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Norman Lamb (North Norfolk): The hon. Gentleman paints a rosy picture of the economy under Labour, but why has the UK's share of inward investment into Europe fallen so dramatically? What does he put that down to?
Geraint Davies: It is worth remembering that Britain is still the leading player. There are issuesdo not misunderstand meabout big companies operating in Britain, using Britain as a platform into the European marketplace. They are very strong advocates for joining the euro because if one is an investor, and for argument's sake 80 per cent. of one's products will be consumed in Europe and 20 per cent. in Britain, it is obviously better to invest in mainland Europe, because one can produce in the currency that it is being consumed in, so there is no currency risk in production. The cost of production is known, the selling price is known and it is possible to work out the business plan. The company knows that if it exports some products to
We need to get the conditions right. The Chancellor is right to focus on sustainable convergence, not on a one-off hit. He is right to think about what is right for Britain overall, and to consider, as he did in the Budget, ideas such as those to take the risk to home owners out of the equation, in order to combat the one-size-fits-all argument about interest rates. Presumably, the rationale behind his statement is that if people have fixed-rate mortgages and there is an adjustment to the interest rate, they will be insulated from that, whether the interest rate is set by the Bank of England or the European Central Bank. There are certainly strong arguments for going into the euro. The Leader of the Opposition and others are completely wrong to say that we will name the date and go in irrespective of the conditions and irrespective of whether we satisfy the five conditions for sustainable convergence.
Moving on from the wider macroeconomic situation that has delivered us such a bonanza in terms of economic success and investment in our public services, I shall speak briefly about distribution. Some of my colleagues have mentioned regional and sustainable economic growth, and the Chancellor has focused on full employment by the region.
Geraint Davies: Obviously we must adjust to the peaks and troughs of the overall global economy. I think everyone would accept that forecasts for economic growth in the global economy have been massively pared down, as have those in all the major economies, although the reduction in economic growth forecasts in Britain has been less than in the rest of Europe and in America and Japan. It is sound finance that we borrow and spend more when we are in a dip than when we are on the way up, but we are not in a recession in the way that other comparable economies are, because of prudent economic management.
Mr. Cameron: If the hon. Gentleman looks at the Chancellor's forecast, he will see that the Chancellor is forecasting growth of over 2 per cent. for this year and over 3 per cent. for next year and the year after; that is hardly a trough. In that case, why are we borrowing £24 billion this year and £81 billion over the forthcoming four years? If that is a trough, I would hate to see a really bad trough.
Geraint Davies: The hon. Gentleman asks, "What has that got to do with economic growth?" It is obvious to someone who knows anything about economics. The oil price, which is a major stimulant of world growth, has moved from about $40 a barrel down to $20 a barrel in the last month or so, as more and more oil has been put into the marketplace because of the fear of the Iraq war, which has thankfully come to an early end. As confidence returns to world markets, and as input prices are lower, we are now seeing an opportunity to get back to buoyant growth.
Mr. Flight: I thank the hon. Gentleman for giving way. Does he have any concerns about the fall in the savings ratio and the fact that the economy is being supported largely by personal consumptionby large amounts of housing equity mortgage release? Some £52 billion of it last year accounted for virtually all the growth in consumption. Does the hon. Gentleman feel that that is a sound base from which the economy may move forward?
Geraint Davies: I am pleased that I have been asked that helpful question because the reality is that, first, savings ratios are historically low at times of public confidence in the economy. When people think that there is a sustainable growth path without massive redundancies, repossessions and a Conservative Government down the road, their conventional savings are less. Secondly, people save in a different portfolio of ways these daysnot simply in pensions, although they are important. People's major form of saving is in house equity, and in many instances it is rational to put money into housing instead of pensions.
Thirdly, people are increasingly investing in human capitaltheir propensity to generate wealth in the future. If one is a young person, it is by no means obvious that one should simply start an individual savings account. Young people might be better off putting the money into human capital development, perhaps by entering the housing market. We need to take a more sophisticated look at a lifetime model of savings. Frankly, having a facile and out-of-date look at savings ratiosan indicator of average savingsis naive in a stable economy. I thank the hon. Gentleman very much for that helpful question.
I am a great supporter of the Chancellor's ambitions for full employment regionally. That is a very difficult issue because prices and costs in the south-east and London are obviously much higher. Some eminent academicsProfessors Oswold of Warwick university and, of course, Elliot of Aberdeen universityhave looked at the private sector mark-up to attract labour for a standardised job in London, which I briefly
Norman Lamb : Will the hon. Gentleman comment on the recent evidence from Incomes Data Services that suggests that most national private companies use national pay scales and do not vary their wage rate much between regions?
Geraint Davies: It is certainly not the case that most companiesor even a small minority of companiesdo not provide a London weighting. That suggestion is completely false, and the statistics that I have already quoted apply: the mark-up for London is about 40 per cent. That is necessarily so because housing and transport costs are significantly higher and there are other built-in quality-of-life costs. Other things being equal, people would prefer to live in a less congested, less busy environment.
Mr. Michael Weir (Angus): Does the hon. Gentleman not accept that the payment of public service workers is a problem not only in the south-east, but in all areas of the United Kingdom? There is a specific problem with recruitment in Scotland, where many public sector workers consider themselves to be underpaid. How will that be solved by the Government's proposal, in effect, to increase wages by regional indices in the south-east, but not in other parts of the UK? Will that not exacerbate the problem in some of the poorer areas of the UK?
Geraint Davies: Not at all. That is not an accurate representation of the Government's position, which, as I understand it, is that flexibility should be considered where shortages occur. Clearly, that is an issue in the areas with shortages. Perhaps people are desperate to be nurses in the hon. Gentleman's constituency, and they are not being paid enough and are being priced out by other competitive jobs. However, I suggest that that is not the case at all. One has to take seriously the outputs of the market. Some of those market outputs occur for other reasons, such as not enough affordable housing. We need to address those issues as well, or instead: we cannot simply pretend that they are not there.
The firefighters' ambition is to have a 40 per cent. increase. The reality is that in parts of London there might be limited justification for that increase, if we are to get enough people to do the job, but there is no justification for a 40 per cent. increase in the hon. Gentleman's constituency. I shall move on before I provoke too much anger about that.
In relation to the distributional impact, I want to mention take-up of the working tax credit. The Opposition have criticised the take-up rate, but I understand that it is about 92 per cent. already and families with incomes up to £58,000 are eligible, so only about 8 per cent. of the people who are eligible for some level of benefit are not taking it up. Of course, they are clustered at the top end of that income scalethe
I wish to refer briefly to delivery in other areas. Prisons were mentioned by the Chancellor, who said that the Reading example was delivering and that about 80 per cent. of inmates were going into work on leaving prison. I have a particular interest in trying to increase the effectiveness of our prison system so that it delivers taxpayers instead of long-term liabilities. The reality is that we spend £34,000 a year on each person in prison and there are 73,000 people in prison, two thirds of whom reoffend when they leave it. Many prisoners are not educated to any extent, and 70 per cent. have been excluded from school and, before we invested in pupil referral units, they were wandering around stealing mobile phones and the like. Some 10 per cent. of the overall numeracy and literacy target relates to people in prison.
As a member of the Public Accounts Committee, I am horrified to know that only £700 of the £34,000 that we invest in those people is spent on education, compared with £3,500 spent on each pupil in the average state school or £15,000 in a public school. If more of the £34,000 were spent on providing the best, intensive education, more of those people would be turned into taxpayers, and we need to consider creative ways of doing that. The amount spent on health for each inmate is less than for the average person in Britain, although mental health problems are endemic in prison.
I shall say why I mention those things. It is obviously important to generate the global wealth and economic stability and to get right the distributional basis, the regional basis and the take-up basis. We have done that, but it is also important to consider efficient delivery mechanisms, and there is clearly a lot to do in the Prison Service to generate taxpayers out of people who have previously been criminals.
Finally, I wish to refer to hospitals. Obviously, the major debate tomorrow will be about the delivery of hospitals and whether foundation hospitals can represent a major key to progress in having not only minimum performance standards that increase over time but an environment where innovation can be pushed forward. As all hon. Members know, there are a number of issues. I do not see the issue as being the delivery of a consumer and patient-driven, post-Fordian system that is characterised by innovation and rising standards, which are then dissipated throughout the system. That is fine, but my specific questions about foundation hospitals relate to consumer accountability.
Will we still have patient forums, which were the successors to community health councils? There is a question mark over that. Those are questions for the debate tomorrow, but I just mention them in passing, as they have a bearing on the Finance Bill. I shall listen to that debate, as I have an open mind on the issue. If the
There are issues about audit. Obviously, the National Audit Office and the Audit Commission go in and take to pieces the health service and produce recommendations for increased performance. If foundation hospitals appoint their own private sector accountants, there will be issues about the power of accounting and the relationship between the national auditors, the regulators and the hospitals, and I shall be interested to listen to those discussions. Clearly, there will be more freedom, and we want as much, if not more, accountability to Parliament. There are issues about public sector asset management in relation to the use of land assets around London and so on.