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2.12 pm
Mr. Peter Lilley (Hitchin and Harpenden) (Con): I am a supporter of annual Budgets, with all the drama that we associate with them. However, one of the dangers of Budgets is that they give the illusion that economic performance is primarily the result of short-term decisions—that performance in the current year has been largely the result of decisions taken in last year's Budget, and that performance in the coming year will be largely the consequence of decisions taken in this one. That is nonsense. In fact, economic performance is primarily the result of the cumulative impact of budgetary, tax, spending, regulatory and other policies, which ideally move only in the direction of improving performance, although, in other circumstances, sadly, they may move in the other direction and cumulatively undermine performance.
I was one of those involved in developing and subsequently implementing the reforms introduced in the 1980s and early 1990s. I learned two things that I did not expect from that experience. The first was that the cumulative impact of those reforms exceeded our expectations; they did more to transform the performance of the British economy than we had dared hope. However, the second was that they took rather longer to have that impact than we had expected. The cumulative impact of reforms of trade unions, taxation, nationalised industry, the competitive environment and the regulatory framework took longer than we had expected to feed through to an improvement in our performance relative to that of other countries. We should thus bear in mind the fact that policy is long term and cumulative when we assess the Chancellor's performance in this and previous Budgets.
The Chancellor undoubtedly deserves his share of credit for the relatively strong performance of the British economy in recent years. However, I submit that that share of credit is relatively small. The strong performance is largely due to the fact that, unlike his predecessors, the Chancellor has not rapidly undermined the reforms and the strength of the economy that he inherited. None the less, he should also be held to account in due course for the long-term changes that will, as they already are, cumulatively undermining the long-term performance of the economy. They may take longer to feed through than some people anticipate but they will steadily and surely, as night follows day, reduce the performance of our economy relative to what it could have been.
The greatest single change that we made in the relative advantage of doing business in this country compared with other countries was the reduction of our tax burden relative to that of other countries. Before I spoke to the French equivalent of the CBI recently, I looked up the figures for the tax burden as a share of national income in this country since 1979 compared with that in our continental EU partners. In 1979, the share of national income going to tax and public expenditure was almost the same for all of us; at the beginning of the 1980s, it was marginally higher in the UK than on the continent. By 1997, however, partly because we had somewhat
reduced its share of national income at a time when other countries had seen that share rise substantially, the gap between the share of our national income going to tax and that of our continental competitors had risen to nearly eight percentage points of gross domestic product. That was a substantial relative advantage for businesses working in this country. It meant that our cost burden was lower, so people's incentives to work, invest, save and take risks were higher, and the size of the competitive economy relative to the less competitive public sector was improved.I have delivered a series of speeches on that topic in France, as it is of much concern there and, sadly, each time I speak the gap between us and our continental partners, in terms of the share of GDP going to taxation, seems to diminish. There are two reasons for that. In part, it is because the Chancellor has reverted to tax and spend and, in recent years, has increased expenditure taken in taxation faster than national income, after pausing for the first couple of years when he implemented the savings plans that he had inherited from us. However, it is also because other countries have followed our example of the 1980s and early 1990s and begun to reduce the share of their national income taken in tax, and done so without destroying their public services. Indeed, they have continued to improve their public services by adopting the time-old Dickensian recipe of increasing their public expenditure marginally less than their national income so that they can reduce tax rates, while we have been increasing our public expenditure somewhat faster than national income and have thus had to increase the tax burden. Public expenditure has increased on both sides of the channel, but the moderation of the increase on the continent has enabled those countries to reduce the share of national income going into taxes, thereby somewhat eroding our relative advantage. Sadly, this Budget continues the damage.
Mr. James Plaskitt (Warwick and Leamington) (Lab): If the right hon. Gentleman is preaching the virtue of the French approach to taxation as a share of income, can he explain why our economy has been growing so much faster than the French economy and why unemployment is falling in the UK but rising in France?
Mr. Lilley: I am sorry that the hon. Gentleman clearly was not listening to the early part of my speech. The consequences of tax, regulatory and policy changes do not follow immediately, in the same year or the next year; there is a cumulative impact. Just as the changes that we made in the early 1980s did not show their full fruits until the early 1990s, one would not expect changes made in the UK or France to show up as an immediate impact on economic performance in the same year, or even necessarily in the same half of the decade. That is a lesson that we need to learn. We must start thinking long term instead of the short-term manipulation of each Budget for a quick headline, despite the damage that that may do in the longer term.
The Government were originally elected on a pledge that they would improve public services without increasing the burden of taxation. Instead, they have increased the burden of taxation without substantially improving public services. I shall explain how they have
achieved that and how we can have better services without increasing tax rates, and in due course reduce them.How is it that Labour is spending more and getting less? In terms of the NHS, the Organisation for Economic Co-operation and Development's recent report clearly spelled out the situation. I recommend that right hon. and hon. Members on both sides of the House read it. The report states that, since 1999, when the Chancellor took his foot of the brake and put it on the accelerator—expenditure has been increasing rapidly in health and other public services—we have seen a slow-down in the rate of improvement in those services compared with the previous 10 years when there was growth, but it was moderate and within the capacity of the economy to provide it and for services to absorb it and respond to it.
In the 10 years up to 1999, when my right hon. Friend the Member for Charnwood (Mr. Dorrell), among others, was responsible for the NHS—he did a very good job—we saw an increase in the number of operations performed of 2.9 per cent. every year, on average. Since 1999, when the brakes have been off and expenditure has been pouring in, the increase has slowed to only 1.9 per cent. per annum.
The Government say that that relates to operations and that they have shifted the emphasis to day care. Figures for day care come from the same source, the OECD. They show that in the 10 years up to 1999, the number of treatments on a day-care basis was rising by 3.9 per cent. per annum. That growth has slowed even more since 1999 to an increase of only 2.4 per cent. per annum. It will not do for the Prime Minister to say that this has gone up and that has gone up. It has been going up since time immemorial. The point is that the rate of improvement has slowed, and the concerns of patients have increased.
The Prime Minister hopes that he can appeal to personal experience and the public perception. I tried that during the 1980s. Whenever I had a public meeting, I would ask everyone who grumbled about the health service whether anyone present had had any experience first hand or second hand through their families or friends of the health service. Many hands would go up. I would then ask how many of them thought that the experience was good. Exactly the same number of hands would go up. My next question would be, "Why do you all think that it is getting worse?" The answer would be, "We read in the newspapers that it is getting worse." [Interruption.] That was during the 1980s.
If we read the complaints that are registered now by patients—not just those in newspapers—we see that the numbers are increasing. Expressions of concern about cleanliness in hospitals are rising. Is that merely a perception? No. According to the EU, the problem of infections in hospitals is greater in this country than elsewhere. Nearly one in 10 patients have an infection in hospital that they did not have when they entered. Nearly 10 per cent. of beds are occupied by people who got their ailment in hospital. That demands a huge share of our resources. The rate is higher in the UK than any other country in western Europe, and it is getting worse faster than in any other country in western Europe.
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