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Mr. Kevan Jones: Does the hon. Gentleman agree that one of the things that contributes most to making people feel good is the fact that they have a job? In my constituency of North Durham, since 1997 unemployment has come down by 65 per cent. and youth unemployment has come down by over 90 per cent. Does he not think it is worth giving a least some credit for that achievement?
Mr. Spring: I accept that there has been a growth in employment. That is true in almost all industrialised countries. However, in fairness to the hon. Gentleman, if he looks at the pattern in the last year, he will see that it has begun to reverse itself quite dramatically, compared with other major industrialised countries.
If we look at the difference in household incomes between the richest 20 per cent. and the poorest 20 per cent. in 1997 and today, we can see that it is 10 times. The amount is identical. There has been no change. According to the same Office for National Statistics data, the lowest-income households are paying a higher share of tax and receiving a lower share of benefits than they were in 1997.
That has come about at a time of a massive increase in public expenditure. That expenditure has not, of course, resulted in a transformation of public services. That is at the heart of the criticism of the governance of this country. People are asking, “Where has all the money gone?”. The truth is that the Chancellor has not taken anything like the tough and radical decisions of his predecessors, which were often controversial and sometimes, indeed, divisive. The Chancellor has poured money into the public sector and has swollen public sector employment, but without effective prioritisation and consultation to achieve measurable better outcomes. I am afraid that, as we now know, that is coming to an end, because the rate of growth in public expenditure is going to be less than the rate of growth in the economy overall. Of course, the Chancellor had no alternative but to do that, so the bonanza in public expenditure is about to end without the reforms that were necessary to produce a massive increase in the quality of our public services.
There have been three main factors behind the economic growth that has occurred under the Chancellor. I have touched on the massive increase in public expenditure. We have also seen the trebling of house prices, so this is growth led by consumption. Household debt in 1997 was 100 per cent. of disposable income, but it is now more than 160 per cent., and the figure is rising. There has also been a substantial increase in the population of this country.
Productivity has not matched economic performance to the extent that it should have done. We are suffering the highest current account deficit in our entire history, with a third of that figure being filled by our service industries. We are hugely and increasingly dependent on our financial services sector. As my hon. Friend the Member for Sevenoaks (Mr. Fallon) pointed out, however attractive London has been as a centre for the financial services industry, the mobility of that sector is much greater than that of manufacturing, so we must watch with great concern the burden of taxation and regulation.
Productivity was considered to be one of the most demanding issues for the Chancellor when he assumed office, but our productivity is less than that of France, Germany and the United States, partly because of the huge expansion of the public sector. Indeed, one in four of the new jobs that have been created in this country has been in the public sector, and our tax burden has risen appreciably under this chancellorship—it is certainly higher than that in the United States, Germany and Japan. Much of our lack of performance on productivity has come about because of poor performance in the public sector. The International Monetary Fund describes what the Chancellor has done as the
“most aggressive fiscal expansion of any G7 country”.
The heart of the problem is that expenditure on the public sector has cost the taxpayer a staggering amount, yet the functional mismanagement in the public sector has, at times, been absolutely grotesque—we only have to look at the mismanagement of our health service and the financial difficulties that have resulted to realise that. If one is the guardian of the public purse, one is entitled to invite Cabinet Ministers with departmental responsibilities to ensure that the management of such huge sums is appropriate.
Let me relate my experience during my time as a Member of Parliament. When I was first elected in 1992, we had the West Suffolk health authority. We were then told that we needed a pan-Suffolk health authority. More latterly, we were told that economies of scale and management were not the important thing and that we needed the management of health to be close to communities. We thus got five primary care trusts, which became three primary care trusts, and now we are back to having a Suffolk-wide health authority all over again. The cost of that has been grotesque and the events have ill served the people who depend on the health service.
Mr. Jones: I agree with the hon. Gentleman about the fiddling around with health authorities. In Durham, for example, we went from having one area health authority to having seven, yet now we are back to where we started. However, does he agree that that has gone on under previous Governments, although that does not excuse what has happened? Perhaps we have tried to change the management of the health service in the expectation that that will deliver results. Rather than concentrating of delivering front-line services, management changes have been put in place.
Mr. Spring: I am glad that the hon. Gentleman accepts that errors have occurred. I dare say that management has never been perfect in the health service. However, the changes of the past few years have been extremely dysfunctional. The difference is that the salaries paid to the senior people who run health services are equivalent to those of Cabinet Ministers and the Prime Minister. The cost of the massive managerial overheads, the salaries and the consultancies has been a damp hand on the provision of good and decent health care. We see the problems now: the difficulties faced by our junior doctors, the sacking of nurses, and the closure of wards and everything that goes with that. The chief executive of the NHS recently said that
“some of the policies that we have implemented had not been properly costed. That is absolutely true.”
The Public Accounts Committee talked about the “weak control” of finances. As we know, there is a shortage of midwives, and junior doctors, to whom I have just referred, have been protesting. Huge deficits have grown up in the NHS, despite the massive increases in funding that the Chancellor has made in our health service, and that situation will continue for at least another year.
At the heart of the problem is disgraceful managerial dysfunction. The Chancellor is the guardian of our finances, but a lack of consultation and prioritisation has resulted in our wholly wasting, in many respects, the huge sums that have been given to the NHS. That is an increasingly common view among our constituents. Where, indeed, has the money gone?
I should like to draw the Financial Secretary’s attention to another point: one of the most bizarre aspects of yesterday’s Budget was the treatment of small businesses. When he gets back to his office, he should expect a huge volume of letters and e-mails, sent to the Treasury by business people in the smaller and medium-sized business sector who simply cannot believe that taxation for the sector has gone up, as was announced yesterday. I draw his attention, as my hon. Friend the Member for Tatton (Mr. Osborne) did, to the fact that there has been a series of changes in taxation in the sector since 1997, with rates of tax going back and forth. In 2005, small business tax rates were 20 per cent. First-year capital allowances were then introduced, and now the small business tax rate has gone up to 22 per cent.
Although it is true that the headline rate of corporation tax has gone down from 30 to 28 per cent., smaller companies that have profits of up to £300,000 will see taxation rise from 19 to 22 per cent. Of the £985 million that the Treasury is expected to reclaim from the corporation tax system, no less than £820 million will come from small businesses. That will help to offset the corporation tax reduction for larger firms. If we consider the pressures on small companies, which include local taxation and the business rate, we see that 10,000 local shops have closed since 1997. Corporation tax, despite the new rate announced yesterday, is now higher than when the Chancellor came to office in 1997.
The capital allowances in the Budget are allegedly an offset against the higher level of taxation, but the truth is that many of our acorn, smaller and most dynamic businesses do not have high capital expenditure. They are in the creative industries and in the knowledge-based economy that we keep hearing about. They will not be beneficiaries of those allowances. It is astonishing for a Chancellor who talks about the need for entrepreneurial activity, and to encourage new business investment and new start-ups, to increase taxation as he has done. I hope that we can get a satisfactory explanation from the Financial Secretary, but I cannot imagine what it might be.
Mr. David Gauke (South-West Hertfordshire) (Con): My hon. Friend makes an important point. I do not know whether he noticed the Chancellor’s curious phraseology yesterday; he raised the rates, but then stated that the extra revenue would be recycled to
“legitimate small businesses investing for the future.”—[ Official Report, 21 March 2007; Vol. 458, c. 820.]
The implication is that businesses that are not “investing” as such are somehow illegitimate.
Mr. Spring: I am afraid that the Chancellor’s Budgets are always rather mysterious and arcane, and it takes great armies of accountants, tax advisers and lawyers to establish what he means. My hon. Friend will agree that there is outrage in the smaller business community at what happened yesterday, and an explanation from the Government is urgently required.
The Financial Secretary dealt with the subject of energy security and the taxation of North sea oil in an Adjournment debate, and I have read the Treasury discussion paper on that hugely important matter. The reaction to the Budget demonstrates that there is genuine concern about the declining base in the North sea. The Chancellor has spoken at length about the vulnerability of our energy security in an era of geopolitical instability. Natural hazards, too, are a difficulty, as well as the technical problems that arise in this area. UK domestic fuel sources have been depleted, and we are moving inexorably from being a net exporter to being a net importer. Objectively considered, some countries that supply our energy are not among the most stable in the world. The capacity for production is at the upper limit—the oil supply from OPEC is often at full capacity—so any hint of instability in the middle east means a sharp rise in prices. Indeed, the middle east accounts for 65 per cent. of the world’s oil reserve, and in periods of instability we have seen the consequences for oil and energy prices, and have experienced the impact in the UK on prices, inflation and the consumer. The issue is therefore hugely important, given the nature of the world and, indeed, terrorist activity.
We are very much beholden in Europe to Russian supplies, particularly for natural gas. Many people have asserted that Russia will exploit its ability to supply Europe with energy, and use its influence to make political decisions about that supply. There have been instances of such behaviour in the past 12 months in eastern Europe, and the director of the strategic studies centre at the Russian Academy of Sciences said:
“What has changed is that Russia has begun using energy as a political tool”.
That is important from Britain’s point of view. The pattern of production in the UK demonstrates that there are huge questions about the future viability of production in the North sea. Oil and gas remain vital to the UK for the foreseeable future, and account for 75 per cent. of the UK’s primary energy supplies. The UK oil and gas industry has spent more than £370 billion—all of it private capital—to recover the nation’s offshore hydrocarbon reserves, and it has generated huge sums of money for the Treasury, so it is in everyone’s interests, not only geopolitically but economically, that production is sustained and encouraged.
We remain a significant oil and gas producer, but the United Kingdom Offshore Operators Association has repeatedly said—indeed, it stressed this after the Budget—that high-cost inflation, combined with typically small opportunities and increased tax rates
make it harder to attract investment into the North sea. Margins are shrinking, and some of the fields are becoming quite old. In neighbouring countries such as Norway, a different, more competitive tax regime has emerged.
Yes, the oil and gas industry is an important contributor to our economic life and to the Treasury coffers. It is hugely important for our geopolitical stability, but the real shock, if there was one, in the Budget presentation was the decline in revenues from North sea oil. There is one thing that I do not understand, and I hope the Financial Secretary will be able to explain it to the House. The Government have known for some time the pattern that is emerging. The current situation is one thing; looking down the track the situation is extremely serious for us, yet what we have is yet another discussion paper. All the right questions may be there and it is a complicated tax matter, but urgent action is required. It is a matter of great disappointment that all we get is more talk on the subject. I hope the Treasury will be provoked into taking sharper action.
We have seen a massive increase in public expenditure, which is beginning to tail off. Parallel with that there has been a huge increase in the monstrous bureaucracy in the public services. It affects the morale of teachers, the numbers who wish to retire early, and the turn-over of young teachers who come into the profession wanting to teach but are twisted up in form-filling and bureaucracy. There are only a small number of police officers on patrol at any given time, and they all say that they are caught up in a web of bureaucratic interference by Government that makes their jobs impossible. I have touched on the situation in the health services.
We must understand that unless we get a grip on the environment of regulation and interference overtaking our country that the Chancellor has allowed to happen, however much money we pour into the public services, we will not get a commensurate improvement. That is the Government’s legacy—a huge increase in taxation to the highest levels ever, a massive increase in public expenditure, and public services that have not improved remotely as much as they should have.
3.37 pm
Mr. Kevan Jones (North Durham) (Lab): It is a pleasure to follow the hon. Member for West Suffolk (Mr. Spring), but I think he lives in a parallel world—a different world from many of my constituents, who have benefited over the past 10 years from the stable economy that we have become proud of in this country. I joined the Labour party in the dark days of the early 1980s, and I well remember people writing pamphlets about the unelectability of the Labour party. One of the key issues on which they did not trust the Labour party was the management of the economy.
How things have changed over those 20-odd years! Not only have we proved that we are able to run the economy and invest in public services,—something we can rightly be proud of,—but we are leading, as the hon. Member for Sevenoaks (Mr. Fallon) said, in an increasingly competitive and changing world, from which we cannot insulate ourselves, no matter what anybody in any political party says. It is no good
turning our backs and hoping that emerging international markets will go away if we do not believe they are there.
Levels of national debt are down to record levels. According to the Chancellor’s statement, national debt is down to 38 per cent., compared with the euro zone, where it is 50 per cent., the USA where it is 44 per cent. or the staggering height of debt in the great dynamic economy of Japan, where it is 92 per cent. We ought to be proud also of the levels of capital investment that the Government have made, which is up from £18 billion in 1997 to over £43 billion now.
In his opening remarks today, the hon. Member for Tatton (Mr. Osborne), who entered the House, as I did, in 2001, said in response to a question that the past 10 years had been worse than the 10 years before 1997. Again, the hon. Gentleman seems to live in a universe parallel to the one in which I and many of my constituents live. It is worth remembering those years, when we had inflation of more than 10 per cent., interest rates that hit a record 15 per cent., and unemployment of 3 million-plus. That had a dramatic effect in constituencies such as mine. The economic heart of many of those communities was ripped out overnight, with no protection or investment afterwards. Now, house prices are rising, but we do not have the cancer of negative equity, which affected 1.5 million people.
Another achievement since 1997 is the fact that net borrowing, which had hit a record of more than 8 per cent., is now predicted, as the Chancellor said yesterday, to be down to 2.7 per cent. and, in future years, 1.4 per cent. Borrowing is not intrinsically bad—it is a question of what is done with the money that is borrowed. The important thing is that we are no longer borrowing to invest in unemployment.
The Government can be rightly proud of the record levels of employment, with more than 2.6 million extra jobs—a record in the G7 countries. Reference has been made to quality of life. Having a job is a basic thing in most people’s lives. It gives one dignity and a reason to get up in the morning—what I always call a place in the world.
Mr. Gauke: Despite the number of extra jobs that the hon. Gentleman mentions, does he accept that it is disappointing that the number of people on out-of-work benefits has fallen relatively little, by about 300,000?
Mr. Jones: There are a record number of jobs in the economy. There is a hard core that we have to tackle; I have it in my constituency. It will take time and effort to get to people who have been written off and consigned to incapacity benefit, for example. I agree with the hon. Member for Sevenoaks that that is a challenge that we cannot ignore. In an ever-developing world, it is important to get record levels of employment higher and to ensure that we get the most out of the individuals in our economy.
Youth unemployment used to be a scourge in many areas. My constituency is not an inner-city constituency; I have often described it as a rural constituency with urban problems. It has pockets of high deprivation in former mining communities whose economic reason for existence has gone. Since 1997, youth unemployment in
my constituency is down by more than 90 per cent.—I will return to the issue of 16 and 17-year-olds who are out of education and unemployed, which was tackled in the Budget—and long-term unemployment is down by more than 65 per cent.
The Government have achieved that not by waving a magic wand but by trying to reward work. The Budget increased the working tax credit threshold by £1,200. I welcome that. The gloom and doom merchants complain about how the tax credits system has been administered. The Paymaster General, who is on the Front Bench at the moment, knows that I have not been uncritical of the way in which her Department has administered the system, causing hardship to some of my constituents. However, we should look at the bigger picture and think about the support that it has given to many families in my constituency, where it is making a real difference.
This Labour Government must be proud of the national minimum wage. During the 1997 general election, when I was a trade union official, the Conservatives told us that it would create mass unemployment and be bad for the economy. It has done exactly the opposite. It has helped to raise people out of poverty and removed the absolute disgrace, in a decent society, of people working for £1.50 an hour or less. There was the famous occasion when a security guard at a jobcentre was being paid £1.50 an hour and had to bring his own dog to guard the premises. We have a proud record on employment, which we should not stop championing.
Is everything perfect? No, it is not, and the test for the Government now is to help those in every constituency, including mine, who have been on long-term incapacity benefit and need assistance to get into work. The change since 1997 is that jobcentres are not trying to get people into any job, at any cost, just to manipulate the figures downwards. For example, Stanley jobcentre in my constituency has dedicated workers who advise clients and support people, who often have serious health issues, into work. There are those who say that people are being forced into work who should not be, but it is good for a lot of those people to access work and to gain the place in the world to which I have referred.
Yesterday’s Budget also reflected our proud record on pensions and pensioners. It is repeatedly pointed out to me that those pensioners who were the poorest in 1997 are now better off than they have ever been, certainly in my constituency. For example, Annie Bell from Waldridge, who unfortunately died last year at 85 years of age, had campaigned for a free bus pass all her life. When we announced the free bus pass for pensioners, she said to me, “Kevan, this will change my life.” More importantly, because she was on a basic state pension and had no savings, she had never been better off. At her funeral, her daughter said that the last few years of her life had been changed by the fact that she was not scrimping and saving and suffering poverty in old age.
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