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As recently as the mid-1990s, 75 per cent. of all new public spending went to debt interest and social security benefits, mainly to pay for unemployment. Today, it is down to less than 20 per cent., and the purpose of all these savings is to ensure that front-line services will have the resources that they need. So, up against the global challenge, and with fiscal rules that allow us to
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borrow for sustainable investment, we should not postpone, nor should we avoid, essential new investments that this country must make in infrastructure and education.

One choice for Britain would be to adopt a balanced budget policy, but to achieve that by cutting back on essential investment in schools and infrastructure would in my view weaken us for the global challenges ahead. I have also considered representations for a third fiscal rule, but that would require us to cut spending by£28 billion this year alone. That is a choice for Britain that I reject, because—[Hon. Members: “Hear, hear.”] It would deny us investment in education, health, infrastructure and vital priorities, and leave Britain ill-prepared and ill-equipped for the future.

Instead, I can confirm that capital investment in education, which was only £1.5 billion in 1997, will be £8.3 billion next year, and we will set out long-term plans for investment to rise even further. I can also confirm that investment in transport, just £4 billion in 1997, will be £9.6 billion next year, and in the spending review we will set out an updated 10-year spending plan. Investment in housing, just £2 billion in 1997,will be nearly £8 billion next year, with sustained investment through into the next spending round.

I can also announce that the spending review for the years to 2011 will be based on planned capital investment in our country in infrastructure, education and vital priorities, rising from £39 billion last year to £60 billion in 2011. Let me give details of the investment that we will make over the five years ahead: next year,£48 billion, rising in 2008 to £51 billion, then to£54 billion, then to £57 billion and then to £60 billion, showing our commitment to modern roads and rail, to modern schools and science, and to new housing, hospitals and the renewal of communities. That is a change from the age of disinvestment under the previous Government.

The single most important investment that we can make is in education, and today I can start implementing the recommendations that have been put to us on skills. In 1997, there were 80,000 apprentices; today, in England alone there are 250,000, half of whom are now in manufacturing, construction and technology. I can announce that in the years to 2020, the number of apprenticeships will rise to 500,000. I can also announce that under the “Train to Gain” programme, we will increase the number of adults learning basic workplace skills from 100,000 this year to 350,000 a year by 2011, giving adults, as well as young people, the opportunity to better themselves.

It is even more important that the next generation do not lose out or fall behind on the basic skills that they will need to succeed in the global economy. So the Secretary of State for Education and Skills is also announcing today that the “Every Child a Reader” programme, which already has the best results in literacy, will be extended nationwide year by year. All boys and girls who are already, at the age of six, falling behind in reading will be offered special catch-up tuition. In secondary schools, where the learning gap between boys and girls is greatest, there will be new funds for extra support for mentoring, small group tutoring and personalised learning.

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Since 2001, all children at the ages of one, two and three have received books to encourage them to read. I can announce today that all children starting primary school at five, and as they move to secondary school at 11, will receive books free of charge. In total, 3 million books will go direct to children to lift the reading standards of young people in our country.

I have also become convinced that, for Britain to rise to the global challenge, we should commit now to year-by-year improvements in investments in schools and educational establishments. It is right that we now make a spending settlement right through to 2011 that covers all capital investment in education. Separate announcements will be made for Scotland, Wales and Northern Ireland. To ensure that all 21,000 schools and educational institutions are fit for 21st-century challenges, I can announce that educational investment in our schools, colleges and university buildings and facilities, which stood at just £1.5 billion in 1997, will by 2010 be £10.2 billion for education alone. The investments in education that we will make are£8.3 billion next year, £8.6 billion in 2008, and£9 billion in 2009, rising to £10 billion in 2010. In the next four years, that is a cumulative investment in education alone of £36 billion, matching by 2010 state school capital investment per pupil to private schools, as year by year we close the gap.

Our goal is 12,000 new or completely refurbished schools—half of all primary schools and 90 per cent. of all secondary schools—benefiting 4 million children a year; in addition, 100 colleges rebuilt, serving 1 million students; and in total, 3,500 new children’s centres, built for nearly 3 million boys and girls in every constituency of the country. Every one of our constituencies is benefiting from the biggest programme of educational investment ever, in support of our decision to prepare for the global economy as the most educated nation in the world.

For next year, I can go beyond the announcement that I made in the Budget on spending per pupil. In striking the right balance between tax, spending and borrowing, I am able to meet both our fiscal rules and to release additional resources for the coming year. I propose to increase the cash that we give to every school and every head teacher, to be used in the way that local schools think best. The typical primary school received £39,000 this year in direct payments. For April next year, I propose that that be £50,000 for every primary school. The typical secondary school received £150,000. For April next year, I propose that it be £200,000. That is the equivalent of £200 for every pupil, paid three months from now direct to the school—money I could use for tax cuts, but I say, invest in education first; money that could not be invested if we had a third fiscal rule.

Stability is our foundation, education our No. 1 priority—education first now and into the future. I commend this statement to the House.

Mr. George Osborne (Tatton) (Con): The Chancellor was being modest when he said that this was simply his latest PBR. It is surely his last—unless, of course, the Home Secretary keeps him in his job next year.

What this country needed was a report that prepares our economy for a future that is more competitive, more flexible and more global than ever before, but
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that is not what we got today. With this PBR, like the nine PBRs before it, Britain is moving further away from the direction in which we need to go. The Chancellor talked about growth. What he did not tell us is that the growth that he announced puts Britain 21st out of the 25 members of the European Union. [Interruption.] He denied it today and he shakes his head, but it is confirmed by the European Commission. [Interruption.] Will he also confirm what is buried on page—

Mr. Speaker: Order. The hon. Gentleman should be heard. There should be no private conversations.

Mr. Osborne: Will the Chancellor also confirm what is buried on page 198 of the report just published—that he has downgraded his growth forecast for 2008? He did not mention that.

The Chancellor talked about sound public finances, but he downgraded his borrowing forecast again. Will he confirm that that means that Britain is set to have the largest structural deficit of any major European economy next year—as he himself might once have put it, larger than Germany, larger than France, larger than Spain and larger even than Italy? Will he confirm that he has just revised upwards his net debt figures for this year? By 2010, they will be £4 billion higher. He did not mention that in his statement, but will he confirm that when he replies?

How on earth could the Chancellor have given a report on the state of the economy without mentioning that Britain has just recorded the largest rise in unemployment in the developed world? He is so obsessed about securing his next job that he has forgotten about the 300,000 people who have lost their jobs.

How could the Chancellor possibly have the nerve to speak for 40 minutes without addressing the crisis in the NHS? He had no new answers today. He promised a change of gear, but as usual all we got was more of the same. His speech was full of rhetoric about the long term, but he did not address the central, long-term economic question that we face: why, according to every international measure and league table, is Britain becoming less competitive?

Does the right hon. Gentleman remember saying when he first became Chancellor that the first challenge was to increase our productivity? It remains the first challenge today. Productivity was 2.6 per cent. when he entered the Treasury, and is just 1.5 per cent. ashe leaves. Measured against what he calls his “fundamental yardstick”, has he not fundamentally failed?

What is the Chancellor’s answer? Like every central planner in history, he hides behind a relentless production of reports. There have been 70 in total, and never have so many poor trees died in vain. However, a glimpse of the truth can sometimes slip past the Treasury censors. Sir Rod Eddington jetted in from Australia to tell us what we already knew—that the UK transport network is stretched beyond capacity. The Leitch report says that the Chancellor’s skills policies have led to “complexity, duplication and bureaucracy”, and that it is no wonder that the UK has

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Today, the Chancellor promised action for 16-year-olds, yet one 16-year-old in six cannot read, write or add up properly. They are the very children who have been educated almost entirely under a Labour Government, and they have already been failed by the Chancellor.

The Chancellor’s second challenge today was to sort out the public finances. We all know that he is a man in a hurry, but he read out his borrowing figures so quickly that people might have missed them, so I shall read them out again. Over the next six years, theright hon. Gentleman says that borrowing will be£37 billion, £31 billion, £27 billion, £26 billion,£24 billion and £22 billion. That is higher in every year than he forecast in the Budget last spring. By the way, the current Budget deficit has increased this year. Not only that, he said in the spring that we would be in surplus next year, yet today he confirmed that we will again be in deficit.

All that borrowing comes despite the biggest tax increase in our peacetime history. Let us be absolutely clear that that means that each family will pay £9,000 extra tax each year. In a world where our competitors are simplifying and reducing business taxes, the UK is almost alone in increasing ours. Where is the long-term sense in that? Where is the sense in landing us with the most complicated tax code in the developed world?

The Chancellor often responds by citing last year’s inward investment figures. That is a typical example of the systematic distortion of statistics that we have come to expect from him, as more than half of our annual inward investment—£50 billion—comes from one company, Shell, which features in the figures only because it moved its headquarters from Britain to Holland. Does not that say everything that we need to know about this Chancellor’s spin?

The third great challenge that we face is climate change. People say that the Chancellor has become green only recently, but that is most unfair. He has been green ever since that meal at Granita. The Prime Minister remembers that and, although he does not live in Islington any more, it says something about the state of the Labour party that the restaurant is now called Desperados.

This week, Friends of the Earth said that the Chancellor’s record on climate change had been “woefully inadequate”. Will he confirm that carbon emissions are higher than when he took office and that the share of taxes collected by green taxes has fallen? Today’s increase in air passenger duty should have replaced other taxes and not added to them. It proves that the right hon. Gentleman is more interested in raising taxes than in cutting pollution.

The fourth challenge is to spend public money wisely. The Chancellor once pledged to rise to that challenge. Does he remember saying when he was shadow Chancellor that he wanted to be remembered as a wise spender, not a big spender? His political obituary will say many things, but not that: he has spent £4,000 billion, and now he pledges more spending on education—[Hon. Members: “Hear, hear.”] The lemmings on the Labour Benches do not know that that was the third time that he has reannounced his extra capital spending on schools. When he first made the promise in the Budget, the Institute of Fiscal Studies dismissed it as a “highly
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misleading presentational device”—economist speak for “spin”. Will the Chancellor confirm, after all the rhetoric, that the rate of capital spending growth is set to fall?

The Chancellor’s greatest mistake is that he has spent without reform. The Organisation for Economic Co-operation and Development has said that, despite the extra money, NHS mortality rates are declining no faster than before. By the way, the extra £1 million for medical research was first announced last year. The Select Committee on Education and Skills says that school standards are not improving as fast as they were. People up and down the country who are struggling to find a decent school place or campaigning to keep their local hospital open or sitting in traffic on congested roads are entitled to ask: where has all the money gone?

The Chancellor is trying to persuade the public that he is the change that they are crying out for. He lets it be known with nods and winks that he will end the spin and eye-catching initiatives of the Blair years, but let there be no mistake: they were his years too; the Blair-Brown years were the years of the clunking fist. The hospital cuts are the Chancellor’s cuts, the failing schools are his failures, and the pensions that were destroyed were destroyed by him. The truth is that Labour can be new only once. If the public want change, they will have to vote for it.

Let us see whether the Chancellor can really break with his past and be different from the Prime Minister. I have four straight questions, to which I hope he will give four straight answers. First, will the Chancellor confirm what the European Commission has said—that this year Britain has grown more slowly than 21 of the 25 EU member states? Secondly, will he acknowledge that in the past year our country has recorded the largest rise in unemployment in the developed world? Thirdly, does he accept that Britain is set to have the largest structural deficit of any major European economy? Fourthly, will he admit that, in an age of prosperity, real living standards in Britain are now falling?

Those are four simple questions, so let us see whether the Chancellor can give us four straight answers. Let us see whether the clunking fist can change.

Mr. Brown: Is it not remarkable that the shadow Chancellor cannot bring himself to acknowledge the longest period of economic growth, with the lowest inflation, interest rates and unemployment, that we have ever had? Why does he not say to his Back Benchers the same things that he says when he goes to the City? There, he talks of Labour’s “macroeconomic success” and “economic credibility”. He speaks of Labour’s “ability to manage” the economy, and says that Labour is the “party of economic competence”.

I remind the shadow Chancellor that there were3 million unemployed under the Conservative Government. Unemployment is below 1 million under Labour and—as he wants international comparisons—that is half that in France, half that in Germany, and below the EU average. He said that Britain’s economic growth is down. In fact, growth here is higher than in the euro area, so how can he say that it is lower than in Europe?

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Then the hon. Gentleman says that there is a structural deficit. I have just explained to him that we are meeting our fiscal rules. He says that productivity is lower. Productivity has risen, on average, by 2.4 per cent., compared to 1.9 per cent. under the Conservatives. The only two years when productivity fell were Conservative years; and in 30 years the only two years when manufacturing productivity fell were under a Conservative Government.

As for greenhouse gases and emissions, our economy has grown by 28 per cent. and greenhouse gases have fallen by 9 per cent. We are the country that is meeting the Kyoto targets—no thanks to what happened under a Conservative Government.

The hon. Gentleman’s party is promising to spend more, with every spending Minister offering more spending. Today, he promises that he wants to cut taxes. Then he says that borrowing is too high so he wants to cut borrowing. When will he wake up to the fact that to cut taxes, raise spending, cut borrowing and have a fiscal rule that requires him to cut spending of £28 billion is exactly the position that the right hon. Member for Witney (Mr. Cameron) was in when he was economic adviser to Lord Lamont? That is exactly what led to the tragedy of 1992 when we ended up with 22 tax rises, £100 billion of borrowing, 15 per cent. interest rates, mortgage repossessions and negative equity. We will never return to that.

Dr. Vincent Cable (Twickenham) (LD): May I start with the bits of the statement I agree with? I am glad that the Chancellor has listened to at least some ofthe advice from the Liberal Democrats about environmental taxation. He has not listened to all of it, because revenue will not be returned in tax cuts for the lower paid, but at least there is something.

The Chancellor may not have noticed that the Stern commission report recommended that tough preventive action was needed, amounting to something of the order of 1 per cent. of gross domestic product. The tax changes he announced today amount to about one tenth of 1 per cent. of GDP. Where will the other nine tenths come from? The Chancellor’s environmental credentials are not helped by publishing in parallel the Barker report, which is really a property developers’ charter, and the Eddington report, which makes an unashamed plea for the expansion of airports.

As the Member who introduced the most recent piece of legislation outlawing copyright theft, I welcome the Chancellor’s recognition of the creative industries. That is a major step forward. He is also right to put such emphasis on the long-term challenges from international competition and on creating a knowledge-based economy. However, one question troubles many of us. After all the billions that have been spent on science and on education, why has the number of British young people studying at A-level and equivalent the core disciplines of maths, science and modern languages—the foundations of a globalising economy—fallen since 1997 in both relative and absolute terms? Why are the fundamentals not being got right?

I turn to the basic theme of the Chancellor’s statement. Of course, he has earned much credibility over the years from the fact that the British economy is stable and performing well. He would have earned more credibility today if he had acknowledged some of the problems that his successor will inherit.

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