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John Robertson (Glasgow, North-West) (Lab): Is the hon. Gentleman saying that his party would do absolutely nothing for first-time buyers and allow free market forces to prevail?

Dr. Cable: No, I am not suggesting that at all. The Government propose to spend a lot of money on this initiative, and there are different—and, I suggest, better—ways of spending it. If the Government were to work through housing associations and local authorities, rather than through a centralised initiative, the fundamental difference would quickly emerge between demand for housing as determined by applicants to banks, and housing need as determined by overcrowding and homelessness, for example. As the hon. Member for Birmingham, Selly Oak (Lynne Jones) said in an intervention, the real problem is the chronic shortage of social rented housing. This initiative neglects that point completely.

Although this initiative addresses issues of demand, it does nothing at all about supply. The Chancellor mentioned earlier a paper produced by the ODPM on making available public sector land, which is clearly a sensible thing to do as there is a lot of surplus land. There may have been a misprint, but the version of the statement that I read stated that the first step in making that public land available would liberate land for 400 houses; not 4,000 or 40,000, but 400. We have talked about freeing up public sector land for eight years, and little has been done—there is talk but little delivery. I wait to hear more about the proposal, but unless it is very different from its description in the press, it promises to be a major turkey, rather than a major success story.

I have always acknowledged, as I did in my introductory remarks, that the Government have a successful record in macro-economics. The National Institute of Economic and Social Research—like the   Institute for Fiscal Studies, it is a genuine and impartial judge of economic performance—described the Chancellor's record as very satisfactory so far. I do not dissent from that and it is a good point of departure, but the problem is, where do we go from here? There clearly are problems ahead.

I am reluctant to indulge in forecasting, but there are a series of problems connected with the failing demand in the retail market, which is associated with personal
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debt. There are growing difficulties in employment: despite low levels of unemployment, unemployment has risen for three successive months. There are also serious problems in manufacturing: output fell by 2 per cent. in March, and Britain now has one of the worst manufacturing records in recent years, even compared with Germany and Japan, which have had their problems.

The Chancellor has said in the past that we had such problems—a slow-down—back in 2001, but we coped with them because we had the right institutions in place. It is becoming increasingly clear, however, that the Government's freedom of manoeuvre is narrowing considerably. As he knows, there is little scope for the Bank of England to cut interest rates because inflation is at the top end of the range given to it. Inflation is there for several reasons, the most important of which is probably the world price of oil, which may go much higher. There are fundamental problems of capacity shortage, rising demand from China and the United States, and political instability, which may get worse. If that happens, the Bank will be bound to respond to inflationary pressures by putting up, not cutting, interest rates.

There is little scope for relief from private investment, because the rate of return in manufacturing has fallen since 1997 from 12 per cent. to 6 per cent. There is little confidence or cash flow to generate private investment. The Government have no scope for increasing the growth of current public spending, because of the Chancellor's potential problems—they may not be actual problems yet—with the golden rule.

The one possibility left is the scope for increasing public investment, which I believe he plans to increase next year by 23 per cent. He has the scope to do so because the Government balance sheet is still healthy. Its healthiness is now under question, however. If the Office for National Statistics is to be believed, a lot of Government private finance initiative debt may have to be reclassified, taking the Chancellor near to his 40 per cent. limit. In the light of all that, the Government's freedom for manoeuvre may be greatly limited.

John Robertson: Does the hon. Gentleman accept that the management of the economy in the past eight years has been better than at any other time in the past 100 years? Does he accept that we have low unemployment, which is at a level not seen since way back in the early '60s? For the past eight years, we have heard all the doom-and-gloom statements about how bad the economy is, but does he accept that every time anybody has challenged the Chancellor's figures, they have been proven wrong?

Dr. Cable: I graciously accepted at the beginning of my remarks that the record was good; I am not disputing that. I shall be equally gracious in the other direction by pointing out that this trend started before the Government came into office, and that they have had a favourable international environment. However, the hon. Gentleman is of course right: the Government have a good track record in many respects.

A few days ago, the former Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke), made a perceptive point that at the time seemed witty and
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wise. He said that eventually, all Labour Chancellors run out of money. I reflected on that, and it struck me as being in fact the opposite of the truth. If one looks back in Labour history, Philip Snowden, Stafford Cripps, Gaitskell, Roy Jenkins and Healey all faced economic difficulties and were forced into an extremely austere approach to public spending, often implementing savage cuts, including cuts in public sector pay. I suspect that last week's comments from the Chancellor at the Trades Union Congress may have been a first indication of the discipline that will have to be exercised in that direction.

Were the Chancellor to intervene, he would doubtless say, "These things are all true, but what I have put in place—unlike my predecessors—is a good framework for policy." That is right. We now have 70 per cent. of a good framework for macro-economic policy.

This week, the Financial Times, which is not politically inspired and which has been very complimentary about the Chancellor's economic record, pointed out that fiscal policy assessment is not independent. We need a genuinely independent element in the assessment of not only the Government's assumptions, but what stage of the economic cycle we happen to be in. We need a fully independent Office for National Statistics, so that sensitive decisions concerning the classification of debt are handled transparently and honestly. Why do the Government not finish the job and create a proper framework for macro-economic management?

The Government must address several big issues that are coming through the pipeline. In the Chancellor's speech to the CBI last week, he hinted at the need for a U-turn on regulation, and some good ideas are emerging on how to institute a deregulatory process. What is missing—perhaps it will emerge—is a proper process, so that every new regulation is subject to the discipline of a proper and independent regulatory impact assessment and has sunset clauses built into it?

The Chancellor must also establish credibility on the deregulatory front by seeing off the problem created by the working time directive. If the problem is not solved, his credibility on deregulation will be in shreds. His position is vulnerable, because he faces the political equivalent of a penalty shoot-out in the Council of Ministers. In the national interest, we hope that he succeeds, but the outcome is not clear.

John Bercow (Buckingham) (Con): I agree with the hon. Gentleman that a new approach by the Government to regulation would be welcome. Given that it is now six years since the then Secretary of State for Trade and Industry, the right hon. Member for North Tyneside (Stephen Byers)—who is admittedly not a friend of the Chancellor but who was the Chancellor's colleague in the Government at that time—announced his conversion to the use of sunset clauses in legislation in an interview with The Daily Telegraph, does the hon. Gentleman think that we are at least entitled to an explanation as to why sunset clauses have not materialised in any significant form in Government legislation in the intervening six years?

Dr. Cable: The hon. Gentleman has pursued that cause in his eight years in the House. He is right that, despite the rhetoric, very little has happened, and I support his view on the matter.
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Angela Eagle (Wallasey) (Lab): Is it not important to differentiate between protective regulations, such as those concerned with health and safety and the national minimum wage, and regulations which should be consolidated because they are inefficient—for example, the election rules which many hon. Members will recently have experienced? Will the hon. Gentleman distinguish between those two kinds of regulations? Surely the Liberal Democrats are not saying that they are against protective regulations such as the national minimum wage.

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