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Rob Marris: Is my hon. Friend aware that, according to the Department for Work and Pensions, pension tax relief has almost no effect on people's savings for pensions because they would save anyway. Almost all the tax relief goes to the wealthiest in our society, and it represents £18 billion a year of forgone tax revenue, which might go some way towards paying the £7.3 billion for his modest proposal.

John McDonnell: I am dealing with expenditure at the moment, but I will talk about the income needed to resolve these matters in due course. It has become an annual event that we prepare an alternative Budget on behalf of Labour representation in the socialist Campaign group and the left economic advisory panel, which is our shadow form of the Bank of England advisory committee. I want to outline several proposals that the Government might wish to consider in due course. The Government took up a number of the issues that we raised in previous alternative Budgets.

Rob Marris: We have a listening Government.

John McDonnell: A listening Government, but they are perhaps not as attentive as possible.

Mr. Newmark: I would like to lend the hon. Gentleman my support, as would members of the Braintree pensioners action group. It is important that
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we re-establish the link between pensions and earnings. What is the hon. Gentleman's view on abolishing means-testing completely, which the Chancellor promised back in 1993?

John McDonnell: There has been a long debate about means-testing over the past 60 years. Any Government will have to ration resources in some way. The best book to read on the matter was produced by Enoch Powell in the 1960s. It addressed health and welfare benefit reform. The language of Bevan is about socialism and the language of priorities, and Enoch Powell demonstrated in his own terms that there will always be a need for any Government to have some form of means-testing, but our job in a civilised society is to try to minimise it. I am grateful for the hon. Gentleman's support, but given his past calculations I am wary of his mathematical ability on such matters.

Individual Members of Parliament must address elderly care. The main worry for many pensioners, apart from their income, is what will happen to them if they need care. They fear losing their homes to pay for such care, and the problem has been graphically highlighted by recent television programmes. In addition to restoring the link with earnings, the Government should thus consider abolishing all care charges, which, according to House of Commons Library figures, would cost £4 billion. That would give pensioners security in the future, but we should go further and consider again the high prescription charges that are levelled against pensioners and others. Abolishing prescription charges would cost the relatively minimal amount of £0.42 billion.

Rob Marris: That is £420 million.

John McDonnell: Yes. I did not mean to confuse my hon. Friend, who is attentive on all such matters.

At the other end of the age spectrum, we must also applaud the impact of the Chancellor's policies on reducing child poverty. However, we need to acknowledge that the Government have missed their target of taking a quarter of all children out of child poverty. They have managed to do that for 17 per cent. of children, but we have missed our target on the time scale that we set. That is not to carp. To get this far is a major achievement. However, we have missed our target by 250,000, and those children remain in poverty.

The definition of poverty is extremely limited. Many children living on the margins of what is defined as poverty do not enjoy the lifestyle that we would want for our own children. That is just an aside; I accept that we need commonly agreed mechanisms by which we measure poverty, but we also have to accept that the definition sets a relatively low target.

There is also the problem of non take-up of means-tested tax credits, high marginal tax rates and disincentives to work, which are associated with all means tests. We have debated that. It is why I propose a simple solution to tackle the failure to meet the full 25 per cent. target. A £5 increase a week on child benefit would cost £3.4 billion. According to Treasury figures, it would initially lift 350,000 children out of poverty.

For young people, my continuing concern is that introducing tuition fees and scrapping maintenance grants has depressed a generation with the prospect of
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starting adult life with high levels of debt. Tuition fees also serve as a disincentive to study, and I worry about the drop-out rates from some of our colleges and universities, which in some instances has reached 25 per cent. For that reason, we need dramatic and radical action to restore confidence among our young people in staying on, especially young people from working-class backgrounds. Hence I propose wiping out all student debt at a cost of £8 billion and scrapping tuition fees at a cost of £2.25 billion, wiping the slate clean of an overhang from past policy mistakes.

Despite all the Government's successes in investing on a large scale in public services, there has been a failure to recognise the significance of the impact of poor housing and lack of housing on the poverty and quality of life of many of our constituents. When I was elected in 1997, 40,000 families were homeless in London. There are now 50,000. A large number of my constituents suffer from terrible overcrowding and insecure accommodation, and they are living in abysmal housing conditions.

David Taylor : It is a real pleasure to hear the second shadow Chancellor outline the Budget that we may hear in years to come.

On housing, does my hon. Friend agree that two things would have been welcomed had they been announced today? The first is the restoration to local authorities of the power to build or acquire affordable housing. The second is to fund properly an option 4, which would allow local authorities that were good landlords to have their tenants stay with them, rather than being coerced away into stock transfers, PFIs and other dubious vehicles.

John McDonnell: I shall move on to that proposed solution in due course. However, I think that all hon. Members consider housing to be a critical issue that the Government need to address. Poor housing conditions, overcrowding and homelessness impact on all aspects of the lives of our constituents. They impact on their health, the educational abilities of their children and their overall environment.

Recent Government statistics show that more than 100,000 families live in temporary accommodation, and the figure has doubled since 1996; 2.4 million of our homes are below the decent homes standard; 1.5 million people are on council housing lists; and 2 million households containing pensioners, children or someone with a long-term sickness or disability live in fuel poverty. Society overall, not just the Government, should be ashamed of those statistics.

Mr. Newmark: Does the hon. Gentleman think that part of the problem with homelessness, particularly in many of our cities, relates to mental health care and that many homeless people have mental health problems? Surely we should be investing much more in mental health care so that we can treat those who are homeless and have mental health problems.

John McDonnell: Mental health care issues clearly impact on homelessness. I have some involvement in dealing with those matters in my constituency. I compliment the Government, because for the first time
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in a long time we have had significant investment in mental health care in my area. The hon. Member for Uxbridge (Mr. Randall) and I have opened new units in our constituencies. However, the key issue is not mental health but housing supply, repair and renovation. Unless we have a significant housing programme, we will not be able to tackle such matters, and they will have an impact—whether on mental health, families in poverty or children trying to get a decent education.

In response to a recent parliamentary question, the Minister for Housing and Planning said that it would cost £7 billion to bring all local authority homes up to the Government's decency standard. That would represent one of the best and wisest investments that the Government could make in tackling the housing nightmare that so many of our constituents daily face.

The Chancellor of the Exchequer today announced a new housing programme, which I welcome, but I have to say that it is not on a scale that will tackle the size of the need or the desperation. I urge hon. Members to examine the Shelter housing programme, which sets out the targets that the Government should be meeting year on year to tackle the plight in which many of our constituents find themselves.

To return to the point made by my hon. Friend the Member for North-West Leicestershire (David Taylor), success in delivery of housing improvements and building programmes can be achieved only if the Government work in partnership with local authorities, adopt the Labour party conference option 4 policy, end the discrimination against local authorities and invest directly in a large-scale council house building programme. I can find no other vehicle that could undertake the scale of investment and delivery that we need in this housing crisis.

Finally, on the expenditure side of my Budget equation, I suggest that the Government acknowledge the £800 million deficit that the NHS is facing. My primary care trust is facing a deficit of £30 million, which is unmanageable. No matter how good the management, we will not be able to tackle that in the next 12 months. It is clear from my experience that that has arisen from the rigidity and dominance of the national target setting approach to service improvement, which has undermined local management and local decision making. Therefore, central Government need to review not only local management but the central Government role. In addition, we need to recognise that the £800 million gap is not bridgeable in one year. My proposal would be to write it off and to allow the PCTs to start again in partnership with central Government.

The sum total of those Budget proposals is about £35.37 billion, give or take the odd £100 million. I mention that because my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) intervened on me last year to see whether the addition was correct—I hope it was.

Turning briefly to how we should raise the revenue to fund this programme, I welcome today's statements by the Chancellor of the Exchequer that we will start looking at tax avoidance. I regret that in the merger of the Inland Revenue and Customs we lost 3,000 staff, but I compliment the new department's work on corporate tax avoidance. Let us consider the proposal made by the Tax Justice Network. Corporate tax avoidance on a
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scale of £9.2 billion could be tackled, and could reap an income to be invested in the future of public services and in reducing poverty.

I am delighted that a number of years ago the Chancellor introduced windfall taxes to tackle obscene profits in certain sectors of the economy. I urge him to revisit that policy and look at two particular proposals. First, a windfall tax could be imposed on the bonuses given before Christmas to many people who work in the City. We have heard that the stock market is having a difficult year, but national account data show that output in the financial sector has recently increased by 5 per cent. year on year. It is just shy of the 5.3 per cent. that is the highest recorded increase since the 1990 boom under the Lamont chancellorship. The bonus pool for investment bankers is estimated to be £7.5 billion, and some of those profits were distributed before Christmas on a scale not previously seen. Indeed, it is believed that 3,000 mangers could receive a £1 million handout. A windfall tax on 50 per cent. of a City bonus is therefore justified, and would bring in £3.75 billion.

Secondly, we must look at banks and oil, and we could impose a windfall tax on the incredible profits that energy companies have reaped recently. BP, for instance, had a profit of £11 billion or 25 per cent; Shell, 30 per cent.; and Centrica, 11 per cent. Of the banks, Barclays had a profit of £5.28 billion or 15 per cent.; Lloyds TSB, 10 per cent.; and the Royal Bank of Scotland, 21 per cent. The Chancellor has introduced windfall taxes before, and he should do so again on the same scale. The level of profits that triggered the previous windfall tax has been exceeded by those companies, and a new windfall tax could bring in £6.10 billion.

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