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4.40 pm
Mr. Nigel Spearing (Newham, South): One sometimes goes to public meetings and there is a discussion afterwards. Someone gets up and says, "Mr. Chairman, I did not intend to contribute to this meeting before I came into the hall." I had not intended to take part in the debate until we heard a couple of speeches, particularly that of the hon. Member for Stamford and Spalding (Mr. Davies). Unusually, not many Labour Members wish to contribute. I took his invitation to add a few words. I thank him for his kind words. Although I disagree with him profoundly on politics, dependent on his successor, any non-return of him to the House would be a loss of someone who has, in a sphere other than finance, brought distinction to a particular Select Committee. I shall leave it at that.
I wish to take up the fundamental points on which the hon. Gentleman and I had a brief exchange. The reason why I did not intend to participate was that I intended to listen to a Select Committee that is discussing investment in London Transport, but that is a good illustration of the fundamental issues that we are discussing--economic and monetary union and the criteria with which, to keep their option open, the Government must comply.
I challenged the hon. Member for Stamford and Spalding to make a distinction on the source of borrowing for much needed replacements of tunnels, wiring or signalling--the capital investment that everyone in the House, whatever their party, wherever they sit, whatever they think of the Common Market, recognises is badly needed for the people of London, as no doubt it is required in Paris, Berlin, Stockholm, Copenhagen or anywhere else. Therefore, we are talking about the extent to which, if at all, the criteria that we are discussing--my hon. Friend the Member for North Warwickshire (Mr. O'Brien) mentioned them and the progress towards
the convergence criteria--affect fundamental and democratic choices, in this case, of the people of London or of the people of Great Britain, in respect of other forms of public investment.
The hon. Member for Stamford and Spalding did not contest my point that such investment would be virtually identical, wherever the money came from--whether from the Treasury, which would then borrow on the markets by way of gilts or whatever, or from a private firm buying capital or indeed receiving money indirectly from the Treasury, which the Government proposed yesterday. It would be identical investment in identical infrastructure for broadly the same purpose, that is, the transport of people by underground railway in London.
My understanding is--the Minister will correct me if I am wrong, but the hon. Member for Stamford and Spalding did not, so I suspect that I am right--that, if those millions of pounds were added to public expenditure, they would count against the 3 per cent. gross domestic product limit, which is part of the convergence criteria, as expenditure would be to the60 per cent. GDP limit in relation to total Government borrowing. Those details are in the Red Book.
Chapter 5 of the Red Book, headed "Public Spending", makes it clear that public expenditure is being enhanced by the private finance initiative. Paragraph 5.17 contains an interesting phrase:
While total public sector capital expenditure will count towards the criteria ceilings, the additional amount via the PFI, which will be substantial if the Government are returned to office and continue with their programmes--and another Government might be forced into them--will not. Effectively, it is all investment in public sector areas. The lack of a fundamental distinction between those two figures is clear in paragraph 5.18 of the Red Book, which states:
Why are the criteria there? I can only conclude, as the hon. Member for Stamford and Spalding made fairly clear, that those who set the criteria and who sustain and believe in them, understand that they press one way or the other on that boundary between public and private capital. They therefore control the mixture and believe that, inherently, private capital is more efficient and must be maximised, while public investment must be minimised. That is his doctrinaire thesis--although a Marxist would have it the other way round.
Mr. Barry Legg (Milton Keynes, South-West):
I congratulate my right hon. and learned Friend the Chancellor of the Exchequer on the significant progress that he is making in meeting the Maastricht convergence criteria. The inflation level set in the Red Book certainly meets the criteria as defined in the Maastricht treaty, our debt to GDP ratio is one of the most satisfactory in Europe and the projections for our budget deficit as a percentage of GDP are well within the 3 per cent. level, which my hon. Friend the Member for Stamford and Spalding (Mr. Davies) mentioned earlier in the debate.
My right hon. and learned Friend's progress in achieving the convergence criteria leads me to the recent remarks of Jacques Santer, the European Union President. He said:
"Public services benefit not just from direct public sector investment but also from capital spending by the private sector under the Private Finance Initiative . . . Table 5.4 shows total capital spending sponsored by the public sector"--
the next bit is important--
"including the increasingly significant contribution through the PFI."
The paragraph refers to
"capital spending sponsored by the public sector".
However, table 5.4 makes it clear that the PFI will play an important part in future. In the estimated outturn for 1996-97, the total public sector capital expenditure is £19.7 billion and the PFI is £1.1 billion. Those figures change to £17.7 billion--that is a drop, presumably at constant prices--in 1999-2000 and £4.3 billion respectively. Perhaps in his winding-up speech the Minister will confirm those figures.
"even these figures can give a misleading picture of the level of investment . . . When the Government buys services from the private sector, investment undertaken by the companies that provide the services is not counted as public sector investment; very often, however, it involves the formation of assets which are deployed to meet public needs."
That means that if a public body has a high proportion of contractors, the capital for those contractors will come from the private sector. Although it may be devoted entirely to public works, it will not qualify for the
expenditure criteria. My supposition goes further, because the Red Book states:
"The boundary of the sector has shifted. The privatisation programme has brought significant qualitative and quantitative benefits from capital investment in industries which used to be predominantly in the public sector."
My remarks are fundamental to our debates, and relate especially to hon. Members who may prefer public and private expenditure in any combination. Is it not true that the nature of the criteria for qualifying for economic and monetary union, about which one can argue--it is either a necessity or the limit--is distinct from the principle? I maintain that these are two different but complementary issues. Will they not affect the degree of public and private investment and control, and the boundary of which the Red Book speaks? However, they do not alter, as in the case of London Underground, the sums that are involved, or--given that they are roughly equivalent--the degree to which they affect the country's economy.
"We have never had such convergent policies in the economic fundamentals, inflation rates, interest rates and so on."
In one sense, he is absolutely right; in another, he is absolutely wrong. The United Kingdom is certainly achieving some of the Maastricht convergence criteria, such as that on inflation, and it is making considerable progress towards meeting the debt to GDP criteria. Clearly, the UK will also achieve the overall debt to GDP ratio. In another sense, however, we are in no way convergent with many of the economies of Europe.
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