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Mr. Peter L. Pike (Burnley): The hon. Gentleman makes an important point about manufacturing industry. Obviously, the pound is a problem for exports, but is sufficient emphasis put on imports? The value of the pound means that raw material and component prices are relatively low. Industry gains with one hand but is at a disadvantage on the other.
Mr. Davey: I take that point, but manufacturers and exporters are unambiguous about their concern over the high pound. Often business is not at one, as we know too well from the euro debate, but it is at one on its problems with the pound.
I hope that the Minister will give some sign of what the Government are planning and how they will tackle this cause of instability. Will they turn over to the committee dealing with the national changeover plan the task of debating the sustainable rate of sterling? That way forward could have a real impact on the level of pound in the market.
It may be that the Government have not been clear on exchange rate policy because of their difficulty with euro policy. If so, there is a danger that exchange rates will be a source of future instability. The Government need to tackle that. The prospects for sterling are worrying. It is uncompetitive with respect to the euro. It is odd that some hon. Members think that a weak euro shows what a disaster the single currency is. German, French and Italian exporters are delighted that it is weak. It is not that weak historically: it has returned to the level of member currencies on a trade-weighted basis two or three years ago. The level of the euro is helping Euroland and disadvantaging our exporters. Many businesses in this country would give their hind legs to have such a competitive exchange rate and interests rates as low as they are in Euroland.
The prospects for the pound faced with a weak euro are worrying, but in the next few months there may be problems with a weakening dollar. It is not inconceivable that the bubble on Wall street will burst in the summer. Such crashes have often occurred in summer or early autumn. That would probably be accompanied by a fall in the dollar. A depreciating dollar would be super- competitive, and with a super-competitive euro, how much greater would the squeeze on our exporters be?
Mr. Radice:
If the dollar weakens, the euro is likely to strengthen. We would benefit from that, as the hon. Gentleman rightly noted. The nightmare scenario is unlikely.
Mr. Davey:
The right hon. Gentleman may be right, but as cross-currency variations are difficult to predict, my scenario is all too likely. The current level of sterling means that this country is not in a good position to face that possibility.
There is a paradox in the Government's position on the euro. They say that their economic policy is successful in promoting convergence, but press briefings and the lack of clarity in their position on the timing of referendum on the euro show that they are not prepared to say when it will be. That is odd. If they are saying that they have a successful policy on convergence, they should be able to be clear about the timing of the referendum. When do they expect their policy on conversion to succeed? Will it be in two, three or four years? I hope that they will come clean. Instead of allowing it to gain currency that they may be ready to rule out a referendum in the next Parliament, they should be more forceful and set out a timetable for it.
Mr. Letwin:
The hon. Gentleman is making an intelligent, serious speech. Can he explain what he understands by the term "convergence"?
Mr. Davey:
There are the Maastricht convergence criteria, but unfortunately the House is not judging the Government's performance on convergence by them; we have the five tests. And the problem with them is that they are very elastic.
Mr. Letwin:
They are meaningless.
Mr. Davey:
They are potentially meaningless, as the hon. Gentleman says. That does not get the Government off the hook on which I am trying to impale them: the need to be clear on the timing of the referendum. Some Labour Members would like their Front-Bench colleagues to be clearer.
Mr. Bercow:
Further to the hon. Gentleman's reply to my hon. Friend the Member for West Dorset (Mr. Letwin), on what basis would he be satisfied that the five economic tests had been met not temporarily but permanently? What would satisfy him that convergence was anything more than a meeting of ships that pass in the night?
Mr. Davey:
The Liberal Democrats do not share the Government's adherence to those five tests. We do not believe that they are the correct five tests, so we reject them as the measures of true convergence. We believe that the Maastricht criteria, which other countries view as the correct measures of convergence, are still correct. I expected that when I started to bring the euro into the debate I would get a few interventions from Conservative Members.
I turn now to public services. If the Government are trying to remove boom and bust from macro-economic management, they are enhancing it in the management of public services. Their adoption, for the first two years of this Parliament, of the Conservatives' spending plans, followed by the introduction of the comprehensive spending review to try to increase expenditure, is not a sensible way to plan investment in public services. We are witnessing the legacy of that error of judgment early in this Parliament.
One of the Government's three key objectives is
The Government say that they are using two tools to improve public services: public spending itself, and the management and focus of that spending. There have been a few small improvements. In certain areas, there has been a slight increase in spending compared to what we might have expected if the Conservatives had been returned in 1997. However, in general, the Government's record on public services is not very good. There is a lack of sustained high spending on key services such as the police, education and the health service, but the Government are also failing to ensure that the money is spent properly.
On overall levels of spending, the comprehensive spending review's only real achievement is to stop Labour Members whingeing on about levels of public expenditure. They can parrot, like a mantra, the figures of £19 billion and £21 billion. However, they are not focusing sufficiently on how those resources are being spent, and to what effect. In so doing, they are making a serious political mistake.
Education has, according to many criteria, received more money than any other service. There has been a real-terms increase in education spending of 3 per cent. per annum. Historically, that is not bad. However, if one is ambitious for our children and our schools and one wants to highlight the importance of education, one finds that figure tame, rather than impressive. It is only slightly higher than the 2.6 per cent. real-terms increase achieved in the first five years of the Government led by the right hon. Member for Huntingdon (Mr. Major).
The annual report published yesterday reveals that in the fourth year of this Parliament, there will be an increase of 0.1 per cent. in the share of national income devoted to education. That follows a fall of 0.1 per cent. in the first two years of this Parliament. It is not a good record.
Mr. David Ruffley (Bury St. Edmunds):
By how much would the hon. Gentleman increase education expenditure in real terms, and how would he pay for it?
Mr. Davey:
No one can criticise the Liberal Democrats for not being clear about our spending proposals and how we intend to pay for them. We have published alternative Budgets and costed manifestos. If the hon. Gentleman's party would explain its public spending proposals, he would have a leg to stand on.
We need far more money to ensure that the size of primary school classes for all ages falls to 30 or below. We need to ensure that teachers are properly paid so that we can attract more highly qualified graduates into teaching. I visit primary and secondary schools in my constituency, and it is clear that we still have major cash problems. There is a desperate need for urgent investment in modern information technology equipment. Schools where class sizes for five, six and seven-year-olds are falling are losing money from their revenue budget, so the Government are not making good the effect of their reduction in class sizes on schools' annual budgets. That is creating problems and schools are having to lay off staff.
My constituency experience leads me to believe that the Government are not treating different areas fairly. They continue to view areas such as Kingston as uniformly leafy, as if there are no problem areas or pockets of deprivation within the constituency. I can assure the
House that there are such areas in Kingston, and unfortunately when so little cash is going around, places such as Kingston are the last to receive any.
Other public services are experiencing significant cuts. The police are the most obvious example in my constituency. The Government said that they would improve policing. In many of their pre-election statements, they said that there would be more bobbies on the beat. However, the number of officers in England and Wales has been slashed by more than 1,000 since the general election.
If Labour Members are in any doubt about whether that cut has had an effect, they should come to my constituency, where there is a rash of vandalism and graffiti because there are not enough beat officers. We have lost more than 50 such officers in the past four years, so that was partly under a Conservative Government, but also under this Government. The police are unable to respond as quickly to 999 calls, to walk the beat, to get to know young people and to try to deter crime. In Chessington, Malden Rushett and Hook in the south of my constituency, there is now one beat officer for a population of more than 10,000. Clearly that is wrong.
It is not only the amount of spending that is important, but how that money is managed. The Chief Secretary to the Treasury made much of the public service agreements that the Government published last December, but it is odd that even though those agreements are an important part of the way in which the Government want to manage public services, we have had no statement about them. There has been no debate about that so-called revolution in the management of public services. Are we expected to take those agreements seriously? Were they just an afterthought in the comprehensive spending review--they were introduced six months later--or a fundamental part of it? If the Government and Parliament are not taking those agreements seriously, we cannot expect civil servants to take them seriously.
We were promised an annual report on public service agreements. When will that happen? We want to know whether those agreements were negotiated between spending Ministers and Treasury Ministers or whether they were a diktat from the Treasury. Were they signed? What status do they have? If they are to be the crux of future public expenditure decisions, we need to know what role they will play in budget setting. Will budgets be determined by those targets for outputs and outcomes, or will they be determined after the budget-setting process? If the agreements are not completely integrated with that process, they will have no effect on the way in which money is spent.
The only analysis of public service agreements that the House has seen has come from the Select Committee on the Treasury, which published a useful report last month. The Chief Secretary gave evidence to the Committee, and when we read what he said about public service agreements, we begin to realise how crucial Ministers perceive them to be:
Liberal Democrat Members do not disagree with the notion of public service agreements. The movement to output and outcome budgeting would be extremely sensible. We would be much clearer in our minds about what we were trying to get from the money that we take in taxes. There could even be a beneficial effect on spending; Conservative Members might well be interested in that. If we can have greater clarity about the targets that we are trying to achieve with public money, public money may be focused more effectively, and we may need less of it.
Public service agreements are a great tool for increasing the accountability of the civil service to Ministers, and of Ministers to Parliament, because they create far greater openness about what public expenditure is intended to achieve.
However, if the Government are not prepared to debate public service agreements in the House, we must question what role they envisage for those agreements. There are many problems with public service agreements, and it is important that they are got right. I mentioned the domination of the Treasury in the setting of the agreements. We need to know whether the correct targets have been set.
The Government said in their annual report, published yesterday, that they had published 600 targets. Where was the debate in Parliament on those 600 targets? Are they the right ones? Have MPs had an input into the setting of those targets? Can we be sure that there will be continuity and consistency in the targets? How do they relate to previous targets that the civil service has been given in setting public expenditure? Those crucial questions need to be answered if we are to improve public services.
We need to know what penalties will result from failure to meet performance indicators. Will cuts in the funding of public services result? I believe that, if so, hon. Members will be very worried, because if something is failing and the automatic penalty of a cut is imposed, we may get a vicious circle, resulting in a continuing degradation of public services. Those are key questions, on which the House has not deliberated before today.
My hon. Friend the Member for Gordon (Mr. Bruce) and I were privileged enough to travel to New Zealand to find out how output and outcome budgeting worked in practice. [Hon. Members: "Oh."] I hear some remarks from Labour Members. I declared that trip in my annual report, which I published to my constituents last year, so I have no concern about that.
"to deliver efficient and modern public services"
and to raise standards and quality. However, if they cannot achieve greater coherence and long-termism in their public expenditure planning, they will fail to meet that objective.
"Public Service Agreements have different definitions. If you like, they set out agreements within Government, first of all, about the level of improvements that we want to see in our public services, in exchange for the extra investment we are making in those services".
27 Jul 1999 : Column 184
Those agreements are therefore central to the Government's policy of improving public services. However, it is evident from the Treasury Committee's report that those agreements were almost written on the back of an envelope, as an afterthought.
The Committee said that
"insufficient attention was paid to building quality of service into targets".
It recommended that
"targets should be published in draft",
so that there can be a proper debate. It said also:
"We disagree with the Chief Secretary's view that the setting of targets is solely the responsibility of central Government";
in other words, local government and other agencies need to be involved. The Committee also recommended external auditing of those targets and the progress in achieving them. It said that there should have been
"publication of a set of principles establishing the ground rules"
for those targets. The Committee is absolutely right. If public service agreements represent a fundamental change in public expenditure, far more thought needs to be given to them.
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