Government's Assessment as set out in the Pre-Budget Report for the purposes of Section 5 of the European Communities Act 1993
Third Standing Committee on Delegated Legislation
Wednesday 15 December 2004
[Mr. Nigel Beard in the Chair]
Government's Assessment as set out in the Pre-Budget Report for the purposes of Section 5 of the European Communities (Amendment) Act 1993
2.30 pm
The Financial Secretary to the Treasury (Mr. Stephen Timms): I beg to move,
That the Committee has considered the Government's Assessment as set out in the Pre-Budget Report for the purposes of Section 5 of the European Communities (Amendment) Act 1993.
I welcome the fact that you are chairing the Committee, Mr. Beard, because you will be familiar, through your work on the Select Committee on Treasury, with many of the matters that we will discuss.
I welcome the opportunity to debate the information provided to the European Commission under section 5 of the European Communities (Amendment) Act 1993. Every year, the Government report 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, the convergence and stability programmes, and the excessive deficit procedure. The material that will be submitted is essentially a summary of chapter 2.6 and annexes A and B of the pre-Budget report submitted to the House just under two weeks ago.
Mr. George Osborne (Tatton) (Con): Does the Financial Secretary not think it somewhat difficult for the Committee to scrutinise an assessment of which we do not a copy?
Mr. Timms: As I said, the information that we are providing is to be found in the pre-Budget report, and we are scrutinising the information that is to be sent to the Commission.
Mr. Osborne: As I understand it, when the Committee met last year to perform a similar function, it had before it the document that the Government were about to submit to the Commission. Is it not a bit strange that we are being asked to scrutinise a document that the Minister assures us will be based on elements of the pre-Budget report, but of which the Committee does not have a copy?
Mr. Timms: The hon. Gentleman makes a fair point. However, the difference is that last year's debate was held the day after the pre-Budget report. On this occasion, because we have had nearly two weeks—
Mr. Osborne: There is even more reason then.
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Mr. Timms: No. We have had nearly two weeks between the pre-Budget report and this debate, and we have had plenty of opportunity to scrutinise the information in that report, and it is from that report that the information will be drawn. I was not in my present post at this time last year, but I understand that it was done differently last year for the reason that I set out. Indeed, last year was the only time that is has ever been done like that.
Mr. James Clappison (Hertsmere) (Con): Does that mean that a document that is under preparation will form the assessment, but that we not have a copy of it?
Mr. Timms: A document will be submitted. The information that it will contain is information that was given in the pre-Budget report, specifically chapter 2.6 and annexes A and B. We can debate those aspects today, and that is the material that will be submitted to the Commission.
The objective is to ensure that member states' economic policies 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 in the United Kingdom and the European Union. Those goals are, of course, consistent with the Government's approach to economic policy. Section 5 of the 1993 Act—the Maastricht Act—requires Parliament to approve the information sent to the Commission for that purpose. As I said, our strategy for economic policy was most recently set out in the pre-Budget report.
The background for the debate is that the UK's gross domestic product has grown strongly over the year. The global recovery has gathered momentum, despite higher world oil prices, and although a number of risks surround the international outlook, the sound macro-economic fundamentals in the UK will help support continued growth and stability. The UK is experiencing the longest expansion since records began: we have had sustained growth for 49 consecutive quarters. We managed to maintain that record even during the recent downturn, yet every other G7 economy experienced at least one quarter of negative growth. The UK was unique in having that sustained record of growth.
Mr. David Ruffley (Bury St. Edmunds) (Con): Will the Minister share his assessment of how long that uninterrupted run of GDP growth has been? Did it begin in 1993, or even earlier?
Mr. Timms: I think that I answered the hon. Gentleman's question. The uninterrupted run has been for 49 consecutive quarters. As a quarter means a quarter of a year, he can work it out.
Mr. Tony McWalter (Hemel Hempstead) (Lab/Co-op): Will my hon. Friend confirm that, in the first phase of those 49 quarters, it was relatively easy to achieve economic growth, because we started at such a low trough in the economic cycle?
Mr. Timms: My hon. Friend makes an acute and accurate point. What is unusual is not the short period of growth leading up to 1997, but the long duration of
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the period of growth. It is unprecedented in UK economic history. It is interesting that from 1979 to 1997, the UK had the most volatile economy in the G7 with the exception of Canada. Since 1997, we have had the most stable economy in the G7 bar none. That is a remarkable and dramatic transformation, and Government policies have been responsible for it.
Alongside that impressive growth record, the UK is also enjoying its longest period of sustained low inflation since the 1960s. Interest rates remain low by historic standards. Thanks to the strength of our position, we have delivered high rates of employment and record low rates of unemployment. There are 1.9 million more people in work today than there were in 1997.
Mr. Clappison: The Minister touched on interest rates, which is one of the things mentioned in chapter 6, and probably in chapter 2, of the pre-Budget report. Since we are considering the criteria for section 5, will he tell us in which direction interest rates in Europe have been moving and whether the European interest rate is higher or lower than the interest rate in this country?
Mr. Timms: I do not have in front of me a detailed assessment of what has been happening to those rates. Interest rates in Europe have historically tended to be lower than those in the UK. That has been the case for a long time. However, I do not have data in front of me on the recent trajectory. No doubt the hon. Gentleman will draw the figures to my attention if he needs to.
Setting employment records is not possible without an environment that promotes business development and growth. That is why we have taken steps in every pre-Budget report, Budget and spending review to support enterprise in the UK. As a result, there are 300,000 more small businesses than there were in 1997. We will continue to maintain the fiscal discipline that is at the heart of our strategy for long-term stability.
In the pre-Budget report, my right hon. Friend the Chancellor announced that we are meeting our fiscal rules on sustainable investment. This year, debt is forecast to be slightly more than 34 per cent. of national income, which is well below the 40 per cent. ceiling of the sustainable investment rule. Debt was 44 per cent. in 1996-97.
My right hon. Friend also announced that we are meeting the golden rule over the economic cycle, with a surplus of £8 billion in this cycle, including the annually managed expenditure margin. As a result, the Treasury can afford our existing commitments at home and abroad and to release extra resources to priority areas in the years leading up to 2008. Our economic objective is a strong economy and a fair society in which there is opportunity and security for all.
The pre-Budget report highlights our determination to take long-term decisions that entrench stability in the economy and build a flexible enterprising economy, with a highly skilled, productive work force and a strong science and innovation sector. The challenge is to combine macro-economic stability and the new-found confidence in our economic potential
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with the resolve to make the right choices to secure and maintain stability and growth in the economy for the long-term. The challenge is also to invest more in education, skills, science and innovation, the developments that will drive and secure our growth and prosperity for the future; invest in the health service and transport infrastructure; and increase the well-being and prosperity of individuals, as well as deliver for UK businesses.
Mr. Ruffley: Why is the productivity performance of this country so much worse under this Government than under the last four years of the previous Conservative Administration?
Mr. Timms: The hon. Gentleman is mistaken about that, and if he looks in the pre-Budget report, he will find chapter 3 given over to that subject, recording—I am pleased to say—the good progress that we have made on productivity over the past few years. The instability of the economy in the past was a serious problem. The stop-go, boom-bust nature of economic management was a serious problem for confidence and therefore for investment and productivity. I am pleased to say that we have made good progress in that respect, because productivity and growth are absolutely central to economic performance.
The hon. Gentleman is right to fasten importance to the topic, because with macro-economic instability and market failures in the past, we experienced low rates of productivity and growth compared with other major economies. Our strategy to close that gap, dealt with in detail in chapter 3, focuses on five key drivers of productivity performance: improving competition, promoting enterprise, supporting science innovation, raising UK skills and encouraging investment. The report sets out the next steps needed to make further progress, which include giving employers access to free and flexible training for their low-skilled employees through a national employer training programme.
