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18 Nov 2002 : Column 416—continued

Mr. Kelvin Hopkins (Luton, North): The hon. Gentleman suggests that all our problems—if problems there are—arise from the strength of the pound. Is he suggesting that we intervene actively in the currency markets to bring down the value of the pound?

Matthew Taylor: I do not believe that all the problems are the result of the pound's value, and I shall talk later about some of the other issues. Clearly, there is no agreement in the House on what I regard as the best solution, which is entry into the euro at a sustainable rate. The Chancellor has not yet told us his view on that.

The other issues about which I shall speak include the red tape, tax complication and bureaucracy that have been the Chancellor's hallmark. He prides himself on

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being a micro-interventionist and believes that the Treasury's role is to try, through micro-management, to affect business investment decisions. The figures that I have given the House show that all of that has proved to be wholly counterproductive.

Mr. Mark Hendrick (Preston): Will the hon. Gentleman give way?

Matthew Taylor: I shall give way in a moment.

We must remember that Britain's record of investment is astoundingly bad. The Bank of England recently noted that the fall in investment in the last two years is comparable with those in the recessions of the early 1980s and 1990s and worse than those in the supposedly worse economies of the USA, France, Japan and Italy. If this is not, therefore, a reflection of what is happening globally, it must be a reflection of what is happening in 11 Downing street.

The figures for foreign direct investment seem to confirm that. Foreign direct investment into the eurozone increased by 383 per cent. in the first two years of the euro, compared with an increase of 12 per cent. for the non-eurozone countries. A report by Ernst and Young showed that, in 2001, Britain attracted 21 per cent. of new European investment projects. We are still leading in the EU, but that lead is falling, as is the proportion of projects, down from 28 per cent. in 1998 and 26 per cent. in 2000. Again, the fall in investment does not reflect what is going wrong in the wider economy; something is going wrong here in Britain, and that is down to the Chancellor, whose policies are not delivering.

Mr. Hendrick: I thank the hon. Gentleman for finally giving way. He says that his party would not alter the Government's spending plans—it would spend no more and no less—but asserts that growth projections are over-ambitious and that the figure should be, say, 2 per cent. Would his party still stick to the spending commitments and run up a deficit, or would it make a cut, and if so, what cuts would it make?

Matthew Taylor: That is a perfectly reasonable question, and the answer is equally reasonable. In the short run, the Chancellor does not have the problem that some are suggesting. The simplistic view is that one runs up a deficit because economic times are bad, so one should cut spending or raise taxes. That would worsen, rather than improve, the situation. However, there is a long-term problem, and I shall propose changes that the Chancellor should make that would allow him to deliver his planned spending increases. To be fair, the right hon. Gentleman has recognised over and over that no Chancellor in the world, if he does not get the economy right, can afford the spending that we all believe—at least the Liberal Democrats and the Labour party believe; I am not sure that the Conservatives do—is necessary to deliver the public service improvements for which we have argued.

We welcome the fact that the Government are now making real spending increases, financed by tax increases, broadly similar to those for which we have argued. That should have been done earlier, but we will not now dispute it or shy away from it. However, long-

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term problems need to be tackled, and the reason they are not being tackled is a flaw in the Chancellor's view of how the economy should be managed. He desires to control, to meddle and to micro-manage, and that has not delivered, and will not deliver, the necessary improvements.

A Government obsessed with central control create bureaucracy and red tape for business as much as for the public sector. That process can be reversed, but that is not the Chancellor's solution. When his targets are missed and his controls fail, he adds further levels of bureaucracy to both the public sector and the private sector. He then finds that they are still not delivering, so he thinks that the process of control is not working and adds yet another tier. That is why there is a list of failures for the Government's targets, such as the ones that are not met or are rolled over. The process is flawed. Labour Members do not have far to go to find support for my view. They can ask the other Cabinet members, who are subject to those controls. The Chancellor's flawed personality seeks to control everything from a spider's web at 11 Downing street.

We need a simpler tax system. The Chancellor has to stop being a micro-meddler. The extraordinary thing about the extra layers of tax, which have increased the size of XTolleys", the tax guide bible, by almost a third in the short time that the Government have been in office, is that the Treasury has admitted that it is not even checking whether most of the changes are having any effect. There is no process for analysing any of that complication to find out whether it is helping. The truth is that it is a total waste of money, and we can see that by the economic failure that I have described.

We need to cut red tape on business. We have published a long list of changes that could be made. It is time that the Chancellor recognised that one can load only so much red tape on to business before there is an inevitable cost in investment because companies will go to other countries where it is easier to operate.

We need to sort out the public transport system. I hardly need say more about that because hon. Members are among the biggest users of a system that is failing.

Finally, I turn to the euro. There is not agreement in the House on that and there is not agreement in the country, but our view has been consistent and clear—

Mr. Bercow: And wrong.

Matthew Taylor: The hon. Gentleman says that, but one of his colleagues does not agree at all. That is another example of the Conservative party trying to appeal to everyone by having every possible view on every subject. [Interruption.] Hon. Members may criticise the Liberal Democrats for putting our necks on the line and for consistently arguing the case for the euro, but it is perfectly apparent that the Conservative party has no consistency on the issue whatever.

The Conservatives offer no explanation that makes any sense of the present problems in manufacturing. Only a few years ago, they welcomed a fall in the exchange rate as rescuing British industry—some of them even called it White Wednesday. However, in recent years exchange rates have been substantially higher than the level from which we previously fell,

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and a similar deep recession in manufacturing has resulted. Each of the deep recessions in the early '80s, the late '80s and the early '90s has been associated with massive over-valuation of sterling based not on the realities of the economy but on speculators seeking to make a fast buck and, in the process, destroying jobs and industry. If the Conservative party has a solution that is an alternative to the euro, it has yet to tell us what it is.

Mrs. Browning: Following the hon. Gentleman's teasing of the Conservative parliamentary party for its views on the euro, will he clarify whether the Liberal Democrats' position is that, come a referendum, all his parliamentary colleagues will be expected to campaign for a yes vote?

Matthew Taylor: Unlike that of the hon. Lady's party, our Front-Bench team will certainly campaign on a consistent basis. We will have to see about the rest of the party when the time comes.

Mr. McFall: Will the hon. Gentleman clarify whether, in his opinion and that of his party, the five tests set down by the Chancellor in October 1997 have been passed?

Matthew Taylor: I hope that the hon. Gentleman's Select Committee will conduct an inquiry to tell us the answer to that question before, rather than after, the event. That would be helpful.

We have published a report to which we invited a wide range of senior economists to contribute, and they advised us that the five tests have either been met or are in the process of being met, and we believe that that is correct. However, one serious issue would have to be dealt with as part of the process of joining the euro—the exchange rate itself. We need confirmation from the Government that that test will be passed. It would be helpful if the Chancellor clarified what he believes a sustainable long-term exchange rate is. It is notable that every time that he has talked about euro entry, and noises are made, there has been a fall in the value of the pound. The markets believe that it is over-valued in the long term, but they constantly speculate about the short term and are making a fast buck. They do not care much about manufacturing in the United Kingdom or elsewhere suffering the costs.

Mr. Hopkins: To return to the eurozone, is it not in serious trouble, teetering on the brink of recession? Joining the euro at anything like the present parity—and even with a substantial devaluation—would still drag us into a zone facing long-term recession.

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