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6.30 pm

Margot James (Stourbridge) (Con): May I congratulate my hon. Friends the Members for Dewsbury (Simon Reevell) and for Bedford (Richard Fuller) on their maiden speeches, and also my hon. Friend the Member for South Northamptonshire (Andrea Leadsom), whose maiden speech, sadly, I missed? I shall have to catch up with it in Hansard tomorrow. I also congratulate any other Members who made their maiden speeches this afternoon.

It is said that "You can't make a silk purse out of a sow's ear," but I must congratulate my right hon. Friend the Chancellor of the Exchequer for doing just that. What a sow's ear it was, however. Let me revisit the legacy we have inherited from the Labour party. We are borrowing £1 for every £4 that we spend. National debt is running at £3 billion per week. We have a budget deficit of £155 billion, which is 10% of GDP.

As if these headline statistics are not bad enough, there has also been the corrosive effect of some of the shibboleths that the previous Government instilled in our country. My hon. Friend the Member for Esher and Walton (Mr Raab) has just mentioned the fact that public spending grew at a dramatic rate under the previous Government, from less than 40% in '97 to 48% in 2007. They established the lie that for every social ill-for every problem-there must be a Government solution, and that every Government solution must carry an ever-rising price tag.

The right hon. Member for Birkenhead (Mr Field) has just taken on the dramatic challenge of reducing poverty in our country. He could give a very good answer to the question the hon. Member for Telford (David Wright) asked of the previous speaker about where we might have seen some cuts. The right hon. Gentleman described a situation in his constituency, where children were being sent to school with nothing to eat and having had no breakfast. The Government's response was instantly to set up a breakfast club-paid for from hard-pressed taxes on people on low pay-thereby undermining the parents who struggle alongside other parents who think it acceptable to send their children out of the house in the morning with nothing to eat. That undermines those parents who struggle and who do provide for their children and do bring them up properly. That is just a small example of additional expenditure that is merely undermining family life.

There is nothing progressive about taxing the next generation for our out-of-control consumption. There is nothing progressive about putting our recovery at risk by continuing the borrowing, and the spending that will inevitably result in higher interest rates and higher mortgages and more people out of work, which all of us in this House are-

Toby Perkins (Chesterfield) (Lab): Will the hon. Lady give way?

Margot James: I certainly will.

Toby Perkins: The hon. Lady mentioned higher interest rates and, of course, her party knows all about that because it was under a Conservative Government that
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we had record repossessions and interest rates went up to 15%. Is she aware that interest rates under the Labour Government have been lower than at any other time in history?

Margot James: Interest rates reduced partly, of course, thanks to the excellent management of the economy by the former Chancellor of the Exchequer, now Lord Chancellor and Secretary of State for Justice, and also partly because of our exit from the exchange rate mechanism, which I feel all of us on the Conservative Benches were only too relieved to see at the time.

If I may return to the present day, I was pointing out that there is nothing progressive about some of Labour's policies, and with the interest on our debt heading for £70 billion a year by 2014, we cannot sit here and do nothing. That really is the ultimate hypocrisy given Labour's fiscal plans, of which we are all aware, and which were revealed in the previous Budget. Some £59 billion-worth of spending cuts and tax increases were made public, but where they would hit was never made clear. My right hon. Friend the Secretary of State for Health was able to unearth some of the detail through freedom of information requests. Many trusts throughout the country revealed exactly where those cuts were going to be made. In my area, the West Midlands strategic health authority was going to make them by ordering cuts in front-line services, hospital beds and the number of nurses and doctors. So we in the west midlands were clear about the nature of some of the cuts that were going to be on order had Labour stayed in government.

Given that we are faced with the terrible legacy that I have just outlined, I applaud the Chancellor for his many acts of brilliance in the Budget, which I shall outline, starting with those concerning pensioners. I am connected with groups that represent older people, and have been for many years. I think that the late, great Baroness Castle of Blackburn would have been very pleased to see at last the restoration of the link between pensions and earnings, for which she long campaigned, but she would have been very sad that after 13 years of Labour Government it has taken a Conservative Chancellor, in his first Budget, to bring that sense of hope back to our pensioner community. Indeed, he has gone one step further by introducing the triple lock of ensuring that, whichever is the greatest of the rise in prices, the rise in earnings or the figure of 2.5% will be our tribute to pensioners, as a minimum, year on year.

On the tax proposals, I can say from the bottom of my heart that none of us wants to increase tax. The VAT rise, which I feel is the legacy of the Labour party, is not such a regressive tax according to the Institute for Fiscal Studies, which makes a greater study of these matters than I do, given that the poorer population spends a greater proportion of its income on items that are exempt from VAT. That is a point worth remembering. I am very pleased that the low paid are being taken out of income tax to the tune of 800,000 people a year, and I acknowledge the presence of the Liberal Democrats in our coalition as the authors of a number of these policies. I am delighted that low-paid people are being helped in that way.

I was one of the Conservative Members who were deeply concerned about the prospect of a rise in capital
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gains tax, and I am very impressed by how the Chancellor has gone about increasing that tax in a way that protects business assets, protects people at the lower rate of income tax and assigns a more modest increase than we were all expecting to those paying tax at the higher rate. We can all be very pleased by the outcome of the concerns that we expressed on that subject.

I was also delighted to see protection built in for capital spending, which has been really slashed in the past 12 months. I have been lobbying on behalf of the hospice in my constituency, which had received approval for capital funding, not all which was funded-that is a familiar refrain. I was delighted to hear last week that it had received approval in full for its funding. I shall meet the Minister for Housing on behalf of Dudley council to press for the completion of funding for new council housing in the Quarry Bank ward of my constituency, which was promised and partially committed to in funding terms. I was very pleased to see that signal in the Budget.

None of us likes freezes and none of us likes the idea that someone living on benefits will receive a cut, but in the current climate it cannot be right that families with an income of up to £80,000 a year benefit from tax credits. I applaud the Chancellor for bringing in limits for housing benefit, which has risen out of control over the past 10 years.

Overall, I welcome the Budget. Despite some of its measures, which we deeply regret having to take, it rebalances the public and private sectors-not before time. The reduction of corporation tax to 24% by 2012 and its reduction to 20% for small and medium-sized enterprises is very welcome indeed. There are many SMEs in my part of the world, so that measure is marvellous. Manufacturing can continue to claim full allowances for depreciation, albeit over a longer period, and that is welcome news for the manufacturing sector.

I welcome the review of public sector pensions. We will see the detail in due course, but the £25 billion cost to the public purse of unfunded public sector pensions is a great worry. There is deep unfairness. The gap between public and private sector pensions is daylight robbery from people struggling on lower-paid jobs in the private sector. It must be righted. I was horrified to hear the general secretary of Unison say that the Government

if they attempt pension reforms. That bullying defence of vested interests flies in the face of the fairer society that, through the Budget, we are trying to build.

Coming from the west midlands, I warmly welcome the commitment to tax incentives for employment outside London and the south-east. That rebalancing of our economy is long overdue.

The best way to support the crucial public services that we all want-on both sides of the House-is to put them on a sound financial footing, something the previous Government so miserably failed to do. It falls to us to put that vision into practice.

6.42 pm

Steve Baker (Wycombe) (Con): When I came to the House today, I expected to hear a great deal of Keynesian argument and I have not been disappointed. I am sorry that the hon. Member for Great Grimsby (Austin Mitchell)
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is no longer in the Chamber, as I wanted to congratulate him on his comprehensive grasp of Keynesian arguments. Unfortunately, it was also excruciating.

I am told that Keynes thought that the safe upper limit for the size of the state was 25% of national income. He might have halved the size of Government, so we can applaud the Budget as extremely moderate and thoughtful.

I have to tell those who propose deficit spending that it is inherently unsustainable. When Governments spend with a deficit they are bound to inject funds in a particular location in the economy and that is bound to create a pattern of economic activity that can be sustained only with deficit spending. We all accept that deficit spending cannot go on for ever. As one of my hon. Friends explained earlier this week, last year we were able to borrow only because we created a hole in the market for bonds using quantitative easing. That is so dangerous. In the past the world has seen the effects of printing money to pay off Government deficits, and I would dread to think that this country should live through such a circumstance.

I am reminded of some words published in 1945:

That is a quotation from Karl Popper, who is an interesting philosopher because, like his contemporary, Friedrich Hayek, he was a socialist until he understood where that philosophy went.

I am interested in the general well-being, particularly as Wycombe has not only great wealth but significant poverty and income levels everywhere in between. We must take seriously the realities that we face. I am glad that the Budget has included an announcement that there will be a review of pensions, and I should like to speak on that. I am grateful to my hon. Friend the Member for Stourbridge (Margot James) for having brought up the subject.

The Institute of Economic Affairs published a paper called, "A Bankruptcy Foretold", in which it explains that the Government use cash-basis accounting, whereas any commercial firm would use an accrual basis. Our accrued pension liabilities are therefore not on the Government's balance sheet. If they were, at April 2010, the true public liability would be £4,771 billion. The Office for National Statistics has suggested that the banks' full liabilities should be included in the public liability. That would make it £6.3 trillion. Those numbers are preposterous.

I should like to break down the last number, because it is so preposterous: first, the official debt, £772 billion; the cost of financial interventions, £73 billion; the current accrued public sector pension liabilities, £1,179 billion; liabilities to current pensioners, £1,120 billion; and the liabilities for future basic state pensions, £1,211-I am nearly there-and future additional pensions, £467 billion. Somewhat laughably, we can deduct from that catalogue of disastrous numbers the national insurance fund balance of a staggering £51 billion.

Those numbers have a profound implication, not for this year or the Parliament, but for the next 10 to 20 years. If we are serious about the general well-being, public sector pensions, the state pension and those
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vulnerable people who will rely on all those things-I include members of the armed forces currently serving us-we will need to think today about how we will fund those pension liabilities. I am glad that there will be a review of this subject and that one of the right hon. Members who sits on the Opposition Benches will head that review.

I should like to turn to our economic future in the international context. The Bank for International Settlements published a paper-working paper 300, which I recommend to hon. Members-that considers the future of public debts, the prospects and implications. In my hand, I have a set of graphs that show the public debt for western European nations, plus Japan and the United States, disappearing exponentially. Hundreds of per cent. of GDP are owed by the nations of the western world, including Europe and Japan. The situation is dire. By 2040, our largely age-related debt is projected to be five times GDP. By 2040, our interest payments would be more than a quarter of GDP. I do not know about the rest of the House, but I do not believe that we will ever get there. Long before interest payments reach 25% of GDP, we will have a social catastrophe. We cannot allow that to happen.

Perhaps bond investors with short time horizons of days and weeks will continue to put their faith in the nation's ability to repay, and perhaps they will not demand higher interest rates. Perhaps, as some people suggest, debt can be inflated away, but let us not forget that we are talking about index-linked debts; we are talking about pension obligations.

The Bank for International Settlements set out a different view. It pointed out that the path of growth pre-crisis was insufficient to pay those liabilities, but that now our prospects are worse. It pointed out that financial restraint historically has only stabilised the debt, without substantially reducing it. It also pointed out that swings from deficits to surpluses have been historically accompanied by falling interest rates and rising growth. I think that we can rule out the former, and at the moment it seems that our growth prospects are modest.

The Bank for International Settlements explains that it is ultimately not possible to roll over ever higher Government debts and that sooner or later debts are monetised, leading to inflation. It explains that that inflation may or may not be controllable. Perhaps there will be future political pressure to inflate away the debt but, of course, expectations of inflation automatically increase interest rates. In any event, inflation is a poison that hits pensioners, savers, and those on low and fixed incomes hardest. As I said, my concern is the general well-being.

We cannot afford further to distort the structure of our economy with inflation, so what is to be done? It seems that we are at the limits of taxation. We cannot borrow our way out of the problem and nor can we inflate our way out of it. We might well be impatient to better the lot of our fellows, but past impatience to better their lot has created huge liabilities that future taxpayers will have difficulty paying. If Members on both sides of the House are serious about building a better society, we have no choice but to reform radically the size, scope and role of the state. We must urgently see to it that our pension liabilities are funded and that public sector pensions are reformed. I congratulate the
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Chancellor on an emergency Budget that makes a strong, moderate and reasonable start at dealing with the serious problems that face us not just today, but in the decades ahead.

6.51 pm

Chris Heaton-Harris (Daventry) (Con): I am grateful for the opportunity to say that I am winding up for the Government side of the House in today's debate. I shall certainly put that in my press release, and I am sure that the Daventry Express will print it word for word.

The emergency Budget was unavoidable because the previous Government's handling of the UK economy simply failed. Labour did not understand what every business and family throughout the country knows: if money is borrowed, it must be repaid or trouble will come; and it is best for people to live within their means. My constituents and I struggle to comprehend the size of the problem that the Budget sets out to fix. Every minute that passes, the Government spend £80,000 on debt interest, so £800 million a week is spent just servicing our debt. The money that is used for interest payments cannot be spent on things such as education, health, defence or poverty eradication in Sefton.

It was pleasing that today's measures were at least announced against the backdrop of growth in the economy, which is in spite of, not because of, the previous Government. I have been surprised to hear that Labour Members do not understand that every penny spent by the public sector was initially raised by the private sector.

Stewart Hosie: Will the hon. Gentleman explain what happens to public sector employees' tax? Where does that go in this pot?

Chris Heaton-Harris: It certainly contributes to tax income, but if we were to rely on only the public sector, an ever diminishing circle of tax income would come into the Exchequer and, in the end, we would not be able to pay for anything.

The way out of this mess is undoubtedly to boost and revitalise the private sector, so I welcomed the announcements in the Budget on regional job creation and the measures to cut waste and unaffordable cost from the public sector. That is exactly what our European partners and competitors are doing. Jean-Claude Trichet, the president of the European Central Bank, told the European Parliament-my old place of work-that firm control of Government spending and tax policies is essential to restore the confidence of households, businesses and investors. He said:

if he were addressing the House, I assume that he would mean Labour Members-

He went on to say that if public finances continue along an unsustainable path,

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