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Mr. Soames: My hon. Friend is right that it is extremely difficult to gauge, but by any standards, by and large, productivity in the public sector is way inferior to that in the private sector.
Mr. Gauke: That is absolutely true, and it brings me neatly to what I was about to say. Productivity in the private sector has also not been impressive in recent years, but the change in balance, with the public sector growing at the expense of the private sector, has reduced our overall productivity because productivity in the public sector has been particularly poor in recent years.
There are a number of explanations for what is happening in the private sector. Many economists would argue that a large element of it is due not to policy failures but to what might be described as labour-hoarding. A number of businesses expect a slowdown in the economy, which means that there is less work, but
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rather than lay off staff—and expecting the slowdown to be followed by some economic growth, which would mean having to find new staff—they retain existing staff for longer than they might have otherwise.
Ed Balls: I want to be sure that I understand what the hon. Gentleman is saying. He seems to be saying that in the past, when the economy experienced a tough year, people were laid off, unemployment shot up and employment fell. Because nowadays people think that a tough year in the British economy will be followed by a return to growth, they do not lay off staff but retain them in their jobs. That is why in that particular year employment stays high and productivity figures are slightly lower. I understood the hon. Gentleman to be saying that that was good news for the British economy rather than bad news—or did I misunderstand?
Mr. Gauke: The hon. Gentleman may find this hard to understand, but I was not making a partisan point. I know that this will be beyond his comprehension, but I am not claiming that labour-hoarding results from a failure of Government policy. All I am saying is that it is happening—that it is an observable fact. It is a good thing. If it is thought that the economy will grow and that it is therefore unnecessary to lay people off, that is clearly a good thing. There was no criticism in what I was saying at that point; but—
Mr. Gauke: Yes, there is a "but". When labour is hoarded—if that is the correct phrase—and growth does not follow, there is more vulnerability to an increase in unemployment. If the downturn lasts longer than expected, there will be higher unemployment. That is a potential difficulty. In 2006 we are witnessing some increase in unemployment, perhaps suggesting that the labour-hoarding is unwinding to some extent. We shall see.
There are, however, more substantial reasons why productivity has been so poor. One is the increase in regulation. According to the "Burdens Barometer" published by the British Chambers of Commerce, the cost of regulation has risen by £14 billion since 1998. The World Economic Forum says that since 1997 the United Kingdom has fallen from 13th in its league table to 30th in terms of Government regulation.
The Chancellor focused a great deal on the City of London in his Budget and the papers that have been produced. The City faces great challenges and regulation, which in general are not domestically driven. They come not from the United Kingdom but from the European Union: the markets in financial instruments directive, for instance, is causing concern.
Taxation is another problem. Business taxes have risen substantially. The Ernst and Young analysis shows that if North sea oil revenue is excluded, taxes are the highest that they have ever been. The level of taxation is not the only difficulty, however. We should observe what is being done by our competitors. We are to be taxed more heavily than Germany, and it is no surprise that Germany's growth is likely to exceed ours in the years ahead.
We should consider not just our own taxation level, in absolute terms and relative to those of our competitors, but the complexity of taxation. Let me give an example.
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I know that vehicle excise duty is not a business tax, and I am not particularly critical of the policy per se, but it is rather characteristic of this Chancellor that we are to have seven different rates whereas once we had only one. That illustrates this Government's tendency to complicate matters. According to a World Economic Forum assessment, in terms of tax simplicity the UK is ranked 67th in the world, tied with Benin.
A further element threatening productivity is the decline in business investment. The Chancellor said in his 2001 Budget that
"To achieve our first ambition—to secure the fastest productivity growth of our competitors over the next decade—business investment must rise".—[Official Report, 7 March 2001; Vol. 364, c. 298.]
That is not happening. Business investment is falling, in part because of the taxation and regulation that I mentioned earlier. It is now at a record low: about 9 per cent. of gross domestic product, which is the lowest level since records began in 1965.
The British Chambers of Commerce and the CBI have offered substantial criticism of our skills levels. I know that more is being spent on education and I am not critical of that, but we must get the value for money that the Government have not achieved in the past. Until we get the full reforms that we need, I will not be all that optimistic. To be fair, the Government are moving in the right direction through their Education and Inspections Bill, but there is still a long way to go.
This country has enormous advantages, such as the English language and strong cultural links with many other parts of the world. In an increasingly globalised world, we should be able to succeed, grow and prosper. There is cross-party consensus on the need to embrace globalisation, and we at least all talk about a belief in and desire for free trade, even if we do not always implement it. But our economy is becoming increasingly clogged up and it is less competitive and productive than it was. There are some fundamental economic issues that we need to face, and I fear that this Budget has completely failed to do so.
4.57 pm
Mr. Peter Bone (Wellingborough) (Con): It is a great pleasure to follow my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke), who talked about productivity in detail and with great knowledge. Indeed, he somewhat embarrassed the Government.
Yesterday was the first Budget that I had witnessed as a Member of the House of Commons. I got here very early to put my green card by my normal seat, only to discover that the place was packed with green cards. I felt a sense of great anticipation: this was going to be a packed House, and I was about to hear the iron Chancellor tell us about his great new reforms. According to the bookies, it was to be the right hon. Gentleman's last Budget as Chancellor, and he will be elevated to the role of Prime Minister very soon. So although it is always a thrill and an honour to enter the Palace of Westminster, I felt a little extra anticipation yesterday.
The Chancellor spoke for just over an hour, but it seemed like three hours. After half an hour, a fellow Conservative whispered, "I've given up the will to live."
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Another said to me, "When does the Budget start?" I thought that they were simply being partisan, but I noticed on looking across to the Labour Benches that three Back Benchers had fallen asleep. Later, some of them left. I thought that the Front Benchers would be okay, but when I looked at the Deputy Prime Minister, I noticed that even he was enormously bored. The Prime Minister was grinning, but it was even more artificial than usual. So in that sense, I was very disappointed with the Budget. The leader of my party said more in eight minutes than the Chancellor said in over an hour.
I thought that I should measure the Budget against the expectations of the people of Wellingborough, whom I regularly survey through my "Listening to Wellingborough and Rushden" survey. Of the issues that they mention, five in particular always come top: pensions, council tax, police and crime, education, and health. Wellingborough is a rapidly expanding town. Indeed, according to the Office of the Deputy Prime Minister, over the next 15 years 9,825 new dwellings will be created in one half of my constituency, and 6,800 in the other. So there will be an enormous increase in the number of people in the constituency. It worried me that the Budget provided no encouragement for first-time buyers. The small increase in stamp duty exemption did not even cover the average price of a new home for a first-time buyer. That was a little mean, and the Chancellor could have done better on that.
One important issue in Wellingborough is pensions. I agree with previous comments about the 85,000 people affected by the failure of their company pension schemes. It is unfair that the Government have not dealt with that problem. If an ombudsman criticises the Government on an issue, they should take notice of what she says. We cannot let 85,000 people down through maladministration and do nothing about it.
People are now beginning to realise the implications of the £5 billion that has been stolen from pensions each and every year, as their pensions are being slashed. I should congratulate the Chancellor on one point: he has put the tax burden up to its highest ever level, but he has done so cleverly. He has done it through stealth taxes that people have not noticed initially, but they are now all coming home to roost.
In my constituency, a group of pensioners were so fed up that their pension was going up by less than the increase in the council tax that they started a campaign. They had public meetings, and shadow Ministers came to speak to them. What annoyed those pensioners so much was that the basic state pension was not going up enough to cover the increase in council tax in my constituency. They were also fed up with means-testing. Many people knew that they could get more money if they applied to the Government for pension credit, but they were not prepared to do so. They did not want the Government to know all their financial background. They thought that after paying in year after year, they should not have to go on bended knee to the Government for a few extra pounds a week. That is the problem with the pension credit. We should get rid of it and all the other bribes, and give people a decent pension. One of the few issues on which I agreed with my predecessor was that the millions, if not billions, of pounds of unclaimed pension credit could be added to the basic pension right now. I do not know why the Government do not do that.
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Council tax also comes high in the list of priorities for the people of Wellingborough. That is partly because we have had the biggest rise in council tax since it was introduced. Part of the reason why the councils have had to put up the council tax is the funding formula used to support the revenue grant. It is clearly based on historic evidence not future population growth, and we have lost out year in and year out.
It is strange, however, that before the election, when Labour controlled the county council, the increase in revenue support grant was £7 million. The Conservatives took over, and this year's increase was only £2 million. That is wholly unacceptable—
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