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14 Apr 2003 : Column 666continued
Mr. John Bercow (Buckingham): My hon. Friend is making a powerful case. Given that, legitimate social policies apart, the sea of new regulation is deeper and more hazardous than any with which businesses in this country have had to contend, will his review of regulatory policy consider the merits of the Regulatory Flexibility Act 1980 and the Small Business Regulatory Enforcement Fairness Act 1996? They have yielded real benefits to small and medium-sized companies in the United States.
Mr. Yeo: It will indeed, and my hon. Friend makes an important point. We need a complete cultural change in Whitehall's attitude to regulation. We must get away from the assumption that every time something goes wrong it is the Government's job to prevent it from happening again by introducing a new regulation. The cost of that attitude over the years to customers, employees and shareholders has been enormous, although often hidden as well. That cost grows every day, not just in higher prices, but in lower wages, smaller profits and less investment. It is paid in jobs, which go abroad, and in capital investment, which goes to create jobs in countries other than Britain.
Linda Perham: Did the hon. Gentleman not hear the Chancellor say in his statement that he hopes to invite the CBI, the Institute of Directors and others to second experts to look at removing unnecessary regulations? Does he not welcome that?
Mr. Yeo: I hear the Chancellor say something about the need to lighten the regulatory burden in every Budget speech he makes. In the following 12 months, without exception, that burden increases. I have stopped paying much attention to the Chancellor's commitments on regulation, which are not credible.
At a conference last week, the Secretary of State boasted about the latest employment regulations, which will further complicate the running of thousands of small and medium-sized enterprisesanother burden that the Government are gratuitously placing on business. I am sorry that she did not respond more positively to my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) when he suggested that she might take action, now that hostilities in Iraq thankfully appear to be entering the concluding phase, to help to ensure that those British businesses with relevant expertise can offer it to assist the reconstruction process. As my right hon. Friend said, 12 years ago, the Conservative Government published "Reconstructing Kuwait". I hope that this Government will consider publishing a similar document to ensure that the Iraqi people are given every possible assistance in the speedy rebuilding of their communities.
This is a bitterly disappointing Budget. In the past year, taxes have risen for employers, employees, pensioners, savers, home owners, tenants, drinkers, smokers, drivers and businesses. Despite all those huge tax rises, the Chancellor still cannot make his sums add up, so he is having to borrow more and more and more. After six years of new Labour government, the Chancellor, who inherited a better economic legacy than any of his predecessors for half a century, is taxing more, borrowing more, spending more, wasting more and failing more. His forecasts were wrong last April and wrong last November. British businesses and British taxpayers worry that they were wrong again last week. The price of his mistakes is being paid by the British peoplemistakes for which, one day, those same people will surely hold him and his colleagues to account.
Denzil Davies (Llanelli): Budgets, no doubt, are never easy, and this year's presented a number of difficulties caused by the decline, or slowdown, in the global economy and, obviously, the war in Iraq.
Wars cost money. The Roman emperors, I seem to have read at one time, used to complain bitterly about wars in Mesopotamia, which cost more than wars in other places. Apparently, one of the largest costs was the replacement of siege engines, and the replacement of the modern siege engines will have to be paid for. I do not know how the Roman emperors did that, but Governments traditionally and usually pay for wars by borrowing money or, indeed, by printing it. That creates growth in the short term, which may be what happens this time, but the global economy was slowing down before the war broke out.
Prices of many goods have been falling, and the new global capitalism operates in a world with almost unrestrained freedom of movement of goods, capital and technology and in which multinational companies can invest almost anywhere that costs are at their lowest. Arguably, that new global capitalismit is certainly new over the past 100 yearsis inherently deflationary, especially for western industrialised countries. There is enormous pressure on prices, which have to be driven down all the time. Costs then have to be reduced, but there comes a point, of course, at which businesses often cannot reduce their costs further. The net effect is that companies and businesses cannot make profits. Inflation may fall close to zero or to it, but so do interest rates and growth.
One country that has been there or thereabouts, and is still there or thereabouts, is Japan. I well remember that, in the 1970s, shock and awe were aroused by the power of Japan's industrial companies, which produced high-value goods of excellent quality at competitive prices. It turned out, however, that most of those companies never made any profits. They were financed not by profits but by borrowing from Japanese industrial banks, which lent money to those companies,
I will not say that Germany might going the same way as Japan, but, as my right hon. Friend the Chancellor of the Exchequer told us in his Budget statement, its growth is about 0.5 per cent. I suspect that its inflation rate is about the same. That is not far from zero growth and zero inflation. Germany does not have the economic levers to try to solve the problem. It cannot even print money because it does not have any money of its own to print. Germany may well be going in the same direction as Japan.
One would have thought that the most capitalistic country in the world would benefit enormously from the new global capitalism. It is ironic, however, that the United States is having problems, too. Its growth this year is likely to be lower than 2 per cent. The prices of most manufactured goods in the United States have been falling over the past year. To try to stimulate growth, the Federal Reservean excellent institutionhas had to reduce interest rates 12 times over the past three years. The present federal funds rate is 1.25 per cent., so there is not much room for reducing interest rates. Again, that is getting close to zero interest rates, as in Japan.
To its credit, I believe that the Federal Reserve recognises the dangers of a slide into general deflation. I have read newspaper reportsI suspect that they are accurateof various attempts by Alan Greenspan to draw up plans if interest rates and their reduction do not create growth in the American economy. There are plans A and B.
Plan B is much more drasticcertainly for the United States. It is that the Federal Reserve would print money to buy shares in the leading Wall street companies. I doubt whether that will happen. However, printing money seems to be the only solution at present, or attempted solution, for global deflation.
War, and its aftermath, may put some inflation back into the system, which we need, and it may also put growth back into the United States economy. In the short term, the global economy may pick up some growth as a result of the war. That is a result of having to replace all the siege engines that have been lost in Iraq. I suspect that after the short-term consequences have worked through the system, the enormous deflationary pressures caused by global capitalism will revive and, even in the United States, will drive prices and growth closer to zero.
As we have heard, Britain is in much better shape, thanks to the excellent stewardship of the economy of my right hon. Friend the Chancellor. I remain confident that we shall be able to resist enormous global pressures and maintain the shape of our economy.
Many in the financial community, including many central bankers, many economists and practitioners and, indeed, some politicians, are still fighting the old war against inflation. I suppose that central bankers cannot do anything else. Once there is deflation they become redundant. Anybody can print money. No one needs to pay a central banker a lot of money to print money. Once inflation goes, we do not need central bankers.
Apart from the Federal Reserve, there does not seem to be much recognition, at least in publicperhaps there is, but no one wants to admit itthat the danger is deflation. The war against inflation has gone. However, the war against deflation will be more difficult to fight. The weapons that are needed to fight it are obviously quite different from the weapons needed to fight inflation. It is