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Mr. Howard Flight (Arundel and South Downs): Is not the increase in Kingston's council tax due to changes in the sums provided by central Government? I think that the hon. Gentleman will find that real spending levels are much the same.

Mr. Davey: I am grateful for the hon. Gentleman's intervention. He is indeed right that part of the increase is due to the Labour Government's failure to provide a decent grant settlement to the royal borough of Kingston. I have to tell him, however, that it is due also to the incompetence of the current administration, which has wasted money and failed, for example, to collect parking charges to which it was entitled.

Mr. Deputy Speaker: Order. We are going rather wide of Second Reading of the Finance Bill.

Mr. Davey: I am grateful for your warning, Mr. Deputy Speaker.

I was describing how the Finance Bill does not deal with the needs of pensioners. Pensioners in my constituency tell me that they are also worried that, should they become frail in their later years, they will not receive personal nursing home care. The Government have not provided any measures in the Bill to ensure that personal care is free for elderly people in nursing homes. I believe that that is a major error. The Bill does not provide the necessary funds.

When the Chancellor did appear before the Select Committee on the Treasury, I was very worried because, in his evidence, he seemed rather complacent about some of those issues. I asked him three times to provide figures on health spending, particularly the Government's average spend, in this Parliament and in the previous Parliament, on the national health service as a percentage of national income. He told me twice that he was about to give me the figures, but of course failed to do so. However, the figures show that, on average, in the previous Parliament, 5.5 per cent. of national income was spent on health, whereas, in this Parliament, 5.4 per cent. is being spent on it. In this Parliament, therefore, the average resources that the Government are providing for the health service have decreased. I think that the Chancellor's failure to defend his record on health spending said it all.

The Chancellor was also rather economical with the truth on education spending. Although he told us his plans for the future and the figures that he hopes to deliver, as we have seen before, he often does not meet his spending targets or spend the money that he says he will spend. He did not reassure us.

Mr. Donohoe: Can the hon. Gentleman give us one example of the Chancellor not delivering on his promises?

Mr. Davey: Indeed I can. In evidence to the Treasury Committee, Treasury officials told us that, this year, based on their initial assessment of spending plans, spending Departments are already underspending by £1 billion.

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That is a concrete and classic example in which the Chancellor promised us that he would spend a certain amount but Departments are not spending it.

The Chancellor failed to examine his own record on education and admit that, on average, under his stewardship in this Parliament, we have spent less on education as a proportion of national income than was spent in the previous Parliament. Liberal Democrat Members therefore very much regret this Budget and its accompanying Finance Bill. Although it is not what the people of this country want, the Chancellor has chosen to put tax cuts before spending increases. Some people believe that, by putting tax cuts before investment and public services, new Labour is acting more like the Conservatives.

The Bill fails to address another big picture issue which, to his credit, the hon. Member for West Dorset has started to address--the economic consequences of foot and mouth. It is a major issue both for the individuals, regions and sectors affected by it and for the economy as a whole. The outbreak is devastating for those individuals and their livelihoods. In the past few weeks, the House has heard many examples demonstrating that fact.

We also know that foot and mouth is proving to be highly damaging to certain regions and sectors. The House may be surprised, however, to learn of the effects of the outbreak on businesses in my constituency, which has some farms although not very many. One example demonstrates the knock-on effects of foot and mouth. I quote it not to belittle the effects of the outbreak on the tourism and agricultural sectors, but to demonstrate the breadth of its knock-on effects.

The example is a shop in my constituency called Kosmic Kites, in Surbiton. This month, in a letter to me, its proprietor Mr. Paul Hawkins wrote:


That business, which was built up over years, is not in one of the sectors that we usually associate with damage from foot and mouth, but it is still being severely damaged by the outbreak. It demonstrates the seriousness of the situation.

There is a wide variety of assessments and forecasts of the effects of foot and mouth. Very recently, the Centre for Economics and Business Research argued that it would result in a 1 per cent. decrease in GDP, costing the economy up to £9 billion. However, that may have been one of the more exaggerated and alarmist forecasts. Other forecasts have said that the effect on GDP could be as low as a 0.1 per cent. However, I have read various analysts' forecasts, and the most persuasive one comes from Goldman Sachs. Although Goldman Sachs states that it is difficult to make an estimate--because of factors and uncertainties regarding the length of the outbreak; a substitution effect in which people spend money in shops and urban areas rather than in the countryside; whether people will go on foreign holidays or delay domestic holidays; and the short, medium and long-term effects on the public's perception of visiting the countryside-- it predicted that, this year, foot and mouth would have a

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0.3 per cent. negative effect on growth. However, its more extreme forecast suggests that GDP will be affected by as much as 0.6 per cent. If that worst scenario materialised, an awful lot of jobs and businesses would be lost. Foot and mouth is having a major effect, and it could have a disastrous effect on economic growth this year.

Clearly it is the Government's job to take action on foot and mouth. I think that everyone will agree that disease control is a public good that cannot be left to the private sector. The control of disease has benefits for the whole of society, and the Government have a duty to act to control it.

An interesting paper by David Harvey, from the Centre for Rural Economy, was published last month, entitled "What Lessons from Foot and Mouth? A Preliminary Economic Assessment of the 2001 Epidemic". It is necessarily very preliminary. It says that the benefits of being free of the disease are probably worth £1.2 billion a year. There is a huge economic benefit to getting rid of the disease quickly, so the Government must do everything that they can.

The Government have introduced business rate relief on loans to those who are struggling, but we feel that they should go further. I hope that they will seriously consider some of the proposals from the hon. Member for West Dorset on VAT, for example, in a cross-party way. The Liberal Democrats intend to make other proposals. For instance, it would be possible to extend carry-back of trading losses from one year to three, to help businesses now by allowing them to offset current losses against profits made two or three years ago so as to get a tax repayment in the coming year. It is about the timing of relief against losses. The Bill gives us an opportunity to help to tackle the financial problems that businesses face because of foot and mouth.

A macro-economic issue that is no longer entirely in the Government's hands, but is important in tackling the economic consequences of foot and mouth and dealing with the problems caused by the slowdown in the United States of America, is the policy on interest rates and the exchange rate.

Mr. David Heath: Does my hon. Friend agree that my hon. Friend the Member for Northavon (Mr. Webb) was right to say earlier today that there is a strong argument that the compensation payments given to farmers whose stock is culled to allow them to restock later should not be treated as a liquid asset for either taxation or benefit purposes, because that militates against sole traders in desperate straits getting the support that they need?

Mr. Davey: Yes. That is pertinent to this debate, because we could use the Bill to introduce measures to tackle the problem. I hope that the Paymaster General will respond to that point.

The US slow-down, combined with foot and mouth, has had a serious effect on aggregate demand. We look forward to the Monetary Policy Committee reducing interest rates. I support an independent central bank, and believe that its independence should be guarded jealously, but it is right for us, as constituency Members, to send signals that we believe that the economic situation on the ground is deteriorating significantly enough to warrant interest rate changes.

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Monetary policy needs to be directed towards helping agriculture, manufacturing and tourism, which were already suffering before foot and mouth and the US slow-down. The high exchange rate was already hitting those sectors extremely hard. Some of the weakest sectors in our economy are being hit yet again. The simplest and quickest way to relieve these problems would be for the committee to take action on interest rates, and we hope that that would also affect the pound.

This is not the Bill that Britain needs. It does not secure the finances that our public services need; it puts tax cuts before investment in our health service, schools and police; and it fails to deliver imaginative proposals to deal with the foot and mouth crisis. We needed a different Budget to tackle large class sizes, long waiting lists, police shortages and pensioner poverty. The Liberal Democrats will continue to campaign until we get those changes.

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