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Lord Ezra: My Lords, I, too, thank the noble Lord for repeating the Statement and express great pleasure that the Government have embarked on what is a fairly courageous route: to anticipate a Budget so far in advance; and to initiate a public debate on many of the issues. Unlike the noble Lord, Lord Mackay of Ardbrecknish, I was impressed by the number of practical and positive measures which the Government saw fit to announce with this preliminary Statement. I had not expected them to do more than raise issues, bearing in mind the tax implications and other implications of announcing measures in advance.

The Government are absolutely right to say that the nation faces the three challenges of productivity, employment and stability. The document logically follows on from that opening gambit. I should like to pay particular attention to the issue of investment--an area where we have fallen behind other countries over the years, and the Government are committed to putting that right. As regards investment in public services, if there was one part of this Statement which slightly disappointed me it was what it said about the reallocation of resources in public services. What we have been told is what the Government have already

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decided on. We are further told that, as comprehensive spending reviews are carried out, there will be more resources allocated towards higher priority areas. That is fine, excellent wording. But I would have hoped that we could have had more indication of what the Government have in mind for the essential public services of health, education, and let us not forget public transport, and, for those who live and work in London, the London Underground, which has been starved for so long of resources. I should like to have seen some reference to that issue among other things.

The other aspect of investment is investment in productive enterprise. The Government have already moved positively in that direction by increasing the capital allowances for smaller firms and by reducing corporation tax. There is the welcome announcement of a further reduction in corporation tax. There is no doubt that with the measures which the Government will take to encourage savings--as the noble Lord, Lord Mackay pointed out, we have to find out what will happen to existing saving schemes; no doubt that will emerge in due course--there must be measures to encourage investment in the right ways. I am glad that a start has been made. It is very necessary to have the right fiscal framework to encourage enterprise to invest.

The noble Lord, Lord Mackay, said that I would undoubtedly be pleased at the Government's announcement about reducing VAT on energy-saving materials. Indeed, I am. I have been campaigning for that for years. I never in my wildest dreams expected that we would hear today that the Government have taken this step. I must say that I welcome that very much indeed. Furthermore, I welcome what the Government are doing as regards pensioners and their heating allowances. I have spent many years seeking to improve the conditions and insulation of the homes of elderly people on low incomes. This announcement undoubtedly will be a big step forward in that direction.

I conclude by welcoming the step which the Government have taken in initiating this pre-Budget discussion. I hope that they will persevere in what they have started. I hope in due course that we shall hear more about encouraging investment in essential public services. I hope that the Government will persevere with stimulating investment in the productive sector.

Lord McIntosh of Haringey: My Lords, I am grateful to both noble Lords for their response to this Statement, as usual in differing degrees.

The noble Lord, Lord Mackay, said that this was one of the longest Statements before this House. I have to tell him that at 28 minutes it was stakhanovite. At the Budget speed of 125 words a minute, the Statement was timed at 32 minutes and 50 seconds. I reckon that the House owes me almost five minutes of time and I propose to take that up in due course!

The noble Lord was right to welcome the debate that we shall hold next Wednesday. I can confirm that all the questions he raised can and no doubt will be raised next Wednesday. That does not mean that I shall not try to answer his points today. The noble Lord warned against what he called organised leaking by the

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Chancellor. I assume that he was talking about the danger that there could be some forestalling of Budget measures if they are announced too far in advance. If the noble Lord reads the Statement, I think that he will recognise that, although there is, as the noble Lord, Lord Ezra, kindly confirmed, a great deal that is positive and practical in the Statement, I cannot identify a single occasion where any of the announcements will result in forestalling or in damage to the Chancellor's flexibility and freedom of action when he comes to the Budget itself.

The noble Lord, Lord Mackay, asked me why we put forward a blacker picture in July when we accused Mr. Kenneth Clarke of being over-optimistic. In July, when we increased some taxes, it was a fact that inflation was overshooting its targets and that we had to plan for the long term and avoid boom and bust. But since that time we can confirm, as we could not have done then, that our deficit reduction plan is on target and it is therefore possible to be--I do not use the word relaxed; one would never accuse the Chancellor of being relaxed--able to make some of the positive points to which noble Lords have referred.

The noble Lord asked me about the code of fiscal stability and whether it was going to be binding on government. I assume he meant in the sense that the Gramm-Rudman Act in the United States is binding on governments. I have to tell the noble Lord--I am sure that he and the House know--that the Gramm-Rudman Act has not worked. Over many years deficit reduction programmes have bedevilled politics but have not helped economics very much. Our model is rather different. It is that of Australia and New Zealand, where the model is one of openness and debate rather than compulsion. That model appears to work. It is that transparency in economic and fiscal debate that we seek to achieve.

The noble Lord asked me--these are different parts of his speech; I shall try to bring them together--about whether what we are doing will fall foul of harmful tax competition rules in the European Union and state aids. I can say to him without concern that they do not fall foul of the code of conduct which we discussed earlier. Indeed, I remind the House that the code of conduct which is to be debated and decided on at ECOFIN next Monday will not in any way damage the ability of this country and any member state to determine its own tax and spending policies. The removal of harmful tax competition, which is not an unworthy objective, is one which will be achieved to gain certain specific advantages in reducing tax avoidance and evasion and is not intended to lead to harmonisation of all tax policy.

The noble Lord asked me whether the capital gains tax review referred to in the Statement will be made public. The answer is yes. He asked whether the future of PEPs and TESSAs will be made clear when the Statement is made next Tuesday on individual savings accounts. The answer is yes. Therefore there will be an opportunity to debate them next Wednesday.

The noble Lord also asked whether family credit will go beyond child benefit. The answer is slightly more complicated. It could go beyond the child benefit, but it

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does not have to go beyond it. This point relates to the noble Lord's remarks about pilot schemes. We need the research from the pilots to see whether these in-work benefits affect, for example, local wage levels. We also need them to provide us with judgment not so much on levels of credit but on administration. As a social researcher myself, I entirely agree that pilot schemes are necessary before we go national with major changes in social policy. I pay credit to the previous government for having done the same on a number of occasions.

I was interested in the noble Lord's point about the need to offset increases in green taxes by decreases. I am not sure that I know the answer. If I am told anything, I will write to the noble Lord. Again, the matter can be raised in debate.

The noble Lord, Lord Ezra, was extremely complimentary about large parts of the Statement. I am tempted to say: "What else can I say, except that I love him?" The noble Lord drew attention to the importance of investment and of reallocation of resources in the public service. He is quite right. It has always been difficult for me to understand the rationale of some public investment decisions in a situation where we have cash accounting by the Treasury rather than resource accounting. The noble Lord will be pleased to be reminded--although I am sure he already knows--that within the next two years we shall be accompanying cash accounting with resource accounting in the public sector; and by the year 2001 we shall have gone over to resource accounting, with traditional cash accounting acting as a cashflow statement rather than as a substitute for an income and expenditure account.

On energy saving materials, there is nobody by whom I would rather be congratulated than the noble Lord.

4.42 p.m.

Lord Ashley of Stoke: My Lords, is my noble friend aware that I understand the financial problems of the Government and support the broad thrust of the Chancellor's policies? However, if any move is made to cut the benefits of disabled people, it will be totally unacceptable. Those benefits are to pay for the extra costs of disability. To cut them would be to place disabled people at a double disadvantage. Such a move would incur the implacable hostility of 6½ million disabled people and their supporters in Parliament. To penalise those people is the very thing that I could never countenance. They would find it impossible to believe that that is the policy of the Labour Party against many people who are unable to work as a result of severe disability. Let the Government get people to work if they can, but severely disabled people cannot work. Therefore, cutting benefits would be counter-productive.

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