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

[back to previous text]

Mr. Davey: Again, as in his speech, the hon. Gentleman does not refer to the matter at hand, which is the pre-Budget report that we are sending to the European Commission. However, I shall respond to his point. Other Liberal Democrats and I are worried about the regulatory burden. My hon. Friend the Member for Twickenham (Dr. Cable), who, as our spokesman for trade and industry, speaks on such matters, has regularly raised the issue. Indeed, some time ago—it is not a new development—we published proposals that identified 25 major aspects in which we would reduce regulation on business. I am afraid that the hon. Gentleman has again failed to make his political point.

Mr. Bercow: Will the hon. Gentleman give way?

Mr. Davey: Does the hon. Gentleman really want to have another go?

Mr. Bercow: Indeed, I do.

The trouble with the hon. Gentleman is that he erects Aunt Sallies and is surprised when they are knocked down. I am not mistaken on this point, and I was not mistaken in my earlier comments about our position on Bank of England independence. If the hon. Gentleman reads the Hansard record, he will find what I said about our current position on the matter, which is in no way discredited by his historical exegesis.

Does the hon. Gentleman accept that the question of the regulatory burden is directly relevant to our discussion of the pre-Budget report? One of the issues involved is productivity. Does he accept that if managers in companies must spend 12 hours a week complying with Government and European legislation, regulations and directives, they are much less likely to improve their productivity? Why does he not appreciate the direct relevance of the point about the regulatory burden to the debate? He should be able to do so.

Mr. Davey: I am grateful for that intervention. The hon. Gentleman has a small point: the regulations do relate, as a micro-economic reform, to productivity, which is mentioned in the report. As I said, my party and I share his anxieties, which is why we published recommendations on the matter. However, I do not believe that he can argue that that small point is central to the issue that we are trying to debate today—whether the report will represent the UK's interests in the best possible way to the European Commission. My argument is that it does not, for the reasons that I outlined.

I shall take a few more moments of the Committee's time to explain some of genuine anxieties involved, such as that relating to the trade deficit, on which the hon. Gentleman touched. We are experiencing a period of sustained trade deficits, which is a cause for anxiety, because it might impact on the exchange rate

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and, therefore, inflation and interest rates, as the MPC reacts. Indeed, that is one of the risks for the UK's short to medium-term economic performance.

I shall not dwell on that risk too long, however, because, as many other commentators both in the Treasury and outside have said, a sterling crisis driven by financial markets worried about the UK's sustained trade deficit position is unlikely. However, it is a risk, and in such a report I would have expected the Government at least to give a view on and discuss the matter. The Bank of England may do so in the MPC minutes, and in its evidence to the Treasury Committee it discussed that risk. It is worried about the two-speed economy, whether it might lead to a sterling crisis and the impact on inflation. The Government seem to ignore that entirely, except in one line, which I shall quote, because it shows how inadequate the report is on the matter. Paragraph A63 on page 160 refers to future forecasts of the current account deficit and import and export volumes. It ends by saying:

    ''However, a more prolonged world slowdown or stronger than anticipated household consumption would pose risks to this forecast.''

That is all that is said about this major aspect, which is a risk and should be the major concern of macro-economic policy makers. However, it is not dealt with in the report.

I have a further worry that I share with the Committee. Although the risk is mentioned in that throwaway line, it is greater than the line suggests. The table on page 159 relating the forecast for trading goods to the balance of payments problem contains interesting forecasts. The forecast rate of growth of exports for the remainder of this year and next year is very low, and lower than the rate of growth for imports. The reasons are obvious: the United Kingdom is growing faster than the remainder of the G7 and, indeed, most Organisation for Economic Co-operation and Development countries. Therefore, one would expect imports to be sucked in by that higher growth. We all know about the collapse of world demand, which is why export growth has slowed. However, miraculously, in 2003 and 2004, the forecast is for export growth that is marginally above import growth. That is a huge change.

The forecast might be valid if there is a big increase in world demand, but it is surprising that export growth will suddenly outstrip import growth. That would mean, at least, that our balance of payments problems would be stabilised. The forecast is surprising, and I am worried that the Minister considers that she is able to send such a forecast to the European Commission.

I do not claim to be a macro-economic forecaster—I read various forecasts that come from institutions and firms—but I am worried that the export forecast is optimistic. If we have an optimistic forecast for exports that underpins a balance of payments forecast that is not terribly good and also consider that the other matters that I outlined are on the downside, there is a real worry about the core forecasts for this country's external trade performance. Given that the forecasts will go to our EU partners, the matter may

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not be dealt with as seriously as it should be because the risk is not addressed and the forecast is not as robust as the Government should make it.

I have outlined my main worries about the pre-Budget report in respect to the matters on which the European Commission will consider it. The hon. Member for Buckingham made a number of telling points and I agreed with many of them, such as the Government's performance on the health service and the fight against crime and their lamentable performance on education. However, in this debate, I wanted to address my remarks to the content of the pre-Budget report and explain to the Government why the report is inadequate and should not be sent to the European Commission to represent this country's interests.

11.48 am

Mr. Francois: I shall not detain the Committee for too long, but I begin by echoing the remarks of the Front Benchers by welcoming you, Mr. Cran, to the Chair.

I shall follow up some of the points that my hon. Friend the Member for Buckingham made about the deficiencies of the way in which the Government run our country. However, after struggling with myself, I am afraid that I must give in to temptation and follow up the hon. Member for Kingston and Surbiton on a few of the points that he made and, I hope, correct him on one or two of them.

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

Mr. Francois: I have not even begun to correct the hon. Gentleman yet.

Mr. Davey: I am happy to deal with the hon. Gentleman's points about my speech, but I implore him to allow the Minister a few minutes to reply to the debate.

Mr. Francois: I most certainly shall do so.

I tell the hon. Gentleman that, as my hon. Friend the Member for Buckingham pointed out, all hon. Members hold surgeries, and we do not always tend to be as pious about that as he. I was just finishing some correspondence before I dashed over here, following one of my surgeries on Saturday. He was therefore over-egging the pudding slightly.

I want to make three points about my hon. Friend the Member for Buckingham's comments on the exchange rate. First, he described the decision on whether to join the euro as a crucial economic decision. It undoubtedly has important economic aspects; that is unarguable. However, the overall decision has critical political implications. When it is boiled down, it is a question of self-government, and whether the people of the United Kingdom want to continue to govern themselves by electing their own Government. Therefore, categorising that extremely important decision as purely economic is a misnomer. It threatens to miss out an important aspect of a fundamentally important debate.

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Secondly, the hon. Member for Kingston and Surbiton mentioned the Bank of England Act 1998 and said that he had served on the Committee that scrutinised that measure. I was not a Member at that time and therefore could not participate in that process. However, I have examined that legislation, and a key part of the Act is that it contains a reserve power, whereby Parliament can, in extremis—in a national emergency, for instance—take back those powers that are given to the Bank of England, if it feels that it must exercise those powers itself for a period. That is an important constitutional safeguard. However, the Maastricht treaty and the arrangements for the euro have no such safeguard whatever. As my hon. Friend the Member for Buckingham said, it is irrevocable—no reserve power exists. That is an important point when discussing the utility of the Bank of England as opposed to that of the European central bank in Frankfurt, as far as the people of this country are concerned.

Mr. Bercow: My hon. Friend is absolutely right. The treaty of Maastricht and the treaty of Amsterdam, updated as it is, make it clear that the European central bank should not seek or take instruction from an outside body on its conduct of monetary policy. My hon. Friend will recall that the treaty goes on to say that

    ''governments and Member States undertake to respect this principle and not to seek to influence the members of the decision-making bodies of the ECB or of the national central banks in the performance of their tasks.''

On the question of the sacrifice of independence, is it not, from our point of view, game, set and match?

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