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18 Nov 2002 : Column 385—continued

Mr. Brown: The trade deficit rose to 4 per cent. of gross domestic product under the last Government. It is now around 2 per cent. of GDP. While it is obviously better when exports are rising faster than imports, the hon. Gentleman must recognise that world trade has virtually stalled over the past two years.

I want to say something about our responsibilities in a more insecure world and to make two announcements. This is the first Queen's speech since the tragic events of

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11 September. Over the past year, we have worked ever more closely with the United States of America and other authorities not only to confront the threat of terrorism but to cut off the finance that makes it possible. I can tell the House of the progress that we have made, starting with the $100 million of assets of more than 100 organisations and 200 individuals suspected of terrorist financing that have been frozen.

The new terrorist finance unit has been passed 3,500 suspicious reports, and 600 have been referred to Scotland Yard. There have been 20 arrests in connection with terrorist fundraising, and 15 people have subsequently been charged. The first conviction for terrorist financing has taken place in the United Kingdom under the Terrorism Act 2000. As the House knows, police have acted swiftly against suspects here in London, with a substantial seizure of terrorist funds last week. Only yesterday, there was another significant seizure from an al-Qaeda suspect listed by the United Nations. Tomorrow, I will make a further announcement that adds to our list of individuals and organisations designated because they are suspected of financing terrorism. Next week, the US Treasury Secretary, Paul O'Neill, will visit Britain, and our common aim, working together, is to ensure that every financial centre in the world has measures in place to identify, and then stop the flow of funds to, terrorists. I believe that I will have the support of the whole House when I say that we must take all the steps necessary to intercept, root out and cut off all the sources of terrorist finance.

As we insist on exchange of information not only to stop and track terrorist financing but to tackle money laundering and tax avoidance, I want to thank Jersey, Guernsey, the Isle of Man and the Caribbean authorities for their co-operation, and so that all countries are included, I can announce that we will do all that is necessary to ensure that the Cayman Islands joins the list of territories offering full exchange of information.

Not only because of 11 September, but with events unfolding in Iraq, high oil prices, the problems that we know with the IT sector, the danger of contagion from further emerging markets where there is instability, and remaining major current account imbalances between major economies, the ongoing uncertainties facing the world economy are unprecedented in number and more widespread than at any time in our recent economic history.

Of the 20 of the world's biggest economies that have been or are in recession, the US was in recession for three quarters of 2001, as was Germany, and Japan was in recession for most of last year, resulting in a contraction of output. The global economic background to this year's Queen's Speech, as for the pre-Budget report next week, is, continent by continent, throughout Europe, America and Asia, the first simultaneous world slowdown for almost 30 years. The G7 countries as a group are experiencing the sharpest annual reduction in growth since the recession of 1974 and the worst deterioration in their industrial activity since that oil crisis. As a result, there are the largest increases in Government deficits around the world since the series of figures began in the 1970s.

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Beyond the G7 group, the sharpest contraction is taking place in world economic growth also since 1974, and world trade, which was rising by 13 per cent. two years ago, was at a standstill last year and is barely growing this year.

Chris Grayling (Epsom and Ewell): Does the Chancellor believe that the situation in Germany is cyclical, or does he agree that there are also longer-term structural problems affecting that economy?

Mr. Brown: I talked about this last week, when we debated the matter at Question Time. The Germans believe that their deficit will fall below 3 per cent. within the next two years. That is why they have announced today measures to cut their budget deficit and a rise in capital gains tax and said that they intend to deal with public expenditure. As I said last Thursday in the House, the stability and growth pact should take account of cyclical factors and investment. There is no doubt that countries with low debt to GDP ratios are in a better position to be able to borrow for investment. I believe that the stability and growth pact needs that reform to enable a cyclical problem to be taken into account. The right hon. and learned Member for Rushcliffe (Mr. Clarke) might wish to comment on the pact, as he was one of those who negotiated it and is probably the only Member of Parliament who now supports it.

I believe that most hon. Members will agree that in this period of continuing uncertainty, we should continue to steer a course of stability, be vigilant to the risks, maintain strong fundamentals, and be ready to act decisively with our international partners with the toughness and determination to take the right long-term decisions. Here in Britain, we will not be diverted from that tough and disciplined approach. There will no risks taken with inflation and no attempt at the old quick fixes, and just as we must have continued discipline on pay in the private sector, it is essential that there be continued discipline in our approach to public sector pay.

When the issue is how we can maintain growth and employment in an uncertain and unstable world, it is exactly the wrong time, with the wrong claim, pursuing the wrong methods, to demand wage rises that are so much higher than inflation that they would, if they were repeated across the public sector, lead to a rise in the wage bill that no prudent and responsible Government could be expected to finance. Every additional 1 per cent. on the nation's pay bill costs an additional #1 billion. To have to pay excessive wage rises would be at the cost of jobs or other investment in public services. That is why we must have the strength to take the right long-term decisions for our country.

This morning, my right hon. Friend the Deputy Prime Minister met the firefighters leader to discuss safety issues. Those discussions were encouraging and we hope that the local authority employers and the firefighters will return to the negotiating table this week to discuss pay and modernisation. Every pay negotiation demands

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responsibility on all sides, and every pay rise must be related to productivity so that investment is matched by reform.

Mr. David Cameron (Witney): In the light of what the Chancellor has just said and what the Governor of the Bank of England said yesterday on XBreakfast with Frost", will the right hon. Gentleman explain why ACAS workers—who I am sure will be busy—have had a pay rise of 17 per cent., Welsh Assembly staff have had a pay rise of 22 per cent., and Ministry of Defence staff have had a pay rise of 20 per cent.? Why did we not hear such fulminations when they were happening?

Mr. Brown: Overall rises in public sector pay over the past five years have been less than rises in private sector pay. The ACAS settlement was to make good problems that arose from the application of the Equal Pay Act 1970. Every pay rise within the public sector has to be related to the needs of the sector and productivity—but we take no lectures from one who was a special adviser to Lord Lamont when he was Chancellor of the Exchequer.

It is by holding fast to our economic disciplines that Britain, despite the world slowdown, has not only achieved low inflation and low interest rates, but managed to combine low inflation with low unemployment—indeed, the lowest unemployment for 25 years. Today, Britain has the lowest unemployment among men since 1979, the lowest unemployment among women since 1976, and the lowest long-term and youth unemployment since 1975. The International Labour Organisation unemployment rate is 8.3 per cent. in Germany, 8.6 per cent. in France, and 8.3 per cent. in the euro area as a whole, while in the United Kingdom it is 5.3 per cent.—more than 50 per cent. lower. Today, unemployment in Britain is lower than in Europe, Japan and America together for the first time since the second world war.

I believe that we are better placed because our monetary regime was designed not only for times of high growth, but for times of global difficulty as well. Because that regime has established credibility by meeting our inflation target year after year, the Bank of England has the capacity to make the right decisions at the right time for the long-term interests of the British economy. In the same way, it is because our fiscal rules are set for the long term that our fiscal policy can adjust to the economic cycle, with the automatic stabilisers able to play a full role. Fiscal and monetary policy can respond because we have kept within the sustainable investment rule, which demands that debt be less than 40 per cent. of GDP.

It is precisely because we have created a fiscal and monetary regime that targets inflation with a symmetrical target, works within clear rules and requires low debt before investment, and is therefore rigorous and disciplined, that during the recent downturn we have been able to respond to the world economic cycle, its risks and uncertainties. Although not immune to the downturn, we are one of the few countries to have averted recession in the past few years. The figures show that in a global downturn deeper and more serious than that of the early '90s, Britain is doing better than the rest of the world, whereas in the early '90s, faced with a lesser contraction in global growth and output, Britain did far worse.

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Let us remember that in that earlier downturn the world economy continued to grow but we contracted by 1.5 per cent. Today, with the world in a worse growth trajectory, we continue to grow. Indeed, last year, growth in the UK was the fastest in the G7 countries. Instead of being, as in previous downturns, first in and last out of recession—the country that suffers most—we have continued to grow.

Let us remember also that, in the last world downturn, interest rates were above 10 per cent. for three years and at 15 per cent. for an entire year. No one will ever forget the 250,000 mortgage repossessions or the negative equity that affected 1.5 million homeowners and, for many, lasted nearly a decade. It is because we have consistently achieved low inflation, which averaged 6 per cent. under the previous Conservative Government but is 2.3 per cent. under Labour, because debt has reduced from 44 to 30 per cent. of GDP and because we have achieved lower interest rates, that the UK, spared 10 per cent. inflation and 15 per cent. interest rates, is in a stronger position to maintain our economy, sustain high employment and meet our commitments to health, education and the public services.

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