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House of Commons

Thursday 24 January 2002

The House met at half-past Eleven o'clock


[Mr. Speaker in the Chair]


City of London (Ward Elections) Bill

Order for consideration, as amended, read.

To be considered on Monday 28 January at 7 o'clock.

Oral Answers to Questions


Mr. Speaker: I am sure the House will understand why the Chancellor of the Exchequer is not here today. I know that Members will want me, on behalf of the House, to send him and his wife Sarah our sympathy and best wishes.

Hon. Members: Hear, hear.

The Chancellor of the Exchequer was asked—


1. Mr. Desmond Swayne (New Forest, West): When he last met the Governor of the Bank of England to discuss the exchange rate against the euro. [27551]

The Chief Secretary to the Treasury (Mr. Andrew Smith): The Chancellor meets the Governor regularly, and they discuss a wide range of issues.

Mr. Swayne: That is a matter of great comfort. Ministers have previously said that they have no intention of entering an exchange rate mechanism between sterling and the euro. Will the Chief Secretary now rule out absolutely the question of an exchange rate mechanism prior to any arrangement for joining the euro?

Mr. Smith: We have made it clear that we have no intention of rejoining the exchange rate mechanism. I am happy to confirm that that is indeed the policy.

David Taylor (North-West Leicestershire): Following the letter in The Guardian this week from numerous Labour colleagues urging the Government to ignore the costly distraction of the euro, will the Chief Secretary discourage his more zealous Cabinet colleagues from

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trying to pre-empt the debate on this issue, especially given the fact that the five economic tests are increasingly as obscure and ambiguous as tests set by Edexcel?

Mr. Smith: There is no inconsistency between investment in high-quality public services and a policy on the euro that is in Britain's economic interests. The truth is that we are delivering on both, whereas the Conservative party could do neither.

Matthew Taylor (Truro and St. Austell): Will the Chief Secretary clarify an issue that seems to be dividing the Government? Does the Treasury maintain the view that the five tests can be answered clearly and unambiguously in economic terms, or is it a political test, as the chairman of the Labour party has suggested?

Mr. Smith: The five economic tests are clearly set out, and, as we have said time and again, it is our policy that it must be clearly and unambiguously in Britain's economic interests before we would recommend entry to Cabinet, to Parliament and in a referendum. When that recommendation is made, the issue will of course enter the political process and be the subject of political debate, but the economic tests must clearly and unambiguously be satisfied in the country's interest before we recommend entry.

Mr. John McFall (Dumbarton): Does the Chief Secretary agree with me that we cannot have everything in this world, but that we do not want high interest rates, high unemployment and instability in finances, to which the shadow Chancellor is inextricably linked? We want low inflation, low unemployment rates and stability in public finances. Does my right hon. Friend agree that fiscal autonomy for individual member states is important? Will he and the Chancellor resist every attempt at harmonisation of taxes in Europe, ensure tax competition and that our policy delivers our economic stability and social justice objectives?

Mr. Smith: As I made clear in the Economic and Finance Council this week, the Government's priority is economic reform. As my hon. Friend says, we believe in tax competition, not tax harmonisation.

Sir Peter Tapsell (Louth and Horncastle): It is meaningless for Ministers to go on saying that they will never join the exchange rate mechanism but that they hope to join the single currency in certain circumstances. If we were unwisely to join the single currency, we would, in effect, automatically be members of the exchange rate mechanism with no opportunity to get out of it, as we were able to do in 1992. Will the Chief Secretary take on board the fact that the concept that there might one day be a right rate of exchange at which sterling could join the euro is nonsense? The right rate of exchange for Britain changes from day to day, and from hour to hour. Would he accept that the economic crises that overtook Thailand and now Argentina stemmed primarily from the fact that their currencies were on a fixed rate to the dollar?

Mr. Smith: I thought that the leader of the Conservative party had urged his colleagues not to be monomaniacs on this issue, but it seems that they are not listening to him. As the Commission confirmed last week,

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flexibility on the ERM condition has been shown to other entrants to the euro in the past. I repeat that we have no intention of rejoining the ERM. The sustainability of exchange rates will be factored into the economic tests on the sustainability of convergence.

Mr. Jim Cousins (Newcastle upon Tyne, Central): Is the present exchange rate with the euro, which has been sustained for about four years, consistent with the Government's longer-term policies for growth and rising employment?

Mr. Smith: As we have made clear, we do not maintain a running commentary on satisfying the five tests. That assessment will be undertaken rigorously, and only if it is in Britain's economic interests, unambiguously and clearly, will we join.

Adam Price (East Carmarthen and Dinefwr): Has the Chief Secretary read the report of the Ernst and Young Item club of economic forecasters, published this week? It argues that there has never been a better time for the Government to adopt an active exchange rate policy to bring about a more competitive exchange rate.

It is surely no coincidence that there has been virtually no growth in output and manufacturing since the pound appreciated five years ago. As the Secretary of State for Trade and Industry has said,

Will the Government do something to make it right? Will they bring down the level of the pound by intervening in the exchange markets?

Mr. Smith: No, I have not read the report that the hon. Gentleman mentioned. As for what he says about the exchange rate, I have already made it clear that sustainability of convergence, one of the economic tests, would cover that.

Let me tell the hon. Gentleman, and others who share his view, that attempts by this country in the past to steer the economy by means of exchange rates were an unmitigated disaster.

Mr. Michael Howard (Folkestone and Hythe): Yesterday the Secretary of State for Trade and Industry said:

Last week the Economic Secretary to the Treasury said:

Which of them is right?

Mr. Smith: My right hon. Friend the Secretary of State for Trade and Industry was rightly identifying the fact that manufacturers exporting to the eurozone are having to cope with the weakness of the euro. That is why we are taking steps to help manufacturing industry with the research and development tax credit and the cuts in business taxation. What is most important to manufacturing industry, as to other businesses, is that we continue to deliver a platform of economic stability. What

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manufacturers certainly do not need is a return to the 15 per cent. interest rates—for a whole year—and the 10 per cent. inflation that they experienced when the shadow Chancellor's party was in government.

National Health Service

3. Laura Moffatt (Crawley): What changes he plans to NHS spending commitments. [27553]

The Chief Secretary to the Treasury (Mr. Andrew Smith): As the Chancellor has previously announced, NHS resources in the UK are planned to reach £69.5 million by 2003–04. That represents an annual average increase of 5.7 per cent. in real terms over the period 2001–02 to 2003–04. Plans for future years will be set out in the 2002 spending review.

Laura Moffatt: Towns such as mine are having to cope with unprecedented spending on their public services, especially those provided by the national health service. Rightly, they—and I—want to hear from the Treasury team that the commitments are real and sustained, and will produce the public services that we so richly deserve. Is it not good to hear that spending is sustainable, and will benefit our communities?

Mr. Smith: I know how actively, energetically and effectively my hon. Friend has campaigned for health services on behalf of her constituents. She is entirely right. It is because the Government made the tough decisions required to establish the monetary and fiscal framework that the country needs, because we reduced the millstone of debt that we inherited from the Conservatives, because we placed the public finances on a sound basis and made the economic fundamentals strong, and because we are maintaining a platform of economic stability that we can and will sustain investment in our front-line services, which would be at risk if the Conservatives ever came near them.

Mr. Hugo Swire (East Devon): Is the Chief Secretary concerned that the savings ratio has fallen by a third in the past year?

Mr. Smith: In fact, the savings ratio has been higher than the low point it reached under the—

Mr. Speaker: Order. The savings ratio has nothing to do with this question.

Mr. Andy Reed (Loughborough): Rightly, constituents compare the state of the NHS in this country with other parts of Europe. However, NHS funding here is much lower than elsewhere. Last year, the Chief Secretary confirmed to me in a parliamentary answer that Britain remains one of the lowest tax countries in Europe; it is third from bottom. When will we bring in the resources required from those most able to pay—higher rate taxpayers—to ensure that we have financial security for the NHS not just in the short term but in the long term?

Mr. Smith: The share of GDP invested in the NHS was 6.2 per cent. under the Conservatives. It has risen from 6.9 per cent. to 7.4 per cent. this year. It will be 7.6 per cent. next year and reach 7.7 per cent. in 2003-04

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as we move towards achieving the European average. On my hon. Friend's comments on taxation, we will keep each and every promise on taxation in our manifesto, on which both of us fought the general election.

Mr. Michael Howard (Folkestone and Hythe): I am afraid that if the hon. Member for Crawley (Laura Moffatt) wants an extra £200,000 for her hospital, she will have to ask rather more biting questions than she did a moment ago.

Whose fault is it that the NHS underspent by £700 million last year?

Mr. Smith: The figure to which the shadow Chancellor refers is just 1.5 per cent. of the NHS budget. Last year's health underspend was lower than in just about any other Department. With end-year flexibility—this did not happen under the Conservative Government—Departments and agencies can carry forward money from one year to the next. A third of that money was specifically earmarked for expenditure which was known to be coming forward. The NHS plans to spend all the money that it has been allocated for this year.

Mr. Howard: In view of last year's history, how can the Chief Secretary possibly explain the letter from the chief executive of the south east region of the NHS, in which she asks trusts in the region, including in my constituency, to reduce spending in the current year by £60 million? Is it not clear that, from top to bottom, despite the heroic efforts of the doctors and nurses who work in it, the NHS is in a state of crisis?

Mr. Smith: I understand that the pressures to which the shadow Chancellor refers arise from extra prescribing costs during the year. There is no doubt that his trust, along with every other trust, is getting a very substantial increase in resources under this Government: a real increase on average of 5.7 per cent. year on year, more than twice the level that was provided by the Conservatives. When the Leader of the Opposition accuses NHS staff of treating patients no better than dogs, that is a grotesque slur on NHS staff dedicated to the principles of a caring service.

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