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Mr. MacShane: The right hon. Gentleman will recall the famous remark that was made in the 19th century about catching the Whigs bathing and walking away with their clothes. Is not the problem for the right hon. Gentleman's party that they have to find some new clothes that will once again attract the electorate?

Mr. Dorrell: No. As I intend to argue, not least of the reasons why it is bizarre to hear Labour Ministers and Members arguing the case for a liberal, competitive, open market economy is that when one compares what they do in practice with what they advocate in theory one finds a significant divorce between their words and their actions. I shall go on to develop that argument. It is not so much that the Prime Minister and the Chancellor have stolen the

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Whigs' clothes when they were bathing; it is that that they like disporting themselves in front of the mirror, but never actually go into the sea.

When the labour market was being liberalised and trade union reform was being fought through in the teeth of bitter opposition, where were the friends of labour market flexibility? When we were arguing the case, year by year, for reducing the direct tax burden on the wealth-creating sector--whether through income tax cuts or corporation tax cuts--where were those who now say that such cuts are important parts of British economic policy? Where were they when the Tory Governments of the 1980s and 1990s were arguing through those changes? As the House knows, they were in the No Lobby. Where were they when battles were being won against the inflationary pressures that we inherited in the late 1970s? Once again, they were in the No Lobby.

The first point to remember when we hear Ministers make the case about the importance of liberal market reform is that they are the Johnny-come-lately to the policy. They picked up the brief after the difficult case has been won.

It was interesting to hear the hon. Member for Ellesmere Port and Neston (Mr. Miller) say that he did not believe it was possible that a stable, successful, competitive economy might improve opportunities for his constituents in the way that it has. Of course, his bewilderment as economic success improves the life chances of his constituents was shared throughout his party when the reforms were being introduced.

However, that is history. It is more important, especially as we approach the next general election, to reflect on where those people were when the changes were being driven through. Moreover, how credible are they now as guardians of the economy? How credible are they as the people who should continue the process of improving economic competitiveness in the increasingly competitive global marketplace where Britain has to earn its living, now and in the future?

No Conservative Member should need any persuading when it comes to the importance of sound money and sound public finance, of low taxes and flexible markets. I suspect that the Chancellor thinks sometimes that we need to be persuaded, but we take the importance of those things as read. We want to know whether those on the present Treasury Bench believe the rhetoric that they use, and whether, when the tough choices have to be made, they will deliver the policy about which they are prone to wax so lyrical when no cost is attached.

I shall go through the four tests that the Government have specified; I do not think that those on the Treasury Bench will dissent when I list them. They are the tests of sound money, sound public finance, low taxes and flexible markets. I have heard those tests listed so often that I cannot believe that the Chief Secretary to the Treasury will leap to the Dispatch Box and say, "No, that is not our policy." The right hon. Gentleman does not always speak with the full-throated admiration of all his Back-Bench Members, but what Minister ever does? I think that Ministers would seek to apply the four tests that I have listed to their policies.

First, I shall deal with what is, from the Government's point of view, the easy test--the test of sound money. In fact, I shall offer a degree of bipartisanship on that question. The Government are entitled to credit for having

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increased the independence of the Bank of England, and for entrenching the discipline of counter-inflationary policy.

I can see that the hon. Member for Rotherham (Mr. MacShane) wants to leap to his feet and ask when I espoused a policy of sound money. Before he does, I must say that I think my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) would bear witness to the fact that I advocated that policy somewhat before some other members of my party did. However, I give credit to the Chancellor for his introduction of the policy.

I also give credit to my right hon. Friend the Member for Kensington and Chelsea (Mr. Portillo), one of whose first actions when he became shadow Chancellor was to make it clear that the Conservative party did not wish to oppose the principle of sound money. It is a very important principle, and I offer considerable support to the Government for the fact that they have taken us down that road. Putting an end to the notion of political money was an important step forward in the delivery of a liberal and competitive economic environment. There is broad, all-party agreement that the five-decade experiment with political money was an abject failure.

In case it is thought that I am offering unqualified support for every aspect of this part of Government policy, I must say that the independence of the Monetary Policy Committee of the Bank of England would be significantly enhanced if almost all its members did not require the Chancellor's say-so before their appointment was agreed.

In addition, I think that the Monetary Policy Committee's independence, and the basis of knowledge on which it makes its decisions, would be substantially enhanced if we introduced into our structure something more closely akin to the American Federal Reserve or the old German Bundesbank. Those bodies sought to ensure that different interests from the real economy were represented in the monetary policy decision-making process. However, with those qualifications, I offer the Government reasonably high marks when it comes to the sound money test, the first of the four that I want to discuss.

The second test is the test of sound public finance, about which my right hon. Friend the Member for Huntingdon had something to say. He reflected on the declining reputation of Prudence, and said that it had been substantially qualified by the way in which she has been misused by the present Chancellor of the Exchequer. It is perfectly true that, in the early years of this Parliament, the Chancellor held the growth of public spending below the level of growth of the economy as a whole. The result was a significant improvement in the inherited fiscal deficit, to the extent that there is now a significant fiscal surplus. That is welcome. However, an election has now come into view, and what we now have is in no way consistent with the rhetoric on sound public finance and prudence of which the Chancellor is so fond.

The Government's figures show that their expectation for the years ahead is for 2.25 per cent. growth in the economy as a whole and 3.4 per cent. growth in public spending. One does not need a degree in mathematics to know that if the economy is growing at 2.25 per cent. and public spending is growing at 3.4 per cent., public spending will take a progressively larger share of the

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national income for as long as that policy continues. That can only result, either now or later, in an increase in the tax burden. Despite everything that the Government say about low taxes, they are committed to increasing the tax burden to deliver a policy in which public spending accounts for a rising share of national income. A commitment to a relentless rise in the tax burden is a huge disbenefit to this country's competitiveness in the global marketplace.

The case against the Government's policy is even more serious than that. What would happen to their plans if the economy did not grow by 2.25 per cent. as they assume that it will? The response to that question from Labour Members, and occasionally from some Ministers, is, "Well, this is a Labour Government. We can assume competence, and everything is going to be all right. Everything is for the best in the best of all possible worlds. This Government will deliver 2.25 per cent. growth, and we do not need to worry." That is spellbindingly naive.

As my right hon. Friend the Member for Huntingdon observed, when one is planning a business or an economy in a global marketplace, one ought to allow for the possibility that there are other influences on how that business or economy might develop, besides the decisions taken in Great George street. I am a former incumbent of those offices, and I know the illusion of grandeur and power that goes with sitting in them.

I mean no disrespect to the Chancellor when I suggest that Mr. Alan Greenspan has at least as much influence over the world economy as the British Chancellor of the Exchequer does. Mr. Greenspan certainly does not believe that we can look forward with a totally sanguine view to stable growth in the next two or three years. He has been pursuing a tight money policy in the United States for the past few months, precisely because he is afraid that growth is running ahead too fast. Only last week, he signalled that that policy stance needed to change.

The Government's spending plans are wrong because, even if all their best assumptions are fulfilled, they will result in an increase in the tax burden. The plans are doubly wrong because they assume that the economy will continue on a stable path, despite the fact that virtually every post brings new concerns about a potential hard landing in the United States, that there has recently been an aggressive tightening of monetary policy in Japan, and that some, but not all, parts of the eurozone have serious inflationary problems.

I am not engaging in predictions about what will happen in 2001, but it is not difficult to find people who believe that we ought to be preparing--whether we run a Government or a business--for the possibility that markets in 2001 will be rather tougher than they have been for some years past. Wise businesses, like wise Governments, are preparing for the fact that next year will be less good than both 2000 and 1999. However, we have a Government who assume that next year will be better.

When I wonder about the Chancellor's present relationship with Prudence, I ask why, at a time when most economy policy makers throughout the world are assuming that circumstances are likely to become more hostile next year, we alone have a Government who think that things are going to get so much better that we can launch ourselves along a public expenditure growth path that they were not prepared to countenance as prudent

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during the much more favourable circumstances that prevailed--as we can see in retrospect--since 1997. Of course, perhaps I know the answer--perhaps this is an election year. That may be the full extent of the answer.

On the second test--that of sound public finance--the Government fail partly because they are planning for higher taxes and partly because they have forgotten about the need for a safety margin. No one ever plans for the crunches; if we look back at economic history, people did not seem them coming and plan accordingly. Uncertainty and the unknown derail Government spending plans; they have often done so in the past. By removing a safety margin, the Government are heightening the risk of derailment as a result of the unknown or even--as I am arguing--not the unknown but matters on which plenty of editorials are being written. If hon. Members want to read one, they need only turn to the centre pages of today's Financial Times.

So much for the second test; what about the third test of low taxes? It is much easier to produce an answer for that test, because the Government fail it completely. In the run-up to the previous general election, the Prime Minister repeatedly said that there was no need for tax increases; Labour were not planning tax increases and indeed, until March of this year, he said that there had been no tax increases. He appeared to be the last man in Britain who believed that to say that the tax burden had not increased under Labour was a sustainable line. However, even the Prime Minister has deserted that position; even he has been forced to admit that, under the Labour Government, the tax burden has increased, is increasing and will go on increasing.

That seemed to come as a late surprise to Members on the Treasury Bench. Long after everyone else in Britain--people who occasionally drive on to a garage forecourt, pay a council tax bill, know what their pension fund has to pay, or have seen what has happened to the climate change levy--[Interruption.] My hon. Friend the Member for Hertsmere (Mr. Clappison) points out that, even now, the Chief Secretary to the Treasury does not acknowledge that. The Chief Secretary is responsible for publishing the figures. If he is not yet convinced that the tax burden is increasing, he should read his own figures. I will give him credit if he reads the figures for which he is responsible.

As I have already noted, the Government's spending plans for the future are for a continuing increase in the tax burden. There may be political differences of view as to whether we want high or low tax and spend, but there can be no argument that at present, throughout the rest of the world, Governments are coming to the conclusion that, in order to create wealth in a competitive, global marketplace, they need to reduce the tax burdens on their wealth-creating sector.

In Germany, one of the British Government's political soul mates has introduced major tax reform. Chancellor Schroder is a more obvious political soul mate of the Labour Government than of my party; he is cutting taxes. The French Government are cutting taxes, as are the Italian and Spanish Governments. Against that background, what are the British Government doing? They are planning not merely to increase taxes, but to build a further increase in the tax burden on to the existing increase. At the same time as the British Government are using the rhetoric of market economics, they are resolutely marching in the opposite direction from the German, French and Italian Governments--all of whom

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realise that, if they are to compete successfully in today's marketplace, one of their key objectives must be to reduce the burden of taxation on their economy.

The third test is whether the Government believe their rhetoric about low taxes. We assume that they do not, because they are certainly not putting it into practice.

The fourth and final test applies to the Government's claim to be in favour of flexible markets. When I hear members of the present Government arguing the case for flexible markets, I do not believe that they understand what those words mean. Just as, with tax policy, they are marching in the opposite direction from our colleagues elsewhere in Europe, so with regulation and the way in which government impacts on business--what is known in shorthand as the red tape burden--the Government are resolutely increasing the burden on British business, while Governments elsewhere in the world are understanding the importance of reducing that burden.

The list is familiar, so it may be burdensome to hon. Members if I go through it again. There is the working time directive, the part-time workers directive and the parental leave directive--and today we have another: the information consultation directive. Sometimes all that is used to make a case against the European Union, but I make no secret of the fact--I imagine most people in the House are aware of it--that I am in favour of this country's active participation in the European Union. However, I am not in favour of British Governments who accept those regulatory burdens on our business, because they reduce the competitiveness of British business in an open marketplace.

Nor am I in favour of an interpretation of the role of the EU that sees such regulation as part of its function. What the working time directive has to do with the completion of the single market has always been a mystery to me. Some of the regulations come from the European institutions, but not all of them; some of them are home grown.

The British Government must be the only Government in the world who think that the way to improve competitiveness and our opportunity to create wealth in a global marketplace is to introduce compulsory recognition of trade unions. I know of no other Government who think that that is the way to sharpen the competitive edge of their industrial base. Yet that is the policy of our Government. Only the British could take seriously a Government who say that they are in favour both of liberal market reform and of compulsory recognition of trade unions.

I freely concede that Ministers use the rhetoric of liberal economics, but at the same time they pursue policies that increase the burden of public spending, which can only increase the tax burden on the economy--all at a time when our competitors are doing precisely the opposite.

We are often asked to believe that there is now bipartisan agreement on the idea of a liberal competitive economy, and that the transformation undertaken--against vehement Labour opposition--by the Conservative Governments of 1979 to 1997 is now the subject of a broad bipartisan consensus. That view is often repeated, but it is totally wrong, and mere repetition does not make it true.

It is true that in 1997 this country had an important competitive advantage over its major international competitors. Our economy was more liberal and flexible

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than those of most of our competitors, especially those in Europe. However, the present Government have sown complacency by resting on their laurels, believing that the problem has been solved, and that there is no need to invigorate the economy further or ask how to make it more competitive and flexible, because the issue has been dealt with.

The hon. Member for Rotherham said that the Tories had stolen the Whigs' clothing while they were away bathing--but it is our competitors who have stolen our clothing while we were bathing. Our competitive advantage is being squandered by a Government who do not believe their own rhetoric. That is the case that we will take to the country. I believe that, in many ways, that case is the most important difference between the parties. As people come increasingly to understand that case, they will understand that it is a reason to throw out a Government who have squandered such an important national advantage.

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