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Alan Johnson: Does the hon. Gentleman agree with the shadow Secretary of State for Health, who said that he thought that that was the right deal to do, and that it was fair to staff who were already in post?
In looking back at the Budget, we need to look at the broad direction in which our economy is heading, and in which it risks heading further. We need an economy with lower regulation and higher skills. We need one with more consistency and less chop and change. We need one with an imaginative infrastructure that extends to areas that, at the moment, are denied the opportunity that they deserve. We need one with people in it whose working life can give them security in old age, and one that has an energy mix that is competitive, sustainable and safe. We lack a Government who actually know something about business. We need a Government who appreciate that without wealth there can be no welfare, without prosperity there can be no attack on poverty, and without a thriving business community we risk decline.
This was a do-nothing, hold-on-for-dear-life Budget. The Chancellor desperately hopes that he will be able to slip in under the wire to No. 10 before he is rumbled. However, the real cost of this Chancellor is hundreds of billions in higher taxes and annihilated pensions. In the years to come, we are all going to pay a heavy price for his stewardship of our economy.
It is always a huge pleasure to follow the hon. Member for Rutland and Melton (Mr. Duncan), although his speech was somewhat less dispassionate than he had promised. He was obviously in Tiggerish mood, and somewhat less gracious than usual. I would have thought that any right hon. or hon. Member would recognise that to be able to deliver 10 Budgets in a row is a pretty remarkable achievement on the part of any Chancellor of the Exchequer. For those Budgets to have coincided with, and contributed to, our remarkably successful economic climate is without parallel in modern times. So perhaps the shadow Chancellor, the hon. Member for Tatton (Mr. Osborne), will offer a bit less criticism and a bit more credit to my right hon. Friend when he rises to speak later.
The test of whether a modern Budget works consists of three things. First, we must determine whether it provides for sound economic management. Here, my right hon. Friend has again confounded the prophets of doom, including many Conservative Members, who seem to take perverse pleasure in predicting the imminent decline either of the British economy or of the public finances. I have heard much the same speech from the Conservative Front Bench over the past nine years. In the real world, however, I have yet to see any such decline. Who nowadays talks of mass unemployment, sky-high interest rates or out-of-control inflation?
It is true that Britain faces many challenges in the future, and I will come to some of them in a moment. However, credit is due to my right hon. Friend the Chancellor. As the International Monetary Fund put it in December,
Secondly, however, successful Budgets must look beyond today's achievements and face tomorrow's challenges. In the end, politics is about the future, not the past. Political parties that are wedded to the past tend to remain stuck in it, which is precisely why the Conservatives remain in opposition. Success goes to those who have the strongest claim on the future. Again, in that regard, this Budget has much to commend itabove all, as my right hon. Friend the Secretary of State for Trade and Industry has just said, its commitment to increased funding of education and science as recognition that our country's future competitiveness will rely increasingly on access to skills and technology.
That brings me to the third test of success for any Budgetwhether it works politically as well as economically. Here, my right hon. Friend the Chancellor laid down a dividing line in his Budget that caused the Conservative partyI notice that the shadow Chief Secretary has departedsome discomfort, to put it politely. The Conservatives' adoption of a third fiscal rule might have seemed a good wheeze when it was dreamt up, but the Budget has exposed it for what it is. Going into the next election promising cuts in public expenditure, particularly in education, will leave the Conservative party no further forward than it has been at the two previous elections.
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I speak with some feeling on that. My party had to learn the hard way during the 1980s that when one gets the fundamentals of tax and spend wrong, one pays a very high political price. Conservative Members might note that former President Clinton is in town today, and we all welcome him. The Conservative party would do well to heed the advice of President Clinton's famous election campaign sloganit is the economy, stupid, not stupid economics, that wins elections.
When Labour won office a decade ago, the key policy question that faced Britain was how to end the stop-go economic cycle and how to modernise public services. In both regards, although, of course, there is more to do, there is much progress to report. There are new questions today, however, which are different from the old ones. They boil down to this: how can we ensure that our response to globalisation, including increased competitive pressure from India and China, is characterised by the building of a genuinely inclusive society when there are huge pressures going in the opposite direction?
As my right hon. Friend the Secretary of State for Trade and Industry indicated in his speech, globalisation demands many policy responses from Governmentfiscal discipline, economic stability, open markets not economic protectionism, a limit on regulation. It also requires investment in skills, technology and infrastructure. In the end, however, important though each of those policies are, the most important policy response is none of thoseinstead, it is the building of a society in which every citizen gets the chance to contribute and to progress. We now live in a highly competitive world, in which every talent wasted is not just a loss to the individual but a huge economic drag on the country. Britain can succeed economically only if we are mobile socially. Here, bluntly, we have no reason for complacency and much to concern us.
As my right hon. Friend the Chancellor reported, it is true that life is steadily getting better for most peopleliving standards are rising. We all know, however, that in recent decades birth not worth has become more and more a key determinant of life chances in our country. Social mobility has slowed down when it ought to have been speeding up.
Mr. Stewart Jackson (Peterborough) (Con): I am listening with interest to the right hon. Gentleman's homily to the future. Can he explain how, after nine years of Labour Government, the gap between the richest 10 per cent. and the poorest 10 per cent. in our country is wider than it has ever been?
I will come to precisely that. The hon. Gentleman might have read, I think, the most authoritative study on inequality, mobility and poverty by Professor Hills of the London School of Economics. He says that it is likely that in the last two years for which figures are available, the widening of the inequality gap, which widened massively during the 1980s, has been halted. What we know for sure is that poverty has been reduced, particularly among children and pensioners. The truth is, howeverwe see it in the hon. Gentleman's constituency as much as in minethat the gap remains stubbornly and persistently wide.
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While more people are better off, poverty has become more entrenched. There is a glass ceiling on opportunity in our country. We have raised it, but we have not yet broken through it.
There are many welcome measures in the Budget that will help the position. Increasing the value of tax credits is one; yesterday's White Paper, with its focus on skills, is another. But as Amartya Sen, winner of the Nobel prize for economics, has noted, social inequality is best tackled and mobility best advanced if we tackle the root causes, not the symptoms. That must mean moving beyond simply correcting low wages and family poverty after the event, towards policies that spread opportunity and help people to realise their own aspirations for progress.
The biggest inequity today in our country is not between income groups, but between those who own shares, pensions and housing and those who rely purely on wages and benefits. That is why I believe, in common with my right hon. Friend the Chancellor, that the biggest contribution to enhancing social mobility is to establish Britain as an asset-owning democracy. After all, people rarely spend their way out of poverty. It is far better to encourage people to own assets, so that they have a real stake in the future. I therefore welcome the Budget announcement about the child trust fund. I also welcome the extension of home ownership: indeed, I want it to go further. Just as we are extending home ownership, we should seek to extend employee share ownership to give people a greater stake in economic success.
My party won by becoming a party of aspiration. Our means of beating poverty should involve unleashing aspiration. That brings me to another area in which more reform is needed to combine the values that the Labour party, at least, has always supportedsocial justice and fairness for allwith the modern ambition that people rightly have to progress. I refer to the sensitive issue of taxation.
The Chancellor told the House that he had had scope for tax cuts, but had chosen not to make them. He rightly announced, however, that he was uprating tax credits in line with earnings. In effect he was announcing a tax subsidy for working households, and I welcome that. Tax credits have made a real difference in raising living standards and incentivising people into work. Before their introduction, thousands of low-income families faced marginal tax rates in excess of 70 per cent. Some were even clobbered by rates of over 100 per cent. That meant that for every £1 earned in wages, more than £1 was taken off in tax.
Today, over half a million fewer low-income households face such insanely high marginal tax rates than was the case in 1997. However, as the Red Book itself confirms, the number facing marginal tax rates of 60 per cent. or more has increased by nearly 1 million, largely as a consequence of the workings of the tax credit system. The Institute for Fiscal Studies has warned that, without remedial action, that could worsen work incentives.
I was brought up to believe that hard work and endeavour would be rewarded, not penalised. The tax system needs to reflect those values. On fairness grounds, it surely cannot be right for people towards the bottom of the income scale to face higher marginal taxes
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than those at the top. It is for that reason that I welcome the Chancellor's plan for a review of the feasibility of aligning income tax and national insurance contributions for low-income families. I believe that the review should consider additional ways of making direct, targeted cuts in the tax burden on low-income families, building on our introduction of the 10p starting rate of tax in 1999, so that we can spring more people from the poverty trap. Such radical action is needed if we are to unfreeze social mobility in our country.
Of course, there is much that this Labour Government have already done of which we can be proud. No Conservative Government would ever have introduced a national minimum wage, made universal child care a new arm of the welfare state, or helped millions of pensioners out of poverty. The Budget is a further step in the right direction, but we need to do more to help more people through that glass ceiling. An 8020 society, in which 80 per cent. do OK but 20 per cent. are left behind, might be good enough for the Conservatives, but it should not be good enough for us. That is why I urge my right hon. and hon. Friends to keep moving forward with reform. The longer that we are in government, the greater the need to keep on changing to keep pace with the times in which we live.
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