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Lord Newby: My Lords, this has been a most extraordinary portmanteau of a debate covering a broad sweep of macro-economic policies and detailed issues and technicalities of business taxation. The point made by a number of noble Lords about the way in which this House discusses such issues bears further consideration. It has been demonstrated again today that within this House there is significant expertise on all these matters. Yet in a debate which will last less than three hours we are attempting to cover issues which in the Commons are dealt with in the Budget debate and on Second Reading and at all subsequent stages of the Finance Bill. In my view, that is unsatisfactory. As was suggested by the noble Lord, Lord Desai, we could discuss the Budget Statement within a week of it being made.
As we come next year to look at the composition and functions of this House, we should look again at the way in which it addresses economic and financial matters. The proposal made by the noble Lord, Lord Lucas, which has been around a long time, about a second technical tax Bill would be worth considering at that stage.
I turn, first, to the overall economic position, the way in which the Chancellor has formed his judgment and the future of the economy. It is crystal clear from our debates today and yesterday that we are at a stage in the economic cycle when it is uniquely difficult to see any far distance into the future. The fog on the mountain described by the noble Lord, Lord Desai, is particularly thick at the point when the economy is turning from a period of sustained growth into the downturn and vice versa.
That is noticeable, for example, if one looks at the point when the noble Lord, Lord Lawson, as Chancellor, was forming his Budget judgment in 1986 at the beginning of what subsequently became known as the "Lawson boom". The advice he was getting both internally from the Treasury and externally was not that he should be preparing for a boom but that the economy was faltering and that he should be stimulating it rather than dampening it down. That demonstrates the difficulty of the position in which we find ourselves not least because there is the major external uncertainty over which we have no control; namely, the short to medium-term future of the Japanese and the other Far Eastern economies.
A great deal of discussion has been directed today at the workings of the Monetary Policy Committee and its specific decisions. We on these Benches have supported the establishment of that committee. Some of the criticisms we have heard today remind me of the position in which a football manager sometimes finds himself when the team is not doing as well as people
There is a widespread sense shared by many Members of this House that now is not the time to be putting up interest rates but probably the time to be bringing them down. Like the football manager who has become used to a longer term series of decision making and who has to live by the decisions, there is greater caution on the part of the Monetary Policy Committee. My preference would be to give it the benefit of the doubt for the time being. Although it would not be the unanimous view of the House, we on these Benches believe that the committee is but a transitional body between the Chancellor of the Exchequer setting interest rates, having been advised by the Bank, and interest rates being set for a European single currency in which the UK will be playing a full part.
We welcome many aspects of the Government's overall fiscal stance and budgetary policy. As my colleagues in another place have been ready to point out, we have some concerns about the vulnerability of the Chancellor's plans and about a number of risks contained within them. I shall mention only three. The first relates to inflation and the extent to which the Chancellor's expenditure plans depend on the inflation targets being met. The noble Lords, Lord Barnett and Lord Marlesford, asked whether in setting out cash limited expenditure for the next three-and-a-half years the Chancellor really did mean that it was cash limited or whether, if inflation were to rise beyond that set out in the Government's plans, the cash limit would be relaxed. So far, the Government's statements have been confusing.
In the Economic and Fiscal Strategy Report, the Chancellor stated that the cash figures would be reviewed if inflation varied substantially from the forecast. Yet on 18th July, when he appeared before the Treasury Select Committee, he said:
I suspect that the truth is that if inflation exceeds the targets the Government will take all the options open to them in part and slightly increase the expenditure to take account of increased inflation. They will somewhat increase borrowing so that it takes some of the strain and they will probably raise taxes in order to make up any remaining shortfall. But given that the inflationary outlook is not wholly clear, and given that the Government have not met their inflation targets, there is an implied risk in the Government's forward inflation figures.
The second point--I apologise to noble Lords who heard me make it yesterday evening--relates to the contingency reserve, which is now at a negligible level. It stands at more than £8 billion over a three-year period to cover government spending of £1.1 trillion. In the first two years of that three-year period, those amounts are 0.5 per cent. and 0.7 per cent. respectively of government expenditure. I am not sure what the level was when the noble Lord, Lord Barnett, was
The third risk--the risk we have spent most time discussing--relates to growth and to what happens if the Government's plans on growth are not met. Clearly, the Government are making plans for a soft landing. As the Minister reminded me yesterday evening, the majority of commentators are predicting that. He also accused me of being unduly gloomy about the prospect. I was not doing that. I was pointing out that because of a number of decisions which the Government have already made they have tightly boxed themselves in in terms of their response to any downturn in growth without breaking election pledges on taxation, the golden rule or the other constraints which individually would make sense but when taken together provide a tight fiscal box for the Government to remain in.
Those are the three risks that we feel are inherent in the Government's fiscal and growth plans. As I said last night, we are not hoping that those risks prove to be realities. When we are assessing the Budget and forming our views on the Chancellor's overall stance, it is fair to take those plans into account.
I turn briefly to three specific matters in the Finance Bill which cause us concern. In one or two cases, I should welcome a ministerial response. We have had a limited discussion on ACT today. It is clear that, whatever the merits for the overall abolition of ACT, a whole raft of anomalies has arisen which the Government have so far failed to rectify. In another place, amendments were moved to attempt to deal with the problem of the impact of the change on members of the public who are non-taxpayers and who have to pay tax for the first time on their dividends. It amounts to about 300,000 people paying on average an additional £75 per year. By definition, those people are poor and that is an impost which I am sure the Government did not intend as one of the consequences of the abolition of ACT. However, it is an impost which has flowed from it. While the Paymaster General in another place has accepted that the situation is unsatisfactory, nothing has so far been done about it. I should welcome anything which the Minister will say about how that may be tackled next year.
Another matter which has been raised by a number of noble Lords, including the noble Earl, Lord Dartmouth, and the noble Lord, Lord Boardman, was the abolition of capital gains tax retirement relief. We totally support the concerns raised in that regard. It is extraordinary that a tax-neutral change which has to do with the laudable aim of encouraging people to hold capital for a longer period has the effect of benefiting those whose assets are extremely high and hitting those whose assets are very low, with a cut-off at about £0.5 million.
Again, that seems to be an outcome which the Government cannot have desired. A number of suggestions have been made, not least from the Forum of Private Business, about how a transitional relief could
The final tax change to which I should like to refer which has not been discussed at all this afternoon relates to the introduction of the individual savings account. We welcome the ISA proposals in general and welcome also the process by which the Government have sought to introduce what is a complicated and technical change. Quite a significant change has been made as a result of the consultation and the more recent consultation on the CAT marks. The principle behind having a simple CAT mark is entirely laudable. Some of the arguments which have been made against the proposals on behalf of the independent financial adviser industry do not bear too close a scrutiny, given the recent history of bad advice to low-income earners. However, it is quite clear that significant changes could be made to the proposals contained in the Treasury discussion document on CAT marks and I hope that they will be taken into account.
In that consultation document, the Treasury said that it will be publishing draft regulations this month. I understand that that is not the case. I am not surprised because so many suggestions were made and to accommodate them all, or even a large proportion of them, will take time. But perhaps the Minister will give an indication of when those regulations may be forthcoming. As it is almost certainly the case that they will be published during the Recess, will he give some idea of the subsequent parliamentary timetable which may be followed? They are peculiarly important regulations in terms of a significant tax change which will affect potentially very large numbers of small income earners.
This has been a fascinating debate. As I said at the start, in some ways it has been unsatisfactory because it has tried to do too much. I hope that as one looks to our further debates on those issues, they can be conducted with a rather more rational division between a macro-economic discussion and the technical matters contained in any future Finance Bill.
Lord Higgins: My Lords, it will come as no surprise to your Lordships' House that I disagree fundamentally with the opening remarks of the Minister with regard to the Government's economic inheritance, both for the reasons which my noble friend Lord Marlesford put forward with regard to structural changes over the past 20 years or so and for the other reasons put forward by, for example, my noble friend Lord Dartmouth. I take the view that this Government had the best economic inheritance of any government since World War II.
What surprised me was the Minister's remark that there had been an inflationary boom in prospect and the Chancellor had taken firm fiscal action to stop a consumer boom. If there is one thing which this Chancellor has failed to do it is to take action in relation to the consumer situation. Not only that, but he has also taken action which has tended overall to deter savings, which is the other side of the coin to consumption. The
The reality of the situation is that after two budgets, two Finance Bills, an economic and fiscal strategy report and a Comprehensive Spending Review, I fear the situation now is that the position which the Government inherited is being frittered away. On top of that we have clearly had a complete reversal of the Government's declared strategy in a number of important respects, in particular as regards a major U-turn on public spending and more specifically on social security spending. I note that in his opening remarks the Minister referred to many increases in public expenditure but significantly did not mention the extremely substantial increase in relation to social security expenditure.
Since I have not spoken before in one of these debates, I thought it appropriate to carry out some research into earlier debates. I was struck by a remark made by, I believe, the noble Lord, Lord Desai, when he said that the House of Lords debates Finance Bills after it is too late to do anything about them. That is probably the reality of the situation as regards the specific tax proposals. As the noble Lord, Lord Newby, pointed out, the debate this afternoon has contained a number of speeches on specific tax matters, but in addition to that we have had a wide-ranging debate on the state of the economy. Therefore, I wish to make one or two remarks on the specific proposals before I turn to the broader issue.
I have great sympathy with the view expressed by both the noble Lords, Lord Desai and Lord Newby, as regards the future structure of this debate. There is a strong case for us to have an opportunity to debate the Budget soon after it takes place.
In that context, I wish to say also, and again agree with the noble Lord, Lord Newby, that the case for a separate taxes management Bill is overwhelming. It is not all that long ago that the Finance Bill was contained in a single volume. It then became two volumes. We now have 409 pages of volume II entirely devoted to schedules. That is at a time when I understand that a committee under the chairmanship of my noble and learned friend Lord Howe of Aberavon is trying to simplify the existing structure of tax legislation. It is going far faster than my noble and learned friend and his committee can possibly hope to keep pace with. Therefore, the case for those matters being debated quite separately--on the one hand, the Chancellor's proposals as far as they affect the economy and, on the other hand, the technical stuff, which I am almost inclined to describe as "garbage", which turns up in the other more esoteric aspects of the matter--is overwhelming.
As regards the specific measures, my noble friend Lord Boardman referred specifically to corporation tax and challenged the Government on the overall situation. The Minister gave the impression that the overall effect of the Chancellor's proposals over the lifetime of this Parliament would be to reduce corporation tax and the revenue derived from it. My understanding is that that is not the case. No doubt the noble Lord will correct me if I am wrong. If I am correct, I hope he will say that
Similarly the noble Lord, Lord Newby, and my noble friends Lord Lucas, Lord Northbrook and Lord Dartmouth all referred to the capital gains tax changes with regard to retirement relief. I share the views which they expressed in relation to that. The issue of ACT has been debated already at considerable length and I do not wish to detain your Lordships' House on that subject now.
However, as we are talking more and more about the overall economic situation in terms of a three-year period, I should like to draw your Lordships' attention to the matter which we debated at some length during the proceedings on the Social Security Bill some while ago; namely, the Budget Statement made by the Chancellor of the Exchequer on 17th March in another place, in which he said:
Noble Lords will recall that in the debate on the social security legislation there was much dispute about whether the Chancellor of the Exchequer referred to "further" or "future" reforms. However, at all events, it was a major feature of the Budget speech and was certainly picked up in press reports. Nevertheless, your Lordships will look in vain to find any reference to it in this Finance (No. 2) Bill. As this is a matter involving some £1.3 billion, we should at least ask the Government whether this will happen at any time over the three-year period which we are considering, or whether it is simply some aspiration for a time far into the future which will not be relevant to our discussion of the overall economic situation.
I should like to pick up on another point that I raised yesterday; indeed, I have raised it three times now but have not as yet received an answer. I refer to the way in which the figures are presented and the extraordinary way in which the substantial sum of money involved in the working families tax credit--some £5 billion--has been shifted out of the budget of the Social Security Department and put into a so-called "accounting adjustment", together with a further £10 billion covering various other items. Clearly, the overall effect is very important. The Minister was kind enough to say last night that he would give me a clear answer in that respect.
The Minister referred to a particular response that the Government had given which he described as evidence that had been given to the Treasury Select Committee in another place. However, I have managed to obtain a copy of the relevant document and it does not cover the point that I was making originally; namely, whether it is the case that the Office for National Statistics does not approve of the way in which this matter has been handled. Indeed, the amount has been shifted out of the social security budget into the so-called, "accounting adjustment".
From time to time there are occasions when one can say that such matters are a tax reduction or a public expenditure increase. But this is not a matter of that sort. Although it is to be handled by the Inland Revenue, the reality is that something like 80 per cent. of the working families tax credit will actually be cash which is handed out. One cannot conceivably regard that under any possible rules as a tax reduction. I am sure that the noble Lord, Lord Barnett, would not take that view. It is only if one assumes that everything that everyone has belongs to the Government that such a handout could be regarded as a tax reduction. Therefore, it is most important to clear up the issue. Equally, it is clear that, as far as concerns the reality, one ought to add back the figures into the social security budget.
I have one further point to make on public sector borrowing. Again, I hope that we will receive an answer tonight. The Government's objectives have changed significantly since the Budget was announced in March and this finance Bill has stemmed from it. We were told in March in the Red Book that, from the year 2000, there would be a budget surplus in each year until the end of the planning period. My understanding is that that is not so. We were told that there would be a reduction in the national debt; but again my understanding is that that is not so. We were also told that there would be a reduction in the percentage of national income taken by the state from now onwards to the end of the period. Again, my understanding is that that is not so.
My noble friend Lord Lucas referred to Clause 155 of the Bill. That deals in some considerable detail with the code for fiscal stability which is actually embodied in this legislation. Had that code been formulated in March, it would have had to be radically rewritten by now. Quite clearly, there has been some fundamental change in the Government's overall policy between then and now. That brings me to the major point; namely, the major reversal which has taken place.
The declared policy of the Government before the election and immediately afterwards was very clear: it was to pay for increases in the budget of the education and health departments from savings on social security. That simply has not happened; indeed, it has been a demonstrable failure. Regrettably, in some ways, we have seen that reflected in the decisions as far as concerns the composition of the Government during the past few days. In passing, I feel bound to say that I greatly regret the fact that Mr. Frank Field felt unable to go on serving in the Government. Certainly government of any quality and of any party need people with the kind of expertise and experience that he has.
However, the proposals which were made were clearly not implementable and, therefore, were not implemented. But what strikes me as quite extraordinary is that we now have a new Secretary of State for Social Security, Mr. Alistair Darling, the former Chief Secretary to the Treasury. As Chief Secretary to the Treasury, Mr. Darling was presumably trying to achieve the Government's objectives of reducing the amount of money which was spent in the social security budget. As far as one can see, he ought to have been pressing
We have been told time and time again--indeed, by the Minister last night and again today--that the Government are now planning public expenditure over a three-year period. Unlike periods in the past when previous governments always looked at such matters over a three-year period but did not seek to set them in concrete, such plans are now fixed and cannot be changed. But those plans include a massive increase in social security expenditure. Therefore, I hope that the Minister will be able to tell us today what the actual outcome will be. Will it suddenly be the case that these plans are not as set in concrete as they were before, or will we have a cut in the social security budget which Mr. Darling, having failed to achieve it as Chief Secretary, will now manage to do as Secretary of State for Social Security?
That brings me to the overall situation with regard to public spending in relation to this Finance Bill. It is sometimes said that the danger lies in the increase which is now planned, in contrast to what was thought to be the case last March when this Finance Bill was coming to fruition. We were told then that there was a danger that there might be spending into a recession. Of course, it is always possible to do that if one has a boom or bust and stop-go policies, which the Government have declared they are not going to have. We are told that there will be a sustainable rate of economic growth, and I shall turn to that point in a moment. However, the Government have really short-circuited that boom and bust process.
I turn now to certain points which many noble Lords have raised during the course of this debate; namely, the situation as regards the independence of the Bank of England. Many press statements issued in the past few days have indicated that the Chancellor of the Exchequer is supporting the policies of the Bank of England. But, in that context, it is important to realise that the Bank of England, independent though it may be--or at any rate is said to be--can only operate within the context set by the Chancellor of the Exchequer.
That brings me to the points made by the noble Lord, Lord Desai, with regard to fiscal policy. The Government's failure to do what they said they would do in the comprehensive spending policy document means that there is bound to be upwards--not downwards--pressure on the Bank of England Monetary Policy Committee to increase, not to decrease, interest rates. The Chancellor cannot wash his hands of the whole affair. What he is doing is setting the framework; what the Bank of England is doing is simply spelling out the consequences.
It is tempting to go into the point, which I made in an intervention to the noble Lord, Lord Desai, as to whether the Bank of England is concerned only with interest rate policy and not monetary policy. My feeling is that monetary policy is still in the hands of the Treasury as regards the funding of the PSBR. However, it is unfashionable to talk of M1, M2 or M3, which used to preoccupy many of us some years ago. Therefore I shall not pursue that point. However, I shall pick up a point which a number of noble Lords have made, for example, the noble Lord, Lord Barnett, my noble friend Lord Northbrook and my noble friend Lord Birdwood, with whom I have discussed the matter. He had hoped to be present this afternoon but was unable to be here. I refer to the point of whether the guidance to the Bank of England should be changed and whether the Chancellor of the Exchequer should ask it either to change its timescale on this matter--that point was made recently in Mr. Kearn's National Westminster review--or should tell it that inflation is important but it must also take into account growth and the overall economy.
This debate has been rather divided between economists and accountants. I declare myself in the first camp rather than the second. In that context I think there is a problem here as regards the way in which the Bank of England operates. I take the point of the noble Lord, Lord Desai, with regard to one instrument and one objective. I suspect that point may have been missed by some of the accountants. In all events I think it would be difficult for the Bank of England to change its remit in the way suggested because effectively it would take over the whole of economic policy, not just the determination of interest rates.
The overall effect of this Finance Bill, and particularly the public expenditure change, gives one real cause for concern with regard to the future of the economy. That is a matter which all of us must regret. That situation has manifested itself more and more. I refer to recent statements by the board of Rover, or the CBI, or this morning's statement by the London Business School. I refer also to the points made by the noble Lord, Lord Bruce of Donington, with regard to productivity and the exchange rate. It is extraordinary that the Chancellor of the Exchequer should have attacked particular companies on their productivity without really examining whether they were service companies or manufacturing companies. I do not think there is any doubt that the effect of the public expenditure exercise, combined with the effects on monetary policy and the effects on interest rates, and the upward rather than downward pressure on the exchange rate, will have a serious effect on many sectors of the economy. I fear that we are heading for "stagflation", to use an old-fashioned term.
While the Government have said that they are aiming for a high and sustainable rate of economic growth, the reality is that the rate of growth which they now anticipate is, by historic standards, remarkably low. I declare an interest as a governor of the National Institute of Economic and Social Research, which has suggested that the rate of growth may be minimal for the remainder of this year and probably only about
Certainly there is one thing which is true: forecasts of all kinds are extraordinarily unreliable. I see that the Minister nods his head in agreement. Just 18 months ago I said in another place that I was making my final speech on a finance Bill. That was after 33 years of speaking on finance Bills with the noble Lord, Lord Barnett, and others. As there is often more than one finance Bill in a year, I suppose I have spoken on more than 40 finance Bills. They have varied greatly in quality but this one gives me considerable cause for concern for the future.
Lord McIntosh of Haringey: My Lords, the noble Lord, Lord Higgins, ended his speech by saying that forecasts are notoriously unreliable. I nodded approval because I was reminded of Casey Stengel, the manager of the New York Yankees, who said exactly what the noble Lord has said. He said that forecasts are notoriously unreliable, particularly when they concern the future. They are the worst kind, he said.
We have been criticised for the timing of the debate on the Finance Bill. I was interested to hear the point made by my noble friend Lord Desai, which was echoed by the noble Lords, Lord Jacobs and Lord Newby, and finally by the noble Lord, Lord Higgins. As my noble friend will remember, we had a debate on the economic situation soon after the Budget because that was in Opposition time. If there is any lesson to be learnt perhaps it should be learnt by the Opposition Chief Whip, who might wish to devote some Opposition time to a debate on the economic state of the nation immediately after the Budget when your Lordships' undoubted expertise may have greater influence than it is likely to have some two days before the Summer Recess.
Noble Lords complain that we do not have an input into taxation matters but that was, after all, the result of the Parliament Act 1911. That Act was enacted because Lloyd George's "People's Budget" of 1909, having been debated in all-night sittings in the House of Commons all through August and September with Cabinet Ministers speaking in relays to defend the budget, was then overturned by the House of Lords, plunging the country into chaos. I do not think that we want to go back to that situation. I think we should maintain our inferior status as regards taxation.
The debate was of great interest to me. As has been said, so many noble Lords who took part are accountants and economists. I am a mere market researcher and therefore I must do my best to keep up. I was interested to note that, for once, overall approval for the Budget
I have listed 14 topics that I must cover. Therefore I shall race through as best I can. First, there is the fundamental issue of growth forecasts and whether we are being prudent in our spending plans and in our taxation plans. The noble Lord, Lord Boardman, said that the spending review commits everything that we have available. My noble friend Lord Barnett said that we should take pessimistic forecasts seriously. The noble Lord, Lord Newby, made the same point. My noble friend Lord Bruce referred to the CBI surveys indicating a downturn in business expectations. All of those things are true. It is true that we should take a particularly prudent view of public expenditure and public revenue in the light of the likely future for the economy. That is exactly what we have been doing. Indeed, in the Comprehensive Spending Review and the Economic and Fiscal Strategy Report, we have down-sized expectations on the previous position. The result is that our expectations are very much in line with the expected growth of the average independent forecasts and, importantly, our spending projections are based on the lower end of the ranges. We continue to expect growth of 2 to 2½ per cent. this year and 1¾ to 2¼ per cent. next year. Our spending projections are based on the lower end of those ranges.
But in many ways there are still buffers between us and the disaster that so many noble Lords take some delight in forecasting. First, we are over-achieving on the golden rule. The margins on the current Budget build up with surpluses of £7 billion, £10 billion and £13 billion. Our short-term projections, as I said, are on a lower growth path than they were before. Let me be precise about what they are now--what I have given are the earlier figures. The figures are: 2 per cent. in 1998 and 1¾ per cent. in 1999. That is in line with the latest view of most independent forecasters.
We have made cautious assumptions which have been audited by the National Audit Office, including: a 2¼ per cent. trend growth instead of the previous 2½ per cent; only direct effects of our Spend to Save programmes; a modest downward trend in VAT receipts as compared to the flat trend that we assumed before; and reserves in both the Annually Managed Expenditure and managed Departmental Expenditure Limits. I say to the noble Lord, Lord Newby, that there are significant reserves. However, they are less necessary when public spending has been set out in a firmer way for three years than when it is for only one year. The opportunity for departments to plan their expenditure more effectively is very much greater with three-year planning. I simply do not accept that our expenditure plans or expectations of revenue are unsustainable. Of course departments must stay within the cash limits, as they have always had to do. But the buffers that I have described are enormously important.
The noble Lord, Lord Higgins, returned to the charge that he has made before about social security expenditure. I say to the noble Lord again that social security expenditure, at 2 per cent., is below the expected rate of growth and below the expected rate of inflation. That is a reduction in real terms.
But, more importantly, social security expenditure is not so much the kind of hand-out expenditure that we had, given the higher unemployment in the 1980s and early 1990s, but is much more positively family related expenditure. I mentioned that in my opening remarks. Our deliberate intention is to reduce child poverty. We believe that to be a profoundly important investment in our future. If that counts as social security expenditure, then so be it. Whatever our plans are, they are to cut spending in areas of failure, not spending on positive benefits. The aim is to cut child poverty and poverty among the disabled and the long-term poor.
We talked about the role of the Monetary Policy Committee and the respective role of monetary and fiscal policy. Although there was disagreement, it was not particularly on party lines. Some of the distinction made between monetary and fiscal policy has been too facile. Of course the Monetary Policy Committee considers fiscal matters, and the Treasury considers monetary matters including the question of money supply. But delegation of decision-making on short-term interest rates to the Monetary Policy Committee means that the Government cannot, as in the past, rely on fiscal drag, an inflation tax to cover up a poor control of public expenditure. That is important in relation to the remarks made by the noble Lord, Lord Lucas.
I say to my noble friend Lord Desai that in that respect we have not abjured using fiscal policy for short-term ends. What we are saying is that it should be used, if necessary, for short-term ends but always within the context of the golden rule for the economic cycle as a whole.
I now turn to the issue of the golden legacy to which the noble Lords, Lord Marlesford and Lord Higgins, appear still to adhere. I find that increasingly extraordinary as we move away from the election. Thanks to the boom-bust policies of the party opposite, the past 20 years have seen the two deepest recessions and one of the largest booms since the war. It cannot be denied that that is the case. They have damaged growth, held back investment and cost jobs. Last May we inherited an economy that was in the middle of another short-term inflationary boom caused by the fact that the then Chancellor refused to accept the advice of the Governor of the Bank of England and take the necessary action. We inherited a history of excessive government borrowing and rising public debt, while public investment had been neglected. The burden of public debt under the previous government doubled from 1991 to £350 billion; that is about £15,000 for every family in the country. It cannot be said that that was a golden legacy, however one attempts to massage the figures.
We were criticised by the noble Lord, Lord Higgins, who has raised the matter before, for the treatment in the accounts of working families tax credit. The situation is very straightforward. Income tax credits count as
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