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5.41 pm

Mr. David Laws (Yeovil): It would be difficult to pretend that we are discussing one of the great Budgets of the past 10 or 20 years. Despite the amount of time that we have taken in doing so, the truth is that most economists and independent commentators will consider it one of the thinner Budgets of the period, at least in terms of its policy content and the effect that it will have on particular groups in society. Indeed, among the evidence that was given to the Treasury Committee, John Whiting of PricewaterhouseCoopers said, when asked who were the notable winners from the Budget, that he could think only of

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That is verified by the serious figures from the Institute for Fiscal Studies on the effects on particular income groups. The Budget has not had the substantive effect on income distribution of even the last few of the Chancellor's Budgets.

Mr. Flight: Even those in the category that the hon. Gentleman describes will be disappointed, because the new bingo taxation is not what it appears to be. There is a hidden stealth tax in that both the bingo tax and VAT are payable.

Mr. Laws: The shadow Chief Secretary is right to note that a measure that the Chancellor sought to pass off as a tax reduction will be significantly amended or neutralised when the new taxation for all forms of gambling is introduced.

Although this was a thin Budget in terms of its content, it was yet again a thick Budget in terms of the size of the Finance Bill and the amount of legislation and bureaucracy that it will lead to. Several hon. Members alluded to the fact that this is the fourth-largest Finance Bill on record, with 447 pages. Perhaps less noted is the fact that the Red Book that accompanies the Budget has also swollen to its largest-ever size, with 293 pages, compared with 250 in 2002 and 225 in 2001. The fear must be that, in spite of the Budget's rather insubstantial measures, we need again to remind the Chancellor and Treasury Ministers of the need to try to simplify the tax system to reduce the amount of bureaucracy for firms and for individuals, and not to seek to micro-manage the tax system and other parts of the national finances in ways that usually do not work but serve simply to introduce incentives that are economically inefficient.

Mr. Bercow: I strongly agree with the hon. Gentleman's previous point. Does he agree that it is incongruous and reflects the lack of joined-up thinking in Government that the Paymaster General will wind up tonight's debate? She will celebrate a lengthy and complicated measure, although she commended to hon. Members the tax law rewrite project and the ostensible benefit of simplification that it would confer.

Mr. Laws: I agree. Ministers tend to speak the language of simplification and reduction of bureaucracy and complexity, but it is difficult to find where that has been achieved here or in preceding Finance Bills.

Before examining specific clauses and major provisions that we will debate in Committee in the next few weeks, I should like briefly to consider the Budget's macro-economic context, especially as it is traditional at this stage of our deliberations to refer to the hearings of the Treasury Committee on the Budget. It is usual to consider the high-quality report that the Committee compiles over time. Last year, the report to which we contributed was widely commented on. It is a pity that, this year, we do not have the Committee's final report to consider alongside the Bill. The reason for that must be the time constraints that this year's late Budget placed on the Committee and its overlap with the parliamentary recess.

The Treasury should accept the Select Committee's recent recommendation that Budget statements should be programmed and timetabled not days and weeks but

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months beforehand. In a fiscal framework that the Government claim is about transparency and honesty, there is no good reason for the Chancellor to pick Budget dates out of thin air and shift them backwards and forwards, as happened this year, without bothering to provide an explanation.

It is fortunate that we have the evidence from this year's Treasury Committee hearings, which shed much light on the macro-economic if not the tax issues that we must debate, and that are central to the Chancellor's Budget statement. We also have some interesting exchanges between the Chancellor and Labour Members on foundation hospitals. You would not want me to stray on to that subject, Mr. Deputy Speaker, given that it will be debated later this week. Nevertheless, they shed some interesting light on the divisions in the governing party on public services.

I congratulate the Treasury Committee on its comprehensive job of examining the macro-economic background to the Budget and the Bill. It sets the context for the changes in the tax rates. As the Treasury Committee has accurately identified, the context is the forecast increases in public sector borrowing, which the Budget included this year and the pre-Budget report and the Budget contained last year.

The forecast for net borrowing in the current fiscal year has been revised up from some £10 billion in the 2001 Budget to £27 billion in this year's Budget. We can tell that the Government are getting nervous about that, because the Red Book used to include the table that compares borrowing in successive Budgets on page 5 or 6, and it was labelled table 1.1, but this year it has been demoted to page 246. I suspect that that is no accident. Watching the tables that are given priority in the Red Book is rather like watching old pictures of those who stood on the Politburo platform during parades. One could tell who was in and who was out by their distance from the Soviet leader. We can tell which measures are in or out, and which ones the Government are more or less embarrassed about, by their position in the Red Book—or, in some years, by whether they appear at all.

Kali Mountford rose—

Mr. Laws: I would be delighted to give way to my former colleague on the Select Committee.

Kali Mountford: Will the hon. Gentleman enlighten the House by giving the page on which those charts on borrowing appeared under the Tory Administration, given that, even with the rising borrowing that we have now, their borrowing exceeded Labour borrowing? Where does he think that such charts would appear under any prospective Liberal proposals? Would they be on page 1?

Mr. Laws: I am certainly not going to account for the Budget documents produced by the Conservative party when it was in power. They were considerably shorter than the current ones, although I acknowledge that they did not always contain all the information that they should have. The hon. Lady will have to wait for the imminent arrival of the Liberal Democrat Government

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to see where we place such tables, but I can assure her that they will be right up there near the front of the Red Book, and not on page 246.

Mr. Jack: In one of the two Red Books that bears my signature, the answer to the question about where the borrowing figures appeared is page 7. In those days, the document was only 160 pages long.

Mr. Laws: I am grateful to the right hon. Gentleman for that insight. He might also take the credit for the fact that the Red Books were considerably cheaper in those days, although public borrowing as a percentage of gross domestic product was then considerably higher even than it is today.

So far as framing the fiscal context for this Budget is concerned, the Treasury Committee looked at a number of major macro-economic issues. The first was the growth forecasts that the Chancellor has adopted. We have already discussed that in some detail in the previous Budget debate, but it is still noteworthy that the growth forecasts that he has chosen to make, particularly for 2004, are considerably in excess of those made by independent commentators. He appears to be taking a punt either on a continuing strong performance by the consumer sector—which might be unlikely given the slowdown in the housing market—or on a sudden expansion of exports.

Her Majesty's Treasury seems to be basing its forecasts on those factors, and the Chancellor claimed, in front of the Select Committee, to be very optimistic that the forecasts will prove accurate. We shall find out when we return to this matter in the autumn and in next year's Budget whether he has adopted forecasts that are not only much rosier than those of most independent commentators but have proved to be inaccurate. If that is the case, it will lead to a further upward revision of the borrowing forecasts, which will undoubtedly cause the Government some problems as they come up to the next general election.

Perhaps more seriously, even if the Chancellor is right in predicting that growth will be stronger than the average of independent forecasts, the main problem identified by the experts who gave evidence to the Treasury Committee this year relating to the structural financial position is that it would still be possible, in those circumstances, for the Government to have a significant problem with their projections for public borrowing, simply because they are assuming a recovery in certain taxation receipts that is way in excess of the amount that most independent commentators think likely.

Robert Chote of the Institute for Fiscal Studies gave evidence to the Treasury Committee on 14 April. He said that his judgment

I hope that the Financial Secretary will be able to comment on that, and to say how optimistic she is that some of the growth of revenue forecasts will be sustainable in practice, and in particular the forecast that corporation tax as a percentage of GDP will bounce back from the current level of some 2.5 per cent. to 2.9

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per cent. next year, and then to 3.4 per cent. That forecast has been greeted with great scepticism by most independent commentators, and the Institute for Fiscal Studies believes that it is extremely optimistic.

When we discuss the Budget each year, we inevitably look back on some of the experiences and mistakes of previous years. I do not think that the right hon. Member for Fylde (Mr. Jack) was at the Treasury in 1990, at the time of Norman Lamont, but if he looks back at the Budget statement for that year, he will see Lord Lamont's optimism about borrowing going down again and the economy turning up again. Then, too, we were involved in a war with Iraq, and having a major debate about local authority taxes and our relationship with Europe. There are many similarities between then and now, and the Chancellor must hope that the Budget that we had a couple of weeks ago, which was not significant in terms of its substance, will not be significant when we look back on it in terms of his career and of the mistakes that he might have made through complacency about growth forecasts and about the revenue coming in.

One of the interesting debates in the Treasury Committee this year was on whether and how we could introduce more transparency and credibility into the Budget process and the process of fiscal policy, so that they might stand alongside the monetary policy framework in the UK, which is now regarded by most independent commentators as very credible and a model of its kind. There was a discussion between the Chancellor and a number of members of the Committee, including the hon. Member for Chichester (Mr. Tyrie)—who is obviously in the Chamber today—about whether there should be more independent scrutiny of the assumptions that the Chancellor makes in each Budget.

While we give credit to the Chancellor for introducing some measure of scrutiny since Labour came to power in 1997, by involving the National Audit Office in scrutinising some assumptions in the Budget, it is clear that that does not go far enough. It is also entirely unsatisfactory that it is the Chancellor himself who determines which aspects of the Budget assumptions are to be audited. What serious auditing process in the private sector would tolerate a situation in which the entity that was being audited was able to point out which areas it wished to have audited, and to brush under the carpet or into the bottom drawer those sensitive or embarrassing assumptions that might prove unable to stand up to the audit process? I hope that, however difficult it is to do so, the Treasury will grasp the possibility raised in the Treasury Committee—and, I hope, in its report—of bringing in more independent scrutiny, possibly through the National Audit Office, of the Budget assumptions. Although that might lead to some uncomfortable decisions and conclusions in the short term, it should improve fiscal credibility and performance in the longer term.

Before I move on to the major clauses in the Bill, and to consider in outline some of the big issues that we shall examine in Committee, I want to touch on some of the issues that the Chancellor covered in the Budget, in the hope that the Financial Secretary might be able to shed some light on the concerns that have arisen since then. One such concern was raised by the shadow Chief Secretary and relates to the major issue of the child trust fund, for which children who were born in or after

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September 2002 will qualify. It seems possible that we shall not find out what the rules and regulations for the trust fund are until later this year, or possibly even until 2004 or 2005.

Given the very thin Budget that the Government have produced this year, one can understand their wishing to rush the announcement of the trust fund out for publicity purposes. Is there not, however, a real danger that many people will wonder why they have announced such a proposal without thinking it through? What mechanisms will there be to compensate those individuals who, in theory, have a child trust fund that started in September 2002, but whose parents will not have the ability to invest that money until such time as the Government make a decision. Will the Minister confirm that there will be some form of compensation for those affected, between the setting up of the child trust fund in September 2002 and the time when the Government put some flesh on the bones of this proposal?

The Chancellor made an announcement about pensions for those who remain in hospital for more than a set number of weeks. The impression given was that the measure would be effective from Budget day, which I think was 9 April. However, I am told by a constituent whose relative, sadly, is in hospital now and has been since January that the pension will continue to be deducted for the current time in hospital, at least until the end of May. Can the Financial Secretary tell me whether that is true, whether it is Treasury policy, and whether there will be compensation for such people dating back to Budget day?

Will the Financial Secretary say a little more about the assumptions relating to higher council tax over the next two years—an increase of 13 per cent.? Why has the Treasury come up with such extraordinarily high projections? How can a Government who profess to be trying to make the tax system more progressive sign up to a rise in a local tax that hits many elderly people particularly hard, and takes some 7 per cent. of the income of the poorest decile compared with only 1.5 or 1.6 per cent. of that of the upper decile?

Perhaps the Financial Secretary can tell us when the review of local government finance—which we understand is in the worrying hands, the unreliable hands, the somewhat shaky hands of the Deputy Prime Minister—will produce a report. Will the Treasury be directly involved, and does it take any view on whether the current means of financing local expenditure—through a very regressive tax—is satisfactory and should be continued?

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