Third Standing Committee on Delegated Legislation
Wednesday 24 May 2000
[Sir David Madel in the Chair]
Government Assessment for the Purposes of Section 5 of the European Communities (Amendment) Act 1993
The Economic Secretary to the Treasury (Miss Melanie Johnson): I beg to move,
That the Committee has considered the Government's Assessment as set out in the Financial Statement and Budget Report 2000-01, and the Economic and Fiscal Strategy Report 2000-01, for the purposes of section 5 of the European Communities (Amendment) Act 1993.
Each year, 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 103 and 104c of the Maastricht treaty, which relate to the broad economic policy guidelines and the excessive deficits procedure respectively.
The purpose of the broad economic policy guidelines and the excessive deficits procedure is to help to ensure that member states' economic policies are consistent with the goals of the treaty. These include non-inflationary economic growth regarding the environment, a high level of employment and social protection, and raising the standard of living and quality of life.
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 2000'', and it is our intention to base any information sent to the Commission on the material in the ``Budget 2000'' document.
``Budget 2000'' sets out the Government's strategy for achieving high and stable levels of growth and employment, with rising living standards for all. The 2000 Budget will help to build a stronger economic future for Britain through reforms that will put work, enterprise and families first. By protecting the environment and ensuring that growth is sustainable, the 2000 Budget will also ensure a better quality of life today and for future generations.
The key elements of the Government's strategy are delivering macro-economic stability to provide a platform for long-term sustainable growth and employment; raising productivity through promoting competition, enterprise and innovation, skills and investment; increasing employment opportunity for all; building a fair society for families and communities; and ensuring a better quality of life for everyone, now and for generations to come, by protecting the environment.
The Government's reforms of the macro-economic policy framework are already promoting economic stability by delivering low inflation and sound public finances. We have introduced an open and transparent monetary framework to deliver low and stable inflation; a new fiscal framework based on a prudent approach to the public finances and underpinned by two strict fiscal rules; and a new public spending framework, integrated into the fiscal framework, to deliver greater certainty for longer-term planning and remove the previous bias against investment.
We are already seeing the rewards of Bank of England independence and the new fiscal framework. Inflation in the UK has been lower for longer than at any time since the 1960s and, for the third year running, is in line with our target. For almost 30 years, the UK's long-term interest rates were, on average, 3 per cent. higher than Germany's. Now UK long-term rates are down to the levels in Germany and lower than in the United States.
The state of our public finances is now sound. The Government inherited public finances that were in poor shape and have brought them back under control, cutting borrowing by £44 billion in their first three years. ``Budget 2000'' locks in the structural improvement in the public finances over the next two years to a greater extent than projected in ``Budget `99''.
On the basis of this stable platform for the public finances, my right hon. Friend the Chancellor was able to announce in the Budget substantial new resources for the Government's key public service priorities. Current public spending will rise by 2.5 per cent. a year in real terms for the three years from 2001-02 to 2003-04 and public sector net investment will more than double, to 1.8 per cent. of gross domestic product by 2003-04. In addition, my right hon. Friend the Chancellor was able to allocate an extra £2 billion to health expenditure in 2000-01 and an extra £1 billion to education.
The measures announced in ``Budget 2000'' will ensure that the Government remain on track to meet their tough fiscal rules. Even under the most cautious assumptions, our projections show surpluses on the current budget in each of the next five years. Net borrowing is also projected to remain low over the next five years, with net repayments in this and the next fiscal year, and with total net borrowing over the next five years lower than in any single year in the previous Parliament.
Under the Government's new frameworks for monetary and fiscal policy, a sound and credible platform of economic stability has been achieved. Widespread predictions of recession in the United Kingdom economy last year proved unfounded. A combination of timely policy action, private sector financial strength and more buoyant global conditions led to robust economic growth in 1999.
The Government's commitment to stability and prudence is for a purpose: unemployment is now at its lowest level for 20 years and continues to fall; employment has risen by over 920,000 since the general election to the highest UK total ever; exports are up by 13 per cent. on the year, and and by over 10 per cent. to the European Union; inflation is historically lowthe lowest in Europeand, because inflation is so subdued, mortgage rates are historically low and long-term interest rates are down to the levels of other major European economies and below those in the USA. Looking ahead, robust growth of 2¾ to 3¼ per cent. is forecast this year and inflation is expected to remain close to the Government's target in the period ahead. Independent forecasters agree with our assessment.
So the Budget delivers a platform of stability for the economy. To ensure prosperity, promote enterprise, fairness and equality of opportunity for all, the Budget took further steps towards meeting the Government's long-term goals. This platform of stability will facilitate the Govt's long-term ambition to meet the productivity challenge by closing the productivity gap with our main competitors that was inherited from the previous Government. The Government introduced the Competition Act 1998, giving tough new powers to the Office of Fair trading to curb anti-competitive behaviour and, following the banking review by Don Cruickshank, they are bringing forward a package of measures to reduce prices and improve services for customers and small and medium enterprises and promote innovation in banking.
To encourage enterprise and innovation, ``Budget 2000'' includes major reforms to capital gains tax to strengthen incentives for entrepreneurial investmentpermanent 40 per cent. capital allowances for small and medium enterprises.
To raise the skills base, the Government are increasing the drive on higher educational standards with a further £1 billion in spending. To increase levels of investment in the economy, the Budget is allocating an extra £100 million to support a £1 billion target umbrella fund, helped by private finance, to provide better access to venture capital for small growth firms in the regions, and the Government have commissioned a report to look at whether there are factors discouraging institutional investors from investing in SMEs.
To improve productivity in the public sector, the Government are setting new targets in the 2000 spending review to improve public sector service delivery, with specific emphasis on the impact that departmental policies have on the productivity of the wider economy.
Meeting the challenges of raising productivity and closing the gap with our main competitors will help to raise living standards in the economy as a whole, but we need to do more to build a fairer society by making work pay, giving families a better deal and protecting the environment.
The Government's aim is employment opportunity for all, the modern definition of full employment. To deliver opportunity for all, ``Budget 2000'' has introduced an ambitious set of reforms, building on the evidence of what works: helping people to move from welfare to work; easing the transition into work; and helping to make work pay.
The Budget builds on the success of the new deal, with the roll-out of an intensive gateway within the new deal for 18 to 24-year-olds from June 2000 and a national extension and intensification of the new deal for over-25s from April 2001.
The Government are helping people to move into work, with more than 750,000 people already participating in the range of new deal programmes, the introduction of 15 employment zones in areas of especially high unemployment and enhanced contact between the Employment Service and the long-term unemployed. There are also measures to help and guide lone parents to extend their choices, and the first stage of work to develop a nationwide service to help disabled people to find work will help to increase opportunity for all.
The Government are making work pay, by guaranteeing not only families but all who work a minimum income through targeted tax cuts and credits; a new 10p starting rate of income tax will help nearly 2 million people, who will see their income tax bills cut in half. The tax cuts in the Budget reduced the tax burden on a typical family with children, falling below 20 per cent. for the first time in 20 years.
The 2000 Budget also introduced a number of measures to help to build a fairer society in which everyone has the opportunity to fulfil his or her potential and to enjoy the benefits of high and stable levels of economic growth. To build a stronger economic future, society needs to invest in today's children and to give a better deal to families.
To provide further support for families and children, the working families tax credit was increased by a further £4.35 and the children's tax credit will be topped up to £442 a year, which is more than double the value of the married couple's allowances that it replaces. A package to help low-income mothers support their children in the early years has also been announced. The measures introduced so far in this Parliament will lift 1.2 million children out of poverty and will mean that, by 2001, the tax burden on the typical family of average earnings with two children will be the lowest since 1972.