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Mr. Tim Loughton (East Worthing and Shoreham): I have listened intently to what the hon. Gentleman has
said. Before he finishes, will he perhaps undertake that his Liberal Democrat colleagues will turn up this year during the Standing Committee stage of the Finance Bill and go through the detailed work of criticising and amending the Budget--making the points that he has been making in detail--rather than, as last year, contributing 15 minutes out of the 26 hours of debate, which was undertaken mostly by Conservative Members? The hon. Member for Gordon (Mr. Bruce), the Liberal Democrat spokesman, appeared for just 30 minutes in the whole week.
Mr. Foster: I am certainly not going to make any commitments on behalf of my hon. Friends. They can make commitments for themselves. Earlier today, one Conservative Member told us what his views were and, when asked whether he was speaking for himself or the party, pointed out that he was speaking for himself. We then heard the shadow Secretary of State for Education and Employment, the right hon. Member for Charnwood (Mr. Dorrell), say that that is the way in which Conservatives always speak, so I shall let my hon. Friends speak for themselves as well.
Mr. Alan Simpson (Nottingham, South): I offer the Chancellor of the Exchequer congratulations on introducing four extremely important principles in this Budget, which could easily be overlooked in the detailed exchanges.
I congratulate my right hon. Friend on raising child benefit. In particular, it is important that the House notes the Prime Minister's comment at today's Question Time--that a belief that tax policy should favour the child, rather than judge the household, underpinned that change. That is extremely important when we place our children in the context of the best assets that a society has. If we can recognise that as a Budget principle, we will be much the better for it.
The second thing that I wish to congratulate the Chancellor on is his decision to reduce value added tax on the installation of home insulation products. Again, it may involve a relatively small amount in actual terms--perhaps no more than an extra 40,000 properties a year are likely to benefit--but it establishes a tax principle that will be central to how we view economics in the next century. The principle is this: it is wrong for any Government to tax energy-saving more heavily than energy-consuming. Labour fought for that argument in opposition, and I am pleased to see that in government we have stuck to the principle for which we argued, and made the decision to reduce VAT on home insulation products.
Mr. Loughton:
On that point, will the hon. Gentleman admit that the Government have reneged on the campaign
Mr. Simpson:
No; I think that we are at the first stage of a process that will move the whole eco-taxation agenda on to a significant point. It will profoundly shift the way in which we think about the relationship between taxation, economics and the environment, and I am pleased that we have made that start.
That fits in with the third factor on which I congratulate the Chancellor--the beginnings of a framework of green taxation. Spirited as was the defence by the hon. Member for East Yorkshire (Mr. Townend) of the rights of the private motorist, if we are to continue to exist on a planet and in an environment that will sustain us all, we must face the consequences of Kyoto. The principles of contraction and convergence that came out of the Kyoto agreement will force us all down a path which not only will mean that we take seriously our responsibilities for environmental taxation, but will probably become the central pillar of taxation policy for the 21st century.
Finally, I thank the Chancellor for issuing a pre-Budget consultation document. Many of us complained for years that the House was not taken seriously during the process of Budget formulation and consideration. This year--for the first time to my knowledge--a Chancellor has published a pre-Budget report, and invited contributions and responses.
I assumed that that invitation included me, and I had the temerity to submit my own Budget to my right hon. Friend about a week ago. Not much of it appeared in the Budget statement yesterday, but I am certain that the Chancellor has tucked it up his sleeve and is ready to unfold it in the next Budget, or perhaps later this year.
I shall describe some of the "big picture" issues against which the Budget must be measured, which the House has not properly addressed so far. Those focus on three factors--the real prospect of a recession, the case to be made for a reflationary and reinvestment programme, and the relationship between work and welfare.
When I wrote my Budget submission, I was greatly influenced by several commentators who had written about the changes that had taken place in the global economy over the past year. Those range from--before the Budget--people such as Robert Reich, the former American Secretary for Labour, to--after the Budget--Roger Bootle, one of the most senior economists and commentators in the United Kingdom.
Neither of those is a known member of the "usual suspects" group in the parliamentary Labour party, but each warns that the world is sitting at the edge at a large unco-ordinated global contraction, of which we have seen only the beginnings. To retain a monetarist obsession with the risks of inflation is to flirt with the real danger of missing the next war, because the serious challenge we face is the risk of an unco-ordinated global recession.
In that context, we must address some of the contradictions that one finds in almost every modern economy, such as the signs of boom and the signs of bust appearing at the same time--a boom in consumer spending and credit debt, co-existing with a bust in manufacturing output and manufacturing investment.
Those are new and difficult problems for any Chancellor and any Government to deal with, but deal with them we must. The likelihood is that the consequences already being seen to follow from the Budget statement will accelerate rather than delay the point at which the contradiction will have to be dealt with.
The value of the pound has already increased today. That makes it almost certain that, when the Monetary Policy Committee meets, it will raise interest rates. The fall in manufacturing and manufacturing investment that will follow will add to the Budget predictions for manufacturing industry, which have been downgraded from a presumption of 1.5 per cent. growth this year to an assumption of growth between 0 and 0.5 per cent.
That is all likely to come through in the second half of this year, when the welfare-to-work programme will be producing people who are at the point of looking for work. We shall face a real problem if employers are having to make decisions about whether they can retain existing employees, at the same time that we as a Government are asking them to take on the new trainees and recruits coming through the welfare-to-work programme. At that point we will be asked serious questions about where the work is to be found.
When the Institute of Fiscal Studies said that, out of this year's Budget, it would be possible for us to release between £3 billion and £3.5 billion for public investment, it was being excessively cautious. The real figure, as the hon. Member for Bath (Mr. Foster) said, is probably more; between £5 billion and £10 billion could have been released. That reinvestment is what we need for a publicly led and publicly financed programme to deliver real jobs in the real economy.
I looked at several of the newspapers this morning, and saw that one of them announced that the Chancellor had declared war on the work-shy. If we can inspire young people and others among the long-term unemployed to go into the welfare-to-work programme, and if we give them the skills to enable them to participate and the enthusiasm to seek permanent work, where will that work be found, if the economy is on the point of a serious and possibly sustained downturn?
I believe profoundly in our new deal proposals. There is nothing more important for a society than finding productive, secure and well-paid work. Yet, in the broader economic context in which the new deal is having to be framed, it may be difficult for us to deliver on that. I draw a comparison with the previous and probably better known "new deal" introduced by President Roosevelt after his victory in America in 1932. There are significant factors in what underpins each of the two approaches that are entirely different.
Under Roosevelt, the new deal programme built 651,000 miles of roads, 78,000 bridges and viaducts, and 38,000 municipal buildings; 2 million young people went into youth conservation work. The Government of the day introduced a minimum wage and price controls, regulated the financial markets and abolished child labour. Huge numbers of teachers were involved in keeping open rural schools that would otherwise have been closed on economic grounds, while the economies that supported their communities were rebuilt, underpinned and strengthened.
That all took place around a presumption that public borrowing was not a carnal sin, and did not make one blind. It was the basis on which to rebuild a sensible economy. People in work were themselves tax contributors rather than welfare dependents.
The Government of the day borrowed to accomplish those goals. The issue was not whether they had debt, but where the debt was owed and how it would be used. Those are still the central issues, and will determine how we underpin a reflationary package to deliver real jobs in the United Kingdom economy.
There is no point in saying that we can leave it to the private sector. If there is one absolutely clear lesson to be learnt from the Tories' 18 years in power, it is that they gave the free market freedoms to do anything it liked, and that the one thing it did not do was reinvest massively in long-term job security in our economy. In those 18 years, our downgrading of private investment--in which the United Kingdom has always failed to meet the Organisation for Economic Co-operation and Development average--was made worse by the planned collapse of public investment and the planned sell-off of public assets.
When the Tories came to power in the late 1970s, net public wealth as a proportion of gross domestic product was 70 per cent. When they left power, it had been run down to 10 per cent. It was an exercise in long-term asset stripping rather than long-term reinvestment.
How will we underpin a real, serious and sustainable new deal programme? Although I do not urge that we build 651,000 miles of new roads--I am not a roads-supporting person--I remind Ministers that there is a rough equivalence in the number of houses in the UK that are miserably insulated and desperately in need of upgrading to modern home insulation standards. In the second appendix to my Budget submission, I outlined the basis on which the Government could begin the first stages of a 15-year programme to end fuel poverty in the United Kingdom.
The programme would require us to upgrade 500,000 properties a year for each of the next 15 years. Consequently, we would immediately create sustainable work for many of today's unemployed. We would also raise the quality of life of the many households who live in miserable, unhealthy accommodation. We would save money for health service, and raise the standard of the United Kingdom's capital housing stock. Environmentally, the programme would save large amounts of carbon emissions, and it would create a virtuous circle, in which all will win and none will lose. That is how we can create work, wealth and well-being.
We could also develop comprehensive national programmes to restore and rebuild public transport infrastructures in all our towns and cities, and to serve all our rural areas. However, such programmes will not be created by providing a few market incentives.
Although the £500 million provided in the Budget will be a start in developing such programmes, it will allow us--if we spread the amount over three years, across the country--only to draw up the plans, not to deliver the networks. Again, we will need a public investment-driven programme, which would underpin welfare to work and
provide the arena in which we will allow people who are not work-shy to find a real and useful place in our economy.
The Chancellor, in accomplishing those objectives, may wish to examine and embrace other tax principles. One principle is very simple: a public stakeholding should be attached to every public subsidy--an interesting notion, which Conservative Governments studiously avoided in their 18 years in office. I shall develop later the point that those Governments were very good at shifting the locus of public subsidy from personal welfare towards corporate welfare.
Those who say that we should not attach conditions to public subsidies to the private sector might like to examine the United States' community reinvestment legislation, in which the private and financial sectors' social obligations are legally binding, and cover matters such as community reinvestment and not-for-profit work in local communities. Their obligation is one of demonstrating how public moneys will be used to benefit the communities from which that money is drawn.
Organisations such as Greenpeace, Friends of the Earth and the Association for the Conservation of Energy have all, in their own way, stated the colossal potential of environmental technologies and environmental repair in generating real, sustainable jobs. The sooner we seriously embrace our Kyoto obligations and an environmental agenda, the sooner we will engage in the economics of the next century.
Accepting those obligations will dovetail with some of the issues and contradictions that we will have to resolve in the transition to a welfare-to-work system. The Chancellor was absolutely right to set himself the task of reducing poverty, and particularly of reducing the outrageous marginal tax rates that fall on the poorest in the land.
Often, those who move from welfare to work face marginal tax rates of up to 96p in the pound. If they receive passported benefits--such as free school meals or school travel--the reclaim rate may amount to 117p for every 100p they earn. That is crazy. Therefore, trying to connect the benefits system with the wage system is an extremely important idea and objective.
Connecting the two systems will, however, have some real difficulties, and the House must not be deluded about them. The House attempted twice before to develop its own version of working families tax credits. On each occasion, it failed to enact workable legislation. The first problem--making the proposals complex and unworkable--was the legacy of an obsession with means-tested benefits.
The problem is not only the administrative difficulties of moving family credit from the welfare system to the work system--by means of income tax--but the relationship between whatever system eventually emerges and the remaining aspects of the means-tested benefit system. If we are left with a legacy of clawing back housing benefit and council tax rebates, we will discover that exactly the same poverty traps remain, but appear at different points. We may try to introduce different tapers and stages at which the clawbacks occur, but it will simply make a monster of the current mess.
I make those comments not to be critical of the idea of connecting the systems, but to acknowledge the scale of the complexity that we will have to sort out. If there is
one possible way in which the process can be made simpler, it is by simplifying the process by retreating from means-tested benefits. The simplest way of delivering a new system would be to return to many of the Beveridge assumptions about universal platform entitlements underpinning the benefits system, and to a progressive taxation structure--however it is constructed--as the means of claiming back benefits from those, at whatever position in the earnings scale, who are deemed not to be entitled to be net beneficiaries.
Returning to those earlier assumptions would remove the barriers between welfare and work. We remove the complexities of collection not by diving into separate taxation processes on individual benefits but by taxing overall disposable income. It is called progressive income tax--[Interruption.] Yes, it is unashamedly redistributive; but that is what society should do. We cannot tackle poverty without redistribution.
The idea that poverty will right itself if there is accelerated growth is nonsense. We inherited from the previous Tory Government a wider gap between rich and poor than this country has ever seen. That is because the Tories abandoned a recognition that the market has no interest in redistributing to the poor; it becomes self-serving to the rich. A redistributive tax policy is nothing to be ashamed of.
In considering how welfare to work and the working families tax credit might fit into the redistributive process, it is important that the House looks at the lessons that must be learned from Canada and the United States before it adopts any particular structure of a scheme. The equivalent to the working families tax credit in the United States has to be underpinned by food vouchers. I have yet to see a case for embracing the reintroduction of food vouchers in the United Kingdom. In Canada, the costs of going down such a path have been extraordinarily high.
At some point, any Government must ask themselves whether the costs of fundamental change in the welfare system outweigh the specific benefits of that change. The answers are to be found in different variations on this theme: a return to universal benefits and welfare system, tax thresholds that are adjusted to take the working poor out of tax paying rather than in pursuit of a lower rate of tax, and a rise in the initial tax disregard for those entering work.
The Chancellor has been absolutely right to go down the path of raising environmental taxation. He has been absolutely right to raise the amount of support that goes directly to children. He would also have been right if he had followed the same logic and raised the amount of support that goes to pensioners and disabled people. He would also have been right if he had said that we should go down the route of directed public investment, which would be the basis of a planned reflation of the economy.
I expect that, at some point, the Tories will say that all this is unaffordable; that the welfare burden is simply unsustainable in a modern economy. I must concede that there might be one sense in which they are right. Cuts in personal welfare under their Administrations effected a shift towards corporate welfare.
Allowances for and non-taxation of industry must amount to about £30 billion a year--just over £18 billion in capital allowances, £4.5 billion in direct grants, £4.1 billion in export credit guarantees, mainly in export support grants, and a whole series of other packages.
In their own way, they are all forms of welfare dependency. If the Chancellor needs to look for money, and if tough decisions are to be made, we should begin by looking at corporate welfare.
Every day of every week, the Government's spending Ministries are besieged by businesses--mainly big business--saying, "Of course we will come to your country, but we need you to pay us. We need you to put together an incentives package that will make it worth our while. We want you to build the buildings for us, give us the land, train the work force and put in the infrastructure. While you are at it, we would like you to have a word with the local authority and ask them to give us a 10-year exemption from business rates. Don't talk to us about crisis loans; we want grants." If welfare is demeaning, we should try first removing the unaffordable, unsustainable, demeaning burden on business, and allow it to stand on its own two feet.
If we do not want to do that, we should introduce conditions on the use of public money in return for the investment or non-taxation with which they are graced. The idea of a stakeholder economy ought to extend to the notion that the Government, on behalf of the people they represent, take a stake in--or hand a different form of stakeholding to--the industries that are publicly subsidised by being allowed not to pay tax as the rest of us do.
It would be interesting to invite the Home Secretary to consider the behaviour of some corporations. Rather than judging lone-parent families, we should look at the morality of some of the lone-parent corporations and their conduct around the globe. They are terribly flighty. They take money in one place, get into a relationship in one country, spawn offspring, and then do a runner to somewhere else. Someone flashes a wad of cash somewhere else, and they are off. The behaviour of lone-parent companies, which have often had multiple partners, does not make them good parents.
We ought to ask the Home Secretary whether there is a need for lone-parent company classes in parenting. We should ask whether there is a need to curfew capital; whether it should be back in the country by 9 o'clock. There are a series of ways in which we can use the assets that this country still has in abundance to meet all the needs and aspirations that are found in the Chancellor's statement and the new deal.
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