Government Assessment for the Purposes of Section 5 of the European Communities (Amendment) Act 1993

[back to previous text]

Mr. Clappison: I do not necessarily accept the final part of the right hon. Gentleman's intervention, but I well remember serving with him on Committees. As a compliment to him, I can say that he, as a Minister, did not expect to speak for only two minutes in the House on the Crime and Disorder Bill; indeed, he spoke somewhat longer than that. I hope that we shall not be here for such a long time this afternoon, but we shall do justice to the matter.

On the single currency, I have outlined the Maastricht criteria, and I now come to the tests set by the Chancellor, who was given the opportunity to set those tests by virtue of the opt out negotiated by the previous Government. That gave the present Government discretion over whether to enter the single currency, even if the Maastricht criteria were fulfilled. The Chancellor enunciated his five tests concerning United Kingdom membership of the single currency in a statement on 27 October 1997. The Chancellor spoke of what he described as the

    potential benefits for Britain of a successful single currency

and added:

    Of course, I stress that it must be soundly based. It must succeed.—[Official Report, 27 October 1997; Vol. 299, c. 583.]

Given that we are debating the background to this question, does the Minister consider the euro to have been a success since its launch on 1 January 1999? If so, in what respects has it been a success in terms of the Chancellor's first statement? The first of the five tests is whether there can be sustainable convergence between Britain and the economies of the single currency. Where do the UK's present economic circumstances stand in relation to that test? Do the Government consider that there has been sustainable convergence between Britain and the economies of the single currency? If not, how will we know when there has been such sustainable convergence?

Can the Minister tell us, for example, whether any conditions other than those currently prevailing must be fulfilled before sustainable convergence can be judged to have taken place? Are we close to sustainable convergence or not? If the Chancellor has some criteria of his own in mind, how might they differ from those of the Maastricht treaty itself, which formed the background to the debate? As to the five tests that the Chancellor set out, can the Minister confirm who is to judge whether the tests have been passed or not? Some of us have quite a good idea about that, but it would be useful to have the answer on the record.

I turn now to the documents that make up the financial report to the European institutions, and in particular the recent pre-Budget and Budget reports, which the Minister has touched upon and from which she selected certain material. The Budget report forecasts growth in GDP of 2.5 per cent. in 2001 and 2002, following growth of 2 per cent. and 3 per cent. in 1999 and 2000. The Minister adopted those figures for the purposes of her opening statement, referring to growth and what she described as moving back to the sustainable trend rate of growth. Not all commentators have been as enthusiastic or friendly to the Government as the Minister was. Certainly not all of them have been enthusiastic about the UK's growth performance since 1997.

I recently read a tract on this point, which said:

    Figures from the House of Commons library suggest that economic growth in the UK is likely to be below the EU average in 1998 and 1999, having been above average in each year from 1993 to 1997.

I shall certainly give way to the hon. Member for Kingston and Surbiton. It is an opportune moment.

Mr. Edward Davey: Given that the hon. Gentleman has spoken about the relative growth performance of the UK vis-a-vis the EU, would he like to draw any conclusions from that about the success or otherwise of the euro?

Mr. Clappison: I have spoken about it. The passage that I have just quoted comes from the recent book by the Leader of the Liberal Democrats, ``The Future of Politics''. The right hon. Member for Ross, Skye and Inverness, West (Mr. Kennedy) drew his own conclusions.

Mr. Robert Jackson: I attempted during the Minister's speech to make a serious point about the viability over the medium term of the Government's spending plans in the light of speculation about the possibility of a so-called hard landing in the American economy, but we were diverted into all sorts of trivialities. Perhaps my hon. Friend would like to answer my question. What would be the likely impact of a substantial change in the world economy, bearing in mind our experience in the late 1980s and early 1990s? I hope that he can shed more light on that point than the Minister was able to do.

Mr. Clappison: I am not able to build into the Government's economic model assumptions about the future based on a harder economic landing. On the Government's present assumptions we appear to face a future of growth that is lower than that of the recent past and that of our competitors, as well as higher taxation. Things would be even worse following a hard economic landing.

The Minister responded to my hon. Friend the Member for Wantage with a reference to what she called the Government's inheritance from the previous Government. We are familiar with the stratagem by which the Government try to blacken the inheritance left by their predecessors. One of the Minister's prime charges was that the Government inherited borrowing, and that they are repaying that. However, table B6 on page 173 of the pre-Budget report shows that such net borrowing is precisely what the Government will leave to their successors after four or five years of this Parliament. As my hon. Friend said, a hard landing in the United States' economy, affecting the world economy, would influence growth and tax receipts, and could even mean higher taxation in future.

Mr. Mark Hendrick (Preston): I find it astonishing that the hon. Gentleman makes an issue of a possible hard landing in the United States, when his party's tax plans take no account of economic circumstances. We have heard about a tax guarantee that would risk the sort of boom and bust that Opposition Members have been discussing. How can a tax guarantee be made irrespective of economic circumstances? Yet the hon. Gentleman has the cheek to ask my hon. Friend the Economic Secretary how the Government will deal with the problem.

Mr. Clappison: The hon. Gentleman is completely wrong. Our tax plans are not based on any over-optimistic assumptions and could be implemented even in the event of a hard economic landing, although we hope that there will not be one. Our plans have been carefully costed—[laughter.] They have been based on identified changes in public expenditure. Before the hon. Member for Kingston and Surbiton (Mr. Davey) laughs too loud, I should emphasise that the figures that I have given were obtained from his party leader's book, ``The Future of Politics'', which I perused at the weekend, and which I noted yesterday had been somewhat unkindly identified by a Sunday newspaper as standing at number 34,472 in the bestseller lists. The book is much better than that suggests, but perhaps not as good as the hon. Gentleman thinks.

We are interested in the position of the United Kingdom economy relative to European economies, and with the issue of convergence. The Organisation for Economic Co-operation and Development states that our economy has grown by 2.6 per cent. in the past three years, while the euro zone economies have experienced growth of 2.9 per cent. and growth in the United States has been much higher. The Minister is looking quizzically at me. If she believes that those figures are wrong, perhaps she will give us her figures. If she cannot, perhaps she will accept and confirm that since 1997 United Kingdom growth has lagged behind growth in the euro zone countries and way behind growth in the United States.

Mr. David Borrow (South Ribble): Does the hon. Gentleman accept that part of the reason for higher growth rates in the euro zone than in the United Kingdom was that the trade cycles were not totally in synch during the period concerned? When his party's Government left office in 1997 there was a danger of a recession in the United Kingdom, which was prevented by the superb economic management of the present Government, resulting only in a slowing down of economic growth. The challenge for the Government with respect to the euro is to ensure that in future trade cycles in the United Kingdom are in synch with those in Europe. That is a key condition for entry to the euro.

Mr. Clappison: I am sorry to tell the hon. Gentleman that it is not just the euro countries, but other countries that have had higher growth. It is not just a question of our poor growth performance over the past three years. Perhaps the Minister and other Labour Members will reflect on the documents' predictions for future growth rates and tell us whether they believe that UK growth rates will be higher or lower than those of euro zone countries in 2001 and 2002—the years covered by the Red Book forecast.

The UK growth rate will also lag behind those of G7 countries in each year between 2000 and 2003, according to table A9 on page 162 of the pre-Budget report. The hon. Gentleman makes excuses for our poor performance since 1997, but his excuses need to cover a much longer period, according to the Government's own economic analysis.

Paragraph 2.41 of the Red Book, in the section on the economic and fiscal outlook, predicts that the savings ratio will fall this year to 5.5 per cent., which will be its lowest point since the early 1960s. The Minister will be aware that that has been the subject of comment, and it would be interesting to hear her views on why that is taking place and the future of the savings ratio.

Mr. Edward Davey: In the United States, the savings ratio is not low but negative. Does the hon. Gentleman want to comment on the implications of that for UK policy?

Previous Contents Continue

House of Commons home page Parliament home page House of Lords home page search page enquiries ordering index

©Parliamentary copyright 2000
Prepared 18 December 2000