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Mr. Edward Davey: On the Minister's point about reducing child poverty, the Government claimed at the last election that they had taken 1.2 million children out of poverty. However, the latest statistics in a survey published this week showed that those claims were incorrect, and that the Government's measures have taken less than 500,000 children out of poverty. Will the Minister tell the House what extra measures the Government are now proposing to tackle the problem that they have so far failed to address?

Ruth Kelly: I have just been outlining the Government's approach to tackling child poverty. The best way to do it is

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to provide families with a route into employment, to make work pay and to provide a ladder of opportunity for families so that people can continue to progress once they are in work. That is the simplest and best way to tackle child poverty at its root, and it is what we are doing.

The Budget takes further steps towards creating a fairer society. The Government are taking action to boost the incomes of hard-working families, and helping families when their children are very young. Building on record increases in child benefit, the Government introduced the children's tax credit, worth up to £520 a year for about 5 million tax-paying families, and, recognising the additional costs of a new child in the first year, in April 2002 we will increase that to £20 a week for families in the year of a child's birth. All those measures will have a significant impact on tackling child poverty.

The Budget also includes a package of measures on maternity pay and parental leave, including increases in the flat rate of statutory maternity pay and maternity allowance, paid adoption leave from 2003 and a doubling of the threshold for small employer relief, so that about 60 per cent. of all firms paying statutory maternity pay each year can reclaim their costs in full, plus compensation. There will also be a further increase in the sure start maternity grant from April 2002.

The Budget includes a major package of measures to boost pensioner incomes, acting to end pensioner poverty and ensuring that all pensioners share in the rising prosperity of the nation.

As well as the measures announced in the pre-Budget report, from April 2003 the Budget raises the age-related income tax personal allowances over and above indexation, and through the remainder of the Parliament will raise those allowances by reference to rises in earnings rather than prices. About 1 million savers, many of whom are pensioners, will benefit from the widening of the 10p income tax band, which will apply to savings income. From April this year, the average pensioner household will be £600 a year better off than in 1997 as a result of the personal tax and benefit changes introduced during the last Parliament.

The Government are building a stronger economic future for Britain. That gives a better deal for the people of Britain. It will help us to meet our objectives of high and stable growth and employment and a fairer society for all. Those are the right economic policies for Britain. They are also 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 process of multilateral surveillance and economic co-operation, as provided for in articles 99 and 104 of the treaty. I hope that the House will support the motion.

8.51 pm

Mr. Oliver Letwin (West Dorset): I begin by welcoming the Economic Secretary to the Dispatch Box and her new post. There is a distinct risk, which worries some on this side of the House, that she might prove to be a distinguished occupant of that post, but time will tell.

The motion is highly misleading. It has hardly anything to do with the European Communities (Amendment) Act 1993, but much to do with the Red Book. It is a bizarre

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feature of our constitutional arrangements that, having debated the Budget for I do not know how many days, we return to it for a 90-minute debate when most good folk are asleep and nobody is paying the slightest attention. That probably explains why the Economic Secretary, despite her world-renowned intellectual prowess, chose to re-read a speech that has undoubtedly been concocted on other occasions.

The Chief Secretary to the Treasury (Mr. Andrew Smith): It is a good speech.

Mr. Letwin: It is an excellent speech. It was good first time round and it will be good next time round, but unfortunately it told us little that is new. As you, Mr. Deputy Speaker, will probably be the only person in England who is listening to me by the time that I finish my remarks, I hope that you—

Mr. Smith: Try the £20 billion.

Mr. Letwin: I shall eschew that pleasure. I hope that you, Mr. Deputy Speaker, will bear with me if I depart from the norm and make an argument about the real subject of the motion—the assessment of the UK economy that is in the Red Book. I should correct myself immediately: I want to make an argument about the assessment of the UK economy that is not in the Red Book.

It is a strange feature of our world that the old Budget report was renamed when the 1993 Act was passed. It is now called the Economic and Fiscal Strategy Report and Financial Statement and Budget Report. The reason for that is to enable us to conform to the need to report to the European Communities on our economic and fiscal strategy and, indeed, the background to it—hence the assessment. Alas, however, only the name changed, not the contents. There never was a real assessment of the economic scene in those documents and there is not now.

Let me begin at the beginning with points of agreement. We share aims, but that is a turn up for the books. There was a time when we did not share aims. There was a time when Labour Governments and Labour Oppositions had other aims that led to gross inflation, the ownership of the means of production by the state on an increasing scale, the prevalence of trade unionism and I know not what other "glorious and golden goals".

Thank goodness—I mean this genuinely, thank goodness—we now live in a world that is more difficult for Conservative politicians because there is much in it that we share. That is well expressed in the new article 2 of the treaty on European Union, which, as the Economic Secretary said, specifically states that we are to seek

Who in their right mind could conceivably object to that?

Mr. Eric Forth (Bromley and Chislehurst): I thought that at this point I would ask my hon. Friend what, on the face of it, may seem a banal question. If the economic indicators of most of our continental European partners were heading in the wrong direction, would we still want

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our economy to converge with them? The words that my hon. Friend has just read out imply convergence at any price. Surely my hon. Friend does not believe that we should readily mould our policies with the aim of converging in an adverse direction. Will he make that quite clear?

Mr. Letwin: I completely agree with my right hon. Friend, although I disagree with him about the interpretation of the words that I read out. As the record will show, I specifically left out a phrase in new article 2, which speaks of

I did not read out that phrase, because I do not believe that that is a shared aim. However, the rest of the article that I read out is a shared aim. I do not believe that a high degree of convergence of economic performance is a shared aim because I do not believe that economies converge—they sometimes cross like ships in the night, as the economies of the north-east and the south-east of Britain have from time to time. Moreover, I do not believe it is a shared aim for the very reasons that my right hon. Friend gave. Convergence is good only if performance converges on the good.

We also agree with the Government about aims. On page 1 of the Budget report, the Government state that the aims of their strategy are

Those could have been the stated aims of any Conservative Administration in the past 40 years, and we share those aims. The problem we are discussing is not about aims: it is a problem about means and about our understanding of where we stand today.

The picture that the Economic Secretary painted of the economy was not so much glowing as utterly golden—a Midas picture in which nothing was wrong and nothing was worrying. In her description, we benefited from sustained and permanent growth, with low inflation, ever higher productivity and greater employment. From her description—I know that she does not believe this—one might have thought that the world around us was rosy in every respect.

That is odd, because her colleague, the Chancellor of the Exchequer, was quoted in The Sunday Times as saying:

The Chancellor was right about that.

A week later, in the same journal, Stephen Roach, chief economist at Morgan Stanley, put it rather more bluntly:

There is a great difference between the surroundings of the United Kingdom and the United Kingdom itself, which, as the Economic Secretary rightly said, is not in recession. However, the world as a whole is in dreadful difficulties.

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Last year, the economy of the United States grew by 5 per cent., whereas this year it is expected to grow by less than 2 per cent. US manufacturing is in recession, retail sales have slowed, capital investment is way down, US trade figures are down and there is all the reason in the world to suppose that those effects will be exported. The Chancellor was absolutely right about Japan, whose growth is unlikely to exceed 1 per cent. for the next two or three years. Germany is afraid that growth may plunge to zero in the second quarter of this year. Growth in the euro zone in the past 12 months is down a full percentage point on the previous year, and industrial production has slowed. That is why the European Central Bank has had to revise its growth forecast downwards, and Euro- inflation at 3 per cent. is well above target. Meanwhile, we have the oil problems. If the Economic Secretary had not read that speech, but had chosen to take another one off the shelf, she would have recognised all those phenomena.

The fact is that the world in which we live is risky and difficult economically at present, and we must ask ourselves whether the United Kingdom economy is structured to resist the difficulties. Can we be not just confident but—if I may be somewhat impolite, as the Economic Secretary was—almost complacent about our economy's condition, or have we problems of our own that need attention?

The Economic Secretary's view on that was in line with the Red Book. It is possible to comb the Red Book repeatedly and endlessly—as Labour Members will know, during the election I had a bit of time in which to ponder things repeatedly and endlessly—but nowhere in the palimpsest is it possible to find a description of the real difficulties facing the British economy. That may have nothing to do with the fact that it was produced by Her Majesty's Government, or again it may have something to do with that. One way or another, however, the problem is that it does not reveal the current state of affairs.

I want to dwell on a specific phrase in article 2 of the treaty, which will not upset my right hon. Friend the Member for Bromley and Chislehurst (Mr. Forth). Article 2 refers to

We are meant to agree to report tonight that the House accepts that the assessment of the British economy in the document referred to is right, and shows that there is a harmonious and balanced development of economic activities in this country. I wonder whether, on reflection, the Economic Secretary would want to advance that argument. I should be very surprised if the hon. Member for Kingston and Surbiton (Mr. Davey) wanted to do so, and I certainly do not. I want to advance the opposite argument, because I think it fairly clear that the UK economy currently suffers from some serious imbalances. Many of them have been obscured over the past four years by the Government's undoubted achievements in macro-economic, monetary and fiscal control; but, beneath that, there is a worrying picture of imbalance.

Let me explain—at rather tedious length, to get the thing on the record—what I mean by imbalance. First, there are the regional imbalances. In April this year, unemployment levels in the UK as a whole averaged 5 per cent. That is not a good record in comparison with those of one or two other countries, but it is much better than has sometimes been the case. Nevertheless,

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it disguises vast regional discrepancies. At the same time, unemployment in the south-east of England was 3.3 per cent., and in the north-east it was 7.7 per cent.—more than double the level in the south-east. Indeed, it is clear that the averages in the north-east, London, Wales, Scotland and Northern Ireland are completely different from those in—if I can put it this way—the rest of England.

Such a regional imbalance may not be deeply worrying in itself, although I suppose it would be difficult for the Government to maintain that they were not somewhat worried, because they continue their regional policy. It is a long-established doctrine that the main purpose of regional policy is to even out regional imbalances, rather than to create wealth in itself: that has been a Treasury doctrine for many years. If that is the case, it must also be the case that the Government have some worries about regional imbalance, because they clearly cannot be operating a policy aimed at removing a problem that they do not consider to be a problem.

But alas, regional imbalances are not the only or, indeed, the most serious imbalances that the economy currently suffers. A much more serious issue is the trade imbalance. I am sure that inside the Treasury the Economic Secretary and her colleagues spend much time discussing the trade imbalance; it would be unusual were they not to do so. However, I did not hear much reference to the trade imbalance in the Economic Secretary's speech. That is surprising, because the trade imbalance is not a small matter. It is not even a medium-sized matter. It is enormous.

The trade in goods in 2000 as a whole was in deficit by £28.8 billion. In the first quarter of this year, it was in deficit by £7.4 billion. Even when the surpluses in services are taken into account, the total trade in goods and services was almost £18 billion in deficit last year and almost £5 billion in deficit in the first quarter of this year. Those are large numbers that have persisted for some time and have been growing. The imbalance has existed for almost five years now. I checked earlier today and it is not since 1870 that a trade imbalance has afflicted the UK economy for so long.

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