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5.20 pm
Dr. Jeremy Bray (Motherwell, South): I cannot greet the Budget with quite the enthusiasm that the hon. Member for North-West Hampshire (Sir D. Mitchell) expressed. Before the Secretary of State leaves, I should like, as chairman of the all-party mental health group, to thank him for what he said about community care for the mentally ill. Obviously, the publication of the report on the health authorities is awaited with great interest. The Secretary of State will be aware that the Government will be examined, first, for the realism with which they describe the present situation, which is still inadequate, and, secondly, for the adequacy of the actions that they propose to take. It is against those factors that his announcement of increased resources will be judged.
As the Secretary of State said in response to my intervention, many other problems affecting the mentally ill do not fall within his departmental responsibility. I hope that we can rely on the co-operation of the Department of Health, with other Departments, to determine what overall developments are needed in the service.
I should like to examine two tasks at the extremes of the Budget debate. The first is coping with structural changes in employment, and the supply, of and demand for skills. The current levels of unemployment are intolerable. A test of any Budget is what it does about jobs. The second task is keeping the economy stable on a path of sustainable growth. Party rhetoric from both Government and Opposition suggests that doing so, is merely a matter of will, but it is a difficult task. The success that we have achieved and that is achievable is limited. Avoidable mistakes have undoubtedly been made. I should like to suggest how the likelihood of such mistakes could be reduced.
On jobs, it is not possible to shift from a situation in which only 3 per cent. of the population go to university to one in which 30 per cent. do so without a huge change in the nature of the work done by people with different types of qualifications. If the skilled operator of a most sophisticated new piece of equipment--say, a computerised DNA sequencing machine in a pharmaceutical industrial research department or a local authority public health department--requires only a four-week training course, the pattern of training for the future will not recognise the old-fashioned segmentation into craft, technician and professional grades.
It is a cop-out simply to say that those huge changes in the labour market can be taken care of by market mechanisms. We are all in the job market. Perhaps some hon. Members will return to it sooner than they would wish. As market operators, we want to know what to do. Union bashing is irrelevant--indeed, counter-productive. The unions can be and have been at times most helpful agents in assisting their members to find the information they need to become qualified and the jobs for which they are suited.
It is equally a cop-out simply to say that public money should be made available to provide the resources needed to meet palpable needs, without seeing whether that strategy and the particular measures proposed take us into still more acute imbalances in local economies, in particular skills or in the wider economy. My plea is that we should look at the labour market to determine the actual demands and the resources needed to meet them.
One can take almost any source. The job advertisement section of the New Scientist this week discussed
That is scarcely the order in which the trainers and educators of the world would rank their priorities. Perhaps that quotation is just so much management consultants' waffle, but versions of it appear in, for example, the recent observations of the Select Committee on Science and Technology when looking into human genetics and its immense impact on the future of the health service and many other matters. We noticed that the difference in the speed with which services would develop in biotechnology depended on the speed of start-up of new enterprises. That in turn is influenced by the different attitudes to entrepreneurship among biotechnologists in California and Britain.
The organisation of actual work on the ground in the construction is rapidly changing. The skills listed in the New Scientist are needed not only in supervisors but in a high proportion of labour-only contracting craftsmen, who nowadays have to manage their activity on the building site.
All that the Budget has done is adjust some of the parameters around the edges of the labour market. It has not taken the point that if the main body of the labour market functioned better, there would be fewer problems around the edge. The Chancellor proposes 100 per cent. inheritance tax relief for unquoted shares in trading companies--good for the family firm, no doubt--more favourable treatment of employee share schemes, private insurance of health and mortgage protection and workfare schemes.
Mr. Nigel Forman (Carshalton and Wallington):
The hon. Gentleman is a fair-minded and thoughtful Member. Does he accept that he perhaps seeks to attach to any Budget more weight than it can bear--that the answers to some of the important questions that he asks about the labour market require supply-side policy changes at the micro-economic level?
Dr. Bray:
Indeed they do. They require supply-side changes, but in a wider sense than is customarily used
I was about to welcome the limited measures acting on the labour market in general that the Chancellor announced. On the main body of the Budget, however, the reduction in employer's national insurance contributions and tax relief for vocational training for trainees over 30 are welcome but do not begin to tackle the wider problem.
A coherent labour market strategy would consider the transitions and frictions of job and skill changes and find where the tax, benefit and grants systems need to be adjusted at points before people lose their jobs. Neither the Government nor the Opposition are opposed to such an approach in principle, but it has to be tackled more systemically if unemployment is to be reduced from its present intolerable levels and the overall productivity and competitiveness of the economy are to be raised.
I put first the argument for supply-side measures, indeed, for structural measures, to make the point that I do not believe that simply pulling the macro-economic levers of fiscal and monetary policy is sufficient as an economic policy. Nevertheless, the levers are important, and the quality of debate in the House on macro-economic policy has become quite abysmal. We heard virtually nothing of it from the Chancellor. In his Budget statement, he had nothing to say about the exchange rate. The words were not even mentioned in his statement--I checked that carefully this morning. He had nothing to say about the relationships between borrowing, debt, income and inflation, about which we used to hear so much in the 1980s from successive Conservative Chancellors.
If I may try to repair some of the omissions from the Chancellor's speech, I observe that we may or may not enter the economic and monetary union in 1999, 2002 or whenever. That is probably the most important economic question that the Government will face in the next year. The Chancellor had nothing at all to say about it, and we can guess why--because it would be acutely embarrassing to his hon. Friends on the Back Benches and to the Prime Minister. Whatever happens, and whatever are the views of hon. Members about the appropriate policy to adopt at the intergovernmental conference, we have to conduct our own monetary and fiscal policy in an international context. We have to pursue objectives on inflation, borrowing and debt and we cannot ignore the exchange rate.
As for the EMU, satisfactory convergence is not simply a matter of hitting the targets by a qualifying date or even of establishing satisfactory progress on convergence in the real economy; it is a matter of demonstrating that we can prosper under a set of rules by which policy will respond to shocks coming from within the European economy or from outside. Whether we enter the EMU or not, we have to formulate some such rules. The Chancellor is operating with a transitional set of rules which were adopted the day after black Wednesday, and they have not been
significantly developed or explained since. We remain totally vulnerable to the next major crisis and need a system to warn of the onset of such a crisis.
The recent first report of the European Monetary Institute focuses attention on the issue. On page 72, in discussing the lines of a monetary policy strategy for stage 3 of economic and monetary union, it states:
That statement clearly bears the mark of a UK draftsman, because there is a similar passage on page 16 of the "Financial Statement and Budget Report" describing the Government's inflation targeting policy. Whether one asks the Government or the European Monetary Institute, one has to ask how those projections of the expected rate of inflation are to be made and how they are to be responded to. One then gets into rather difficult territory.
When people talk about numbers, they use models of some sort. Of course, the full range of argument will be used, from chicken livers, through the backs of envelopes and the learned writings of the economic pundits in the press, to the full-blown national economy models supported by the Economic and Social Research Council. One fairly firm conclusion that emerges from the most careful studies of the latter is that there is a high degree of uncertainty and unpredictability about the process, and that the limits of the extent to which it is possible to stabilise economies are rather wide. Within those limits, severe mistakes have been made in the past which could have been avoided by better analysis and by paying more attention to the analyses that were made.
Perhaps the most important mistake made in recent years was the response of Government policy to the stock exchange crash in 1987, from which the Government and the country are still suffering--they are suffering not from the crash but from the Government's mistaken response in over-inflating the economy in the run-up to the general election.
At present, inside or outside the Treasury and the Bank of England, there is no systematic, sustained representation of fiscal or monetary policy strategies or regimes. I repeat: there is no sustained picture anywhere in the country of the monetary strategy that is pursued, yet such a description is well within the capacity of the current state of the art and of current technology. Even the exploration of possible regimes is intermittent, episodic, ad hoc, haphazard and either superficial or laborious to carry out, so the month-to-month briefings required, whether for the Chancellor's meeting with the Governor of the Bank of England, for meetings of the European Council of Ministers or for meetings elsewhere, cannot have the support of up-to-date, comprehensive analysis.
This is true in respect of UK policy instruments on their own and still more so in respect of the international game, with objectives differing between different agents, such as between central banks and Finance Ministries or between Government and the labour market--even within a country, never mind between countries.
Of all the countries in the European Union, the UK is the best equipped technically to carry such work, because of its long tradition of economic research, going back
hundreds of years in Britain, which has been kept up to date by the continuing efforts of British economists. Despite the much-maligned work of those economists in their attempts to design and monitor strategies, their work has not been organised by the consortium of the ESRC, the Treasury and the Bank of England in such a way as to come up with coherent answers.
Despite the recent funding round 4 of the consortium, under which the Economic and Social Research Council, with the support of the Treasury and the Bank of England, renewed its support for the national economy models, the work is still not organised to produce coherent economic strategies of the sort needed to design and appraise--let alone implement and monitor--the policies needed as we explore the next stages of development of the European Union. That work is well within the capacity of the state of the art and the scope of available technology using the resources that the Government have already committed to the consortium directly from the Treasury and the Bank and indirectly from the ESRC.
"the structural changes which are taking place--flatter organisations, the need to manage one's own career and perhaps pay for one's own training."
The lead-in article says:
"The certainty that a career will not be spent with one single employer or even in a single area of work, makes it essential for employees to adapt continuously to change throughout their careers. There is an increasing probability that people will be self-employed at some time. Self reliance is the key which will enable people to cope with such situations. Skills which will be paramount in the future include self-confidence and self-promotion, action planning, networking, negotiation, political awareness and coping with uncertainty. The top five skills listed by employers as in short supply among graduates were business awareness, communication skills, leadership, teamwork and problem solving. These were followed by conceptual ability, knowledge and competence in an academic discipline, foreign languages and numeracy."
"An inflation targeting strategy has been adopted by a number of EU countries in recent years . . . the approach is to focus directly on expected future inflation. This involves the use of a wide range of available indicators to arrive at a projection of inflation in the future. Monetary policy is then set so as to be consistent with the achievement of price stability as defined by the target."
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