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Martin Horwood: Our primary care trust keeps within its budget. It is a three-star PCT that has balanced the books and broken even in recent years. Why, therefore, have closures of ward and hospitals, as well as the rationalisation of everything from mental health services to obstetrics been announced in Gloucestershire today?

Mr. Clarke: The hon. Gentleman might be able to catch your eye later, Madam Deputy Speaker. However, if he will forgive me, I have only a short time available so I shall concentrate on my own constituency.

Home owners have benefited from low and stable interest rates, with a current rate of 4.5 per cent. The jewel in the crown of economic success is the lowest mortgage rates since the 1950s, cutting mortgage costs for the average mortgage payer by about £4,000 a year. Scotland's housing market is set for another boom year, with prices rising at twice the rate for the UK as a whole according to Halifax Bank of Scotland, Britain's biggest mortgage lender. Even so, Martin Ellis, chief economist at the Bank of Scotland, has pointed out:

Coatbridge in my constituency recorded the biggest house price increase in the UK during 2005, with an average rise of 36 per cent.. That is tangible evidence of prosperity across the UK, and not only for the wealthy.

Mr. Andrew Love (Edmonton) (Lab/Co-op): On home ownership, my right hon. Friend will know that until a year or so ago, the number of people who owned their own property had increased by 1 million. That figure appears to have increased again to 1.5 million, so can we now call Labour the party of the home owner?

Mr. Clarke: My hon. Friend is right—the party has truly produced a property-owning democracy.

The Chancellor dealt with overseas aid, and it was significant that the Leader of the Opposition did not think that it was worth dealing with the subject at any length. I welcome what the Chancellor said and did. The House will be aware that the International Development (Reporting and Transparency) Bill, which I introduced, is a small contribution to reducing third-world poverty. More specifically, Parliament and the House must become much more proactive, better informed and far more focused on the huge resources and practical strategies needed to tackle those problems.
 
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I consulted both the Treasury and the Department for International Development, and I record my sincere gratitude to the Chancellor and the Secretary of State for International Development. My approach is founded on the belief that we have obligations to one other beyond our front door and garden gate, and we have responsibilities beyond our national borders. If Governments, business, non-governmental organisations and faith groups work together, this generation, with its energy, technology and global reach, does indeed have it within its power, if it so chooses, finally to free the world from poverty, disease, illiteracy and want. I believe that the Budget contributes substantially to that end.

5.45 pm

Mr. Kenneth Clarke (Rushcliffe) (Con): I draw the attention of the House to my entry in the Register of Members' Interests.

I have not missed many Budgets, if any, since I entered the House, and I have never heard a Budget that had less content than the Budget that was delivered last week. It has already vanished from the newspapers, it contained very few measures, and it did not seem to attract the attention of the Chancellor of the Exchequer very much. He is plainly bored by the job that he holds, which he has held for a long time. He is impatient, we all know, to go to another.

The Chancellor can be a considerable and effective parliamentary debater, but I have never heard him put less effort into delivering a speech, so he gave a very boring speech. As the hon. Member for Twickenham (Dr. Cable) remarked, searching through it for what we used to regard as Budget measures produces a thin harvest. The Chancellor could not afford to do anything in the Budget, and did not particularly wish to do anything, so there was very little in it.

I am one of those who believe that we need an annual Budget. It is a strange performance that we go through, but the House debates economic policy so infrequently on the Floor that it is valuable to have a five-day annual debate. I do not want to go back to Budget speeches that used to be long, impenetrable, detailed expositions of fiscal and monetary measures, macro-economic indicators and the outlook for the economy, but we need more fact than the political presentation that we get from the Chancellor, and from his colleagues in subsequent days.

It would be nice to have a statement of fiscal policy, a description of all the fiscal measures being introduced that day, including the ones in the press releases, and a more dispassionate outlook as to where the economy is going. Because many of the financial commentators in the newspapers just take the Treasury briefing, if we have a Budget of the kind delivered by the Chancellor last week, we often have a debate about economic policy in the United Kingdom that is not based on a sound factual footing.

I shall try to fill the gap. I have spent a few days trying to work out where we are and what the Chancellor is doing. He deliberately took content out of the Budget by moving the difficult things out. Let me begin with fiscal policy. The Chancellor is raising taxation rapidly and increasing the tax burden, which is going up to levels that we have not seen since the 1980s. He is preparing to restrain spending growth drastically; he just did not want to say so in his Budget statement.
 
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The Chancellor got rid of the specific tax measures in the pre-Budget November statement. He got over the humiliation of finally admitting that his growth forecasts were all wrong, but more importantly, he imposed yet more tax burdens on the oil industry, which will raise £2 billion in a full year, and he floated the idea of a development land tax, about which we will no doubt hear more in due course.

In the Budget, the Chancellor has relied on his old weapon of fiscal drag—not raising the thresholds for each level of tax in line with inflation, so as to produce more and more income. That leaves all our constituents baffled about why they feel they are paying more tax, although the Chancellor has not announced any increase in taxation. All Chancellors use it; the present Chancellor uses it every year, and he is using it heavily. The Red Book forecasts that by 2010, compared with the present, another 1 per cent. of national gross domestic product will be taken by income tax and national insurance.

As has already been pointed out, corporation tax thresholds have not been raised at all—not in line with inflation, not at all—so corporation tax take increases as well. The Chancellor is raising his revenue rapidly. He needs to; I shall return to that. He has put off—I do not regret it—the comprehensive spending review a little. I do not know why. It will be completed by mid-2007. He gave us hints of the beginning of that with what has already been described for Her Majesty's Revenue and Customs, the Treasury, the Department for Work and Pensions and the Cabinet Office. Their baseline will be taken down by 5 per cent. per annum in real terms, compared with their baseline for 2007–08. I imagine that the Ministers responsible will think of nothing else, because we have been given no idea how it will be achieved.

The Chancellor forecasts that public spending as a whole will increase by 1.9 per cent. each year between 2008 and 2010, which is less than half the level of recent growth and less than the likely growth rate of the economy. We have no idea where those cuts will be made, and we have no idea how the public services will cope when some of them are in crisis even following the ridiculous largesse since 2000. Unless reform is initiated, this will be a tight public spending round.

The Chief Secretary to the Treasury (Mr. Des Browne) rose—

Mr. Clarke: The Chief Secretary must deliver the public spending round—I have worked with some tough Chief Secretaries, and I hope that he has got the knuckledusters ready.

Mr. Browne: Like most hon. Members, I have enormous respect for the right hon. and learned Gentleman. However, I do not want him to continue to labour under the misapprehension that the comprehensive spending review 2007 was a Budget announcement. I am sure that he knows that I made a statement to this House in July setting out the fact that
 
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there will be a comprehensive spending review rather than a normal spending review. Indeed, I set out all the work streams, some of which are now reporting.

Mr. Clarke: I realise that spending is not usually a matter for the Budget, although I used to include it. However, when one considers fiscal policy, spending is still relevant to the debate. The Government are raising tax and are about to cut spending growth drastically—they argued that we were being draconian when we urged such measures in the past. There are no longer any fiscal rules by which to judge the matter. The golden rule has been discredited since the ridiculous change to the timetable for the cycle. The sustainable investment rule would be sensible, if the accounting devices for Network Rail, unfunded pension commitments and the private finance initiative made any sense. The Chancellor is flying by the seat of his pants on fiscal rules. In its annual country report, the International Monetary Fund recommends that he should start putting in some fresh fiscal rules to correct those discrepancies.

Although the Budget does not contain a Budget judgment, we should know what it is. Chancellors usually loosen policy, tighten policy, try to redress the public finances or feel that they can be expansive. This Chancellor is tightening policy, and he has only just started. He must do so because of many factors that we warned him about, given his years of irresponsibility since 2000.

The real economy is in the doldrums at the moment. Let us not start the fancy swapping of statistics, which involves real-terms figures, cash figures and choosing particular funny years. Everybody knows that the economy is going through a period of marked slowdown, because the 1.8 per cent. gross domestic product growth in 2005 was the lowest since 1992. Why is GDP growth slowing down? It has been based—I refer hon. Members to my previous Budget speeches—on a sea of household debt, and public debt and borrowing, for the past six years. That was not sustainable, and what is not sustainable always stops, which is why GDP growth has started to slow down. There has been a drop in consumer demand and a drop in public investment and spending. Those trends will continue, and will not pick up rapidly.

Last year consumer demand grew by 1.9 per cent.—the lowest growth since 1995. It will not pick up, and I shall briefly explain why. First, household debt is about 150 per cent. of household incomes. People will not add much to absolute debt, so they are not going to spend above their incomes any more. The disposable income of the average household in this country has gone up by only 1 per cent. in each of the past two years. Furthermore, I have referred to the tax burden, and the Governor of the Bank of England mentioned it when he discussed falling demand.

We have rising unemployment—there has been a slight hiccup in unemployment, which has been a good field hitherto—and last month's increase in the claimant count was the biggest since 1992. I am most struck by the fact that next year the percentage of the working age population in employment in this country will be lower than that in the German Democratic Republic. People are more insecure about their jobs than they used to be.

The pensions crisis is making people worried, which will cause the savings ratio to increase, and consumer demand will not come back. When one examines the
 
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Chancellor's proposals and considers what the Chief Secretary must do in the public spending round, it is clear that public investment is not going to carry on providing all the growth in the economy in future years.

The economy is slowing down markedly and I cannot see any reason why it should bounce back in a hurry. I think that we could be in for several years of lacklustre performance, and I think that we have got there because the Government took too short-term a view and disregarded the warnings when the Chancellor went in for tax and spend. Since 2000, the Chancellor has made the economy ever more dependent on shoving in demand, either by encouraging consumers to borrow too heavily or having the Government spend too highly. Now, the economy will slow down. I have not even touched on global influences such as oil prices and commodity prices, which still have not had their full effect on our growth potential. There will be no quick bounce back.

I have described where I think that we are, so what are my conclusions? The Chancellor has done nothing of significance in the Budget, except to announce small measures and drift on in the manner that he has already proposed. I would like us to seek to achieve so much more. What economic policy now lacks is ambition. It has become fashionable to talk about the challenge from India and China, and one can add to that Brazil and the    entirety of south-east Asia. Globalisation is transforming the world in which we are competing, and the pace of technological change has never been faster, so we must be much more competitive than we ever were.

To make our economic growth sustainable, we need to rebalance it. We will need some years in which growth is led not by consumer demand and public spending, but by investment, trade and productivity, and we must do things to encourage that.


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