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Mr. Purchase : The hon. Gentleman is telling us about the Chinese economy. Would he really want to go back to the days in this country when health and safety were never considered and entrepreneurs were free to lose as many men and women in the process of enterprise as they wanted? Would he really want to go back to that?
Mr. Flight: I do not believe that anyone would. [Interruption.] I have done some very interesting jobs in my life. However, as the hon. Gentleman will know, it was Conservative Governments in the 19th century who started to introduce health and safety measures to protect people. It miscasts the issue to argue that our party has not supported such measures. However, if he is involved in any business at present, he would agree that many such measures are over the top. Regulation is often needed to change behaviour but once that has been achieved and behaviour is satisfactory that is followed by a mass of excessive inspections and regulations that accomplish little. I was pleased to hear the Chancellor's proposals about consolidating a fair deal on inspection, as that is in line with our recommendations.
I am not, however, advocating that this country should return to raw 19th-century capitalism; I was trying to make a point about what is happening in China. We have to compete with China, so we need the minimum regulation. Another major reason for the dynamism of the Chinese economy is that the tax take or the amount spent by the Government is about half the public sector take in the UK, so in China there is a great deal more to reinvest in industry. Members may have noted the recent study on developments in continental Europe since the second world war, which found that for every 1 per cent. more taken by Governments in public expenditure there was a fall in the growth rate of 0.14 per cent.
It is manifest that advanced economies need a sensible balance. Given the fact of ageing populations and higher expectations, there is an ever greater need for a public sector that can deliver what people want. It is therefore crucial that the public sector is as efficient as possible, because if it continues to consume more and more without improving its output we will end up with economic growth that is insufficient to sustain it.
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Mr. Andrew Love (Edmonton) (Lab/Co-op): The hon. Gentleman has talked about a sensible balance. About 38 per cent. of the gross domestic product is spent by the public sector. What does he suggest is a sensible balance? Is it 36 or 34 per cent., and can he tell us how we would achieve that rate?
Mr. Flight: I hope that the hon. Gentleman will not mind my saying that such questions are rather silly. The Organisation for Economic Co-operation and Development puts the current UK figure at 45 per cent., so no one really knows whether we are at 39, 41 or 45 per cent.it depends on which measure is being used. It is a fact, however, that the higher it is, the lower the growth rate. We therefore need a balance between the two. That balance may be about 40 per cent.the Conservative spending plans are to return to 40 per cent. in five years' timebut it may change if circumstances change. Welfare will not be delivered if the economy suffers from an ever increasing tax take. Who would have thought that Ireland would have an economy with an income per capita well in excess of the equivalent figure in the UK, or that it would have grown at twice the rate of our economy? The public sector spend in Ireland is 34 per cent. of GDP.
In introducing his Budgets, the Chancellor has always talked about a Budget for enterprise. He has made great play of the wonderful things that he has done for the venture capital industry and implied that he had learned lessons from the USA. The reality is that the venture capital industry is in a poor state. It is in decline, and has experienced major problems in the past three years. None of his initiatives has succeeded in achieving a material improvement. The small and medium-sized enterprise sector is in reasonable shape, but it regards itself as a Cinderella as it does not have any of the fiscal advantages that have been given to the venture capital sector.
The private equity sectorthe one area of successis now threatened with retrospective taxation dating back to 1998. Part of its success is based on the tax deductibility of partnership interest costs, which are now regarded by the Revenue as an incorrect tax privilege. A successful example of enterprise in this country is therefore under tax attack. The UK could do a great deal more to make new enterprise more effective and successful, and there is much that we can learn from America and implement. We should not be under any illusion about the fact that, although we may be doing better than continental Europe in these areas, we are still not doing anything like as well as the US, and nothing like as well as we ought to be doing for the long-term health of the economy.
In conclusion, the Chancellor is a little unwise to treat the electorate as dummies. People know very well that there have been major tax increases. Indeed, they supported the proposition at the last election. Everyone said, "Yes, we're happy to have higher taxation to get better public services." They were better off as mortgage interest rate costs had fallen. However, people do not believe that they have got the delivery for that additional taxation. They are not happy with the way in which public services are being run or provided.
People know that this country could not possibly sustain the rate of growth in public spending that has obtained for the past four years. They know and feel
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nervous about the fact that the economic edifice of this country is vulnerable if interest rates rise materially. They know that what they thought would be a relatively secure old age, provided by their occupational pension schemes, will not now be delivered. A little humility on the part of the Chancellor would be politically wise in the circumstances.
Boasting "You've never had it so good" may have won an election for Lord Stockton in 1959, but on canvassing a great deal throughout the country, I have discovered a great deal of economic unease. I repeat my initial comments that the Budget speech gave a selective and incomplete prospectus, and was guilty of some mis-selling.
Denzil Davies (Llanelli) (Lab): The right hon. Member for North-West Cambridgeshire (Sir Brian Mawhinney), who is no longer in the Chamber, said that he had been a Member of Parliament for 25 years. I can beat him by 10 years. I shall leave at the next election having been a Member of Parliament for 35 years. I suppose that means that I have sat through 35 Budgets, but in the 1970s we sometimes had the luxury of two Budgets a year. I have therefore sat through at least 35 Budgets.
I entered the House in an era of high inflation and consequently high interest rates. I leave in an era of low inflation and consequently low interest rates. The reasons for the high inflation and the low inflation are complex and I shall leave them to the historians and economists. However, I commend again an excellent Budget from my right hon. Friend the Chancellor. He is right to remind the House that we have one of the best growth rates, one of the lowest inflation rates and one of the highest employment rates in the western world. That is some achievement by him and others on the Front Bench.
In a Budget debate a couple of years ago, I drew hon. Members' attention to the problems of competition with countries such as China and some of the other Asian countries. There was not much reaction. Even a few years ago, the fashionable economists said that globalisation was an absolute good, as indeed was free trade. We heard similar comments from the hon. Member for Arundel and South Downs (Mr. Flight) today. The view was that we all make and sell what we are good at and import what we are bad at, so why worry? There was no attempt to tackle the enormous balance deficits, which are now increasing in Europe, Britain and the United States.
I agree with the hon. Gentleman that globalisation has reduced prices and increased wealth. However, if it were to reduce prices to zero, we might have problems. It appears that inflation is 1.6 per cent., although he does not like the European measure of inflation.
Only a few years after the matter was raised in a debate in the House, people are talking about China. Hon. Members have rightly spoken of little else but China today. The Chancellor went to China and announced specific measures about that country. There is now at least an understanding that there is a global competitiveness problem, which increasingly affects most western capitalist countries. The European Union Trade Commissioner, who used to be a Member of this
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House, called the other day for import controls on specific Chinese textiles, and the sky did not fall on his head. All the fashionable economists kept quiet, and indeed nobody said anything.
There is a very real problem, and it is not simply that China is a very large country that can compete with us. It is also that it is at a totally different stage of development from western capitalist countries. China is still at the 19th-century Victorian stage of development, so we are competing not with a country that has the same social, economic and industrial beliefs and policies as ours, but with a rather ruthless capitalist economy, certainly in terms of its economics. Perhaps I shall return to the subject of its politics a little later. China has an advantage that the Victorians did not have, however, in that it can copy, borrow and perhaps steal the high technology expertise of western countries.
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