Broad Economic Policy Guidelines

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Mr. Kelvin Hopkins (Luton, North): I welcome the opportunity to debate European Union economic policy, but I am slightly concerned that it took six months for the guidelines to come before the Scrutiny Committee. I understand that we had the recess and the general election, but the procedure still took rather a long time. Will my hon. Friend comment on that?

Ruth Kelly: Of course. I am happy to take part in this scrutiny debate, which is an important part of Parliament's involvement in the process. The procedure over the past year has been slightly unusual, but events conspired against us. In the usual course of events, the guidelines would have been debated before the summer. This time, however, Parliament was

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dissolved for the election before the European Scrutiny Committee had the opportunity to debate the guidelines for 2001. It was not reconstituted until 17 July and did not, unfortunately, have a chance to consider the explanatory memorandum until later that month. As far as I am aware, it requested a debate only when it reported on the explanatory memorandum in the middle of October. Obviously, the terrible events of 11 September have put enormous pressure on parliamentary time, and I am afraid to say that this was the first opportunity that we could find in the parliamentary calendar to debate the guidelines. However, I am pleased to be here today to answer hon. Members' questions.

Mr. Lidington: I want to follow up the Minister's answer to my earlier question. Given that the growth forecasts for Europe in the Government's pre-Budget report are significantly lower than the 2.75 per cent. forecast in the guidelines, to what extent do the conclusions and policy recommendations in the documents need to be modified in light of events in the past six months?

Ruth Kelly: Clearly, the economic environment has changed substantially since the guidelines were published. They state that the assessment that will be made in 2002 of whether they have been met

    ''will take also into account major changes in the general economic environment.''

It would, therefore, be premature for me to say how growth outcomes might be judged in 2002. I reiterate that it is difficult in this uncertain climate to say precisely what the outcome for the EU economy will be. We made our best possible forecasts for many areas at the time of the pre-Budget report; they will next be updated in the Budget.

Jane Griffiths (Reading, East): We see before us a number of recommendations specific to member states. That for Italy clearly recognises the economic divide between northern and southern Italy. A similar economic divide exists in this country, although not to the same extent, but that does not appear to have been taken into account in the recommendations for the United Kingdom. Has attention or thought been given to that, and how might we address the north-south economic divide?

Ruth Kelly: I thank my hon. Friend for her point. The question of how regional divides can be addressed and bridged is interesting. It would be inappropriate for me, as a UK Minister, to comment on economic developments in Italy, which has commissioned and engaged in its own discussions on the recommendations in the broad economic policy guidelines that apply to it.

However, regional growth and productivity is an issue that UK Treasury Ministers have uppermost in their minds. Alongside the pre-Budget report, we published a separate document that addressed regional performance and how productivity in each region could be improved and increased to match the best in the country. We take the matter very seriously and are determined to address it.

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Mr. Lidington: I refer the Minister to page 20 of the Council recommendations and the commitment that is given, inter alia, to ''accelerate the liberalisation'' of the railway industry. Can the Minister say what the Government are doing to accelerate the liberalisation of the railway industry?

Ruth Kelly: One thing that we are doing is making up for the chronic underinvestment in our public infrastructure, particularly our transport infrastructure, over the past 20 or even 30 years. Investment in our transport infrastructure is set to increase by £180 billion over 10 years. That will increase the level of infrastructure spending by 75 per cent. in real terms, which will go a long way to improve transport infrastructure. It is a bit rich of the Opposition to talk about the liberalisation of the rail industry when the current crisis in the transport industry is a result of the Conservative party's policies, its failed privatisation and its lack of public investment in transport. We are attempting to take action on both fronts—to design a model that will put safety and passengers first, and to invest both public and private money—in order to ensure that in 10 years' time we have a transport infrastructure that is among the best in the world.

Dr. Nick Palmer (Broxtowe): May I ask a technical question? There is always a tension in independent reports between the need for completely autonomous assessment and the need for constructive dialogue. Can the Minister advise at what stage during the development of these reports the British Government were involved and consulted? How far does she feel that we are co-authors of the final document?

Ruth Kelly: I would not go so far as to say that we are co-authors. Clearly, our views on the economic environment in the United Kingdom were taken into account when the broad economic policy guidelines were drawn up. They were debated at ECOFIN among all Finance Ministers, and we had an opportunity to look at the draft and to make comments on the guidelines. As I pointed out in my opening speech, we removed from the draft broad economic guidelines a reference that we thought was wholly inappropriate and exceeded the Commission's remit.

The independence of the process is demonstrated by the fact that the Commission was willing to state what it first thought but was prepared to be swayed by our argument that it had gone beyond its remit. Of course, the UK and other member countries are closely involved. There is dialogue with the Commission, at ministerial and official levels, concerning the state of our economy and the measures that we are taking to boost productivity, raise the level of growth and increase the number of jobs in our economy.

Hywel Williams (Caernarfon): The hon. Member for Reading, East (Jane Griffiths) has already referred to regional inequalities. I want to refer to national inequalities in labour market conditions. I note from the documents that the Commission recommends active measures targeted at those communities most prone to the risk of concentrated and long-term

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unemployment. I want to impress on the Minister the importance of targeting and ask what the Government are doing about it. In case she is tempted to refer to the objective 1 funding for west Wales and the valleys, one of the measures introduced to target unemployment, I should inform her that those measures have been greeted with widespread disappointment in Wales in the past 18 months.

Ruth Kelly: The United Kingdom's success in job creation and the flexibility of its labour markets was recognised explicitly by the Commission and, whereas most member states received two or three recommendations on their labour markets, the UK received only one, which was, more or less, to continue the strategy that we are already undertaking to target measures on those who most need to be reintegrated into the work force. For example, we are helping disabled people to find work through the new deal for disabled people. I was pleased to see that the pilot was set up in my constituency, so I have first-hand experience of the measures that we are taking on that front. We have introduced measures on tax credits to help people to move from long-term unemployment into the job market. We also agreed that we should continue the process of targeting help on lone parents.

The hon. Gentleman is probably well aware of the measures that we are taking, through the new deal for lone parents, the working families tax credit and the child care tax credit, to help lone parents move from long-term inactivity into work. We are also continuing the process of reaching out to ethnic minorities. The Government will invest £15 million in the next three years to help people in those communities to find work.

We are committed to achieving balanced economic growth throughout the UK. We certainly aim to promote productivity and to increase employment in all regions, especially those that suffer from the worst problems of long-term unemployment. As one of the tools to achieve that aim in England, we are using regional development agencies to co-ordinate the economic strategies for each region alongside regional venture capital funds, which will promote entrepreneurship and encourage job creation.

We are also investing in communities through the neighbourhood renewal fund and new deal for communities, so it is not only objective 1 status that the Government are trying to obtain for disadvantaged regions. We are using a vast array of tools to ensure that people are best equipped to move from unemployment or long-term inactivity back into the work force.

Mr. Hopkins: The guidance focuses on economic stability. I am sure that the Minister would agree that there are two types of instability—boom and bust. I am concerned in particular that the effect of the growth and stability pact, but also the general thrust of European policy, is to constrain excessive spending and, therefore, to deal with the tendency towards boom, when in fact we are tending towards bust, for

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which a more relaxed policy, which might go beyond the restrictions of the growth and stability pact, might be more appropriate.

Ruth Kelly: I agree with my hon. Friend that we need to interpret the growth and stability pact in a prudent and sensible way. We need to examine the matter in an intelligent fashion and the pact needs to be flexible enough to deal with different economic climates. As has been recommended in the broad economic policy guidelines, the UK is using the automatic stabilisers as much as it can, which injects an element of flexibility and allows fiscal policy to support monetary policy in these testing times.

When there is an external shock such as that which occurred after 11 September or as might happen to the UK as a result of a downturn in its export markets, it is important to have a degree of flexibility. It is also important to allow countries to ensure that they prudently maintain overall general Government debt levels at around 60 per cent., as laid down in the stability and growth pact, while allowing sufficient room for countries such as the UK to tackle chronic, long-term underinvestment in our public services. We agree that an element of flexibility is necessary and we are committed to a prudent interpretation of the stability and growth pact. As I have said, our approach has been recognised in the broad economic policy guidelines.

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Prepared 9 January 2002