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David Taylor: In his list of areas of the economy where unjustified profits have been made, will my hon. Friend consider including companies such as Laing, which is the midwife to many private finance initiative projects? Ten days or so ago, it announced that its so-called PFI investment quintupled in a relatively short period and that its profits had increased by 43 per cent. The income stream that it received from those projects was twice the base rate, so it is no wonder that 60 acute NHS trusts, to which he has referred, have commitments to PFI payments that exceed 10 per cent. of their revenue. Does he not agree that that is only going to get worse?

John McDonnell : I regret that the Chancellor appears to have launched a new PFI initiative.

David Taylor: It will cost £26 million.

John McDonnell: That is a significant roll-out of PFI. In the past, PFI schemes have wasted resources, and companies have been guilty of exploitation. In many cases, they did not deliver the goods or provide the public services required. We all have experience of such projects in our constituencies. In my own constituency, a new PFI school was imposed on us. Every year, the school has a deficit that it must make up. Jarvis was the PFI contractor, so when it was threatened with bankruptcy we had to set up a telephone tree in case we had to occupy the school to prevent the company from
 
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removing goods. In addition, kids in the local community cannot afford most of the sports facilities provided at the school via Jarvis, so the facilities stand idle.

Alan Simpson : Does my hon. Friend accept that his constituency was not alone in being saddled with problems after projects were administered by Jarvis? Will he confirm that in the year when the company's share price has collapsed it paid its executives a bonus of £807,000, which appears to be a reward for failure?

John McDonnell: There are numerous examples. I refer hon. Members to the work of Alison Pollock and to the publications by Unison in recent months, which contain example after example in the public services, health and education where PFI has been used to exploit the public purse, has failed to deliver and has delivered large bonuses and profits to individual company directors. That is why I regret that the Chancellor is going along that line. I would welcome a Government inquiry into PFI, which would probably echo the work done by the Public Accounts Committee on individual PFI schemes, which has demonstrated their lack of deliverability and cost effectiveness.

To balance our books, I refer to what was Labour party policy—that we should reduce our defence expenditure to European Union average levels. That would bring in £6.3 billion. In line with my views, which are shared by a large number of colleagues, withdrawal from Afghanistan and Iraq would produce £1.3 billion.

On income tax, we must consider the restoration of higher income tax levels for those earning more than £60,000, graded up to £100,000 and above. Figures produced by the House of Commons and recommendations from the left economic advisory panel suggest that we could have an income tax take of an additional £11.2 billion.

Overall, that would provide us with an expenditure of £35.37 billion and an income of £37.85 billion. Some of that expenditure would be one-off. The gap between one-off expenditure and ongoing income is about £9 billion. I refer to the proposals made by others to build on the Chancellor's message today that we need a huge investment in an environmental programme to ensure sustainability and tackle climate change.

I regret that today we have not made progress on aviation tax. I accept that there are constraints arising from international agreements, but, as we have demonstrated in previous debates in the House, that does not prevent us from moving on with regard to UK fuel duty and it does not prevent us from increasing passenger duty. I know that my hon. Friend the Member for Nottingham, South (Alan Simpson) has ingenious ideas for controlling emissions through levies on emissions at particular airports. That is one way in which we can increase duties overall, which will enable us to launch a comprehensive programme to investigate wind power, solar power, marine power, renewables, biofuels and waste minimisation. It will also provide a significant injection of cash for investment in our public transport system.

The Chancellor of the Exchequer referred today to the need to control public sector pay. I wish as much attention was paid to the private sector, especially the
 
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City. If attention is to be paid to public sector pay, let us consider some of the levels of pay that public servants receive, which raise the issue of poverty pay. Let me give some examples. For an administrative assistant in the Department for Work and Pensions, the starting salary,   which many people are on because there is high   turnover, is £11,750. In the Department for International Development, it is £10,947. When we increased the minimum wage last time, we discovered that some of our own staff were on the minimum wage. In the Ministry of Defence the starting salary for an administrative assistant is £11,220.

Many of those jobs are based in London. I do not know how people survive on such salaries in city areas. If we are to look into public sector pay, it should not just be in terms of restraint. We need to develop Government policies for coherence in national negotiations and tackle low pay. We must recognise that many of those people are dedicated public servants, without whom we would not be able to deliver our policies or the Budget.

4.44 pm

Mr. Michael Fallon (Sevenoaks) (Con): I remind the House of the business interests that I have declared in the register.

I hope that the hon. Member for Hayes and Harlington (John McDonnell) will forgive me if I do not respond in detail to the alternative Budget that he has presented. He was honest enough to attach prices to some of his programmes, although I am afraid that my calculator overheated, so I shall leave it to the Economic Secretary to respond in detail. However, I shall make one point: he has said that he is against privatisation, but if he looks at table C4 in the Red Book, he will see that the spending programme that the Chancellor is currently planning depends on some £35 billion of privatisation—£7 billion a year over the next five years.

David Taylor: Those are asset sales.

Mr. Fallon: The hon. Gentleman calls them asset sales, but taxes are called "charges" for the same reason. The programme involves privatisation, and Qinetiq was the first of it. I wonder whether the hon. Member for Hayes and Harlington will troop through the Lobby in due course in favour of it.

John McDonnell: There are a series of proposals in today's Budget that are asset sales, and I expect the Chancellor of the Exchequer to introduce individual pieces of legislation on them. If the hon. Gentleman checks the record on issues such as the sale of air traffic control, he will find that I have opposed each privatisation.

Mr. Fallon: I do not doubt that, and I was half implying that I expect to see the hon. Gentleman rebel again. I do not know what he would call the proposed sale of Scottish Water—is it an asset sale or is it a privatisation? If it looks like a privatisation and it sounds like a privatisation, it almost certainly will be a privatisation.

Before turning to the Budget judgment itself, it is worth reminding hon. Members about parts of the fiscal process since last year's Budget that the Chancellor did
 
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not mention today. In the middle of the existing financial year, the Chancellor rushed to the Treasury Committee to change the economic cycle's starting date. He then fiddled the end date of the cycle, and he also started to correct some of his mistakes in the pre-Budget report.

The Committee had already warned the Chancellor that because of earlier misjudgments, he was likely to have to put up taxes, increase borrowing or reduce spending. As hon. Members know, he did all three of those things in December: he put up taxes quite significantly, especially on North sea oil; he increased his borrowing forecast; and he cut spending by reducing the original envelope that he had sketched out for the comprehensive spending review 2007.

Today's Budget was largely set by the pre-Budget report. Those who follow our proceedings may be puzzled by how the pre-Budget report has evolved into the Budget itself—today seems to be a tidying-up exercise with an awful lot of flannel in between. Today's course had already been set, which is a shame, because the Chancellor could have done very much more.

As other Conservative Members have said, the taxation system is far too complex, too burdensome and increasingly unfair. The Chancellor could have taken the opportunity today to introduce serious proposals on simplification, to make cuts rather than increasing taxes and to introduce measures to make taxation fairer. There is much more to be done on simplification than the minuscule target of reducing the administrative burden imposed by Revenue and Customs by 10 per cent. over five years. For example, although I admit that the figures show that the administrative cost of processing taxes is higher in Holland than it is here, the Dutch are cutting that burden by 20 per cent. over four years.

Much could be done on matters such as simplifying statutory sick pay for companies and company car schemes, and there is a range of such measures that are simply an unnecessary burden on our businesses. Instead, the Chancellor has continued to make life more complicated for business and to increase the burden, although I was hoping that he would decrease it.

I have heard nothing today about the plight of council tax payers, who are shouldering an increasing share of the cost of local services. When the Government entered office, council tax payers had to shoulder some 25 per cent. of the cost of local services, but the figure is now well over 35 per cent. Year after year, council tax payers must bail out the inefficiencies of central Government.

On income tax, the effect of fiscal drag means that people of quite moderate means, many of whom are inside the public services that the Economic Secretary has defended so eloquently, have been dragged into the higher rate of tax. Some of those people are in the front line of public service, such as senior police inspectors and senior hospital nurses, who would never have dreamed of being described as "the rich". They have been dragged into the higher rate of tax by the Chancellor's failure to index allowances. It is perfectly possible for a Chancellor to choose not to index allowances to suit any one year's particular fiscal judgment. However, the cumulative effect of refusing to do so is that more than 1 million people, many of whom are on relatively low incomes, are being dragged into the higher tax bracket.
 
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Business is paying more tax. Although, as the Chancellor reminded us, there have been welcome reductions in corporation tax, business is paying an increasing burden elsewhere. The key point about business taxes is that they are not stealth taxes—they are highly visible to business, and business is extremely mobile. I fear that white-collar jobs will follow blue-collar jobs out of this country overseas. The level and complexity of business taxation needs constant vigilance. We cannot stand still as other countries improve their competitiveness and the attractiveness of their tax regimes. I hope that the Chancellor will use his new all-star global advisory board to set himself a target of improving our competitive tax position. I have no magic bullet to offer him.

It is a mistake for people to think that the 15—not 10—years of economic growth that we have enjoyed were triggered by any single reform. They are not underpinned by any single employment Act, change in industrial tribunals, or change in tax rates, but by a raft of economic liberalisation and supply-side reforms that took place much earlier, in the mid-'80s. Because our competitive disadvantage is now slipping away, the Chancellor and the Government urgently need to look again at the supply side to ensure that our climate for business is as competitive as it should be. Instead, the Chancellor merely said that he would continue discussions on the rate of business tax and continue to review the level of national insurance against the level of taxation, and we are to have yet another report on business regulation. After nine years of the effects of this Government, the time for discussions, reviews and reports is surely over. It is time to do something serious about the situation.


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