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Session 2002 - 03
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Delegated Legislation Committee Debates

Section 5 of the European Communities Act 1993

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First Standing Committee

on Delegated Legislation

Monday 30 June 2003

[Mr. Roger Gale in the Chair]

Section 5 of the

European Communities Act 1993

4.30 pm

The Chairman: Good afternoon, ladies and gentlemen. Hon. Members may remove their jackets for their comfort, if they so wish.

Mr. David Wilshire (Spelthorne): On a point of order, Mr. Gale. I thank you for that ruling.

The Chief Secretary to the Treasury (Mr. Paul Boateng): I beg to move,

    That the Committee has considered section 5 of the European Communities Act 1993.

I wish to say, on behalf of the Committee, what a pleasure it is to reconvene under your chairmanship, Mr. Gale, albeit in a different guise. Several main protagonists are in the Room, and I assure you that we will conduct ourselves with greater expedition on the matter under discussion than we did in respect of the Finance Bill. However, we are very much in the hands of the hon. Member for Hertford and Stortford (Mr. Prisk).

Our debate is not without importance. It enables us to deal with the information provided to the European Commission under section 5 of the European Communities (Amendment) Act 1993. Each year, the Government report information to the Commission on our main economic policy measures. The procedure is set out in articles 99 and 104 of the EC treaty, which relate to the broad economic policy guidelines, convergence and stability programmes and the excessive deficits procedure. I am sure that the hon. Member for Birmingham, Edgbaston (Ms Stuart) will be glad to see that we are taking such responsibility with the seriousness that she and other Convention colleagues believe we should.

The objective is to ensure that the economic policies of member states are consistent with the goals of the treaty, including non-inflationary economic growth, a high level of employment and social protection, and better living standards for citizens throughout the United Kingdom and the European Union-goals that are consistent with the Government's approach to economic policy. Section 5 of the Act-usually known as the Maastricht Act-requires Parliament to approve the information sent by the Government to the Commission for that purpose.

The Government's strategy for economic policy was most recently set out in the ''Economic and Fiscal Strategy Report'' and the ''Financial Statement and Budget Report'', both published on 9 April. That material will form the basis of the information that we send to the Commission. The information that we are sharing confirms that we meet the Maastricht criteria for deficits and for gross debt. As we set out clearly in ''Budget 2003'', and as the Chancellor explained in his

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statement to the House on 9 April, both the treaty reference values of 3 per cent. of gross domestic product for the deficit and 60 per cent. of GDP for gross debt are achieved throughout the projection period. That demonstrates the steady strength of purpose with which my right hon. Friend the Chancellor has stewarded the economy throughout the past six years to build a Britain of economic strength and social justice.

It is because we have been resolute in our commitment to stability that we will continue to meet not only the Maastricht criteria, but our two fiscal rules. I hope that that will be welcomed by hon. Members on both sides of the Committee. We meet the golden rule about the cycle, not merely achieving a balance, but with an estimated surplus of £32 billion, showing that it is right and prudent to borrow at this stage in the economic cycle. Adjusted to the cycle, we meet the golden rule this year, as we will meet each year to 2008. We meet the sustainable investment rule that debt should remain below 40 per cent. of national income, with debt set to stabilise at 34 per cent. of GDP, the lowest in the G7. Indeed, it is among the lowest in the European Union and down from 44 per cent. in 1996-97. I have taken that year at random.

This year, the United Kingdom debt repayments constitute a lower proportion of our GDP than in any year since the end of world war one. As we have built sound foundations of low debt and low inflation, and are today meeting our fiscal rules in every phase of the economic cycle, we have confirmed all the decisions of our spending review to invest £61 billion more a year for public services by 2006, including £15 billion more a year for education and £40 billion more a year for health. That programme was confirmed in ''Budget 2003'' and, with the approval of the House, we will send that programme to the Commission. We are fulfilling our commitment under the Maastricht Act to report on our main economic policy measures and on maintaining our position, developed by the Government, at the heart of the EU policy process. With those words, I hope that the Committee will give this measure a fair wind.

4.35 pm

Mr. Mark Prisk (Hertford and Stortford): May I share the Chief Secretary's warm welcome to you as our Chairman, Mr. Gale? I also thank the Chief Secretary for one of several matches this week, to which I look forward and shall enjoy, as I have in recent weeks sitting on the Finance Bill.

The Opposition welcome this opportunity to consider the Chancellor's Budget and the background assessment provided to the EU. However, we do not welcome his policies in the Budget, which will continue to restrain both growth and productivity, further damage the British economy and continue the Government's record of tax and waste and their failure to improve public services.

I suspect that the members of the European Commission will notice, in the Budget and the information supplied to the EU, that the Chancellor has, for the third time in 12 months, been forced to downgrade his forecasts for growth. In last year's

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Budget he had to downgrade the forecasts he made in the previous year; then, in the pre-Budget report last November, he had to downgrade those further. The growth forecasts for 2003 and the years thereafter, which were included in this year's Budget, have been downgraded again, from 2.5 to 3 per cent. to 2 to 2.5 per cent. In just 20 weeks, between the pre-Budget report in November and the Budget before us today, the Chancellor has been forced to revise his figures for a third time.

Why should we believe the figures? That is one of the questions lying at the heart of the assessment of the Government and their economic policy. The Economist said:

    ''The Chancellor's worrying deficit is his growing credibility gap.''

The Chancellor has, as a result of getting his growth forecasts wrong, yet again been forced to increase borrowing, this time by an additional £3,000 million, bringing the total to £27 billion. Looking at figures for next year, we see that he has rather optimistically forecasted that borrowing will return to £24 billion. That, however, flies in the face of outside expert opinion. Of the 26 independent forecasters surveyed by the Treasury, 20 said that that figure was too low. Indeed, the latest growth figures for the first quarter of this year, which were released only a few days ago, show growth of merely 0.1 per cent. Many forecasters believe that the deficit could rise, not fall, reaching £30 billion next year. Even the Institute of Fiscal Studies, which referred to

    ''a 'hope-for-the-best Budget' '',

stated that borrowing is far more likely to rise than fall, as the Chancellor is currently claiming. I suppose that, given his record, it is likely that in a couple of weeks he will tell us that the figures are not quite right and will need to be changed again. We shall have to wait and see.

There is a danger in chopping and changing figures and in the decline in the credibility of the Treasury's own calculations. Although the United Kingdom's economy is the fourth largest in the world, the Government's record of increasing tax while spending, without reforming public services, is putting our economic future at risk. Indeed, since 1997 more than 600,000 jobs have been lost in manufacturing, including 134,000 in the past year. The manufacturing sector is, on average, losing 10,000 jobs every calendar month. Despite what the Chief Secretary said about the economy, the truth is that manufacturing output today is significantly lower than when the Labour party came to office six years ago. We are, at the same time, seeing significant problems in trade and investment throughout business. There was a 6 per cent. rise in business failures last year-increasing to 19,928. Business investment is at its lowest level in more than a decade, and productivity is rising at only half the rate at which it grew under the last Conservative Government. Six years ago, it was running at about 2.7 per cent. Now, it is running at 1.3 per cent. However, if we read the 2001 Labour party manifesto-I like a good novel now and again-we see that it states:

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    ''To raise living standards, our ambition is to raise our productivity faster than our competitors and to ensure our goods and services are competitive in world markets''.

Will the Chief Secretary explain why productivity growth has halved in the past six years? What are the underlying reasons for that? I hope that he will give the Committee a direct reply.

Business is increasingly fed up with a diet of more red tape and more taxes. The CBI has shown that taxes on business have increased by £47 billion, and that the Government are costing business an extra £15 billion in red tape and in taxes every year. Last November, the CBI's director general, Digby Jones, said:

    ''For five years, the engine of wealth creation in this country has been over-taxed and almost run into the ground. It can take no more''.

Business is not alone in suffering from the Chancellor's annual assessment and the Budget policies that he seeks to implement each year. The increases in national insurance contributions that began only six weeks ago have already led to a reduction in take-home pay for many people in our constituencies for the first time in 20 years.

The Chancellor has increased taxes on pay, on jobs, on homes, on homeowners, on mortgages, on petrol and on pensions. This year, the Government will take £405 billion in tax. That is a 50 per cent. increase in six years. It is equivalent to a £44 rise in tax each week for every man, woman and child in this land. I suspect that that is not the end of the matter. We learned from the part-time Leader of the House of Commons that there may be a future agenda for us to consider. Will the full-time Chief Secretary reassure my constituents by ruling out any further national insurance contributions? Such a reassurance is important, because people want to know where the economy is going and how much money will be in their pockets.

The Government claim that the extra revenue they have drawn in is improving schools and hospitals. However, the experience of my constituents and the public as a whole is sharply different. Although there has been a 22 per cent. increase in spending in the health service, it has resulted in an increase of only 1.6 per cent. in the number of patients treated. One of the reasons for that may be that there are more bureaucrats than hospital beds.

Despite all the promises about education, one in four children leaves school unable to read, to write or to count properly. In many parts of the country, teachers are being made redundant because the schools cannot afford to pay them. Our transport system is in chaos. Commuters are being asked to pay more for fewer trains and worsening services, yet all the while the costs of Network Rail, the company that the Chief Secretary and his colleagues were all involved in creating, are spiralling. Those costs are kept off the balance sheet, which is why the right hon. Gentleman can make these proud claims about the Government's debt.

Another aspect of public services is reflected in the level of violent crime, which has increased by more than 30 per cent. during the past four years. Police

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funding for forces such as mine in Hertfordshire is being cut. Whatever the Chief Secretary has told us so far, the truth is that Labour is taxing, wasting and failing.

We could consider whether the Budget and the information that we will give to the European Union will change that. What improvements will we see? As many people will know, there have been 53 tax rises since 1997 and before this Budget, which generously gave us a further seven, taking us to 60 in six years. The seven tax rises in the Budget included a 38 per cent. rise in red diesel duty for our long-suffering farmers. Sadly, that is another blow to the farming community and the rural way of life, which the Government seem to despise.

The Budget also extends the Chancellor's IR35 stealth tax, bringing domestic staff within the scope of the IR35 tax avoidance legislation. That will dramatically increase the cost of employing staff, whether they are gardeners, nannies or whatever. It therefore represents another attack on hard-working middle-class families.

In addition, the Chancellor made great protestations in the Budget about how he would help the world of bingo. He announced the abolition of 10 per cent. duty on bingo stakes and the introduction of a 15 per cent. tax on gross profits to bring the sector into line with the rest of the gaming industry. However, in the Finance Bill Committee, of which the Chief Secretary and I were members, we found that that was not quite the case and that, unlike the rest of the gaming industry, bingo would still have to pay 17.5 per cent. VAT on participation fees, and that that would not be deducted from the gross profits tax calculation. The effect is that of a double tax.

I am pleased that, despite those early concerns and thanks to the efforts of the shadow Paymaster General, my hon. Friend the Member for Eddisbury (Mr. O'Brien), and the Bingo Association, the Government have chosen to step back an inch-no more-towards sanity and to allow VAT as a deduction to remove the double taxation element. However, that does not go far enough: the VAT remains. Sir Peter Fry, the chairman of the Bingo Association, said that the Chancellor had

    ''missed the chance to make a real difference for bingo players and the industry''.

I hope that the Chief Secretary can give us some good news on that subject.

Now we come to the crucial issue in the Budget-the issue that I hope the Commissioners will consider with concern when they read the information sent by the Government. The Chancellor and his Ministers originally promised to modernise stamp duty, but he has failed to deliver on that promise, too. Instead, we have a new tax that will retain many of the unfair and antiquated parts of the old stamp duty. For example, the new tax retains the slab effect, whereby the same rate of tax or duty is applied to the whole price of a property transaction. If a young couple, perhaps buying their first home, pay £249,000 for a property,

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the tax bill is £2,490, but if they make the mistake of paying a couple of grand more, their tax bill trebles to more than £7,500. We assumed from the Chief Secretary's great clarion call for modernisation that that aspect of the duty would go, but not a bit of it; it is written back into the legislation.

The treatment of leases will damage firms. They are concerned that pursuing that treatment will be counter-productive, despite the Government's claims about what they seek to achieve. The new tax will be charged on the whole length of the lease, hurting a raft of businesses up and down the land, not only shops, but pubs, clubs, hotels and restaurants. The increase in tax bills will, in the words of the Chartered Institute of Taxation, be between four and 10 times the existing tax levels. The increase will be extreme, which is why Opposition Members are deeply concerned about the impact of the tax.

Elements of the Budget proposals will hurt certain groups. Whether that is intentional or inadvertent, I do not know. The Chief Secretary will know that the legal and administrative burdens on charities are a particular concern.

Opposition Members-admittedly, our representation this afternoon is one of quality rather than quantity-have concerns. Yet again, the Chancellor has got his forecasts wrong. They are wrong on borrowing, investment levels and growth, not only for this year, but for years to come. The Chancellor promised that he would boost enterprise and reward entrepreneurship, yet the truth is that he has failed to lift one jot either the tax burden or the red tape burden. The real record of this Government is the 600,000 manufacturing jobs that have been lost, the highest trade deficit and sharpest fall in business investment since records began, and the highest number of insolvencies in over a decade. The conclusion that I draw from that-and I hope that the same conclusion will be drawn in Brussels-is that although the Chancellor promised prudence with a purpose, the Budget is neither prudent with the nation's finances nor purposeful in reforming public services.

4.50 pm


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Prepared 30 June 2003