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Mr. John McFall (Dumbarton) (Lab/Co-op): It is a pleasure to be called in this fevered election atmosphere, but we must take a cool analytical look at what this Budget means. I certainly welcome the Chancellor's statement, because it shows an economy that is growing strongly. The Government are also meeting their fiscal rules for public finances; that is a very important issue for the Select Committee on the Treasury, which I chair.

I am also delighted to see that there is a long-term investment programme to deliver 21st-century facilities in primary schools, to increase support for information and communications technology, and to provide help for young people. Mention has been made of China, to which I shall return. It is important that we upskill in order to compete with the markets and developing economies in China and elsewhere in Asia, which are increasingly high-tech. From the Treasury Committee's point of view, the reduction in the regulatory burden is also extremely important. When the Chancellor comes before the Committee next Tuesday, we will doubtless ask him how he intends to reduce that burden.

I welcome the modest fiscal tightening in the Budget, particularly given the backdrop of potential global instability. I cite two major issues: first, the growing US current account deficit, which is now 6 per cent. of the entire US economy and is reaching $700 billion; and secondly, the oil price hikes of the past few months. Oil prices have recently exceeded $50 a barrel, and we must bear it in mind that every jump of $10 takes half a percentage point off the annual global growth rate for several years. So events in the wider international community impact on our own economy.

In the past few years, the Treasury Committee has been concerned with issues such as the labour market. Our report states that the evidence that we received suggests

"that migration into the UK has played a useful role in relieving skill shortages in the labour market and boosting non-inflationary growth."

Indeed, although factory-gate prices are increasing, prices in the shops are not, and much of the reason why is the impact of such migration on our economy. In considering this issue, it is important to look at the experience of countries such as the United States, which has a generally young population, an immigrant community and economic growth. I hope that we look at this issue in a sensible, rather than emotive, way during the election campaign, because increased migration can provide an economic generator.

As the Chancellor said, we need to increase the UK's skills base to meet this competitive challenge. The Treasury Committee has devoted time to considering this issue; indeed, as recently as two weeks ago we visited China, in the wake of the Chancellor's own visit. We have also been examining the operation of the golden rule and the fiscal cycle. As our report points out—it is important for the Chief Secretary to the Treasury to hear this again—

"we believe the Treasury should clearly inform Parliament in a timely fashion of its preliminary analysis that the cycle has ended. To delay making an announcement, potentially for several months, to the next Budget or pre-Budget report, would not be in the interests of informed public debate."

I hope that the Chief Secretary will take that observation back to the Chancellor.
 
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The Treasury Committee has also looked at spending in general and end-year flexibility. As a Back Bencher, I welcome increased spending on education, health and public services, but the Committee has found

"that some departments, local authorities and public corporations are still failing to deliver capital spending at the planned level . . . We recommend that the Treasury take further action to improve the management and delivery of public sector investment and to monitor its effectiveness closely."

That way, we can counter the argument that such spending increases achieve nothing. We want to ensure that such spending leads to solid outcomes. However, the Treasury has work to do on that issue.

In the past year or two, the Treasury Committee has also focused on the issue of tax avoidance. Our report states:

"The Paymaster General's announcement that future legislation to outlaw future income/NIC avoidance schemes . . . will be backdated to 2 December 2004 raises significant issues . . . It would be helpful if, at this stage, and without jeopardising their position, the Inland Revenue were to publish a paper setting out their thinking on the principles which will guide future decisions as to whether a scheme is reckoned to be within or outside the terms of the announcement."

The publishing of such a paper could preclude further recourse by individuals and companies to the European Court of Justice.

The Government need to focus a great deal more on excise duty avoidance. We published a report on this issue as recently as yesterday, and we found that losses from excise duty fraud total some £4 billion. The revenue loss from tobacco smuggling alone is estimated at £1,900 million a year. The Treasury and the Government still have a long way to go to in clamping down on such fraud.

I mentioned that the Select Committee visited China, and while there we took the opportunity to talk to its Customs authorities. They told us that in the past year or so, they had closed down 2,000 illicit cigarette manufacturing factories. There is a huge trade in that area, but we were a little dismayed to find that the Customs officers were based not in China but in Hong Kong. Given the burgeoning market in China, it is important that we have a Customs and Inland Revenue presence in China. I ask my right hon. Friend the Chief Secretary to consider that point.

In fact, duty is paid on only three out of every 10 packets of hand-rolling tobacco consumed in the United Kingdom. That is a matter of very serious concern. The illicit market share for hand-rolling tobacco has been above 30 per cent. for each year since estimates have been available—and the figure is rising, thus indicating, in the view of the Treasury Committee, that the level of tobacco smuggling is, to put it mildly, extraordinarily high.

We also considered alcohol fraud. The latest estimate of fraud involving spirits—£250 million a year—is obviously of a different magnitude from what we see in tobacco smuggling. However, as we noted in our report, given the compliance costs of introducing tax stamps—£7 million a year in start-up costs and £5 million a year thereafter—such proposals should not be considered as a disproportionate response to the problem. I look forward to an increase in the very positive engagement
 
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that has taken place between the Scotch whisky industry, other alcohol producers and the Government to ensure that we clamp down even further on such tax avoidance and the smuggling of alcohol.

One of the various groups that the Chancellor considered in his Budget speech was pensioners. What we regularly hear in such debates is the pejorative term "means-testing". I am a Member of Parliament with a constituency that includes a high percentage of pensioners who have benefited from the proposals that the Government have introduced since 1997, and hon. Members should not talk to me about means-testing. My constituents welcome the extra money that they have received. They welcome the winter fuel allowance. It is very important to realise when we talk about means-testing that everything in life is means-tested—income tax is means-tested—so individuals are rightly entitled to those benefits and moneys.

In 1997, single pensioners had an income of £67, but they now have a minimum income of £105. That 40 per cent. increase is hugely welcome to pensioners, and I want the Government to pursue the strategy of pension credit for the time being. As the Turner commission report says, that is not the solution for the long term, but it is certainly the solution for the short and medium term.

John Barrett: Does the right hon. Gentleman agree that there is a very serious problem with those who are entitled to those very benefits but are not yet getting them? The poorest of the poor are not just those who are entitled, but those who are entitled but not receiving.

Mr. McFall: Just over 3 million people are entitled to pension credit and well over 2.5 people get it at the moment. Yes, some people have still to get the credit, which is why it is important for all hon. Members, not just Government Members, to run road shows in their constituencies, along with the pension credit personnel, to ensure that people apply for those credits and get their entitlement. If the hon. Gentleman is asking whether we have a way to go, the answer is yes, so it is important that we all work together in our constituencies to get that message across to pensioners and community groups.

It is worth considering whether pensions should be allied to earnings. I have worked out that between 1997 and now the net pensioner income has increased by 19 per cent., and net earnings have increased by 12 per cent. In other words, pensioners have had a seven percentage point increase above the inflation rate as calculated using the retail prices index, so the link to earnings virtually exists. If we went back to a flat rate for all pensioners, we would find that 30 per cent. of pensioners at the bottom end of the scale would be hugely deprived as a result. The need to pursue the Government's policy is extremely important.

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