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10 Apr 2003 : Column 488—continued
Mr. Bailey: Will the right hon. Gentleman give way?
Mr. Jack: I would like to make progress because I am conscious that if I, too, take only 10 minutes, others may yet be able to speak.
I welcome the proposals for pensioners. I was also most interested in the idea that some local authorities could share in gains if they were able to bring new companies and businesses into their area, and I look forward to seeing more details of that proposal. I am sorry that, as we are thinking of Iraq, the Chancellor did not take up an idea about which I have written to the Treasury, which is to give some form of encouragement—perhaps through a mechanism similar to the research and development tax credit—to those in the private sector who seek to invest in the really difficult places such as Iraq. I would ask the Paymaster General, even at this late stage, to give some thought to mobilising private investment in places such as Iraq, where the expertise of such businesses will be much needed, when some encouragement through the tax system might be an advantage.
Listening to the Chancellor yesterday was a bit like having a large Chinese meal. I felt full at the time but woke up hungry the next day. It is always dangerous to judge a Budget on the day, so I judged it today. It was no better today than it was yesterday, and yesterday was pretty boring and meaningless. The Budget had the flavour of Micawber hoping that something somewhere would turn up.
The comments of those experts who gave their immediate reaction were quite interesting. I was particularly attracted to the words of DeAnne Julius, the former Bank of England Monetary Policy Unit member, who had an enviable record as a private economist before going on to the committee. She said of the Chancellor:
- "He is placing big hopes on a quick recovery this year and next but if that does not happen, we will see a ballooning deficit and not a shrinking one."
- "It's still not clear where the Treasury's projected revival in investment is going to come from."
- "I very much doubt that we are going to see that growth materialise."
It is interesting to note, when we look at the accuracy of Treasury forecasting—which underpins the philosophy of this Chancellor's approach—how we all ignored one very important point. In recent years, when the economy has been doing well, the Chancellor has come to the Dispatch Box and said, "The extra money that I have to repay debt is greater than I ever thought." And we all thought that that was rather good, but we did not reflect on the fact that, in its own way, it represented a considerable inaccuracy in the forecasting model that the Treasury was using. I should have thought that the penny would have begun to drop in the Treasury by
now, and that it would have realised that what goes up rather more quickly than the model predicts could come down with equal rapidity. I am therefore very surprised that there appears to have been no adjustment in the Treasury's economic modelling.If we look at the predictions that have been made over time for the borrowing requirements, we can come to some very interesting conclusions. The prediction made in 2000 for the year 2003–04, which we are now in, was for a £3 billion borrowing requirement. By 2001, that had been reduced to £1 billion. Then panic set in, and, by 2002, the Treasury was predicting borrowing of £11 billion. Last November, the prediction was for £20.1 billion, and by yesterday it was up to £24 billion. So in the space of three forecasting years, the Treasury has gone from £3 billion to £24 billion—a factor of eight. No private company could run its business on the basis of being eight times out with such a fundamental piece of analysis.
We all listened with sublime interest to the recital of growth rates of 2.25 and 3.5 per cent.—in what? Well, we are talking about a very large figure, namely our gross domestic product. The predicted GDP figure for 2004 is £911 billion. On the basis of the Chancellor's prediction, a fall in that amount—the sum total of activity in the economy—by just one third of 1 per cent. is the equivalent of a downward adjustment of the growth forecast in the Red Book from 3.25 per cent. to 2.9 per cent.
I estimate—using the Chancellor's methodology—that such a fall could add a further £10 billion to Government borrowing for that year. The Chancellor's method of calculation shows that a 0.75 per cent. change in the economy's predicted growth rate between 2000 and 2003 resulted in a 21 per cent. increase in borrowings. That is why it is so important for us to spend some time examining the figures underpinning the Chancellor's position—and what we see is that a minor change in a very big number can have a dramatic effect on the bottom line of Government borrowing.
I am disappointed by the Treasury's unwillingness, despite my efforts through parliamentary questions, to reveal in public its model demonstrating the way in which it predicts tax receipts. Sadly, although the Treasury model as such is available for scrutiny, the tax receipts model is not; and unless we know exactly what is going on, no one can accurately predict the course of the economy.
The Secretary of State talked briefly about boom and bust. That was an interesting aspect of the Chancellor's speech. The boom and bust under Labour has been the bust of personal pensions, the bust of endowment policies, and the bust of private investment. The Budget contains nothing of any note to deal with people's current worries about the future of their pension funds and, indeed, their personal savings.
All we were given in regard to personal savings was the so-called children's trust fund. The provision of £300 million a year to help a group of non-taxpayers to save strikes me as bizarre. In fact, taxpayers—parents—will park a lot of taxable money in this great trust, and when their children are 18 they will suddenly help themselves to a nice little earner when their ISA allowances, for
instance, have run out. I see it as the "save for university" fund. Meanwhile, the Government are talking about encouraging talented people from overseas to come to this country, and using public money to do it. The two proposals do not add up, and I think the children's trust fund is a waste of time.I am very sad that inheritance tax relief was not raised by more than £20,000. It is all very well for the Chancellor to say that 95 per cent. of estates can escape. Look at the labyrinthine process in which people have to become involved to escape inheritance tax when, through no fault of their own, the value of their major asset—their house—has increased. That is the ultimate form of double taxation.
The Budget statement contained the usual list of reviews and studies. I sometimes wonder how the great captains of industry who are involved in such projects have enough time to steer their company ships as well.
Let me end by saying something about the tax burden. As my hon. Friend the Member for Havant (Mr. Willetts) pointed out, the tax burden will rise—but let us not forget that between 2002–03 and 2005–06, £47 billion of extra tax will be taken out of this country: £10.2 billion a year. That is indeed a heavy burden to be borne for the sake of public service improvement that is yet to be delivered.
5.34 pm
Kali Mountford (Colne Valley): May I say with all possible gentleness to the right hon. and learned Member for Rushcliffe (Mr. Clarke) that it is highly unlikely that he will be faced with the problem of taking over the current Chancellor's job, however much he may wish to do so? I should also say to the right hon. Member for Fylde (Mr. Jack) that I could not disagree more with his analysis of enabling children to save. He seems to have a rather cynical view of what parents might wish to gain on behalf of their children, whereby they will want to purloin such money as a personal, tax-relieved benefit. I do not see that happening.
In communities in my area, working-class people who are brought up on council estates want to save for their children so that they can get on better in life. Everybody aspires to the next generation's doing better than themselves. Some families have achieved that for many years, but others have found, after years of unemployment, that their ability to save for their children has been greatly reduced; indeed, in many cases it has been totally eradicated. Some families are now out of the habit of saving, so it is a very good thing for parents to have this opportunity to save on their children's behalf, with some help from the Government. That money is not there to help in a cynical way with top-up fees, for example; it will enable those aged 18—that vital time in a person's life when they reach maturity—to take decisions that they would be unable to take if they had no assets at all. It is a shame when those from an asset-based background try to deny such assets to others.
I am somewhat confused by the argument of the hon. Member for Sutton and Cheam (Mr. Burstow). I cannot see how some form of local taxation would help the poorest pensioners; in what way would that be better than the council tax, for example? He has completely overlooked the fact that any form of local tax would, in
itself, be means-tested; that is the nature of taxation. [Interruption.] The hon. Member for Orkney and Shetland (Mr. Carmichael) laughs, but if he does not know how taxation works—
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