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2. Mr. John Bercow (Buckingham): What assessment he has made of the effect on his policy of Bank of England independence of entry to the eurozone. [96991]
7. Mr. Piara S. Khabra (Ealing, Southall):
What assessment he has made of the impact of his policy of independence of the Bank of England. [96996]
The Chief Secretary to the Treasury (Mr. Andrew Smith):
The new monetary policy framework is already yielding significant benefits: inflation is low and close to target. The Government's reforms have helped to create a sound and credible platform of economic stability.
As the Chancellor has repeatedly stated, a decision to join economic and monetary union would be taken only if the economic benefits to the United Kingdom from joining were clear and unambiguous.
Mr. Bercow:
I warmly congratulate the right hon. Gentleman on his appointment.
Given that the European interest rate is set by the European Central Bank, whose governing council comprises three Germans, two Dutchmen, two Finns, two Frenchmen, two Italians, two Spaniards, a Belgian, an Irishman, a Luxemburger and a Portuguese, and that Governments are prohibited from seeking to influence that rate, why does not the Chief Secretary have the guts to admit that, within the euro, the Bank of England would be merely an administrative jobsworth and that crucial decisions affecting this country would henceforward be taken by people whom we do not elect, whom we cannot remove and whom it would be illegal to seek to persuade of our view?
Mr. Smith:
I thank the hon. Gentleman for his kind remarks and, indeed, for trailing me to Treasury questions from Education and Employment questions, where we had so many enjoyable exchanges.
The House will have got the hon. Gentleman's message that he is opposed to the euro in every shape and form. What is equally clear is that there are two routes to stability. Of course, were we to join the euro, the Bank of England would have to be brought into conformity with the treaties, but there are two routes to stability: the independent Bank of England that we have established, or a European Central Bank arrangement. There is no route to stability on offer from the Conservative party, under which we would be back to boom and bust.
Mr. Khabra:
I thank the Chancellor and welcome the pre-Budget report that he announced to the House the day before yesterday. As a result of his economic competence, we have a sound and credible economic policy, economic stability and steady growth; during the 1980s, the Conservatives had a policy of bust and boom. Interest rates have peaked at 7.5 per cent., half the peak interest rate in the late 1980s and early 1990s. Does my right hon. Friend agree that the shadow Chancellor is as incompetent today as his party was in government?
Mr. Smith:
Absolutely. I thank my hon. Friend for his question. As a result of the policies for stability to which he draws attention, this country has 700,000 more people
Mr. Ian Taylor (Esher and Walton):
Would the Chief Secretary admit that achieving the economic tests that the Chancellor has set for entry into the euro will require careful management--they will not suddenly be achieved by magic? Is he aware of the criticism that the Chancellor's statements do not do enough to show how the fiscal balance could be managed so as to take pressure off interest rates and allow the Monetary Policy Committee to think in terms of setting interest rates that converge with the much lower interest rates on the continent, enabling us to have at least the prospect of joining the euro in the near future?
Mr. Smith:
Fiscal and monetary policy sticks to the sensible rules that we have laid down to maintain stability and steady growth. I welcome a question from a Conservative Member who takes a more balanced view on these issues. Of course, the tests will have to be carefully measured. We have said what those tests are, and as we have said all along, we shall make that assessment early in the next Parliament.
Mr. Robert Sheldon (Ashton-under-Lyne):
Does it not seem that the differences within the Monetary Policy Committee are between the committee's external and internal members on interest rates? Might not the external members have a better understanding of the level of interest rates required, because they come from the competitive sector of our economy and therefore have a better understanding of that sector, which my right hon. Friend has done so much to stimulate?
Mr. Smith:
I thank my right hon. Friend. One of the strong advantages of the Monetary Policy Committee is that a combination of voices with different experience makes that important judgment. Ultimately, however, we judge the Bank of England's operational independence and the Monetary Policy Committee's decisions on what they deliver. What they have delivered is low and stable inflation, which has hit the target that they have been set.
Sir Michael Spicer (West Worcestershire):
Are we closer to, or further from, meeting the euro convergence conditions than when the policy was first announced?
Mr. Smith:
As I said, we shall make the assessment early in the next Parliament. We are not giving a running commentary on this. The British economy is, beyond doubt, immeasurably stronger as a result of the measures that we have put in place for fiscal stability, investment and helping people into jobs.
Dr. Vincent Cable (Twickenham):
One of the Government's earliest commitments was to a stable and
Mr. Smith:
The role of the Bank of England and the Monetary Policy Committee is clear: it is to hit the inflation target. It is by sustaining low inflation that we make the best contribution to economic success and stability for the future--including the effects on the exchange rate.
3. Mr. David Winnick (Walsall, North):
What further discussions he has had with employers over income increases to heads of companies. [96992]
The Financial Secretary to the Treasury (Mr. Stephen Timms):
At the recent Confederation of British Industry conference, my right hon. Friend the Chancellor warned of the danger that unacceptably high pay rises would lead to higher interest rates. In the case of company executives, it is the responsibility of shareholders and remuneration committees to ensure that pay is justified by performance.
Mr. Winnick:
Is it not a fact that many senior directors and executives--many of whom are already on large salaries--have recently given themselves very large pay increases, share options, bonuses and the rest that are very different from the level of salary increases given to the large majority of their employees? In view of that fact, and recognising what my hon. Friend said about the Chancellor's warning, has not the time come for Government action on the matter?
Mr. Timms:
There is evidence of pay running at a high level for some senior positions in some of our firms, and responsibility in pay rises is of the greatest importance. Although pay responsibility is important in the public sector, it is just as important in the private sector. Such responsibility is important on the shop floor, but it is just as important in the boardroom. Responsible pay settlements are essential to achieve the high and stable growth and employment levels to which all of our economic policies are directed.
Mr. James Gray (North Wiltshire):
Does the hon. Gentleman acknowledge that it is not only company heads who are paying the top tax rate, but hundreds of thousands of public sector workers are also paying at 40 per cent? Does he agree that 26,000 NHS workers, 9,000 policemen and 28,000 teachers pay at 40 per cent? What are the Government doing, not to have a go at those workers as fat cats, but to relieve their tax burden?
Mr. Timms:
We have maintained all our commitments on tax rates. Now, however, the key issue is that, for the first time that most of us can remember, we have a real prospect of full employment in Britain. Most people thought that full employment was only for the history books, but the success of our policies in the past two and a half years has led to a new stability, so that full employment is now a realistic prospect. We have to be
Mr. Derek Twigg (Halton):
Based on August figures, wage increases are running at 4.9 per cent. Is that level of earnings growth posing a threat to inflation?
Mr. Timms:
The August figures are up 0.3 per cent. on the figure for three months earlier, but the figures are erratic. In the longer term, the figures are still relatively low. The last peak in earnings growth, in 1990--when unemployment was much greater, at 1.6 million--was 10 per cent. Nevertheless, my hon. Friend is right to say that there is no room for complacency: everyone needs to be responsible on pay.
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