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Mr. Osborne: Will the Minister give way?
Mr. Timms: I am slightly hesitant about giving way, because the hon. Member for Bury St. Edmunds (Mr. Ruffley) asked me to set out what we were doing for productivity. Perhaps I can conclude my brief account of that important subject, and then I will gladly give way again.
The Government are establishing an independent review to examine the future skills needs of the UK economy. We are introducing reforms to reduce the regulatory burden on business and are publishing the interim report of the Hampton review, which is consulting on the improvements to the system of regulatory inspection and enforcement to reduce those burdens. We are also setting out how significant reductions in compliance burdens for small businesses will be delivered by bringing together Customs and Excise and the Inland Revenue.
The Government will implement changes to the small firms loan guarantee scheme by the end of next year, as recommended by the Graham review, and implement the 10-year science and innovation investment framework by strengthening the
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investment-raising partnership with businesses for UK research and development. We are also taking forward the recommendations of the Lambert review on business-university collaboration.
The consequence of those policies is that we are closing the gap with France and Germany, measured in output per worker. In 1995, the gap was 22 per cent. with France and 8 per cent. with Germany. The latest Office for National Statistics data show the gap with France is still there but that it has narrowed to 13 per cent. and the gap with Germany has closed.
Mr. Osborne: I am not sure why the Minister is taking such joy in comparing our economic performance to France and Germany when he should be comparing it with some of the stronger economies around the world. He mentioned investment in his explanation of how we might improve productivity, so he presumably shares my disappointment at the figures produced by the Office for National Statistics yesterday, which showed a 25 per cent. fall in foreign direct investment in this country in just one year.
Mr. Timms: The picture on investment overall is actually good. We have seen a long run of rising investment. I will comment specifically on foreign direct investment, but it is important for the Committee to acknowledge the overall picture on investment, which is good. Following the world slow-down between 2001 and the end of 2003, business investment so far this year is nearly 6 per cent. up on a year ago, and business investment has grown for six consecutive quarters. For the future development of the economy, that is an important, significant and welcome improvement, and it shows how the Government's policies have been successful in bringing about the changes that we need.
Mr. Osborne: What about foreign direct investment?
Mr. Timms: On foreign direct investment, changes in the world economy affect what happens. I simply draw the hon. Gentleman's attention to the Ernst and Young ''European Investment Monitor 2004'', which indicates that in 2003 the UK continued to lead the rest of Europe in the total number of inward foreign direct investment projects, with a share of 23 per cent. of the European total. I also draw his attention to the Organisation for Economic Co-operation and Development's statement that EU members, led by Britain, have the lowest barriers to foreign direct investment in the industrialised world. On investment in general, we can be pleased and encouraged by the changes that are occurring.
The Government are determined to make the right long-term spending plans, and, from a position of economic stability and growth, we are able to invest more. The spending review set departmental spending plans up to 2007-08, locking in the step change in resources delivered in the three previous spending reviews and announcing extra resources for priority areas.
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In a competitive global economy, intellectual capital will drive economic growth, so it is vital that we invest in education, adult skills and training, science, innovation and enterprise. Such investment will allow us to reach our potential as individuals and as a country, and to make Britain a world leader. That is why our spending plans focus extra resources on investment in those drivers of future prosperity.
The public sector will need to continue to deliver value for money and to maximise efficiency and minimise waste. In that way, we will be able to release additional resources to the front line of public services. Building on Sir Peter Gershon's review of efficiency, we are taking further steps to implement more efficient business planning and management in the public sector. The pre-Budget report outlines further work to secure efficient delivery of public services, including the publication of Sir Michael Lyons's recommendations on asset management, which called for detailed asset disposal plans.
In addition, so that everyone can take advantage of opportunities to achieve their full potential, the Government want to promote fairness alongside enterprise. We aim to eradicate child poverty, support parents to balance their work and family life, promote saving and ensure security for all in old age. The pre-Budget report sets out the next steps to support those aims, including a 10-year strategy for childcare; an extension of paid maternity leave from six months to nine months from April 2007; further steps to encourage saving and asset ownership through individual savings accounts, the saving gateway and the new stakeholder products; and a package of measures to promote financial inclusion by increasing access to banking services, affordable credit and face-to-face money advice.
We are on course to meet our target of reducing the number of children in low-income households by at least a quarter between 1998-99 and 2004-05. The most recent data shows that in 2002-03 there were some 500,000 fewer children in low-income households than was the case four years earlier. To help ensure that all pensioners share in rising national prosperity, in 2005 we will make a £50 payment, in addition to the winter fuel payment, to households with someone over the age of 70 to help meet the cost of council tax and other living expenses.
Hard-won economic stability and sustained growth give the Government the opportunity to commit to more investment rather than less, which some hon. Members call for, in the areas that count. Such investment will enable Britain to develop as a world economic leader.
That is the programme set out in the pre-Budget report. With the approval of the Committee, it is the basis on which we will send updated information to the European Commission. We are fulfilling our commitment under the Maastricht treaty to report on our main economic policy measures, and thereby maintain our position at the heart of the policy-making process in Europe. I commend the assessment in the pre-Budget report to the Committee.
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2.50 pm
Mr. Osborne: The Financial Secretary's speech is a good example of what happens when one lets someone write their own school report, which is what he has done. I suspect that this job in the Treasury is handed to the No. 2 speech writer. The No. 1 speech writer gets to write the Chancellor's pre-Budget statement, and the apprentice speech writer does the one that the Financial Secretary has to deliver in Committee a week or so later.
Mr. Ruffley: They are both awful.
Mr. Osborne: Yes, but at least the Chancellor's statement had a bit of va va voom, which the Financial Secretary's unfortunately lacked. As a former speech writer, I should add that that is a reflection not on the Minister, but on those who support him.
It is worth reflecting on the purpose of the debate, which is set out in section 5 of the European Communities (Amendment) Act 1993. I was not in Parliament for the passage of that Act but I understand that it was somewhat controversial. I believe that the only reason we are having the debate is that my hon. Friend the Member for Stone (Mr. Cash) forced a defeat on the then Conservative Government and inserted this requirement into the legislation. It is only proper that we should pay tribute to hon. Members who have advanced the cause of parliamentary scrutiny, even if they are not here to see the process in action.
One could argue that today's debate is somewhat pointless. First, we do not have the assessment in front of us, although I do not want to labour that point as I intervened on the Minister earlier. The purpose of this Committee is to scrutinise the document that the Government will send to the European Union. The Minister says that it will be a summary of some chapters and annexes from the pre-Budget report. Last year the Committee did have the document. The Minister's excuse that they had only one day to get it ready last time, as opposed to a couple of weeks now, is somewhat feeble.
Wishing to be diligent and to fulfil my parliamentary duties, I contacted the Minister's office yesterday and asked for a copy of the document. I was told that it would be written after consideration of what happened in today's debate. In other words, it may take a completely different form from the chapters in the pre-Budget report. I will certainly suggest some things that should be included in the assessment that is sent to the European Union. It is nevertheless difficult to assess a document that is not before us.
The second reason why our debate is somewhat pointless is that there is no prospect of the Government applying to join the European single currency at the moment, which is what this was all about at the time it was started. One does not doubt that the Prime Minister would like to do so, if only the Chancellor of the Exchequer would let him. One does not doubt that the five economic tests are a complete fiction. There is really a political test about whether the Government could win a referendum.
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The Minister for Europe let the cat out of the bag when he was speaking to Durham university students a few weeks ago. He said the Treasury's five economic tests were ''a giant red herring''. When that was quoted in a newspaper he denied that he had done so, saying:
''Jesus Christ, no . . . any Labour MP saying the Prime Minister's most important policy is a red herring . . . would not survive long in the job.''
Unfortunately a tape of his speech was then produced and he had to change his tune. Whether he survives long in the job depends on the Prime Minister and the electorate. A couple of days later he said that whether Britain joined the European single currency was economically irrelevant. He complained that the Government had
''made a fetish of this damn currency''.
He is keen on his biblical language, but, of course, he reveals a truth. Assessing the Government's convergence with the Maastricht criteria is a bit of a fiction, as the Government have no intention of applying to join the single currency.
The third reason why this debate is somewhat pointless is that the eurozone's growth and stability pact, which is supposed to give teeth to the convergence criteria and the fiscal deficit ceilings against which the Government are assessing the economy, has been blown apart. The Finance Ministers left the ECOFIN meeting last month with no agreement. That is hardly surprising since very prominent members of the eurozone, such as France and Germany, have breached the stability pact. It now emerges that Greece has been in constant breach of it since the day it joined the single currency, even though it did not submit its returns at the appropriate time.
It is important to bear in mind the background and history of the debate. Indeed, I think that the Chancellor is currently trying to reform the growth and stability pact to give it more teeth. In the consultation paper produced by the Treasury, he says that he wants to strengthen its credibility and effectiveness. The Government would have more credibility and might be more effective in achieving reform of the stability pact if they had not last year themselves exceeded the 3 per cent. limit, as is revealed in table B9 of the pre-Budget report. The treaty deficit was 3.1 per cent. in Britain in 2003-04.
The Government confidently predict that they will not exceed the Maastricht criteria on borrowing this year. They predict that they will be at 2.8 per cent. That is not an assessment with which most independent forecasters and analysts who are looking at the British economy agree. I was delighted to hear the Minister quote the OECD with such approval. Presumably he also agrees with what it says about the economy:
''The government deficit is likely to be above 3 per cent of GDP in 2004, and in the absence of a spontaneous rise in taxes, additional action may be required to achieve a decisive and sustainable reduction.''
When the Financial Secretary is burning the midnight oil, putting together this assessment for the European Union, he should include an analysis of the Government's likelihood of meeting that 3 per cent. target.
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Indeed, there are some other things that should be included in any assessment. We would not want the Financial Secretary to be accused of boasting about the state of the British economy. He could point out that the Office for National Statistics says that productivity growth has fallen by a third under this Government. Productivity in the UK is now below the EU average according to the Deloitte productivity index. He could include a section on foreign direct investment, which he skated over in response to my intervention.
Foreign direct investment in this country was more than £20 billion in 1997. It then fell to £16 billion by 2002. According to the latest figures, released yesterday, it has fallen again by 25 per cent. to £12.4 billion. That is a pretty marked fall from the position that the Government inherited. That would merit a section in this assessment. The Minister could talk about the underperformance of the stock market compared with every other single major market except Japan. He could talk about the savings ratio, which has fallen by a third. He could talk about the record trade deficit that we now enjoy, if that is the right word for it. He could talk about why we have fallen from fourth to 11th in the world competitiveness league.
The Financial Secretary would only be doing his job if he warned the European Union that, instead of Labour trying to reduce the tax and regulatory burden on this economy, get value for money for taxpayers and improve our competitiveness against the likes of China, India, the United States, central and eastern Europe and Ireland, we are in fact likely to see taxes go up if Labour is elected. That is not simply my assertion. That is the view of the ITEM club which says that tax rises are inevitable after the election if Labour is elected. That is also the view of the CBI, the chambers of commerce, PricewaterhouseCoopers, Numerica and almost every other independent analyst, domestic or foreign, that is currently looking at the UK economy. Many of those bodies and organisations also predict that the Chancellor is going to break his golden rule. We shall see. I suspect that he will do everything he possibly can to avoid that. He might even change the definition of the economic cycle and bring it to a close one year early in order to say, come the general election, that he has kept to the rule. By doing that, however, he would make it more difficult to keep to the rule in the subsequent cycle.
Even the Treasury's figures clearly show deterioration in the state of the public finances. Whereas in 2001 it expected to meet the golden rule with £120 billion to spare, and it even thought earlier this year that it would meet it with £11 billion to spare, the Financial Secretary has revealed today that it now thinks the margin for error is £8 billion, half of which is the contingency reserve, which is constantly being drawn on because of our foreign commitments in places such as Iraq.
All those figures were given on the basis of the Chancellor's way of assessing the golden rule—summing the surpluses and deficits as a share of
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national income. If he were to add the cash values, which everyone thought he was talking about doing when he announced his policy as shadow Chancellor, we would already be in breach of the golden rule. It is worth quoting the Institute of Fiscal Studies, which, I am sure the Financial Secretary would agree, is an extremely respected, independent commentator on the state of the British economy. It said:
''Whether the improvement in the current budget balance materialises on the desired scale depends in large part on whether tax revenues rebound as strongly in the medium term as the Chancellor continues to hope. This relies mainly on a substantial pick-up in corporation tax receipts, which the Chancellor conceded will once again be lower than expected this year. If tax revenues do not rebound of their own accord, then Mr. Brown—or his successor—would need to announce fresh tax raising measures to bring in the revenue needed to finance the Government's spending plans and meet the golden rule with the comfort he has always sought.''
Indeed, the IFS predicts that over the course of the next Parliament, if Labour is elected, taxes will go up by £26 billion, and that is in the context of their having gone up by £16 billion since Labour came to office. I suggest, as this is a drafting Committee, that the IFS assessment of the pre-budget report be included among the documents submitted to the European Union.
I know that the Chancellor and the Financial Secretary dispute what a lot of the international and domestic organisations say and claim that they have been wrong in the past. They would say that, wouldn't they? However, they have not been wrong about the tax increases. One of the problems that has been revealed is a lack of transparency. The Treasury not only sets the policies and the fiscal rules, such as the golden rule and the sustainable investment rule, but judges its performance against those rules. It is both poacher and gamekeeper.
Let me offer some positive proposals to the Financial Secretary, on which I ask him to reflect. Would it not be better to have a go at trying to increase transparency and enhance the credibility of the fiscal rules? The Conservative party now accept the golden rule and the sustainable investment rule; we made that clear last week. Those are the fiscal rules. We could come up with good grounds for changing them, but we think that it is good to maintain stability.
In return for my saying that, I ask the Financial Secretary to reflect on how we propose to make the assessment of those rules more credible and transparent. We suggest removing from the Treasury the task of making fiscal projections and assessing compliance with the fiscal rules and creating instead an independent fiscal projection committee that sits within the National Audit Office. That committee will be made up of independent experts, appointed by the Comptroller and Auditor General, with the agreement of the Chancellor of the Exchequer—they would both have to be in agreement—and subject to the approval of the Treasury Committee, the chairmanship of which would of course be in the hands of the Government of the day. The committee would then have full access to all the books, records and resources of the Treasury and statutory access to the Revenue, Customs and Excise and other Departments. It would also have the
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Treasury's modelling capabilities transferred to it, although the Chancellor and his Ministers would still have confidential access to all those facilities in preparation for his or her annual Budget.
The fiscal projection committee's main purpose would then be to publish reports on the state of the public finances at the time of the Budget. That is similar to what happens in the United States with the Congressional Budget Office. The office would make an assessment of whether the fiscal rules set by the Chancellor are being met. Because it would be independent, it would be trusted; we would know that it would not try to fiddle the figures, so the fiscal rules would be trusted too.
We propose establishing an independent national statistics office that would report to Parliament, not to Ministers, so that we can have complete confidence in the statistics that Government and Parliament use to make their decisions. Those proposals to establish new frameworks for fiscal and statistical accountability have been broadly welcomed. They were announced by my party last week and have been welcomed by the Governor of the Bank of England, the Comptroller and Auditor General, the Institute of Public Policy Research—a left-leading body that said that the proposals are extremely welcome—and the National Institute of Economic and Social Research.
In an extremely interesting article in The Guardian, under the title ''Just because it's a Tory idea doesn't mean it's wrong'', the paper's economics editor was extremely critical of the Conservative party—there are lots of quotes that can be thrown back at me—but said that our proposals are a good idea. The Guardian's economic editor comments on the response by the Chief Secretary, the Financial Secretary's colleague in the Treasury, to our proposal:
''As an example of all that's wrong, this was hard to beat. There's the determination to avoid addressing the point. There's the use of spurious numbers. There's the yah-boo-sucks approach to anything the other lot suggest. Boateng's response may not reflect the views of his immediate boss. It would be something of a surprise if it did, for three reasons. Firstly, Letwin is clearly looking for a Tory equivalent of Bank of England independence, the single most successful reform of Labour's first term. Secondly, Brown's willingness to put constraints on his own freedom of action . . . has enhanced rather than detracted from his reputation for trustworthiness. And finally the chancellor believes that there is no chance of forging a progressive consensus all the while voters don't believe a word ministers say.''
Obviously, I do not agree with every word of that but the point is that a commentator on the left is being extremely critical of the ludicrous response of the Chief Secretary and suggesting that the Chancellor of the Exchequer would respond differently. I know that the Financial Secretary is a more thoughtful man than that, and if one thing comes out of this debate, may I suggest that the Financial Secretary considers our proposals in detail and either says that they are a pretty good idea, even if he does not agree with certain details, but accepting that it is a direction on which we could broadly agree to move in, or comes up with some good, serious reasons why he does not want to proceed in that direction. If we had some kind of independent forecasting facility in the country and created a fiscal projections committee, assessments such as the one we
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are debating today, which we will send to the European Union, would have much more credibility and would be read with much greater seriousness in Brussels than, I suspect, the assessment that the Government will send to Brussels now.
3.9 pm
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