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Mr. Richard Shepherd (Aldridge-Brownhills): I suffer great confusion about all those measurements. Under the standardised European measure of inflation, as used for the Maastricht criteria, inflation in this country is only 1.5 per cent. I appreciate that that is higher than the average in euroland, which is--I think--1.1 per cent. How does

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that affect the burden of the right hon. Gentleman's speech, given that he is considering an inflation rate of 2.5 per cent., which is set by the Bank of England? Does that not magnify the effect of his point?

Mr. Davies: In this part of my speech, I am being a little Englander. I am looking just at the retail prices index and the Bank of England. Obviously, different figures have different consequences.

I was trying to make the point that there is remarkable control of the economy--this fine tuning. I gather from The Times this morning that we should call such control not fine tuning but monetary activism--fine tuning bad, monetary activism good. These fashions come and go, and now monetary activism is fashionable. A member of the Soviet Union would be delighted to hear that the Governor of the Bank of England is able, in this western capitalist economy, to control the economy in such a way merely by reducing or increasing interest rates by a quarter of 1 per cent. The danger is to believe that we can stop the fall in prices merely by reducing interest rates. It might not work; inflation might fall to 1.2 or 1 per cent. The problem is that interest rates would have to follow, and then banks would be affected.

I cannot foretell the future, but I believe that a transition may have to be engineered from the present orthodoxy, which is based on inflationary forces, to a new one, which takes account of deflationary forces. Whether western Governments, Finance Ministers and central bank governors have any longer the will to engineer such a transition--indeed, whether Governments have the leverage and power to do so--I do not know. But, if we cannot engineer such a transition, the industrial economies of the west will be greatly endangered. To paraphrase poor old Tacitus, who has been paraphrased so often, if we do not engineer a transition from one orthodoxy to the other, there is a very great danger that we will create a desert but continue to preach and advocate stability.

6.45 pm

Mr. Michael Jack (Fylde): It is a pleasure to follow the right hon. Member for Llanelli (Mr. Davies), who made a thoughtful and witty speech in which he may have sowed the odd seed of destabilisation in his Front-Bench team. I studied economics by reading Samuelson--one of the text books of the day--and recall that he talked much of the hog cycle. A useful addition to the next edition would be to incorporate the right hon. Gentleman's concept of sexy stability.

It is right and proper that the Opposition probe, question and, indeed, criticise Government economic policy in this debate on the Loyal Address. The Chief Secretary's speech mirrored the absolute complacency of the Gracious Speech's treatment of the economy. One would not think that there were a great deal to trouble the economic waters of the world. All we heard were some words straight from a BBC weather forecast: that the Government are

"making the United Kingdom well placed not just to weather the international financial storms but to emerge stronger from them."

That is no-problem-at-all language.

The Government's central domestic economic objectives in the Queen's Speech, which were reflected in the Chief Secretary's entirely complacent speech, are:

"high and stable levels of economic growth and employment".

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That is never mind the fact that, potentially, we are heading for zero growth, rising unemployment, economic uncertainty and a mis-reading of what is happening in the world economy.

I spoke recently to bankers and retailers who have been to the far east, who say that we have mis-read the depth of economic activity in that part of the world, that it will visit itself on us in no uncertain terms and that, as right hon. and hon. Members have said, the Government's and the Chancellor's assumptions of growth are way out. I therefore regard the words in the Queen's Speech as a complacent approach to the economy.

Why is it important that the Government are more accurate in their forecasting and more realistic in what they say about the economy? I attended the agricultural show at Smithfield market earlier today, where I talked to an agricultural machinery manufacturer who has seen a 40 per cent. drop in sales as a result of the Government's economic policies. [Interruption.] No Labour Members were where it was at--where British manufacturing was trying to sell its products. The manufacturer pointed out that, when people in the agriculture business heard that things would become bad, even those who were planning to make an investment decided not to do so.

Such forecasts engender strong precautionary motives on investment. The Government do not seem to understand that numbers in economic forecasting are important, but that just as important is the psychological frame of mind of industrialists. If the Government are over-ambitious with their target for growth, and it is missed, as all independent forecasters predict, the message will go out that the Government have got it wrong, and seeds of doubt will be sown once more in the minds of potential investors, as they wonder exactly which way the economy is going.

It is important to be honest and straightforward with the economy. Having been in the Treasury, I know what goes on. Officials present a gloomy or difficult set of figures, which the Chancellor of the Exchequer says he cannot possibly sell politically in the wide world. Under the new regime in the Treasury, a few of his mates get together--officials are removed from the room--to work out what they will sell politically. They ask, "What numbers can we create to make all this sound terribly respectable and saleable?" They emerge with the kind of rubbish that we have heard in Government economic forecasting. That is what happens. It is an attempt to put political spin on the situation but ignore the real world.

Mr. Sheerman: The right hon. Gentleman has spent a long time in the House, and today he has witnessed a typical example of the Opposition's attempts to talk up doom and disaster, and to exaggerate the problems in our economy and in the European and world economy. The Leader of the Opposition, in what he said the other day, and the shadow Chancellor, in what he said today--not to mention many other Conservative Members--have been irresponsible.

Mr. Jack: If that is the best that the hon. Gentleman can do, obviously he has not read the average growth forecast of the group of independent advisers who advised the Treasury. They talk about 0.8 per cent. growth in 1999 and 1.6 per cent. growth in 2000. The latter figure is well below the Chancellor's forecasts of between 2.25 and

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2.75 per cent. growth in 2000. Obviously, the hon. Gentleman also has not looked at table A7 in the Budget report, which points out that even the Chancellor admits that there is error to the tune of 1.5 per cent. of GDP in his own forecast. If one applies that scope for error to the figures for the current financial year, one is down to 0 per cent. growth.

I am asking only for honesty and proper language in dealing with these matters, because of the psychology of potential investors. I return to what I said earlier. In the real world of agriculture, people are influenced by the mood of what is happening, and over-optimistic statements by Ministers will do the country's future investment decisions no good.

Mr. Lindsay Hoyle (Chorley): Will the right hon. Gentleman give way?

Mr. Jack: No; I want to make a little progress, if I may.

In terms of transparency of thought, I believe that an implication of the over-optimistic growth forecasts will be an under-recovery in tax revenues. I should like an answer tonight to the following question: why are Treasury Ministers stalwartly unwilling to publish, on a monthly basis, forecasts of receipts for taxes in this country? We should have that information, to enable us to monitor carefully a key element of economic activity. The Treasury publishes figures for the actual receipts, but we have no idea how the flow of taxes--something that is an important monitoring point for future tax revenue--and, therefore, Government borrowing are going. In this day and age of open government, it is time that the Financial Secretary stopped making excuses in parliamentary answers to me, and provided that information.

While we are considering the performance of the economy, I have a chance to put the Government straight on some aspects of the previous Government's record. First, the Prime Minister triumphs in the fact that, in his judgment, it was the previous Government who had interest rates at 15 per cent. I remind him and his right hon. and hon. Friends that the previous Labour Government, before 1979, had interest rates at a similar level. Secondly, I remind him that, in the 1992 to 1997 Government, interest rates were not officially imposed at 15 per cent.

Thirdly, the Prime Minister triumphs in the present 2.5 per cent. inflation rate, but at the same time his right hon. Friend the Chancellor is fond of telling us that interest rate decisions taken 18 months ago affect the inflationary position now. I remind Treasury Ministers that my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) set the interest rates that got us the present inflation rate. It is a triumph not for the new Labour Government but for his expertise in blending together data from the Treasury and the Bank of England and--most important--the touch and feel of the real-world economy. The latter is lacking under the current regime.

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