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14 Apr 2003 : Column 687—continued
7.55 pm
Mr. Nicholas Soames (Mid-Sussex): I am delighted to have the chance to speak in the debate, and I shall be brief.
Will the Chief Secretary to the Treasury explain why, in the particularly dismal and Alice in Wonderland speech made by the Secretary of State for Trade and Industry, the right hon. Lady seemed to be living in a completely different world to the one inhabited by the rest of us? It is certainly different from the world in which British business men and our citizens have to make their way.
First, I shall explain to the Chief Secretary why the economy is not in the good shape that he will describe in his speech. Last year, Government consumption grew at its highest rate for 25 years; it rose by 3.75 per cent. Government capital spending rose by 9 per cent., but business investment declined and ended the year 5.5 per cent. below the figure at the end of 2001. Business fixed capital investment was down 9 per cent. in 2002, the fastest decline since the 1960s. Manufacturing output fell by 4 per cent. in that year.
I should like the Chief Secretary to try to explain to the Secretary of State for Trade and Industry that if the spending and public service part of our economy is the only part that is growing, and is the main sustaining force behind our growth, the wealth-creating private sector—business, commerce and enterprise—will decline. If business investment and productivity are weak, the long-term outlook for the economy is not healthy. I thus have no confidence in the Chancellor's mystical forecasts. The iron Chancellor has become the tax-and-spend Chancellor.
I give the Chancellor credit for two announcements in the Budget. The first was about the reserve fund of £3 billion for the Ministry of Defence. However, I have a question about that for the Chief Secretary; he will know the answer. As so often with the Chancellor, it is impossible to tell whether that is new money. I know that it is not all new money and the Chief Secretary knows that it is not, but will he tell us what proportion of the reserve fund is new money? How much of it will go towards the deficit in the strategic defence review that has not been made up to the MOD, and how much will be from the additional moneys recently made available to the MOD? The Government promised that the SDR would be fully funded, but it has not been.
Secondly, I welcome the belated injection of £330 million for additional domestic counter-terrorism measures. The House should be aware that that money is long overdue; indeed, it may not be enough to be truly effective for the home defence of the nation, but I hope that, even at this late stage, the Government will respond to a proven and real danger.
Even with taxes raised 53 times since 1997, and with the tax take rising by 50 per cent., public services are obviously floundering—even in my constituency. I take no pleasure in saying that. We had hoped that public services would improve dramatically, but the old tax-and-spend routine simply does not work, as we all know. That matter has been well dealt with in the previous debates. However, I have one important issue to raise and I should like the Chief Secretary, who is extremely gracious, to listen with care and to transmit my views to the Secretary of State for Trade and Industry.
Every year, I undertake a pre-Budget survey in my constituency. It goes to every business man in my constituency. I do not claim that the results are scientific, but they give a broad indication of the way that people are thinking. The results are always fascinating and three vital points emerged this year. I am confident that the same three points would emerge in pretty much any seat in the land. First, 74 per cent. of those who responded believe that Britain is less competitive than it was in 1997, and they are absolutely right in that persistent belief. Secondly, 81 per cent. of them felt that Government regulation presented a significant handicap to running businesses, both small and large. Thirdly, when asked what the Chancellor could focus on to help their businesses, the reduction of red tape was ahead of all other issues.
Certainly, no rocket science is employed in this, but burdens on business have led to productivity growth being almost halved in this country, as money and effort have flowed out of productive and enterprising companies. Mike James, who is the managing director of a company called Bio-Productions in Burgess Hill in my constituency, wrote a letter to me in which he said:
- "Like most people who start and run their own business, I started out with a desire to make something. Now I spend ¾ of my time looking after staff problems and complying with"
- "legislation. If I could get out and meet customers more, and those could get out and pay more attention to their customers just imagine how much more business could be done".
The Government must now show the will and effort to deal with those matters; otherwise our economy will become as sclerotic as Germany's, and what my
constituents in business and commerce—frankly, they are already reeling from the burden of tax rises—most want to know is when the Chancellor will finally deliver on his promise to reduce the burdens on business, or whether he will continue to take back with one hand what he gives with the other. If he does not deal with that, the country's competitiveness will continue to fall.I wish to make a point to the Chief Secretary. The Treasury has produced a consultation paper, together with the Inland Revenue, to review the residence and domicile rules as they affect the taxation of individuals. I am well aware of why they should have done that—the Revenue persistently lobbied the Chancellor to do the same thing when my own party was in government—but I should like to make a very important point: a very large number of people come to London who are not residents here and who have special taxation arrangements. Many of those people greatly enrich our economy. They use the services of the City of London and they bring a great deal of money into this country, and I urge the Chief Secretary to be extremely cautious when dealing with that matter because that is a long-term ambition of the Revenue, which successive Chancellors have always seen off.
8.2 pm
Angela Eagle (Wallasey): Despite the downbeat backdrop to the Budget, with increased uncertainties and the dangers of deflation, which my right hon. Friend the Member for Llanelli (Denzil Davies) pointed out in his speech earlier, the UK is doing better than our major competitors and the underlying indicators are sound. It is a mantra worth repeating that we have the lowest inflation rate for 30 years, the lowest interest rates for 40 years, the lowest debt:GDP ratio of any other G7 country and the highest ever employment levels.
I welcome the fact that the Budget connects economic stability with social justice, and I particularly welcome the anti-poverty measures for children and pensioners, including the child trust bond and the abolition of hospital fees for pensioners. I also welcome the continuing extension of the tax credit scheme, which is progressive and is making work and savings pay.
I wish to concentrate the rest of my remarks on the funding and reform of the public services, which clearly feature strongly in the Budget. I welcome wholeheartedly the fact that the Chancellor has ignored the many siren voices, not least on the Conservative Benches, calling for him to slash his planned expenditure on public services as a response to the world economic slowdown. He has made the right choice in persisting with that expenditure. Our task now is to maintain that investment, while getting value for money from it.
While maintaining his fiscal rules, my right hon. Friend the Chancellor has provided huge new resources, targeted at front-line services—£61 billion extra over the current comprehensive spending review period and more thereafter for transport and the NHS. That funding comes after 25 years of neglect and underinvestment in capital and current spending in the public services. In 1997, public sector investment stood at a mere 0.6 per cent. of GDP, and its history has been
one of huge and ongoing decline, so this is the largest sustained increase in public sector investment for 25 years.The Labour Government face a once-in-a-generation opportunity to make the case for the benefits of public provision and to renew our public infrastructure. If successful, we will live in a more just and fair society that offers opportunities and fair access to all. If we fail, the future for the public services will be bleak. Vital funding has been provided, so we now have to concentrate on the nature of reform; but what shape should that reform take? In effect, there are two models: the first I would describe as the marketising model, which introduces competitive price mechanisms and internal markets; the second I would call the empowerment model, which preserves public sector commitment, but empowers front-line staff within national standards and introduces accountability to the user as well as the producer.
The Government's reforms currently fall into both categories. I wish to make the case for moving away from the marketisation model to the empowerment model. We can see that current confusion in the NHS reforms. I would characterise most of the NHS plan as the empowerment model, but foundation hospitals are firmly rooted in the marketising model, so we have standardised treatments in national frameworks that guarantee equity and allow a loosening of centralised management structures—all very welcome.
We have devolved 75 per cent. of NHS budgets to primary care trusts—very welcome—but foundation hospitals will reintroduce competition for still scarce resources, abandoning the equity requirement by institutionalising advantage for one hospital over another and exacerbating the inefficiencies of the purchaser-provider split, with no guarantee on the value added. Raising local bonds, which has also been suggested, would totally destroy funding equity and ought to be resisted.
Likewise in education, variable top-up fees marketise the choice of higher education establishments by introducing differential price mechanisms where none previously existed. That will inevitably make it harder for those of modest means to study at the elite and therefore more expensive institutions. That approach entrenches privilege in an already unfair system. Any attempt to mitigate that by increasing maintenance grants or introducing zero-interest loans is welcome, but it does not alter the detrimental effect that introducing the price mechanism and competition has on the prospects for fair access for all in the first place.
Thus the marketising model undermines and weakens public services by introducing wasteful competition in the price mechanism. The empowerment model, however, strengthens public service by trusting the initiative and judgment of front-line workers and management and by increasing the transparency of results and the accountability to the user. We should aim for standardisation in our public service to improve equity and ensure that it is achieved, but when we have achieved standardisation, we should abolish centralised control, or loosen it at least. It is about time that micro-management of public services in Whitehall was abandoned for good. Thus the changes on flexibility and job-centred provision are very welcome. However, it is
also important that that loosening of centralised control should not be replaced with excessive auditing, which can stifle initiative and creativity.Finally, I welcome the Treasury's publication of a discussion paper on the public services, as we need to debate the most effective models for reform. I particularly welcome the admission on page 12 of that document about the limitations of markets—they fail because of monopoly, lack of information, externalities and the provision of public goods.
It is in the public interest to aspire to more than the market will provide when left to its own devices. It is necessary, in pursuit of equity, sometimes to address market failure by direct public provision, particularly in areas in which people's opportunities or quality of life could be affected by lack of access, such as education or medical treatment. Without public provision in those cases, our society tends to the survival of the richest, and an increasing polarisation between the privileged few at the top and the extremely poor at the bottom. Such income distributions can be seen in Latin America, and, arguably, can now be seen emerging in the USA. In such societies, fairness and opportunity are replaced by the laws of the jungle. That is not a future to which we should aspire in the UK, and we will not see it if the Government's modernisation of the public services is successfully delivered and it avoids the marketising model. Let us get on with reform and improvement, let us achieve good value for money and political support for public services—
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