John Redwood

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Budget 2006

Mr. John Redwood (Wokingham) (Con): I have declared my interests in the Register of Members' Interests, and I should like to remind the House that I am a director of companies in both services and manufacturing and I am a director of a pension trustee company of one of those companies.

It is a great pity that the Chancellor of the Exchequer presents his case in such a selective way. I certainly welcome in his remarks today the proposition that we should have a independent eye cast over how the figures are compiled, and I hope that that independent eye will also be able to give advice to the Chancellor, which we can know about, on how the figures should be presented on big occasions such as this. It makes for a much better debate if we have an honest and full account of what is going on in the economy. For our part, we can accept that not everything is bad, but we would like the Chancellor to agree that not everything is good.

It is extremely good that we are debating the economy yet again against the background of continuous months, quarters and years of output growth, since we righted the economy after the bad mistake of the exchange rate mechanism—a policy recommended by Labour to the then Conservative Government, but a policy that Labour seems to have forgotten that it was part father and mother to. Since we came out of that most unfortunate experiment and since the Conservative Government put in place the foundations of fiscal discipline and greater productivity growth, the economy has grown extremely well. The continuous growth under Governments of both parties is extremely welcome.

If we look at the Chancellor's views on growth, we must accept—I trust that Labour Members will accept—that we are reviewing a disappointing year. In 2005, the Chancellor tells us that output growth was down to only 1.75 per cent., compared with, as he helpfully tells us, real GDP growth that averages 2.5 per cent. in the major seven countries and 4.5 per cent. in the world overall. So that shows Britain growing not only at under half the world average rate, but at considerably below the growth rate of large, advanced countries.

If we turn to the Chancellor's forecasts, we see that he thinks that the economy will grow by between 2 and 2.5 per cent. this year. If we are charitable and say that he thinks that it will grow at 2.25 per cent.—I fear that he thinks that it will grow at 2 per cent.—that compares again with what he thinks will be a rather better performance by the major seven countries, with growth at an average of 2.5 per cent., and an overall world performance of 4.5 per cent. yet again.

The first question that we need to ask in reviewing the Budget measures is whether the Chancellor is now planning to put in place measures that are sufficient to get Britain at least up to the average growth rate of the major countries in the world, or even better, to get us above the average of the major countries of the world, because we have clearly slipped some way below them in recent months and recent quarters.

The Chancellor also gives us the latest projections on his borrowing. The Leader of the Opposition, my right hon. Friend the Member for Witney (Mr. Cameron) gave a superb response to the Budget, and its brevity was matched by its brilliance. There is no need for the Leader of the Opposition to give a very long speech if he has gone to the trouble of preparing an excellent short speech that makes all the crucial points. One of the crucial points on which my right hon. Friend immediately homed in, although he did not have very long to read the documents, was the way in which the Chancellor intends to borrow so much money over the review period set out in the Budget forecast that we have just received.

My right hon. Friend said that the Chancellor plans to borrow £175 billion, on the published figures, through the public sector accounts over that period. Like my right hon. Friend, I think that that is very dangerous. If we are going to live through a period of reasonable growth, surely that is exactly the point in the cycle where we should cut public borrowing rather more sharply than the Chancellor forecasts, preferably by the growth in revenues from faster economic growth, but also from pursuing the initiatives that the Chancellor always promises that he is taking to gain greater efficiency in the public services and public sector and to cut the public overheads.

The Chancellor suggests instead very slow progress indeed: £37 billion of borrowing in the year just finishing; £36 billion of borrowing in the year about to start; and another £30 billion of borrowing in 2007–08. If only that were the end of it, I suppose that it would meet the wishes of the Labour party, but of course that is not the end of it because we know that there will be an awful lot of off-balance-sheet borrowing, too. There is no reference in the stock of debt figures to the £20-odd billion of borrowings and guaranteed moneys that have already been pushed the way of the effectively renationalised railway company. Strange accounting procedures are followed for all the private finance initiative and public-private partnership projects in which the Government have indulged on a grand scale.

Justine Greening (Putney) (Con): Does my right hon. Friend agree that many British taxpayers will get a nasty shock over the coming years when they find that they suddenly have to start paying for hospitals that they thought that their new and extra taxes had already paid for?

Mr. Redwood: My hon. Friend makes an excellent point.
From rough mental arithmetic, the published figure of £175 billion represents about £3,000 for every man, woman and child in the country. The Chancellor is thus asking every one of us to sign up to an additional £3,000 mortgage. On top of that, there will be additional mortgages for PFI, PPP and off-balance-sheet items, including the railways, which will probably be another £1,000 or £2,000. There will thus be a substantial increase in the national mortgage per head on top of the billions that the Chancellor has already borrowed and accounted for and those for which he has not accounted. Given that there is already quite a lot of debt in the private sector, the Chancellor should be more careful when building up public debt. After all, public debt is tax deferred; we or our children have to repay all that money with interest.

Mr. Newmark: I would be interested to hear my right hon. Friend's comments about the fact that up to £800 billion might be held off balance sheet. Should not the Chancellor be far more transparent in his accounts? Is that not the issue with which we should be dealing?

Mr. Redwood: My hon. Friend is right to extend my argument even further. He is pointing out that we should account properly for not only borrowings that are guaranteed but not in the documents, such as the railway borrowings, and the contingent liabilities of all the PPP and PFI projects, but the massive contingent liabilities in the pensions area throughout the public sector.

I will accelerate my argument because of my hon. Friend's question, although I was going to refer to this matter later. The Government have just said to all private businesses that they must not only have recent calculations of the deficits in their pension funds, but write those deficits on to their company's balance sheets. I understand the logic of that, and FRS 17 is the standard under the Government's requirements. My plea is not that the rule is changed for companies, but that the same rule is applied to the Government. It is obvious that the Government have a massive deficit on the pension account because they—Governments of all parties have done this over the years—have built up huge liabilities, but not provided any assets on the other side of the account to pay for them. We need honest public accounts that match the clarity and honesty of private sector company accounts to show us the contingent liabilities of all the pension funds.

The Government may well counter my point by saying that one can deduce, by reading carefully the Red Book and other sources, the annual payments under the PFI and PPP contracts. However, that is not sufficient because it is a flow—an income statement—for each year. We need to know the contingent liability, which is how many times the income must be paid to get rid of the contract, or how much would have to be paid to rescue the contract if the company went bust or the contract went wrong. It is how much would need to be paid to reinstate the service if there was a breakdown. We need an accurate figure for that kind of contingency.

We know that sadly such contracts go wrong from time to time. We can expect new Governments to be elected who would like to change the arrangements, but there would be a substantial price for doing so. For example, it might prove penal to get out of the London tube contract because it is very bad. We need on the face of Government accounts a clear statement of what the contingent liability costs of all the private arrangements would be, in addition to the guaranteed borrowings and the pension liabilities.

My concluding point on debt is simple and echoes the comments of my right hon. Friend the Member for Witney. We are borrowing too much as a nation both through the public accounts and outside the public accounts under Government initiative and with Government encouragement. As a period of moderate to reasonable growth of the economy is forecast, we ought to rein back that debt more quickly.

Rob Marris : I think that the right hon. Gentleman has been drawing on the information in table 2.4 on page 31 of the Red Book. If he looks at the back of the Red Book, he will see a table on previous borrowings. The Conservatives were in office between 1979 and 1997, and during 11 of those 18 years, the percentage of GDP that borrowing represented was considerably higher than it has been in any year under this Government since 1997. I think that I am right in saying that in all those 11 years, borrowing was well over 40 per cent. of GDP. Does the right hon. Gentleman decry the past of his party, during some of which time he was in government.

Mr. Redwood: I have already said that an economic mistake was made during the Conservative years. The mistake was backed and encouraged by the Labour party, but I never supported it. Yes, we borrowed more than we would have liked because of that mistake. The hon. Gentleman makes a party political point while I am trying to give a sensible analysis of the true position, so I would say that quite a lot of that debt was incurred to clear up the mess that Labour left behind in 1979, when we inherited a grossly over-borrowed and overtaxed country. Of course, the borrowing was especially high because Labour did not want to confess just how much it had to put up taxes to pay for the spending on its accounts.

Mr. Newmark: Perhaps I can help my right hon. Friend in answering the question raised by the hon. Member for Wolverhampton, South-West (Rob Marris). The problem goes back to the point about transparency that I made earlier. If one adds together the money that is off balance sheet and the amount that is on balance sheet, it comes to roughly £1.3 trillion, which is 105 per cent. of GDP, not 35 per cent.

Mr. Redwood: Once again my hon. Friend makes his point extremely powerfully. I note that the amount has gone up by several hundred billions while he has been sitting next to me. I have seen the figure of £1.3 trillion in public commentaries and the press. It must be right if it has appeared in the newspapers, must it not? Although I have not done the calculations myself, the figure feels about right. We can leave the House with the clear understanding that there is £1 trillion or so of liabilities, many of which are not stated in the figures. Such liabilities are serious for all taxpayers and our children, so a more honest recognition of the situation would be helpful.

I will make a final comment on the fiscal balances in table 2.4. It is a great pity that we do not have an honest account from the Chancellor of exactly what the cycle is. It is also a great pity that he does not stick to the same cycle each time he presents his figures because that would give far more cogency.

Chris Huhne (Eastleigh) (LD): I want to be sure that I have not misheard the right hon. Gentleman. Did he say that he thought that there was £1 trillion of off-balance-sheet liabilities?

Mr. Redwood: I am saying that there are about £1 trillion of liabilities, which are mainly pension liabilities. The hon. Gentleman should realise how expensive many public sector pensions will be and that practically all of them are without a fund. Fortunately, the House of Commons is not in that category because we have a properly funded scheme to which Members contribute and local government is also not in that position, although there are some deficits in local government schemes. However, there is nothing but deficits when it comes to all the unfunded schemes, and there should be a recognition of that in the accounts.

Mr. Newmark: Just to be accurate, I believe that approximately £436 billion is on balance sheet and about another £150 billion is off balance sheet, which is where we get the figure of £1.3 trillion from— [Hon. Members: "What?"]

Mr. Redwoodrose—

Mr. Newmark: Not £450 billion; £850 billion.

Madam Deputy Speaker: Order. Despite the enthusiasm of the hon. Member for Braintree (Mr. Newmark), the right hon. Member for Wokingham (Mr. Redwood) has the floor.

Mr. Redwood: I am grateful to you, Madam Deputy Speaker, for your usual courtesy.
The hon. Member for Eastleigh (Chris Huhne) should do some more homework. I know that he has been busy losing the leadership of his party, but he should do a little bit of reading. If he reads the figures in the Red Book on the amount of outstanding national borrowing and adds to that the pension deficits of the funded public sector schemes, the PFI and PPP contingent liabilities, the debt that has not gone through the books that should have done so, and the very large figure for unfunded pension liabilities, he would not have change out of £1 trillion. It is a good round figure that should help to inform the debate. I will leave it at £1 trillion because I have not myself done the calculation down to the second decimal point. However, I have looked at the general arguments and I am satisfied that that is the order of magnitude to which the Chancellor needs to face up.

That brings me to box 2.5—a fascinating little aside in the Chancellor's rambles through the state of the British economy—with the catchy title "Low yields and the Government bond market". Normally, one's eyes would glaze over and one would pass hurriedly on, because it is usually a subject for anoraks only and I do not regard myself as being in that category. [Hon. Members: "Oh!"] I know that I have been regarded as an interesting skier off-piste, which I found fascinating as I have never taken to the slopes on the continent of Europe in that way.

However, I am interested in that box, and the House should be interested in it, too, because there is a serious danger that we are living through unnatural times in the bond market. Those unnatural times are already having a dramatic impact on the real economy, and they could have an even more dramatic and adverse impact on the real economy if the problem is not handled well.

The problem began when the Chancellor, encouraged by the Prime Minister no doubt, thought that he had discovered that elixir of Labour Chancellors—a stealth tax that would raise a huge amount of money which would do no damage and which no one minded. He introduced a tax on the dividend income of British shares held through pension funds and other charitable funds. He has never published an accurate figure for how much that takes.

Chris Huhne: It is £5 billion.

Mr. Redwood: The general £5 billion-a-year figure is in common circulation. It started at rather less than that, to be fair to the Chancellor, but it is probably now more. It is growing. Let us take it at £5 billion, however, because he will not give us the accurate figure. He would, I am sure, concede that it is a large sum.

If we take £5 billion a year out of pension funds for, say, 10 years of the policy, before Labour loses power, that is £50 billion out of pension funds. That is £50 billion that has not been invested, so perhaps another £20 billion would have been made on that from investment gain in income if it had been available to reinvest. We should then factor in the obvious point, which I made at the time, that the change was bound to hit share values—share prices valued as a stream of income from a company—and that if we tax that stream of income more heavily, it is worthless. I did a back-of-the-envelope calculation when the Chancellor proposed the tax and said that with the market valuing income at 20 times its rate, as it did at the time, the £5 billion off the stream of company income would mean a £100 billion fall in share values. Compared with the fall going on elsewhere in the German, French and American markets at the time, the fall in London was about £100 billion extra for a variety of global as well as national reasons.

Basically, the Chancellor decided to hit the pension funds by about £170 billion over a 10-year period as a result of capital loss income and income reinvested forgone. We now see that the actual deficits may be a bit lower than that, I am pleased to say, because the stock market has started to pick up some of the lost ground that the hit and other factors caused originally, and companies have put a lot of extra money in to try to make good some of the losses caused by the Chancellor. I think that everyone agrees, however, that there is still a serious pension deficit problem.

Chris Huhne: Just so that I can follow the right hon. Gentleman's argument, perhaps he can explain something. It is curious that he should say that there was a fall unique to the UK market given that we do not have capital controls, thanks to a move that I am sure he supported. Surely foreigners would have been buying our shares if they were such tremendous value, and there would not have been such a fall in the UK market.

Mr. Redwood: The main holders of UK shares at the time the change was made were British people and companies, especially their pension funds. There was bound to be a weight of selling to adjust the market value of those shares which exceeded the appetite from abroad. Hon. Members should remember the background. A fall in the world market took place shortly afterwards, so there was not a great appetite for what foreign companies perceived to be higher-risk overseas shares in a foreign currency at the time when adjustments were made in British portfolios to reflect the diminution in share values.

Chris Huhneindicated dissent.

Mr. Redwood: I do not think that the hon. Gentleman understands the situation. It is obvious that share prices were going to fall. He does not have to believe me; he merely has to look at what happened. What is the explanation for the additional fall of the London market if it is not the Chancellor's tax policies, taking income out of the hands of companies and savers?

Chris Huhne: Will the right hon. Gentleman give way?

Mr. Redwood: If the hon. Gentleman really wants to be knocked again, then fine.
Chris Huhne: Clearly, there would some home currency questions, but the idea that it was one for one is simply absurd. There is no support for that in any literature or in what happened.

Mr. Redwood: The facts are clear: the London market fell rather more than other markets. I gave my sum. If the hon. Gentleman has an alternative sum to explain that decline, I look forward to hearing it in his speech if he catches your eye, Madam Deputy Speaker, and if he has done his homework by then, but he has come here not having done any homework and is just hoping to tell his local papers that he is back doing the normal day job.

Justine Greening: I wonder whether one reason for the fall was the growing uncertainty over the Chancellor's performance and the fact that he will change his mind about policies, such as the inclusion of property in self-invested personal pensions. Increased uncertainty about regulation can only harm our economy.

Mr. Redwood: I am reluctant to disagree with my hon. Friend, but I am not sure that that was a factor when we had the major fall in the stock market. I have set out my views. Perhaps she can set out her views in her contribution.

Sir Nicholas Winterton: On pensions, the Government apparently exhort people to save, in particular for their retirement. Does my right hon. Friend, to whose speech I am listening extremely carefully, believe that withdrawing the dividend tax has helped and encouraged people to save for their future, because that is critical?

Mr. Redwood: I was going on to say that it clearly did not. In fact, it did the opposite. As a result of that, a large number of companies—well intentioned towards their work force—have said, "We can't afford this anymore, so we are going to close our funds." In some tragic cases, as we heard recently in the House, funds have folded altogether because a company has gone bust or is unable to make the contribution, and the funds do not have sufficient money to meet the requirements. A new generation of people who are going into work or are in junior positions in industry or commerce no longer have access to a final salary scheme. They are probably saving proportionately less, with the help of their employers, than under the old regime.

Worse still, the regulators and actuaries now say that because those funds are very mature, they should be invested not in equities, but in bonds. They have triggered either a mass exodus out of shares into bonds, or they have persuaded or required funds to buy only bonds and not shares. We now have a huge build-up in bond commitments and a run-down in equity commitments. That has had two unforeseen consequences—I think that they must have been unforeseen; I should not think that the Government wanted them.

The first unforeseen consequence is that corporate Britain is up for sale because equities in Britain appear to be relatively lowly rated compared with equities elsewhere. Many great British companies are successfully bid for from overseas because the natural buyers of shares—the pension funds—are not there to take the values up to levels that overseas buyers would find less attractive. We have seen O2 , P&O, BOC and various others companies sold out, for premium, to overseas buyers because the UK equity market is relatively lowly rated—a direct consequence of the tax raid and the pension fund position. I see Labour Members getting uncomfortable. They obviously do not like corporate Britain being bid for, but they have no other explanation.

Alan Simpson (Nottingham, South) (Lab): I am interested in what the right hon. Gentleman says about the balance between equity markets and bond markets. Surely the biggest blow to equities was given by the collapse of the market following the horrendous speculative piece of adventurism, which in 2001–02 saw £250 billion of UK workers' pension funds wiped off because money had been used in a cavalier fashion, pushing share values through the roof, well beyond any realistic price. As a result of that and the unregulated market, which we created, people have lost their pensions and seen the money pilfered by everyone apart from the brokers who made the money out of the transactions.

Mr. Redwood: The figures show that the tax rate was far more important, but I agree that value was destroyed in global capital markets around 2000. The high-tech sector had been bid up to levels that proved unsustainable. That was particularly true of companies that had little turnover and no prospect of a profit. There was a big blow-off in the United States of America, but a lesser one in the UK because the situation had developed less dramatically. A special factor in the UK led to the collapse in share values in telecoms and high-tech areas, and it goes right back to the door of the Treasury: the Chancellor's decision to target telecoms for another of his stealth taxes that would do no damage. If one takes £21 billion-worth of tax in a single go out of the lead sector—[Hon. Members: "It is not tax."] We are now told that money going from companies involuntarily to the Treasury is not a tax. I do not care what Members wish to call it, but it looks like a tax and it feels like a tax.

Rob Marris : The right hon. Gentleman has just made an extraordinary statement. He used the adverb "involuntarily". The transactions to which he referred were not involuntary; they were bids in a free market by telecoms companies. In retrospect, most people would agree that they over-bid, but they made the bids. It was not a mandatory tax; it was an optional purchase.

Mr. Redwood: It was effectively a mandatory purchase. The companies were bidding for monopoly licences and rights to the airways, and if they had not done so they could not have stayed in that kind of business. Of course they had to pay. If one offers fewer licences than there are companies wishing to buy, one will raise a very large sum. Indeed, I pay full tribute to the Chancellor and his advisers for optimising the take for the taxpayer by the brilliance of the auction that they worked out. It just happened to do enormous damage to our lead sector, and therefore to share prices in companies such as BT and Vodafone, which happened to be the leading investments for pension funds at the time. The hon. Member for Nottingham, South (Alan Simpson) is right that pensioners and future pensioners suffered badly from that, but the Chancellor once again played a prominent role, causing that problem.

We have undervalued companies that are now being subject to aggressive overseas bids, often when we do not have reciprocal rights in overseas markets, and bonds valued on tiny yields, which in turn increase pension fund deficits. That has created a virtuous circle for the Chancellor—take more money out of funds, damage the funds, get them to buy bonds, take the price of bonds up so that the Chancellor can pay for his borrowing more cheaply—and a vicious circle for pensions: get them to buy more bonds, value the bonds pessimistically, increase the deficits, demand they put more money in and pay more bonds. It is not a healthy situation.

I was very pleased to see the well known commentator, Anatole Kaletsky, this week at last putting that into the newspapers, explaining that the regulatory system could be creating a future large-scale crisis in pension funding. Therefore, my serious message to those on the Treasury Bench is: please look at the bonds spiral and the role of the regulators, and see whether there is a way of avoiding a future funding crisis. What if at some future date people decide that bonds are overvalued and yields go from, say, 4 to 5 per cent., which is not an impossible scenario? That would wipe out a quarter of the total value of pension funds. Is it true to say, at those levels, that bonds are risk-free, a safe investment and the right way to match future liabilities, given that the bond has a fixed income and liabilities have a rising price?

Mr. Graham Stuart : Does my right hon. Friend agree that at the end of that series of complex financial transactions, there is a human cost—compounding damage to those who put money aside for security in old age? There may be sniggering on the Labour Benches but there is a clear, logical link between the tax on pensions and the impact on companies and the drive on to bonds. That is why people are no longer saving for their old age and there is the horrifying prospect, about which Labour Members seem to be happy, of 70 per cent. of people in this country being dependent on means-tested benefits by 2050.

Mr. Redwood: My hon. Friend makes an extremely good and different powerful point, with which I entirely agree. It is a great worry. The lack of a proper savings culture, which has probably been influenced by all the uncertainty and damage to pension saving, is certainly not helpful.

I hope that those on the Treasury Bench have understood that there is a serious national problem. I put it to them in that spirit; I am not making a party political point. They need to tackle the matter urgently.

John Bercow (Buckingham) (Con): Before my right hon. Friend moves on to his next topic in what is proving to be an extremely interesting disquisition on the state of the British economy, may I invite him to underline in clear terms what is now a worrying apartheid between the public sector and the private sector? He has described what many companies have faced as a result of the perverse and iniquitous taxation policy of the Chancellor. Is it not disturbing that the wealth-creating sector has been so savaged, while the Chancellor has been unduly preoccupied with the creation of new jobs in the public sector, which is the sector for which the wealth-creating sector is obliged to pay?

Mr. Redwood: I quite agree and I shall come briefly to that very issue of public sector efficiency and productivity.
In chapter 3 of the report there are measures to meet the productivity challenge. The main issues seem to be addressed in the Chancellor's mind to the private sector, but if one splits the disappointing figures for productivity growth in the past year or two, one sees immediately that productivity growth in areas such as manufacturing has been pretty good—it has had to be, because it is an extremely competitive global world out there—whereas productivity performance in the public sector has been poor to abysmal. The Government think that the figures are so bad that they have decided to call them in for re-examination and re-presentation. That is how serious it is. The figures are beginning to hit them in the headlines so they will need to be recalculated or suppressed.

On the figures that we have had so far from the Government, it appears that productivity in the health service has been falling by 1 per cent. a year against the background of a massive increase in spending, which the Government rather foolishly call investment. There is a lot of investment going into the health service—that is in capital expenditure and it ought to be increasing productivity, but it does not seem to be working. There has also been a lot of increased spending, but much of it appears to be on unnecessary jobs and activities that are not related to front-line actions. That is one of the reasons why there are not more beds, more operations and more treatments. I hope that the Government will therefore regard productivity as especially a public sector challenge and that they will understand that merely presenting Gershon as a nice idea is not sufficient. They have not only to implement Gershon—we hear of stumbling progress; I think that they are a long way from full progress—but to introduce son of Gershon very quickly.

Justine Greening: Is my right hon. Friend aware that the Department for Work and Pensions, for example, is to spend £500 million on voluntary and involuntary redundancy schemes over the next two to three years? Does he agree that that is clearly an ineffective way of running a Department?

Mr. Redwood: It is horrifying; what a waste of money. The rate of run-off and natural turnover in public sector employment is very high in most such departments. Surely it is possible for the Government to cut staff numbers in administration and unnecessary activities quite rapidly by ensuring that they do not replace staff and that where genuine vacancies occur for real jobs people are transferred from less important posts. It can be extremely good for morale in a department to have a staff freeze, because it creates promotion opportunities for those who remain. It is certainly better for morale in a department to try to run the change and to gain savings by a staff freeze and by transferring people to jobs that really matter than to embark on mass redundancy programmes. It clearly makes a lot more sense for the taxpayer than would spending the money on voluntary or compulsory redundancies.

The Chancellor understands that productivity also needs to be improved through working away on education. It is wonderful to share the Lobby with him in order to try to secure some reforms to our schooling system, which I hope he will want to take considerably further. It is a slight move in the right direction, but I am impatient to go a lot further and faster, and I always think that we are so much better when we are at our boldest. I would like my party to be much bolder on all those things.

Mark Tami (Alyn and Deeside) (Lab): What about selection?

Mr. Redwood : Yes, selection is very important, which is why I support the view of the Leader of the Opposition that we should select on ability as well as aptitude. We should select across disciplines, as specified in our policy, and we should defend our very good grammar schools, of which people are rightly proud. Many hon. Members are here only because they went to very good grammar schools or direct grant schools, as I did. We are grateful for that opportunity, so we do not wish to pull up the ladder on such proposals.

The Economic Secretary to the Treasury (Mr. Ivan Lewis): Tell us more—the hidden agenda on selection is revealed.

Mr. Redwood: The Minister is heckling me, but he clearly has not studied Conservative policy carefully enough. The Leader of the Opposition is keen to preserve all the great grammar schools in this country and in Northern Ireland, as I am. He is keen to introduce sensible selection in our comprehensive system, and effectively to create a grammar school stream at the top of every comprehensive, which is a very good way of raising quality. Indeed, it is the Minister's own policy for certain disciplines, such as modern languages, where he does believe in selection on aptitude, which is another word for ability, as we all know. When I asked the Prime Minister what the difference was between aptitude and ability in modern languages, his answer was notably deficient. I am glad that the Chancellor, in the guise of the Secretary of State for Education and Skills, said that more needed to be done in further education. He said that we need to take skills education much more seriously, and we may find common ground in trying to achieve such improvements.

The Government could make an important contribution to improving our productivity and efficiency if they sorted out a couple of things for which they have prime responsibility. They have been in power for nine years, but we still lack an energy policy. They play an important role in energy, as they need to send the right signals in their tax and market-influencing policies, and they issue planning permission for new power stations. The Chancellor glided over the matter in his speech and in the document, but it is high time that we had an energy policy. If we wish to develop process industry in this country we need better answers on energy availability and price. In the past few weeks, there has been too much reliance on the spot price, which has gone all over the place because of the imperfections of the continental market.

The Chancellor and the Secretary of State for Trade and Industry have both said that the Government intend to push for proper competition inquiries in Europe to try to free the market so that we can achieve access to a good supply of gas and other power at sensible prices. When will the Government persuade their partners to do so, and when are things going to be open? This is an urgent matter—it is no good saying that it may happen next year.

The Government often play a lead role in transport. We have a 21st-century economy and a very good private sector, but we have a mid 20th-century transport system that is in desperate need of more capacity and modernisation—a word that the Government usually like but which they misinterpret. I hope that they will soon come up with a way of increasing transport capacity on both the road and the rail system, and I hope that it will harness private finance. I am not putting in a bid for extra public spending, as a huge amount of money is available for sensibly worked-out road schemes to expand transport capacity. The bipartisan project for the relief road around Birmingham offers a good model, and we need more of those projects. I hope that the Chancellor accepts that if we are to improve the country's economy and productivity we must tackle those road blocks, which hinder the movement of goods and people.

Finally, I would like to raise the issue of regulation. In his Budget statement and in the supporting papers, the Chancellor talked about the need for better regulation. Indeed, at times, he even talks about the need for deregulation. In the past, I have warmly welcomed his conversion and that of the Prime Minister to the view that we are a greatly over-regulated society. I welcome their conversion to the notion that certain regulations are unnecessary—some of them achieve the opposite of what they set out to achieve and other regulations are simply too expensive, given the aims that they set themselves.

We have heard fine words and speeches, and the first of two promised Bills on deregulation has finally been introduced. It is therefore an enormous disappointment that there are two problems with the Legislative and Regulatory Reform Bill. First, it does not include any provisions on deregulation. With the agreement of all my Conservative colleagues, I have proposed 63 things that we would like to deregulate immediately. Personally, I could cite another 100, and I may persuade my colleagues to back them in due course.

Mr. William Cash (Stone) (Con): Would my right hon. Friend not like deregulation of European legislation as well?

Mr. Redwood: Of course, I would. There are some European items among the 63 in the agreed party programme, as it is impossible to deregulate in Britain without deregulating matters with which Brussels is involved.

The second big problem with the Bill is the inclusion of an offensive group of clauses that gives Ministers the right to legislate without reference to Parliament. The Bill does not even specify that it has a deregulatory purpose. We were invited to accept a Bill that could re-regulate Britain, taking more of our freedoms away without due process. I hope that Ministers accept that that was a gross error and a huge misjudgment. The country desperately needs proper deregulation, and a Bill is proceeding through Parliament that would allow us to achieve that. We would be delighted if the measure were subject to major amendments and surgery. We would be willing to co-operate if the Government dumped the clauses that give them too much power to legislate by the back door and included in the Bill some genuine deregulation.

John Bercow : My right hon. Friend will probably recall as well as I do that the right hon. Member for North Tyneside (Mr. Byers) talked about the case for sunset regulation as long ago as 2000, but little has happened since. Given that more than 99 per cent. of businesses in this country employ fewer than 100 people but account for approximately 50 per cent. of the private sector work force and generate two fifths of national output, does he not agree that it is time that the Government looked at, and learned from, the experience of the United States by studying the Regulatory Flexibility Act 1980 and the Small Business Regulatory Enforcement Fairness Act 1996? If they did so, they could learn a great deal.

Mr. Redwood: My hon. Friend makes an extremely good point, and I agree with him. I would, however, like to go further, as I do not want to deregulate just one sector of trade or commerce, or one size of company. I accept that small companies are badly oppressed by too much regulation, but we could strip out some major regulations for everyone. Earlier this week, the Minister and I debated the regulation of financial services in Committee. I made the point that I agreed with the Government's rhetoric on the system of regulation for the European Union as a whole and the United Kingdom in particular. The Government said that competition was better at regulating than regulators and that greater freedom produced enterprise and flexibility. The Minister said that I did not need to tell him that competition was the best regulator, as the Government understood that intuitively.

I am delighted that we agree about what we wish to do, but the difference between us in our current roles is that the Minister has the power to do something about it, but I do not. Now that we have agreed on the remedy, I urge Ministers who have the power to put it into effect to get on with it. We all know that the country is crying out for less regulation and that far too much regulation comes from Brussels. Treasury Ministers say that they have a unique relationship with their European partners; they have enormous influence and Europe is going their way. They say that they want a less but better regulated Europe. When will those fine words translate into action? Since the Prime Minister last spoke about the need for a deregulated Europe, 2,000 new regulations have been introduced. Why did the United Kingdom sign up to all those regulations? Why did we not use our influence to say no? Why have we signed up to a 72-point action programme for financial services in Europe when the required regulation is either already in place nationally or will be put in place globally? When we know that we need to compete in a global marketplace, is it not much better that regulation is put in place globally, so that we are competing on a level playing field with the Indians, the Chinese and the Americans, as well as with the French and the Germans? There is no need for mezzanine regulation in big global areas such as financial services or some of the other leading globally organised industries. There may be some need for global regulation, and that surely is the level at which Ministers should concentrate their attention.

The Chancellor rightly said that the world is changing extremely rapidly. He rightly drew attention to the growing competitive challenge from India and from China. He may also have mentioned Brazil and Russia. The new large economies are growing very quickly. They are importing a great deal of technology and ideas, and in some cases they are exporting a great deal of capital because they are generating very large surpluses. The pattern of world trading is changing extremely quickly. We must understand that for Britain to have a prosperous future, as she has had a prosperous past, we need to turn our attention much more to countries of the size and pace of change of India and China.

Britain's great advantage in the next 30 or 40 years is that we have a special relationship with India. We have strong ties, a common language for business and political purposes, and quite a lot of common systems as a result of our shared history in the 20th century. We need to turn that to good effect and play the game in the spirit of the recent cricket exchanges, where India won one and we won one. We need to develop that relationship as strongly as we can, because it will help pay the livings of our children and grandchildren in the future.

Mr. Andrew Love (Edmonton) (Lab/Co-op): I have followed the right hon. Gentleman's speech with interest. On the productivity challenge, which I accept, he has not touched on the conundrum of business investment. Companies in the UK are making what some would consider record profits. Interest rates are low. There is a crying need to improve our productivity, even in the private sector, although I take some of the points that the right hon. Gentleman makes about the public sector. How do we overcome that problem?

Mr. Redwood: That is a very good question. I have shortened my remarks because I know that other hon. Members want to speak. The point of my argument about pensions answers the hon. Gentleman's point about investment levels as well. The main reason that British companies are not investing more in plant, equipment and new ideas is that every spare pound they generate is likely to have to go to make good the deficit in their pension funds—deficits that are being exaggerated or made worse by the actuarial advice on and by the method of compensation of the value of assets and liabilities.

If the Chancellor takes the pension fund problem seriously and can find some kind of regulatory amelioration, the hon. Gentleman will find that more of that cash flow will become free for expenditure on improving the real assets of the country and generating more wealth. Similarly, more money will be available for equity investment through the stock exchange. There is not so much equity investment available from British sources through the stock exchange for exactly the same reason—people are told to put their money into bonds, not into new share issues by companies, which could otherwise finance new ideas, new technology and extended ideas for companies.

My concluding point is on the change in the world. According to the European Union's projections, which are a little out of date as they were issued in 2002, the 15 main EU economies, which represented 18 per cent. of world output in 2000, would represent only 10 per cent. of world output by 2050. I think that is a wildly optimistic forecast on the part of the European Union. If one looks at the pace of change, the relative decline of some of the continental economies and their populations, and the enormous success of India, China, Brazil, Russia and the other emerging countries, one realises that there is no way in which the EU 15 will still represent 10 per cent. of world output by 2050.

Mr. Cash: Did my right hon. Friend notice the way in which the Chancellor of the Exchequer in his speech this afternoon distanced himself from the eurozone, but did not go one step further and say that the Government had made a terrible mistake in committing themselves to the euro, the ERM, the constitution and all that goes with it? For practical purposes, he is prepared to criticise the European Union but not prepared to go that step further and say that we will have nothing to do with that aspect of it.

Mr. Redwood: My hon. Friend is right. An honest Chancellor would have said, "The game is up. I now realise that joining the euro would be quite inappropriate for Britain and we would be much better off getting our regulations into line with the leading countries and power blocs in the world, not regulating at the mezzanine level in the European Union." This is the point. On its own figures the EU will almost halve as a proportion of world output. On more independent figures, it will not do that well. It will fall even more, and we will not be earning our living sufficiently if we hitch our wagon entirely to the European train or bus. We need, instead, to be aware that the life and growth in the world economy will be in America, India, China and the other emerging countries. Our foreign policy should be geared to that, and so should our economic and regulatory policy.

For the information of Labour Members, I have spoken as the Member of Parliament for Wokingham. I have not bound the Front Bench team by what I have said, nor have I bound my economic competitiveness policy committee. We will report, I trust, next summer and it will give me great pleasure then to speak for that. I am not backtracking on anything. I have expressed my views in my capacity as the Member of Parliament for Wokingham, the proudest capacity of all that I hold, and if they in due course are adopted by the committee, I shall be delighted. If the committee's recommendations in due course are adopted by my party leadership, I shall be delighted. I thought Labour Members should know that.