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Session 1999-2000
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Delegated Legislation Committee Debates

Financial Statement and Budget Report 1999-2000

First Standing Committee on Delegated Legislation

Monday 13 December 1999

[Mr. Nicholas Winterton in the Chair]

Financial Statement and Budget Report

4.30 pm

The Economic Secretary to the Treasury (Miss Melanie Johnson): I beg to move,

    That the Committee has considered the ``Financial Statement and Budget Report 1999--2000'' for the purposes of the European Communities (Amendment) Act 1993.

The Chairman: Is it the Committee's wish that the reports be debated together? I am reminded that there are three, not two reports—I read only two of them at the weekend. Accordingly, with this, it will be convenient to consider the ``Economic and Fiscal Strategy Report 1999--2000'' and the ``Pre-Budget Report 1999''.

Miss Johnson: As part of the process of multilateral surveillance, the Government are required to send a report to the European Commission, setting out our main economic policy measures. The procedure is set out in articles 99 and 104 of the European Union treaty, relating to the broad economic guidelines and the excessive deficits procedure respectively, the purpose of which are to ensure that member states' economic policies are consistent with the goals of the treaty.

Mr. Michael Fabricant (Lichfield):—Will the hon. Lady give way? [Interruption]

Miss Johnson: Yes.

Mr. Fabricant: I am shocked at the Minister's strained gasp when an Opposition Member dares to ask a question. Surely the European Communities (Amendment) Act refers to the provision of statistics and data—not opinion—to Brussels and the European Commission Is not chapter 4 of the ``Pre-Budget Report'' headed ``Increasing Employment Opportunity for All'' merely opinion? There is very little data, contained within it.

Miss Johnson: In previous years, the November ``Pre-Budget Report'' has not contained new policy information. That has meant that the convergence programme has already been submitted under the parliamentary approval given after the March Budget. However, this year, because of the Government's decision to adopt a Budget-by-Budget approach and having turned our back on fuel duties, we recommended that a section 5 debate on all documents should take place, so as to comply with EU scrutiny procedures. That is why we are here this afternoon.

I was referring to the goals of the treaty. These include non-inflationary economic growth while respecting the environment, a high level of employment and social protection, and raising the standard of living and quality of life.

Section 5 of the European Communities (Amendment) Act 1993, usually known as the Maastricht Act, requires Parliament to approve the Government report sent to the Commission for the purposes of multilateral surveillance. The Government's strategy for economic policy is set out in the ``Economic and Fiscal Strategy Report'' and the ``Financial Statement and Budget Report'', brought together in the Government report, ``Budget 99''. The Committee has already had the opportunity— on 12 May—to debate these documents for the purposes of section 5 of the 1993 Act. Today, we have the opportunity to debate the ``Pre-Budget Report'', published on 9 November 1999, which completes the material that forms the basis of the information that we send to the Commission

The ``Pre-Budget Report'' describes the Government's strategy to raise Britain's national economic potential and deliver the Government's central objective of achieving high and stable levels of growth and employment while ensuring that the benefits of economic success can be shared by everyone. The key elements of the Government's strategy are delivering macro-economic stability, meeting the productivity challenge, increasing employment opportunities for all, ensuring fairness for families and communities and protecting the environment.

The Government's first priority is to ensure economic stability and avoid a return to the boom-and-bust cycles that have been a feature of the British economy for the past 30 years. We have dealt successfully with the problems of an economy in 1997 that was characterised by rising inflationary pressures, unsustainable consumer spending, a large structural deficit in public finances and global financial turbulence; we are delivering economic stability. The new monetary and fiscal policy frameworks are based on clear objectives, procedural rules and greater openness and transparency than in the past. By rigorously adhering to those new frameworks, early and decisive action has been taken that has enabled the Government to steer a course of economic stability. The challenge now is to lock in that stability and, by pressing ahead with our economic reforms, to promote enterprise and fairness, thus securing rising living standards for all.

Over the past year, inflation has remained around or at our target, and expectations for inflation 10 years on and is now at 2½ per cent. compared with 4.3 per cent. when we came to power.

Mr. Fabricant: I am always delighted to intervene in the speeches of the hon. Lady; the way in which she accepts my interventions is so gracious.

The Minister mentioned the figure of 4.3 per cent. Will she tell us what the current differential is between international interest rates and United Kingdom interest rates?

Miss Johnson: I cannot answer that question, because there is no single international rate. That is different from giving a differential between one rate and a series of other rates.

Mr. Fabricant: On a point of order, Mr. Winterton. I always want to be helpful to Ministers, so I shall clarify my question. I meant to refer to the average European rate.

The Chairman: That is not a point of order. The hon. Gentleman is trying to intervene again.

Miss Johnson: If that figure is to hand, I shall give it to the hon. Gentleman later in our proceedings.

Having come this far, we shall not relax our discipline. The public sector borrowing requirement is based on meeting the inflation target of 2½ per cent. per annum, not only this year, but next year and the year after that. At the time of the previous Budget, there were predictions of recession from experts and others, with the Government forecasting much stronger growth than most independent forecasts of 1 per cent. to 1½ per cent. for 1999. However, as economic prospects have brightened since March, independent forecasts for gross domestic product growth in the United Kingdom have risen, coming closely into line with the Government's Budget forecast and making it among the most accurate.

The ``Pre-Budget Report'' forecasts GDP growth to be 1Ž3/4 per cent. this year, 2½ per cent. to 3 per cent. next year and 2¼ per cent. to 2Ž3/4 per cent. in 2001 and 2002—at all times consistent with meeting the inflation target. The forecasts for 2001 and 2002 are centred on the Government's neutral view of our economic prospects, which is based on a trend growth assumption of 2’1 2 per cent. per year. However, taking a deliberately cautious view which is supported by the National Audit Office, the projections for the public finances will continue to be based at the low end of the growth rate, at 2’1 4 per cent.

The Government will continue to lock in the structural improvement in the public finances that they have achieved, and so avoid past mistakes. In line with the code for fiscal stability, the fiscal projections published in November 1999 in the ``Pre-Budget Report'' take into account the decision to adopt a more prudent and flexible Budget-by-Budget approach to the real increases in fuel and tobacco duty. Interim projections of the public finances show that the current budget is expected to be in surplus by £9’1 2 billion this year. In subsequent years, the surplus is forecast to be £11 billion, £13 billion, £13 billion, £12 billion and £11 billion. However, cyclically adjusted public sector net borrowing projections show that the fiscal stance is broadly unchanged from the previous Budget.

Public sector net investment is set almost to double to 1 per cent. of GDP by 2001--02 and to reach 1’1 2 per cent. of GDP by 2003--04. That will begin to deal with the years of neglect of public sector infrastructure. That remains consistent with the falling debt–GDP ratio: the ``Pre-Budget Report'' shows that the public sector net debt is set to fall below 40 per cent. of GDP by March next year and to remain below that figure over the economic cycle. Based on prudent and cautious assumptions audited by the National Audit Office, the Government are on course to balance the current budget over the cycle and meet our tough fiscal rules.

For too long, British investment has been too low and productivity increases too slow. The Government's strategy for closing that gap is based on strengthening competition, promoting innovation and enterprise, improving skills, promoting investment and improving public-sector productivity.

The British economy needs a high level of investment and entrepreneurship, so the Government have introduced a series of measures to promote investment and enterprise. For example, we have already cut mainstream corporation tax from 33p to its lowest ever level of 30p, introduced a starting rate for small business tax of 10p in the pound, cut small business tax from 23p, and introduced first-year investment incentives to help manufacturing industry.

The Government want a higher percentage of men and women to be employed than ever before. There are 700,000 more jobs in the economy than in 1997, and employment is lower now than at any time in the past 20 years.

Mr. Graham Brady (Altrincham and Sale, West): Before the Economic Secretary moves on, will she elucidate on the Government's intention to invest in public transport using fuel duty receipts over and above increases in inflation? Table B9 at page 154 of the ``Pre-Budget Report'' shows that the level of funds derived from fuel duty is projected to rise by £1 billion. Will that rise occur with the current level of taxation? If so, why and are other rises likely?

 
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Prepared 13 December 1999