Government's Economic and Financial Assessment

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Mr. Luff: I know that it is difficult to have a speech interrupted, but the Minister is raising important issues that are easier to address as we go along rather than in a later speech.

On children and taxation, will the Minister confirm the news in the weekend newspapers that the Chancellor is planning to introduce a stealth tax on middle-income families by removing children aged over 16 from the child benefit regime?

Ruth Kelly: I would not want to be drawn on pure speculation in newspapers.

Mr. Bercow: That sounds like yes.

Ruth Kelly: It seems that the hon. Gentleman is liable to believe everything that he reads in the newspapers.

The Chairman: Order. We do not want to get involved with any speculation in the Sunday newspapers.

Ruth Kelly: I think that I should move on.

The tax system should recognise all the everyday pressures on middle-income, as well as lower-income, families. The new child tax credit will be available to families with incomes of up to £58,000. During the first year of a child's life, families earning up to £66,000 will receive help.

Our reforms ensure that we have one seamless system that supports all families through universal child benefit, that recognises the costs of raising children that middle-income families face, and that gives most to those who need it most: people on lower incomes. We want fairness for families throughout.

Dignity for people in old age is the touchstone of a decent society. Whatever the rate of inflation, the basic state pension will increase by at least £100 a year every year. From next year, 5 million pensioners will gain an average of £400 a year per household from the pension credit. The combination of the minimum income guarantee, the new pension credit and new pensioner tax allowances will mean that the average pensioner household will be £1,150 better off next year, in real terms, than in 1997.

Public policy is all about choices, and we have made ours. We have chosen in favour of a stable economy with low inflation and low interest rates. We have chosen in favour of an enterprise society with low taxation, support for small businesses and a reduction of red tape. We have chosen in favour of a fair society and extra help for children, families and pensioners through policies that make work pay. We have chosen also in favour of a healthy society in which extra investment in a reformed NHS is funded through general taxation.

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I have outlined the programme set out in the Budget. We will send that programme to the European Commission with the approval of the House. We are fulfilling our commitment under the Maastricht Act to report our main economic policy measures and we are maintaining our position, which has been developed by the Government, at the heart of the European Union's policy process.

4.56 pm

Mr. Bercow: I echo the Minister in welcoming you to the Chair, Mr. Pike. I am sure that you will provide us with your customary balance of firmness and good humour as we debate these important issues.

The assessment that the Financial Secretary provided was upbeat and glowing and, indeed, its optimism was almost Panglossian. I am not sure—I suspect that many of my hon. Friends will not be sure either—that such an assessment is justified by the facts of our economic position and, especially, the wave of bad news that we have increasingly witnessed: bad news on productivity; bad news on regulation; bad news on company profitability; bad news on public sector inflation; bad news on pensions; bad news on strikes; bad news on budget deficits; bad news on growth; bad news on savings; and, indeed, bad news on the balance of trade.

Let us begin by addressing productivity. The Government seem curiously and unjustifiably complacent about poor productivity performance. It is especially unfortunate that the performance is as poor as it is because the Chancellor of the Exchequer has made a point of trumpeting the Government's commitment to improving performance on productivity.

Mr. Michael Clapham (Barnsley, West and Penistone): Will the hon. Gentleman give way?

Mr. Bercow: The hon. Gentleman seems unusually excited at a rather early stage of our proceedings. Of course I shall give way. I look forward to his intervention.

Mr. Clapham: Has the hon. Gentleman seen the results from Honda and Nissan this week? They show clearly that the companies have the most productive car factories in Europe.

Mr. Bercow: That is extremely good news. I do not cavil at it; indeed, I welcome it. In the interest of balance in the debate, I welcome the fact that the hon. Gentleman chose to make that point. No Conservative Member wants companies to do badly. Every Conservative Member welcomes companies doing well. [Interruption.] The hon. Gentleman, who is chuntering from a sedentary position, urges me to talk up the companies' performance. I am happy to say, ''Well done to those companies.'' The results are good news. They are good news for the companies' employees and they reflect customer confidence. They should be enthusiastically welcomed. However, I remind the hon. Gentleman of something that he knows well from his many years in opposition: the responsibility of my colleagues and I is to scrutinise,

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probe, question and harry the Government, and to hold them to account. If he thinks that it is my job—or pleasure—simply to make a speech extolling what is good rather than pointing out difficulties, shortcomings and challenges, he misunderstands the Opposition's role.

Mr. Luff: I should declare an interest because I own a Honda Civic that was built at the Swindon works. I remind my hon. Friend that the policy of attracting Japanese car factories to the United Kingdom was the policy of the Conservative Government. I had the privilege of working with the Secretary of State for the Trade and Industry at the time, Lord Young of Graffham, who was explicit that such factories needed to be here so that Japanese manufacturers could share their good practices with the rest of the British manufacturing industry. What was said by the hon. Member for Barnsley, West and Penistone (Mr. Clapham) is an endorsement of the Conservative Government's policy in that respect.

Mr. Bercow: My hon. Friend is entirely right, but I am not sure that such a policy was vigorously supported by the Labour party at the time. Lord Young of Graffham was a distinguished Secretary of State for Trade and Industry, although no more distinguished in that post than my hon. Friend as his specialist adviser.

I do not want to be diverted for a moment longer from the important issue of our poor productivity performance. With the endearing understatement that it has made its defining feature, the Red Book states that manufacturing productivity has fallen back. It goes on to say on page 42 that

    ''the UK registered a weaker productivity performance during 2001.''

It may well make such an observation. Over the year to March, we witnessed the worst such performance since the first quarter of 1991: an increase of only 0.04 per cent.. Output per manufacturing worker fell by 2 per cent. compared with the same period last year. The Office for National Statistics data show that output per job in the UK economy as a whole fell by 0.1 per cent. in the first quarter against the last three months of 2001. What are the Government going to do about it?

I shall move on from the subject of productivity to something that is inextricably bound up with it in a sense, and draw attention to the fact that, since the Government took office, new regulations have cost business £15,600 million or, if the Minister prefers, 24.4 billion euros. That is the assessment of the British chambers of commerce. What are the Government going to do about it?

According to a study carried out by the consultancy organisation, Experian, the profitability of UK industrial companies has fallen by 40 per cent. during the past three years. Measured by the average return on capital, profits had fallen for 12 consecutive quarters for the first three months of this year. They have been down by 23 per cent. in the past year, falling from 10.84 per cent. in the first three months of 2001 to 8.37 per cent. in the first quarter of 2002. What are the Government going to do about it?

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As for public sector inflation, the omens are not auspicious. Measured by the gross domestic product deflator for Government consumption, which is widely regarded as the most comprehensive gauge of inflation for goods and services used by the state, the position is discouraging. Between 1993 and 1998, the GDP deflator in the public sector rose by 2.2 per cent. a year on average. It reached 4 per cent. growth per annum by the end of 1999, 5.75 per cent. by the end of 2000 and 6.5 per cent. in the 12 months to the first quarter of this year. The increase is dramatic because public sector wages grew by 2.5 per cent. a year on average between 1993 and 1998, but accelerated to a rise of 4.5 per cent. a year between 1999 and 2001, and then hit 6 per cent. in the middle of last year before falling back a little. What are the Government going to do about that situation and the potential threat to our economic stability and fiscal position that it entails?

Mr. Horam: Are those the reasons why the United Kingdom, under the present Government, has fallen to 19th in the world economic forum's listing of the economic health of individual countries? I forget what it was under the Conservative Government.

Mr. Redwood: Fourth.

Mr. Horam: I thank my right hon. Friend for reminding me. Fourth to 19th is a pretty precipitate fall.

Mr. Bercow: My hon. Friend shows his characteristic perception. I have set out some of the principal reasons for the dramatic fall in our position that we have witnessed. That is true in the world's competitiveness league. As he will be aware, it is also true in many of the other league tables of international competitiveness. There are differences between them, but a common feature is that this country's position has been slipping. The Government cannot escape responsibility for that fact.

Michael Saunders of Schroeder Salaman says that, in the first quarter of this year, public spending—which is extremely relevant to our considerations—rose by 11 per cent. year on year, but that 59 per cent. was consumed by higher prices and wages, thereby reducing the real increase to 4.2 per cent. year on year. What are the Government going to do about that?

The Minister talked about the increases in expenditure that the Government were implementing, without giving any explanation of the figures. She took it for granted that those increases were to be regarded, in and of themselves, as good. She did not address the question of how the money was divided between commitment to services and expenditure on pay, and neither did she give any consideration—beyond mere rhetorical references—to the issue of reform of the public services on which these sums are being spent. High pay rises mean that the Government will have to spend ever-increasing sums to achieve any real increase in the quality of the public services, even if there is reform, thereby further feeding the phenomenon of public sector inflation. What are the Government going to do about that?

What does the Minister say to City analysts who warn that the country's Budget deficit could soar to £17 billion or £18 billion, which is no less than 60 per

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cent. higher than the Government had planned—that is their prediction, not mine. What is the Government's response to that, and what are they doing to try to avert that phenomenon?

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Prepared 8 July 2002