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Sir Stuart Bell: When the hon. Gentleman was the Member of Parliament for Darlington, we used to go up on the train together and we had many a philosophical and economic discussion. From the Opposition Benches I welcomed the creation of both the urban development corporation and Teesside university. Will the hon. Gentleman accept that I am not part of the creationist school that believes it all began in 1997? The former Conservative Government greatly helped our area. That goes back to Lord Hailsham's visit in 1962.
Mr. Fallon: I am glad the hon. Gentleman has corrected what he implied earlier. Let us end this little exchange, which I fear may be diverted into regional policy going back over a long period, by agreeing that improvements such as those on Teesside, which I welcome, take a long time.
I also welcome the economic growth that the Chancellor announced today. Of course it is good news that he was more correct than some of the forecasters a year ago. However, I have two worries about that
economic growth. The first is the concern to which my right hon. Friend the Member for Hitchin and Harpenden alluded: that we have yet to see the increases in productivity that we would expect to see given all the governmental activity over the past seven years. My right hon. Friend pointed out the proportion of that growth that could be attributed simply to the increase in the working population. The United States has had a similar increase in its working population, but its productivity gains have been much greater and sustained over a longer period.Like my right hon. Friend the Member for Charnwood (Mr. Dorrell), I found little mention of productivity in the Chancellor's speech. Usually in the blizzard of documents that accompany the Budget, there is at least one special document on productivity. This time there is not. On the contrary, there are documents on flexibility and devolved decision-making. Productivity seems to be confined to a table—a box—in the Red Book.
It is worth re-reading to the House the sentence that my right hon. Friend the Member for Fylde (Mr. Jack) quoted from the Red Book:
- "workers in the US are still just under 30 per cent more productive than UK workers."
My second fear is that the growth that we have achieved is remarkably lopsided. It would have been nice to have had some acknowledgement from Labour Members today of just how crucial consumer spending and household debt has been to the growth that has been achieved. That worries me because there will come a time when that begins to end, when private debt begins to be curbed and paid off and when home owners slowly but surely begin to realise that the principal sums that they have invested in their homes will no longer be magicked away by high inflation, but will remain there for ever and have to be paid off. The over-reliance on consumer spending and home owner debt leaves our economy dangerously exposed.
At the same time, we have had a massive increase in public spending and we still seem to have a structural problem with tax revenues that leaves the economy even more vulnerable. Instead of curing or examining the structural issues, the Government are simply borrowing more and taxing more. Borrowing, as my right hon. Friends who have spoken before me have said, has gone up and up. It was supposed to be less than £20 billion; now it is £37 billion. In fact, having squandered all the receipts from the third generation licences, the Chancellor is back borrowing where he started. The figures that he has given the House today of how that borrowing, having reached the dizzy heights of £37 billion, is now planned slowly to reduce during the next three, four or five years, wholly depend on him achieving the efficiency savings that are set out and increasing the tax compliance by the various measures that he has outlined.
I have to take issue with my right hon. Friend the Member for Charnwood on one point. He said that he welcomed the fruits of the efficiency saving. They are, however, only fruits—they may be low-hanging fruits, but they are not yet realised. In welcoming his successor's arrival today at the Office of Government Commerce, Sir Peter Gershon described the 2.5 per cent. efficiency gain that is to be applied right across the public services as challenging but achievable. I think that it is extremely challenging, and the Government are in effect spending money that they have not yet saved. We cannot yet be sure that those efficiency gains will materialise.
Mr. Plaskitt: The hon. Gentleman describes a level of borrowing that equates to 3 per cent. of GDP as "dizzy". What adjective would he use to describe a borrowing level that was 8 per cent. of GDP under his Government?
Mr. Fallon: What is important when we are describing borrowing is to get our forecasts right. I am not the Chancellor. The Chancellor is in charge of the economy and his credibility is undermined if he tells us one year that borrowing will be £10 billion, then suddenly it turns out to be £20 billion, then £30 billion, and by the end of the year in question it reaches £37 billion. That is what makes the rest of us question his economic competence.
When it comes to borrowing, the Chancellor cannot be sure that those efficiency savings will be locked in. To give a specific example, we have been told that 20,000 jobs will be relocated, so there will be savings. Of course there will be savings, but anyone in business knows that those savings are always further down the track than one thinks, and they are never quite as great as one originally planned. The people concerned have to be relocated and there are costs involved in all that. It is far too easy simply to say, "We'll move 20,000 jobs out of London, get rid of 40,000 people and savings will be realised immediately."
When Chancellors, of whatever party, are in difficulties over their fiscal stance, they say that they will crack down on tax avoidance and put more resources into Customs and Excise or the Inland Revenue to increase tax compliance. Again, those are targets, not givens. It is unwise of the Chancellor to assume that efficiency gains and additional revenue will automatically result from the measures that he announced.
Whether or not we like the phrase "freezing rates", it is clear that the overall burden of taxation has been increasing and will continue to hurt. The Chancellor paid little attention to where the burden is beginning to bite. I shall give three examples. First, more and more people, especially public sector workers, are being sucked into the higher band. A generation ago, it would have been inconceivable to consider police inspectors or ward sisters as the rich, having to pay the same tax rate as the richest people in our society. Now, almost 3 million people have to pay the higher rate of tax. That needs to be reconsidered.
Secondly, too many people low down the income scale pay too much tax. As soon as people earn only a few thousand pounds a year, they pay too much tax, and the tax for the relevant band has been increased today
by £60. People who earn £10,000, £12,000 or £15,000 a year should not have to hand over a third to the Government. We need to reconsider the tax burden imposed on the lower paid. All the tax credits and the attendant additional complexities do not compensate for the fact that we make people pay more lower down the scale than do many of the more successful economies.
Mr. Jack: Does my hon. Friend know about the Centre for Policy Studies research, which shows that the poorest fifth of the population pays an average of 42 per cent. of their income in tax?
Mr. Fallon: I am aware of it now. That is an important point and I should like to have heard more about that from the Chancellor, who simply brushed aside the 10 per cent. rate.
Thirdly, pensioners pay too much tax. Of course, £100 here or there to redress the enormous increases in council tax imposed mainly by central Government or Labour councils may be welcome, but pensioners' savings are too harshly taxed. People are taxed throughout their lives on their earnings, and they are taxed yet again at the end of their lives on what they have managed to save.
The tax burden should be reformed and reduced because it has become too great and too complex. We need to continue to simplify it. We have had a stop-go system, whereby the Government introduced reliefs and suddenly shut them down.
Previous speakers mentioned the film tax relief, which was introduced in the late 1990s and has suddenly been withdrawn, leaving British film makers in the lurch. Let us consider the incorporation changes that were introduced in finance legislation a couple of years ago. In this year's pre-Budget report, the Chancellor states that
- "the Government is concerned that the longstanding differences"
Let us consider spending. The Chancellor has announced again today additional spending all over the place, with no real emphasis on control. It is clear from the various points made by my right hon. Friend the Member for Hitchin and Harpenden that far too little expenditure is getting through to the front end and resulting in real increases in output and performance in the public sector. To see that, we have only to turn to a Wednesday edition of The Guardian, whose "Society" supplement shows how much bureaucracy of para-government—advisers, co-ordinators, liaison workers and taskforces—have been created at the expense of those who work at the sharp end in our hospitals, on division in our police areas and in our classrooms. The record is one of dismal failure. As my right hon. Friend the Member for Charnwood said, we have had seven years of talk about public service reform, but little real reform.
Instead of action, we have had a book. I hope that you, too, Mr. Deputy Speaker, received last week a copy of the Treasury's new 438-page book entitled "Microeconomic Reform in Britain"; I believe that it was sent to most colleagues. Like everything else that the Government produce, it has no price on it, but it contains a lengthy foreword from the Chancellor and is vanity publishing at its best. Almost at the end of the 438 pages, we are finally told the answer to micro-economic reform, after passing references to last year's fad: progressive universalism. Under that wondrous new system, the Government have spent £18 billion on child trust funds, half of which goes to those who do not need it so that those who do need it get a little extra. Progressive universalism is a way of chickening out of some of the more important political choices by continuing to pay a benefit to everyone, then simply deciding to pay more of it to those who need it most. That was last year's fad.
This year's fad in micro-economic reform is—I quote from the conclusion of this masterwork—the constrained discretion model. It is the new answer to public service reform and means, apparently, the Government setting out the objective and then—wait for it—the
- "devolution of operational responsibility to front-line agents".
If the Government are serious about devolving decision making, and about taking their constrained discretion model and making a reality of it, they must tackle the regulatory burden that they themselves have imposed on our economy and public services. When we talk to business and public service managers—Ministers do not do that often enough—we hear that their principal complaint is now the burden of regulation imposed on them. I find very little indication in the Red Book that the Government are serious about reducing that burden.
I do not pretend that reducing the regulatory burden is easy. Our deregulation taskforce, of which I was a member, attempted that; the Government now have their Better Regulation Task Force. I am intrigued to see that the chapter on regulation in the Red Book is—finally—entitled "Reforming and reducing regulation". However, when we look at paragraphs 3.59 and 3.60 of that chapter to see what is actually going to be reduced, we see just three specific proposals.
First, after the hundreds of thousands of pages that the Government have imposed on businesses and the public services over the last seven years, they now tell us that they will consult the construction, chemical and retail sectors on an "early warning" system, whereby those industries could discuss
- "emerging policy and regulatory proposals".
Perhaps we shall get there, however, because after a two-year review, the third proposal is that the Government will make it easier for citizens advice bureaux to advise their clients without being subject to Financial Services Authority regulation. So, that is good news. After seven years, we finally have a specific proposal for deregulation. The Government must start to get serious about this matter.
The Treasury Committee is conducting an inquiry into the compliance costs of tax and regulation, and I should like to share with the House the fruits of part of that inquiry. We went to Holland, which has a programme of reducing regulation and legislation. In the Dutch Finance Ministry, we met the "director of legislative burden", who had a staff of 17 people and a mandate from his Government to reduce the burden by 25 per cent. over four years. That is a Government who would appear to be serious about reducing the regulatory burden. As I have emphasised, that burden applies as much to the public sector as to the business sector.
We have had seven years of regulating, spending, borrowing and taxing, and the Chancellor has come almost to a full stop. He has spent more without getting real reform, he has borrowed more without securing real improvements in our infrastructure, and he has taxed more without making our public services more efficient. This is a dead-end Budget from a dead-end Chancellor.
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