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10 Apr 2003 : Column 479—continued
Mr. Andrew Love (Edmonton): That was on Wednesday.
The Liberal Democrats fought a rather tenacious campaign in last year's local elections. At national level, they are talking about removing 1,000 jobs at British Energy by doing away with a Government loan to my constituency. It is interesting that Liberal Democrat councillors should be elected in the very ward in which they would axe those jobs, yet they tell us in their national campaigns what they would do for our local economies.
I mentioned the headline figures for health—the 80,000 nurses and 25,000 extra doctors we propose to have by 2008. They are big ballpark figures, but I have only to look out of my office window to see a £30 million new hospital taking shape—one of scores of such developments throughout the country. We have had scores of extra nurses, dozens of extra doctors and more hospitals, and I have become the first Member of Parliament in a generation who has opened hospital wards in my constituency, rather than presiding over their closure. Of course the hospitals in Gloucestershire hope to be in the first stream of foundation hospitals. I am sure that we will return to that discussion and that it will be a very strong bid indeed.
As well as being involved with the £30 million brand new hospital, I am the first Member of Parliament for Gloucester to preside over the opening of a huge educational establishment—a new university campus—worth £19 million. We heard about the 6 per cent. of GDP and the ballpark figures nationally. For my locality, that translates to a 7.2 per cent. increase, given the new funding formulae that have been interpreted, but there is still more work to be done.
The formulae are tied to the tax credit system, so in local education authorities, such as Gloucestershire, that are in part leafy—it has affluent areas and impoverished urban areas, such as parts of my constituency—it is important to target the increases in education funding that have come about because of the number of people who receive working families tax credit in those areas.
Head teachers from my constituency have come to the House to make their case directly to Ministers. As consequence and as a direct consequence of our economic position and the measures that the Chancellor has taken during the past six years, we have been able to achieve increases in our education funding formulae and, as I said, a 6 per cent. increase across the country.
All that contrasts remarkably with what Conservative Front-Bench Members propose. Early this week, the shadow Chancellor wrote a pre-Budget piece in The Guardian in which he talked about the failure, as he put it, of primary schools under a Labour Government. He said that 25 per cent. of primary school students were failing to learn to read, write and count properly. Well, that compares with 40 per cent. of children failing to reach level 4, and 20 per cent. cuts throughout the health
and education systems, when he was in government. Those cuts would translate into about 678 teachers being lost in Folkestone in his constituency.The other headline figure that I mentioned related to pensions. There has been an awful lot of campaigning on pensions, particularly by pensioners groups, such as the T and G pensioners forum in my constituency, which has been very keen for some time to ensure that pensioners who end up being hospitalised still have dignity and can claim their pensions despite the fact that they may be in hospital for more than six or 13 weeks. Such groups will be more delighted than any others with the changes that the Chancellor has announced this week. I for one am also very grateful for some of the other changes, such as the pensioner credit, which will affect more than 8,000 pensioners in my constituency. Typically, they will be £7 a week better off, or £9 a week better off if they happen to be in a pensioner couple.
It is important to mention a group of my constituents who have come to Westminster and campaigned on finance and Treasury issues—those involved in trade justice campaigns. Trade justice campaigners throughout the country can rightly be proud of the fact that we have made a commitment to ensure that 115 million children around the world go to primary school and get the education that they deserve. Hon. Members on both sides of the House can be very proud of that.
4.55 pm
Mr. Kenneth Clarke (Rushcliffe): I refer the House to my business interests in the Register of Members' Interests. After yesterday's Budget, I look forward to the day when the present Chancellor rises to make the same declaration, as I fear that we are nearing the stage when he should move on to the private sector phase of his career. I think that he is now getting into very worrying difficulties, which he still denies in the House that he faces.
The prudent Chancellor is long gone and well behind us. Indeed, he was an iron Chancellor for the first two years to an excessive extent. He is now a classic tax-and-spend Chancellor of the Exchequer of the sort that we have seen in the past. He spends first and taxes later, he is getting into all the difficulties that such Chancellors have faced in the past, and he continues to be in denial and will not share with the House exactly what he will do to get us out of the consequences of his policies of recent years.
In yesterday's Budget, the Chancellor gave us a pause from tax and spend. Indeed, he gave us a pause from Budget measures. It was very lucky for him that a war was raging—obviously, that is uppermost in all our minds at the moment—as it deflected attention from the paucity of his speech and the lack of any ordinary Budget judgment, comments on the economy or measures of any significance. He was almost saying "Steady as she goes", although I think that he was doing so not because he does not feel the tremors in the deck, but because he does not quite know what to do next to avoid the consequences—unless, Micawber-like, he is lucky enough to see something turn up to save him from the next stages.
I said that the Chancellor gave us a pause from tax and spend. He certainly did so in comparison with last year's Budget and public spending statement, but he had
cleverly left in the pipeline tax increases which he announced last year, but which come into effect only now. Unfortunately, from the point of view of the real economy, they do so at a disastrous time of slowdown in economic activity. We all know that £7 billion-worth of national insurance increases are now coming into effect and that they will be a severe blow to business and commerce in this country. That tax on jobs comes at a time when the job market, certainly in the private sector, is already looking in a perilous state.Everybody has just received their council tax increases, which are miles above inflation. I shall say only en passant that I am one of the few no doubt maverick Members of the House who still think that we will never solve that problem without returning to some modernised version of rate capping, as I do not believe that local government is capable of showing restraint to the required level when the economy slows down—but that is not currently a fashionable view.
The Chancellor of the Exchequer, who has also frozen personal allowances—another subtle and slightly stealthy way of raising personal taxation—has paused. Nothing more of any significance was added yesterday. He slightly tightened policy, but mainly by closing loopholes. My first serious point is that I think that that is ducking the problem. We now face a situation in which we are talking about when he next has to raise taxation and not whether he has to do so, and about exactly what damage he will do to the real economy, and eventually public services, when he does so.
Yesterday's Budget included a few themes on which I shall briefly dwell. It appears that the main theme was "Building a Britain of economic strength and social justice". I know no Conservative—certainly no one-nation Conservative—who would not have subscribed to that at any time in the past 20 years. We shall hold the Chancellor to account for his delivery, but it was very near motherhood.
The Chancellor made great play of welfare to work. There is no difference between the Government and the Opposition on the desirability of helping to move people from welfare to work. Indeed, it was the theme of the second Budget that I presented as Chancellor, but its origins go back to the time I worked with my right hon. and noble Friend Lord Young when he was at the Department of Trade and Industry on his Action for Jobs programme, which drew heavily on workfare in the United States. I marvel that the entire Labour movement, which then attacked it vigorously and intensely, now tries to prove that it can do the same and gets headlines in The Sun about tackling the work shy. As my hon. Friend the Member for Havant (Mr. Willetts) made clear in his excellent speech, we do not disagree with the Chancellor's motives—welfare to work is a desirable public policy aim. We have won the argument. However, we criticise the Byzantine complexity of the Government's methods.
The Chancellor usually steals phrases from us, but I noticed that he did not utter the phrase that the Secretary of State for Work and Pensions recklessly used a moment ago: "No return to boom and bust." For the first time, the Chancellor did not say that. Like me, he is not sure whether a bust will occur. I do not predict
a bust, but the danger exists if things go wrong and his luck does not hold. He therefore no longer repeats the phrase.Everything for which the Chancellor claims credit and all the benefits that the hon. Member for Gloucester (Mr. Dhanda) mentioned derive from the good news in the economy in the past few years. We have had more than 10 years of growth with low inflation. I do not want to argue about the past, except to point out that the Chancellor had an excellent inheritance in 1997. We had growth and low inflation, and the public finances were returning to balance. We had fiscal rules. I aimed to achieve a balanced Budget over the economic cycle. It is a tighter rule than the Chancellor's. The International Monetary Fund agrees that it is a better rule than the golden rule, with which I once flirted. Two years into my period of office, I issued a Red Book that contained both, but I was persuaded that it was too flexible. If one achieves the golden rule, it also means that the Government are probably not contributing to savings as they should, but we were well on course.
The Chancellor then had the good luck of a period of unprecedented global boom. We now know that it was largely led by a boom in the United States that collapsed when an asset bubble burst. He is now in trouble, to which he is not reacting because he does not know what to do.
The Budget speech was remarkable. The Chancellor has abandoned every rule that used to apply. I acknowledge that some of them were tedious and old-fashioned, and led to lengthy speeches about monetary aggregates and every tiny tax change. That has long gone. Indeed, the Chancellor hardly delivered a Budget speech at all. He went into long, tedious details of changes in various departmental policies. As my hon. Friend the Member for Havant said, they could have been given in speeches or written answers by the Under-Secretaries of State for Work and Pensions, for Trade and Industry or for any other relevant Department.
Like most people who are interested in economic policy, I was waiting for the description of public debt and some sort of forecast. The comparatively slow exposition of detail suddenly ended. I could not keep up with my notes as figures streamed out. After much slow delivery of fiddling nonsense about other Departments, which the Chancellor likes to command, he raced through gabbled figures. That was the only time when he addressed the so-called "hole" in his Budget. It is a good description of the problem over which he was skipping. He did not deal with the hole in the Budget at all.
The convention is to welcome the odd measure, which I shall do briefly. I welcome what has been done for pensioners and benefit recipients who go into hospital. I have looked at the cost of that and congratulate the Chancellor on his decision. I cannot understand why none of us did that a few years ago. It is a wholly welcome measure.
I was also going to welcome the end of national pay bargaining. I was riveted by that passage of the right hon. Gentleman's speech. I have always thought that one of the best ways to remedy deficiencies in an economy is to end national pay bargaining, which our private sector achieved many years ago. In fact, that is the advice that I give to Germans now, and we should replicate the policy in our public services. The right hon.
Gentleman talked about pay review bodies and setting the pay for public servants in general with regard to regional price indices. When we are trying to recruit nurses, teachers, firemen and others in high-cost parts of the country, I have always thought it absurd that we can only recruit them by setting the same basic pay rise for every nurse from Land's End to John o' Groats. But by this morning on the "Today" programme, the Chancellor had chickened out, so we may not hear much more about that. He reversed rapidly at the first threat of a national strike and I am not sure how many of us will have the courage to keep on supporting him on that. We backed away from ending pay bargaining in the public sector, but at least it got a welcome mention.I shall now gabble through what I regard as the real Budget, which can only be abstracted if one reads the Red Book because that shows what the Chancellor has done and what he thought he was going to do. Hon. Members only have to look at 2002 to see what is going wrong with the economy. Government consumption in that year was very heavy. It rose by 3.75 per cent., the highest rate of growth for 25 years. Government capital spending rose by 9 per cent., but business investment declined and ended the year 5.5 per cent. below what it was at the end of 2001.
Business fixed capital investment was down 9 per cent. in 2002, the fastest decline in business investment since the 1960s. Manufacturing output fell by 4 per cent. between 2001 and 2002. That must be noticeable even in Gloucester, where it seems that good things have been happening. Manufacturing is back in recession, with more than 600,000 manufacturing jobs lost since 1997. I refer the House to a good article in the Financial Times this morning debunking the Chancellor's misleading figures about our productivity record and the competitiveness of our industry. He made totally misleading use of figures based on a slight change to the statistical base since November last year. Under the Government, productivity in the private sector has been rising at half the rate that it was under the Conservatives when Labour took over.
On the short-term forecasts, I am, of course, going to make the same point as everyone else about the scandalous optimism of the second and third-year forecasts, but, first, what will happen this year? We are supposed to be examining that closely. The Government forecast GDP growth for 2003–04 of 2.25 per cent., which is above all the independent assessments, and they are generous at 2 per cent. That figure is based mainly on private consumption and private spending, which in turn are based on a housing boom and public sector pay rises.
The Government are still saying that GDP growth will increase by more than 2 per cent. Presumably, they believe that the housing boom will continue to help to finance that. Government consumption is forecast to increase by 1.5 per cent. But even in the financial year on which we have just embarked, the Government are forecasting a further decline in business investment of minus 0.25 per cent. and net trade in goods and services of minus 1.25 per cent. That is how they get the 2.25 per cent. growth.
I have given enough figures to illustrate the key point: we have reached a stage at which the wealth consuming and spending part of our economy is still growing heartily. So public spending and wealth consuming is
the main sustaining force behind our growth. The wealth-creating private sector—business—is declining. If business investment and productivity are so weak, the long-term expectation is that the outlook for the economy is not healthy.In my opinion, it is not true that that the UK is better placed than any other country in the world to withstand the forthcoming problems. To be fair to other hon. Members who wish to speak, I have no time to go into the detail of the fiscal problem that that poses for the Chancellor, which he has not addressed. His problem is not only that Government Departments are now getting better at spending the enormous sums of money that are in the books, but that the huge fall in tax revenues has made all his forecasts wrong. The big falls are in income tax and corporation tax. They are the reason why he has had to adjust his borrowing figures so much already.
The Chancellor forecasts that his tax revenues will bound back when this country returns to big growth in two years' time. He expects his tax revenues, including from corporation tax and income tax, to start to grow again as though we had returned to the 1990s boom conditions that he enjoyed so much. I believe that that will not happen. The Treasury has returned to underestimating the likely growth in revenue, which will continue to disappoint Treasury expectations. To use the jargon, structural changes have taken place and structural problems have arisen in the Chancellor's ability to get revenue. For the reason why, return to the point I made a moment ago: it is because the tax-paying, wealth-creating part of the economy is being shrunk, whereas the tax-consuming spending part of the economy is growing. That is why all the forecasts of revenue bounding back are, in my opinion, wrong, even assuming that the growth forecasts are even remotely credible.
The Chancellor cannot stop making the books look more attractive by promising a fantastic rebound in years 2 and 3 of his Red Book, whatever they may be. I know scarcely anyone who believes that the economy will grow by more than 3 per cent. in the year after this one and the year after that, but the right hon. Gentleman keeps pushing rosy forecasts as an excuse not to do anything. He will not get away with it. He is already taxing business, jobs and pensions in a damaging way; the only question is when and where he will have to raise taxes again. He is desperately hoping to be able to put that off until after the next election, or on to some other Chancellor of the Exchequer.
I very much do not wish to be the Chancellor of the Exchequer who takes over from the present incumbent—a gambler who has taken a bet that probably will not come off. His successor will have a great deal of work to do to sort out the problems that he leaves behind.
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