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Mr. Stephen Dorrell (Charnwood) (Con): I begin by drawing attention to the interest that I declared in the Register of Members' Interests.
I want to take up what was said by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke). I believe that the Budget statement that we heard last week was an exercise in suspended disbelief. The Chancellor did what he does best: he came to the Dispatch Box and took us on a guided tour of all the high spots—from his perspective—of his economic record, seeking as he did so to avert our eyes from other less comfortable truths which he prefers not to address until the other side of a general election.
The Chancellor drew attention to the fact that we had enjoyed a long period of growth, which is extremely welcome. He drew attention to the fact that the competitiveness of the British economy is currently much better than it was during the 1960s and 1970s, with the result that we have been able to achieve reasonably high and reasonably sustained levels of employment. As my right hon. and learned Friend said, all that is true, and the Chancellor can certainly claim not to be the worst Chancellor on record—but true though it may be, it is not the whole story.
One way of encapsulating the less comfortable aspects of the Chancellor's record is to invite the House to reflect on the fact that one of the characteristics of his time in office has been his tendency to attend meetings of ECOFIN and lecture his European counterparts on how much more effective wealth creation and job creation are in Britain than they are elsewhere in the European Union. The Chancellor would recognise that one reason why that has been true in recent years is that
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productivity growth in the 1990s and the early part of this century has compared favourably with growth elsewhere in the European Union. It should therefore be a matter of serious concern to both the Chancellor and all Members that, when Deloitte recently conducted a study of 6,500 European companies to assess productivity growth in Britain compared with elsewhere in the European Union, its conclusion was that Britain is now below the European average.
So, measured by the Chancellor's own rhetoric to his ECOFIN colleagues, there is cause for serious concern about the underlying performance of the British economy. The various burdens, which I want to discuss briefly and for which the Chancellor is responsible, are now impeding productivity growth and competitiveness. They are doing so at a time when the Chancellor's own lectures draw attention to the danger, in a globalised and highly competitive economy, of saddling our business with burdens that our competitors elsewhere in Europe and, more importantly, elsewhere in the world beyond Europe do not suffer.
There is no great secret about why British productivity growth is slipping down the European league—and, as the Chancellor is fond of pointing out, slipping down the European league is bad enough in itself, but we must remember that that is the third division. By global standards, real productivity growth is being achieved in the United States and some of the other Anglo-Saxon economies and, more importantly, in India, China and the economies of the emerging countries. In comparing ourselves with the European Union, we are comparing ourselves with the third division, and even in the third division we are in the relegation zone.
Why are we seeing such gradual deterioration in our performance? The first reason, which the Chancellor has recognised, albeit belatedly and inadequately, is the cost to British business, in terms of both pounds and pence and of impeded productivity efficiency growth, of the regulatory burden for which the Government are solely responsible. Anybody who has been a Minister is painfully familiar with the logic that says, "This is desirable and ought to happen, Minister, and if you sign this regulation, your constituents will be grateful because it will happen and you won't have to go to the Chancellor to pay for it because the cost of meeting the obligation will be met by the people to whom the regulation applies". Regulation imposed by Government looks like a free lunch in the short term, but in fact it impedes the underlying competitiveness of the economy. We are seeing that working through day by day and week by week as part of the Chancellor's record to which he does not draw attention when he presents his annual good news statement in the Budget.
The second thing to which the Chancellor does not draw attention is the fact that a growing public sector—job creation in the British economy in the past seven years has been disproportionately in the public sector—
The Chief Secretary to the Treasury (Mr. Paul Boateng) indicated dissent.
Mr. Dorrell:
The Chief Secretary cannot say that that is untrue. The number of people employed in the public sector has grown faster over the past seven years than the number of people employed in the private sector.
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There are relatively more people employed in the public sector, and it is a matter of fact that productivity growth is slower in the public sector than in the private sector. If we look at the total effect of that on the British economy, we see that it is another factor contributing to the slowdown of our competitiveness and undermining our capacity to deliver the economic stability, growth and rising living standards that we all want.
All that is compounded by the clear evidence of the black hole in the public finances. The burden that Government represents on wealth creation is partly manifest in regulation, but more directly manifest in tax—the cost burden that the Government represents on the wealth creation sector.
The Chancellor is fond of reminding people that his growth forecasts have often been closer to the truth than those offered by people in the private sector and, to some extent, he is entitled to do so. His growth forecasts have a reasonable record of accuracy. His forecasting ability has been wholly inadequate, however, in regard to his capacity to forecast his own public sector deficit. It is worth reminding ourselves that in the Budget before the last general election, the Chancellor expected that, in the tax year that is now just coming to an end, the amount of borrowing required in the public sector would be £13 billion, whereas the actual out-turn, according to this year's Budget, is £34 billion. So, over four years that figure has gone up by £20 billion.
I do not believe that the rather academic discussion about the golden rule gets us very far, and I want to draw the attention of the House to two tables—which seem to be much more telling—that appear in the Red Book. The first is table C9, which examines the Government's projections for tax revenue. During the period between 2005–06 and 2009–10, the Chancellor projects that, for the first time since the mid-1980s, tax will go back above 40 per cent. of national income. More importantly, perhaps, for the voting population, not only will the tax burden rise as a share of national income over that four-year period, but income tax in particular will rise relentlessly as a share of national income year by year. So, the Chancellor's own projections for the next Parliament contain a significant rise in the tax burden in general and the income tax burden in particular, taking the total tax burden back above 40 per cent. of national income for the first time since 1988.
Table 2.5 on page 32 of the Red Book shows that, even taking account of that rising revenue, we shall still be faced with debt as a share of national income rising year by year over that same four-year period. Public sector net debt will rise from a figure of 34.5 per cent. of national income today to just over 37 per cent. by 2009–10. The Chancellor is therefore projecting a rising share of national income accounted for by tax and, even taking that into account, an increase in his borrowing as a share of national income. That is why the Institute for Fiscal Studies and almost all the independent commentators are right to say that there is a black hole in the public finances that will have to be put right by a post-election tax increase.
My right hon. and learned Friend the Leader of the Opposition described this as a
That is true on two levels. First, it is true on a specific cash level. The public finances are in such a state that tax increases after the election will be inevitable. If Labour is re-elected, which I hope that it will not be, it will have no choice but to raise tax. My right hon. and learned Friend the Member for Rushcliffe suggested that we did not need a crystal ball when all we have to do is look at the Red Book, because that is exactly what happened after the last election.
Beyond the specifics of the tax increase, however, we should also be concerned about the long-term impact of a rising regulatory burden, a rising tax burden and a rising debt burden on the competitiveness of the British economy, which the Chancellor is so fond of trumpeting. We are embarked on a slow deterioration of the very achievements that he is so proud of talking about, and if we are to protect those achievements and reinforce our competitiveness, we need the kind of change of direction that I hope and believe the Government will start to initiate on 6 May.
4.39 pm
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