Broad Economic Policy Guidelines

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Mr. Wilkinson: I was looking at the euros and wondering whether Gresham's law would apply to them, as they are such a scruffy set of notes. In history, the value of a currency, the power of an economy or the strength of an empire has often been reflected in the quality of its currency. I suspect that that will be the same for the euro.

Paul Farrelly: I thank the hon. Gentleman for his remarks. When I saw the notes slip back into his wallet, I thought that they looked rather crisp and neat. I encourage him to try to spend them in the bar.

In her reply, my hon. Friend the Minister will say that it is a fallacy to suggest that we cannot serve our own interests by co-operating with and visiting Europe. We serve our own interests by doing exactly that, because Europe is our main trading partner. The sort of remarks with which the hon. Member for Ruislip-Northwood opened his speech represent isolationism and myopia of the worst sort. I sympathise with the question asked by my hon. Friend the Member for Broxtowe, who asked whether the hon. Gentleman would consider a currency for Ruislip-Northwood in isolation.

I understand the points made by the hon. Member for Aylesbury about the taxation precedent, but I think that he over-egged them. After all, the broad economic policy guidelines are advisory. Is he saying that Conservative Ministers would not hear advice from anyone on economic policy, whether people or bodies inside or outside the country? If so, perhaps that is why the Labour Government inherited the country and its infrastructure in such a wretched state in 1997.

The hon. Gentleman cited the example of a potential precedent on energy taxation. Surely he concedes that taxation was an important consideration in any single market for goods or commodities. I note that he has not produced a list of single markets that he would rule in or out. As an example, we could consider the case—pardon the pun—of the Scotch Whisky Association. I am sure that it would be grateful for the promotion of a market in which tax harmonisation was a central feature. Should Opposition Members not keep a more open mind on such matters, and treat them on a case-by-case basis? They may find that they benefit their constituents and the country by doing so.

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12.37 pm

Ruth Kelly: We have heard some interesting points in debate today, many of which were entertaining. Before addressing some of the issues, it might be useful for me to remind hon. Members of the motion, which asks the Committee to support

    ''the Government's welcome for the publication of the Guidelines in giving operational content to the conclusions of the Lisbon and Stockholm summits, in reflecting the importance of structural reform in tackling successfully the challenges of globalisation and competitiveness, and in promoting employment and social inclusion''.

Due to this sitting of the Committee, the United Kingdom will be enabled to make an effective contribution to economic policy co-ordination in the European Union, including the promotion of economic reform in the EU.

The hon. Member for Aylesbury, among others, criticised the length of time that it has taken for the debate to take place. I apologise for any influence that the Government have had on that delay, and I want to make some points that the Committee may find interesting. Since the broad economic policy guidelines were agreed, the process of a general election inevitably caused an interruption, as has been widely recognised. During that interval, the Treasury sent an unsigned explanatory memorandum to the Clerks of the Committee to set out the broad thrust of the economic guidelines. It was sent on 4 June, at one of the earliest opportunities. As the Minister responsible, I sent a signed explanatory memorandum that took members of the Committee through the points made in the guidelines only two days after the Committee was reconvened.

I would add in response to the hon. Gentleman's suggestion that the Government may have something to hide, that in the explanatory memorandum published in June 2001 we emphasised that we had managed to have the recommendation on our public expenditure removed from the broad economic policy guidelines because we felt that it exceeded the remit of the Commission.

The Government have nothing to hide. We think that the process of multilateral surveillance, of which the broad economic policy guidelines form a significant part, is important in the process of learning from other member states in an EU context. We see the commitment towards economic and structural reform as vital components of our economic strategy and we are pleased that the rest of the EU also accepts that. We would like to encourage the process to gain in momentum so that we increasingly learn from best practice in other countries and from peer review. The process has a lot to offer the UK and other EU Governments.

When Parliament was reconvened, it took some time to arrange this debate. However, the events of 11 September put unusual pressure on parliamentary time. I would emphasise that personally I welcome the process of parliamentary scrutiny. Had it been possible to arrange an earlier date, I would have welcomed the opportunity to come the Committee and engage in that process.

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The hon. Member for Aylesbury made much of the fact that the delay in holding this debate made the forecasts out of date and weakened its purpose. However, I would emphasise that our most recent projections, as well as the broad economic guidelines, show that the UK's public finance position and projections are well within the Maastricht criteria. There is no question of us not meeting the Maastricht criteria and it is widely recognised that our public finances are in a prudent and sustainable position.

I would like to quote the statement of the December 2001 IMF article IV mission on the UK, which states that

    ''In terms of prudence, cyclically adjusted overall deficits of about 1 per cent. of GDP over the medium term would not compromise the strong, underlying fiscal position achieved in the late 1990s, as highlighted by the projected stability of the public debt ratio at a modest level of 31 per cent. of GDP''.

We foresee that that ratio will continue for some years to come at around that level. Although we recognise that there has been significant change in the external climate since the guidelines were drawn up, the UK still comfortably fulfils the criteria and any prudent interpretation of the stability and growth pact. In the spring, the new economic outlook will be taken into consideration and debated as part of this year's round of multilateral surveillance. The process will once again come up for debate at the EU level.

There has been much mention of the stability and growth pact itself and issues such as the German deficit. I will not, at this stage, get into a detailed discussion of that pact. I recognise that at 2.7 per cent. of GDP, the German deficit is quite close to the 3 per cent. laid down, but I do not think that it would be fruitful, in advance of discussions that will take place at EU level, to get into a detailed discussion of how we think the pact should be interpreted. It is important, however, that the pact is interpreted in a sensible and prudent way that takes account of the need for public investment and the use of the automatic stabilisers.

I am pleased that the hon. Member for Aylesbury supports the Government's objectives of promoting labour market reform, competition and the liberalisation of the financial services market. I would emphasise that these objectives are more important in a deteriorating economic climate than they were even 12 months ago. However, as he made so much of the references in the report to liberalisation in the transport sector, I should say a few words on that subject. It is worth pointing out that the United Kingdom has one of the most liberalised railway systems in Europe, and that liberalisation has gone so far and was done so haphazardly—to put it charitably—that there is much to correct in that system.

The Government's preferred private successor to Railtrack will continue the process of liberalisation, but it will be much more focused. There will be a far more efficient delivery of infrastructure investment within that framework, and more co-operation with the private sector train operating companies and maintenance companies to ensure that the needs and interests of rail passengers are put first. The process of granting the train operating franchises is highly

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competitive and fully focused on delivering better passenger services. I emphasise that the franchises come up for reletting in the next three years.

The economic guidelines specifically recommend that the investment that the Government announced in their 10-year plan should be delivered. The guidelines recommend that

    ''there is adequate co-ordination between different public bodies, regulators and private firms.''

That is a lesson that has been hard learned, and one for which the previous Conservative Administration were responsible.

The hon. Member for Aylesbury referred to taxation and expenditure and made various references to the comments in the report on VAT structures. I hardly need to say to him that tax is a matter of national competence and should be determined at member state level. We have in no way jeopardised or interfered with our right to set tax at a national level by signing up to the broad economic policy guidelines. We retain a national veto over taxation measures and will continue to argue that there should be no greater tax harmonisation.

The guidelines are non-binding on member states. As part of the policy of multilateral surveillance, they are an important part of the process of learning from each other. The Commission's recommendations are produced for all countries and areas to be debated by Governments of member states. The Council of Ministers, not the Commission, has the final say on the content of documents such as the broad guidelines.

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Prepared 9 January 2002