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Budget Resolutions and Economic Situation

Yes, that is a problem; it relates to an issue to do with cashable and non-cashable gains. We could have an entire debate on that. We need to have a serious debate on the impact of some of the Gershon reforms on public sector efficiency. If I may give a brief advertisement, let me say that there will be a Public Accounts Committee debate in a couple of weeks’ time at which we can talk further about this important point, and I am grateful to my hon. Friend for raising it in her intervention. I was talking about the savings of £26 billion. That is an exciting promise—or promissory note given to us by the Government. It could reduce the basic rate of income tax by up to 8p in the pound—a real reduction of 8p in the pound. Of course, the actual amount of that reduction would depend on the state of the economy at the time, but I offer that figure as a headline figure to show what could be achieved by efficiency gains—promised by this Government and audited by the Treasury. If we did not want to reduce income tax by 8p in the pound, we could build 860 schools or 130 hospitals, or use the money to reduce borrowing considerably. So that is an exciting claim. Efficiency gains are an essential aspect of the debate. They are becoming increasingly important, and they are doubly important because we need to restore public trust in respect of what is happening to all the extra money that we have put into the public services. A recent King’s Fund study—a reputable study—showed that of the £19 billion that we the taxpayers have put into health, £6.6 billion went on pay, £2.2 billion went on the rising costs of drugs, £1.6 billion went on hiring more doctors to comply with new European Union employment laws, £1.1 billion went on new buildings, £1 billion went on medical equipment and £600 million went on negligence law suits. It showed that of the £19 billion, only £5.9 billion went on"““direct improvements, which included reduced waiting lists, greater use of day surgery, larger numbers of doctors, nurses and consultants, and elderly patients spending far less time in hospital””." The debate has therefore changed, and it continues to change. We should be aware of that—I say that especially to my party. The public are becoming increasingly dubious about the claims of politicians that such large amounts of their own money are making a real difference. Indeed, we know that productivity in the NHS is declining. I pay tribute to my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke)—a former Chancellor—for making a brilliant speech. It was a dissection of the Budget which I shall not even attempt to emulate because there is no need to, as that has been done so well by him, and also by my hon. Friend the Member for Tatton (Mr. Osborne), the current shadow Chancellor. There is no need for me to repeat everything that has been said about matters such as the sleight of hand in the Budget—about the giving and the taking away. We should however be aware of two aspects of the Budget which will make us aware of how the Budget is changing things. One of them is the Chancellor’s apparent conversion to simplification by merging the tax and NHS bands, for which I praise him. I accept that complications are also introduced in respect of tax credits, but simplification is the aim; that is the headline that the Chancellor wants the public to remember. The other key aspect of the Budget is the Chancellor’s apparent conversion to cutting the base rate—and therefore to tax cuts. That offers a challenge to Conservative Members. It will become increasingly difficult for the Government and the Chancellor now, in the next couple of years and up to the general election, to argue, as he has so successfully argued in the past, that tax cuts promised by an incoming Government will inevitably lead to worse public services. Such claims have been made to devastating effect in the past against my party. As a result of the Budget, they will be increasingly difficult to sustain. Efficiency gains and growth can ensure better public services. We should be aware of that at all times. After all, as my right hon. and learned Friend the Member for Rushcliffe made clear in his speech, the Chancellor wants to increase spending by only 2 per cent. in real terms—by less than the inflation rate. Before I sit down, I want to make what might be considered a fairly radical suggestion—that we should limit increases in total public spending, once there is a new Conservative Government, to the rate of inflation. Even last year, that would have been considered a way out, radical, right-wing suggestion, but it is one that the Chancellor himself has taken up. As well as limiting himself to only a 2 per cent. spending increase, he is promising at least 2 per cent. in efficiency gains. So there is a challenge for us. There is a real possibility that the new Chancellor of the Exchequer, whoever it may be—whether it will be somebody sitting in the Chamber at the moment or someone else, we do not know; we can only speculate—will be able to deliver very substantial tax cuts before the next general election. It is therefore important that my party be aware of that, prepare the ground and not wait for the general election to make its own promises, when, as happened in the past, they can be immediately rubbished. We should have the moral and intellectual courage to make the case for the state’s taking a lower share of people’s valuable earnings. As I said, public opinion is changing, and it is doing so because people are being taxed so much more. Because of the failure since 1997 to raise income tax thresholds in line with earnings, in excess of an additional 3 million people are paying income tax, and an additional 1 million are paying it at the higher rate. Whatever they might say to public opinion pollsters who stop them in the streets, and whatever focus groups might say about the apparent reluctance to trust politicians who offer tax cuts, those people are out there in very considerable numbers and paying more tax. The rise in taxes in both relative and absolute terms, and the well documented increase in the system’s complexity, has had a damaging impact on families, incomes, jobs and businesses. Let us look at household discretionary income. The amount that families earn after paying unavoidable expenses such as taxes and household bills has fallen by 10 per cent. Beneath the surface, public opinion is changing faster than we political cognoscenti sometimes acknowledge. As the Chancellor may have sensed, perhaps the public are more interested in political parties that promise to relieve their burden of extra taxes. Members might dismiss my views as those of one Back Bencher—that they have no influence and do not matter. Do not listen to me, even for a second; instead, look at what is happening in other parts of the world. Since 1996, the Conservative Government of John Howard has carried out a major reform of Australia’s tax system. Its four income tax rates have been reduced from 20, 34, 43 and 47 per cent. to 15, 30, 40 and 45 per cent. respectively. Income tax thresholds have been increased considerably; indeed, the top rate threshold has trebled: it now starts at 150,000 Australian dollars, which is more than £60,000. So the results have been dramatic and show that in one country, at least, it is possible over time to combine falling interest rates, falling unemployment and falling tax rates with increased tax revenue, increased growth, increased Government spending, budget surpluses and the elimination of Government debt. If it is possible in that country, is it so unbelievable that it is possible in others?