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Dawn Primarolo: I have been listening carefully to the right hon. Gentleman, and I acknowledge the cumulative effect of regulation. Most regulation is about inspection. I presume, therefore, that he would agree with the proposal thatin looking at regulation, at the inspection behind it, and at the impact of regulationusing a risk-based analysis is a far better way to proceed, in terms of having contact with business when necessary. Does he also agree that there needs to be a full discussion on this issue, with business as well, as has been suggested by Digby Jones?
Mr. Maude: I do not dissent from the principles that the right hon. Lady sets out. Her analysis is broadly right, but I would enter certain caveats. This is a matter of great concern, and I hope that we shall be able to pursue it in this debate. One caveat is that, while it is certainly helpful for a business to be visited by only one inspector rather than 10, we know from experience that inspectors often require businesses to do conflicting things. For instance, a building regulations inspector might tell a business to put a door in, only for a fire inspector to come along and tell it to take it out again. The one-stop shop has benefits, but I would counsel caution in that regard. When we combine inspectorates, it is very easy for them simply to become a much bigger, more treacly bureaucracy with higher costs. The tendency for inspectorates and enforcement agencies to become self-financing means that the fees and costs to business will then multiply. So I do not disagree with the right hon. Lady, but I urge caution in relation to that proposal.
Mr. Peter Luff (Mid-Worcestershire) (Con):
On risk-based assessments, does my right hon. Friend agree that the regulations governing business pop up not only in the Department of Trade and Industry and the European Union but all over the government machine? One example is the risk-based assessment involved in the provisions of the Licensing Act 2003. Circuses will have to comply with the Act, but fairgrounds will not. Where is the greater risk of public disorderat a fairground or at a circus? Circuses could be destroyed by the Act's requirement for a licence for every circus and every
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venue, while fairgrounds will get off scot-free. The Government talk the talk, but they do not always walk the walk.
I do not want to dwell on regulation, but the Chancellor seems to have had a bit of a deathbed conversion on the issue. Having done very little to stem the flow of regulation over the past eight years, he has suddenly spotted the fact that it is a bit of a problem. My concern is that the state is beginning steadily to take an ever-larger share of the nation's income to spend on the nation's behalf, and to intrude more into the nation's life. Regulation is one important aspect of that, in regard to wealth creation.
Mr. O'Neill: I have been listening to the right hon. Gentleman's analysis of the impact of regulation on economic growth. Are there any other areas that he is proposing to explore? I would have thought that the damage done by the low value of the euro against the pound for about two and a half years retarded a lot of our manufacturing capability, and that that would have been a major contributory factor to the lower level of growth in 2001, 2002 and 2003.
Mr. Maude: There is no evidence to show that the reversal of that has contributed to a huge manufacturing revival. Manufacturing industryindeed, any exporting industryin any country has to cope with the vicissitudes of exchange rates. It has often been said that the huge growth in Japanese exporting took place at a time of steady appreciation in the value of the yen against world currencies.
My point is about the general tendency for the state's take from, intrusion into and share of national income to increase. Its share of national income is 45 per cent. this yearup 8 per cent. from its low point and still rising. That has an impact on Britain's competitiveness. It has been well trawled and often repeated that Britain has fallen from No. 4 to No. 11 in the world competitiveness league. That reflects something real that is going on: businesses now experience more difficulties in creating jobs and wealth here than they did previously. There is clearly some correlation between the larger state and slower growth. That is not absolutely iron-clad but it is generally true.
Let us consider the United States, Australia, and, closer to home, Ireland. In all those countries the state's percentage share of national income is in the mid-30s. Those three countries have significantly higher growth than Britain. It is not difficult to explain why. The wealth-creating sector here has to work harder to create the wealth and the jobs to grow further.
After inflicting such constraints on the economy, the Chancellor now comes along and says that he will alleviate them. After giving us the headache, he now offers an aspirin. Although that is welcomedeathbed conversion is better than noneit is late in the day and there are anxieties about whether the current rate of economic growth can continue.
The Labour party made much of productivity when in opposition. Labour Members said that they were determined to increase it, but that has not happened. As
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I understand it, productivity is rising at about half the rate at which it was increasing when the Government came to office. That should not be the case because we are in a much more benign interest rate environment for investing in productivity and improving plant and process.
It is always interesting to note what is not mentioned in the Budget papers. One has to look hard to find any figures that relate to productivity in this year's papers. What is called the Red Book, because it used to be red, includes a large chapter entitled, "Meeting the Productivity Challenge". There is therefore at least a recognition that a problem exists. However, the Government have not recognised that they are part of the problem and of the reason for the fall in productivity growth, which is so important to consider, since they came to office.
My central point is that there is no bigger prize for the economy than steadily getting an extra 0.5 per cent. of economic growth, year after year. If the trend rate of growth increases, the Government are enabled to do much more. All the arguments about whether the Conservatives will spend £35 billion less than Labour pale into insignificance compared with that. They become academic if there is 0.5 per cent. or 0.25 per cent. growth.
The difference between the parties is that we believe that public spending should increase by a little less than the speed at which the economy is growing and the Labour party is content for public spending to increase, year after year, by a little more than the economy. That is a malign development for the economy and is likely to depress the trend rate of growth, no matter to what the rest of the economic environment points.
Our approach is likely to increase the trend rate of growth, and that is the biggest prize that there is for the country and the Government. Much has to be done to enable that to happen. The state has to be restrained in its spending and regulations. Savings must increase, but the savings ratio has halved since the Government came to office. What is happening? We all know about the raid on pensions and the reduction in the real value of individual savings accounts. The hon. Member for Ochil declined to be drawn into a discussion about the effect of the raid on pension funds in the first Budget that the Chancellor introduced. It may be just coincidence that the acknowledged deficit in pension funding today is roughly equivalent to the accumulated tax take from pension funds introduced at that time, but it does not strike most people as coincidental. There is a real penalty there. The savings ratio has fallen, and nothing in the Budget will increase it.
My hon. Friend the Member for Havant referred to the deficit, and a number of my hon. Friends and others have talked about the fallibility of the Chancellor's forecasts for borrowing. He might just squeak into compliance with the golden rule within the cycle, but as it is up to him to decide when the cycle begins and ends, that is pretty meaningless. If he is right in his predictions of growth in the economy, we are still in the upturn of the economic cycle. It is very worrying that there should be such a large structural deficit in the public finances at this stage in the cycle.
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Why has this come about? Not because taxes have not risen; they have risen, and continue to rise. The Chancellor had the idea that he had somehow discovered the secret of perpetual motionthat he could keep the economy growing by endlessly throwing taxpayers' money into the machine. He is rather like the man on the fender of the steam engine desperately shovelling coal into the boiler to keep the engine going. The coal that he is throwing into the boiler is, of course, public moneytaxpayers' money. It is public spending, ever increasing. Week in, week out, the public sector jobs supplement in The Guardian becomes larger. It is not possible to go on increasing the burden of the state that the wealth-creating sector must carry.
One of the damaging things that the Government have donethis too results from their belief that they have discovered the secret of perpetual motionarises from their declared intention, before the 1997 election, not to raise taxes. As the hon. Member for Ochil pointed out, that led to a tendency to impose stealth taxes, which in turn led directly to a huge increase in the complexity of the UK tax system. Furtive attempts are made to hide the taxes that have been imposed, which creates that complexity. The annual Finance Act was not a slim volume when I was a Treasury Minister all those years agoor, let us admit, an enjoyable readbut it was very much thinner than it is nowadays.
The complexity makes life more difficult for the wealth-creating sector. It creates jobs, yes, but for tax lawyers and tax accountants. That is not to the good of the economy, although it is to the good of their economy, perhaps. The Inland Revenue's budget for administering the system has more than doubled in real terms in the last five years. Capital gains tax has become easily the most complicated tax: the Inland Revenue itself could not work out how to implement it. There is a huge amount of confusion.
That is partly to do with the Chancellor's obsessive tinkering with detailhis delight in micro-engineering. But, as I have said, it was also driven by a constant need to raise taxes by stealth. There is also a further implication to consider. There was an exchange earlier about the lack of buoyancy in tax revenues, and the fact that the Chancellor's revenues had consistently under-delivered. I think that that too has something to do with complexity. A good tax system is simple, transparent and open, with low tax rates.
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