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27 Nov 2002 : Column 315continued
The Prime Minister: The Government continue to receive a large number of responses to the consultation document, XThe Future Development of Air Transport in the United Kingdom". Ministers and officials in the Department for Transport have also met a wide range of organisations as part of the consultation.
Mr. Prisk : Given the High Court's decision that the Government's consultation is indeed irrational and unjust, will the Prime Minister clarify for my constituents and for the House why his Transport Ministers specifically overrode the advice that they were given, which was that they should include Gatwick in the first place? That was the advice; why did they ignore it?
Q15.  Mr Vernon Coaker (Gedling): Will my right hon. Friend look at the number of youth workers in our communities? Many of us feel that an enhanced and improved youth service would do much to tackle antisocial behaviour in our communities.
The Prime Minister: It would. One reason the Government are putting a huge investment into the Connexions partnerships, which give proper guidance and career advice to young people, is precisely because we know that, along with increased investment in education and sure start, such investment is not just in young people but in a more secure, safer and fairer Britain. That is the Britain that we shall continue to fight for.
I am writing to let you know formally of my desire to resign as Clerk of the House at the end of the year.
I entered the service of the House in September 1961, and I first sat at the Table of the House in 1977. By the time I resign, I shall have been Clerk of the House for exactly five years. Two years ago, I had the further privilege of being appointed the First Chief Executive of the House Service.
It has been an honour and a unique privilege to serve the House of Commons over these 41 years, and especially to do so as its principal adviser on privilege and procedure. I shall always be grateful to the occupants of the Chair and Members in all parts of the House, past and present, for their courtesy and friendship over that long period.
For at least the past decade, the House's procedures and services have adapted to meet new demands and challenges at a pace which would have startled my colleagues in 1961. I hope we have been generally successful in coping with change while maintaining the traditional high standard of service. If so, the credit must go to all those men and women in the six departments of the House on whose loyal service so much depends. It has been a privilege for me to be associated with them.
I shall leave the service of the House with regret, but I shall do so in the knowledge that no other career could possibly have provided as much satisfaction and opportunity for service.
The Chancellor of the Exchequer (Mr. Gordon Brown): Last year, of the major economies, the British economy was the fastest growing. This year, 2002, amid the worst global slowdown for almost 30 years, the British and north American economies will grow faster than all other major economies. I can report that next year, in 2003, Britain and north America are now forecast, even in a still uncertain and unstable world, to continue to be the fastest growing of all the major economies.
Today, as I examine in turn world and British growth, the balance of the economy, including the housing market and the position of manufacturing, and the fiscal figures now and for the future, I will report that with the lowest inflation for 40 years and long-term interest rates also the lowest for 40 years, Britain's monetary and fiscal framework is meeting the challenges of each stage of the economic cycle, and we will tolerate nothing that will put that hard-won stability at risk.
As Britain meets the challenges of the wider global economy, the pre-Budget report will also outline further labour market, capital market and product market reforms to improve British science, skills and enterprise, and I will outline proposals for continuing public service reform and tax and benefit modernisation showing that, both in Britain and abroad, strong economies and fair societies advance together.
I start with the international economic outlook. Twenty of the world's biggest economies, accounting for 60 per cent. of the world's outputthe United States, Japan, much of Europe and Latin Americahave been or are in recession after what has been the sharpest slowdown in global economic activity for almost 30 years, indeed the biggest contraction in industrial output in the world's major economies since 1975. World trade growth, which held up through both world recessions of the early 1980s and 1990s, fell 12 percentage points last year, and while trade growth resumed early this year, it has faltered yet again. It is one of the many reasons why, at an international level, the British Government are working for an early resumption of the world trade talks and why, at a European level, we must curb industrial and agricultural protectionism.
While the present political and economic uncertaintiesthe continuing aftermath of 11 September, unfolding events in Iraq, the impact on oil prices, concerns about equities and corporate standards, continuing trouble in the IT sector and current account imbalanceshave all caused business investment to fall sharply since 2000 in every major continent, the challenge for the British economy in this more uncertain and unstable world has been to steer a stable course, combining low and stable inflation with sustained demand growth and with high levels of employment.
I can report that 175,000 more people are in employment in the British economy this year than last year and in total 1½ million more work force jobs have been created since 1997. Our unemployment rate is lower than in Japan, America and the euro area for the first time for 50 years.
Our monetary and fiscal foundation, which is based on the independence of the Bank of England, imposes a symmetrical target for inflation, requires debt at low levels, holds to tough fiscal rules over the economic cycle and is thus designed not just for times of high growth, but for a global contraction with all its attendant difficulties. It is because the Bank of England has established credibility through year after year meeting our 2½ per cent. symmetrical inflation target that it has been able, supported by fiscal policy, to sustain growth in our economy. It is that same symmetrical inflation target, which was designed to prevent both deflation and inflation, that explains why the Bank of England is rightly vigilant not only about the continuing weaknesses of equities, trade and investment and of G7 current account imbalances, but about domestic risks, including the need for a sustainable housing market and for affordable pay settlements across the economypublic and private sector alike. We will continue to give steadfast backing to the Bank of England and the Governor, Sir Eddie George, who retires next June, in all the difficult decisions that have to be made.
It is because we are determined both to have stability and value for money in reformed public services that, just as in the private sector, public sector pay rises must be set at a sustainable rate and justified by productivity. When inflation is around 2 per cent., we should not put our hard-won stability at risk by yielding to inflationary and unaffordable pay settlements, whether in the private or public sector. That would put low inflation and low interest rates in jeopardy and damage the whole economy. To continue to steer a steady course, we must hold firm in our demand for discipline in pay setting across the economy.
Let me give the full detail of the economic forecasts. I can report that inflation will meet our target of 2½ per cent. this year. We now forecast inflation to be 2¼ per cent. next year and 2½ per cent. from 2003 for every subsequent year of our forecast periodhaving met our inflation target in each of the past five years, we will continue to do so in the future.
With that platform of domestic stability and an expected world trade recovery, to rise next year by an estimated 5½ per cent., we can forecast consumption to grow in 2003 at a sustainable pace of 2¼ to 2½ per cent. with the housing market slowing. We forecast manufacturing output rising by 1¾ to 2¼ per cent., and business investment by 2¾ to 3¼ per cent. to make for more balanced economic growth.
Across the industrialised world, including in Britain, since the further slowdown since this spring forecasts for growth this year have been downgraded. In the euro area, gross domestic product growth is forecast to be 0.8 per cent.; in France, 1 per cent.; in Italy, 0.4 per cent.; in Germany just 0.4 per cent., and in Japan it will be minus 0.9 per cent.
For the UK, GDP growth is forecast to increase by 1.6 per cent. this year. It will rise to 2½ per cent. to 3 per cent next year, rising again to 3 to 3½ per cent. in 2004. Some have argued that Britain is least well placed to cope with global slowdown. In fact, taking growth last year, this year and next year together, Britain is not the
As with monetary policy, so our fiscal policy is designed to help sustain growth at every stage in the economic cycle. Our fiscal rules are set for the long term and based on deliberately cautious assumptions, including for revenues. These assumptions, which are independently audited by the National Audit Office, mean that when stock market values fall we take that fully into account, and not just in assessments of this year's current revenues from stamp duty, capital gains tax and corporate taxwe also build such falls fully into revenue projections for future years. The assumptions include not only a cautious view of tax receipts from growth, of oil prices, and of the impact of revenue gains from, for example, anti-fraud strategies, but cautious assumptions about unemployment, where we claim no social security savings when unemployment is forecast to fall.
From 1997, we also took decisions to freeze spending for the first two years, achieving surpluses of £30 billion; to cut debt from 44 per cent. of GDP to 36 per cent., and then to use the £22 billion spectrum auction to repay even more debt; and regularly to achieve not just a current balance but a large surplus. In each year since 1997, we have met our two fiscal rules, with current surpluses worth a cumulative £58 billion, and debt far below 40 per cent. of national income. With debt interest payments £7 billion a year lower than in 1997, debt interest consumes a smaller share of national income, this year as last year, than at any time since 1915. So while some have, in the past, criticised this long-term and deliberately cautious approach, we are, with current surpluses and historically low debt, able at every stage of the economic cycle to meet our fiscal rules, including in the cautious case.
Let me provide the detailed figures. Figures for our current Budget for this year, 200203, and for the five years to 200708 are minus £6 billion, minus £5 billion, plus £3 billion, plus £5 billion, plus £8 billion and plus £10 billion. So we meet our golden rule over the cyclenot just achieving a balance but with an estimated surplus at £46 billion. We meet the golden rule on the cautious case, too. Taking the full economic cycle into account, the current surplus for each year is forecast to be 0.2 per cent. of GDP this year, 0.3 per cent. next year, then 0.6 per cent., 0.5 per cent., 0.6 per cent. and 0.7 per cent. in the four years to follow.
Our second rule is the sustainable investment rulethat over the cycle net debt should be kept below 40 per cent. of national income. Debt this year is 41 per cent. of GDP in the US. It is rising to 43 per cent. in France, to 45 per cent. in Germany, to 54 per cent. in the euro area, to 70 per cent. in Japan and it is almost 100 per cent. in Italy. I can report to the House that, in Britain, net debt this year and in future years will be at 31 per cent. this year, then 32.1 per cent., 32.4 per cent., 32.6 per cent., 32.7 per cent. and 33 per cent. So we will comfortably meet our sustainable investment rule, and we shall do so over the cycle, and in every year.
Our commitment to meeting these fiscal rules is not just for this year and this economic cycle, but for the long term, so I am also publishing today a report that examines the sustainability of Britain's fiscal position
I have said that our fiscal framework is designed not only so that we make the right decisions when the world economy is growing, but so that it is robust so that at all times we meet our fiscal rules. An alternative approach has been put: that, instead of our holding firm to this long-term course, this stage of the economic cycle would be the time to cut spending and borrowing. I have examined such an approach. It would lead directly to depressed demand, rising unemployment, and the old familiar boom-and-bust approach[Interruption.] Oh yes. It would lead to the old familiar boom-and-bust approach of capital investment in infrastructure that is vitally needed being slashed, and hard-won stability would be put at risk.
In the last world downturn 10 years ago, Britain was bound into such a position, when inflation was high, debt was rising fast and the fiscal disciplines were not being met. But today, in this world downturn, with a foundation of historically low levels of inflation and debt, such an option would be neither competent nor prudentbecause, after the decisions we have made, we can comfortably meet our fiscal rules, we can fulfil our spending plans, and we can borrow for investment across the economic cycle.
Figures for net borrowing for this year and for future years are £20 billion, £24 billion, £19 billion, £19 billion and £20 billionthat is, 1.9 per cent., 2.2 per cent., 1.6 per cent., 1.6 per cent., 1.5 per cent. and 1.5 per cent. of gross domestic product. That compares with a deficit 10 years ago of 8 per cent., equivalent to an £80 billion deficit today, and to an average deficit of 6 per cent. in the early 1990s.
I can confirm that this year, and each year in our forecast period, we are well within the Maastricht criteria, and that the Treasury will publish the assessment of the five tests on the euro by June next year.
If we take the full economic cycle into account, net borrowingwhich is forecast this year, cyclically adjusted, to be 2.7 per cent. in the United States, 2½ per cent. in France, nearly 3 per cent. in Germany and 7 per cent. in Japanis, in Britain, just 1.2 per cent. this year, and 1½ per cent., 1.3 per cent. and 1½ per cent. for the next three years.
So, in both monetary and fiscal policy, with the lowest inflation and the lowest long-term interest rates for 40 years, as well as the lowest unemployment for 25 yearsand we are able to meet our spending plans in fullthe right approach is to hold firm to our long-term course.
As I conclude this section on monetary and fiscal policy, I wish to thank Sir Edward George, whose period of office as Governor of the Bank of England ends in June next year, for the steady hand he has consistently shown in the leadership of the Monetary Policy Committee since we made the Bank of England independent in 1997. In welcoming the announcement this afternoon of the appointment by Her Majesty the Queen of the new Governor of the Bank of Englandthe deputy Governor for the last five years, Mr. Mervyn KingI can assure the House that the same steady grip
If stability is the precondition for economic progress, enterprise is its driving force. And Britain today is challenged by a long-term global restructuring of industrylow value-added production shifting from the highly industrialised to the industrialising countries; competitive advantage in manufacturing and services increasingly coming from high value-added technology-driven products.
In the next wave of globalisation, which is now upon us, it is the flexibility of our product, capital and labour markets, the strength of our science base, the level of British research and development and the scale and dynamism of knowledge transfer from our universities to business that will drive our productivity growth and thus future prosperity.
Building on the independence of our competition authorities, the surest route to British companies becoming global champions is to extend competition and open up new markets at home. The public sector must also meet this test, and the investment that we make must be matched by continuing reform. First, in central Government contracts worth £14 billion a year, the Office of Government Commerce will maximise competition and encourage bids from the widest range of companies, small as well as large. Secondly, the Office of Fair Trading will scrutinise proposed public sector regulations to assess their competitive effects. Thirdly, we will use the discipline of the market to deliver value for money through private finance initiative projects worth £30 billion, which will include large-scale regeneration projects, while recognising the limits of markets in areas such as health care, education, defence and policing. Fourthly, to maximise efficiency in dealing with the Government's own businesses, we are announcing today the creation of a new shareholder executive.
Having cut corporation tax to 30p and having consulted business on further corporate tax reform, we are considering detailed proposals to reform the tax treatment of capital assets, the use of losses and of trading and investment companies. To stop tax avoidance, measures announced today will root out abuse of the VAT regime, and we will be tightening rules governing employee benefit trusts, industrial building allowances and profits on sales of extended warranties.
I turn to measures to help small and medium-sized businesses. Following our cut in small business corporation tax to 19 per cent. and the cut in the starting rate from 10 per cent. to zero, the Secretary of State for Trade and Industry is today announcing the extension of eligibility to the small firms loan guarantee scheme to include businesses with turnovers of up to £3 million a year in a wider range of sectors. Some 400,000 businesses in all are now eligible.
To help small and medium-sized firms export and build modern manufacturing strength, the Secretary of State for Trade and Industry is also ensuring that from today the Manufacturing Advisory Service will extend to every region of the country; and in response to concerns about rising insurance costs, the Secretary of State for Work and Pensions is undertaking a formal review of the operation of employers' liability insurance.
To build stronger local economies in each region and to devolve decision making out of Whitehall, in the north-west, east midlands and west midlands we are devolving business support services from Whitehall to the regions, and in the north-east, north-west, south-east and east, we are devolving to the regions management of the skills budgets.
Because the enterprise culture that we want to see starts in our classrooms, the Secretary of State for Education and Skills is following the Davies report, announcing, over three years, £75 million to promote education in enterprise in our schools and colleges. To encourage local initiatives in enterprise, we are consulting on allowing local authorities to keep additional rates income from the creation of new businesses in their area.
To match the proposed greater flexibility in the planning system with measures to increase the affordability and numbers of houses, the Deputy Prime Minister is publishing the communities plan in January.
For high unemployment areas, where the answer is more economic activity and more enterprise as the route to more jobs, we are today, jointly with the Small Business Service, publishing details of 2,000 new enterprise areas, in which, following state aids clearance which we expect in January, not only will we abolish from Budget day stamp duty for all business property transactions in these areas and, with the 25 per cent. community investment tax credit, cut the cost of investing in these areas, but we will give local authorities powers to relax requirements for detailed planning permission. In pilot projects in high unemployment areas, we will test a more intensive approach, estate by estate, of interviews, training and job search services, matched by benefit sanctions so that we can help the long-term unemployed back into work.
I have two further announcements on business taxes. From 1 January, we will abolish all royalty taxes on North sea oil and gas. Following the consultation that I began in my last Budget on the future of bingo tax on player stakes and whether to replace it with a tax simply on bingo companies' profits, I am sure that my decision having covered all the numbers in this areato abolish in the Budget bingo duty will be welcomed on both sides of the House.
Our charity tax reliefs are worth an additional £2 billion a year, and I can announce today that we will extend for one more year the Government supplement on payroll giving. To match our initiatives on giving with initiatives encouraging volunteering, the Home
We also have a commitment to protect the environment for future generations, so we are publishing today a detailed paper setting out our approach to the environment. We will consult on what will be a revenue-neutral proposal to raise the landfill levy by £3 per tonne per year from 200506. On environmentally based fuels, I can also announce that, for bioethanol road fuel, we will reduce the duty rate by 20p per litre.
The modern route to competitiveness also demands that Britain's most innovative companies work ever more closely with Britain's enterprising research universities. Today, the Secretary of State for Trade and Industry is beginning a review of Government support for innovation, and she and I have asked the former editor of the Financial Times, Mr. Richard Lambert, to examine how, building on our research and development tax credit and the university challenge and higher education innovation funds, the long-term links between British business and British universities can be strengthened to the benefit of the whole British economy.
Since 1997, the new deal has been helping the young, lone parents and many disabled people back into work. The priority now is to focus, too, on how we help young people and adults to move up the skills ladder. I can therefore announce that we will use the remaining surplus from the windfall tax and, at a cost of £130 million, extend to a quarter of local learning and skills council areas the new employer training pilots, in which the Government support wage and training costs in return for employers providing time off so that employees can get proper training.
To spearhead what I believe the whole country wantsthe expansion of modern apprenticeships so that nearly a third of young people are covered by 2004a new modern apprenticeship taskforce will be headed by someone who knows a great deal about training and skills, the chairman of Manchester United football club and chief executive of Centrica, Sir Roy Gardner. In addition, following the success of our new university for industry, with half a million students already, and talks with the banks, we are now going to consult in detail on how we expand training and management courses for small businesses.
We will also continue the expansion of work permits for managed migration, which was begun by the Home Secretary. He and I are extending the highly skilled migrant programme, and through a new unit we will help small firms seeking to recruit skilled workers from overseas.
Our policy is to combine enterprise with fairness. To continue to make work pay more than benefits, we are, from April, extending the principle of the working families tax credit to single adults and couples aged 25 and over without children. Couples with wages of less than £280 a week, or £14,000 a year, and single people with wages of less than £10,500 a year will stand
A flexible, efficient labour market must not only promote employment but be fair to parents. Next month, in a joint Department of Trade and Industry-Treasury report, we will publish new proposals for enabling parents to make real and effective choices on balancing work and family life.
Building on our rise, from April, in maternity pay to £100 a week, the first ever paternity and adoption pay, the new tax credits that we are introducing and the first ever national child care strategy, we will consider further reforms: first, new tax and national insurance incentives so that we can expand employer supported child care; secondly, paying the child care credit for approved home child care by carers who are not already childminders; and, thirdly, increasing flexibility in parental time off, including giving fathers time off to attend antenatal care.
Our goalstability and prosperity for allmeans also fulfilling our goals to tackle child and pensioner poverty. Following last week's social security uprating, the starting level for the new child tax credit, taken with child benefit and now to be paid direct to the mother, will be £1,400 a year for those with incomes below £50,000; between £800 and £1,400 a year, for those with incomes of £50,000 to £58,000; and for 2 million of our lower income families, £2,800 for the first child and £4,800 for a two-child family as the child tax credit, based on support for all and most support for those who need it most, becomes the most powerful weapon for tackling family poverty.
That same progressive principle underlines our proposal that all children have a child trust fund that builds up year by year to be drawn upon at the age of 18. We are now proceeding to detailed discussions with a range of providersthe banks, building societies and friendly societies.
Now that the Secretary of State for Work and Pensions has also announced the pension rise next April from £75.50 to £77.45, and to £79.40 at least by 2004, the Government can also announce the levels of the new pension credit. From next October, instead of penalising modest savings and small work pensions, it will reward savings.
In the typical constituency of Members of the House, 7,000 pensioner households will benefit. That is couples with total incomes of £200 a week or less, and single elderly people with £139 a week or less. They stand to benefit from what is £2 billion extra that is being paid out in pensions. Let me give the House the figures: a pensioner couple with income of £150 a week will receive £21.50 a week extra. That is £1,100 more a year. On an income of £160 a week, it is £17.50 a week or £900 a year. With an income of £170 a week, it is £13.50 a week or £700 a year. A single pensioner with £110 a week will receive £11.60 a week, or £600 a year on top of their pension rises. For 5 million pensioners, this will be the biggest increase in pensions since the old age pension was introduced. I can also announce that the minimum income guarantee for single pensioners will be £102.10 a week as we seek security and dignity in retirement for every single pensioner in our country.
When, next month, the Secretary of State for Work and Pensions publishes the Government's Green Paper on pensions, this will include our proposals to simplify the tax treatment of pensions. I can confirm that the tax-free lump sum payment to retirees will remain. Existing tax reliefs for pension contributions for employees, the self-employed and employers will also remain.
I have two more announcements to make. Because we have built sound foundations of low debt and low inflation and are today meeting our fiscal rules, we have rejected the view that we should cut back our spending plans at home and abroad. So I can not only confirm that we will fund our planned investments: by 2006, there will be £8 billion more a year for local authorities; £15 billion more a year for education; £63 billion more a year for public services; and by 2008, for health alone, there will be £41 billion more a year to be paid for by our national insurance riseall to be matched with reform.
But we can also, amid global uncertainty, do more to meet our international obligations. It is right in the new figures presented today, consistent with past Treasury practice, to set aside to meet our international defence responsibilities a provision of £1 billion to be drawn on if necessary. We must not only meet the global security challenge; there is today not only a new imperative but, I believe, a new opportunity to meet the global poverty challenge.
In the last five years, through the Prime Minister's Africa initiative and the tireless work of the International Development Secretary, Britain has spearheaded the fight for debt relief and social justice for the poorest countries. I can tell the House that having already agreed $62 billion of debt relief for 26 countries, our aim is now $100 billion for the 38 countries in total that stand to benefit from the cancellation of debt. I thank all Members on both sides of the House and all churches, faith groups and non-governmental organisations in our constituencies for their tremendous work.
But because at this critical moment we must move forward, I have held discussions over recent days with Finance Ministers from America, France, Germany, Italy and other European countries, as well as with the heads of the International Monetary Fund and the World Bank. I can inform the House that Britain is now proposing a new international development finance facility, with public finance leveraged up by long-term international commitments, so that we can raise the amount of development aid for the years to 2015, with a step change from $50 billion a year to $100 billion a year, so that we can meet by 2015 the millennium development goals, including that poverty be halved, that child mortality be reduced by two thirds, and that every single child has the right to primary education.
Having written as chairman of the International Monetary and Finance Committee to all fellow Finance Ministers, and to the World Bank and the United Nations, I can tell the House that we will, as a Government, be prepared to provide a British commitment to help underpin that plan. The Secretary of State for International Development and I are now asking other countries to join with us. I believe that all parties in this House will wish to support this British initiative for global justice, so that we not only win the fight against terrorism, but win the peace.
In conclusion, we have been tested by world events and have resolved to steer a steady course. That steady strength of purpose will continue, and we will honour our commitments to invest in public services, to advance enterprise and fairness and to meet and master the global challenges. I commend this statement to the House.