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Mr. Fabricant: Is my right hon. Friend aware that health authorities have informed me that the Government have increased funding for the NHS assuming inflation of 2.5 per cent., whereas inflation in the NHS is now running at 5.2 per cent.?

Mr. Portillo: I am pretty sure that the Government are doing exactly as my hon. Friend says, and calculating their increases using an inflation factor that is flattering to them. My hon. Friend can also count on the fact that they will use the much higher NHS inflation factor when

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they calculate the figures under the previous Government. That will almost certainly be part of their subterfuge and double counting. Fortunately, no one believes anything that the Chancellor says any more.

In place of spin and double counting we shall introduce truly rigorous economic disciplines. We shall have our own currency, and interest rates will be set in Britain. We shall enhance the independence of the Bank of England and appoint an independent committee of economic advisers. We shall ensure that there are proper national accounts to end the Chancellor's fiddled figures and we shall increase Government spending within the limits of what the nation can afford. We shall set about making Britain competitive, responding to tax cuts abroad with tax cuts at home and lifting the burden of regulation.

We shall slash taxes on saving and leave pensioners with more of their own money. We shall cut taxes for families, giving help to them when their children are youngest, and giving women more scope to choose how they balance their family and career. The Chancellor has broken his promise not to raise taxes. He has over-taxed the British people and hit hard those who can afford it least. People have seen no improvement in their public services and received almost nothing back in the Budget.

The Prime Minister once said that a high spend economy is not a high success economy. In that respect at least, time is proving him right. If Labour were returned at the election, we would see higher taxes, more stealth taxes and more crises in our hospitals, schools, transport and the police. Fortunately, there is a better way, and the Conservatives will lead the country along that better way.

4.54 pm

Mr. Robert Sheldon (Ashton-under-Lyne): The right hon. Member for Kensington and Chelsea (Mr. Portillo) referred to productivity. I have found the document "Productivity in the UK: Progress towards a productive economy" most valuable. Its publication is an interesting aspect of the Budget, which I hope will be repeated. I intend to cover that document in detail.

Every Budget has two maxims. One is that a Budget that looks good in the spring appears less favourable in July. The other is that before a general election, bribes must be delivered. Everyone can see that the Budget is consistent with my right hon. Friend the Chancellor of the Exchequer's aims as they have shown themselves for the past four years. It is a responsible Budget, which will continue to look good in the coming months and perhaps even longer.

My right hon. Friend has shown himself to be a successful long-term planner--we have not had such a person before in the post-war years. From Hugh Dalton to the right hon. and learned Member for Rushcliffe (Mr. Clarke), the consideration has essentially been to keep the show on the road. From the time of his appointment as Chancellor, however, my right hon. Friend began the task of planning for the whole of this Parliament. Right at the beginning of his term of office, he made the momentous decision to give interest rate policy to the Bank of England. That has worked beyond the expectations of many and has underpinned the stability that he sought to bring to public finances.

I have one comment to make on that aspect of policy. I do not want a wide range of interests to be represented on the Monetary Policy Committee, but it could do with

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having one member who understands manufacturing and who could perhaps reflect a more regional outlook. Apart from that, the change in responsibility for interest rates has been a foundation of my right hon. Friend's success. In the past, the pressures on a Chancellor for decisions on interest rates have been constant--at times weekly, and even daily. As a consequence of removing that pressure, he has been able to devote his energies to economic reform and long-term plans.

Initiatives include the welfare-to-work programme, greater control of public expenditure, investing for the long term and--of great importance--my right hon. Friend's concern for productivity and the manufacturing industry. I should declare an interest in a small textile company. In the absence of any comments on that industry, I do not believe that it is necessary to inform the House of that, but the Standards and Privileges Committee considers it to be a grey area.

As I have already said, I especially welcome the document "Productivity in the UK", which was published with the Budget. Although our performance is lower than that in the United States, France and Germany, some factors are more encouraging. First, unemployment has fallen by 1 million under the Government. Although that means that many new employees are entering the work force with less in the way of skills and consequent productivity than those already employed--that is mentioned on page 11--with levels of unemployment much greater in France and Germany, any sharp reduction in their unemployment rates would be likely also to reduce their levels of productivity.

Secondly, I find it much harder to measure productivity in services than in manufacturing. For example, how do we measure productivity in retailing? Do we consider values sold per member of staff? Should that take into account the kind of services on offer and the arrangements in place? What about cleaning services? There are other examples. Now that the service industry has grown so large and the number of people in manufacturing has fallen, the computation of general productivity is uncertain at best.

Thirdly, I believe that productivity is closely related to demand. It is when the pressures to produce are great that improved methods of working are devised. It is one aspect of necessity being the mother of invention. With a pound that is not as competitive as we should like, the demand effect of exports is not as high as I would hope. My right hon. Friend has produced his five economic tests for entry into the euro. I am strongly in favour of entry, but I would add a sixth test: we need to have a competitive exchange rate on entry.

The relationship between productivity and demand is important. Many years ago, I was the manager of a machine shop for the refrigeration company for which I worked. It had about 100 employees then. There was a problem with a machine doing the boring for compressor heads, which was a limitation on production. Because demand increased so much, all of the company's attention focused on that single machine and, eventually, we managed to raise production levels from eight to 20 compressors a day. That kind of pressure brings about such solutions. Productivity is related to demand, and I hope that demand will come from overseas in due course.

Finally, on that point, I take issue with box 2.3 on page 8 of "Productivity in the UK", which seems to suggest that gross domestic product per capita is the same as

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productivity. Of course, GDP per capita is greater in London than in the regions. Wherever the more affluent live and work, the more they earn. To say that productivity is greater in the London area than in the regions is too simplistic. In London, people earn more and spend more on goods and services. The entire question of productivity is more complex than the explanation set out in the footnote to box 2.3.

The table on page 32 is encouraging; it represents a study by the Organisation for Economic Co-operation and Development showing that barriers to entrepreneurship are lower in Britain than in any other country. Britain beats the United States, which is in sixth place; Germany, which is in 16th place; and France, which is in 20th place. In terms of administrative burdens on start-ups, we rank third; for regulatory and administrative capacity, we rank first; and on barriers to competition, we rank fifth. The ranking on regulation and administrative burdens is particularly encouraging. Quite rightly, we draw attention to those barriers to entrepreneurship, only to find that we are so much better at removing them than others. That makes one wonder about the bureaucratic labyrinth devised by some countries.

Mr. Portillo: Hear, hear.

Mr. Radice: Although the shadow Chancellor says "Hear, hear," he spent most of his speech criticising the Government for putting administrative burdens on industry. The evidence that my right hon. Friend has read out demonstrates quite the reverse; we benefit and are in a good position.

Mr. Sheldon: There is no doubt about that. However, the position accords with our general understanding. One only has to go to some of those countries and see the bureaucratic nightmare involved in the simplest transaction to realise that, although there is much to be done in this country, we do a lot better than others.

On investment, at the micro level, I am a great believer in capital allowances for plant and machinery, and, of course, information technology equipment--even up to 100 per cent. I am very pleased indeed that the Chancellor of the Exchequer shares many of my concerns. As Chairman of the Public Accounts Commission, which looks after the operation of the National Audit Office, I had been a little uneasy about the NAO being given the task of verifying the assumptions and conventions underlying the fiscal projections of the Budget. That task was given to the NAO in the Finance Act 1998, so it has a responsibility for what is published in the important document, "Productivity in the UK".

We now have had experience of such reports, which show that the Treasury's assumptions and forecasts on important matters, which are given to the NAO, are reasonable. At first, there was a little anxiety about involving the NAO in that novel task, as there was concern that it should be a little distant from the Government. However, involving the NAO in that task imposes discipline, not on the present Chancellor--who does not need it--but on those who, from time to time, have strayed outside the areas of proper financial prudence. It would be an interesting exercise to work back and see if previous Chancellors could always claim the same kind of endorsement as that gained by the present holder of the office.

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One great achievement of the Chancellor has been his welfare-to-work programme. With the establishment of the minimum wage, higher levels of employment are reducing the connection between poverty and low paid work. However, poverty and unemployment have still gone hand in hand, so we have the continuing drive to get people into work. The new deal programmes, the child care provisions, and the schemes set out in the "Budget 2001" document on page 71, under the heading "Easing the transition to work", all set out the way in which employment is the key to ending poverty.

I find all that impressive, but there is one issue that is not fully addressed in the Budget: the high cost of earning a living. Earning a living is an expensive business. It was not always so. In the days when the cotton industry was the mainstay of my constituency, women did not need any encouragement to work. We had one of the highest proportions of working women in the industrialised world.

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