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AMENDMENT OF THE LAW

It may not, but I suggest that the hon. Gentleman, who I know takes a keen interest in these matters, looks again. He will find that the allowance for under-65s has gone up by a total of 210 allowable pounds, which represents about £45, which is roughly speaking a reduction in tax of £1 a week. Set against the cost of living increase that I mentioned earlier, people will not find that a particularly pleasant situation. I hope that the hon. Gentleman has not confused the amount of tax paid with the number of people paying tax, which is what the concept of fiscal drag is meant to address. While on the state of public finances, the other thing that intrigues me is that if we consider the next financial year, the Red Book last year had a projected borrowing level of £30 billion, but one year later, that figure has now risen to £43 billion—an increase of £13 billion. If we consider receipts, we find that they are forecast to rise by £22 billion on last year’s Budget. We therefore have rising receipts, bearing out what my right hon. Friend the Member for Witney (Mr. Cameron) said from the Dispatch Box: a rising trend in the payment of taxation and a rising trend in the level of Government borrowing. That illustrates keenly the difficult situation that the Treasury finds itself in, hence the overall gloomy tone of the Chancellor’s remarks. He does not have any fiscal room for manoeuvre. I turn to three specific areas, the first of which is monetary policy. I am still concerned about the structure of the British economy. In my remarks on the Budget speech last year, I conjectured as to why, of all the western economies, the UK needed higher interest rates to achieve a similar performance with regard to inflation—a target of 2 per cent. I query whether we need a national debate, if I may put it that way, on monetary policy. The drivers for inflation are matters that affect people’s consumption at the moment—the cost of food, fuel and energy. Most people have a choice; they can spend on the basics, but their discretionary spending diminishes. We have witnessed that already in the reduction in retail expenditure. We have a zero-sum game, where money is going round, but is being spent on basics, rather than being part of discretionary spend. In recent times, the response of our monetary policy in trying to keep global inflation down has been to raise interest rates, or marginally to lower them with a potential depressive effect on the economy’s ability to sustain employment and investment. I mention that because, to me, the most difficult element of the inflationary equation is whether people seek to address inflationary pressures through inflationary pay demands. In the public sector, the Government have already put a cap of 2 per cent. on what they are prepared to have as the norm. I suspect that the figure is between 2.5 per cent. and 4 per cent. in the private sector. I have not heard much from the Monetary Policy Committee or the Treasury about whether there needs to be a revised view of what constitutes inflation in the 21st century.