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The Financial Secretary to the Treasury (Mr. Stephen Timms): Interest rates are set by the Monetary Policy Committee to deliver the Government's inflation target. Interest rates are among a wide range of influences on the exchange rate.
Mr. Lloyd: As my right hon. Friend the Chancellor has already reminded the House, the Government have an extraordinarily strong record on employment creation. Nevertheless, does my hon. Friend accept that one current concern is the loss of jobs, particularly in manufacturing industry, and the consequences of those losses in different economic regions of the country? Will he take the time to remind the Monetary Policy Committee that to overshoot on interest rates--or to undershoot on inflation--has serious consequences, and that manufacturing jobs have borne some of those consequences?
Mr. Timms: My hon. Friend is right about the current strength of the economy. It is worth bearing in mind, for example, that the sterling exchange rate was stronger in June 1999, when interest rates were 5 per cent., than in 1998, when interest rates peaked at 7.5 per cent. Manufacturing needs stability in the economy, low interest rates and stable growth, and that is what it now has. The latest figures for manufacturing exports for the three months to December 2000 were 10 per cent. up on a year earlier. That is the fastest growth rate for more than a quarter of a century.
I think that the prospects for manufacturing are very optimistic indeed. Yesterday, I was in my hon. Friend's part of the country talking to manufacturers in the chemical sector--in which increased research and development is critical to success--and heard about various developments such as the new university innovation centre for organic materials at Manchester university. We want there to be more such developments and partnerships between manufacturers and universities to promote further productivity increases and to sow the prospect of even better developments in manufacturing.
Mr. Dale Campbell-Savours (Workington): I have told Corus that my view is that the euro's inevitable rise against sterling next year will be of immeasurable help to its United Kingdom operations. Does my hon. Friend agree?
Mr. Timms: I think that we will have to wait and see what happens. As I said earlier to my hon. Friend the Member for Manchester, Central (Mr. Lloyd), recent figures from manufacturing have been extremely encouraging. We are seeing very good performances in many parts of manufacturing. My hon. Friend may have read, for example, about the new British-made models launched this week at the Geneva motor show. There is a new optimism in the car industry. He may also have read about the new South Yorkshire advanced manufacturing centre, which is being supported by Boeing and builds on the very latest metal cutting technology developed in Sheffield. Aerospace, too, has been a big UK success story. I therefore think that the prospects are extremely encouraging.
The Chief Secretary to the Treasury (Mr. Andrew Smith): In the current financial year, the Government have sold 125 tonnes of gold at five auctions, raising revenue of $1.1 billion. A further auction is scheduled for March. Along with the auctions in 1999-2000, the sales have been successful and have achieved value for money for the taxpayer. Over the medium term, the sales will achieve the Government's overall aim of a better balanced portfolio of reserve holdings.
Sir Teddy Taylor: As the Chancellor has instructed the Bank of England to put 40 per cent. of all the proceeds into euros; as the Bank has been instructed to take over the issue of vast quantities of euro bonds; and as it has been widely reported that Britain, Japan and America have been intervening directly to prop up the euro, would not it be helpful for the Government to announce the size of the mountain of euros now in the Bank? Does not the right hon. Gentleman understand that, instead of engaging in this very expensive exercise, it would be better for the world economy if the Government simply allowed the euro to find its natural level in world markets? Surely that would be far better than all the back-door methods of trying time and again to prop up the euro.
Mr. Smith: I admire the hon. Gentleman's persistence on this issue, which he raises endlessly, as he has the right to do, in the House and the Treasury Committee. He is becoming something of a gold standard in his own right.
Such sales have nothing to do with propping up the euro, as the hon. Gentleman suggests. If he reflected for a moment, he would realise that every time there is a gold auction, we are involved in purchasing something like 80 million euro. That contrasts with the $1.5 trillion turnover on the foreign exchange markets on any single day. So, such sales represent a very small pebble in a very large lake.
The Chancellor of the Exchequer (Mr. Gordon Brown): On Monday, I was pleased to hear from the head of the International Monetary Fund, Horst Kohler, and the President of the World Bank, Jim Wolfensohn, that following the path-breaking initiative on which we congratulate them, 22 countries are to receive debt relief and will qualify for 100 per cent. write-off of debt owed to the UK. Among those countries still to qualify, many are in conflict and civil war. Britain has renounced from December 2000 its right to debt payments. Those payments will be held in trust until they can be used for poverty relief.
I met the chairman of the heavily indebted poor countries Finance Ministers group on Monday, when my right hon. Friend the Secretary of State for International Development and I hosted a conference to discuss the 2015 targets for education, health and poverty. On 17 February, I met the G7 Finance Ministers in Palermo, where the Italian presidency made new proposals to extend debt relief during 2001.
Mr. Cunningham: I thank my right hon. Friend for that answer. He is probably aware that many organisations in this country appreciate his efforts in trying to get the IMF and other countries, as well as Britain, down the road of debt relief. What further plans does he have on third-world debt, particularly with regard to Bangladesh, which, as he knows, fairly recently suffered some tremendous natural disasters?
Mr. Brown: I am grateful to my hon. Friend and all those on both sides of the House who have raised the standard for debt relief and worked with the Churches, non-governmental organisations and many UK and international charities which have been pressing for a sensible solution to the problem of unpayable debt. Forty-one countries qualify under the HIPC initiative; 22 have already received debt relief. As I have said, most of the others are in conflict or civil wars. Bangladesh is not one of the countries in the HIPC initiative because its debt is less than that of other countries. It is, of course,
The Economic Secretary to the Treasury (Miss Melanie Johnson): The Financial Services Authority took responsibility for the prudential supervision of insurance companies on 1 January 1999. With-profits business forms a significant part of that responsibility. Howard Davies announced an FSA review of the with-profits business last Friday.
Dr. Cable: Does the Minister agree that when the Government are encouraging millions of inexperienced investors to put their money in some new products, such as stakeholder pensions, it is vital that the regulator must be seen to act in the consumer interest in cases of mis-selling and the irresponsible assumption of liabilities risk, as occurred at Equitable Life?
Specifically in relation to the inquiry that is under way, will the Minister undertake to look not merely at the misregulation of the FSA, but at the events of the early and mid-1990s when, inexplicably, reporting standards on the industry relaxed and the Government regulator of the day appears to have completely ignored the impact of falling interest rates and falling inflation on the sustainability of guaranteed annuities?
Miss Johnson: As I am sure the hon. Gentleman is aware, the FSA was set up with the important objectives of recognising the needs of consumers and, indeed, to educate consumers. In addition, the FSA has a consumer panel. That is an important part of the FSA's remit, and I entirely agree with the hon. Gentleman that it is an important focus of its work. Indeed, that is why we set up the FSA.
The FSA's report will cover both its role as a prudential regulator and the Personal Investment Authority's role as a conduct of business regulator. The report will look into the background and events leading up to the point at which responsibility for prudential insurance regulation moved to the FSA.
Mr. Jim Cousins (Newcastle upon Tyne, Central): Does my hon. Friend accept that there needs to be more clarity about how bonus payments within with-profits policies, particularly terminal bonus payments, are decided?
Miss Johnson: The FSA's report is yet to emerge. When it does, we will study it carefully to see what issues are identified in relation to the history of Equitable Life and the events surrounding its closure for further business. I hope that my hon. Friend agrees that, without seeing the report, it is premature for us to draw any conclusions at this point.