Treasury and Work and Pensions

I have been very generous in giving way to the hon. Gentleman, but I must make progress. There are several other aspects of off-balance sheet debt. Hon. Members have talked about the Child Support Agency, which has run up an astonishing £3.5 billion in outstanding maintenance payments. I accept that that figure is not the Government’s obligation, but the obligation of absent parents. The Government are due to collect that money, but are failing to do so. The agency calculates that almost £2 billion of that £3.5 billion is uncollectible, and in recent reports in The Times, it is anticipated that the Government will recognise that they have made a mess of managing that debt accumulation. They are unable to write off those debts using their own computer systems and will have to legislate to do so. The third liability with which the Government are saddling us is on the whole issue of public sector pensions. There has been some reference to pensions in the debate, but not enough, and very little reference has been made to public sector pensions. I welcome the proposals stemming from the Turner report. We have had many discussions about pensions in the Chamber, and we will continue to discuss the subject when the pensions Bill comes before the House, but at this point, it seems that no attempt will be made in the Bill to try to address public sector pension liabilities, which have mushroomed in recent years. A detailed research report put together by the Institute of Economic Affairs calculates that public sector pension liabilities have exceeded £1 trillion. An accurate calculation, such as those made by actuaries, would recognise the Government’s cost of borrowing. The Government use a discount rate, based on the rate that would apply to a double-A corporation that was borrowing to fund its liabilities. Of course, the Government are triple-A rated, and can borrow much more cheaply than that. That simply understates the scale of the liability, presumably for political reasons. In the pensions Bill, there has been no attempt to recognise that the public sector needs to bear its share of the challenges that we will face in dealing with demographic change in coming generations. It is not only Opposition Members who have raised that concern. Many outside commentators have castigated the Government for dropping the ball as a result of the deal done in Warwick before the last election. To name just one, David Frost, the director-general of the British Chambers of Commerce, has said:"““The huge cost of public-sector pensions is one of the biggest issues facing this country and the government is doing nothing to address it. It is totally unfair that the burden of pension reform is being left to the private sector.””" I agree with that. I turn from the Government to the subject of the personal debt legacy. Earlier this evening, it was mentioned that personal debt in the UK has risen rapidly, by more than £100 billion, or 10.2 per cent., in the past 12 months. It totalled £1.258 trillion at the end of September this year, and it has more than tripled since 1993. That accounts for a large part of our economic growth, which has been spurred by consumer spending over the past few years. The legacy of the Chancellor that concerns me is the problems that will be posed for people who have run up substantial debts that they are unable to pay and the impact on the economy of that debt bubble bursting—something almost too frightening to contemplate. Companies are making good business from encouraging people to enter into individual voluntary agreements; in other words, taking a short cut to declaring themselves bankrupt. Rates of personal bankruptcy are at a historical high—not something from which any Chancellor should take great comfort. The Chancellor touched only fleetingly on another aspect of his legacy—the growing increase in unemployment in the UK, on which he puts a somewhat different spin. We have had 18 months of trend increase in unemployment, which is running at 5.6 per cent. across the country as a whole. That is of concern to all of us, but of particular concern to me is the fact that unemployment appears to be rising much more rapidly in some rural areas that have historically relied on basic manufacturing. My hon. Friend the Member for The Wrekin (Mark Pritchard), in a characteristically impassioned intervention on the Chancellor, pointed out that over the past 12 months unemployment in Shropshire has risen by an astonishing 36 per cent. In my constituency, much of that unemployment has been in the aluminium capital of England—Bridgnorth—where we have lost 200 manufacturing jobs in the past six months alone. The consequence of the Chancellor’s legacy is that corporate Britain feels that it is under much more pressure than he seems to believe. My hon. Friend the shadow Chancellor referred to the CBI survey published this morning, which makes a timely contribution to our debate. Three quarters of the people surveyed believe that the corporate tax regime is worse than it was in 2001. The Chancellor rather disparagingly said that the survey was based on responses from only 89 companies. However, if he had taken the trouble to read it he would have found that it was based on the FTSE 350 companies, so 89 responses represent about 25 per cent., which is a high response rate from any type of corporate survey and indicates the concern among most of the largest companies in the land that took the trouble to respond. Areas of concern relate to over-taxation and over-regulation and to the fact that both may encourage businesses to move away from this country. The headline tax rate for corporate Britain, at 30 per cent., is about five percentage points ahead of the European Union, which is significantly higher than the rate in Ireland, as we heard earlier. The tax burden on companies has increased as a whole, and the proportion from direct taxation is more than 20 per cent., compared to about 19 per cent. 20 years ago. The increase is significant and explains the concerns. Although the headline corporate tax rate has gone down, the overall proportion of tax contributed by corporate Britain to the Treasury has gone up considerably. In an intervention earlier, I referred to a report, published last month, by KPMG for the Investment Management Association on the City’s contribution to that increased taxation. The report argues that funds that in the past we would have expected to be domiciled in the UK are increasingly being domiciled outside this country to avoid the taxes levied on the financial services sector. As I pointed out earlier, over the past 10 years twice as many funds have been attracted to set up in Ireland and 10 times as many in Luxembourg as in the UK. The conclusion of the report is that"““the UK’s tax system is to blame””." The other concern that emerges from these reports is that if we continue with an over-regulated and over-taxed corporate environment, we will increasingly lose many of our corporates, which will domicile in more favourable climates. The Chancellor is living in the past once again. He repeated with some glee the numbers that he had quoted at Treasury questions earlier this month. He spoke about the number of companies that have located here in comparison with other European countries as if it provided a magnificent rebuttal of my point. In fact, he was talking about companies that located here over the past nine years, but we are talking about companies today that are thinking about moving overseas. It is apples and pears. We are not interested in what has happened over the past nine years, but concerned about what is happening now and what is at stake in Britain today. In that regard, the comments of Mr. Chris Spooner, the head of financial planning and tax at HSBC—one of the largest companies currently domiciled in this country—in a speech given to the Chartered Institute of Taxation earlier this month, are revealing. He said that he was no longer happy with the tax situation in Britain:"““The UK used to be a good place for tax reasons. I am not sure that this is the case any more. We take the competitive environment very seriously and there are others like us””." The Government and the Chancellor should not take that threat lightly. I should like to make two final points before closing. One relates to the centrepiece of the Queen’s Speech and last year’s Budget: the focus on education and the importance of increasing standards to maintain our economic competitiveness. There has been a series of studies attempting to understand why this country’s science community is under such pressure. I met someone at the weekend who is the managing director of a substantial software IT company. He told me that he attended a conference the other day at which he found out that there are 3,000 physics PhDs in India, which is more than all the PhDs in the whole of Europe. Last year, the number of students taking physics A-level in this country was down 24 per cent. on the number in 1994. The number of chemistry students taking A-level is also down, though not by quite so much—[Interruption.] It was up in one year, but is down significantly over the period since 1994. In fact, since I am being challenged on the number, it is down 8 per cent. since the Government came to power in 1997. There is a very serious risk that we will not generate the students we need today to become the business leaders of tomorrow.