.We have been comprehensively let down. My constituents in Sutton Coldfield, who work hard and pay their taxes, have been let down by a Prime Minister who promised so much, but has not delivered. Labour Ministers have raised billions on a false prospectus. They have failed to live up to their promises and spending has not improved the performance of those services. Meanwhile, national prosperity is driven by productivity, which is damaged by continuous increases in tax and Government spending. The next election will be won not on the battlefields of Iraq and Basra, but on the Government's performance on public services. Labour has blown billions earned by hard-working families; ordinary people who have been fleeced by a bunch of Labour Ministers, greedy for political success at the expense of those self-same hard-working families. There is virtually nothing to show for that. Public services are still not delivering. The Government are deeply divided over reform, without which they will continue to pour good money after bad.
The Chancellor has squandered the golden legacy of sound public finances bequeathed to him by my right hon. and learned Friend the Member for Rushcliffe. The Budget today, and the other tax measures over the last year, demonstrates that old Labour is back. That probably brings joy to the hon. Member for Hayes and Harlington (John McDonnell), but it is not in accordance with Labour's last manifesto. Instead of low taxation, reduced state intervention, reduced red tape and greater personal responsibility, all those hard-won gains that Labour inherited have been frittered away and destroyed in an orgy of spending other people's money.
5.50 pm
Alan Simpson (Nottingham, South): The hon. Member for Roxburgh and Berwickshire (Sir A. Kirkwood) said in his enlightening speech that he was no left-wing socialist. However, there is hope for him yet. There is considerable support for his comments about the New Lanark experiment by Robert Owen; the principles of mutuality and common ownership have a great deal of resonance on some of these Benches. The hon. Gentleman raised a number of points and it is important for us to address them within the context of a Budget debate. I shall attempt to do so.
I want to begin with a recognition of where the Chancellor started from. It seems absolutely right that the Chancellor spent a considerable amount of time looking at the state of the world economy, the European economy and the influence of the war. Having said that, it is clear that the next general election will be determined by the way our constituents see us tackling the economic war on poverty in the UK, rather than the military war on the poor of Iraq. That may be unfortunate, but that is how it is.
In respect of the Chancellor's projections, there is a gloomier scenario that we need to try to build into our projections. Frankly, the world economy is in a mess. We are living in the aftermath of asset price bubbles that have burst. We have seen a number of the major industrial countries with serious external imbalances in their budgets. We see within the EU and Japan serious structural weaknesses and high levels of unemployment. The picture is getting worse.
After the distractions of the war on Iraq, we will be faced with some serious short-term consequences that will make the global picture much gloomier. In the United States, the net external liabilities that the Bush Administration have built into their own budget will see current external liabilities—which stand at 25 per cent. of the US GDP—increasing to up to two thirds of GDP within the decade. The trade deficit that the United States faces will possibly rise to 7 per cent. of GDP. By the middle of the summer, there will be a further depreciation in the value of the dollar of between 10 and 15 per cent.
Within the EU, there is a picture of chronically weak demand and growth, a hopelessly tight economic corset imposed by the European Central Bank and high and rising unemployment. When the Chancellor set that out, the only thing that he did not say was that that drives us to a fairly logical conclusion: that there is not a case for joining the euro. I suspect that he may have to have further discussions with the Prime Minister before the House is able to face the reality of that.
It is important for us to recognise the real value of things such as the increase in winter fuel payments, the abolition of hotel charges in hospitals and the continuing programme of NHS improvements. They are to be welcomed in any economic scenario projected for the future. My cautionary warning is that those projections built into the Budget are based on some dangerous assumptions about what will happen in the future. It is always dangerous to build in Budget projections based on high rates of growth in the future that are never delivered in the present. For only so long can one promise jam tomorrow that never materialises today. We therefore need to be extremely cautious about the scope and extent of a global upturn, and about the extent to which it will boost Exchequer revenues.
We also need to be more honest about the scope of future borrowing likely to be required to underpin the investment programmes that a Labour Government would, rightly, wish to pursue. We must begin to question more rigorously the effectiveness of the investment planning built into some of the Budget projections. Labour Members need to view with some caution the extent to which we are becoming dependent on tax credits as a mechanism for wealth redistribution in the UK.
However one dresses them up, tax credits are a form of means testing. As my hon. Friend the Member for Hayes and Harlington (John McDonnell), my colleague in the socialist Campaign group, rightly pointed out, the whole House would be well advised to look at the Public Accounts Committee report on pensioner poverty, which was published today. It describes the extent to which those means-tested benefits are under-claimed. In itself, the sheer complexity of the claim process is a massively socially divisive process. We need to look again at cash savings in the delivery mechanisms for
universal entitlements, but we must recognise too that a real sense of social solidarity comes out of those universal presumptions. At some stage, we will have to go back to that.We must also recognise that the £3 billion set aside by my right hon. Friend the Chancellor to pay for a war in which most people in this country did not want us to participate was a provision of missed opportunities. I want to identify myself strongly with the very modest proposals made by the socialist Campaign group, setting out the very different ways in which that £3 billion might have been spent. For example, that money could have been spent on restoring the link between pensions and earnings. It could have delivered £5 a week extra for the over-80s. It could have extended the national concessionary travel scheme and made it a free entitlement to all pensioners. It could have paid the firefighters' claims in full, and abolished tuition fees for students.
Those are the alternatives that we must consider if we are to take seriously the responsibilities of Budget allocations. They are the opportunities that we missed to pay for this wretched war.
The picture gets worse. We have just been told that there is a compelling case for increasing capital investment in relation to defence, but it is worth considering the slice of the Government's capital expenditure that already goes on defence. In the current allocations, the figure for direct capital expenditure by the Government on defence is £5.5 billion. That amount is the same as the combined capital expenditure on education and health, and it is 15 times what the Government are investing directly in local government.
We must ask ourselves where, in the scheme of our constituents' priorities, the Government's capital investment in new defence expenditure lies. The Government's investment in defence takes priority over fighting the war on poverty in our towns and cities.
We must also take account of the questions arising out of the pensions crisis. I have no doubt that the issue will come back and chase this Government and this Parliament for years, until we cease to consult and begin to act in ways that genuinely address the scale of the crisis.
My right hon. Friend the Chancellor announced that public borrowing this year will reach £27 billion, to pay for investment and the programmes of wealth redistribution. However, much of the investment that the Chancellor talked about is now off-balance sheet—it is what some people unkindly, but perhaps accurately, call Enron accounting. As far as we are concerned, that ties a Labour Government into an increasing dependence on PFI schemes and PPP programmes. It is clear from the Budget booklet that some 60 per cent. of the Government investment that is mentioned comes through the mechanisms of PFI schemes. We then create a legacy of poor direct public investment as a result of moneys being raised by the Government and put directly into those infrastructure programmes. Many of the Chancellor's problems stem from the legacy of the failure of privatisation and of precisely the kinds of PFI schemes that we are now struggling to make work. Given the freedom to invest under the years of Tory
Governments, the one lesson that we should have learnt is that the private sector is not willing to invest in that infrastructure provision unless it is paid handsomely and given Government guarantees that the risk will remain with the public sector, with the private sector taking only the assets and profits.The scale and folly of those presumptions is best illustrated by the complete collapse of the stock market over the past three years. The disaster that that will bring to private pension provision will be of awesome proportions. I offer the Chancellor and the House the possibility of a way out of that mess. I shall not feign false modesty when I suggest that hon. Members should attempt to read a pamphlet entitled "People's Pensions", which was recently published by the New Economics Foundation. The reason why I shall feign no false modesty is that it was written by me, Richard Murphy and Colin Hines, who brought to bear their experience and expertise in pension provision. The pamphlet examines where the theft of public money has gone in recent years. When Conservative Members talk about the Chancellor's £5 billion raid on pension funds, we should set that in the context of the market's raid on pension funds over the past three years—£350 billion has been wiped off the value of people's pensions as a result of speculation against this bubble economy.
Workers put about £50 billion a year into their pension funds. Eighty-five per cent. of that money has gone into share speculation, and 43 per cent. of the value of those funds has been wiped out in the past three years. Less than 1 per cent. of share speculation has gone into new share issues—the rest of the money has been spun round. The shares are dead shares, in that they were issued long ago and the buyer pays the last bank that owned them. People may think that they are buying shares in ICI or Courtaulds, but they are not. That generated no new capital investment, but locked us into a speculative economy that span wildly out of control and has now collapsed around our heels. The outcome is that there has been no structural investment, and for many people there are no bloody pensions either. They have been left in that situation as a result not of the Chancellor's theft, but of theft by the market.
In 1962, 51 per cent. of pension fund assets went into Government bonds. By 1993, that had fallen to 7 per cent., driven by the presumption that the free market and speculation represented the answer. Our framework for people's pensions proposed new mechanisms for putting workers' savings into public investment to improve the quality of services and to give them a secure pension, none of which would disappear in the bursting of a dotcom bubble or anything else that followed. Going down that path would profoundly change the whole framework within which the Chancellor can construct the Budget. If only half of today's pension fund savings went into that sort of people's pension fund, we would have massive savings on which the Chancellor and society could draw. If those had been in place, we could have paid for the entirety of the Government's public investment programme for the past five years and have reduced the national debt by £18 billion a year. We would not have needed a single Mickey Mouse PFI scheme. We would have had no need to pay for any increase in public sector borrowing over
the next five years. That would have allowed us to pay for the restoration of the state pension and its link with earnings.
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