| Previous Section | Index | Home Page |
Alan Simpson (Nottingham, South) (Lab): Would my right hon. Friend also acknowledge that one of the big changes in the last 20 years is in the nature of capital itself? Those of us who may have no particular affection for capitalism at least recognise that in previous eras the capital was either the ownership of land or of production, and in that context, the owners of that capital also identified themselves with the country that they were in. In the last 20 or 25 years, capital has become finance capital, moved offshore, and its owners have become uninterested in the countries in which they earn their moneys and reluctant to pay tax into anyone's economy.
Denzil Davies: That is absolutely right, and the movement is much more rapid.
To digress, I am reminded of something that I read some time ago about Karl Marx. Apparently, his mother, who was not a disciple of his theories, wrote to him and said, "Karl, you have talked a lot about capital. Why don't you now try to make some?" I apologise for that digression.
My hon. Friend may be right, but there is now a challenge to western economies. We may not want to believe that, but we will have to look at the classical economic rules governing free trade and the movement of capital because at the end of day democratic Governments—we are seeing some of it in the United States—will have to protect the employment of their people, their electorate; they will have to try to preserve the tax base, which is becoming increasingly difficult; and they will also need to safeguard their public services.
Most hon. Members will not agree with me, but during the past 10 or 15 years I have seen democratic Governments in Britain and elsewhere transferring power over the economy to so-called independent or semi-independent bodies—for example, monetary power to central bankers. Fiscal policy is very often entrenched in these rules, and I am glad that the Chancellor has managed to stay within his own golden rule; and we have the rules of international trade as well. With the pressure of globalisation, Governments will have to look at those rules again and, in the interests of their economies and their own electors, will have to do something about it.
The best way to deal with the problem is to recognise it. Then, perhaps, we can come to some kind of mutual international arrangement where the benefits of free trade—because there are benefits—can be adapted and modified to preserve jobs, the tax base and our public services.
2.56 pm
Mr. Stephen Dorrell (Charnwood) (Con): I begin by declaring an interest as a director and shareholder of a manufacturing business, which means that, as always, I listen with interest to what the Chancellor has to say in Budgets. I always listen to what the right hon. Member for Llanelli (Denzil Davies) has to say about globalisation, but on this occasion, if he will forgive me, I do not propose to follow him down that path.
Whenever a Chancellor speaks with such rapid-fire delivery as this Chancellor does for virtually an hour, there is always something in what he says that can be welcomed, so I should like to begin with that. Both sides of the House welcomed his announcements concerning the efficiency of the Government machine—the first fruits of the Gershon process. If I may say so, my right hon. and learned Friend the Leader of the Opposition is entitled to a share of the credit for that. It is an example of more effective opposition starting to put the Government on their mettle. The fact that my right hon. and learned Friend set up the David James process to shadow the Government's efficiency review is part of what good opposition is about, and I enjoy the fact that we can claim some credit for improving the Government's performance. I hope that the Chief Secretary will be gracious enough to welcome my welcome for the Chancellor's announcement.
I do not think that even my right hon. and learned Friend would claim credit for another of the Chancellor's announcements, which I certainly welcome: that he accepts Kate Barker's recommendation that we establish real estate investment trusts in this country. Where that structure has been established elsewhere in the world it has a proven track record for making the property market more efficient and I warmly welcome the Chancellor's indication that we will go down that road. However, while I welcome that aspect of what Kate Barker had to say, I have much less time for some other aspects on which the Chancellor commented. He appeared to say—I hope that I am wrong—that he was attracted to the idea of regional housing plans as a way of enhancing house building and improving supply and demand in the housing market. If Kate Barker and the Chancellor are two people who think that regional housing plans will improve the efficiency of the housing market, I hope that there are not too many more, because the weight of experience is against the proposition that introducing yet another bureaucratic planning process into the housing market will improve the flow of land and houses on to the market.
The idea that introducing a development land tax will improve the flow of development land on to the market goes to an even greater extent against the weight of experience, including that of the right hon. Member for Llanelli. It is a perfect example of not needing to look into the crystal ball, but simply reading the book. We have been there and had a development tax. It impeded the efficient operation of the development land market and I can envisage no arguments that would support a return to that policy. I therefore hope that the Chancellor's words on that subject were designed to kick the proposal firmly into the long grass.
The Budget was extraordinary for several other reasons. It is the first time in my experience that a Chancellor, in announcing his stance on individual taxes for the following year, chose to say every time a tax was not changed that it was frozen, as if there were an expectation that tax rates would go up. Indeed, there is such an expectation and the Chancellor did nothing to knock it on the head. He appeared to want to claim credit for the fact that the majority of tax rates would not increase. He wanted us to cheer the fact that they
were, in his word, "frozen". It is not only because I am old fashioned that I prefer a world where it is assumed that tax rates do not change unless a Chancellor announces that they will, rather than one where it is assumed that they will change unless he announces that they are frozen.I do not believe that I exaggerate when I say that the Chancellor appeared to spend 20 minutes of his hour-long speech replying to a speech that my right hon. Friend the Member for West Dorset (Mr. Letwin) made two or three weeks ago. That is eloquent testimony to the extent to which the shadow Chancellor determines the terms of debate. The Chancellor devoted 20 minutes of a speech that lasted an hour to commenting on proposals that my right hon. Friend is solely responsible for putting on the table. I strongly support those proposals.
On previous occasions, the Chancellor has chosen, with great theatre, to dress in the clothing of productivity. Numerous initiatives of the sort that he dearly loves are announced, and we are asked to believe that they are designed to improve the productivity of the British economy. I am open to correction, but I do not remember the word "productivity" being used today. I shall explain why that omission may have been wise in the context of the Chancellor's policy package.
Mr. Michael Jack (Fylde) (Con): Has my right hon. Friend noticed that the Chancellor is fond of fiddling with the economy at a micro level to achieve the objectives that he has just presented, but that we never have feedback about whether the initiatives have any measurable success?
Mr. Dorrell: My right hon. Friend is right. Whenever the Chancellor announces periods within which his policies will be assessed, the timetable is always x plus one, where x equals the remaining years of the Parliament. My right hon. Friend is therefore right to point to the Chancellor's predilection for micro-fiddling. To be fair to the right hon. Gentleman, there was slightly less of that this year than in previous years, perhaps because he was trying to avert our eyes from productivity, to which I wish to revert.
The central problem that faced the Chancellor in preparing the Budget—he did not ignore it, but spent much time trying to persuade us that it did not exist—was the sustainability of his budget deficit and borrowing requirement. He should have addressed that key issue when he prepared the Budget. He announced, with a great flourish, that borrowing for the year that is finishing will be, as he predicted in December, £37 billion. It is a commentary on our position that the Chancellor can say, almost with a sigh of relief, that this year's borrowing requirement is "only" £37 billion. It is worth remembering that, at the beginning of the Parliament, he was running a budget surplus of £16 billion and that, at the time of the previous election, he predicted for this year a budget deficit, through the operation of the normal stabilisers, of £10 billion.
The prediction of a budget deficit of £10 billion for this year has been revised repeatedly—I shall not weary hon. Members with an account of every occasion when it has been revised—until it reached £37 billion, which is the outcome in the last month of the year. Against the
background of that track record, the central message of the Chancellor's Budget was that the borrowing was okay and we did not need to worry about it. I shall revert to that judgment shortly.The Chancellor tried to substantiate his assertion that the borrowing was okay by saying that, in the current cycle, the borrowing requirement satisfied his golden rule. I am prepared to believe that that is broadly arithmetically true within the margins of error. However, the analysis ignores a sharply deteriorating trend through the life of the cycle. If the golden rule is fulfilled in the cycle, it will be only through surpluses that were built up at its beginning and resulted from the spending plans that the Chancellor inherited from the previous Conservative Government and did not change. The Chief Secretary shakes his head, yet he is responsible for controlling—or failing to control—public expenditure.
The deteriorating trend in public finances has been corrected throughout the cycle's lifetime. I shall repeat figures about which the Chief Secretary should go to bed worrying. In the Parliament, on the Chancellor's projections, gross domestic product will increase by approximately 25 per cent. and total managed expenditure will rise by 33 per cent. One does not need a degree in mathematics or economics to work out that a trend over five years whereby growth increases by 25 per cent. and managed expenditure rises by 33 per cent. is not sustainable. That is why the Chancellor has a problem when he tries to persuade us that borrowing is under control.
The right hon. Gentleman's answer is that he can sell gilts and finance the debt throughout the lifetime of the Parliament. I agree—there is no obvious problem with the ability to finance the debt in the short term. However, he said two more things with which I fundamentally disagree. First, he said that we should not worry if the borrowing is required to pay for investment—"investment" is a much loved word of the Chancellor's. Unlike "productivity", "investment" appears repeatedly in today's Budget, as it does in all his other speeches. It refers to a variety of expenditure. The Chancellor is fond of saying that he will invest in health or education. While we can all understand the desire to make expenditure on those objects a priority, making something a priority is not the same as properly defining money spent on it as investment. The Chancellor appears to believe that as long as he attaches the label "investment" to a particular spending proposal, that in itself will make it financeable, as debt-financed expenditure that can be outside the operation of the golden rule.
A further inadequacy of that principle is that merely saying that something is investment, even if it is properly described as such in economic terms, is not the same as saying that it is good investment. For example, we have seen substantial sums of money put into the transport infrastructure, with sharply declining rates of return. We must ask whether that investment policy aids or undermines the Chancellor's oft-stated—although not today—commitment to productivity. His desire, expressed in good faith on other occasions, to see the productivity of the British economy improve is not
assisted by an approach to investment that simply says that if an item of expenditure is investment, it is all right and we can afford to borrow to finance it.The Chancellor also said of his current borrowing requirements that no tax increases will be required to finance them, either now or in the future. I have to say that I, in common with most observers, regard that as simply implausible. The Chancellor came quite close to arguing that it was implausible, saying more than once that he had a Budget choice to make: whether he, as Chancellor, should use his judgment to reduce expenditure, to trim his spending plans, to trim borrowing or to cut tax. That was how he saw the choice. That is very close to saying that unless he does one of those things, some time beyond the next election there will be tax increases round the corner. As my right hon. and learned Friend the Leader of the Opposition made clear in his speech, there is no need to look into a crystal ball because we have been here before and can read the book. In the same way as before the 1997 and 2001 elections, the spending plans cannot be supported without tax increases.
In the Budget, the Chancellor is averting his eyes from his commitment to productivity enhancement and from an emerging deficit problem, on the basis of what he hopes to be able to do after the next election. Without having to face up to difficult spending decisions—the Chief Secretary would clearly prefer not to address those with his colleagues, or disappoint their possible expectations—the Chancellor hopes that it will be possible to resolve all the problems after the next election with another round of tax increases. I believe that there is a near certainty of tax increases from a re-elected Labour Government.
I have mentioned the effect of the Chancellor's stance on productivity. My right hon. Friend the Member for Fylde (Mr. Jack) who, like the rest of us on this Bench—my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) and I—is a former Financial Secretary to the Treasury, referred to the Chancellor's long track record of obsessive micro-regulation of the economy. That has the effect of imposing costs on the economy. One of the great deceptions of being a Minister is to believe that we can require other people to do things, and that that is free. It is too easy to think that, because we in the Treasury, or in our Department, do not have to pick up the tab and are obscured from any resource implications, we can therefore make a decision without having to find the resources with which to implement it. In fact, regulation costs money. It imposes a cost, and unless it enhances output it also imposes reduced productivity on people elsewhere in the economy.
This Chancellor has a track record, over the whole of his chancellorship, of imposing extra costs—as have the Government more generally. Many of those costs are not huge but, as my right hon. Friend the Member for Hitchin and Harpenden stressed, incrementally over a long period they have the effect of increasing the cost burden, and so reducing the productivity, of the private sector of the economy. Despite the fact that the Chancellor enjoys talking about being the productivity Chancellor, he has on previous occasions marched resolutely in the wrong direction on that matter. Today he had an opportunity to start to reverse that trend, but he did not take it where the private sector is concerned.
I see that the Chief Secretary is holding up one page of the Budget—[Interruption.] Perhaps it is 30 pages, but that is out of several hundred published today. I suspect that that is simply another lot of micro-regulation that the Chancellor neglected to report to the House when giving his Budget speech.If it is true for the private sector that the Government's record on securing output for their expenditure input is truly appalling, it is true in spades for the public sector. A core criticism that will be made of the Chancellor's tenure—as I said in an intervention that my right hon. Friend the Member for Hitchin and Harpenden was gracious enough to take—is that although he has unleashed barrel-loads of money on key public services, the priority of which is not in dispute between the two sides of the House, he has totally forgotten about the conditionality that he said at the beginning of this phase of his Chancellorship would be a precondition to that money's being made available.
My right hon. Friend the Member for Hitchin and Harpenden gave some telling figures for the national health service, which I myself had noted down to cite. A 37 per cent. increase in expenditure on the NHS since 1999 has produced an increase of a fraction under 5 per cent. in the number of completed consultant episodes. Despite that huge increase in expenditure, average mean or median waiting times in the NHS have been extended. I shall not spend a long time talking about the NHS today, but a key reason for those problems—quite apart from the cost and salary issues in the service itself—is the Government's unwillingness to face up to the crisis in the residential care sector, which is backing up into hospitals and manifesting itself in the NHS as blocked beds. There are 13 per cent. fewer beds for residential care of the elderly available in the UK today than there were in 1997. We do not need detailed knowledge of that subject to know that demand is rising for that aspect of care. However, under the Government's watch, the availability of such care has been reduced by 13 per cent.
Those examples are aspects of a much bigger problem with the efficiency of public sector operations. The inefficient use of money in the public sector is a problem in itself, because it undermines the quality of services. It is also a problem for the wider economy, because it ties up in the inefficient delivery of core public services—whose importance we all understand—resources that could otherwise be used to assist the general productivity of the economy and deliver improved living standards to all.
That is why the shadow Chancellor, in the speech that the Chancellor took 20 minutes to reply to today, stressed that the Conservative priority is now to ensure that, in the core public services of schools and the NHS, we provide space and political support for the reform that the Prime Minister and the Chancellor say they recognise is needed but for which they have lost the political will. The reality is that the Government will not deliver world-class public services. Furthermore, by failing to do so, they will undermine the productivity of our wider economy. They will go on doing that until they address the need for real reform and real productivity enhancement within the public services.
The central message of this Budget is that Labour will deliver more spending. The Chancellor made that crystal clear. That is lesson one. Lesson two is that Labour has lost interest in reform. There are two consequences of that: more tax and poor public services. I am pleased to say that my party is now starting to evolve a real alternative, which involves real reform and, critically, better-funded public services. We offer better public services and an end to Labour tax increases, and that will come not a moment too soon.
| Next Section
| Index | Home Page |