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Budget day debate
Tony Baldry (Banbury): In reference to the last comment from the hon. Member for Wolverhampton, South-West (Rob Marris), a number of other supposed initiatives in relation to training were announced in today's Budget, but I am interested to know how many employers in his constituency have had any contact from the Learning and Skills Council. The Government keep introducing more and more initiatives in these areas, but that is no satisfactory replacement for action and delivery on the ground.
Rob Marris: Will the hon. Gentleman give way?
Tony Baldry: No, no. I have only just started.
Rob Marris: The hon. Gentleman asked me a question.
Tony Baldry: I responded to make it clear that I listened to what the hon. Gentleman had to say and to observe the courtesies of the House.
I offer a limited welcome to but one part of the Budget - that which relates to international development - and everyone concerned with it would welcome the Government's further contributions to humanitarian aid and reconstruction in Iraq as well as the Chancellor's commitment to the international financing facility in the hope that it will lever in $50 billion a year to finance development. I also welcome his comments on the need to reform the European Union's development budget. However, I express these cautions to him on each of those items.
On the money for Iraq, we have seen with Afghanistan that the amount required for humanitarian needs has far outstripped earlier estimates. Much of the money pledged by the international community at the Tokyo conference for funding reconstruction in Afghanistan has simply gone on meeting basic humanitarian needs. I suspect that the demands for humanitarian assistance and for reconstructing Iraq are far greater than anyone, including the Chancellor, has contemplated.
Indeed, during the Select Committee's visit to New York the other day, the United Nations announced a $2.2 billion request for food and non-food aid for Iraq just to get that country through the next six months. That is the largest request ever made by the UN in that regard, and that is before one gets to any question of reconstruction in Iraq. Those who think that that country may be oil rich and that it can meet all those costs itself should remember that, because of the policies of Saddam Hussein and others, Iraq is substantially in debt. So, the Chancellor and the Government must recognise the fact that if Iraq's needs are to be met, that will require the united efforts of the whole international community. I suspect that those efforts would be better harnessed through the co-operation and endorsement of the UN.
The international financing facility is a brave initiative by the Chancellor, and he is to be congratulated. I genuinely think that he has committed himself to supporting international development, but I caution him that he has yet to persuade many in the G7 and the World Bank that the initiative will work and that it is not just a well-meaning project that will rob Peter to pay Paul. I hope that, this coming weekend, he can convince G7 colleagues not only that the initiative is worth supporting, but that it will work. Unless he can do so, it will simply be worked up and used as a line to take, thereby giving the impression that something is being done when things are not being done.
Lynne Jones: Of course, I agree with the hon. Gentleman that everything that is done to increase investment in developing countries is to be applauded but has he made an assessment of the international loan facility and how that may differ if rich countries increased the amount of aid that they give to developing countries to the 0.7 per cent. of GDP target?
Tony Baldry: I do not want to turn this into a debate on financing for development. The reason why the Chancellor made the suggestion is that, as a consequence of the financing for development conference at Monterey, the international community, primarily the United States and the European Union, are committing an extra $12 billion a year for international development. It is welcome as far as it goes but clearly it is not enough and the Chancellor is seeking to find ways to plug the gap. Even that which is pledged from the United States under the millennium challenge account is pretty conditional. Under good governance rules, not even countries such as India will qualify. The Chancellor's proposal is a worthwhile initiative but the test will come when he tries to convince his colleagues that it is workable. Unless he can convince them that it is, it is simply an initiative, a line to take that gives the impression of doing something but does not deliver. We will have to see this weekend.
If I were given £1 every time I heard Ministers talking about reforming the common agricultural policy and reforming European Union development policy, I would be a very wealthy man. I continually hear the Secretary of State for International Development and other Ministers, including the Chancellor, talking about reform of European Union development assistance. It is a disgrace that more money goes to a single eastern European country such as Hungary under EU development assistance than goes to the whole of Asia under EU development assistance. It is fine the Chancellor and other Ministers continually mouthing this but there needs to be action. Otherwise, it simply becomes a rather boring catechism.
It is a Budget of blame, of borrowing, of failed forecasts, of high taxes today and higher borrowing tomorrow. Higher borrowing tomorrow will inevitably lead to even higher taxes the day after tomorrow. The Chancellor tended to blame the military conflict for the UK economy's performance. He seemed to blame quite a lot of people, yet United States companies such as the General Electric Company that are a barometer for economic performance and Borders, which has many outlets in the UK, suggest that blaming events elsewhere only masks deeper economic problems here. The problem is demonstrated by the Chancellor making up this country's difficulties by more and more borrowing.
The Chancellor has also blamed the eurozone countries' slower economic growth for today's substantial additions to public borrowing, yet UK productivity is falling further behind not only the United States but Germany and France. Since the Government came to office in 1997, annual growth in productivity as measured by output per worker has averaged just 1.3 per cent., whereas between 1979 and 1997 it averaged 2 per cent. - almost double.
The Chancellor's Budgets downgrade forecasts time and again. His forecast on UK GDP growth for 2003 was downgraded today for the second time in less than five months. He predicted growth of 3 to 3.5 per cent. in last year's Budget, 2.5 to 3 per cent. in November's pre-Budget report and today it is down to 2 to 2.5 per cent. His central forecast is therefore down by nearly a third from the central 2002 Budget forecast.
Again, business investment forecasts have been downgraded. In last year's Budget, the Chancellor said that business investment would grow by 5.5 per cent. to 6.25 per cent. in 2003. Today the same forecast has been revised down and stands at minus 1.5 per cent. to minus 1 per cent. Today's Budget also confirms that business investment fell by 8 per cent. in 2002. Those figures are all clearly in the Budget statement.
Manufacturing output has been downgraded again. In last year's Budget statement, the Chancellor said that it would increase by between 2¼ and 2¾ per cent. in 2003. Today the forecast has been revised downwards to between a quarter and three quarters of 1 per cent. The Budget also confirms that manufacturing output fell by 4 per cent. in 2002.
What we see is the Chancellor seeking to blame others, and a number of failed forecasts. In fact I do not think my constituents, or indeed people anywhere in the country, are particularly interested in who is to blame, and I do not think they now place any trust in the Chancellor's or the Government's forecasts. They rely on what is happening currently. They are concerned about who will help them through the effects of the United Kingdom's increasingly poor productivity and economic performance - and today's Budget does not suggest that it will be the Chancellor.
Last week The Sunday Times featured an article entitled "Ten ways to safeguard your finances from future attack". We were told
"Savers are suffering because of the low level of interest rates: even house prices are beginning to look shaky. Today's rise in National Insurance contributions from 10 per cent. to 11 per cent. could not have come at a worse time. The National Insurance bill for someone earning £30,000 a year will rise by £253.72 a year to £2,790.92 ... The average Council Tax bill has also risen nearly 13 per cent., taking the typical annual cost above £1,000 for the first time."
Such stark facts give little comfort to my constituents. They know that they and their neighbours are paying more and more tax, and from this week a typical family will be £568 a year worse off. In areas such as mine there are further difficulties for the average family, who know not just that taxes are increasing but that they face higher house prices. House prices are still rising in Oxfordshire. I was told by two local estate agents yesterday that prices were not falling in the area. That is entirely consistent with the Halifax's survey for the last quarter of 2002, which found that they had risen by an average of £26,000 in Oxfordshire, as against a £4,000 rise in London.
The consequences are considerable in terms of the delivery of public services, and the impact on those working in the public sector - nurses, teachers and police officers. Many public-sector and low-paid people in north Oxfordshire find it extremely difficult to afford homes, and, ironically, those who have been able to buy them cannot afford even a slight fall in house prices if they are not to find themselves with negative equity - especially when low interest rates have provided neither group with substantial savings.The Budget talks of local pay negotiations in the public sector and the civil service. We shall just have to see how that works out. For years, along with other Oxfordshire Members, I have called for sensible local cost-of-living allowances for public-sector workers. The test will be how much real help the Budget gives nurses, teachers and police officers when it comes to local pay negotiations.
There was talk in the Budget of 80,000 more nurses. If true, that is welcome news. The Chancellor has made much of investment in the national health service, but I can describe the reality of the NHS in Oxfordshire. The main hospital trust, the Oxford Radcliffe NHS trust - which includes the John Radcliffe in Oxford and the Horton hospital in my constituency - is so overdrawn that it will not admit to the figure, but it is somewhere between £22 million and £50 million this year. Why? Largely because of the cost of employing agency nurses at the John Radcliffe. Nurses cannot afford to work for the NHS in Oxford, and the only way in which the John Radcliffe can recruit them is through agencies. The only way that nurses can afford to work in hospitals is to be employed by agencies. Increasingly, groups of nurses are setting up their own freelance agencies simply so that they can be paid higher rates.
The result is not better treatment at the John Radcliffe or through the Oxford Radcliffe NHS trust, but the hospital's continually having to dip into the red to afford the nurses that it currently has. I shall be extremely interested to discover how many of these 80,000 so-called extra nurses the Chancellor is able to deliver to hospitals in Oxfordshire in the next few years. However, whether he achieves that will largely depend on whether he has at last woken up to the fact that in counties such as Oxfordshire, where it is expensive to live, a sensible cost-of-living increment is required if people such as nurses, teachers and police officers are to be attracted.
Not only are people being hit by higher taxes and difficulties with house prices; homeowners and tenants alike are having to pay 12.8 per cent. more in council tax in Oxfordshire, or an extra £100 for a band D house in Cherwell because of a stitched-up local government finance settlement. It could have been worse for residents if Oxfordshire county council councillors had not cut investment in roads, transport, fire engine replacement and training budgets.
This is the background to the Chancellor's Budget - a background against which the article in The Sunday Times to which I have referred proceeded to give people advice on how to prevent their pockets from being drained even further by today's Budget. Each of its 10 tips, however, has caveats that are reinforced by the Chancellor's announcements. I should like to look at three of them.
Mr. Bercow: Given that the Government's resource allocation formula is the vehicle through which they are effectively draining resources from the south-east of England in order to prop up their feckless and profligate friends in the north, does that not underline the importance of the ten-minute Bill that my hon. Friend himself introduced to ensure that, in future, there is an independent body whose function it will be to allocate resources to local authorities across the country?
Tony Baldry: I was very grateful to my hon. Friend for his support for that Bill, and for the support of many other Members of Parliament with constituencies in Oxfordshire, Buckinghamshire and elsewhere. The fact is that it is not us who are saying that money is being taken away and given to Labour's friends in the north. Organisations such as the Chartered Institute of Public Finance and Accountancy, by simply looking at the funds for this year's grant allocation, can see that local authorities in the south of England are being raided, and that the money is going elsewhere.
The Chancellor has given us a lot of froth today about assistance for pensioners, but pensioners in my constituency are not concerned about his latest gimmick; they are concerned about how they are going to pay the increase in their council tax bills. [Interruption.] Labour Members may scoff, but pensioners in my constituency are much more concerned about the bills that land on their doormats today than about the Chancellor's promises of benefits tomorrow, because bills on the doormat are the reality. People have now rumbled the fact that the increase in council tax bills is a consequence of this Government's fiddled figures and unfair treatment of the local government finance settlement.
Top of the list of the suggestions in The Sunday Times is:
"Reduce your National Insurance Bill"
It is not surprising that people should consider how to reduce their national insurance bills. Given the higher national insurance contributions that came into effect on 6 April, people are now faced with the triple whammy of frozen personal allowances, frozen national insurance thresholds, and the 1p/10 per cent. increase in the rate of NICs. The Sunday Times advised:
"You can cut your NICs through 'salary sacrifice' whereby you give up some of your salary and your employer increases your pension contributions by the same amount ... However, you can only sacrifice future increases"
However, future increases do not account for the higher cost of living that today's Budget will create for many people. They will not reduce council tax burdens, which have to be paid now. Nor do they equate with the pensions crisis, which has caused a yearly £5 billion hole in pension provision, and has led Age Concern to point out that Government proposals on pensions require
"fairness, security, clarity and flexibility"
After today's announcements, elderly people in my constituency will be faced by 23 means-tested benefits, which are so opaque that many pensioners will end up not claiming them. All that elderly people want is a simple and straightforward pension.Indeed, everyone wants a straightforward pension system, but the Labour Government have made the benefit system much more complex and the Chancellor's meddling with tax credits has made the system impossible even for experts to understand. Coupled with that, changes to the payments system in April have been poorly promoted and the Government need to do much more to ensure that people get the benefits to which they are entitled. I am not surprised that the Chancellor feels it necessary to write to pensioners about the increase in the winter fuel allowance, but I wish he would write to them all in an endeavour to ensure that they all receive every penny to which they are entitled.
Mr. Bill Tynan (Hamilton, South): Does the hon. Gentleman accept that the constant reference to means-tested benefits affects pensioners' attitudes to the minimum income guarantee, which is a right and is not means-tested? If we continue to talk about means-tested benefits, it will detract from people's ability to benefit from the minimum income guarantee and the pension tax credit.
Tony Baldry: I have no quarrel with the hon. Gentleman, but the fact of the matter is that those benefits are means-tested. I hope that every Member of Parliament wants to ensure that every pensioner receives every penny of benefit to which they are entitled. However, year on year, the Chancellor makes the system more complicated, more difficult and harder for people to understand. Today's Budget provides yet a further example.
To return to the article, under the heading "Offset your Savings", people are advised to
"combine mortgages - and sometimes credit cards and personal loans - and savings schemes. They deduct your savings from your debts and only charge interest on the balance ... but you need sizeable savings to really benefit"
What about my constituents who do not have sizeable savings because of the high house prices encouraged by the Chancellor's Budget? What of those who do not have such savings because the Chancellor has encouraged low interest rates, which have partly resulted in higher credit card bills and personal loans? And what about those who simply do not have the capacity to play piggy banks and would benefit much more from straightforward and direct measures that help people to save their money, but are penalised by the Budget?
The final piece of advice in the article is to "Claim your Tax Credits". The Chancellor has made a lot of noise today about new tax credits, but, as with the minimum income guarantee for the elderly, they prove more elusive when people try to claim them. Nevertheless, The Sunday Times notes:
"If you have children you can offset some of the increase in National Insurance by claiming the new child tax credit"
But not everyone in my constituency has children - [Interruption.] Well, it is an important observation. Some people can benefit in certain ways, but we should recognise that much of the credit will be clawed back in national insurance contributions - the Budget's biggest caveat. Some of today's initiatives - we have had a lot of them - may look good, but few people qualify for them. Every year, the Chancellor introduces more gimmicks in a great wodge of paper, but on further analysis the next day - or even the same day - one recognises that not many people will benefit.
Other initiatives may seem helpful, but they have to be viewed in relation to all the Treasury's taxes. Most will be too late to help businesses raise productivity, but a rise is needed now. Of course more help for research and development is helpful and the proposals for the British small business investment companies are worth investigating, but they are not what business wants. Businesses in my constituency are concerned about increases in national insurance contributions, further burdens in taxation such as the increase in petrol duty in recent years, and increasing amounts of red tape.
It may come as a surprise that, for 2003–04, a Treasury document claims that the Government will be able to
"raise the rate of sustainable growth and achieve rising prosperity and a better quality of life, with economic and employment opportunities for all."
But that does not seem to chime with what is happening in my area, which I suspect is one of the more prosperous in the United Kingdom.
I will turn to the Budget's impact on productivity in a moment, but I wish to refer to the assertion of opportunities for all. Many who will have a chance of concentrating on today's Budget, and on previous announcements that start to impact today, will see it as an attack on middle England. They can hardly be wrong when almost 1 million more people have been dragged into paying tax at the 40 per cent. top rate following the Chancellor's 26 alterations to the tax system since 1997, changes that have cost these taxpayers more than £47 million.
No one in my constituency, whatever their tax bracket, benefits from higher council taxes, higher stamp duty or higher house prices. No one is helped by insecure pensions, which the Budget - like last year's - fails to address.
On productivity, there is simply not a scrap of evidence that the UK is experiencing sustainable growth. No one benefits from low productivity. Business productivity is low simply because the so-called initiatives by the Chancellor that were meant to avoid low productivity are overly complicated, irrelevant or counter-productive. That was the central concern of the local business community when I conducted a survey of the small and medium-sized businesses in my constituency last year. They were concerned about corporation tax, capital gains tax, the petrol tax, stamp duty and national insurance contributions. These were the measures that were of concern to them, as were business rates. It is difficult to see what the Chancellor has done today that helps in any of those areas, or significantly addresses productivity.
Mr. Flight: On productivity, does my hon. Friend accept that one of the key problems has been that productivity in the public sector is, if anything, negative and the more resources shift from the private to the public sector, the lower our productivity growth becomes? Indeed, it has halved in comparison with what it was before 1997. Moreover, the consensus view of economists is that the overall growth rate - the achievable sustainable level - has been reduced to about 2 per cent. as a result of the same factors.
Tony Baldry: My hon. Friend makes an extremely good point, echoing what was said by my right hon. Friend the Member for Charnwood (Mr. Dorrell) in relation to public expenditure racing ahead of the private sector. Not only is that a matter of concern; we will inevitably see higher taxes. The Government seem to be making little attempt to get to grips with that.
In the past, we have seen attempted reforms to the competition regime, designed to make markets more competitive by stamping out abuses of power. They did not. We have seen complicated changes to capital gains taxes that sought to encourage investment for the longer term. They did not. The Treasury justified raising corporate taxes on dividend payments on the basis that it might encourage companies to retain profits. It did not.
Tax credits for research and development spending aimed to correct a potential market failure; that companies under-invest in research and development because their competitors would also gain from their innovations. However, that has resulted in an imbalance in research and development, which I doubt can be addressed by today's announcement, welcome and limited though it might be.
Today, sadly, with the Government halfway through their second term, the UK's productivity performance shows little discernible improvement. If anything, it has deteriorated since the Government came to power and is now at a 10-year low. That is not my judgment; it is the assessment of the Bank of England's latest inflation report, which notes:
"The growth of labour productivity per person has been below its long-run average"
The IMF, in its recent annual assessment, stresses that, for the United Kingdom:
"Raising productivity remains a key challenge."
Much the same is said by the CBI and the British Chambers of Commerce, echoing the concerns of local businesses in north Oxfordshire.
An article in the Financial Times this week observed that
"there appears little appetite left for more government-directed measures to remedy the shortcomings. The City is preoccupied with the immediate economic outlook and the health of public finances. Business is in a lather about rising taxes and national insurance contributions. And employees are growing fearful that their private-sector pensions will not provide the retirement income they had expected."
On that final point, it is not surprising that employees are growing fearful about their pensions, given that the Chancellor's £5 billion-a-year pension grab tax has cost 12 million people an average of around £400 a year. It is disgraceful that pensioners retiring now will receive half of what they would have got five years ago.
What would have happened if, during the 1997 general election, I had knocked on doors in Banbury and Bicester and told people, "Hey guys, I've got news for you. By 2003, under a Labour Government pensions for people retiring will be worth half of what they are today"? I wonder how many people would have voted Labour in that election.
Rob Marris: On that point, the principle reason that pensioners are getting less is that annuity rates have come down considerably. That has happened because, under a Labour Government, interest rates have more than halved from their levels under the previous Conservative Government. Does the hon. Gentleman support low interest rates, or not?
Tony Baldry: When they start knocking on doors, Labour Members will have to face the fact that the various stealth taxes introduced by this Government, including the raid on pension funds, are less stealthy now. People - pensioners, and those in business - appreciate the impact of those taxes, and the damage that they are doing. Sooner or later, a tax will have an impact. The Government's chickens are coming home to roost.
Mr. James Wray (Glasgow, Baillieston): Was not the hon. Gentleman embarrassed, when he was knocking on doors at the general election before the one that he mentioned, about the fact that the previous Prime Minister advised old people to have equity? They got their houses at a knock-down rate of 6 per cent. but, after 18 months, the interest rate had risen to 18 per cent. Thousands of houses were repossessed, and local councils had to rehouse the old people who were thrown out of them.
Tony Baldry: Clearly, the hon. Gentleman was not listening to what I said earlier about people's concerns about negative equity. In my constituency, those concerns remain alive today. People who can afford to buy houses are concerned about them losing value and about falling into negative equity as a result.
I am sure that, in the coming year, we will witness higher growth in the US, France and Germany, where people worry a lot less about higher taxes and lower personal savings. Nothing in today's Budget changes that outlook. The reality is that Labour is taxing, spending and failing. From this week, people are working for less as a result of the Chancellor's national insurance increase. It is a tax on jobs and on pay. Given increased council tax bills, a typical family in my constituency and in every constituency will find itself £568 worse off this year.
Understandably, all my constituents are anxious about their futures, and concerned about their jobs, savings and pensions. Meanwhile, our public services are just not good enough. This Government have brought us more taxes, more spending, more borrowing, more promises, more failure and more excuses - and still no results.
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