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Finally, small businesses are paying the price for the failure to control our public finances. Not only are they over-regulated, as Conservative Members have pointed out time and again, but they are constantly forced to act as the Government’s agents, by operating the tax credit system, checking on immigrant status and sorting out graduate loan repayments. As thanks for that, this year of all years, corporation tax will be
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increased by 2 per cent. We have been asking why since the last Budget, but we have not received an explanation. Rather than putting the burden of their mistakes on to those who simply cannot pay, the Government should look much harder at putting their own house in order.

I want to conclude with some remarks about the waste and inefficiency in central Government. There was not much in the Chancellor’s speech yesterday about the efficiency savings programme. We have had the Gershon savings and it is claimed that the £30 billion is on course to be realised. However, we know from the work of the National Audit Office and the Public Accounts Committee what a small proportion of those savings have been fully realised, fully audited and cashable. I understand that the NAO has endorsed only about a quarter of the current savings as real, in terms that the private sector would understand.

Secondly, there is the period after the Gershon review, post 2010-11. We were told yesterday that we would have to wait until the 2009 Budget before we saw the details of those savings, although yesterday we were promised something called the “public value programme”. It is not immediately clear to me how the public value programme differs from the current value-for-money delivery agreements. We have learned from bitter experience that changing the labels does not mean that we will get real cost-cutting in the administration of government, better ways of working, a reduced rate of absenteeism and an improvement in the efficiency of the back office systems. Those are all things that the private sector has had to cope with and implement over the past 10 years, but which still seem so difficult in the public sector.

Then there is pay, of course. I welcome the suggestion in the Red Book that Whitehall wants an increasing number of multi-year agreements, but I have warned before, including earlier in my speech, about the ever-widening use of bonuses to circumvent pay ceilings instead of adopting the performance-related pay measures that are now common in the private sector.

There are also asset sales. The Government have another £12 billion to go before they realise their 2010-11 target, and only two years left to get on with it. It seems to be taking them an awful lot of time even to sell the things that they have said for years that they wished to sell, such as the Tote. They have been playing around with that for years. A couple of weeks ago, the Department for Culture, Media and Sport announced that it intended to appoint financial advisers. If the Government are to realise their intended gains from asset sales, they must get on with it.

As I said on Monday, this country is in a financial crisis. We see that in the lack of confidence in commercial banking, the deep-rooted problems in the bond markets and the serious downturn in the United States. I suspect that we are nowhere near the end of that crisis. Just because this business cycle has run twice as long as previous cycles, that does not excuse the Government for not having prepared properly for its end. That is what Governments are for. Instead, just as our constituents face rising food and fuel prices, we find the Government being caught out. They have
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unfunded spending commitments, which are being met each year only through higher taxes and increased borrowing. They failed to prepare and have now been found out. Next year, they must prepare to fail.

2.21 pm

Mr. Stephen Byers (North Tyneside) (Lab): I am pleased to be able to take part in the Budget debate and support my right hon. Friend the Secretary of State for Work and Pensions in his radical and modernising programme of reform in the Department. I know that he wants to implement it, and many Labour Members will want to wish him success.

The Chancellor delivered the Budget yesterday against a backdrop of probably the most difficult conditions that any Chancellor has had in the past 10 years or so. The global economic downturn and the turmoil in the world’s financial markets were difficult circumstances in which to deliver the Budget. I believe that the Chancellor was right to put stability at the heart of his statement and not take any risks. Of all years, this was probably the one when risks would have been totally inappropriate for our economy. He was right to stress the importance of using the economic strength that we have because of the decisions taken in the past 10 years, and of putting in place measures to ensure that we can weather the economic storm that all of us throughout the world now face. He was also right to identify key values and principles that he felt underpinned his statement: fairness and opportunity. The only way in which we can deliver on those values and principles is by having a strong and growing economy.

The Budget is one of the defining political events of any parliamentary year. It provides the Government of the day with the opportunity to give a political narrative and tell the public exactly what they want to do with their powers. It is particularly important this year, because it is under a new Prime Minister and a new Chancellor of the Exchequer. It is also an opportunity to develop the political dividing lines that exist between the Government and the principal Opposition parties. We saw a little of that yesterday, which perhaps gave a flavour of elections to come.

Even though things are tight and there is limited room for manoeuvre, the Budget is also an opportunity to present the positive case for what the Government intend to do in the months and years ahead. It can give real political momentum to what they seek to achieve. In that context, I wish to address three matters: first, the role and size of Governments in the modern world; secondly, the next stage of public service reform; and thirdly, how we can marry wealth creation and social justice, seeing them not as incompatible but as two sides of the same coin.

I believe that the first of those matters, the role of Governments and the size of the state, will be the key political issue for every party to tackle in the months and years ahead. What do the people want and expect from their Government? What role do they expect us to play? What should the size of government be? There are competing forces. At a time of globalisation, mass migration, international terrorism and climate change, we need national Governments to respond to those global issues and work internationally. However, the
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public increasingly want to stand on their own two feet. They do not want Government intrusion and intervention. In my view and that of most people in our country, the days of big government are over. They do, though, want a Government who are there when they need them. How to strike the right balance is what we must all address in the coming period. We must reconsider what we expect the Government to do, what we should be involved in and, as a consequence, how big government needs to be.

That is a difficult matter for all three of our major political parties. The Liberal Democrat supporters of the “Orange Book” see a limited role for the Government and believe that the market can address many of the problems that we face. The old left believed in big government and that the Government should be the sole provider of public services. It believed in large-scale intervention in industry. The right—I am not sure whether it is the old right—broadly believes in a laissez-faire approach. The hon. Member for Sevenoaks (Mr. Fallon), and maybe one or two others, might subscribe to that. It believes that the less Government intervention the better, and that the Government leaving things alone is the best way forward.

There are differing views among the political parties, but in many ways the debate has been over-simplified. Asking whether there is too much government is almost asking the wrong question, because it implies that the solution is less government. The issue is more complicated than that. The real question is what kind of government we want and what role we expect Governments to play. A progressive Government should be an enabling one. They should provide opportunities and make choice available to individuals, and they should support a new kind of redistribution of power and influence so that individuals can make decisions. A progressive Government should take power away from themselves and their agencies and devolve it all the way down to the individual, whether a patient in hospital or a parent whose child is going to school. That is where the power should rest—with the ultimate user of public services. An enabling state is, in my view, the only organisation that can guarantee fairness in our society. I know that that is the key difference between the position of Labour Members and the view expressed by the Conservative Leader of the Opposition, who does not see that as being a key role for a Government to play.

As we look in policy terms at the issues before us, we have to be careful that we do not come up with policy prescriptions for very pressing issues that lead us back into the ways of big government. I want to say a few words about how the tax credit system works in practice.

Angela Browning: Having shared many a Committee Room with the right hon. Gentleman when the Labour Government first came to power in 1997, I have personally witnessed him abolish the assisted places scheme, prescribe from the centre how many children should be in a classroom and so on. Does he regret those big government steps he took back in those days?

Mr. Byers: I do not, and I shall come on to explain why. When I talk about public service reform, I will go through the three stages, which were articulated so well in a piece that the Prime Minister wrote for the
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Financial Times earlier this week. I will address the point that the hon. Lady raised when I reach that stage of my remarks.

I was making the point that there is a danger in government that the policy prescriptions that we bring forward to tackle a pressing problem may actually lead us back to the days of big government that I believe we should be moving away from. The present operation of the tax credit system is an example of how big Governments can be intrusive, and it will not in the end deliver the policy objective.

The range of people entitled to receive child tax credit has been mentioned. The hon. Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander) specifically raised that point when he drew the House’s attention to the fact that someone earning up to £58,000 is entitled to a child tax credit. In fact, it is even higher than that. If the child is less than a year old, someone on an income of £65,000 a year is entitled to a child tax credit. In my view, that is big government. I do not think that people on £66,000 a year really want a tax credit; they would rather have a lower level of taxation, full stop. I understand why the child tax credit is in place—to help, as I thought, families or single parents in poverty or on poverty pay—yet we suddenly find that child tax credit is available to someone on that level of income.

The second consequence of the tax credit regime, linked with the operation of other benefits and the abolition of the 10p starting rate of income tax, is that a record number of people now have a marginal deduction rate of more than 60 per cent. Page 62 of the Red Book tells a very sorry tale. There are now 1,875,000 people in work who face a marginal deduction rate of 60 per cent. or higher—an increase of more than 1 million people since Labour took office. That has come about because of the way in which the tax and national insurance system, the credit system and benefits such as housing and council tax benefits interact.

Ms Buck: I have some sympathy with my right hon. Friend’s argument, but does he not accept that part of what has happened has been a reduction in the number of people paying infinitely higher levels of deduction—in some cases more than 100 per cent., or 90 or 80 per cent.? Does he further agree that the alternative may mean forcing people into work where they may lose money in comparison with their benefits, or that they are effectively priced out of work and end up on benefits? Of course, it would be better if we did not have such high marginal rates of income deductions, but my right hon. Friend has to look at them in the light of the alternative that used to exist, when people were simply priced out of the labour market entirely.

Mr. Byers: It is true to say that a small number of people were paying 90 per cent. or higher rates. The figure I am referring to is the total number facing rates of above 60 per cent.—in 1998, it was a little over 750,000, but it is 1,875,000 today. That is an unacceptable situation, and I think that solutions can be found—for example, a bigger increase in the national minimum wage, coupled with a shallower taper on the tax credit system, would make a huge difference to the people whom we are talking about.

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Let me explain the consequence of the figures on page 62 of the Red Book. Poorly paid workers—hospital cleaners, people doing administrative tasks, school dinner ladies and so forth—are facing a reduction in their income more than 60 per cent. higher than that of millionaires who are paying 40 per cent. income tax, plus 1 per cent. national insurance. For a progressive Government, that is not an acceptable situation, and I believe that a solution has to be found. The review of housing benefit announced yesterday provides part of an opportunity, but we need to examine closely the operation of the tax credit system so that it does not act as such a disincentive for hard-working people to work the extra hours to get a decent income, which they will not get if they are being taxed at 60 or 70 per cent.

I welcome very much the positive statements made in the Budget yesterday about public service reform. The hon. Member for Sevenoaks referred to the announcement about the public value programme. Like him, I am not altogether clear about exactly what the programme will do. We should all support its terms of reference—to identify where there is scope to improve value for money, and value for money incentives. I would like to think that that is part of an ongoing reform of public services.

I was particularly pleased to see the Prime Minister’s article in the Financial Times earlier this week, in which he stated in the clearest possible terms his own personal commitment to drive forward the public service reform agenda:

He continued:

Mr. Denis MacShane (Rotherham) (Lab): Did my right hon. Friend’s heart beat a little faster when he read that article, because it showed that the modernising flame in No. 10 is still burning brightly, and that the need to produce a public service in line with all our thinking over the past 10 or 11 years, which serves the public rather than serving itself, must be at the heart of the next stage of Government reform over the next, say, 10 years under Labour?

Mr. Byers: I would not go so far as saying that my heart was beating a little faster, but a smile may have played around my lips— [Interruption.] Yes, it is pretty good going really; it is progress.

The Prime Minister’s words are a clear indication of the direction in which he wishes to go, and they reflect the fact that, over the past few weeks, he has come to recognise the importance of public service reform. The challenge, however, is how to turn those very positive words into tangible policies on the ground, which will deliver on such commitments. I shall make a couple of suggestions about how that might happen in relation to the school sector, which needs greater improvement. We have seen incremental changes for the better, but given the investment that has gone into our school
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system, a dramatic shift is needed in the quality and standards provided in our schools. I agree with the Prime Minister when he talks about “greater diversity of providers”, “more choice” and “more competition” driving up standards. As a former Schools Minister, I thought about how that could be done in the school sector.

I have just two proposals. First, last week we had what is now called national offer day, when parents whose children are transferring from primary to secondary education are informed whether they have been successful in getting their child into the school of their choice. About 100,000, or one in five, will not get their first choice of school. It is clear from the timetable for admissions that we currently have a rationing system for places at good and popular schools. It is not a timetable aimed at meeting parental choice. The reason is simple. Parents express a preference—not a choice—in the autumn of the year before their children are due to transfer from primary to secondary school and are told in March whether they have been successful, so there is almost no time for the system to respond to their wishes.

There is a simple solution. In the private sector people specify at an earlier date the schools that they want their children to attend, which gives the system time to engage more teachers, put in an extra classroom and generally meet parental demand. The provision of places at good and popular schools can thus be expanded. If parents whose children were due to start secondary school in 2010 could specify their choice of school in autumn this year, the longer lead-in time would allow the system to organise and respond positively. I believe that that could galvanise the schools system; suddenly, schools would be able to respond to the wishes of parents.

There is, however, another issue that needs to be addressed. At present, children from poor backgrounds who are entitled to free school meals do appallingly badly. Of the 30,000 16-year-olds who leave school without a single GCSE or other qualification to their names, the vast majority are those receiving free school meals. Free-school-meals children are three times more likely to leave school with no qualifications, and 35 per cent. of free-school-meals children obtain five good GCSEs, compared with 63 per cent. of children who do not receive free school meals.

The Prime Minister has said that he wants all state school children eventually to be funded at the same level as those in private education. The average in the private sector is £8,000 a year; in the state sector, it is £5,000. If we are serious about changing the life chances of children from poor backgrounds, we must invest money to achieve that. The Liberal Democrats have proposed what I believe they call a pupil premium. I have a different proposal. I think that from 2010, each free-school-meals child entering secondary education should receive £8,000 as an educational entitlement. Given that about 90,000 children transferring to secondary school will be entitled to free school meals, the cost for the first year will be about £270 million. Over time the amount will increase to around 3 per cent. of the total schools budget, and I believe that it will be money well spent. It will dramatically improve
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the opportunity for children who need extra support and assistance to gain the benefits and get the best from the education system.

I think that if the £8,000 educational entitlement for a free-school-meals child is combined with a new admissions timetable allowing a longer lead-in time, young people who are currently denied access to the most popular and successful schools will soon have the opportunity to attend such schools. Parents who cannot afford the premium attached to buying a house in the catchment area of a good and popular school will at last be able to send their child to one.

Both those proposals are practical. Choice, competition and contestability must be at the heart of any third stage of public sector reform. It will be about devolving real power and influence to parents, rather than just giving those things to head teachers and schools, because, to be honest, they are just another group of vested interests that will not always act in the best interests of the children. For public service reform to be effective, it has to go the whole way and the ultimate users of the services must control their own destiny, and the money.

Finally, let me turn to wealth creation and social justice. When John Smith was Labour leader, he made an important speech on the progress the Labour party had made by casting off the old Labour approach and addressing instead a more modern new Labour approach. He said that whereas historically for Labour, wealth creation and economic efficiency were in conflict, they had to be seen as two sides of the same coin. When he was shadow Chancellor he made the strong argument—he may have done so in this House—that unless we have a growing economy and wealth creation, we will not be able to deliver on our social policy agenda. This Government have achieved that: 600,000 children have been lifted out poverty, and there have been record levels of people in work and of investment in public services. We have been able to do that only because we have had a strong and growing economy.

An important objective for any Government at a time of globalisation is to ensure that we remain competitive in world markets. That means being very careful about taxation levels for both businesses and individuals, because we are competing globally in respect of tax regimes. It also means reflecting the modern world in which we live in the overall climate that we create for business, entrepreneurship and wealth creation. There is a danger that one or two false steps, even if they are well intended, might disrupt the good record that has been established. We must therefore make it absolutely clear that the UK will remain the best place to do business. That means that the Government and the Labour party must become as comfortable with the concepts of aspiration, enterprise and ambition as we have been for generations with those of social justice, fairness and opportunity for all.

I have raised concerns about how the tax credit system works, but the overall message on the Budget is positive. It is a Budget that is right for our times: it stresses stability, and at a time of uncertainty in the world that is exactly what we need. This is the right approach, and one that should commend itself to the House.

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