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12.20 am
The Paymaster General (Mr. Geoffrey Robinson): I congratulate my hon. Friend the Member for Brent, East (Mr. Livingstone) on securing the debate. He will be aware that he has provided me with a unique occasion on which to make my ministerial debut in front of a tense, crowded and excited House. If the debate does not entirely fulfil his expectations, he might reflect on the subject that he has chosen and its timing--the public sector borrowing requirement, a few weeks ahead of the Budget. I crave his indulgence, as I fear that I may not rise to his expectations.
The Government's central economic objective is high and stable levels of growth and employment, so that we may improve the living standards of all, and not just the few. That can be achieved only with monetary and fiscal stability, as the essential framework for reviving long-term economic performance.
The Chancellor's announcement of 7 May, giving the Bank of England responsibility for setting interest rates, will go some way towards providing the low inflation and stable interest rates necessary for a successful economy. My hon. Friend referred to the fact that the Chancellor showed exceptional boldness in moving within a few days of taking office to provide the Bank of England with the necessary autonomy to set interest rates, while--this is an important point that my hon. Friend did not make--retaining for the Government the essential responsibility for setting the inflation target.
My hon. Friend made light-hearted reference to the establishment of the Monetary Policy Committee, which is a further important step towards providing the stability that we need. If one thing is clear from the 18 years of Tory rule, it is that the biggest enemy of growth is the boom and bust economy that the Tories created.
We had the two deepest recessions in the post-war period, with unsustainable booms occurring intermittently between them. That is the biggest enemy of the investment in skills, infrastructure, education and industry that my hon. Friend wishes to see. That view is shared by all Labour Members. Unless we can get that stability and that long-term view of the management of economic policy, we shall not get the investment and savings that he referred to as the essential basis on which to build our economic policy.
My hon. Friend rightly made much of the mismanagement of the PSBR under the Tories. At its peak, in 1993-94, the PSBR was more than £45 billion, or 7 per cent. of gross domestic product--more than twice the Maastricht criterion to which my hon. Friend referred. The previous year, 1992-93--not coincidentally, the year of the general election--it was more than 6 per cent. of GDP. Traditionally, as we know, the Tories manage to engineer a pre-election consumer boom in an election year, and that year was no exception.
Ms Diane Abbott (Hackney, North and Stoke Newington):
If allowing the Bank of England to ratchet up interest rates untrammelled is such a good idea for industry, why have the Confederation of British Industry, the Engineering Employers Federation and other broad-based groups speaking for industry complained so bitterly about the trend in interest rates and the overvalued pound that is a consequence?
Mr. Robinson:
I thank my hon. Friend for her intervention. She overlooks the fact that the CBI welcomed the steps that we took to give the Bank of England independence, to establish the monetary committee and to separate regulation from the Bank so that it can concentrate on its core function, the delivery of the inflation target set by the Government. It is no good trying to get away from the central basis for what we need: stability and steady, sustainable growth. There is no solution other than growth to our economic problems, but growth must be sustainable, and it can be sustainable only if we get away from the stop-go economics of the past.
Of course, the Conservatives saw the error of their ways immediately after the 1992 general election and predicted in every subsequent Budget that the public finances would be put back on a sound footing with the PSBR getting back to balance "over the medium term", to quote the former Chancellor. That has not happened. The projected
date for balance has been pushed back year after year, and the underlying problem of public finances has not been addressed. In fact, the burden of public debt has risen, as my hon. Friend the Member for Brent, East rightly said, by almost two thirds since 1990-91. Six years into the recovery, the Budget deficit is still high.
The Chancellor has already taken action to strengthen fiscal stability. The announcement that the conventions and assumptions underlying the current economic forecasts are to be examined by Sir John Bourn, the head of the independent National Audit Office, shows that the Government are determined to improve the credibility of the public finances. The Government's willingness to be more open and accountable in probing our fiscal projections is an impressive innovation. However, we must also have clear guidelines on how the public finances are to be managed.
Although the PSBR has fallen from the very high levels of a few years ago, we would still like significant further improvement before we can be confident that the public finances are on a sound long-term footing. To achieve that, the Government have promised to take a tough approach to the public finances. We have two clear principles on how they should be managed. First, and my hon. Friend made some telling points on this, we shall enforce the golden rule. That means that over the economic cycle, we shall borrow only to finance public investment and not current expenditure. Secondly, over the economic cycle we shall ensure that public debt as a proportion of national income is at a stable and prudent level.
To achieve those aims, the Government will need to have firm control over public spending. We have committed ourselves to existing public spending plans for 1997-98 and 1998-99. That will help to bring the public finances under control and give Departments the time that they need to undertake the comprehensive spending review announced by the Prime Minister. The review will examine how the Government's priorities can best be met within available resources and will focus on the medium term.
The Government will be a wise spender, not a big spender. The myth that spending is the solution to all problems has been well and truly dispelled by the Conservative Administrations. Under the Conservatives, spending rose and average spending was a higher proportion of national income than it was when the previous Labour Government left office. Those higher levels of spending have not succeeded in bringing about greater fairness or less poverty. The number of people of working age dependent on social security benefits has increased over the past 18 years. Almost one in five households of working age contain no one in work. Eighteen years of Tory government have shown that the overall level of public spending is neither the best, nor a particularly good, measure of the effectiveness of government in meeting the public interest.
Under this Government, public spending decisions will be guided by three principles. First, the Government do not have to act on their own in every area. The public interest can be met by the Government setting standards for the private sector--by the public sector working with the private sector to meet shared objectives. Labour pioneered the idea of public-private partnerships. Labour local authorities have done most to create such partnerships at local level. Since we took office, we have announced a review of the private finance initiative to investigate what obstacles stand in the way of bringing
projects to fruition and how the process can be streamlined. We have already ended universal testing, which has been a recipe for frustration and delay. We have set up the review that is being undertaken by Malcolm Bates to find out how we can further streamline the process in the centre of government, to ensure that the PFI is much more effective. We have also asked each Department to come forward with its own priorities and to have a general plan against which we can judge where we can best bring those priorities forward in the public interest.
Secondly, we believe that efficiency and value for money are of prime importance. Every penny of public spending must be justified by its objectives and efficiency.
Thirdly, public spending decisions must be based on clear priorities. The Government aim to shift public spending away from welfare arising from economic failure and towards spending on public investment, including investment in education and skills. By justifying public spending decisions with reference to those priorities, we shall ensure that public funds are put to the best use.
As with public spending, the Government have clear principles by which tax policy will be guided. Our manifesto stated:
Those principles also lie behind the Government's intention to reduce VAT on fuel to 5 per cent. in the forthcoming Budget, and our pledge not to extend VAT to food, children's clothes, books, newspapers and public transport fares.
"There will be no return to the penal tax rates that existed under both Labour and Conservative Governments in the 1970s."
9 Jun 1997 : Column 926
I was pleased to hear my hon. Friend the Member for Brent, East endorse that. I did not always think that I might live to see that day after his performance in a certain other distinguished role that he played at about the same time that I was also running a different sort of organisation, but there we are.
Instead of a return to such penal tax rates, the Government will shape tax policy to encourage employment opportunities and work incentives for all and to promote savings and investment. It will also be designed to be fair and to be seen to be fair. The windfall tax comes within that framework. It also allows us to fulfil an important manifesto pledge to take 250,000 young people and long-term unemployed off benefit and give them the opportunity of work, education and training.
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