Government's Assessment as set out in the Pre-Budget Report 2001 for the Purposes of Section 5 of the European Communities (Amendment) Act 1993

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Mr. Edward Davey (Kingston and Surbiton): I, too, welcome you to the Chair, Mr. Cran. I see that the Minister has reached the last page of her speech, and I wanted to intervene before she resumed her place.

The Minister has made a nice tour d'horizon of the economy, and has put the Treasury line on record, which I am sure some will find useful. Will she tell us the Government's exchange rate policy?

Ruth Kelly: As the hon. Gentleman knows, we are committed to a sound and competitive exchange rate, over the medium term. The best way to achieve that is to pursue macro-economic stability. I have outlined the macro-economic measures that we have taken, with regard to fiscal policy and monetary policy. The hon. Gentleman will have an opportunity to speak on such matters, and I shall respond to his comments.

Mr. Davey: I am grateful to the Minister for putting her exchange rate policy on the record. Is it set out in the pre-Budget report?

Ruth Kelly: The hon. Gentleman knows our policy with regard to the euro, the exchange rate and the five economic tests. It is frequently repeated, and it is the subject of considerable debate on both sides of the House. We frequently say that the best way to deliver a competitive exchange rate is to deliver macro-economic stability, and I have set out the way that we aim to achieve that.

The Government are building a stronger economic future for the United Kingdom. We are meeting our objectives of achieving high and stable levels of growth and employment, and of creating a fairer society for all. Our economic policies are right, and they are in line with the objectives of the European Union. If hon. Members approve the motion, that will enable the United Kingdom to meet its treaty obligations, to provide information, and to participate fully in the important process of multilateral surveillance and economic co-operation, as provided for in articles 99 and 104 of the treaty.

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10.46 am

Mr. John Bercow (Buckingham): We are considering the Government's policies, and by the end of the proceedings we shall have considered them. However, consideration and approval are two different matters.

It is a delight to serve under your firm chairmanship, Mr. Cran, and to be subjected to your inscrutable gaze. It is also a pleasure to joust with the Minister, who, as always, represented, in her speech, a combination of charm, erudition and intellect, in broadly equal measures.

As I am supported in the debate by my hon. Friends the Members for Rayleigh (Mr. Francois) and for Taunton (Mr. Flook), that reminds me of what I have always known, in a very personal sense—that size is not everything.

The Minister, fairly, put on record the Treasury view, and some of what she said was correct and unexceptionable. She was described by my predecessor in this context, my hon. Friend the Member for West Dorset (Mr. Letwin), in the debate that took place on 16 July 2001, as possessing mellifluous tones. He said that, although he did not think that many people were awake during the debate, he was in no danger of falling asleep, as nobody did when they were listening to the Minister. I agree with that, but I hope that she will not take offence if I say that, although she has been blessed with mellifluous delivery, the words ''on message'' were probably invented to describe her.

However, I was slightly taken aback when the hon. Member for Kingston and Surbiton (Mr. Davey) said, as though it were a criticism, that the Minister had given us the Treasury line. That is not a fair criticism, because, if she had not given us that line, we would have been the first to point out any discrepancy. I suspect that the hon. Gentleman knows that.

There were several facts that—I am sure—pure oversight and the time of day, on a Monday, caused her to omit to mention. I do not wish to dilate at great length—although I might be persuaded to do so, if I am provoked, and that depends on hon. Members on the Government Back Benches. I do not know whether they will provoke me. I am looking at one or two of them, who are usually inclined to take part in such debates, but knowing the reputation of the Treasury Whip, the hon. Member for Bradford, South (Mr. Sutcliffe), it is unlikely that they will disobey orders. I am fearful of the consequences for them, if they do so. I say that, despite the fact that the hon. Gentleman is an extremely agreeable fellow. It is almost unimaginable that he is guilty of some of the things that have been alleged in the newspapers over the past couple of days. I put that on the record so that it is absolutely clear that I level no charge but am merely looking askance that it has been laid by others.

The hon. Lady did not mention several facts. Under the Government, the tax burden has soared from 35.2 per cent. to 38.2 per cent. as a proportion of gross domestic product over the past four and a half years. That is a matter of some concern, as that is a huge sum to be withdrawn from the economy. The effect of that withdrawal, some of which might have been necessary

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but parts of which have caused great damage, is that the United Kingdom has sacrificed between half and two thirds of the competitive tax advantage, relative to the member states of the European Union, that we enjoyed prior to the Chancellor's accession to office.

Mr. Edward Davey: Will the hon. Gentleman give way?

Mr. Bercow: I am itching to develop my argument, but I shall give way.

Mr. Davey: I hope that my comments will help the hon. Gentleman to develop his argument. For the record, will he say whether the Conservatives will give back to the people, or cut, taxes that the Government have raised?

Mr. Bercow: That was a helpful intervention, because it gives me the opportunity to confirm that the Conservative party remains committed to lower taxes. We continue to believe that low-tax economies are, on the whole, more conducive to the creation of wealth and likely to generate better living standards, and will, on the whole, be effective in providing incentives for improved work and productivity in the economy. If the hon. Gentleman is asking me precisely what our menu of priorities will be and what the detailed elements will prove to be in three or four years' time, I am disappointed in him. It is unreasonable, shortly after the last election, in which we were severely mauled, to expect us to set out our stall for the next election, in which we hope and intend not to be. As I recall saying of someone else in another context, if the hon. Gentleman is the sort of person who is in the business of offering us his prescription before he has first conducted his diagnosis, I can say only that it is a godsend to the people of Britain that he chose to enter politics and not to practise as a general practitioner.

The focus at present is on public services. If the hon. Gentleman challenges me on tax cuts, I would say that as of today, 10 December 2001, a reduction in taxes would not be the immediate priority of the Conservative Opposition. We are principally anxious to achieve an improvement in the quality of public services. That improvement will not depend exclusively on or be achieved solely by public expenditure, but that public expenditure is part of the mix seems so obvious that only an extraordinarily clever person could fail to see the point.

With some pride—one might even say hubris—the Minister discussed growth rates since her party came to office. She will be aware that between 1997 and 2000, the British growth rate did not compare at all favourably with that of the United States: ours was 2.7 per cent.; that of the United States was approximately 4.5 per cent. The growth rate in Euroland over the same period was 2.9 per cent.

I feel sure that it was an error of inadvertent omission on the part of the Minister that prevented her from dwelling on, explaining or apologising for that fact this morning. Similarly, I can imagine only that it was oversight on the part of someone, who is usually concerned with the intellectual search after truth, that she did not mention the terrible slump of Britain in the

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world competitiveness scoreboard since 1997, from ninth to 19th. Again—I point out these facts in passing, without wanting to embarrass the Minister—she will be aware of the declining share of world exports enjoyed by Britain since the right hon. Member for Dunfermline, East (Mr. Brown) became Chancellor of the Exchequer. That cut is from 5.1 per cent. of world exports to 4.5 per cent.

As a supporter of the Chancellor, who is embattled against the Prime Minister in a debate about whether to allocate available funds to public expenditure or to tax cuts for the lower paid, I am sure that the Minister would be the first to concede that a problem is involved. I have no doubt that she would say that she believes that the Tax Credits Bill, which will be introduced in the House this afternoon, will be beneficial. It might be; it might not be. We do not yet know and shall have to see the results. I know that the Minister, who is a stickler for factual accuracy, would not dispute that the poorest fifth of people in our society now pay substantially more of their income in taxation than they did when the Government took office. In 1997, the poorest fifth of the population paid 37 per cent. of their income in tax. According to the Office for National Statistics economic trends report of April of this year, that figure is now about 41 per cent. The poorest people are therefore paying a larger share of their income in taxation. That fact and the Government's claim, on the front of the pre-Budget report, to be ''Building a stronger, fairer''—I emphasise ''fairer''—Britain ''in an uncertain world'', do not readily cohere. I am putting the point mildly, with characteristic understatement. If the Minister has an answer to that point, whereby she will argue that it makes for a stronger, fairer Britain if the poor are paying a greater proportion of their income in taxation than before her party took office, I would be fascinated to hear it. I shall await with eager anticipation, bated breath and beads of sweat on my brow for her response to that point. I know that she will not forget it, but, if she does so in her reply, I know that she will not mind if I remind her of it.

The burden of extra taxes and regulation on business is an additional problem. I will leave aside the issue of tax for a moment, and focus on the issue of regulation. We are talking about regulation that overwhelmingly affects small companies. The reason for that is that the overwhelmingly majority of companies, by almost whatever yardstick one chooses to use, are small. At the last count, 99.6 per cent. of companies in this country employed fewer than 100 people. They accounted for about 57 per cent. of the private sector work force and generated two fifths of our national output. My point is that although a few very large companies employ thousands of people, the overwhelming bulk of companies in Britain employ very few people, and are disproportionately affected by the burden of regulation.

One of the difficulties that we discovered during the previous Parliament, which has not been ameliorated, still less remedied, in the current Parliament, was that the Government responsible for the regulation were

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unversed in the ways of business. I recall a particular debate, the details of which will no doubt be firmly imprinted on the Minister's mind, which took place on 7 March 2000. The debate was on burdens on business. It was a Department of Trade and Industry debate rather than one that fell within the auspices of the Treasury. I noticed, and that observation has remained with me, as will be apparent, that all six DTI Ministers in the House of Commons—there being one with business experience in the House of Lords—had two characteristics in common. The first was that each and every one of them, without exception, was a committed European federalist. The second was that none of them had ever worked in, let alone been the owner of, a business. That seemed to be a significant problem.

I shall not dilate on the subject of the right hon. Member for Hartlepool (Mr. Mandelson), as, sadly, we are not joined by him this morning. When he was Trade and Industry Secretary, he famously referred to one such regulatory burden—the parental leave directive—as being marginal, and argued that the cost of it accounted for only ''a tiny fraction'' of the total costs borne by business. That fact was indisputable but irrelevant. He was absolutely right that the parental leave directive accounted for only a fraction of the total costs borne by business, but it was an irrelevant observation. It logically follows that any one measure is likely to account for only a tiny fraction of the total costs borne by business, not least because of the plethora of regulations, directives and decisions that continually flow forth from the machinery of government and impact adversely on Britain's companies—no fewer than 3,865 in the year 2000 alone. The point is that that tiny fraction, which the right hon. Gentleman described as a marginal cost, is of the essence in business. He revealed his total ignorance of the operation of business.

The Minister will be aware, not as a former business woman but as a distinguished financial journalist who understands the economy—it is more than can be said for the right hon. Gentleman—that those marginal costs can make a critical difference between a company being able to take on another member of staff and not being able to do so; between keeping staff levels constant and having to make one or more people redundant; or, in a worst-case scenario, between surviving and going under. Many companies have gone under because they have been made bankrupt—many cite the regulatory burden as a motive force in bringing about that fate—or because they have ceased voluntarily to trade because they have given up the unequal struggle against the regulatory leviathan.

Do not take that from me, Mr. Cran—upstanding and industrious representative of the community and of the people of Buckingham in particular though you can testify me to be—but from an alternative witness: the Invest in Britain Bureau, upon whose words I am sure that the Minister regularly hangs. The bureau is a thoroughly worthy organisation, which continues to do excellent work, as it did when my party was in government. It said recently that this country is

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shooting itself in the foot in its capacity to attract inward investment because of over- regulation. These are serious matters.

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