Government Assessment for the Purposes of The European Communities (Amendment) Act 1993

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Mr. Richard Ottaway (Croydon, South): Rubbish.

Miss Johnson: I hope that that was a gosh of enthusiasm.

To provide further security and support for pensioners, winter fuel payments will be further increased from £100 to £150 for every 60-plus household, to build on the fivefold increase announced in the 1999 Budget. The lower capital limit attached to the minimum income guarantee will be doubled and the upper limit will be increased to £12,000 to reward pensioners who have managed to save for their retirement. As a result of the measures announced so far, the Government will spend an extra £6.5 billion on pensioners over the course of the Parliament.

The Government are committed to modernising public services. The national health service will receive an immediate £2 billion in the current financial year, and real terms growth of 6.1 per cent. in the next four years—the highest sustained growth in spending in the history of the national health service. Education will receive an immediate boost of £1 billion for schools, to help young people to stay on at school. Transport and law and order will each receive about £280 million, which will make our roads and public transport better, and our streets safer.

We have set a course for long-term economic prosperity, and we will invest money where it is needed to benefit not just the current generation but future generations. Economic growth needs to take place in a way that ensures effective protection of the environment and prudent use of natural resources. The Government are building a stronger economic future that will give the people of Britain a better deal and will help us to meet our objectives of high and stable growth and employment, and a fairer society for all. Those policies are right for Britain and are in line with the objectives of the European Union. Approving the motion will enable the United Kingdom to meet its treaty obligations, provide information and participate fully in the important processes provided for in articles 103 and 104c of the treaty. I hope that the Committee will support the motion.

4.42 pm

Mr. Ottaway: Welcome to the Chair, Sir David.

As I listened to the Economic Secretary repeating a familiar refrain, I wondered what on earth Brussels would make of the report. The headlines are okay. We concede that unemployment is falling, output is rising and inflation is low. The Opposition will not quarrel over those welcome developments. However, Brussels could get the impression from the report that everything started in 1997 as a result of the Government's policies. The truth is that unemployment started to fall in 1992, and output started to rise in 1993. Those trends have continued largely because the current Government adopted many of the previous Government's policies, although they did not support those policies in opposition.

However, a pattern underlies the headlines. The Economic Secretary should add that as a rider to the report, to give Brussels a true flavour of what is happening. For example, are people in Brussels aware that the International Monetary Fund, the Institute of Directors and the Confederation of British Industry believe that the Budget was inflationary? The Chancellor often talks of fiscal tightening, and the Red Book contains graphs and other data on that, but no one believes that it is taking place. The Economic Secretary proudly drew attention to the increase in public expenditure. Does she think that that can occur without threatening our fiscal stance and the nation's inflationary position?

The Economic Secretary's report makes no reference to the difficulties caused by the high exchange rate. No doubt the rate is influenced by interest rates, which in turn are influenced by the threat of inflation. If the IMF thinks that the Budget was inflationary, there is probably a direct link between its observation and our interest and exchange rates. The Government cannot claim that this is not a matter for which they are responsible or that there is no connection between the exchange rate and their actions. They are responsible, so they must take responsibility. Will the report include an appendix on the collapse in savings in this country, which have fallen dramatically? That again is a factor in the present high interest rates. Will there be a reference to the increased tax burden on business?

The Economic Secretary is by now familiar with the quotes from the leaders of the CBI and the Institute of Directors. Indeed, just about every small business organisation has criticised the Government for increasing taxes. I have never heard a Minister deny that business taxation has increased. That increase is the reason why manufacturing is in crisis. It is all very well for the Government to say that manufacturing has been in crisis before, but it was never in a crisis like the present one, with the economy in such a sound position. There is little in the report that will give hope to those in manufacturing. Will the report comment on the regulatory burden about which business now complains? It is difficult indeed to administer the system; it is a growing imposition on businesses.

The hon. Lady will have to correct the part of the report that states that there have been tax cuts for the average family. There have been tax cuts for the average family who do not smoke, drink or drive a car, have a mortgage or marry. There may be a combination of figures for them that can make the Government's boast stand up. But that is not the real world. Other figures produced by the Library show that in the previous Budget there were tax changes amounting to £669 per family. These figures are incontestable, showing that the tax burden on the average family has increased.

The other purpose of the assessment is to draw attention to whether the economies are converging in accordance with the Maastricht criteria. There is no doubt that inflation in Britain is close to that in Europe, although we have almost the lowest, if not the lowest, rate in Europe. Our unemployment is below the European average. Our growth is on a par with that of the European Union. It was interesting that the economic Secretary twice drew attention to the fact that our interest rates are now above those of Germany and, I think, the United States. Current interest rates are 2.5 per cent. higher here than in the rest of the EU. It occurred to me that the hon. Lady's double reference might suggest that we are now getting a convergence of interest rates, which would enable the Government to state that they were ready to join the single currency sooner rather than later. I should be grateful if the hon. Lady would say something about that issue.

The Government announced in October 1997 that they were deferring an application to join the single currency on the basis that the convergence criteria had not been met. Apart from the point that I have raised, there seems to have been little change in the criteria. It would be helpful if the Economic Secretary would tell us whether she thinks they are closing or unchanged. If they are closing, will she respond to my point about entry earlier than we expected; if not, does she agree that there is little likelihood that they will do so? I note that the Government intend to address the matter early in the next Parliament, but it seems unlikely that they will be able to recommend entry even then.

I shall also be grateful if the Economic Secretary will provide some illumination on what the Government means by ``early in the next Parliament''. That could be anything from 12 to 48 months away, which is, she will agree, fairly vague.

4.50 pm

Miss Melanie Johnson: I was delighted to hear the hon. Gentleman acknowledge that we have done so much to tackle unemployment and been so successful. He also recorded his enthusiasm for the fact that output is rising and that the economy is in such a sound position. I could not have said fairer myself and I congratulate him on his recognition of the successes of the present Government.

The hon. Gentleman mentioned the IMF, which seems to have somewhat misunderstood the Budget. The projections presented cannot reasonably be described as pro-cyclical. The Budget is locked into fiscal tightening over the next two years to an even greater extent than projected in ``Budget '99''. The Monetary Policy Committee has not raised rates in response to the Budget and Mervyn King, the Deputy Governor of the Bank of England, said that it did not have a major impact on its view of the outlook for activity and inflation. Indeed, the April 2000 MPC minutes recorded the fact that most of its members

    thought that the impact on future activity and inflation from the Budget—

Budget 2000—

    seemed unlikely to be large over the next two years.

The MPC is well placed to judge.

We have, of course, very low inflation, as the hon. Gentleman was also kind enough to acknowledge. However, I cannot believe that he can seriously say that the policies of the present Government are the same as those of the previous one. We inherited a £28 billion deficit and a higher level of inflation, which had indeed been as high as 15 per cent. at one stage. We also inherited a very different management of the economy, with two periods of boom and bust in the record of recent Tory governments.

``What about their policies?'' I ask myself. There has been a recent U-turn by the Opposition on Bank of England independence and the national minimum wage. They have recognised, despite the fact that they fought us tooth and nail on both topics—particularly the latter—that we were right. However, they do not accept the value of the working families tax credit, designed to incentivise work and help people to make work pay, nor do they acknowledge the importance of the child benefit increases and they have said that they will scrap the new deal—all of which shows the radical difference between our policy and theirs.

The hon. Gentleman mentioned monetary union. He well knows what the Government's policies are and he reiterated them himself. Early in the next Parliament, we will consider the matter against the five criteria that we have set ourselves—as he so accurately quoted.

Under the Conservatives, interest rates averaged 11 per cent. Now they are just 6 per cent. That is, again, a tribute to the way in which the Government have managed matters. Savings were inflated in the 1990s as households struggled to repair their finances. We should all recognise that people save when they are worried about the future. We want to encourage people to save for the long term as well, but anxieties about the short to medium term cause people to save money, as happened after the economic mismanagement of the 1980s and early 1990s. The point is that falls in savings are a reflection of increased consumer confidence.

The hon. Gentleman's conclusions are wrong. The new individual savings accounts, which provide an attractive way of saving, have been very successful, resulting in a much higher uptake than would have occurred with tax-exempt special savings accounts and personal equity plans, had they continued.

It is worth while highlighting one or two facts about manufacturing today that will alert the hon. Gentleman to his misconceptions. Under the previous Government from 1979 to 1997, employment in that sector fell by 140,000 a year; over the three years since the general election, the fall has been about 160,000 in total. That is a much better picture.

The volume of manufacturing exports rose 9.5 per cent. in the year to February 2000. Manufacturing productivity is increasing by about 5 per cent. per annum, the fastest rate for five years, and investment rose by 4 per cent. in the last quarter for which there is data—the last quarter of 1999. Therefore, the picture for manufacturing is by no means gloomy.

With respect to the exchange rate, I should like to know whether the hon. Gentleman agrees with his right hon. Friend the Member for Kensington and Chelsea (Mr. Portillo), when he said:

    I think we have to get used to the idea that a strong currency is not a bad thing, it's a reflection of a good economy.

I am not always clear whether the Conservative Treasury team speaks with one voice or a number of voices.

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