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Angela Eagle: As a former member of the Public Accounts Committee, I know that the NAO has to borrow civil servants to do its calculations. It would probably have to borrow civil servants from the Treasury to fulfil the role that the hon. Gentleman is setting out for it. Is he saying that there are civil servants in the Treasury who have been falsifying the figures, or that the credibility problem, as he calls it, is that people do not believe the figures because they come from the Treasury? What difference would it make to transfer people who currently do that work in the Treasury to do it at the NAO?

Dr. Cable: Nobody is suggesting that anybody is falsifying figures, but if the hon. Lady sat on the Public Accounts Committee, surely she understands the difference between a Government Department and a body that is directly accountable to Parliament. That is the fundamental distinction that gives the NAO credibility.

Mr. Letwin: I agree with the hon. Gentleman about this, as about the statistics. In a few weeks, we shall publish proposals and, I am glad to say, we shall probably have cross-party agreement. If we could just get the third party, Labour, to agree, we could have a credible system of fiscal discipline for the foreseeable future.

Dr. Cable: That was a helpful intervention and I shall bank it for future reference.

On the wider question of economic policy, we have discussed the rate of economic growth, which is respectable. It would help, though, if instead of looking back, we looked forward. Any honest assessment of the future must be based on the fact that the Government will face economic challenges that will make economic management much more difficult. Some of them are external and the Government have little control over them. It is still possible that we could be hit by a major oil shock. The Saudi Oil Minister was in London yesterday arguing that something of the order of $15 a barrel is still being paid, on account of the political risk arising from the war and enhanced terrorism risk in the middle east. The oil price could get a good deal worse, but it is not a factor that the Government can control.

A second challenge that is looming is the problem presented by the collapsing dollar. I could make the point that sterling is now higher than at any time since the days of black Monday, but it is not a domestic issue. It relates to the United States. The American currency is collapsing, at least in part because of fiscal irresponsibility caused by a tax-cutting agenda on which, I fear, we differ substantially from the Conservatives. It has had disastrous consequences in the US and it will have a major impact on this country.

We also have a home-grown problem, which is the problem associated with personal debt, and the linked problem of boom and bust in the housing market. Some revealing figures on personal debt were produced in the
 
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past couple of days. People who retire are facing mortgage repayments into retirement—40 per cent. of all mortgage holders face repayments into their retirement, which is twice the level 10 years ago. People are literally paying till they drop because of their mortgage liabilities.

On the position in the housing market, I have no views—it is not sensible for politicians to have a view on whether it is good for house prices to rise or fall. What is serious is that we have a boom-and-bust environment. Within the past few weeks, we have seen growing evidence of a very substantial collapse in lending and in equity withdrawal, which almost certainly, according to analysis by the Bank of England, will have major economic consequences. I do not raise the matter simply as a problem. It would be helpful if the Government thought through some of the steps that they could take to alleviate the problem. I shall make a few suggestions.

Mr. Nigel Beard (Bexleyheath and Crayford) (Lab): The Bank of England gave evidence to the Treasury Committee yesterday and did not concur in any way with the predictions that the hon. Gentleman is making. It gave no indication that it believed that boom and bust was about to occur.

Dr. Cable: The Bank of England quarterly bulletin is full of articles describing the difficulties in detail. Why has the Bank of England taken on the job of setting interest rates in relation to the housing market? As the Governor has made abundantly clear, he is alarmed at the possibilities that will arise. There are certain things that the Government could sensibly do to alleviate the problem.

The first is to ensure that we have a price index that reflects the housing market. At present we do not. I understand that the Treasury is working with EUROSTAT to establish a new index that will fully incorporate the price of housing. It would be helpful if the Government would say whether they intend to adopt it and when. That would enable the Bank of England to take house prices much more explicitly and clearly into account.

Another problem relates to credit insurance. One way of stopping hundreds of thousands of people facing the disasters that people experienced in the early 1990s would be to ensure that their mortgage payments and credit payments were insured. If the Chancellor had studied the problem and thought about it, he would know that the mortgage insurance market in this country is unsatisfactory. It is expensive and defective. I hope that he can take some initiative to ensure that the competition authorities look at it.

Mr. Jon Owen Jones (Cardiff, Central) (Lab/Co-op): Can the hon. Gentleman explain how his party's policies on removing the UK's only property tax and increasing the tax rate on those who are generally paying for houses would help to bring about a more sensible housing market?

Dr. Cable: Analysis shows that it would make little difference. We would do that to introduce a much fairer
 
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tax system in which local taxation is related to people's ability to pay. One-off effects may occur as a result of removing a property tax, but in the long run it should make no difference to the problem that I am describing.

Long-term growth and the factors that drive it is the third issue that I want to raise. I sympathise with the views expressed by the Conservative spokesman about the Government's remarkable optimism that their intervention in promoting innovation and growth will produce consequences. One of the reasons I am sceptical about pouring large amounts of money into the Department of Trade and Industry, which does some useful things, is my extreme scepticism about the extent to which that can drive economic growth.

Scientific research is clearly a Government responsibility: the market will never do it, but it is clearly a public good. That is why I am in favour of, among other things, bee research, which the Chancellor and the Prime Minister found so surprising and amusing. Research is clearly desirable and the Government should fund it. It is, however, another thing to argue that private companies, many of which would invest anyway, should be subsidised to do so, when they can raise money in venture capital markets and from charitable bodies such as the Wellcome Trust. The market enables growing companies to function without large-scale funding from the DTI, and I am sceptical about the role that the Government are playing in driving economic growth.

The other area of scepticism relates to the complexity of Government regulation. The Chancellor has a view, with which I happen to disagree, that somehow or other the Government can fundamentally change how business behaves and operates. The classic example of that is the belief that the Government have invested in research and development tax credits. R and D tax credits are a superficially attractive idea—"R and D is a good thing. Let's give them a big tax credit to support it."

All the research done in the past two years shows that R and D tax credits have made no difference to the level of research and development, because most private companies were doing it anyway and the policy has a large associated dead-weight cost. I am not suggesting that we should simply stop that tax credit, but we must evaluate its consequences. The belief that tweaking the tax system and adding great complexity somehow or other changes business behaviour and increases investment, innovation and growth is fundamentally flawed.

Ms Sally Keeble (Northampton, North) (Lab): Is the hon. Gentleman saying that he would keep the tax credit, despite the fact that he thinks that it does not work, or is he saying that he would get rid of it? Will he get on to other Liberal Democrat tax and spending plans, because some hon. Members are interested in hearing them?

Dr. Cable: As I have said, any sensible Government of any party would evaluate the effects of policy before rushing in to change them. The research and development tax credit is a good example—we need to be guided by experience. If it works, we would judge it more sympathetically.
 
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