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Barnett Formula

3. Hywel Williams (Caernarfon): What plans he has to review the method of calculating the Barnett formula. [18684]

The Chief Secretary to the Treasury (Mr. Andrew Smith): The Government's spending plans have been agreed for the years through to 2004, including allocations for Scotland, Wales and Northern Ireland. Those allocations are governed by the statement of funding policy incorporating the Barnett formula, and that remains the Government's policy.

Hywel Williams: Lord Barnett has said recently, in evidence to the Treasury Committee and in a debate in another place, that the Barnett formula should be replaced by

based on an assessment of need. Will the Chancellor accept that, in the eyes of the people of Wales, the legitimacy of the present formula will continue to decline so long as it is based not on actual need but on an historical assessment of need?

Mr. Smith: The hon. Gentleman would do well to remember that, as well as the increase of almost £2 billion that the National Assembly for Wales received under its Barnett formula allocation, Wales received nearly £100 million a year extra in support of its objective 1 status, which was secured thanks to the efforts of this Government. That is proof of the Government's commitment to Wales. In addition, over the spending review period, Wales shared in the £44 billion increase in non-devolved spending areas such as the police, defence and welfare to work. So, Wales has had a good deal from the spending review, unemployment has fallen there, and we are getting more people into jobs.

Roger Casale (Wimbledon): When my right hon. Friend has a chance to look again at the Barnett formula, will he take special account of the needs of areas such as London, where even constituencies such as mine have pockets of deprivation and a need for further measures to overcome social exclusion, especially among the ethnic minority community? What my constituents will notice this year, however, is that, despite a global recession,

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the Government have been able to deliver a 5.1 per cent. increase in the local government grant. That will help Merton council to keep the streets clean, to work better with the community and to keep the council tax down, in stark contrast to the years in which there were cuts and more cuts under the Tories.

Mr. Smith: I understand my hon. Friend's concerns. When we discuss these matters, it is important to remember that, as well as the allocations covered by the Barnett formula, there are other measures that the Government have in place, such as the new deal, the working families tax credit, the child tax credit, the pension credit and the recently announced stamp duty exemptions, all of which help to target extra assistance on the most disadvantaged people in the most disadvantaged areas. My hon. Friend's constituents who are in particular need will benefit from that programme of tax credits, and from the Government's resolve to tackle poverty and get another million children out of poverty.


4. Mr. Hugo Swire (East Devon): If he will make a statement on his latest assessment of the state of UK manufacturing. [18685]

The Chancellor of the Exchequer (Mr. Gordon Brown): The Government's latest assessment of developments in the manufacturing sector was published in detail in the pre-Budget report. To support manufacturing, not only are interest rates the lowest for 40 years but on Tuesday we published our proposals for a research and development tax credit, and yesterday the Secretary of State for Trade and Industry announced a new best practice initiative involving £20 million. That follows our announcement of further cuts in small corporation taxation, and cuts in capital gains tax, which match the lowest corporation tax rates that this country has seen.

Mr. Swire: Three hundred and fifty thousand manufacturing jobs have already been lost since the right hon. Gentleman became Chancellor. Given that manufacturing investment fell in the last quarter at the fastest rate since the 1970s, how many more jobs does he expect to be lost in manufacturing under his chancellorship?

Mr. Brown: We are doing everything in our power to work with manufacturing industry, and I must remind the hon. Gentleman that more than 1 million manufacturing jobs were lost at the beginning of the 1990s, during the recession in which the shadow Chancellor was Employment Secretary and presiding over 15 per cent. interest rates.

Around the world, as the hon. Gentleman understands, United States manufacturing output has been cut by 6 per cent. There has been an 11 per cent. cut in Japan and cuts of approaching 20 per cent. in Singapore and the Asian economies, which are big manufacturing economies. Here, according to the figures published this morning, there has been a 3 per cent. reduction for manufacturing.

The difference between us is that we are prepared to take action to achieve what we can with the research and development tax credit, permanent capital allowances,

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the work of the regional development agencies, the new regional venture capital funds that are being set up and our sponsorship of the new manufacturing apprenticeships in manufacturing industry.

The division between the two sides here is that we are prepared to take the necessary action. Unfortunately, under the shadow Chancellor's plans the Conservatives would cut public expenditure by £50 billion, so they would be unable to help with training, investment, the regional venture capital funds and the permanent capital allowances.

Mr. Bill Olner (Nuneaton): My right hon. Friend is right not to take any lessons from the Conservative party on cuts in manufacturing jobs, having suffered the Thatcher years, but may I remind him that there are some short-term manufacturing difficulties post-11 September, particularly in the British aerospace industry? Can he give some short-term moneys to those companies to help them through what I am sure is a blip? There is no doubt that there are difficulties at the moment and they need to be addressed.

Mr. Brown: I am grateful to my hon. Friend, who takes a keen interest in the fortunes of manufacturing industry in his constituency and his region. Yes, we accept that we need to do more to help the aviation industry because of the events of 11 September. Yes, we have given extra assistance to companies in the aerospace industry. The new orders announced for some aerospace companies, including that from the Lockheed Martin consortium, will bring new jobs and new work to those areas, which is important for the long term.

I must tell my hon. Friend that output in food and drink, chemicals, cars and transport is up—our big problem is the information technology and computer sector, where there have been falls of nearly 20 per cent. in America and other countries, and also in Britain—so the manufacturing picture is not as bleak for some sectors as it is presented from the other side of the House.

It is important that we do what we can to help manufacturing industry and one way we have been able to help is getting interest rates down seven times this year. They are now 4 per cent., but 10 years ago, in a similar world slowdown, they stood at 15 per cent. under the shadow Chancellor's policies.

Matthew Taylor (Truro and St. Austell): The Chancellor is somewhat selective with his figures. Is not it a fact that the internationally exposed sectors are all in trouble in this country and have been since well before 11 September, that engineering and allied industries are experiencing a fall in output of nearly 10 per cent. compared with just a year ago and that nearly 400,000 people have lost their jobs in those sectors since 1997? He has said on at least a couple of occasions, but not in this place, that he believes that the fundamentals do not justify the current exchange rate. Does he still take that view and is not that the real background to many problems in manufacturing?

Mr. Brown: In answer to the first part of the hon. Gentleman's question, yes. In answer to the second part, a number of problems affect manufacturing industry, as he describes. We are dealing with world trade, which rose

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by 12 per cent. last year, but is rising by only 1 per cent. this year. It is hardly surprising that what he calls internationally exposed industries are affected by a slowdown in world trade.

I must tell the hon. Gentleman that, although the IT sector in particular has been hit because of what has happened to the American IT industry, car output and that of the transport sector in Britain have been going up. Over the past year, the increase for cars is 7 per cent. That is a means by which we not only sell to the rest of the world but provide for the domestic market.

The question is, do we have a Government who are prepared to take action where they can to help those industries that are in difficulty? The answer is that we are doing everything we can with permanent capital allowances, help for new investment, help for training and the work of the regional development agencies, which, as Conservative Members have acknowledged, help in individual industries. Where there are redundancies, the rapid reaction forces are moving in to help. People get jobs as quickly as possible. [Interruption.] The hon. Member for Buckingham (Mr. Bercow) laughs at the rapid reaction forces. Of course, under the Conservative party there would be no help for people who are made redundant. He wants to abolish the new deal; he thinks it is a waste of money.

The Conservatives would not have implemented the minimum wage or the working families tax credit and the hon. Gentleman would do nothing to help those people faced with redundancy. The difference between us is clear: we are on the side of people facing difficulty, but the Conservatives would do nothing to help.

Mr. Barry Sheerman (Huddersfield): Does my right hon. Friend agree that in less than three weeks there will be a real opportunity for British manufacturers to export across Europe? A single eurozone will make it very easy for small and medium-sized as well as large enterprises to export in a single currency.

Is it not a shame that yesterday, when the euro preparations group discussed preparations for the euro in the House with manufacturing leaders from the south-west, London and Northern Ireland, the Conservatives again refused to take their place at the table?

Mr. Brown: Given that 50 per cent. of our trade is with the euro area, it is important for us to maximise the advantages. That is one of the reasons why more than a million business leaflets have been produced to help small businesses prepare for the introduction of the euro. We will continue to do what we can to work with business during the preparations.

I agree with my hon. Friend that it is unfortunate that every political party in the House, from the smallest to the largest, has been prepared to join our euro preparations committee—an all-party committee of the House—except one. The one party that refused—I see an Opposition Member nodding, thinking about why it should have joined—is the Conservative party.

That is because the Conservative party appears to oppose the euro in principle. When the shadow Chancellor was Foreign Secretary, he said he would never say never; but when he was standing for the leadership of the Conservative party, he said that his position on a single currency was that he was opposed to it "in principle".

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Even if the economic benefits were proven, the shadow Chancellor would be opposed to the euro in principle. That is the state into which the Conservative party has fallen.

Mr. Howard Flight (Arundel and South Downs): The Financial Secretary has confirmed something that I raised on 19 July—that, in addition to the direct costs to industry of the climate change levy, there will be VAT windfall gains of £30 million per annum which will not be recycled in national insurance.

Is the Chancellor satisfied that effectively bribing industry with about two thirds of its own money and the token appointment of yet another tsar are the right policies for the industry in the face of a 4.2 per cent. fall in output over the past year—not a 3 per cent. fall; the latest statistics show a 4.2 per cent. slump—and the worst recession for industry since 1991?

Mr. Brown: I was wondering when the hon. Gentleman would appear. The Flight memorandum that we discussed on Monday had to be discussed without his being able to play a part.

The hon. Gentleman knows perfectly well that when we announced the climate change levy we cut employers' national insurance contributions in every company in the country. We therefore recycled the revenues gained from the levy: there is no gain to the Treasury. We have also set up a renewables fund to help people progress to more energy-efficient industry.

As for the hon. Gentleman's general position and his expression of concern about manufacturing industry, we must remember that his is the party which not only brought us 15 per cent. interest rates and lost us a million manufacturing jobs, but would refuse to do anything—through public expenditure or public investment—to help manufacturing industry. And as for the policy on Europe and helping manufacturing industry—[Interruption.]

Mr. Speaker: Order. I think we will move on now.

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