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5.45 pm
Mr. Malcolm Bruce (Gordon): We have heard a Chancellor who, in some ways, is still in shadow Chancellor mode; we have certainly seen a shadow Chancellor who is still defending his record as Chancellor. The reality is that the Government have arrived here with
the biggest majority and the smallest collection of policy commitments with which any Government have ever arrived.
The Chancellor has managed to get his team through the election with a remarkable degree of unanimity but with very little clarification on exactly what will happen. The first thing that happened was something that was not contained in the Labour manifesto, but was clearly stated in the Liberal Democrat manifesto. It is worth noting the difference between the two manifestos. The Liberal Democrat manifesto stated:
I do not wish to be churlish--I welcome the decision and believe that it is in our best long-term interests. It was clearly something that enabled the Government to make a radical new announcement within only 48 hours or so of arriving in power. It slightly belies the Chancellor's claims that this will be a Government of openness, transparency and honesty, when such a major switch of policy is announced to our complete surprise.
It was also interesting to read in the Sunday newspapers that the Chancellor telephoned former Chancellors to inform them of his decision, but the one person whom, apparently, he did not telephone was his immediate predecessor. Perhaps that was because he knew his views already, but in the circumstances it might have been appropriate to contact him.
We have heard ex-Chancellors telling the House that they were in favour of independence for the Bank. At least the immediate ex-Chancellor has been consistent, in that he has not changed his mind yet, although he might have to do so in future as current circumstances continue to prevail. It is interesting that, in the immediate aftermath of the announcement, the views of the former Member for Kingston upon Thames, Mr. Norman Lamont, were solicited by the media. He was driven out of that seat by the local Conservative party because of boundary changes, and the constituency then had the wisdom to elect my hon. Friend the Member for Kingston and Surbiton (Mr. Davey) to represent it. Mr. Lamont fled to Harrogate, where he was promptly defeated by a Liberal Democrat, so I was astonished that his opinions were as important to the media as they appeared to be.
It may be appropriate to warn the Chancellor that the Liberal Democrats now have a team, instead of only me, with whom to debate economic policy. I assure him that
it is a team to be reckoned with. My hon. Friend the Member for Kingston and Surbiton is a former economics adviser to our party and will be a formidable addition to our Treasury expertise in the House. In addition, my hon. Friend the Member for Twickenham (Dr. Cable) comes to us having been the chief economist of the Shell group, so he, too, has useful experience to contribute to our deliberations. I hope that their contributions will be listened to in a constructive and open manner by the members of the Treasury team. In passing, I should mention my hon. Friend the Member for Northavon (Mr. Webb) who, while not a member of our Treasury team, has an expertise in social security and taxation that will be invaluable, both to us and, I submit, to the House.
The independence of the Bank is the most important issue emerging from the part of the Queen's Speech dealing with economic affairs. There is no question but that we shall support it. We shall, however, probe the Chancellor on several details that were revealed in his statement today. In response to questions from me and other hon. Members, the Chancellor was keen to say that the Court of the Bank of England would represent all sectors and all nations and geographical regions of the United Kingdom. He was equally clear in resisting suggestions that the policy body should be similarly constituted. I give the House notice that a policy body appointed for only three years, of which six members at least are to be appointed by the Chancellor of the Exchequer, raises questions about how much freedom the Bank will have. Clearly, the Chancellor will retain control over the renewal of the contracts of those whom he appoints; no doubt, he will want to hold them to account for their adherence to his policy guidelines. The House might wish to consider whether longer terms would be more appropriate, if the operations of the Bank are to be genuinely independent.
It is also worth noting that the Chancellor probably forestalled making any announcement in advance because he anticipated the very intervention in his statement that he received from the hon. Member for Bolsover (Mr. Skinner). It is clear that there are Labour Members who regard giving control over interest rates to the Bank of England as a major betrayal of socialist interference in the economic management of the country.
Mr. Dennis Skinner (Bolsover):
I can speak for myself.
Mr. Bruce:
The hon. Gentleman has already spoken for himself. The problem is that he may not be able to deliver enough votes to change the policy.
Mr. Skinner:
I do not want the rag, tag and bobtails to speak for me.
Mr. Bruce:
The hon. Gentleman is perfectly capable of making his own case and he has already done so. My point is that his intervention gives a clear explanation of why the Chancellor needed to keep this development a closely guarded secret until after the election.
The benefits that will accrue from this policy are fundamentally good. We wholly disagree with the arguments advanced by the shadow Chancellor. The Government will set the inflation target, but interest rates will be set for economic and not political reasons. That should result in lower inflation, lower interest rates and a more stable economy.
It is a fact--one that the shadow Chancellor rather underplayed--that there has been a 0.5 per cent. fall in long-term interest rates since the Chancellor took his decision. It is not good enough for the shadow Chancellor to say that we must not judge the markets' response on the actions of the first couple of days. Their decisions are taken on the basis of judgments on what the long-term underlying rate of interest will be, and it is clear that the markets' judgment is that it will be lower; that has been the experience of all countries that have an operationally independent central bank. The benefit of that approach is that the large national debt that has been bequeathed to the new Government by the outgoing Conservative Government will at least be cheaper to service if long-term interest rates are lower. That will help us to bring down public borrowing--something that the Conservatives will eventually welcome.
If the Conservatives persist in opposing this measure, they will make fools of themselves, because they will be putting themselves outside mainstream thinking in every advanced economic discipline in the world. There is no country among the major economies, other than Japan, that continues the role of political interference in its central bank. Indeed, if the Conservative party maintains its position--the Chancellor understandably pressed Conservative Members on that point--it could be that, in the approach to the next general election, the markets will get the jitters at the possibility of the election of a Conservative Government who could undermine the economy's stability. I hope that the Conservatives will come around to conventional wisdom and common sense.
The Gracious Speech contains a commitment to ensure that public borrowing is controlled. The Chancellor is aware of the huge debts amassed by his predecessors over the past decade and much was made of that problem during the election campaign. He is right to take action to bring down that deficit and he will have our support in doing so. He should not rush into reform of the personal taxation system so soon after the election, especially in light of the debate during the campaign and his own promises. He needs to allow time for proper consideration of such changes. Nevertheless, speedy action to reduce the deficit is necessary and will be welcome.
Recent figures suggest that public borrowing is falling rather faster than planned. It should be, because the economy is growing quite quickly and the public sector borrowing requirement is still far too high. The shadow Chancellor's claim that he got it right is open to question. Even if he did get it right, we have all paid a premium for his right to interfere. Now is the time for the Chancellor to try to resolve the problem of the deficit for good, while the economy is strong. He and I have both said that we basically support the golden rule as a principle of sound public sector finance, but to apply the golden rule one has to eliminate the short-term current account deficit. I hope that he agrees that that is an overriding priority.
We might even be able to reduce the deficit to as little as £10 billion within the next financial year. That would strengthen our ability to weather future economic storms and lower long-term interest rates still further. It would help to reduce the need to boost short-term interest rates in order to control inflation and offset upward pressures on the exchange rate. I suggest that the shadow Chancellor knows that to pray in aid the exchange rate is not an entirely honourable argument, when it is domestic pressures that are creating inflation within the economy.
One of the reasons why the exchange rate has risen is the markets' belief that, when he was Chancellor, he was operating an interest rate policy that would require further increases in future, in spite of his protests to the contrary.
We need to maintain strict financial discipline, which is why my intervention on the Chancellor, which was backed up by the shadow Chancellor, is so important. If the Chancellor--he clarified this point in the end--is to stick to his manifesto commitment to maintain spending for the next two years within the outgoing Government's departmental spending limits, he has given himself a straitjacket that will cause massive tensions within the Labour party and that has the potential to cause great disappointment among those who wanted real improvements in health and education spending. I have to tell him that, having made his position so abundantly clear, there is no going back.
I shall return to that subject, but first I shall dwell on what the Gracious Speech says about monetary union, which the Chancellor mentioned in passing, but not head-on. The speech says that the Government
The business community needs clarification of the Government's position on monetary union, not least because investment decisions on computers and cash machines must be taken now, and there is obviously growing demand from the business community for answers to such questions.
The Liberal Democrats' position is clear. We believe that, if monetary union goes ahead on time, if the founder countries meet the convergence criteria, if Britain meets those convergence criteria and if the decision to join is backed by a positive vote in a referendum of the British people, it is in the British national interest to be founder members of European monetary union.
The Government's position is much less clear. During the general election campaign, the present Chancellor refused to set out clearly the terms on which he would recommend entry into monetary union. Once, on "Channel 4 News", he and I got slightly physical about that matter, because he was anxious to challenge the then Chancellor but not to answer questions. That characteristic does not appear to have changed, despite his accession to office.
We need a clear steer now. Do the Government categorically rule out joining monetary union in 1999 under any circumstances? If that is the case, would they join in 2001, or would they join later? What policy will they pursue in the meantime? Will they shadow the euro? Will they strive to achieve criteria to allow early membership? If they will, what will those criteria be?
I hope that the Chancellor will accept that that is a matter of interest not only to Liberal Democrats. All the people engaged in business in this country need to know the answers to plan for the future. We need a clear statement whether, in principle, the Government believe that EMU can succeed, if and when Britain should be part
of it and what conditions will need to be met. I hope that the Deputy Prime Minister can clarify matters when he replies to the debate.
It would be helpful to have an idea of when we may receive a statement on the Budget date. The widely canvassed date of 10 June would require an announcement before the recess, and sooner rather than later. The Chancellor owes us a clear indication on that matter.
I return briefly to the issue of tax and spending, because the Government must explain how they justify their ambitious aims for the education system, for our national health service, for welfare reform and to tackle poverty. The Government are making big claims. The language is robust, and many people are responding with enthusiasm to the Government's expressed aims, but how will those aims be achieved?
If the Government are determined to stay within departmental spending limits, their education policy and their claims and aspirations cannot be met. In our judgment, it is impossible to achieve class sizes of fewer than 30 for five, six and seven-year-olds by using the proceeds of abolishing the assisted places scheme: the figures do not add up. In fact, the time scale involved in introducing that scheme means that class sizes are likely to continue increasing before they can be reduced, and as there is no commitment to reducing class sizes for seven, eight, nine and 10-year-olds, those class sizes will continue to increase throughout the present Parliament.
Equally, it is difficult to believe that a serious reduction in NHS waiting lists can be achieved by saving £100 million on bureaucracy, even if that can be readily delivered, and in those circumstances it is difficult to envisage how the Government's claims on the NHS can be delivered. Despite the Government's manifesto pledges, class sizes will continue to increase, national health service waiting lists will continue to lengthen for the next two years and the rest of the Parliament will be spent on reversing the damage caused by the Government's inability to fund their promises in the first two years. That is a recipe for a betrayal of all those people who voted Labour at the general election because they believed that things would get better in our schools and hospitals. In those circumstances, those aims simply cannot be achieved.
If the Chancellor is going to spend the first half of the Parliament allowing the situation to deteriorate and the second half retrieving the damage, how, by the end of the Parliament, will he have delivered on his commitment to put education at the top of the priority list and to deliver a radically reformed national health service? No wonder the Secretary of State for Health has made such colourful comments about the inheritance that he has come into on arriving in his Department.
The Labour leadership--and the Chancellor in responding to my earlier intervention--made a similar response, denouncing the Liberal Democrats' manifesto position. In our manifesto, we stated clearly and categorically not only our priorities--which were much more ambitious on health and education than the Government's--but how they would be paid for, knowing that people wanted those improvements in public services and would not believe that they could be delivered
without a clear commitment on where the money would come from. That is what we did, and that is what Labour did not do.
It is not good enough for the Chancellor--or the Prime Minister--to denounce irresponsibility by the Liberal Democrats, when he is unable to deliver, in significant terms, any serious improvement on health and education. On the first day of the debate on the Loyal Address, the Prime Minister accused the Liberal Democrats of an
It is the Prime Minister who, with his Chancellor, is committed to peculiar taxation. They are committed to retrospective taxation that seeks to change the terms on which the Government struck a deal with the private sector: retrospective taxation that hits many of those who have not experienced the super-normal gains that the Exchequer seeks to tax; retrospective taxation on monopoly utilities which, in some cases, are neither utilities nor monopolies--no doubt Iain Vallance thought that he was heading up one of those when he voted Labour--retrospective taxation that pretends to tax windfalls gained by the few, but that actually taxes the pensions of the many; retrospective taxation that seeks to fund multi-year programmes with one-off revenue.
It is the Labour party that is addicted to "peculiar" tax-raising powers. If it is the "windfalls" of the utilities today, why are we to believe that it may not be the "windfalls" of other firms or individuals tomorrow? Liberal Democrats oppose dishonest and unfair taxation, so we oppose the windfall tax and we shall expose the cost of that tax on pensions and its opportunism.
"We will turn the Bank of England into a UK Reserve Bank, free from political interference. We will charge the Bank with keeping inflation low and make it accountable to Parliament for achieving this goal. Lower inflation and greater exchange rate stability can better be secured by working with Britain's European partners."
All the Labour party proposed was to reform the structure of the Bank of England; it gave no commitment as to its operational freedom. Therefore, I was not the only one to be surprised. In The Sunday Times of 11 May, David Smith said:
"To those who say that new Labour's plans were clear in the manifesto I say nonsense. On April 6, Peter Jay chaired a BBC2 debate between Gordon Brown, Kenneth Clarke and Malcolm Bruce, with the latter lambasting the other two for not having the guts to make the Bank independent. Did Brown put him right? He did not."
On subsequent occasions during the election campaign, when the same debate took place, we had no indication from the then shadow Chancellor that he had any such intention.
"will play a full part in the debate about Economic and Monetary Union."
That is a rather thin statement of the Government's position. Companies are waiting to take serious decisions on that matter, and they are entitled to hear more about the Government's policy. They are at least entitled to know when the Government intend to take a decision on first-wave entry.
"addiction to rather peculiar tax-raising powers".--[Official Report, 14 May 1997; Vol. 294, c. 66.]
I presume that by "peculiar tax-raising powers" he means our proposals to fund better education out of a small and targeted increase in income tax. Is income tax really such a "peculiar" tax-raising power? Do the Prime Minister and the Chancellor not know that £72 billion in income tax will be collected by the Government in the coming financial year, which, by a factor of almost 50 per cent., is the largest single source of Exchequer revenue? So what is so peculiar about that form of tax? Is it not a fair and progressive tax, and readily understood by all who pay it?
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