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3.33 pm

Mr. Stephen Dorrell (Charnwood) (Con): I begin by declaring an interest as a director and shareholder of a manufacturing business.

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I always enjoy listening to the right hon. Member for Llanelli (Denzil Davies), who always argues his case intelligently, but I did not agree with his starting point this afternoon. He has always tended to look at the downside of globalisation and consider how one may control its effects. I think that globalisation is a fact and that its effect on our economy and prospects is overwhelmingly positive and something that we should plan to accommodate rather than try to avoid.

The hon. Member for Ochil (Mr. O'Neill) suggested that there is a danger of our assuming in such debates that history began in 1997, with the result that we make unrealistically stark comparisons between the records of two periods of government. He then proceeded to fall headlong into precisely the trap that he identified when he said that he had to acknowledge that the last Conservative Government had made a few faltering steps down the road of liberalising the economy. That is an interesting interpretation of history, which would not be borne out by historians.

I agree, however, with the hon. Gentleman's proposition that these debates are interesting to their participants and those outside this place only if we stand back from the passions of party political debate. Clearly, some aspects of the Government's economic record should be welcomed, and I do so unreservedly. Most important, establishing the independence of the Bank of England and creating a regime for the effective management of monetary policy will, whatever happens between now and the day the Government leave office, stand as a great achievement of this Chancellor, and he should be given credit for that. He should be given credit, too, for restraining the growth of public expenditure in the early years of this Labour Government. Things have changed more recently, as I shall demonstrate later.

Those two early achievements of the Government are beyond dispute. I hope that, in the same spirit, the Minister may reflect that the hon. Member for Ochil gave a rather niggardly account of the achievements of the last Conservative Government in the 1970s in liberalising an economy that was massively underperforming and creating the circumstances for which, ironically, the Chancellor now loves to claim credit. All Conservative Members enjoy his lectures about the importance of competition, contestable markets, labour market flexibility, low taxes, introducing incentives and establishing a regime for sound money. We are never quite certain whether they are addressed to his colleagues on the European Council of Ministers or to his next-door-neighbour in Downing street, but whichever it is they are very welcome. Imitation is often regarded as the sincerest form of flattery, and when I hear the Chancellor talk about the importance of a liberal economy he calls to mind the sometimes rather portentous lectures that Lord Lawson used to deliver. Sometimes, the two styles and two arguments are almost interchangeable. It is, of course, doubly ironic that the Chancellor loves delivering those lectures, given that he was a member of the party that, when in opposition, fought such changes every inch of the way throughout the 1980s and 1990s.

Mr. O'Neill rose—

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Mr. Dorrell: I give way to the hon. Gentleman—I hope he agrees that I have given fairer recognition than he did to the achievements of the last Conservative Government in the direction of liberalisation.

Mr. O'Neill: Perhaps I did not have enough time to develop my point. The liberalisation pursued by both Governments has placed the present Government in such a position that our economy has been that much better, stronger and healthier than, say, the French and German economies, which did not go down that road. It is to the Government's credit that they have pursued it in such a way that that advantage has been achieved and maintained.

Mr. Dorrell: I would respond with the proposition that that liberalisation marks us out from our European comparators. That moves me neatly to my point about the dangers that we face in relation to the trends in productivity that one of my hon. Friends identified earlier.

We all know that long-term productivity growth is one of the most fundamental economic indicators. The Chancellor acknowledges that; it is why he set up a productivity unit in the Treasury and devotes so many speeches to it. The proposition is therefore not controversial. However, the problem with the Chancellor's productivity unit is that it has not been very productive. As one of my hon. Friends said, the effect of the Chancellor's policies since 1997 has been to halve the trend in the growth rate of productivity that he inherited from the equivalent period at the end of the previous Government's tenure. The trend has turned against us at the precise moment when the American economy has experienced a new spurt in productivity growth. That is not simply a dry statistic; it reflects the results of the Government's attempts to micro-manage the economy. I agree with the comments of the hon. Member for Twickenham (Dr. Cable) about that.

The effects of the Chancellor's tendency to impose extra costs on the economy through regulations and to introduce huge extra resources into the public sector without demanding the extra productivity growth to which my right hon. Friend the Member for North-West Cambridgeshire (Sir Brian Mawhinney) referred are feeding through into the statistics. My right hon. Friend the Member for West Dorset (Mr. Letwin) mentioned the Chancellor's tendency to oversee increases in Government overhead expenditure without corresponding productivity growth. It is one thing to commit extra inputs to the health service, education and the process of government and to desire extra activity through regulation, but not insisting on delivering it efficiently undermines productivity growth and causes long-term problems such as the factor that the Chairman of the Treasury Committee identified.

The Chancellor's delivery of his productivity objectives has fallen way short of his rhetoric. Consequently, although he likes to contrast this country's liberal economy with economies on the continent, the gap is narrowing because, step by step, his actions make the British economy more closely resemble its European comparators at exactly the time when he is trying to persuade European countries to change their stance to make their economies resemble ours.

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I want to consider a second issue, which is often perceived as separate from productivity but is closely related to it. The adverse trend in productivity in the past six years has been matched by an adverse trend in the public finances. I gave the Chancellor credit for slow growth inpublic expenditure in his early years, but Prudence has been jilted. Three years ago, when the Chancellor first looked forward to this financial year, he said that he expected to borrow £10 billion. In the City, that figure is expected to be not £10 billion but £40 billion. That misses the Chancellor's target by £30 billion because expenditure is outpacing income. That is partly because the growth of public expenditure has increased and partly because the slow-down in productivity is starting to lead to a slow-down in the growth of the British economy. The two lines are beginning to diverge. Productivity and public finances are part and parcel of the same phenomenon: if productivity grows too slowly, income starts to grow more slowly and one reaches the point when the public expenditure plans to which the Chancellor has committed himself cannot be delivered.

My case is not that the Chancellor is about to fall off a precipice or that the Government will face an unbridgeable black hole. However, the Chancellor's irresistible urge to intervene imposes costs on the economy that undermine the achievement of his productivity objectives. That is one of the key factors that undermine the Chancellor's planning of public finances. We all know that if public finances start to get out of control, everything unravels quickly. We do not need to look into a crystal ball to work that out; we can simply look at the book.I give the Chancellor credit for starting quite well, but the performance gets worse by the day.

3.44 pm

Mr. Geoffrey Robinson (Coventry, North-West) (Lab): I refer hon. Members to my interests, as listed in the register.

It is always a pleasure to follow the right hon. Member for Charnwood (Mr. Dorrell), and although I totally disagree with the last point of analysis that he offered the House, I agree that a major underlying problem for the UK economy has been relatively low productivity, and I shall say something about that at an appropriate point in my discussion of the Government's economic policy.

We also heard an interesting contribution from the right hon. Member for North-West Cambridgeshire (Sir Brian Mawhinney), who unfortunately has just left the Chamber. Speaking very constructively and in the best spirit of contributions from both sides of the House, he took us into the area of pensions policy and the forthcoming Bill. It is particularly good that we have my right hon. Friend the Secretary of State for Work and Pensions with us now. I know that if my hon. Friend the Member for Coventry, South (Mr. Cunningham) catches your eye, Mr. Deputy Speaker, he will want to say more about that than I do.

My right hon. Friend knows that in the west midlands and other parts of the country there is a considerable problem concerning Rolls-Royce. My hon. Friend and I have been to see him, and he has been very responsive and understanding. Outstanding remains one of the points made by the right hon. Member for North-West

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Cambridgeshire, who asked whether the legislation will be retrospective. Everyone who has had the wretched task of wrestling with Government policy on the subject knows how difficult that could be, but it may well be, in this case, that that has to be an aspect of the legislation if proper account is to be taken of those who have been so badly affected.

It seems clear to me that the Government's record is one of remarkable success, and as my right hon. Friend the Member for Llanelli (Denzil Davies) said, sustained growth is central to that fact. We have, as he said, been successful despite not only the many deflationary pressures of globalisation but the fact that so many other countries have been in recession; and after the pits of the recession into which the last Tory Administration plunged us in 1992. Every year after that we had successive growth, which we have maintained six and a half years into a Labour Government. That is unheard of in the management of the economy since the second world war. I give the Chancellor and the Government my unqualified support and my unqualified estimation for their success.

We can express that success in a number of ways, one of the most remarkable of which is the fact that jobs have been created for 1.7 million people. That is remarkable and it, too, requires unqualified acceptance. However, there is an underlying problem of productivity. Only if we can maintain and, indeed, increase the rate of productivity growth will we stand any chance of offsetting the negative effects of globalisation. In no way can I agree with the right hon. Member for Charnwood when he speaks of the unqualified blessing that globalisation brings. No major movement in global macro-economics can be an unqualified blessing for this economy. One has only to look at the 2,500 jobs being lost in the service industry, which we always thought was recession proof and would make up for the decreasing manufacturing sector, to realise the sorts of problems that we are facing.

Over the next year we will be considering the introduction of foundation hospitals. In an earlier debate I made it clear to the House that I had my reservations about that. Many of us voted for the proposal because there was a promise from the Secretary of State for Health that he would review those hospitals acquiring foundation status to see how the measures worked in practice before the scheme was extended to the entire NHS. That is a welcome concession, and we intend to hold him to it. Certainly, in Committee, we will be looking to make sure that proper revision processes are built into the Bill.

The development and implementation of the policy on foundation hospitals was reminiscent of how we have developed and implemented policy for universities. Neither policy is totally wrong: much in both of them is good. It is rather that the issues have not been properly thought out and the problems worked out ahead of time, so we have had to do that in the House, both from these Benches and across Benches. My right hon. Friend the Secretary of State for Work and Pensions is thoughtful on these matters. I put it to him that, if the process of policy development were properly dealt with before implementation—as he knows, that is what we

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used to do successfully in the Treasury—we would have fewer problems than we have had over policies in recent weeks.

I assure my right hon. Friend that I would never put the Government in an embarrassing position in the House. We only have to consider the prospect of the policies proposed by the Opposition to realise what is at stake. The shadow Chancellor again confirmed that the 35 per cent. GDP target for public expenditure stands. He told us that that amounts to an £80 billion cut. If we assume that each job is worth about £40,000 with all the associated costs, that means a head count reduction and a loss of about 2 million jobs from the public sector. Two million jobs is precisely what the Tories managed to lose the last time they were in office, so perhaps it is a secret plan. They seem to have forgotten—they never learn anything, and even forget the few lessons that they could learn—that enormous costs come with 2 million unemployed. There is the soaring cost of the unemployment bill. That is how we ended up with a deficit of £80 billion the year they left office. Debts had soared as a percentage and in total terms. It is greatly to the credit of the Labour Administration that we have reduced that deficit.

I shall deal with the other aspects of Conservative policy, which were clearly confirmed today. We were told that the Tories would cancel the new deal for everyone, except perhaps the over-50s, because it has been a ridiculously expensive failure. I agree that the new deal has been expensive, but it cannot be called a failure. It dealt with and eradicated youth unemployment, and the growth in the economy underpinned that. We shall hear what more the Tories have to say about that.

It is clear that the proposals of both the Conservatives and the Liberal Democrats could not command the support of the House. For that reason, whatever our reservations about how we have developed and implemented policy, there is no question of my failing to support the Government as and when necessary.

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