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18 Nov 2002 : Column 423continued
Mr. Blunt: I hope that the hon. Gentleman will make it clear in his extra minute that, like us, he regrets the absence of proposed legislation not only on LMA but on British electricity trading and transmission arrangements.
Mr. O'Neill: I do not think that LMA is an issue of contention. If a draft Bill is published in the next few months, I would imagine that the fact that it was mentioned in the Queen's Speech will allow it to be dealt with as carry-over legislation, and we would still be able to enact the legislation in a reasonable time. BETTA is a different issue. Legislation will be required, but I suspect that between now and next October there will have to be arm-wrestling and complex negotiation. It is important that we get things right this time. The new electricity trading arrangementsNETAdid not take account of the need for additional capacity and did not reward it. They also did not take account of the need for appropriate investment. Those matters must be incorporated in any draft of BETTA before we can talk blithely about legislation.
I want finally to address the options facing British manufacturing. We must ensure lean production. We need better investment behind our people and assured levels of charges for energy and the like so that our industriesmanufacturing in particularknow where they are going. The Government's Queen's Speech offers several indications of the direction that we are taking, and they are a realistic basis on which manufacturing in Britain can hope to progress in the very difficult times over the next 12 months. I therefore welcome the Queen's Speech.
The Chancellor of the Exchequer is skating on thin ice when he gives such a rosy view of the outlook for the British economy. He displays his usual fiery rhetoric in the House and exudes glowing optimismboth qualities that are not altogether suitable when one is skating on thin ice. I am worried, because I believe that in this Session of Parliament, it is possible that the Chancellor will face some of the toughest and most difficult decisions that he has faced so far during his tenure in the Treasurythanks, I might say, to the inheritance that he had, and also to the way in which our economy was sustained in the wake of the American-led boom, before it went bust, for the most of the first Parliament of his period of office.
The Chancellor gave his usual robust performance to the House, but such a complacent description of our economic outlook ought to be worrying. I can only hope that he did not believe a great deal of it himself, and I trust that he had his fingers crossed behind his back when he gave us some of those descriptions of where he thought we were going. He tried to exchange with me some arguments about our past forecasts. I do not have a great regard for other people's forecasts. I do not want to go back into history defending all mine, and the Chancellor certainly could not defend all his, but I think that more of mine were right than he claims.
The forecasts most relevant to today's debate, as has already been said, are the forecasts of growth that the Chancellor of the Exchequer was giving to the House only six months ago. I took part in the Budget debate, as did most of the hon. Members who have spoken so far. I tried hard to mock the forecasts for growth that the Chancellor was then giving, in order to explain the sustainability of the plans that he was setting out. The mockery was justified. Those forecasts for growth are already wrong. The whole world knows from repeated briefing that they are already wrong. Presumably, we will be told officially next week, when we have the November statement, but I would guess that growth this year is 1.5 per cent. The hon. Member for Truro and St. Austell (Matthew Taylor) set out at some little length the reasons for casting doubt on the underlying estimates for growth upon which the next several years' spending plans were based.
One thing on which we are all agreedI think the Chancellor joins in thisis that the politics of so-called tax and spend will become increasingly relevant as this Parliament goes on. They are an important matter for us to discuss. I object yet again to the way in which
The British economy has had more than 10 years of growth with low inflationthe longest period that we have had in living memory. At present, that record is looking more sickly than it has for a long time, as I said. We are of course maintaining 1.5 per cent. growth. That is quite good. We have been growing at less than the average for most of the past four or five years among the G7 nations. Currently, we are just ahead of all the economies, although we have slowed down.
The problem is that the present growth of the British economy in 2002 depends fundamentally on two things, as far as I can see. One is a housing boom of an extremely worrying kind, with massive withdrawals of equity taking place and being turned into spending. The second thing sustaining our present sickly level of growth, which is well below trend, is a very high level of consumer spending, based on rapid growth in public sector spending and public sector pay. Both those, in my opinion, are extremely worrying. We should not expect to sustain a healthy level of economic growth on those two bases for very much longer.
First, on the housing boom, which I am sure we will discuss at greater length before this Parliament is out, house prices have gone up 30 per cent. over the past 12 months. I hate to say it, but I do not think that that is sustainable. There will be a correction. I hear all the arguments. They were not given todaythe Chancellor did not get round to itabout why it is all right, it is different this time and we should not be worried about it. Those are pretty good arguments. I used many of them myself in some Cabinet office or other in the late 1980s. I have learned from experience on that front. One cannot have such rapid growth in house prices without there being a correction, and in a period of low inflation that will hit people hard. I hope that it does not, but negative equity may come back to trouble us before long.
Retail sales, as I said, are very healthy. In October they were up by 7.1 per cent. compared with a year earlier. That is all kept going by some public sector pay increases, and also by an extraordinary level of household debt. As a percentage of our gross domestic product, household debt is now 109 per cent. In France, for example, a healthy economy that until recently has been doing better than ours, it is only 46 per cent. of GDP. Household savings in this country have dropped as a proportion of GDP to 4.5 per cent. in the second quarter of this year. The savings ratio in France is 15 per cent.
The significance of that is that if we want stabilitythe Chancellor always goes on about stabilitywe need a higher level of personal savings and a lower level of household debt. It is all going in the wrong direction.
What is going wrong? I shall not repeat what has already been said. It is extremely important to notice that business investment is down 10 per cent. compared with a year ago. Investment in business in this country has fallen to 12 per cent. of GDP, a record low. Again, I will go back to the past. I can remember how, in opposition, the present Chancellor used to go on about our investment performance. It has deteriorated throughout his time in office. He spoke about employment and completely misanswered a question. Private sector employment in the third quarter of 2002 dropped by 36,000, but full-time jobs went down by 72,000. My hon. Friend the Member for Huntingdon (Mr. Djanogly) was right to say that it is public sector employment that is the only thing continuing to grow.
We have a dismal record of investment. What is the significance of that? Looking forward in the medium term, if we do not get business investment, the result is low productivity, when our record is already terrible, low growth of the economy, and lost tax revenues, compared with every forecast that has been given, when we get back to tax and spend.
What can be done to rebalance the economy? The Bank cannot help, because of the situation into which the Government have put themselves. Underlying inflation is 2.1 per cent.below their target. That is the prime aim of the Bank of England, looking forward. Service sector inflation is running at 4.8 per cent. over the past 12 months. Public sector inflation is higher than that. Inflation is being kept down because there is a positive deflation in the price of goods. That is not a healthy way of hitting an inflation target.
The Bank of England is stuck. I agree with Sir Eddie George. If it were to lower rates, it would feed the housing boom and household debt. It cannot do that. If it raised the present rate of interest, it would worsen the difficulties for business investment and business in general. The Bank has therefore stuck at 4 per cent., somewhat powerless in the situation, and left us with the tightest monetary policy in the developed world, but it does not have much alternative.
The bank is stuck partly because of the fiscal policy of the Chancellor. Where does he come in? In my two remaining minutes, I am glad to say that I have no more than to echo what has already been said. What is the Chancellor contributing with regard to the uncertain outlook and the impossible problem of monetary policy? What is his fiscal policy? It has been the consistent increase of taxation. I shall again cite the CBI's perfectly accurate figure: a #47 billion cumulative increase in tax since 1997, which this Government have the nerve to scoff at because they are wrapping and rolling up annual increases, as the Government always used to do in presenting their public sector spending plans to the House. Another #6 billion has already been put in the pipeline for next April in a tax on jobs through national insurance hitting us at this time. The Government have been reminded about their taxation on pensions, which is plainly feeding into a serious pension crisis in this country. That is their contribution.
Business must be the priority in the Chancellor's policies from now on, because if wealth creation is damaged in this country, all those plans will fall about his earsand well before the next election