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10 Apr 2003 : Column 453—continued
Kali Mountford (Colne Valley): What is the hon. Gentleman most proud of from the Conservative party's period of tenure? Was it the high borrowing or the low spending that he was most proud of?
Mr. Willetts: I am proud of the fact that we left our economy in 1997 in infinitely better shape than we found it in 1979—that was our achievement, and all Conservative Members can still take great pride in it.
I want to press the Chancellor on the fact that more spending, more borrowing and more taxing are in his own forecasts buried at the back of the Red Book, and that is based on a quite exceptionally favourable set of economic assumptions. He is saying that the British economy will now grow by 2 to 2.5 per cent.—whereas the International Monetary Fund has said that it might perhaps grow at 2 per cent.—and next year it will miraculously bounce back to a growth rate of 3 to 3.5 per cent., when the IMF said only yesterday that it believed that the growth rate next year was most likely to be 2.5 per cent.
So having been caught out with his forecasts already and twice having to reduce his forecasts for this year, the Chancellor shows no compunction whatsoever in carrying on assuming that he will have high growth rates in future. He is like someone who has just lost a bet on the grand national and says that that is evidence that he is more likely to win his bet next year. He is no more likely to be proved correct in next year's forecasts than in those for previous years.
If the Chancellor's forecasts are not correct and the outside, independent forecasters and international organisations are, the scenarios will be even worse than those set out in the Red Book. Indeed, the Institute for Fiscal Studies has warned in the last hour at a seminar on the Budget that it believes that the Chancellor will
face tax increases of between £4 billion and £11 billion simply to finance the public spending plans set out in the Budget if its economic forecasts, rather than the Treasury's, are correct.The Budget has two crucial omissions—one in regard to the euro; the other the failure to set out what the Chancellor will do when he faces the fiscal crunch of being unable to finance the spending plans contained in the Budget. But the Chancellor tried to fill the gaps that should have contained his central Budget judgments with a large amount of detail on tax credits and benefits.
The Chancellor is one of those anoraks who is deeply interested in those things—and, I confess, so am I. I am rather intrigued by some of his proposals. I have previously debated with the Secretary of State for Work and Pensions the ideas, for example, about the reform of housing benefit, to which I give a cautious welcome. Some of the ideas in the Budget on such subjects are well worth exploring, but I have to tell the Chancellor that he will not compel the nation's attention if he makes those ideas the central point of a Budget judgment.
Housing benefit reform and a variety of other measures that would pad out a rather thin social security uprating statement really will not do as the centrepiece of a Budget statement during a debate on the future of the nation's economy. Given that the Chancellor has offered us that material, I should like to touch for a few minutes on four of the specific topics in the Budget: the child trust fund; the Chancellor's proposal on pensions and savings; his measures to try to improve employment; and, finally, his tax credits.
I have chosen to begin with the child trust fund, partly because there is a considerable degree of shared ground. I accept that one of the most interesting developments in the thinking about the reform of the welfare state in the past decade has been the recognition that we should think not just about the income of people who are in poverty, but about the importance of encouraging them to build up assets and pots of saving as well. Hon. Members on both sides of the House share that ground. It goes back to the Tory vision of property-owning democracy, and we wish to see more people in this country owning more assets.
We are happy to participate in the debate on assets and poverty, but I have to tell the Chancellor that, as always, what is basically a good idea is spoilt by an obsession with making everything so complicated. Instead of one scheme, there are two: a child trust fund and a savings gateway. Those two different proposals are easily confused. His child trust fund will involve not just putting in money when a child is born, but perhaps further payments—we do not know the detail—when the child is five, 11 or 16. There will be some sort of means test because there are two values of payment—£250 or £500—so there presumably has to be a means test at four different stages of each child's life to assess whether the higher or the lower payment will be made.
So, to choose an example at random, the Chancellor's neighbours in Downing street, with four children, would face 16 separate occasions of means-testing for their four children simply to participate in his child trust fund. It seems rather excessive to require the Prime Minister's family to submit information about their income to the Chancellor on 16 separate occasions to
enable him to establish exactly the size of payment that he will make into their children's bank accounts. Why could he not do it a bit more simply?The Chancellor's scheme stops at the age of 18, perhaps because that is when the money will be needed to pay the tuition fees that this Government have introduced. We want a scheme that carries on encouraging and rewarding saving throughout people's entire working lives. That is why our lifetime savings account not only carries forward into the future, but is far simpler and more flexible than what the Chancellor has proposed.
The second subject that I wish briefly to raise is the question of pensioners and the importance of saving for retirement. One of the other extraordinary omissions from yesterday's Budget statement was anything about the pensions crisis facing our country. We are seeing the collapse of the post-war settlement in British pensions and the collapse of occupational funded pensions, which have been such an important part of financing the retirement of millions of people. I am surprised that the Chancellor did not feel the urge to say anything whatever about that subject, especially given his own track record in that regard. We all remember what he said in his first Budget statement in July 1997:
- "Many pension funds are in substantial surplus and at present many companies are enjoying pension holidays, so this is the right time to undertake a long-needed reform."—[Official Report, 2 July 1997; Vol. 297, c. 306.]
I offer the Chancellor the following suggestion. The Opposition will accept that the problems facing our funded pensions are not wholly the result of the tax increase. I do not pretend that they are solely and exclusively the result of the £5 billion a year in tax. There are many factors behind the crisis; his tax is an important one, but not the only one. We will accept that the problem is not only the tax if he will come to the Dispatch Box in return and accept some responsibility in respect of the tax and if he is willing to show just the faintest hint of recognition that his £5 billion a year tax has something to do with what is happening to the savings of millions of workers. Instead of so busily engaging in conversation on the Front Bench, why does he not take this opportunity to accept at the Dispatch Box that that tax has had an effect on the funded savings of millions of people?
Mr. Adrian Bailey (West Bromwich, West): Will the hon. Gentleman give way?
Mr. Willetts: We are being offered a rather poor substitute for the Chancellor, but if the right hon. Gentleman will not intervene, I shall of course accept another intervention.
Mr. Bailey: Will the hon. Gentleman give a commitment that he will reverse the decision made by the Chancellor?
Mr. Willetts: What I am trying to find out is what the Chancellor thinks has been the effect of his decision. I
deeply dislike many of the 53 tax increases that this Chancellor has imposed. I would love to be able to reverse many of them. When we come to reach our financial judgment in the run-up to the next election, we will decide which ones we can afford to reverse. That is the responsible position to adopt.
Mr. Michael Jack (Fylde): Does my hon. Friend recall that the justification given by the Chancellor for ending the payable tax credit was reducing the pressure on companies to pay dividends with a view to helping them increase their investment? Does he think that that squares up with the falling levels of private investment reflected in the economic data revealed yesterday?
Mr. Willetts: My right hon. Friend makes a very good point. He is right that one of the many forecasts that the Chancellor had to reduce yesterday in his Budget judgment was his estimate of the performance of business investment, which is not growing as he had hoped but declining.
The wider point made by my right hon. Friend the Member for Fylde (Mr. Jack) relates to the absurd economic theory that was advanced to defend the tax increase—I am afraid that I heard it from the Economic Secretary at one point—that we could somehow encourage investment by encouraging companies to hold on to more of their retained earnings. That theory represented a complete failure to understand the role of the capital markets in allocating capital in the most effective way. The distribution of a company's profits means not that they are lost to the economy, but that they go into the capital markets to be allocated to the firms that have the best use for them. It is a sort of constipation theory of investment to say that people have to hold on to something in order to maximise investment. Of course, that theory is now being comprehensively demolished by the evidence before us.
We are facing not only the attack on funded savings in our pensions, but the logical consequence—driving people into dependence on means-tested benefits instead. This year, 60 per cent. of pensioners will be dependent on means-tested benefits. That is not the sort of country that we want to live in and it is not what the pensioners of this country want. They want the dignity and independence of enjoying an income from their own savings, rather than to face more and more means testing.
I ask the Chancellor to consider an example that illustrates the ultimate absurdity of his system. I have identified the position of a 70-year-old man with a basic state pension and an income on top of that of £60.07 a week. That 70-year-old pensioner, with his £60.07 income on top of his basic state pension, has achieved the apotheosis of the Chancellor's vision of how his system should work. Every week, the pensioner is paying £1.04 to the Inland Revenue and receiving £1.04 of pension credit. The two transactions exactly balance out, as he is paying £1.04 to the Chancellor's Revenue department and receiving £1.04 from the Pension Service. I suppose that we should regard that as a triumph of the Chancellor's policies in rewarding saving, but I regard the whole game as absurd.
The situation is worse than that. Of course, I am assuming that that pensioner is at least collecting the benefit, but we know from the report published only
yesterday by the Select Committee on Public Accounts that there is a very serious problem with the take-up of means-tested benefit. The Committee's 12th report states that
- "between one-quarter and one-third of entitled pensioners do not claim Minimum Income Guarantee . . . one-third Council Tax Benefit and one-tenth Housing Benefit."
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