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House of Commons

Thursday 11 May 2006

The House met at half-past Ten o’clock


[Mr. Speaker in the Chair]

London bombings


Oral Answers to Questions


The Chancellor of the Exchequer was asked—

Lisbon Agenda

1. Keith Vaz (Leicester, East) (Lab): What recent progress has been made towards reaching the Lisbon agenda benchmarks. [69704]

The Chancellor of the Exchequer (Mr. Gordon Brown): Britain is leading economic reform in Europe. We are calling for the opening up of competition in utilities, energy and services, with new legal powers of investigation and enforcement where there are restrictions to competition. Britain will continue to match reform with pay discipline in the public sector. The official figures published today show that production is up 0.8 per cent. on the last quarter, and yesterday’s bank report shows that inflation is on target. British growth is strong, strengthening and will strengthen even more in the months to come.

Keith Vaz: I thank the Chancellor for that answer. On Monday the European Commission revised its economic growth estimates from 2.1 to 2.3 per cent. According to the Centre for European Reform, the United Kingdom is now top of all the big EU countries in terms of the Lisbon benchmarks. France is eighth, Germany 10th and Italy 23rd. What steps is the Chancellor proposing to take to encourage our European partners to follow Britain’s excellent example in vigorously pursuing the Lisbon agenda?

Mr. Brown: I am grateful to my hon. Friend, who was Minister for Europe when the Lisbon reform agenda was agreed. It is important to recognise that in the next few months we must make progress on energy
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liberalisation. The cost of the absence of liberalisation has been a €40 billion extra bill for consumers in Europe over the last year—£10 billion for British consumers. That is why it is important not only that there is a timetable, which has been agreed, and the investigation into what happened over gas prices, which Britain proposed and has been agreed, but that we have new powers of enforcement as well as investigation where there are restrictions to competition. We will continue to pursue this agenda of reform in Europe.

My hon. Friend mentioned that the growth figures for Germany, France, Italy and other euro countries were forecast over the last few days by the European Commission. I remind the House that growth in Britain has been faster than almost all those other countries in each year since 1997 and continues to be faster this year, despite allegations made by the Opposition.

Mr. Michael Fallon (Sevenoaks) (Con): If the Lisbon agenda is about improving European competitiveness, why has this Chancellor increased the burden of tax and regulation on the British economy? He talks about a timetable. Is it not time that we had a firm timetable for an orderly transition to a new Chancellor who can reduce the burden, or must we wait for a Conservative one?

Mr. Brown: I thought that this morning the hon. Gentleman would quote the report of the Heritage Foundation of the United States of America, which says that we are a less regulated and more liberal economy than when his Government were in power in 1997. As for the Lisbon reform agenda, where the emphasis is on the creation of jobs as well as on competitiveness, let me say that unemployment has fallen by 55 per cent. in his constituency since we came to power.

Mr. John McFall (West Dunbartonshire) (Lab/Co-op): The Chancellor will know that the Lisbon target was for average economic growth of 3 per cent. My hon. Friend the Member for Leicester, East (Keith Vaz) indicated that we are far from that. Can the Chancellor spread the idea that if we do not respond together on the issue of globalisation, and particularly the rise of India and China, the future for Europe will be bleak? What policies does he have to ensure that that challenge to globalisation is met by the European Union?

Mr. Brown: It is because of the challenge of China, India and Asia, and because we appreciate that there is a shift taking place in both production and services around the world, that we believe that open markets and free trade should be combined with investment in science, technology and the creative industries for the future, and that we should aim to be the best educated, skilled and trained work force in the world. At the same time, we must aim to ensure that work pays for families in Britain as in the rest of Europe, which is why we have a child tax credit policy as well as a new deal for employment. Child tax credit has done more to take children out of poverty than any policy since the second world war.

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Dr. Vincent Cable (Twickenham) (LD): I know that the Chancellor has had a lot on his mind, but has he had time to refresh his memory of the Lisbon agenda, which he inspired, particularly the passage in which he committed himself to take

How does he reconcile that commitment with the striking conclusions of the Treasury Select Committee, which are summarised in a remarkable graphic, that while the Government have made welcome progress in cutting extreme marginal tax rates, the number of workers who now pay marginal tax withdrawal rates of 60 to 70 per cent. has doubled to almost 2 million under his stewardship?

Mr. Brown: When we came to power, because of the way the family credit system worked, people had marginal tax rates of above 100 per cent. Thousands of people had marginal tax rates of above 90 per cent. and 80 per cent. We have eliminated those marginal tax rates, and the hon. Gentleman should give us credit for that. [ Interruption. ] We have eliminated marginal tax rates above 100 per cent. and 90 per cent., as I said. Has the hon. Gentleman also seen the report of the Organisation for Economic Co-operation and Development, which says that for the average family with two children the effective tax rate for the average earner has fallen from 17 per cent. to 8 per cent. during the course of the Government? That shows that not only are we relieving child poverty but, by introducing tax credits and a 10p income tax rate and reducing the basic rate of income tax from 23p to 22p, we have been able to help the very people he is talking about. If the hon. Gentleman really wants to have a sensible economic policy, perhaps he will start looking at the changes that he needs to make in his own.

Mr. Jim Devine (Livingston) (Lab): I wonder whether my right hon. Friend is aware that the shadow Chancellor has been visiting various cities in Europe, and that recently in Dublin he did an interview—

Mr. Speaker: Order. These are matters that are not for the Chancellor of the Exchequer.

Kelvin Hopkins (Luton, North) (Lab): I am sure that my right hon. Friend will accept that there has been growing electoral resistance to free market economics in Europe, and that it is going to continue. Is it not time that Europe had a look at its future economic direction and perhaps made some changes?

Mr. Brown: My hon. Friend should look at the pamphlet that the Treasury produced in the last few days on the need to respond to global economic change by combining open markets and free trade with investment in science, infrastructure and education. That is the way forward for advanced industrial economies to deal with the problems of the global economy.

In the last year, in America, Japan and Europe, 1 million manufacturing jobs have been lost. A quarter of a million service jobs have been offshored. As a result of the rise of China and India, 30 per cent. of the
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demand for oil now comes from China, and that is one of the reasons why the oil price is rising. We need to respond to Asian competition by combining open markets and free trade with sensible and prudent investment in education, infrastructure, transport and science. It is unfortunate that the Conservative party wants to cut the very investments that should be made.

Mr. George Osborne (Tatton) (Con): Thanks to the Chancellor’s policies, the United Kingdom has been growing more slowly than the world average, the OECD average and 18 other European Union member states. Disposable incomes growth is stalling and, according to the right hon. Member for Darlington (Mr. Milburn), poverty has become more entrenched. Is his former Cabinet colleague right about that?

Mr. Brown: This is the very shadow Chancellor who congratulated me on Labour’s success on macro-economic policy. Let me just tell him that disposable income is rising; he only needs to look at the Bank of England inflation report yesterday to see that that is happening. In terms of growth, if he looks at the comparisons that we should make between Germany, France and Italy—the euro area—it is absolutely true that British economic growth is rising this year faster than in those countries and rose last year faster than in those countries. Why does he criticise us for a high level of growth when the growth rate on average under the Conservatives was substantially less? The tragedy is that under the Conservatives we had less growth, higher inflation and higher unemployment, as well as greater poverty. How can his policies, which are the same as the policies of the past, begin to change those things?

Mr. Osborne: I was asking the Chancellor about the views of the right hon. Member for Darlington, who I thought was a great friend of his, but he did not address that point. The right hon. Gentleman is not the only one who is critical of the Chancellor’s performance. The World Economic Forum says that we are becoming less competitive. Peter Mandelson, another friend of the Chancellor’s, says that the economic record is

The right hon. Member for North Tyneside (Mr. Byers), another friend of his, says that pension policies cannot continue, and the Minister for Higher Education and Lifelong Learning, the hon. Member for Harlow (Bill Rammell), says that we are taxed to the limit.

Now, I know that the Chancellor and his cabal are paranoid, but it does seem that people are out to get him. When will he start reversing Britain’s long-term competitive decline and do his day job instead of scheming against the Prime Minister to get his next job?

Mr. Brown: Growth is higher. Employment is 125,000 higher than last year. We are meeting our inflation target. Interest rates are half what they were. I do not think that the shadow Chancellor should be dining out on the idea that the British economy is falling apart under Labour. We have a more stable
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economy, higher investment and higher employment. If the shadow Chancellor does not believe that, why was he telling people only a few months ago that Labour had been successful at establishing economic credibility and had improved the macro-economic management of the economy, and that too often the Conservatives had sacrificed long-term economic credibility for short-term gestures? He should look again at his own statements.

Home Computing Initiative

2. Philip Davies (Shipley) (Con): What representations he has received on the abolition of the home computing initiative. [69705]

The Paymaster General (Dawn Primarolo): There have been a number of representations since the Government removed the exemption from benefit-in-kind tax charges and national insurance contributions for employer-provided computer equipment loaned to employees.

Philip Davies: I thank the Minister for that reply, but it is clear that the Government have got in a hopeless muddle over this. The new Secretary of State for Environment, Food and Rural Affairs said:

Why does the Minister disagree—

Mr. Speaker: Order. That is far too long.

Dawn Primarolo: The tax exemption was removed because it was poorly targeted and did not achieve the goal of encouraging people to develop skills. The Low Pay Commission reported that people on low pay or out of work could not get access to the scheme. Also, the scheme was being misused: people provided with the exemption used it to buy computer, home video and other equipment, but that was not what it was designed for. If the hon. Gentleman is seriously suggesting that the Government should spend money on poorly targeted and abused schemes instead of targeting such initiatives on those who need them most, he must tell us why.

Jim Sheridan (Paisley and Renfrewshire, North) (Lab): Notwithstanding what my right hon. Friend has just said about people abusing the scheme, good and honest people like Mr. McDonald in my constituency are using it properly. His company, Mouse in the House, helps and educates low-skilled workers to learn computers. Is there no alternative to just scrapping the scheme?

Dawn Primarolo: No, there is no alternative. Unfortunately, the creativity of those seeking to provide equipment in a way not originally intended by the provision was growing all the time and needed to be stopped. My hon. Friend makes an important point
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about how the scheme assisted his constituents, and that is precisely why the Government are refocusing on their digital strategy. I am the Minister in charge of this matter, and he is very welcome to submit his views and those of his constituents to me. They will be taken into consideration in the review.

Mr. Mark Francois (Rayleigh) (Con): If the scheme was so poorly targeted, why were the Government about to roll it out to employees in the Department of Trade and Industry and the Department for Work and Pensions on the very day the Treasury scrapped it? The CBI and the TUC have endorsed the scheme, which has helped 500,000 people and their families to improve their computer skills. When the Chancellor announced the original concession, he told the Daily Record:

Even at this eleventh hour, will the Government recognise that this is a poor decision, taken by an analogue Chancellor who is stuck in the past and reversing?

Dawn Primarolo: The hon. Gentleman answers his own question, as the US does not have similar schemes. He is right to address the question of how we give people in the greatest need access to computer technology, but the Low Pay Commission’s 2005 report showed that that was not happening under the scheme. Why should the Government spend £200 million on a poorly targeted scheme? It was being abused and was not delivering, so the Government have refocused to ensure that the objective is achieved.

Inflation Target

3. Mrs. Sharon Hodgson (Gateshead, East and Washington, West) (Lab): What recent representations he has received on the inflation target; and if he will make a statement. [69706]

The Chancellor of the Exchequer (Mr. Gordon Brown): The Bank of England inflation report set out yesterday states that we expect to meet our inflation target this year, next year and in subsequent years, as we have done each and every year since we came to power. To lock in public sector pay discipline and to maintain the momentum of a strengthening economy, we are today writing to all Departments to make it clear that public sector pay settlements must, in future, also be founded on meeting the 2 per cent. inflation target.

Mrs. Hodgson: I thank the Chancellor for his reply. As he is well aware, unemployment in my constituency has fallen by more than 50 per cent. since 1997. What assessment has he made of the UK’s combination of unemployment and inflation since 1997?

Mr. Brown: I am grateful to my hon. Friend. Not only in her constituency, but in those of all Opposition Members, unemployment has fallen substantially since 1997. That includes long-term unemployment and it is important to note that long-term youth unemployment,
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about which many people were so concerned, has been virtually eliminated. By having a stable macro-economic framework, we have managed to combine low inflation with high employment. We intend to continue with that, but it is possible only if we adopt active labour market measures such as the new deal for skills and jobs. It is a tragedy that both Opposition parties want to abolish it.

Sir Peter Tapsell (Louth and Horncastle) (Con): As the Chancellor is predicting low inflation, why is it the case that, since he sold more than half our gold reserves—a course that I strongly argued against at the time—the price of gold has far more than doubled? Yesterday, the sterling price of gold reached an all-time historic high, so his act in selling that gold has cost British taxpayers more than £3 billion—enough to repair all the crumbling churches in this country and to provide dozens of new academies.

Mr. Brown: I hate to supply the hon. Gentleman with this information, but when we sold the gold, we bought euros, which are rising in value. That must be uncomfortable information for him. If I had taken his advice, I would not have made the Bank of England independent, which would have been a terrible mistake, so I shall think twice before taking his advice on anything.

Mr. Brian H. Donohoe (Central Ayrshire) (Lab): How has it been possible to maintain such low inflation, which has been very helpful to local industries in my constituency, while energy prices, particularly oil, have soared? What is the Chancellor going to do about that?

Mr. Brown: It is sad that, as a result of the doubling of oil prices, we have seen domestic gas and electricity prices and the cost of energy for industry rising. In other decades in which oil prices doubled—in fact, over a period of years, it has trebled—the British economy would have been forced into recession as a result of excessively high inflation. Most people realise that when America, the euro area, Japan and even China are putting up interest rates, Britain has by comparison managed to keep both low inflation and higher growth in the economy. That is the result of the macro-economic framework that has enabled us to deal with difficulties, one of the greatest of which is high energy prices, as they arise. We will continue to pursue a policy of low inflation and higher growth.

Stewart Hosie (Dundee, East) (SNP): Inflation is forecast to remain relatively low for the new few years, but construction inflation is forecast to rise by 5 per cent.—double the overall rate—by 2008. It is driven mainly by pressure to complete developments for the Olympic games. What measures will the Treasury put in place to monitor construction inflation to ensure that it does not spiral out of control, dragging the overall inflation rate with it?

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