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5.18 pm

Mr. Michael Fallon (Sevenoaks): I draw the attention of the House to the business interests recorded in the register.

The hon. Member for Ochil (Mr. O'Neill) did us one service: he gave the most honest description of the Budget that I have heard when he referred to it as the John Smith memorial Budget. We have certainly not heard members of the Government Front Bench calling it that, and it might have been more honest had the Chancellor cast it in those terms.

The Budget is based on a series of deceptions, the first of which is that the Government are responsible for the strength of the economy. Every time the Chancellor takes credit for the economy, I am reminded of that miners' grace from the Durham coalfield: "What we are about to receive has nowt to do with the Duke of Newcastle." The success and strength of 60 per cent. of the economy has nothing to do with the Chancellor; it has far more to do with the structural reforms that we carried through, which the Chancellor opposed night after night in the House when he voted against me throughout the 1980s, and with the guidance of the Monetary Policy Committee, which has managed to control inflation—a task that the right hon. Gentleman gave away when he came into office in 1997.

There are ways in which the Chancellor can help, but they are not to be found in the obsessive micro-tinkering that he is so good at. For example, he backed the film industry in 1998 and 1999, but in this Budget he is withdrawing and clamping down on the tax relief for films. He should concentrate his efforts instead on encouraging productivity and saving: Our productivity is not improving anything like fast enough; the manufacturing sector is clearly struggling; and we have the lowest savings ratio for a decade.

The second great deception behind the Budget is that the Government are somehow business-friendly. There has never really been any evidence for that. Of course, there is plenty of evidence that the Government are businessmen-friendly. It has been becoming pretty clear over the past few months that there is a process of

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political serendipity whereby nice things seem to happen to Labour donors—but I shall not be drawn down that path. Any pretence that Labour backs business has now been blown away. It has now been clearly revealed that 80 per cent. of the new tax burden falls on business. Jobs will now be taxed more heavily than people. As the hon. Member for Twickenham (Dr. Cable) rightly said, the burden of the Budget will fall on jobs. The taxation increases will be paid by those in manufacturing, those who work for Corus, those in labour-intensive industries.

It is not enough for the Chancellor to talk about enterprise when he does so little to support it. We hear the right hon. Gentleman banging on time and time again about his admiration for entrepreneurship in the United States. He goes there, but it is not enough to be a political tourist and spend a couple of weeks playing tennis at Cape Cod. That is no substitute for understanding why the United States is so productive. It does not have our working practices. It does not have the TUPE regulations, the employment tribunals and all the other stuff that we have had to import from Brussels.

The US seems to have found the trick in the past 10 years of substituting capital for labour while having a growing work force and encouraging new jobs to be created. If the Chancellor were serious about backing enterprise, he would recognise that our economy is still much closer to the continental model than we would like to admit. If we really want to improve productivity in the UK, we must change the culture and the regulation of employment.

The third great deception is that we can improve public services by chucking money at them—that more people on the payroll necessarily means reform. The Government have a poor record in planning public spending. There was supposed to be a three-year cycle. We have had two comprehensive spending reviews, and I remind the House that just three weeks ago we entered only the second year of the CSR 2000, which began in April 2001. We are just three weeks into the second year of the three-year cycle, and suddenly we are told that none of it is sufficient. The plans have to be torn up and started again.

There were supposed to be targets. There were supposed to be public service agreements. First, there were 600 agreements; now there are only 60 or so. There were supposed to be penalties but there are none: if services do well, they get more money; if they do badly, they get more money and more interference. We have had endless reorganisation. Every year since I returned to the House in 1997, I have received papers saying that one trust is to merge with another, or that one health authority is to merge with another, or that one ambulance trust is to merge with another. Now we have primary care trusts. None of this endless reorganisation and tinkering with bureaucracy improves the lot of patients.

Public service managers are at the beck and call of Whitehall and of every initiative. They are now to be subsumed under layers of audit, inspection and accountability, instead of being given the freedom to manage, instead of being allowed better and stronger working practices, instead of being free to make more effective use of resources and to manage their own budgets properly.

I would like to see a clear commitment from the Chancellor that hospital managers, head teachers and area police commanders should be given freedom to manage

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their own budgets and to manage their own people, so that they can respond effectively and locally to what their communities are asking. Instead, the Government are going down the route that a previous Labour Government bequeathed to the Thatcher Government, which was a series of public sector pay awards. This could be the son of Clegg—an explosion of public sector pay increases and jobs without necessary reforms in delivering the services that should have accompanied it.

The fourth and final deception is on tax. The Government claimed that they needed no increase in taxation. They did so not once, but twice, in 1997 and 2001. They claimed that they needed no increase in income tax, but national insurance is a tax on income. As I pointed out earlier, the Secretary of State for Trade and Industry, who shared a television studio with me at the time of the election, said that she had no plans to increase the ceiling, but they have increased it. Clearly, she cannot have been telling an untruth, Mr. Deputy Speaker, so it must have been a broken promise, although when I challenged her earlier, she failed to explain or apologise.

Indeed, one of the most dishonest sentences in the Red Book is this:

The ceiling does not remain in place even until the end of the sentence. It has now been breached, and we learned this weekend that it could well be breached again. The national insurance increases will be borne not only by the higher paid, but by the lower paid as well, and by those who work in the national health service and for local government. Of course, they will be borne by the hard workers of middle England. We will have two different and increased tax rates: 33 per cent. for the basic rate and 41 per cent. for higher earners.

Those are very substantial increases in taxation and also in public spending. Public spending cannot indefinitely grow faster than the economy as a whole. It certainly cannot do so comfortably if the economy begins to slow. It would have been more honest of the Government to have spelt that out, but I have given up expecting honesty from them.

5.27 pm

Mr. Geoffrey Robinson (Coventry, North-West): Many hon. Members—most recently the hon. Member for Twickenham (Dr. Cable)—have paid tribute in our debates on the Budget to the remarkable economic success of this Labour Government. Only the hon. Member for Sevenoaks (Mr. Fallon) could seek to take that credit away from the Government.

Whichever way one looks at our time in office, one can see that it has been a period of the most remarkable and sustained success. We have now reached our sixth Budget, and it is clear that we can at last begin to reap some of the rewards of the very difficult decisions that had to be taken because of circumstances in 1997, which the hon. Member for Sevenoaks mentioned. They were caused by the Tories' reluctance to increase interest rates on the one hand, and their failure to reduce the national debt on the other. The hon. Gentleman was a member of the Opposition team at the time, so he will recall that they opposed every single measure that we had to take to rectify those two basic deficiencies with which the Tories

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left us. Whether it was the windfall tax, getting rid of tax credits or advance corporation tax, they fought those measures tooth and nail, yet they were necessary to rectify the inherent imbalances in the economic situation that we inherited.

A raft of other such measures were introduced, but even while we were implementing them, we always had our eye on the need to create a more entrepreneurial set of measures to accompany them. It was in the same period—in those first three Labour Budgets—that we introduced our audacious reform of capital gains tax, which laid down the basis and took us further towards the measures announced last week by my right hon. Friend the Chancellor.

From the very beginning, the two strands of fairness and enterprise ran together. My right hon. Friend the Secretary of State for Trade and Industry spoke about them most effectively when she referred, among other measures, to the massive incentive that the Budget provides for research and development. That is important to Labour Members, because we know so well that, apart from problems in the general areas of investment in plant and machinery, it is also the underlying and continuing failure of British industry sufficiently to invest in R and D that has led to our falling progressively behind our major competitors.

Now, after five years of Labour Government, unemployment is right down and the minimum wage—so bitterly opposed by the Tories—is a proven success. Youth employment measures such as the new deal have been successful beyond any of our dreams. Interest rates and mortgage rates are the lowest for 40 years, and, as a result of what we have achieved in reducing the national debt, we can now ask what we can do to further the aim of rebuilding our public services in which there was under-investment during the long years of the Tory Government. That we are now able to do so is thanks in no small measure to the great, measured and mature judgment of the Chancellor and his chief economic adviser.

Two areas of social policy are of particular interest to the present team that shapes policy within the Treasury. These two issues are right at the heart of what the team cares about, and what the Labour movement cares deeply about. They are child poverty and the national health service. I do not want to get involved in the rather silly argument about whether 500,000 or 1.1 million children have been helped out of poverty. Everyone in the House knows in their heart that the measures that we have introduced, the increases in child benefit that we have put through, and the further benefits that will come from the integration of tax and benefit have made possible a massive improvement in the welfare of our children.

There is certainly more to come as the benefits of the integrated child and working families tax credits come through. They represent one of the most major changes in the way in which we tackle poverty and deal with those who are less well off in society that any Government have introduced since Lloyd George. That is how important and far-reaching they are, and all we ever hear from the Opposition is that the measures introduce an element of complexity. If that is the small price that we have to pay for something so far-reaching, effective and redistributive, I am sure that Labour Members are willing to accept it.

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The national health service was clearly the centre point of the Budget. It has been a major issue since the first months of the Labour Government, when we decided—quite rightly, although it was a difficult decision—to stick to the spending figures that we had inherited from the Tories. I wish that we had then just taken that other £1.25 billion that the present Paymaster General may remember was available from the then Paymaster General's office to alleviate matters, but even if we had taken that money, it was clearly going to be an extremely difficult period.

Now, however, we are in a position to rectify that underspending. We commissioned an inquiry to determine the best way to do that. The Wanless inquiry was commissioned before the last election and reported after it. The report stated quite clearly that the present system of funding the national health service out of direct general taxation was the cheapest, fairest and most efficient one. The response of the Opposition was, of course, to set off on a series of quixotic travels in Europe, from which I do not suppose they will ever return with a decision or a judgment, as the Chancellor has remarked. They have ignored the considered report that has been put before them, on the basis of which the Government are now prepared to invest more heavily than has ever been done in the history of the national health service.

I hope that I will have the agreement of hon. Members on both sides of the House when I say that the one big danger relating to the money is not that we shall not get improvements; of course we shall. Nor is it that we shall waste huge amounts of it; we shall not. There is, however, this wretched preoccupation in the NHS and in its executive with always changing the organisation. We need, in the simplest way, to reduce that—particularly at the top—and to make sure that the money goes into hospitals as efficiently and directly as is intended. If we can make that happen—frankly, it cannot be that difficult to achieve and no major management feat will be involved if the objective is clearly established—we shall be able to say proudly that a Labour Government introduced the NHS and a Labour Government saved it.

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