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Budget Resolutions and Economic Situation

I have watched all 10 of the Budgets delivered by the Chancellor, and none of us who has watched him doubts that they are always skilfully honed. He is a master of propaganda rather than enlightenment. We have long since learned that what is in the Budget on the day is not what matters and that most of the pain lies in the small print that is not announced on the day. All Budgets need time to settle for everyone to digest them. This Budget does not involve great drama, because there is no fundamental restructuring or revolutionary changes of gear. There is no real point in engaging in an auction of hyperbole in which one side says that the Budget is all fabulous and the other says that it is all disastrous. This Budget needs a more dispassionate assessment of the context in which it has been designed. [Interruption.] Even in this House, there are moments to stand back and consider the long-term trends, which is exactly what I want to do today. I shall admit something else to enliven the House. Some say that the two sides of this House have so converged that one can no longer tell us apart, but they are totally wrong. Labour has had to prove over the years that it understands and embraces market economics, while we have had to reassert our belief in social justice, but what divides us is tax and the power of the state. The Chancellor is inclined to tax anything that moves and do anything that he can get away with; we believe in lowering taxes wherever possible and that any new tax must be justified. The Chancellor believes that state action and centrally directed initiatives are the solution to most national problems; we believe that the creativity and aspiration of the individual, free from state interference, is the greatest engine of progress and improvement. We appreciate more than the Chancellor that only private prosperity can pay for public services—when we think of wealth, profit and prosperity, we say, ““Go make it””, while he says, ““Go take it””. The Chancellor makes much of his fiscal rules: first, that he should balance the budget over the economic cycle, and secondly that he should borrow for investment, not merely for spending. However, he took some pride in rejecting what he called a third fiscal rule, namely that spending should rise more slowly than growth. Perhaps that policy marks the difference between us, because it contains both a grave admission and the seeds of its own destruction. If spending increases more slowly than growth, then the state takes a smaller proportion of GDP. If spending increases ever faster than growth, which is the opposite of the fiscal rule that he has rejected, then the state takes an ever-larger proportion of GDP, which leads to more spending, higher taxes and greater borrowing—what was 40 per cent. can become 50, 60, 70, 80 or 90 per cent. The effect is a bit like flesh-eating bacteria: it is so self-consuming that if one were to carry the Chancellor’s course to its logical outcome, the British economy would disappear up its own origins. But fortunately the people can stop it. Everything is up against its limits. That is not my opinion, but that of the Minister for Higher Education and Lifelong Learning, the hon. Member for Harlow (Bill Rammell). I have a little clip that states:"““A Government minister who admitted that Labour had taxed people to ‘the limit’ was rebuked by the Treasury last night””—" [Interruption.] I am told that that was quite right. It continues:"““Bill Rammell, the higher education minister, said, while launching a White Paper on further education: ‘We are probably about at the limit of what people are prepared to pay to improve public services.’""The Treasury issued a firm rebuke to the minister””." The Chancellor is running out of tricks and wheezes to expropriate any more revenue, but that admission signifies what is to come. With a majority of only 97 in Harlow, the Minister knows something about being up against his limits. The danger is that the Chancellor will run out of flexibility. As The Economist said:"““If, for example, the economy runs into trouble later this decade, then his plans for apparently modest public spending growth may yet prove unaffordable, just when they might be most needed. The chancellor was fortunate to inherit a strong economy whose public finances were improving sharply. If Mr Brown’s inheritance as prime minister is a weakening economy and a chronic budget deficit, he will have only one person to blame: himself.””" This is the Chancellor who has doubled the council tax and destroyed pensions. This is the Chancellor who is guilty of causing the pain of ever-rising council tax and who is guilty of the unforgivable larceny of seeing the best-funded pension provision in Europe reduced to ashes. It is not the little announcements in the Budget that will be dwelt on, but the underlying trends and pressures that Britain faces. It is not a million quid here or there, but the incidence and burden of tax and our competitive position and skills base that will determine our prospects in the longer term. Even now we can see that the Chancellor’s favoured structures are coming under strain. NHS deficits are a major crack in his ill-crafted model of public services. He can boast about the extra billions, but not only do they have to be paid for, they are not solving the problem. We do not have a perfect national health service: we have deficits, closures and lay-offs. He may well have doubled his spending, but now he will have to double the size of the House of Lords to pay off the deficits. Competition in the modern world is becoming more and more ferocious. Comparative weakness can be seized on, with the swift transfer of capital to better options. Comparative advantage is more and more difficult to define and retain. Mature economies such as ours, with higher welfare costs and high social standards, carry those costs while having at the same time to compete with the likes of India, China and eastern Europe—all at a different stage of development. Our fortunes will not be shaped in any sudden way by the contents of one Budget. They will be determined by the gradual and continuing force of global competition. Despite what the Secretary of State for Trade and Industry said a moment ago, there are some very worrying trends. Britain has dropped from fourth to 13th in the World Economic Forum competitiveness table since 1997. Just today, we learn that The Economist intelligence unit survey of how favourable a country is for foreign investment shows that the UK has fallen from fourth to seventh, because of concerns about tax levels, regulation, poor transport infrastructure and low levels of productivity. It is no triumph to be overtaken by Finland, Holland and Ireland. Productivity growth has slowed under this Labour Government and, last year, it actually fell to zero for a time. Under the last Conservative Government, we were catching up with France and the USA, but under this Government we are losing ground. Last year, business investment, at 9.1 per cent. of GDP fell to the lowest level since records began and the number of new companies registered actually fell.