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Derek Scott, the Prime Minister’s former chief economic adviser and great friend of the Chancellor, has said that there has been a

I suppose that he is one Scot who will not be making it into the Chancellor’s Cabinet.

Now the country is living with the consequences. Unemployment is rising in Britain, when it is falling in most of our competitor countries, and real living standards throughout the country are falling. According to figures that the Government sneaked out this month, average earnings are not rising as fast as the current rate of inflation, and this is not a one-off. The Chartered Institute of Personnel and Development said last week that

Falling living standards, rising unemployment, excessive micro-management and a less competitive economy—what an epitaph to the Chancellor’s decade at the Treasury.

Andrew Miller (Ellesmere Port and Neston) (Lab) rose—

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Mr. Osborne: I give way to my colleague from Cheshire.

Andrew Miller: It is Cheshire that I want to ask the hon. Gentleman about. Is he aware that in 1997, when the Conservatives lost office, the percentage of unemployment in patches of my constituency was still in the mid-teens? Is he aware that unemployment in my constituency is now around 2 per cent? Therefore, who is the failure?

Mr. Osborne: I am sure that the hon. Gentleman will confirm that unemployment is now rising in Cheshire, as in the rest of the country. We have had the biggest rise in unemployment of any developed country in the world in the last year.

Let us consider the second great failure of this Chancellorship: public services. The question that haunts the Chancellor is how he could have spent so much and achieved so little. When he was shadow Chancellor, he said that the benchmark for a Government’s success is not how much they spend but how well they use their resources. Again, he has failed on his own benchmark. He has doubled the health service budget, but 60 hospitals face cutbacks, 106 community hospitals face closure and 20,000 front-line health jobs face the axe.

The Parliamentary Under-Secretary of State for Education and Skills (Phil Hope): Rubbish.

Mr. Osborne: I note the hon. Gentleman’s comment from a sedentary position. Those are figures from the Royal College of Nursing; perhaps he disagrees with them.

Mr. Jim Devine (Livingston) (Lab) rose—

Mr. Osborne: I will give way to the hon. Gentleman in a moment.

The Organisation for Economic Co-operation and Development says that the effect of higher health spending is less clear in Britain. The mortality rate for cancer and heart disease is declining but, it says, not faster than it was during the 1990s. Perhaps the hon. Member for Livingston (Mr. Devine) will confirm that.

Mr. Devine: Is the hon. Gentleman saying that there are 20,000 redundancies in the health service?

Mr. Osborne: I am quoting the words of Dr. Malone, from the Royal College of Nursing, who says:

Several hon. Members rose—

Mr. Osborne: I will make some progress.

On education spending, let us listen to the Select Committee on Education and Skills:

But, of course, the Chief Secretary put it best when he said bluntly that

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Why is that? It is because the Chancellor broke his promise that not a penny would be spent unless it was accompanied by reform. He gave the spending Departments everything that they asked for, and got nothing in return. The Granita touch has never deserted him.

Now the Treasury is engaged in another comprehensive spending review. Let us consider some of the things that we think that the Chancellor should review. Let us review the centrepiece of this year’s Budget: what he called his pledge to raise future spending on state schools to today’s private school levels. Though cheered to the rafters by the lemmings on the Labour Benches, the Education and Skills Committee now says that the Chancellor’s Budget promise is “without substance”. The Institute for Fiscal Studies calls it “virtually meaningless”. Tackling poor education and skills is perhaps the greatest challenge facing our economy, and his policy is called “virtually meaningless”. It has gone from being a pledge to an aspiration, from a rabbit out of the hat on Budget day to a rabbit in the headlights of the spending review.

Kitty Ussher (Burnley) (Lab): Will the hon. Gentleman confirm that, under Conservative policies, educational investment would come before tax cuts? Yes or no?

Mr. Osborne: We have made it absolutely clear that we will properly fund public services, and that economic stability and investment in public services come before tax cuts.

Let us review another aspect of the Chancellor’s comprehensive spending review. I am delighted that the Home Secretary is in his place for this bit, because before he took office, the Chancellor took the extraordinary decision, a whole year before the rest of the spending review was completed, to freeze the Home Office budget in real terms. Only two years ago, the Chancellor stood at the Dispatch Box and said in his Budget statement:

Since then, we have had the London tube bombings, the foreign prisoner debacle and the admission that the Home Office is not fit for purpose. If it was the wrong time then, why is it the right time now? What could the reason possibly be for picking on the Home Secretary? I cannot imagine. He should not be freezing the Home Office budget; he should be freezing the assets of Abu Hamza instead of letting him flick through Homes and Gardens in his prison cell.

These piecemeal announcements on spending dribbled out of Budgets and pre-Budget reports—announcements that fall apart on closer examination—are the very opposite of what a comprehensive spending review was supposed to achieve. They are the opposite of what a Conservative Treasury will achieve: real value for money for the taxpayer, and government that grows more slowly than our economy. Of course, a proper comprehensive spending review would also have considered the Government’s progress on ending child poverty, which is the third issue that I want to discuss today.

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No one doubts the Chancellor’s genuine desire to tackle child poverty, but surely we are entitled to ask why the number of people in severe poverty has risen by three quarters of a million under Labour. The answer is that the Chancellor has relied on just one blunt instrument: tax credits. Of course he refuses to answer any more questions on his tax credits in the House. He has gone 927 days without answering a single question on the subject. It is funny that he is always there to take the applause when he launches these schemes, and scuttles into hiding when they go wrong.

Chris Bryant (Rhondda) (Lab) rose—

Mr. Osborne: Ah! Here is one of the plotters. Of course I give way to him.

Chris Bryant: I am grateful to the hon. Gentleman. He has made great play—as the Tory party is currently doing—of wanting to tackle poverty, particularly child poverty. My constituents would be very interested in that. What possible help would the abolition of inheritance tax be to the poorest families in Britain?

Mr. Osborne: Despite pressure from some of my colleagues, I am not pledging to abolish inheritance tax.

Let us continue the discussion about tax credits. Where must we turn to get Labour’s verdict on them? Not to the current Home Secretary; not to the last Home Secretary, who says he cannot work with people; no, we must turn to the Home Secretary before that, the right hon. Member for Sheffield, Brightside (Mr. Blunkett), who has just published his diaries.

John McFall (West Dunbartonshire) (Lab/Co-op) rose—

Mr. Osborne: I will certainly give way to the Chairman of the Treasury Committee. Has he read this book?

John McFall: I have been following the shadow Chancellor’s statements closely. He said that he would not abolish inheritance tax. Is he going to abolish capital gains tax and stamp duty on shares?

Mr. Osborne: I am not going to write my Budget for 2009 in 2006, but I can tell the right hon. Gentleman that, unlike the Chancellor of the Exchequer, I will not be breaking the promises that I make in opposition.

Let us return to the last Home Secretary but one. His book is not selling as well as he hoped it would, although I bought a copy. It is ranked 1,104th by Amazon. Still, that is 78,949 places higher than another stocking-filler that has just been published, “Moving Britain Forward: Selected Speeches”, by the Chancellor of the Exchequer. [Laughter.]

Actually, I rather enjoyed this book by the last Home Secretary but one. Here is an interesting diary entry for May 2003.

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There we have it: the flagship of this Government—the single policy most closely associated with the Chancellor of the Exchequer—and a former Home Secretary describes it as a shambles.

Mr. Denis MacShane (Rotherham) (Lab) rose—

Mr. Osborne: I cannot remember whether the right hon. Gentleman has published his diaries, but of course I give way to him.

Mr. MacShane: I am sure that the hon. Gentleman will have his due place in them when they appear.

Yes, there were problems with the tax credit system. There are still problems with the tax credit system. But it has helped thousands of my poorest constituents to have some kind of decent income, and the hon. Gentleman’s sneering, condescending, patronising, offensive dismissal of poverty in this country is a disgrace to the House.

Mr. Osborne: The right hon. Gentleman talks about being patronising!

Because of the way that they have been designed, the tax credits have undermined incentives to work. That is the finding of last month’s devastating joint study by the Institute for Fiscal Studies and the Joseph Rowntree Foundation: their report concludes that the indirect effect of the Chancellor’s policies might be to increase poverty. Such problems arise when one focuses on the symptoms, and not just the root causes: poor education, family breakdown, mental health issues.

Unlike the right hon. Member for Rotherham (Mr. MacShane), other Labour MPs are queuing up to disagree with their Government. The right hon. Member for Darlington (Mr. Milburn), who is not present for some reason, says that poverty has become more entrenched. The current Secretary of State for Education and Skills says that

That is right: after a decade of a Labour Government, a member of the Labour Cabinet admits that it is harder for people to escape poverty. What an epitaph to the life’s work of the Chancellor of the Exchequer that is—and what an indictment of his approach.

The last time we met, the Chancellor completely lost his cool in the Chamber and threw some papers at me. They were covered in handwriting and I have them with me. We sent them to a graphologist—to the principal of the London College of Graphology. I must confess that I was a bit of a sceptic about graphology, but I am impressed by the results. The graphologist says that the writer is not shy—I am sure that Members would agree with that—that the writer shows unreliable and poor judgment and was not in control of their emotions at the time of writing, and that there are signs that the writer can be evasive. It looks like the clunking fist is betrayed by his handwriting.

There is nothing that the Chancellor has been more evasive about than the coup he attempted against the Prime Minister earlier this autumn. Of course, he denies that; he wants us to believe that it was a complete coincidence that the chief assassin—the hon. Member for West Bromwich, East (Mr. Watson)—just happened to pop round to his house in Fife a couple of days earlier. He told us that all they did was sit down
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and watch a “Postman Pat” video together; it must have been the episode in which Pat kills the postmaster. [Interruption.] But the question that the country is asking is not: why is the Chancellor so disloyal to the Prime Minister? It is: why does he think he would be so different from the Prime Minister? [Interruption.]

Mr. Speaker: Mr. Robertson, you have been delivering a speech for the past half hour. You must be quiet.

Mr. Osborne: The hon. Member for Glasgow, North-West (John Robertson) must be careful: he should not misbehave, as the Economic Secretary is looking for a new constituency.

Why does the Chancellor think that he would be so different from the current Prime Minister? After all, the Chancellor has been in charge of domestic policy for 10 years. The jobs that are being cut in the NHS are his cuts. The failing secondary schools are his failures. The shambolic tax credit system is his shambles. The pensions destroyed were destroyed by him. He is the clunking fist, and the country has had quite enough of the damage that he has done.

4.28 pm

The Chancellor of the Exchequer (Mr. Gordon Brown): Is it not remarkable that in the Queen’s Speech debate on the economy, when we are supposed to be reviewing the economy over the past year and discussing its likely performance over the future year, the shadow Chancellor, the hon. Member for Tatton (Mr. Osborne), cannot begin to acknowledge the one central fact about British economic life: that we have had the longest period of sustained growth in the history of our country? That is something that no other country—not America, not France, not Germany—has had over the past 10 years, and it is something that no Conservative Government have ever been able to deliver. It is something that has not happened in the industrial history of our country. The shadow Chancellor would do better to quote to the House what he says to the business community when he speaks to it, which is that the Labour party has

As this debate is about the economy, the shadow Chancellor should also acknowledge that not only have we had sustained growth in this country, but we have had the lowest level of inflation for 30 years, the lowest interest rates and mortgage rates—

Philip Davies (Shipley) (Con): They are all going up.

Mr. Brown: The interest rate is 5 per cent. The hon. Gentleman might wish to stand up and tell us what were the interest rates under the last Conservative Government. If I remember rightly, the interest rate averaged 10 per cent. and it was 15 per cent. for more than one year. The average mortgage rates were 11 per cent.

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