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David Taylor: The right hon. Member is numerate and a former Treasury Minister. I am sure that he will acknowledge that if figures of this scale are out by £12 billion—in an economy of £1,200 billion that is 1 per cent.,—that is hardly to be criticised, because of the uncertainty about the levels of revenue that will accrue from the taxation system.
Mr. Jack: The hon. Gentleman is right. When we compare the big figure of receipts with the big figure of expenditure, what is left in between is a small figure. That has always been the case. However, having worked so hard in the last four years of the Major Government, and recognising that the Chancellor accepts the importance of a prudent approach to the economy, when one starts to see the cumulative effect of borrowings mounting up considerably above previous projections—and with the inevitable fact that they will have to be repaid somehow if the sort of prudent approach that the Chancellor wants us to support is to be maintained—it is right to question the methodology by which one can accurately predict growth within the Treasury model, but not borrowings.
I mention that because in the "Financial Statement and Budget Report" the Chancellor looks to substantial growth in, for example, corporation tax revenues to underpin his overall growth. Yet he is looking between this financial year and the next for a £9 billion increase in corporation tax receipts. If that is multiplied by three—the average rate of corporation tax is around 30 per cent.—he is looking for an increase in taxable profits of around £30 billion in the UK year on year. There will be some windfall gains from the oil sector, but it is evident that in the retail sector, for example, there are problems and there may not be sufficient revenue to give the Chancellor the sort of lift of taxable profit that he is looking for.
Again, if the Chairman of the Treasury Committee were here—I know that he has probed the Treasury on the modelling methodology that it uses for tax revenues—I would ask him some important questions about whether the numbers that underpin the Chancellor's position are correct.
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Mr. Jack: I shall give way for the third time.
David Taylor: The right hon. Gentleman is very generous in giving way again. He will recall the debate about the background to the merger of the Inland Revenue and Customs and Excise, as he contributed to it. The gap in revenue that the two departments can levy from business and taxpayers is widely accepted as about £35 billion a year, so £9 billion is just one hesitant step across the bridge.
Mr. Jack: I return to a point that I have made before. I have acknowledged that receipts and public expenditure both involve big numbers but that in between there are some smaller numbers. Part of running a successful economy is about the credibility of the numbers that are published. Markets determine exchange rates, as the hon. Gentleman knows, and indeed have a profound influence on interest rates. If they believe that the numbers are right they can decide if they are going to support the Chancellor of the day. I am raising the question of how correct the numbers are, because if they are proven by subsequent analysis to be incorrect, that undermines the Chancellor's position and could have an effect on interest rates, which by definition would have an effect on the rest of the economy. It is right in the context of a Budget debate to probe carefully the basis of the numbers that the House has been given and asked to accept.
May I apologise to the House for a discourtesy and an error on my part? I should have reminded Members at the beginning of my speech to look in the Register of Members' Interests to see my business interests. I apologise again to the House for forgetting to mention that at the outset.
I shall comment briefly on Gershon following my exchanges with the hon. Member for Wolverhampton, North-East. One of the things that worried me about the Gershon report was the fact that it did not analyse how the accumulation of £20 billion of overspending had occurred. Its starting point was "Here we are, so what can we do to try to reduce it?" If there is to be good government and control of public expenditure in future, work such as that by Sir Peter Gershon should provide analysis of why, in certain cases, overemployment and overdeployment of resources in the public sector occurred to the tune of £20 billion, which is equivalent to two thirds of Britain's defence budget and is a great deal of money.
I would like to look at some issues raised in the Chancellor's speech. He talked about the indexation of inheritance tax. My personal view is that inheritance tax has had its day, but I recognise that getting rid of it altogether has revenue implications. As an interim step, I urge the Treasury to re-examine the nature and structure of the tax to reflect the fact that house price inflation has increased substantially above the rate of indexation of inheritance tax. In that context, the Council of Mortgage Lenders recommends a threshold of £330,000, not the current £263,000. Personally, I would like a much lower marginal rate of inheritance tax and the removal of exceptions. If someone has money and good legal advice they can sidestep most of the effects of the tax. The structure of the tax means that the
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haves do not pay it but that the have-nots, for want of good legal advice, end up being caught. The Chancellor said that 94 per cent. of estates do not pay inheritance tax. That is a reduction. Last year, it was 95 per cent., and the year before, about 96 per cent. More people are caught and, given the importance of the house as an asset and given what my hon. Friends said about the pension situation, it is time to look at inheritance tax, particularly for householders.
The Chancellor mentioned a national energy network, and I was intrigued by that new creation because I support innovations in energy. However, I emphasise to those on the Treasury Bench, who have patiently listened to my remarks on biofuels, that I was disappointed that, again, there was no indication that the Chancellor was prepared to go beyond the current duty derogation to try to stimulate a UK biodiesel and bioethanol industry. Yesterday, I received a representation from the Iogen Corporation—a Canadian-based company—which made the position clear:
"Fuel duty reductions in themselves will not motivate the longterm investment needed to build a cellulose ethanol plant for commercial production"
I appreciate that consultations are currently taking place between industry and the Department for Transport and I urge the Treasury Bench to look at the matter again. If we are to meet our European targets for inclusion—they are targets, not directives—we will need a biofuels industry of our own. It is therefore important to encourage that embryonic industry off the ground, using United Kingdom raw materials to the benefit of our rural and, indeed, overall economy.
The Chancellor sensibly mentioned the need for further work to skill the economy. I agree with that. BAE Systems is my constituency's biggest employer and it survives on the talents of talented aerospace engineers. However, if the Chancellor wants to back high-tech manufacturing in the United Kingdom so that it provides the sort of technologies that will survive in a world dominated by competitors such as China and India, the Government will have to do more to sustain investment in technology, the development of new materials and new techniques in aerospace and, most important, ensure that they have contingent moneys should they decide to buy the Eurofighter tranche 3, thus enabling that commitment to be honoured. They should also do more to bring about a final assembly check-out facility and maintenance unit in the United Kingdom for the joint strike fighter, to keep our technologies fully engaged and ensure that Britain continues to be up with the best in the new arts of aerospace aviation—for example, unmanned air vehicles and stealth technologies. If the Chancellor's comments about reskilling and investing in new technologies cover that, I put a tick in that box. However, if they do not, one of our key future technology industries will be severely damaged, as will the economy of the north-west and the nation.
Mr. Geoffrey Clifton-Brown (Cotswold) (Con): Will my right hon. Friend give way?
Mr. Jack:
No. It is not that I do not want to hear my hon. Friend's point, but I wish to conclude my remarks in the light of the Deputy Speaker's comments a moment ago.
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I should have liked more on the environmental front to encourage energy saving, especially in the domestic sector. To that extent, I should have been happy for the landfill tax to rise because that would have accelerated some of the important work in recycling.
I fear that the Budget was tailored for the general election but that afterwards, the people of this country will pay the price. On this occasion, the Chancellor has not been as prudent as he should have been.
5.13 pm
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