Broad Economic Policy Guidelines

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Mr. John Wilkinson (Ruislip-Northwood): Following the deceptive question asked by the hon. Member for Luton, North (Mr. Hopkins), may I press the Minister on her endorsement of the need, stated clearly in the Council document, to maintain sound public finances in accordance with the stability pact? Is she satisfied that general Government lending as a percentage of the gross domestic product of the United Kingdom is set to grow from -0.1 in 2002 to -0.9 in 2003, -1 in 2004 and probably up to -1.1 in the financial year 2005-06? That is a steady worsening of the public finances, an adverse trend that is replicated in no other European Union country during that period. Are the Government proud of that projected record?

Ruth Kelly: I think that our record on the public finances is very impressive indeed. When this Government came to power, the public debt had doubled under the previous Administration. We took swift action to put that right and that has stood us in good stead to meet this time of new uncertainty. It has enabled us to reduce interest rates to their lowest level in 40 years and has enabled us to use fiscal policy now, just when it is needed to support monetary policy.

That is why we are committed to using the automatic stabilisers; it would be madness not to. The Government have introduced measures such as the golden rule on current finances and the sound investment rule for debt over the medium term, which have put us in a position of strength in relation to the public finances. Operating that fiscal framework alongside a clear monetary framework that has operational independence within the Bank of England, and which is no longer prone to political interference,

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enables us to steer a course through these uncertain times. We can be proud of our record on the public finances.

I would also point out that we are set to meet the Maastricht criteria very comfortably for 2001-02. The International Monetary Fund said in its recent report:

    ''The current nine-year expansion marks the longest period of sustained non-inflationary growth of the UK economy in more than 30 years. Output has increased by an average of 3 per cent. per year during 1993-2000, inflation has remained subdued, and unemployment is now at its lowest level in a quarter century. While activity has decelerated with the slowdown in world demand, this year the UK will grow faster than any other G-7 country.''

One reason why we can do so is that we use fiscal policy sensibly. We have a record of which we can be proud.

Dr. Palmer: Following the previous question, does the Minister agree that there seems to be a slight tendency towards a deflationary bias in some of the Commission's recommendations? We are familiar with the difference between the Bank of England's guidelines, which contain balanced and symmetrical targets for inflation not to exceed or fall below a certain level, and those of the European central bank, which has only the upper guideline—not to exceed a certain level. These recommendations have a similar tone: they advise in restraining Government spending and limiting economic policy on what could be called the upside. Does the Minister feel concerned about that?

Ruth Kelly: My hon. Friend makes an interesting point, but I point out to him that the Commission accepted that it exceeded its remit by commenting on our level of public spending. That is an issue that should clearly be left to national Government to determine. The only interest in that matter for the members of ECOFIN is in our having sustainable debt levels. It is important for that approach to be recognised, as it has been in the Council of Ministers. Therefore, I would not go as far as my hon. Friend in suggesting that there is any bias.

I agree with my hon. Friend, however, that the symmetrical inflation target for the UK has served us well in recent years, in allowing the Bank of England to take a more balanced approach to monetary policy in this country. It has moved us away from the policy introduced by the last Conservative Government, which kept inflation under 2.5 per cent. and did not view excesses on the downside as equally counter-productive as excesses on the upside. That development has been an important part of the improvement of the general macro-economic framework in this country.

Mr. Lidington: Do the Government support the commitment in the guidelines to reinforce competition by accelerating the liberalisation of the network industries, including railways?

Ruth Kelly: Clearly, we have been at the forefront of liberalising many of the network industries. For example, in 1998 we introduced the Competition Act to enhance productivity and to consider aspects in

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which competition could be improved. With British Telecom and the telecommunications industry, the Government have taken measures to unbundle the network and allow access where it was previously restricted.

The hon. Gentleman again makes specific reference to our transport infrastructure. I thought that I had answered that point at some length. It was the Conservative Administration's failed policies that led to the current debacle in the railway system. A coherent approach is needed that recognises that, alongside a sensible structure for overseeing passenger safety and putting passengers first, investment must be made in the public infrastructure. We are committed to doing those things.

Mr. Hopkins: I am delighted by my hon. Friend's restatement of the Government's commitment to increase public investment in public services. That is long overdue, and we still have a long way to go before we can repair the damage done to public services by previous Conservative Governments. I would like to go further than my own Government on that matter, and I hope to encourage them in that direction over the next few months and years.

Will my hon. Friend comment on the Council's extraordinary request that Britain should reduce its already low public spending to even less than 37.3 per cent. as a proportion of GDP, while suggesting that Denmark, with 49 per cent. of its GDP committed to public spending, should spend no more than that? I am happy with Denmark's level of public spending, but is it not extraordinary that there is one rule for Britain and another for Denmark?

Ruth Kelly: That is an interesting question, but I should point out that the guidelines are debated in Council. It is Ministers who accept or reject the Commission's recommendations, the broad economic policy guidelines and the country-specific guidelines. The Council recognised that it had exceeded its remit in commenting on our level of public expenditure. It is clearly outside its legitimate authority to make remarks on those matters. ECOFIN does not have an interest in member states' fiscal decisions on spending in particular areas of priority, or on the taxes that they raise to finance them. We made our case well about that, and others agreed with us. It is now established that such comments should not be made again.

Mr. Wilkinson: May I redirect the Minister's attention to her earlier answer to me? I was talking not about the record, but about the document, and asking why the trend projected for the UK in the Council document is towards budgetary deficit in the period to 2004 whereas for the other member states it is even towards surplus. Can the Minister comment on the reliability of the figures?

With respect to the Federal Republic of Germany, for example, the true figure is about 2.7 per cent. up against the relevant Maastricht stability pact upper limit. In the case of Italy, it will be noted from page 47 that with respect to one aspect of the stability pact—overall debt to GDP—Italy is twice outside the

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guidelines. Are not the figures to be taken with a large pinch of salt? They are out of date and the projections are unreliable.

Ruth Kelly: I do not follow the hon. Gentleman's line of argument, except to admit that by definition the figures are of course out of date. Events have moved on since they were prepared and when the matter returns to the Council in spring, the significant deterioration in the external environment will be taken into account in interpreting the figures.

I will not become involved in a debate about other member states' broad economic policy guidelines, but the hon. Gentleman has restated his point about our fiscal projections. I assure him that our fiscal projections are in line with a prudent, sensible interpretation of the stability and growth pact—one that takes into account the economic cycle, sustainability and the importance of public investment.

The hon. Gentleman must recognise that, unlike other member states, we use cautious assumptions to make our fiscal projections. I do not see any inconsistency between our approach and the broad economic policy guidelines.

Dr. Palmer: On page 23 of the Council recommendation document there are fairly general recommendations to promote the access to and use of information and communications technology, including the implementation of the electronic signature directive, adoption of the proposals on copyright, distance marketing, VAT and electronic invoicing, and the development and implementation of a strategy on ICT security. The Minister will not yet have seen a draft document from EURIM, the industry group that specialises in the subject. It suggests that there would be technical and public-acceptance difficulties in progressing electronic identification and authentication as fast as we would like. The subject should be a high priority. Does the Minister agree that that is the case? Will she press European partners to work with us to try to move the agenda forward? It is extremely important to our industry.

Ruth Kelly: My hon. Friend is obviously an expert on such matters, and I shall pass his comments on to the e-commerce Minister. I shall bear them in mind myself. We are firmly committed to the use of ICT. It is at the forefront of our initiatives to increase productivity and boost the knowledge-based economy. We want to ensure that people have access to the internet. We are committed to ensuring that everyone who wants access to the internet has it by 2005, and that 100 per cent. of schools have access to it as well. Alongside school access, we are putting in place a system of on-line centres based in communities, so that there is much broader access than in the past.

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Prepared 9 January 2002