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I have only one minute left, and I want to say briefly that two or three huge challenges face the next Administration. The first is pensions, and Members from all parties will be aware of the scale of the problem, both locally and nationally. The Government have taken two excellent initiatives: the financial assistance scheme of £400 million; and the pension protection fund, which should safeguard 80 per cent. in the future. We are also very grateful for Brico, part of the Federal Mogul scheme in my constituency. However, the problems are huge and ongoing, and they will have to be faced.
The second challenge is equal pay. If the national health service is to meet the claims that will arise out of a court judgment in the north-west, the problem could be enormous. We ask the Government to be prepared to help the NHS. They will also face problems with equal pay from local government, and together with that will be the pensions issue. The third area is globalisation and the changes that it will force on all sectors of all economies, especially such an exposed and open economy as the UK's.
Only a Labour Government will have the vision and courage to meet those challenges. Equally importantly, only a Labour Government will have the compassion
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and values to ensure that, in meeting themthey are harsh challenges and will impose harsh realitieswe look after the old, the sick and the poor. Only a Labour Government can do that, and I assure my colleagues on the Front Bench that I look forward to their re-election in due course.
Dr. Vincent Cable (Twickenham) (LD): I had intended to start by setting out the parts of the Budget that I agreed with, but I have been provoked by the Secretary of State so I will start with a couple of points on the Department of Trade and Industry. She takes the proposal of axing or cutting the DTI a bit personally, so perhaps I could quote back to her a comment that was made to her when she spoke to the annual conference of the British Chambers of Commerce a few months ago. One of our leading entrepreneurs, Gulam Noon, who I think is a new Labour supporter, asked her please to stop trying to help them and just let them get on with their job of running their companies. In many ways, that encapsulates the scepticism that many companies feel about the DTI's role.
I want also to say in passing that I endorse the intervention from the right hon. Member for North-East Hampshire (Mr. Arbuthnot) about trade with China, not simply because it might offend President Bush, which is a subsidiary issue, but because it is rather a bad idea. I would have thought that the Government might have learned by now that subordinating British foreign and economic policy to the interests of a handful of arms companies is not good practice. I agree very much with what the right hon. Gentleman said.
I turn now to the substantial parts of the Budget with which I agree. First, the Secretary of State is right to say that, in many respects, the British economy is doing well. Of course, it is uneven and, as the hon. Member for Banff and Buchan (Mr. Salmond) correctly pointed out, there are variations across the UK. None the less, in many respects, the British economy is and has been doing very well. The problem, however, is that the Chancellor, like the Secretary of State, does not do modesty. We therefore have a completely unbalanced explanation of how this has been achieved. Part of the explanation clearly comes from outsidethe rapid growth in the United States and China is an exampleand from the legacy of the right hon. and learned Member for Rushcliffe (Mr. Clarke), in that there was a period of growth before this Government came in. All those are factors that need to be acknowledged.
I acknowledge many of the specific achievements that the Government have claimed. The Chancellor said in his Budget speech that our exceptionally low inflation had enabled him to launch 50-year bonds. That is good and, historically, it is a very positive development. He did not point out, however, that 50-year bonds are also being launched in France, one of those European failed states that he enjoys gloating about.
The Chancellor also argued that the British Government had a generally good record on the Government balance sheetthe relationship between debt and gross domestic productand that is certainly true. We are one of the best countries of the G7 in that regard, although our record is nothing like as good as that of the Liberal Government in Canada, which is
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exceptionally low and is improving. None the less, our record is relatively good. However, this is being attributed to good housekeeping in the United Kingdom, whereas we should be more concerned about the collective folly of the entire G7. Only a couple of years ago, a report from the Organisation for Economic Co-operation and Development highlighted the fact that the current trend in this respect in all the developed countries was unsustainable. I freely acknowledge, however, that the one genuinely positive and unambiguous benefit has been the fact that we have had steady growth. Martin Wolf produced a very good piece a few days ago, demonstrating that, of all the G7 countries, Britain has enjoyed the greatest stability in both inflation and growth. That is an advantage, and it is probably a productin part, at leastof good policy decisions on the independence of the Bank of England.
As I advocated the policy of changing the stamp duty thresholds, I cannot help but agree with the Chancellor's proposal to do so. I am a bit disappointed that he did not go up to £150,000, because £120,000 is of precious little use in London and the south-east of England. None the less, it is a good policy as far as it goes. The objection raised by people in the property industry is that raising the stamp duty threshold will fuel house price inflation, but I do not think that that will happen. I base that belief on a small piece of information that was allowed to trickle out of the Treasury in the past few days. The Treasury's own forecast is that house prices are going to fall in the current financial year, admittedly by only a modest amount, but the trend is now clearly being acknowledged.
Sir Sydney Chapman (Chipping Barnet) (Con): Does the hon. Gentleman agree that the problem with the stamp duty threshold is that, once it has been reached and the payment triggered, the duty is liable on the total cost of the home rather than on only that part of the value above £120,000? That is going to be the main problem for people living in his constituency and mine.
Dr. Cable: The hon. Gentleman is quite right. The slab system, as it is called, which would kick in at £150,000 and apply 3 per cent. duty to the total amount, is one of the underlying elements of unfairness in the system. Having done the numbers, howeverand having hoped that I might be able to offer some comfort on this issueI have decided that unwinding the slab system and replacing it with a genuinely progressive system of stamp duty would either be phenomenally expensive or result in the top end of the property range being charged extremely high rates, such as 7, 8 or 9 per cent. So unravelling the problem that the hon. Gentleman has correctly identified is going to be very difficult, but he is right to say that this is a fundamental problem.
The Government were also right to give up the stamp duty exemption on properties in disadvantaged areas. We had a very useful exchange on this during the Secretary of State's speech. The Government have clearly discovered, as we did when we looked into the matter, that the vast majority of beneficiaries of the exemption are big property developers in Canary Wharf. Indeed, one of the largest beneficiaries in the past few months has been a big commercial
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development in High Holborn. We are not talking about shopkeepers in Salford[Interruption.] The distinction is that that particular commercial area on the fringe of the City of London is extremely profitable, and the companies that benefit from the exemption are not small companies. The Government have drawn the correct conclusions in this regard. They had made a mistake, and they have at least partially acknowledged that in this proposal in the Budget.
A further change in the Budget that I acknowledge positively was the modest step to raise the threshold on inheritance tax. We know that this is a difficult and complex area. May we, however, have some feedback on whether the Government are going to address some of the serious anomalies in inheritance tax that are beginning to arise for middle-income families in many of our constituencies? This is partly caused by a threshold problem, and partly by a deeper issue. For example, a family came to see me last week. Five orphaned children whose mother had recently died found themselves living in the family home, having to cope on no income beyond benefits, and without any inherited savings. Nevertheless, they faced an inheritance tax bill of £20,000. They live in a fairly modest house in my constituency. We need to face not only the threshold question but the issue of how the inheritance tax burden on many middle-income families can be made supportable in exceptional cases of that kind.
My final point of agreement reflects partly what the hon. Member for Coventry, North-West (Mr. Robinson) said about red tape. The Chancellor's proposal is admirable and sensible, but the only problem is that we have had Lord Haskins and David Arculus considering the matter, and relatively little has happened. The Government claim to be committed to a tough regime of regulatory impact assessment, but, in practice, significant Departments such as the Home Office ignore it totally, and Departments are not consistent in the way that they apply it. The Treasury and the Inland Revenue in particular seem to treat it in a fairly flippant manner. Therefore, we need to consider the Government's record as much as their words. None the less, common ground exists on some important issues.
Let me turn to some of the issues about which I am more sceptical. First, on forecasts, the Government are forecasting above-trend economic growth for the next two years. The Government can say, not unreasonably, that their previous forecasts have been proved right and the doom-mongers have been proved wrong. To believe that there is no spare capacity in the economy however, is to make a series of fairly optimistic assumptions. We will not discover who is right until after the election, but if the Government are wrong, the Bank of England will raise interest rates over the next few months, or later in the year, which will begin to test out the stress, which Lord Griffiths and I have identified, of personal debt. In an environment of rising interest rates, many of those families who are just on the edge of a personal debt crisis will be tipped over it. It remains to be seen what will happen, however.
The other area in which forecasts are seriously optimistic is in respect of Government receipts. The two major areas through which the Government expect to get more money are anti-avoidance measures and the oil industry. The anti-avoidance measures will bring in
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about £3.3 billion extra. Clearly, I have no quarrel with effective anti-avoidance, and the Treasury and Inland Revenue clearly want to lock horns with multinational companies over what are now laughably called double no taxation agreements, and if they can win that battle, that is fine. But independent analysts such as KPMG have suggested over the past few days that however well intentioned the Government's anti-avoidance measures, their likely effect might be to reduce revenue simply by driving away companies at the margin. I do not know what the outcome will be, but the forecasts are certainly on the optimistic side.
Similarly, it was interesting that there was no reaction from the oil industry. As I have been in that environment, that tells me that it has assumed that it will not have to pay. Effectively, it will pass on the change, and it might manifest itself in reduced investment in the North sea, but it will not pass it back to its shareholders. A proper evaluation of what the change in taxation implies for the oil industry is missing. The Secretary of State for Trade and Industry knows, because she has had bad experience, that the Treasury routinely announces radical changes in oil taxation without consulting the Department of Trade and Industry. I do not know what the answer is. The measure might be perfectly sensible, but we need some evidence that the Government have thought through the implications for investment in the industry. It is possible that oil prices will dip sharply in future years, and I think that the Government are merely bringing forward a receipt, which implies that, in five years' time, that receipt will not be there. Effectively, therefore, the change is an accounting shift rather than an increase in resource revenue, which will inevitably have to be paid for by the next Government, whoever they are.
Both those key points raise a question that I have raised previously, and that the Conservative spokesman has raised, about the independence of assessments of the Government's assumptions. The Government might be perfectly right, but we do not know what the Inland Revenue is expectingit is all clothed in opaque cover. This country badly needs a system that gives the National Audit Office much more independence to assess and evaluate the Government's assumptions, and gives the Office for National Statistics more genuine independence of Government.
The other area of ambiguity relates to the so-called golden rule and the black hole. A spat broke out this weekend between the Government and the Conservatives. Perhaps I can put myself forward as an honest broker or arbitrator in this dispute, having no particular axe to grind. Having looked at the facts, I have to say that the Conservatives were rather misrepresented. Part of the problem is that they have been toying with two different £35 billion sums and the Government have focused on the wrong one. The £35 billion figure for 2011 is neither here nor there, and although I am not particularly pro-Conservative, the idea that they want to sack all the country's doctors is a little preposterous.
There is a genuine benefit in looking in more detail at the real £35 billion saving that is supposed to happen during the current spending round. As I understand it, that £35 billion consists in part of the £22 billion saving
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from Gershon, which we all say is desirable, although most of us are pretty sceptical about it. Incidentally, I hope that at some point the Government will demonstrate how the Gershon savings that the Chancellor mentioned will actually be realised. Given that we all agree with the £22 billion Gershon figure, what the Conservatives are actually advocating is an extra £13 billion in savings. I freely concede that of that sum, £5 billion is entirely plausible and constitutes serious cuts in things such as social housing. Such cuts may or may not be desirableI do not think that they arebut they are serious attempts at making choices. However, the other £8 billion-worth of cuts are simply not plausible, as my hon. Friend the Member for Yeovil (Mr. Laws) demonstrated in the House a few weeks ago.
The problem with the Conservatives' proposals on the "black hole" is not that they intend to sack all the country's doctors, but that, if anything, those proposals will make the problem worse. There are two reasons for that. First, if they are as good as their word and cut taxes in their first week in office, it will take several years to claw back those savings, so the immediate impact will be a widening of the deficit. Then, there is the large-scale sacking of civil servants. As I understand it, the biggest spending commitment is a £5.9 billion increase in redundancy payments for civil servants, which will be clawed back by selling off Government assets. We know that selling off Government assets is a difficult and slow process, so even if it happens, there is a long time lag. So, whatever happens, if this policy comes about, the black holeif there is such a thingwill actually get worse, rather than better. Perhaps the Government would do well to concentrate on that issue, rather than on the preposterous allegations that they were making over the weekend.
In my concluding few sentences I want to highlight the two main areas in which we fundamentally disagree with the Government, the first of which is council tax reform. We have all understood the £200 relief offered by the Government to be a one-off, although it has been suggested in the past few days that it might not be; perhaps we could have some clarification on that point. The Red Book clearly states that the relief is for one year only, but I ask that it be made absolutely clear for how long the £200 concession will last.
Even if such relief is a short-term sticking plaster for some pensioners, what the Government are not acknowledging is the potentially disastrous effect in the next 18 months to two years of council tax revaluation. Such revaluation has already begun in all our constituencies, and the impact on individual homes will be entirely capricious. Of course, some people will benefit, but many will lose out simply because their homes happen to be in an area where the rate of house price inflation has exceeded the national average over the past 14 years. In several cases in my area, the consequences will almost certainly involve moving up by two or three bands, thereby costing the families in question £700 or more. As I said, others will gain, but this random distributional effect will cause an enormous amount of grief and bring the whole council tax issue to a head. That is why we argue for fundamentally reforming the whole system by moving over to an income-based one, as operates in the United States, Switzerland and Scandinavia.
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The second criticism is a much more fundamental one. The hon. Member for Coventry, North-West rightly argued that the Government are genuinely trying to target poverty through their child-related benefits and pensioner support. The intentions are admirable, but we all know that, in practice, there are all manner of unintentionally damaging consequences, the first of which is extremely high marginal rates of tax. The 2.1 million people enjoying tax benefits who are in work face marginal withdrawal and tax rates of 60 per cent.; indeed, in some cases the figure is much higher. That is far in excess of the 50 per cent. marginal tax rates that we have been told are wholly unacceptable for the rich.
There are even bigger problems for pensioners. The marginal withdrawal rates of 50, 60 or 70 per cent., depending on circumstances, are a massive disincentive to save. That complicates long-term pensions arrangements, which is why we need to move to the policy advocated by many peoplewe believe that it is shared in some parts of the Governmentof providing a decent basic state pension, at least for older pensioners, above the means-tested level.
What is the overall verdict on the Budget? We should certainly be appreciative of economic stability, but in other respects the Government have created yet more complexity in an already complicated system and have done nothing to deal with the underlying unfairness in the tax system.
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