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Mr. Bercow: Does my hon. Friend recall that in April 1997, in his foreword to Labour's business manifesto entitled "Equipping Britain for the Future", the right hon. Member for Dunfermline, East (Mr. Brown) specifically stated in terms--[Interruption.] The Chancellor can chunter from a sedentary position, but he cannot deny the facts. He stated in terms: "We will not impose burdensome regulations upon business, because we understand that successful businesses must keep costs down."

Does that not contrast radically with the verdict of the director general of the British Chambers of Commerce, Mr. Chris Humphries, who says, also in terms, "Whatever

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its rhetoric, the reality is that the Government have dramatically increased the regulatory burdens that threaten small business competitiveness"?

Mr. Letwin: My hon. Friend is right to bring that up. There is only one difference on that issue between Mr. Chris Humphries and the Chancellor: the one is right, the other wrong.

This Budget does much worse things than any of those, such as hugely increase the spread of means-testing. As my hon. Friends the Members for Bournemouth, West (Mr. Butterfill) and for Bury St. Edmunds (Mr. Ruffley) made clear, it is also a Budget for complexity, but complexity for a purpose. What is the purpose? The purpose is huge redistribution. What is the effect? The effect is huge disincentive--a disincentive to save and to be thrifty. In fact, it is a disincentive to do the very things that the Chancellor wants everyone to do.

There is, however, a worse problem, and it is on that that I wish to dwell as we conclude this debate. The right hon. Member for North Durham (Mr. Radice)--who, alas, is not in the Chamber--made an interesting speech in which he made an admission which I suspect will earn him discredit in the eyes the Chancellor. He made the astonishing admission that the Government had not wholly abolished the economic cycle.

My right hon. and learned Friend the Member for Rushcliffe speculated that, at some time in the future, there might possibly be a somewhat slowing economy. We do not speculate or predict, but let us imagine that there is a faint possibility that even the magic of this Chancellor has failed to produce Elysium. It might just be that even this Chancellor has failed to produce a permanent solution to the economic cycle.

If there were an economic slowdown, what would the Chancellor do? He has vastly accentuated the cyclicality of tax receipts and pushed the emphasis of tax ever further on to those components that are most affected by the cycle. He has vastly aggrandised his corporation tax receipts, to which I have already referred, precisely because he has taken steps to ensure that he can. His climate change levy is highly cyclical in its effect. IR35 is about the most cyclical tax that there has ever been. His aggregates levy is cyclical. Every time that he transfers the burden on to business, he makes his tax receipts more cyclical.

Currently, of course, that has the most marvellous result for the Chancellor. As my right hon. Friend the Member for Kensington and Chelsea and my right hon. and learned Friend the Member for Rushcliffe pointed out, that has the effect that his taxes increase faster than he himself can predict, because the output gap is positive. What a wonderful scenario for a Chancellor--more tax revenue than even he could have dreamed of a year before.

The flipside of that coin is that, as soon as there is a slight slowdown, those tax receipts will diminish, not just as they always do--my right hon. and learned Friend the Member for Rushcliffe was absolutely right that every Treasury has been bad at predicting how fast they will decline--but faster, because the cyclicality has increased. However, that is not the half of it.

This Chancellor, in his extension of means-tested benefits, has also made the social security system, which is the cyclical part of the expenditure side of the equation,

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vastly more cyclical. The Chancellor shakes his head because he is proud that he has managed to cure the unemployment trap, as he sees it, by having extended the working families tax credit and other in-work benefits. He has done something to cure the unemployment trap but, in so doing, has also vastly accentuated the poverty trap.

The consequence for spending in a slowdown is that it will increase much faster than it has hitherto. It is obviously true that if there is a vast extension of means-tested benefits--such as the working families tax credit, the pensioner credit, the minimum income guarantee, the children's tax credit and the new children's credit--and there is a slowdown, as incomes decline, public spending in the Department of Social Security will accelerate more quickly than it has previously.

We have a Chancellor who has introduced arrangements that will increase the effect of a slowdown on decreasing taxes and increase the effect of a slowdown on increasing expenditure. That means that the deficit that he would be generating if there were a slowdown would be greater than it had previously been.

All of that comes against a background of a huge, locked-in ramping of those parts of public expenditure that are less cyclical in character. If a slowdown gets under way, the Chancellor will find it extraordinarily difficult to constrain the growth that he has set for the other elements of expenditure. He knows that, and we know it. It has always been the fate of Chancellors in the past.

The Chancellor has built the basis not for the Elysium of permanent stability, but for turning the economy into something that gives people the wrong incentives. It gives people a disincentive to save, to work more, or to behave responsibly towards their young and their old. Beyond that, the Chancellor has created circumstances that will mean that his much-trumpeted fiscal stability will give way more quickly than was the case in the past to the slightest downturn.

That is not what a responsible Budget, or sequence of responsible Budgets, would produce. The set of Budgets announced by this Chancellor looks good today, but may not look so good tomorrow. It is important that the House recognises that, and puts it on the record. If there is a slowdown and if the Chancellor's policies are fulfilled because he is lucky enough to be re-elected--which we hope will not happen--there will come a time when he will claim that something very strange has happened. However, nothing very strange will have happened. The Chancellor himself will have brought about the circumstances that I have described.

The answer to those problems is clear. It is to moderate the growth rate of public spending, so as to be able to reduce rather than increase the tax burden. It is to find means to do that so that people will not rely on means-tested benefits because they will have more of their own money. The answer to the problems that I have outlined also involves an honest taxation policy that does not shift the burden on to cyclical business taxes but acknowledges where tax lies.

In short, the answer to our economic problems is a programme that tries to bring back to the nation's finances some long-term stability. The Chancellor believes that he has achieved that, but he has not done so at all. Such a programme would continue the process bequeathed to the nation in the final four or five years of the previous

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Conservative Administration. They were the first four or five years of the very process on which the Chancellor now congratulates himself.

If the nation does not follow that path, there will come a time when it will rue that decision. There will come a time when the Chancellor's wonderful smile will be wiped off his face. Our duty is to ensure that that smile is gone before the nation has to wipe it off at a time of economic slowdown. We can do that by making sure that we win the next general election and follow the right policies, rather than the wrong ones.

9.38 pm

The Chief Secretary to the Treasury (Mr. Andrew Smith): That was an extraordinary speech. Clearly, it meant nothing to half the people in the Public Gallery, who left after five minutes. It certainly will not mean anything to any member of the general public unfortunate enough to chance upon it. The hon. Member for West Dorset (Mr. Letwin) went on about my right hon. Friend the Chancellor somehow creating disincentives to work. People will ask why there are a million more people in jobs under this Government.

My right hon. Friend the Chancellor has delivered a Budget that makes a clear choice about Britain's future. It sets out a platform on which to build opportunity and prosperity for all. It is a Budget that takes a balanced approach, and stability is the foundation. It proposes more investment in our public services, not less. It puts schools and hospitals first, and offers affordable tax cuts for hard-working families. It is a Budget that locks in stability and rejects the short-termism of the past. It rejects underinvestment and cuts in public services, and unaffordable tax cuts that would put investment at risk.

In this debate, the House has heard possible valedictory speeches from distinguished hon. Members. My right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon), who has made a distinguished contribution to fiscal matters in this House, praised the Chancellor's long-term approach to stability, investment and welfare-to-work policies. He said that it was the best Budget that he had been privileged to take part in.

My right hon. Friend the Member for North Durham (Mr. Radice), whose chairmanship of the Select Committee has drawn admiration from both sides of the House and respect from those of us who have appeared in front of him, praised the Chancellor for carrying through the radical reforms necessary for monetary and fiscal stability. As my right hon. Friends and others pointed out, that commitment to stability has meant that Britain has the lowest long-term interest rates for 35 years, the lowest inflation for 30 years and the lowest unemployment since 1975. It will remain the bedrock for all that we do.

The right hon. and learned Member for Rushcliffe (Mr. Clarke) spoke as though my right hon. Friend the Chancellor was somehow the lucky Chancellor and had a golden inheritance from the previous Administration. Who took debt as a share of GDP up to 44 per cent.? Who borrowed an extra £28 billion before we came into office? In contrast, who, within days of coming into office, made the Bank of England operationally independent? Who put

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the fiscal rules in place? Who sorted out the public finances so that we have a platform for stability and lower interest rates?


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