Previous SectionIndexHome Page

6.14 pm

Mr. Nigel Beard (Bexleyheath and Crayford): It is a major achievement of this Budget that an unprecedented programme of investment in our public services has been maintained, despite Britain's being in the trough of the economic cycle, and despite a synchronised world recession. The Government's economic strategy has been stress-tested at home and abroad in the past year and has come through unscathed.

The hon. Members for Arundel and South Downs (Mr. Flight) and for Yeovil (Mr. Laws) raised the issue of increased borrowing, and during this financial year borrowing will indeed stand at £27 billion, compared

6 May 2003 : Column 571

with a budget surplus two years ago. But public borrowing when the economy is in the recessionary phase of the economic cycle is part of the strategy, subject to two conditions; first, that borrowing can be paid off as the economy expands again; and secondly, that the total interest to be paid on public debt is not so large as to be unsustainable. Those are the Chancellor's two fiscal rules. They have been met, and they will be met in years to come.

By reducing debt two or three years ago, when the economy was at a peak and taxes were rolling in, the ground was prepared for safe borrowing in the trough of the economic cycle, when it would prevent the economy from sinking into recession. The Opposition may not be familiar with that basic concept—it is called foresight. We should contrast that with the Conservatives' strategy over 18 years. When times were good and taxes came rolling in, they gave tax relief to the better-off. That money was spent, the economy overheated and it promptly went bust. In the following recession, when taxes no longer covered public spending, the Conservatives cut public spending and deepened recession. Thus did they convert the undulation of the economic cycle into the big-dipper ride of boom and bust that we must never forget.

Mr. George Osborne: If the hon. Gentleman opposes the income tax cuts made by Conservative Governments in the 1980s and 1990s, would he like the level of income tax to be raised?

Mr. Beard: As the hon. Gentleman heard me say, I was opposed to the process of balancing the budget in the trough of the cycle by cutting public spending because that deepens recession. That is exactly what the Governments of the hon. Gentleman's persuasion did, creating two very severe busts during that period, and that is what they will be ever remembered for.

Today, the Conservatives' strategy is to cut public spending by 20 per cent. whatever the circumstances, so they probably have changed. They are not quite like the Bourbons, who learned nothing and forgot nothing; by the sound of it, they would abolish the boom so that the economy would be permanently bust. The Government's economic strategy—

Mr. Tyrie: The hon. Gentleman is a reasonable guy—we serve on a Select Committee together—so, in his heart of hearts, does he really believe that the Conservative party has ever advocated 20 per cent. cuts in public spending? Does he not think it possible—indeed, probably likely—that the interpretation placed on those remarks by the shadow Chief Secretary today is accurate?

Mr. Beard: No—the shadow Chancellor has endorsed those figures. I agree with the hon. Gentleman that they are preposterous, but I have heard no adequate refutation of them. Nor have I heard—this is the issue that I am getting at—how they fit into any rational macro-economic strategy, but perhaps all will be revealed when the hon. Gentleman speaks.

We on the Labour Benches must not let the intellectual incoherence of the Opposition lull us into any complacency. Harold Wilson's Government of the

6 May 2003 : Column 572

1960s was blown off-course by international financial speculation, and the Callaghan Government of the 1970s had to trim policy to accommodate the International Monetary Fund. [Interruption.] Before the hon. Member for Tatton (Mr. Osborne) grins too widely, I should point out that in the 1980s, the pound almost reached parity with the dollar, destroying a swathe of manufacturing industry in the process. And of course, we should not forget Black Wednesday, in 1992, from which the Conservative party may never recover.

Mr. Flight: Surely the fall of sterling to near parity with the dollar was encouraging, not discouraging, for the economy. It was the brief rise of the dollar to $2.48 against the pound in the early 1980s that caused the problem.

Mr. Beard: I doubt whether the people who had to join the pool of the unemployed enjoyed their bathe. Great structural damage was done to the UK economy and much of our manufacturing industry was wiped out in that period. The hon. Gentleman is certainly wearing rose-tinted spectacles in assessing that period.

Among the developed countries, Britain's economic health is uniquely affected by the ebb and flow of international trade and the maverick forces of international finance. We are coming through the most recent downturn in international trade very well, but it would be foolish to believe that, on that basis, we could be permanently unaffected by international economic conditions.

In economic and monetary union, we have the prospect of reducing the effects of the international economic weather on Britain. Conversely, if we are not in the euro, there is a danger of the economic weather becoming much rougher—and very rough indeed—as Britain sits between the euro and the dollar.

The Treasury Select Committee, of which I am proud to be a member, recently published an all-party report on the UK and the euro—

Mr. Love: All-party?

Mr. Beard: Indeed. It is in the nature of such a report that it sets out the issues to be taken into account rather than drawing a conclusion. Nevertheless, the wealth of evidence accumulated over recent months gives a strong lead on the answers to the five tests that the Treasury wants satisfied before recommending that Britain should join the economic and monetary union.

The first test asks whether the UK economy has converged with those of the eurozone. Essentially, it has converged, though for Germany special problems arose from reunification when 20 million people living in a derelict economic infrastructure were added to a population of 60 million. For Britain, however, any further adjustment after joining the euro would be far less difficult than it was for present EMU members after they joined—and none of them experienced unmanageable problems.

There may be claims that the decision should be delayed until economists have drilled further and further down into the detail, but it is doubtful whether that would add anything to the assessment of the salient issues. We would end up better informed, but none the

6 May 2003 : Column 573

wiser. That road leads too easily to analysis paralysis, because there is always another beguiling bit of research that could be done before taking a decision. The judgment required now is whether the present degree of convergence is sufficient, which is a political rather than an economic question.

Flexibility is the second test—it is necessary so that the economy can absorb any shocks without damage. It is clear that the UK economy is the most flexible in the European Union and so the most capable of absorbing shocks and minimising economic damage.

Would joining EMU create the conditions for firms to make long-term investments in Britain? That is the third test. Overwhelmingly, major companies such as Alsthom, Siemens, Nissan and Unilever, which have given evidence to the Select Committee, have answered yes. The only doubtful companies are those whose business is unaffected by the exchange rate. All the major companies that we heard from say that, if Britain remains outside the eurozone, they will reduce investment in Britain in favour of the continent. The reason is that they want to avoid fluctuations in the pound-euro exchange rate. When avoiding exchange rate risk is so manifestly in their business interest, it is dangerous to assume that those companies do not mean what they say.

If manufacturing in Britain is to have the confidence to innovate, invest and improve productivity, it needs a lower exchange rate than has prevailed for the last six years. The rise in the value of the euro in the last two years now gives a real prospect of negotiating an entry rate that is equitable to manufacturers in the United Kingdom and to those in the eurozone.

Financial services and the City, whose competitive position constitutes the fourth test, have consistently told the Select Committee that they can operate internationally with ease whether or not Britain joins the euro. They are therefore neutral on the question.

The fifth test asks whether joining EMU will promote growth, stability and jobs. It relates to a central point of the Budget and Finance Bill—measures to improve Britain's productivity. Productivity is to a healthy economy what fitness is to a healthy athlete. Strategy will not compensate for an athlete who is unfit, nor will it compensate for an economy that is weak on productivity. Strategy can ensure that the full potential is reached, but fitness and productivity determine how good that potential really is.

The Chancellor has mastered macro-economic strategy, but UK productivity is still substantially poorer than that of the USA, France and Germany. The continued evolution of the Chancellor's strategy of economic strength, public service investment and social justice beyond the next five years depends on improving the productivity of the United Kingdom. Micro-economic measures to improve productivity are useful, but to have a major lasting effect we need to change the economic climate within which British business operates. For that, it is essential that the United Kingdom joins EMU.

If the Government's conclusion were to be "not yet", they must face the question "if not now, when?" Waiting could mean losing opportunities to establish a leading

6 May 2003 : Column 574

position in an expanding European Union and to influence the way in which the operations of the European Central Bank and the stability and growth pact are reshaped. Those changes are widely recognised as necessary by other members of the European Union, but Britain can influence them only from inside the eurozone. The technicalities are certainly not reason enough to stay outside the eurozone.

The decision depends on comparing Britain in EMU, not with Britain today, but with Britain outside EMU in a rapidly evolving world. There will never be any certainties. If we wait in vain for certainties, opportunities for Britain could move out of reach. The evidence examined by the Treasury Select Committee provides no justification for leaving Britain in that limbo.

Next Section

IndexHome Page