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The hon. Lady is being absurd. Of course, we have always welcomed the extra teachers, nurses and doctors, but we have not always approved of all the extra money, because a small fraction of that has been spent on those people, and a huge amount has gone on incredibly wasteful and unnecessary spending, such as the huge, badly handled NHS computer
scheme, which is absorbing much more money than the extra nurses are absorbing, the identity cards scheme and all the other things that we would strip out and cancel when we come to office. We want to concentrate expenditure on the good things in the public services in which we believe.
Mr. Evans: We applaud the work that nurses do, but does my right hon. Friend agree that they have been met with a gross insult from the Government with the staggered pay increase that they have been given this year? When those increases are grouped together, they total 1.9 per cent. When inflation is running just below 5 per cent. that means that nurses will take a pay cut of more than £500 in any given year.
Mr. Redwood: Nurses will certainly not be amused by the Budget, because they will not receive the tax cut that they might have heard about on the headlines when the Chancellor first read out that piece at the end of his speech.
We have a Chancellor who, in his early phase, taught us rightly that it is best to be married to prudence, as the economy does rather better. He has now demonstrated that just tipping lots of money into public services without targeting it on the things and people who matter is not a good idea, and he wisely says that there is a huge amount of waste on his watch that must be squeezed out. If he and his immediate successor cannot do so, it is a task that we will welcome because it will make our job so much easier because we will inherit all that waste on which we need not carry on spending.
Rob Marris: I am grateful to the right hon. Gentleman for his generosity. He is making an interesting speech, but my experience of being in business, and of observing it, is different from his. If a business expands, the initial step is often to hire more labour. As the expansion beds in and stabilises, there is a substitution of capital for labour, because new work organisations are developed because there is increased outputa Henry Ford motor car assembly line is a classic examplewhich is part of the cycle through which the Chancellor and the Government have gone. We have had the expansion, we have fuelled part of it by investment in buildings and hardware, and part of it by investment in people, and we are now moving to the next phase, where we will substitute some capital for labour for a more efficient operation. There is no contradiction in that.
Mr. Redwood: The business would not have survived if it had been run in the way that the Chancellor has run some of the public departments in this country. There is no way that modern businesses can go out and recruit people whom they do not need for the main function. When they are blessed with a rising work load, they recruit fewer people than proportionate to the increase in work load because they have to increase their productivity every year. A manufacturing company usually has to take price cuts because it is in an extremely competitive market, with India and China doing phenomenally well.
We have a public service which, until a few months ago, believed that any amount of money could be
cascaded in and that it could hire anybody it liked. Often the people hired were management consultants, PR consultants, middle managers, administrators, form fillerspeople who were needed to deal with the huge panoply of controls, requests for figures and interventions that come from the very overcentralised Treasury. I will not repeat the words of Lord Turnbull, as I am sure the Chancellor would be hurt if I did, but there is clearly a lot of centralisation in the Treasury and one can see why some people get the impression that they do about the style of management. It is that which has wasted so much of the money and got in the way of the professionals in the health service and the education service doing their job more successfully, and it has got in the way of the money getting to the places that it needs to reach.
I hope that in the next phase of the Chancellors odyssey he will also learn, as my right hon. Friend the Leader of the Opposition so sensibly outlined, that the Conservative policy of sharing the proceeds of growth is the right policy. When the Chancellor realises that his con trick on income tax is not quite what people wantedthey want a real tax cut, not just a cosmetic tax cuthe will see that he and his successor must reduce the tax burden on hard-working families and on businesses. He will see that the only possible course of action is sharing the proceeds of growth.
We want to share the proceeds of growth because, yes, we will need some extra money for more nurses, doctors, teachers and police people as the economy grows. As we get richer, so we need to meet the sensible demand for public service. But yes, we need to squeeze out the inefficiencies, and we need to leave some money over as the economy grows so that we can cut tax rates. Indeed, one of the advantages of cutting tax rates to a more competitive level internationally is that then the whole cake will probably grow rather more quickly.
One of the big failures on the Chancellors watch is that our business tax rates have become so much less competitive than they were when he started, and we are paying a high price for that. Over the period of the Chancellors stewardship of our economic affairs, the Republic of Ireland has grown by a stunning 76 per cent., whereas the United Kingdom has grown by 27 per cent.
No, of course not. If the hon. Lady studies the facts, she will see that Ireland was growing very strongly before it entered the euro. Nor was it huge quantities of European cash, which is the other bogus explanation that people sometimes come up with. Ireland was a bigger beneficiary in its years of slower growth, and most of that money went into the agricultural sector, which has not led the Irish economic recovery. The Irish economy has been buoyed up by the great success of very low corporation tax rate, so large numbers of businesses have gone there and set up there, clustered around the larger companies. That shows that lower tax rates work and generate a much bigger cake. Ireland is not skimping her public services. She can afford to have a lower
percentage of total incomes taken in tax because she is now richer. People are better off in Ireland, on average.
Ms Keeble: One of the advantages of the Select Committees excellent trip to Ireland was that we looked at some of the economic facts, which are not as the right hon. Gentleman says. Ireland started off as a basket-case and has improved from a low base. Its level of indirect taxes has increased, which this country would not stand. Ireland considers that its spending on the health service is in crisis and that it needs to be transformed. The right hon. Gentlemans facts are not accurate.
Mr. Redwood: The crisis in the health service in this country is every bit as big as the one to which the hon. Lady refers, or probably bigger. She is rather unpleasant about the Republic of Ireland, saying it was a basket-case. My remarks pointed out that it had grown strongly for a long time, so by definition it started from a lower level of output and average incomes than we enjoyed, and it has overtaken us. It has overtaken us consistently, year in, year out, for 10 years, on the Chancellors watch. The hon. Ladies have not come up with any reason why that should be, because the true reason is that Ireland and its Finance Minister got it right and made the environment attractive to business, and the Chancellor got it wrong and did not make it attractive enough to business.
Mr. Gauke: As another member of the Treasury Committee who was on the trip to Dublin, I can tell my right hon. Friend that we were informed about how growth was very high in the early 1990s, long before Ireland joined the euro, and that public expenditure as a proportion of GDP has been substantially lower in Ireland than in the UK.
Mr. Redwood: I am grateful to my hon. Friend. To some extent I feel that I am the father of that great expedition to Ireland, because it was my questions in the House about why Ireland had grown so much faster that triggered much of the interest, and the enthusiasm of the Scottish nationalists for the subject.
Mark Durkan (Foyle) (SDLP): All hon. Members need to remember that the backdrop to the change in economic performance in the Republic of Ireland is the very strong model of social partnership, whereby multi-annual programmes are agreed between Government, business and unions. I know that some hon. Members would not be comfortable with that model, but it has provided the spine of economic growth, development and discipline in the Irish Republic. Also, it needs to be remembered that in this period of remarkable growth, the public sector in the Republic of Ireland grew by a third, so the growth was achieved not by attacking the public sector, but by properly investing in the public sector and delivering effectively alongside a growing private sector.
How many times do I have to explain? I and my colleagues would like our public sector to have more money and more people of the right sort to provide a better service. We are arguing about the speed at which that can be achieved and how it can be best achieved. It is best achieved if the private sector is
growing more rapidly than it is growing in Britain under the present Chancellor of the Exchequer.
As to the hon. Gentlemans account of why businesses have gone to Ireland, I have spoken to a number of businesses over the years, as I do in my job as an MP and with my interest in economic competitiveness, and I must say to him that no business man who has been thinking of going to Ireland or who has gone to Ireland has ever said to me, I must go there because of their social partnership model.
Mark Durkan: It is the social partnership model that has underpinned economic policy, creating consistent and stable economic policy for a decade and a half. Without the social partnership model, the Irish Republic would not have achieved or sustained its growth record.
Mr. Redwood: I do not think the hon. Gentleman was any better the second time. Perhaps it was the sample that I happened to meet, but the business men all said to me that the attraction of Ireland was the lower tax rate. I do not know whether the hon. Gentleman knows how business people make their forecasts and make their decisions about where to invest. They usually work out what they think will be the revenue line, then put in what they think will be the cost line, and strike something called a profit. They then look at how much the Government will take of the profit and what remains at the end. If more remains at the end in one country rather than another, they are tempted to come to that country. That has worked well for Ireland.
Mark Durkan: The right hon. Gentleman should realise that the social partnership framework agreements set discipline in tax rates, agreed the tax framework, and provided for wage restraint, so Government were able to negotiate that with business, trade unions and other social interests on a multi-annual basis. That provided the environment that has attracted businesses into Ireland.
Mr. Redwood: The policy came from thinkers around the world who pointed out to Governments that that always works. The Irish Government had the common sense to do it, but the British Government have not yet had the common sense to implement it properly.
That brings me to the corporation tax rate in the United Kingdom. I am pleased that the Chancellor understands that there is a problem out there. Britain was one of the lowest tax countries in 1997. The Chancellor would say that he has already brought the
headline rate of corporation tax down on his watch. That is true, but he must realise that it is a very fast moving and competitive world out there. While he has been bringing it down a little, many of our great competitors and friendly nations in the world beyond us have cut their rates much more quickly, so we have gone from being relatively good value to being relatively expensive.
In the global supermarket for the location of business and investment that we now live in, that means that Britain is losing out. Investments no longer come to Britain because the tax regime is not attractive. A lot of manufacturing is exiting Britain and a lot of new manufacturing investment is going elsewhere. We find a country such as the Netherlands, with quite high costs in other ways and the same EU regulations, winning rather well against us because it has a much more competitive tax regime. Shell has decided to amalgamate its headquarters in the Netherlands to save on taxes, which will be a tax loss to the Treasury. We see discussion in the press about Barclays possibly moving its head office overseas after its merger. Of course, its domestic operations will still be taxed in Britain, but that will be another tax loss.
At some point the Treasury has to take this more seriously than the Chancellor has done so far. If he wishes to preserve the tax takes that he has, he needs a competitive tax rate. There is no choice. It is absurd that so many Members have this wooden approach that says: If we cut the tax rate, we will lose this much revenue, we cannot afford to lose that revenue, so we will keep the tax rate up. The truth is that if our tax rates are kept at a fixed level and the rest of the world cuts, we will lose revenue because we are not responding. The other wonderful truth is that if we are bold enough to cut tax rates so that they are sufficiently competitive, we may shortly experience a big increase in revenue because we benefit and the less competitive tax jurisdictions do not.
The Chancellor told us that he is cutting the corporation tax headline rate from 30p to 28p in the pound. One cheer for thatit is very good news, because the headline rate is what people look at. The not so good news on the same page of the Red Book is that that is more than paid for by the money that he is clawing back by cancelling some of the credits and offsets allowed against the 30 per cent. rate. That will make Britain a bit more attractive for certain kinds of companies that do not benefit from the reliefs that he is removing or reducing, but other companies will be worse off, so it exacerbates rather than eases the problem. One cheer for the lower rate and one cheer for the companies that will benefit, but the Treasury should understand that it has not solved its problem, because many companies will still be worse off. The overall result is to take a little bit more from the companies sector, and a lot more in the case of some areas and some companies.
The Chancellors record is often defended around one central proposition. We are told that his act of genius was to make the Bank of England independent when he came into office 10 years ago and that everything else has flowed from that excellent decision. My colleagues and I are very happy to have an independent Bank of England, but we do not believe that it has been as independent as the Chancellor has
advertised. Nobody can get away from the fact that at a crucial time just before the last election the Chancellor wrote a very important letter to the Monetary Policy Committee of the Bank of England saying that he wished to change the basis on which its targets and instructions rested, and he shifted it from the retail prices index to the consumer prices index. He well knew at the time that the CPI was going up much more slowly than the RPI, so he must have done that knowing that it would keep interest rates lower than would otherwise have been the case. That was very convenient ahead of a general election. Unfortunately, there has been a price for that, because after the general election, with interest rates kept down, we discovered that inflationary pressures had built up. Because of its new CPI target, the Bank of Englands committee has probably had to raise rates by more than would have been the case without the political intervention.
We can see the cost of those interventionsI am sure that there have been more than onein that over the 10 years of an independent central bank people in Britain have had to pay more to borrow money, on average, than people in the United States of America, which has grown more quickly, in Japan, which in the early part of the period grew hardly at all but has now been growing quite respectably, or in euroland, where performances have been very patchy but where, on average, growth has been slower than in the United Kingdom. It is worrying that we have had to pay a premium over American rates when America has performed so much better. That should tell us not necessarily that an independent central bank is wrong but that our bank was perhaps not independent enough. It suggests that, because the Chancellors fiscal policy was pulling in the opposite direction to the direction in which monetary policy had to go, the MPC had to put up interest rates more than it would have done. Because the Chancellor was not following prudence between 2000 and 2006, there was a price for all of us in higher borrowing costsnot only in mortgages for those trying to buy a house in very expensive Britain, but for those borrowing money to run successful businesses.
Over the past 10 years we have seen a big let-down on productivity. When the Chancellor came into office, he told us more or less to judge him by productivity and said that he could take a number of measures that would boost productivity. The irony is that in the area where he had most controlthe public sector, where he had riches beyond most peoples dreams that he could have used to buy improvements in productivitythere has been a collapse in productivity. So bad is the position that the Government have asked for changes in the figures and have withheld a proper series of figures from us. There appears to have been no productivity growth in the public sector at all. It beggars belief that someone can perform that badly when they had so much money to spend on new technology, new people and new skills, which should have enabled things to be done in a much better way.
Mr. Graham Stuart (Beverley and Holderness) (Con): Is my right hon. Friend aware that if the productivity growth under the last Conservative Government in the 1990s had been continued in the NHS through the term of this Government we would today have no waiting lists for any operations at all? [ Laughter.]
Mr. Redwood: My hon. Friend makes an extremely powerful point. Labour Members laugh, but this is their watch and it is their job to explain to the public how it is that productivity has bombed so badly when so much money and time has been spent on trying to get things right. It does not augur well.
Ms Keeble: Does the right hon. Gentleman accept that it is easy to show high productivity growth when there is the collapse in wages that happened in the public sector, particularly in relation to the compulsory competitive tendering regime, during the last stages of the Conservative Government? Of course there was higher productivity because pay rates were decimated.
Mr. Redwood: The level of productivity has nothing to do with pay rates. I am interested in output in relation to the number of people employed. If the hon. Lady wishes to have wage-related productivity, I deny her premise. There was no collapse in wage rates in the public services in the later years of the Conservative Government.
The Chancellor has fallen behind very badly on productivity. His micromanagement from the centre has not helped British companies to become more productive and it has got in the way of the public sector.
When the Chancellor was in opposition, he used to think that a good night out was spending time poring over the balance of payments figures. He would come rushing into the House the next day if he found some bad balance of payments figures, put them to Ministers, and personally blame them for the imbalance between exports and imports. Since he took over as Chancellor, we have had enormous balance of payments deficitsI think that he has set new recordsand we are not told anything about them at all. Again, they did not get a mention today; all the figures that he chose to highlight were ones that he thought were favourable. The House should remember that there is quite a price to pay for the de-industrialisation of Britain that has continued under this Government, with 1 million manufacturing jobs lost on their watch. The price is there in the visible trade balance, where there is an awful lot of red ink. We import a great deal of the products that we need from elsewhere in the world because we are not making them in Britain. Meanwhile, 5.3 million people of working age sit on benefits. I know that the Chancellor wants to do something about that, but it is getting a bit latewhen is he going to do it? He should be much angrier about those 5.3 million people and find some way of getting them back into legitimate employment so that we can start to fill in some of the holes in the balance of payments.
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