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Mr. Fallon : And compulsory.

Mr. Maude: Absolutely. If there are low tax rates and simplicity, people do not object so much to paying, and in a transparent system it is much less easy to avoid paying. The only people who suffer as a result of that are those in the tax avoidance industry. The economy benefits because people do not mind paying tax, and will bring wealth-creating activity here. The system is easier to administer, so there is less of a cost burden.

The Government's revenues are more buoyant. It is a benign cycle, but complexity now permeates. It is shot right through the tax system. It is one of the reasons that tax revenues are consistently under-delivering, which is compounding the Government's problems.

My last point flows from that. It is about honesty in politics. A huge number of people feel alienated from the political process. That is commonplace now. They
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react against the hysterical exaggeration in which we tend to indulge in this place, and outside. In truth, there is a relatively slight divergence in the trajectory of the public spending that the Labour party project and that we commit to, but it reflects a difference in the underlying character of a Government, who are defined by the aggregation of all the small decisions day by day.

Labour wishes to convey the sense that the Conservatives have a slash-and-burn approach to public services, which is manifestly not the case. When I was an Opposition Front Bencher debating the pre-Budget report of 1999, I said in terms that the Conservatives supported the increases in health and education spending. Half an hour later, the Chancellor said precisely the reverse—180 degrees, black and white. It is difficult to conduct serious political discourse in a way that the public can engage with and respect if a reluctance to engage with the truth and to respect opponents pervades the system. I also remember the Government's dogged refusal to accept that the tax burden was rising until the Prime Minister let that out inadvertently.

In the interests of democracy I urge that the argument be conducted on an honest basis, without exaggeration or hysteria, so that we can offer the country a civilized, sensible choice, not a choice between extremes. This is certainly the Chancellor's last Budget. It is a fundamentally dishonest one because he has not come clean about the state of the public finances. At the risk of relapsing into soundbitery, I have to say that if people vote for the Budget in the House and in the country, they will pay later.

3.57 pm

Mr. Archie Norman (Tunbridge Wells) (Con): I draw hon. Members' attention to my declaration in the Register of Members' Interests.

I arrived in the House about eight years ago. About the time of the then Budget, I made my maiden speech on the subject of enterprise and competitiveness to an audience of about the same number of hon. Members as I find in the House today. In fact, I rather flatter myself that, over the eight years, I may have picked up an extra hon. Friend or two to listen to what I have to say.

It is a great pleasure to follow my great friend, my right hon. Friend the Member for Horsham (Mr. Maude), and the hon. Member for Ochil (Mr. O'Neill), both of whom made thoughtful and measured speeches. Overall, this is a fairly unimpactful Budget full of comparatively superficial measures. The hon. Gentleman described it as thin in content.

Mr. Luff: Perhaps that lack of impact explains the lack of Labour Back Benchers in the Chamber.

Mr. Norman: That is a good point. I imagine that the lack of Labour Members reflects their enthusiasm for the Budget. Perhaps the Minister would like to comment on that when she sums up.

Dawn Primarolo: I assume that Labour Members are taking the good message out to the constituencies and that the lack of Members on the Conservative Benches indicates that they feel that there is nothing to criticise in the Budget.

Mr. Norman: I am not sure whether we can fruitfully pursue this subject. The numbers on either side reflect
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the strength of feeling about the Budget, which will be reflected in the debate. As the hon. Member for Ochil said, the Budget is thin in content, as is perhaps unsurprising immediately before an election. It is unusual in that it does produce a slight increase in taxation; I think the Chancellor described it as "fiscal tightening." Much of that increase in the burden is borne by the business community, which again reflects on competitiveness.

The Budget continues the Chancellor's relentless theme of the strength of the economy and the importance of maintaining and building national competitiveness. We see in the public finances how his plans for public expenditure absolutely depend on improvements in competitiveness, because it is only thereby, from corporate revenues and profits, that the revenue will be generated to pay for the continued growth in public spending. As the hon. Member for Ochil said, in a very statesmanlike way, the public finances are hanging by a thread—his words not mine.

Over the past eight years, according to the World Economic Forum, we have fallen from fourth place in the world competitiveness league table to 11th. My right hon. Friend the Member for Horsham has said that, in terms of annual productivity growth, the average under the last Conservative Government was 2 per cent. per annum. Over the last seven years, the average has been 1.5 per cent. during a period when, if anything—because of the stage of the economic cycle—productivity growth should have been higher, not lower.

The pillars of the Chancellor's argument about competitiveness revolve around education, research and development, science, investment in public infrastructure and the regulatory burden. I want to concentrate on those pillars in my speech. They reflect the way in which the argument is laid out in the Red Book.

Both sides of the House support the continued investment in education, which is fundamental to our future competitiveness. There were many aspects of what the Chancellor said that we welcome, including, in my case, the investment in Sure Start, which has been beneficial. I am interested in the allusion that he made to extending the school-leaving age, if that ever proved to be affordable. I welcome the investment in capital spending in further education colleges after some years of decline. The performance of FE colleges is mixed and the numbers in further education workplace learning have declined in the last few years.

Digby Jones of the CBI has pointed out that there is a decline in the commitment to science in schools and that the numbers of children taking science-based subjects after 16 has declined. In addition, pass rates and standards in mathematics in schools have declined and we are witnessing a decline in the performance of most of our universities in the world league table. It is hard to conclude that there is anything in the Budget, or anything happening more broadly, that will lead to significant improvements in competitiveness.

On the second major item identified in the Red Book    as related to competitiveness—research and development—the poor record of this country in that area continues. I recognise entirely that that is not a trend that started with this Government—it preceded them—but there has been no tangible reversal in the underspend of British industry on it compared with
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what happens in other countries. Last year, according to the Red Book, we invested 1.9 per cent. of GDP in research and development, which represents a decline as a percentage of GDP against the previous period. The Red Book anticipates that it will grow by 2 per cent. less than the rate of GDP, so we expect research and development to continue to decline against GDP in total and against our major competitors. We start from a position where our research and development expenditure is lower than that of most of our major competitors including France, Germany and the United States. The position is not strong and is getting worse, yet the Government say on page 63 of the Red Book that investment in research and development must rise if we are to improve our competitiveness. The score card on R and D is depressing, though I recognise that it is not an easy problem to solve. I support the position taken on research credits, but R and D is a serious problem that must be tackled more seriously than it has been in the Budget.

The third subject that I want to deal with is public services and the public sector balance, to which my right hon. Friend the Member for Horsham referred. My particular theme is public sector absorption of resources. The Chancellor's projections on the growth of the economy and his views on the anatomy of that growth are very clear. However, rather than seeing an enterprise and business-led recovery in economic growth, we are seeing the reverse. GDP growth is not being led by business, but driven by a growth in consumption and an increase in Government expenditure.

In fact, on the Government's own projections in the Red Book, consumption is intended to account for about a third of the future growth in GDP—incidentally, a rate that almost certainly means continued dissaving by private individuals and a further diminution in the amount that private individuals put aside for their retirement and the future. Of the 3 per cent. annual GDP growth, only 0.5 per cent. is the result of business investment. The Chancellor is seeking to create a future growth pattern in which the public sector continues to grow, private individuals continue to dissave and business sector growth is comparably slight. That is why so many people are worried about the future generation of tax revenues from corporate profitability.

As a percentage of GDP in this country, business investment is either declining or static and growing far more slowly than Government investment in capital. According to page 71 of the Red Book, the lack of business investment in comparison with Government investment is a cause of Britain's low productivity growth. Much of the analysis in the Red Book is right, but the problem is that nothing in the Budget will deal with it. The public sector absorption of resources is such that there will come a time when even a Labour Chancellor must assess the right balance and question the extent of continued growth in the state sector of the economy and in state employment.

At the moment, the vast bulk of new jobs created in the economy are driven by the Government, and more and more employment is based in the Government state-run sector. According to most estimates, it currently accounts for about 25 per cent. of all jobs—both direct
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and indirect. According to the Red Book, it will inevitably grow further, despite the Gershon efficiency savings that the Chancellor mentioned, because they will be completely overwhelmed by the number of new public sector employees. Yet that sector of the economy is associated not just with the lowest rate of productivity growth, but with declining productivity, so it acts as a drag on the economy.

I venture to suggest that the public sector also accounts for the worst employment practices and the lowest work force morale. It is by far the weakest management sector and has by far the highest trade union membership, which may or may not be a measure of the state of morale and management practices in that sector. More than half of all trade union members in Britain are in the public sector. Presumably, that is why the Chancellor wants to shove £65 million into an absurd union academy, which should be paid for by the unions and their officials, not by other taxpayers, most of whom are hard-working people who have chosen not to join a union.

There is nothing in the Red Book or the Chancellor's measures to address the problem of the declining productivity of the public sector or to deal with the weakness of the management and stewardship of our major public services. I want to make it clear that I am not an opponent of public service management or public servants. Neither am I dismissive of the challenge to make public services better run, better places to work and a better means of servicing our citizens, but we cannot tackle that unless more serious attention is given to public sector productivity and unless we are more measured about how much money and future employment goes into the public sector. Otherwise, the sector will act as a considerable drag on productivity in the economy as a whole.

As long as we continue to drive the economy using public sector investment and employment and private consumption, it is inevitable that, in addition, the trade deficit will go up—it is now £57 billion—because those are very import-intensive ways of spending money. In aggregate, the pattern—the anatomy—of economic growth as forecast and intended by the Chancellor is, if anything, weakening our future competitiveness.

That brings me to the last pillar of the competitiveness strategy: the regulatory burden. I confess that I was thrown into consternation by the Chancellor's speech because he appears, as my right hon. Friend the Member for Horsham suggested, to have embarked on a damascene conversion of monumental proportions immediately before the general election, by announcing that he is going to adopt the Hampton report—in full, I believe—and the Arculus report, both of which are good, comprehensive and far-reaching in their consequences. I am tempted to assume that it is an attempt to convince the business and enterprise sector that the Chancellor has seen the light, given that this is, in all probability, his last Budget. I hesitate to suggest that there is an element of shallow electioneering involved, but we have heard quite a lot of it before in Budget speeches—the Chancellor talking about the number of regulations he is going to withdraw and how he is going to turn back the tide of regulation, but in reality we see nothing but the reverse.
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It is interesting that the Hampton and Arculus reports, both of which the Chancellor has apparently accepted in full, reflect the extent of the regulatory mess that we have got into. Indeed, the Hampton report refers to 674 bodies now administering regulations for enterprise in Britain, and to 600,000 inspections by 63 different national regulators affecting British business. It refers to 2.5 million forms filled out by small businesses on regulatory matters and 2.5 million further forms that they have to fill out to appease the local authority inspectors. That is an absolute torrent of paperwork, which is a tax on business time and, as my right hon. Friend the Member for Horsham said, it is particularly penal for small businesses and detrimental to innovation and creativity, to business change and to new business start-ups.

The chambers of commerce calculate the cost of regulation as £34 billion in aggregate. That figure is endorsed by the Arculus report and it has arisen under this Government. The Arculus report makes the point that, if we take the figure of £34 billion, then for a relatively modest investment and if it is possible to roll back these measures, there would be a 1 per cent. dividend benefit to gross domestic product by reducing the very regulation that the Government have imposed. By adopting the two reports, the Chancellor is talking about the most amazing revolution in thinking and behaviour by a Government who have shown absolutely no such inclination to date.

The two reports are not just general in their recommendations but also very specific. Perhaps when the Paymaster General sums up the debate, she will tell us whether the Chancellor has discussed the issue with his ministerial colleagues. I shall be interested to know whether they, too, are as committed as he is to implementing the reports, both of which have timetables for implementation. I should be interested to hear whether that includes not just the principles but the timetables, including actions that are scheduled later this year, in the event of the Government being re-elected, as well as the Bills that the Arculus report calls for, which have to be introduced in Parliament.

One of the Arculus report's central recommendations is the principle of one in, one out, so that for every new regulation that the Government produce, including all the benign proposals for better maternity and paternity benefits and so on, one should be withdrawn. Many Conservative Members will be very interested to hear what is on the Chancellor's shopping list of regulations to be withdrawn to compensate for those already planned for inclusion in the Labour manifesto.

Arculus also calls for a new Bill on deregulation orders to be brought in this year. I should be very interested to know whether that will be delivered, and to hear how progress will be measured. The two reports use rather statesmanlike language to make it clear that progress on reducing regulation of business and thereby improving competitiveness has been negligible to date.

I wholeheartedly welcome what the Chancellor had to say on deregulation, but I hope that the House will forgive me a degree of scepticism about whether anything will happen. I suspect that if the Chancellor moves from No. 11, as is widely expected, the content of both reports will vaporise, and we will hear no more of them.
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In summary, the Budget is fairly thin in content but it is fair to say that, over the eight years that I have been in the House and the Chancellor has been in post, there has been a continued decline in competitiveness. I do not want to overstate that, as Britain is still a good place to do business and its economy is still performing reasonably well, but the biggest factor in that decline has been the growth in regulation. Although there appears to be an intention to reverse that, most people are, like me, extremely sceptical about whether anything will happen. The growth in the public sector is a growing drag on the economy, in terms of productivity and employment practice.

I hope that the next Budget, whoever the next Chancellor may be, will take much more serious steps to implement the recommendations from Arculus and Hampton, and will adhere to the timetable set out in    those reports. The challenge is to restore competitiveness through education, investment in science, deregulation and an improvement in public sector performance. That challenge must be taken a great deal more seriously than is the case with this Budget.

4.17 pm

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