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Mr. Michael Fallon (Sevenoaks) (Con): I draw the attention of the House to the interests recorded in the Register of Members' Interests.

There is something of a valedictory air about today's debate. I pay tribute to the hon. Member for Ochil (Mr. O'Neill), who I think is leaving us shortly, and to my hon. Friend the Member for Tunbridge Wells (Mr. Norman); they made statesmanlike contributions that I shall certainly not attempt to follow. There was also an almost valedictory air—I think that my right hon. Friend the Member for Horsham (Mr. Maude) picked it up—about the Chancellor's speech yesterday, a slight sense that this is as good as it gets and is about the best that he can do.

That is important, because the structural imbalances at the heart of the public finances are now clear for all to see. Public spending is rising faster than growth in the economy as a whole. For five years—four years and this year—the Chancellor has been wrong, because he has been over-optimistic about the tax revenues that he seeks to generate. The deficit itself keeps on growing, which spells danger and trouble ahead. It seems to me that borrowing and taxation must inevitably rise. We are therefore justified in focusing yet again on the rules that the Chancellor has set himself and the point at which the cycle must end.

It may well be that this Budget is the last in the present cycle and that the Chancellor will claim definitively that he has kept his golden rule. I would like to enter three strong caveats. First, at the moment, it is for the Chancellor to measure the start and end of the economic cycle. I think that that is wrong; he should not set his rule and be master of where the cycle ends. It is as though Sir Alex Ferguson can decide when a match ends. Many other Budget assumptions are independently audited by the National Audit Office, and I think that this particular assumption should be
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measured independently, although I make no judgment as to whether the NAO is the right body to do it.There is already some dispute about when the cycle is ending. The Bank of England clearly believes that it is ending a little earlier than the Chancellor thinks, and the matter should be established definitively and independently.

Secondly, there is now a great deal of evidence that the rule itself is being fudged. I was suspicious right back in the early days, when we suddenly saw some money for nurses' training lifted out of the Community Fund. I was certainly a lot more suspicious a few weeks ago, when suddenly, happily, the Office for National Statistics rebranded some £3 billion-worth of roads maintenance and declared it to be capital investment. I do not think that that does any service to the ONS. It simply strengthens the case already made by my right hon. Friend the shadow Chancellor for making the office truly independent of the Treasury, which currently funds and controls it.

Intriguingly, the Treasury was able to get the right answer out of the ONS on roads maintenance, but it has not yet got the wrong answer out of it on the question of the classification of Network Rail. You may recall, Mr. Deputy Speaker, that we have raised that matter before in the House. The preliminary position of the ONS was that the new arrangements for Network Rail did not change its view of Network Rail's status. However, I shall quote an e-mail from the ONS dated 14 February, which was sent to me as Chairman of the Treasury Sub-Committee, the scrutiny body for the office:

We are talking here not about £3 billion of roads investment, but about some £20 billion that might be moved inside the public accounts. Where such large sums are concerned, it is extraordinarily important that the basis on which they are dealt with is as independent as possible. That is why the ONS needs urgently to be moved out of the sphere of Treasury control and established independently.

I should also like to see a closed period similar to those that companies operate for the making of adjustments in the run-up to the end of the financial year. Those of us who follow these matters are bound to be suspicious of the serendipity involved in this sudden announcement. This morning, the Statistics Commission confirmed that the ONS had been considering roads maintenance for a couple of years, yet was suddenly able, just as we approached a Budget and the end of the financial year, to move £3 billion across. The hon. Member for Ochil said that we had got within the golden rule, but were hanging by a thread, by the skin of our teeth, or whatever. The gap is £6 billion, and £3 billion of that is down to the decision by the ONS. That is how close we have come. In the private sector, decisions on matters such as moving something out of the profit and loss account, the extent to which one depreciates capital, and the extent to which one capitalises new items and classes them as new rather than replacement have to be signed off properly by an independent auditor whose professional judgment is on the line. That is not happening in the case of the public accounts, and I would like to see such matters dealt with more openly.
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The two bigger issues that still hang over our public accounts are the remaining private finance initiative liabilities, which represent a formidable sum of money, and public sector pensions. On PFI liabilities, you will know, Mr. Deputy Speaker, that the Treasury Committee has repeatedly called for those to be properly listed—not tucked away in some supplementary statement to the estimates or the Consolidated Fund, but listed here and now in the Red Book so that we can see the liabilities for the years ahead. We still have only the table of the payments that may have to be made, not the full extent of the liabilities; and of course those future commitments are building all the time.

I would apply the same argument to public sector pensions. I know that there are arguments for keeping the liability for public sector pensions off the public balance sheets, and that that is done in other countries. However, it seems to me that the commitment is there and that it is compulsory, whether in relation to a local authority or one of the mainstream public services or other public bodies. As the private sector has had to accept these new reporting obligations on pension liabilities, we shall have to look again at the way in which pension liabilities in the public sector are taken on board in the public accounts.

I turn to regulation. As a keen student of Hansard, Mr. Deputy Speaker, you will recall the speech that I made exactly one year ago, on 17 March 2004, in which I called for a 25 per cent. cut in Government regulation. That was not my idea—it was the result of the Treasury Sub-Committee's research into the administrative costs of tax compliance and our visit to the Netherlands, where the Government had set themselves a target of reducing the burden of administrative compliance by 25 per cent. over four years and had introduced a model for measuring the actual costs for every kind of business in every sector—small, medium and large, agricultural, industrial, distribution and so on.

Yesterday, we witnessed what my hon. Friend the Member for Tunbridge Wells called a damascene conversion—in terms of words, but not quite in terms of a commitment. The Hampton review, which, like the Arculus review, I welcome, suggests that the number of forms that regulators send out could be reduced by "perhaps 25 per cent." That is not a ringing commitment to slash this particular burden. Nevertheless, it seems that there is finally an awakening to the seriousness of the problem. I should tell the Paymaster General and the Chancellor that, as my right hon. Friend the Member for Horsham said, other Ministers and ex-Ministers have wrestled with the problem. It is not enough to publish good intentions and targets. Deregulation will not work unless it becomes part of the culture of Government, which is why the suggestion of regulatory budgeting introducing new regulations only if old ones can be replaced—is so important. It is also important to engrain throughout Whitehall the culture of seeking alternatives to regulation and to drive the process at a senior level in Government.

Plato wrote in "The Republic" that lawmakers are too often unaware that they are slashing away at a kind of hydra and that for every head they chop off, another appears. That is what we have with the Arculus review.
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The Chancellor wants a new Bill to deregulate faster. He wants to put more on the statute book to get rid of more from the statute book. We are bound to observe who created the additional burden of regulation, who helped to unleash the flood of European Union directives by signing up to the social chapter that we resisted, and who set up all the inspectorates and regulatory bodies that will magically be merged or will suddenly be found to be unnecessary. We wish the Government well in that task.

One of my criticisms of the Chancellor's approach to spending is that, although the adoption of three-year spending reviews was welcome, they never turned out to be that. First, they were every two years, and additional spending decisions have been announced in the pre-Budget report and the Budget almost every year since the introduction of comprehensive spending reviews. Yesterday was no exception. Suddenly, extra funding was made available to schools; extra funding was made available for council tax; extra funding was made available to the health service. Spending was settled back in July at the time of the last CSR, but suddenly those areas are found to be in urgent need of additional public finance. That depresses me because the process should have been more established and permanent.

Throughout the Government's spending patterns, we hear the refrain that additional resources should be accompanied by real reform. I see no signs of that real reform in the delivery of public services. I shall give the House some examples. Eight years after the Government came to power, we still have the disgrace of mixed-sex wards at Kent and Sussex hospital—eight years after a manifesto commitment to abolish them. At exactly the same time as a constituent complained to me about being pushed on to a mixed-sex ward at that hospital, I spotted in The Sunday Times of 9 January an advertisement by the Kent and Medway strategic health authority for a director of future work force at a salary of £90,000 a year. On one hand, there are not enough nurses on the front line and there are still mixed-sex wards; on the other, more and more money is going into back-office salaries, unnecessary bureaucracy and the bloated remuneration and pensions of the bureaucrats behind the front line.

I shall give a second example. The House will recall the grim days of the fire service strike two and a half years ago. It concerned the Government's necessary proposals to rationalise the fire control centres. There were some 44 centres, which were separate from the police and ambulance control centres. The Government appointed a commission to consider the matter and it was decided that the centres should be rationalised, with only eight regional control centres across the country. It was a classic example of more money being put into the fire and rescue service, accompanied by reform and rationalisation. How many of those eight regional control centres are operational today, two and a half years after the dispute ended? None. How many are being built? Again, the answer is none. I am informed by Property Week for 4 March that the very first site—the site only—is believed to have been chosen in the north-east of England. None will be operational, even with a fair wind, this year. So real reform has not accompanied the additional resources.

My third example is public sector pay. We were told, and have been told for two years, that it will have a regional and local dimension. Public sector pay will, we
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were told, properly reflect local labour markets. I have seen no evidence of that yet; indeed, plenty of evidence points in the opposite direction.

The fourth example is education reform. A great work force reform was promised to ensure that teachers had more time to prepare their lessons and more time away from their pupils. That has been promised for some eight years, but the National Union of Teachers has still not agreed the contract, and this morning we read that the National Association of Head Teachers has walked away from that contract.

The professionals—the doctors, the teachers, the nurses and the police commanders—desperately need reform. They are in favour of reform. The reform that they want is to be allowed to get on and deliver the job, with the help of the extra resources that have been put in. They want the Government to start keeping their side of the bargain.

We heard bits about taxation yesterday, but we did not hear about the greatest stealth tax of all. The failure to index allowances has dragged more and more people into tax. Indeed, more and more people have been dragged up from the lower band into the higher band. That has had a huge fiscal effect, and the Chancellor should have recognised and promulgated that fact. He prefers to pretend that the tax burden has remained the same, but fiscal drag has spread and deepened the burden across hard-working families so that more of them end up paying more. That is the answer to the question posed by my hon. Friend the Member for Havant (Mr. Willetts), when he wondered how the tax revenues could take a greater proportion of GDP in four years' time without taxes rising. The Government assume that they can continue to play the same trick of moving people up the tax bands.

There were a few give-aways in the Budget. Some were real give-aways that told us far more about the problem they sought to solve. There was the announcement of the sudden subsidy of council tax. Why should the Government suddenly want to help people pay their council tax? It is because this Government have put up council tax. Of all the local authorities in England—district councils, county councils and police authorities—Sevenoaks district council has had the worst settlements over the past seven years. In fact, it is one of six out of 424 authorities that have had no increase at all—the settlement has actually been cut. The amount per head has been reduced from £56 in 1997 to £54 in the current year. As a result, Sevenoaks district council, which raised £2.8 million back in 1996–97, has this year had to raise £6.3 million. That is almost a threefold increase. That is the second biggest stealth tax of all. Council tax has increased enormously. It is no use now the Chancellor trying to delude people into thinking that he is tackling the problem by a sudden handout. That sort of deception applies particularly to pensioners.

Pensioners have lived through many Governments and many pre-election give-aways. They will know that the £200 payment is a one-off payment. It is an election payment. There is no guarantee that it will ever be repeated. They have evidence on which to base that view. We all remember in this place that taxes were reduced slightly just before the 2001 election. We know also, for a certainty, what happened after that election, when taxes were increased again. The second principal
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tax on earnings, national insurance, was increased without warning. Why look at the crystal ball when we can simply read the Red Book? As my right hon. and hon. Friends have said—I make no apology for repeating this—this is a vote now, pay later Budget.

5.1 pm

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