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“a very cynical view of mankind and his colleagues...The surprising thing about the Treasury is the more or less complete contempt with which other colleagues are held.”
We are of course all waiting for the Home Secretary to come to the House to dispute that version of events.
The cynic of today cannot be the change we need tomorrow. The dealer in contempt cannot be the bringer of optimism and hope. The grim-faced commissar in the Treasury cannot be the wave of the future. If the British people want the economy to go in the right direction, if they want to share the proceeds of growth, if they want Conservative policies, they will vote for the real thing.
The Chancellor could have gone so much further. He could have made it a Budget for the NHS. He did not. He could have made it a Budget for marriage. He certainly did not. He could have made it a Budget for raising green taxes as a proportion of tax. He did not. He did none of those things. This was the Budget in which the Chancellor ran out of ideas and time. If he wants a general election, we say—bring it on.
5.38 pm
The Financial Secretary to the Treasury (John Healey): I welcome the fact that we have had a full debate today. It is the first of at least two more days on the Chancellor’s Budget.
The debate has been interesting. I understand why the tax changes caught the eye yesterday and dominated the debate today, but an important part of any Budget is the Chancellor’s update of the state of the British economy. This afternoon, only the contribution of my hon. Friend the Member for North Durham (Mr. Jones) fully recognised how substantial and significant the change in Britain’s economic fortunes has been over the past decade, directly as a result of many of the fiscal and monetary policies introduced by my right hon. Friend the Chancellor.
The British economy is now growing faster than that of other G7 countries. It has a higher proportion of men and women in work than America, Japan and all our European neighbours. The productivity gap with Germany and Japan is now closed, the gap with the US is narrowing and the gap with France now halved. Inflation in the British economy over the last decade is half that of the previous decade; while interest and mortgage rates are half the 11 per cent. averaged in the 20 years before. The British economy now has the platform of investment, stability and employment to enable us to equip the British people with new skills for
the jobs of the next decade and beyond, and to equip British firms with the new skills, markets, investment and innovation that they need to compete successfully and to generate jobs and wealth for the next decade and beyond.
Let me deal with the contributions to the debate. I shall start with those of the Front-Bench spokesmen. I have to say that the hon. Member for Wycombe (Mr. Goodman), along with his hon. Friend the Member for Tatton (Mr. Osborne), struck a very different note from their leader’s response to the Chancellor’s Budget statement yesterday. The right hon. Member for Witney (Mr. Cameron) started by saying:
“Well, the Chancellor has finally given us a tax cut.”—[ Official Report, 21 March 2007; Vol. 458, c. 829]
Perhaps he did not fully understand what he had heard from the Chancellor, but that is not surprising, as he was getting feverish and whispered advice from the hon. Member for Tatton and the right hon. Member for West Dorset (Mr. Letwin). The right hon. Member for Hitchin and Harpenden (Mr. Lilley) said this afternoon that this was not a tax-cutting, but a tax-raising Budget, while the hon. Member for Billericay (Mr. Baron) said that he was not sure, as there was a dispute about whether it was tax-cutting or tax-raising.
John Healey: It seems that, 24 hours after the Budget, the Opposition still cannot get their act together— [Interruption.]
John Healey: The hon. Gentleman has not been in his place for much of the debate and did not contribute, though I appreciate that he was here at the start.
Mr. George Osborne: Will the Minister give way to me, then, as I was here at the start?
John Healey: I will give way later, but Opposition Members are asking me, “Which is it?” The Chancellor could not have been clearer in his Budget statement, so let me refer Conservative Members to column 819 in yesterday’s Official Report. The Chancellor said:
“Let me be absolutely clear: with the economy now growing strongly, faster than any other major economy, this is not a time for a fiscal loosening, and the changes that I make today will be broadly neutral for the public finances and overall, which is the right decision for Britain at this time in the economic cycle.”—[ Official Report, 21 March 2007; Vol. 458, c. 819.]
The Chancellor could not have been clearer, even if Conservative Members, and particularly the right hon. Member for Witney, did not hear him.
Mr. Osborne: The Minister is making a valiant attempt to pretend that the Chancellor did not present his Budget as a tax-cutting Budget. As often happens, the Institute for Fiscal Studies has looked into the figures, and it has confirmed that it is a very substantially tax-raising Budget. Will the Minister now confirm that the IFS is right?
John Healey: No. I think that the hon. Gentleman should do his own work. If he looks at table 1.2 on page 14 of the Red Book, he will see precisely the net result on tax take of all the policy decisions in the Budget.
Mr. Lilley: Will the Minister confirm that he is talking about the decisions in the Budget, which excludes all the revenue raised by decisions taken since the last Budget—they do not appear in this Budget—as shown on page 210 of the Red Book? They amount to the best part of £3 billion.
John Healey: I am making the point—in order to clear up what is clearly a great deal of confusion among Conservative Members—that in broad terms, this was a fiscally neutral Budget, just as the Chancellor made clear yesterday afternoon.
Mr. Jack: Will the Minister confirm that there is column in the Red Book for the financial year 2008-09? At the bottom, where all the pluses and minuses of the Budget are summed up, there is a plus £280 million additional tax take for the Treasury. That is in the Red Book. Will he confirm that?
John Healey: The right hon. Gentleman has been a Treasury Minister. He will also have seen in the Red Book that the total spend for this coming year is £550 million—Hon. Members: Billion. Billion—thank you. In that context, the figures in table 1.2 that I have mentioned mean that the Chancellor is absolutely correct: this is broadly a fiscally neutral Budget.
John Healey: I must make some progress; I want to respond to the other contributions that have been made today.
Mr. Baron: Will the Minister give way?
John Healey: I am going to deal with some of the comments that the hon. Gentleman made during the debate. If he will forgive me, I shall ask him to wait until then, because I particularly want to talk about the NHS, about which he was concerned.
The hon. Member for Brent, East (Sarah Teather) talked about education, as did my hon. Friend the Member for Warrington, North (Helen Jones). Contrary to the argument put forward by the hon. Member for Brent, East, the Department for Education and Skills will be one of the greatest beneficiaries of yesterday’s settlement in the next spending review period. She asked about the significance of the 2.5 per cent. real-terms increase over the comprehensive spending review. When we do our public finances, we take a cautious view, based on below trend growth. That means that we take a base view of the public finances at 2.5 per cent., which means that education funding over this next period will continue to grow in line with gross domestic product. So, instead of education funding being 4.7 per cent. of
GDP, as it was in 1997, it will be 5.6 per cent. during this comprehensive spending review period.
Education will also take an increased share of the CSR increases. In the past five years, education took 13.3 per cent. of the cash increase in the total managed expenditure. In the coming CSR period, it will take 14.4 per cent. In other words, education will take a greater share of the new public spending in this spending review period than it has in the past five years. This is a very good settlement for education. It will mean, just as it has over the past 10 years, big improvements in all our schools: more equipment, more computers, more books, more teachers and supply staff, and more students making the grades that we expect them to. We have also seen more schools rebuilt in the past five years than in the previous 25. As the Secretary of State said earlier, we have seen essential investment over the recent period, accompanied by important reforms.
The extra investment will allow us to do still more. There will be one-to-one teaching for 600,000 students, the number of apprentices will double to 500,000, and we will increase the number of higher education students by another 60,000. Every school will become an extended community school.
Sarah Teather: I understand the answer that the Minister gave me earlier; I was expecting him to say that. Nevertheless, his response contradicts the figures in the Red Book, which give an average projected economic growth rate of 2.75 per cent., not 2.5 per cent. as he has just said. I understand that the Treasury has its own special figures, but will he explain the contradiction between his statement and the figures in the Red Book?
John Healey: I do not want to repeat myself, but I will explain that, although the trend rate of growth is 2.75 per cent., we take a cautious baseline view of public finances, using 2.5 per cent., and that is what we base all our public spending decisions on.
I turn to the personal taxation changes. The purposes of the package of reforms are varied. They include: a desire to cut the basic rate of income tax by 2 per cent. for all; taking 600,000 pensioners out of taxation altogether by increasing the age-related allowances; providing direct support for families with children, taking another 200,000 children out of poverty; improving the incentives to work by raising the value of the working tax credit; and simplifying the personal tax system so that we have two rates and two thresholds, by aligning the national insurance contributions upper earnings limit with the higher rate threshold.
Greg Clark: Will the Minister give way?
John Healey: If the hon. Gentleman will forgive me, I want to respond to the hon. Members who have made contributions to the debate, and who have been in here for longer than he has.
We are able partly to pay for the package by abolishing the 10p starting rate, but by taking action to increase the child tax credit, the working tax credit and pensioner allowances, we are able to target the resources more directly on our three priorities: families
with children, pensioners and work incentives. Despite what the hon. Members for Tatton and for Wycombe and others have said, the results of the package of reforms are that a single-earner family with two children on median earnings—about £27,000—will be £500 a year better off by 2009; four fifths of families will be better off or see no change; households with children in the poorest fifth of the population will be £350 a year better off, on average; and 6.4 million households in the bottom half of the income brackets will gain an average of £4 a week.
The hon. Member for Sevenoaks (Mr. Fallon) has an established interest in the independence of statistics, which he mentioned today. I wish to make sure that he has seen on page 42 of the Red Book the box headed “Independence for statistics”, which covers the reforms that we are making. It also confirms that the budget for the next five years for the statistics board and the statistics system will be £1.2 billion. That will allow the new board to be established and to deliver on its new functions, as well as deliver a high-quality census in 2011.
The hon. Gentleman and the hon. Member for West Suffolk (Mr. Spring) voiced concerns about the business taxation changes and in particular about the competitiveness of our rates and regimes with those of other countries. I should have thought that they would welcome the changes that the Chancellor announced yesterday. By cutting the main corporation tax rate from April next year from 30p to 28p, the rate in the UK will be lower than those in America, Germany, France, Japan and all our major competitor countries.
Greg Clark: Will the hon. Gentleman give way?
John Healey: The hon. Gentleman has moved. I give way because he is most persistent.
Greg Clark: I am grateful. Will the Minister confirm that there is a provision in the Chancellor’s Budget statement to which he did not draw attention, which is that the changes to the tax system will cost charities an extra £70 million a year through the loss of gift aid? The Chancellor did not mention that in his speech. It is a huge blow to every charity in the country. Why did he conceal it from the House when he made his speech?
John Healey: The Chancellor is to take a look at the gift aid regime to see how we can improve what it can deliver for charities, and he said clearly that the business tax reform package, which I am about to explain, would not apply to charities.
The package constitutes the most extensive reform of investment allowances since the 1980s. There will now be two rates for capital allowances: 20 per cent. for short-life assets and 10 per cent. for long-life assets, with no allowances for property. As a result, there will be fewer tax-driven distortions in the system and incentives will be more properly aligned with economic depreciation.
Several speakers have commented on the matter of legitimate small businesses. Part of the reason for staging the increase in the small companies rate is that we estimate that the majority of those currently paying that rate were advised to incorporate from employment or self-employment in order to be able to take their
labour income as dividends and, as a result, artificially avoid the tax that they should pay. All the revenue raised from the increase in the small companies rate will be recycled back to legitimate small businesses in the form of support and investment incentives, and the new annual investment allowance of 100 per cent. up to a limit of £50,000 will be available to all companies, incorporated and unincorporated. [ Interruption. ]
The hon. Member for Tatton seems perplexed that such allowances should matter to small companies. I point out that hauliers can use the allowances for their lorries, a service or IT worker can claim for his computer or office equipment, a restaurant can claim for its fridges, tables and ovens, and so on. The hon. Gentleman should not confuse small companies with small businesses. The present system of capital reliefs is not necessarily available in full to unincorporated businesses. The new annual investment allowance will be open to all those, including the self-employed, and they will also benefit from the personal tax changes that we are making.
Mr. Spring: Will the Financial Secretary give way?
John Healey: Forgive me, I will not. I have referred to the hon. Gentleman and I will do so again if I have time.
The hon. Member for Sevenoaks asked a question about the resource accounting issues in the NHS. The Department of Health is looking seriously at the case for reversing the past impact of the resource accounting and budgeting deductions from trusts and the future of the application of that accounting system. Once that assessment has been completed, decisions will be announced without delay.
Essentially, the complaints of the hon. Member for Rochdale (Paul Rowen) boiled down to the claim that we are not doing enough for further education. He made a particular plea for FE in his area. I was fortunate that my hon. Friend the Minister for Higher Education and Lifelong Learning was sitting next to me. In 1997, the total capital available for FE was zero. This year it is £500 million. That is a significant change and a sign of how strongly we support the further education system.
The right hon. Member for Fylde (Mr. Jack) spoke about the tax law rewrite project. The Paymaster General and I, who have steered some of the tax rewrite Bills through Parliament, appreciate his work on the steering committee. He is interested in the buy-back terms for self-generated electricity. In this Finance Bill, we are legislating to ensure that there will be no income tax take on that. Ofgem is likely to look at the barriers and incentives that may be appropriate to support the development of that sector.
The hon. Member for West Suffolk is concerned about the North sea tax regime. There are unique characteristics of the North sea that make that tax regime important and distinct from other systems. Off the back of the discussion paper that we published yesterday, we are interested in having a wide-ranging discussion with the industry on that.
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