| Previous Section | Index | Home Page |
1.45 pm
John McFall (West Dunbartonshire) (Lab/Co-op): I congratulate the Chancellor on the Budget, which will benefit families, society and business. He has taken 600,000 pensioners out of taxation and increased child benefit, and that is extremely important and welcome. However, he has also given us a Budget for business, with corporation tax being reduced to its lowest level ever, and income tax to its lowest level for 75 years.
I want to congratulate both the Chancellor and the Prime Minister. The Select Committee on the Treasury is undertaking an inquiry into the 10 years of the Monetary Policy Committee. We have had some
eminent witnesses, not least the former Governor of the Bank of England, Lord George, who came before us yesterday. Some people are asking whether it is through luck alone that the MPC has managed to keep our economy stable, with low interest rates and inflation. However, almost all the witnesses who have appeared before the Committee have rejected that notion. Instead, they have described the instability in the rest of the world and pointed to global difficulties such as the problem with long-term capital management that arose in 1998, and the Asian crisis of 2000. They attribute the success of our arrangements to the structural architecture that we have set up for both monetary and fiscal policy, and they have noted that the accompanying fiscal rules—the golden rule, or spending to invest, and the sustainable investment rule—are extremely important.
Some of the witnesses have noted, very perceptively, that the Government’s arrangements would not have succeeded without the accompanying welfare-to-work programmes, such as the new deal. Unemployment stood at 3 million 20 years ago—Labour has created 2 million extra jobs, and that growth in employment has given the Government an opportunity to achieve economic stability. If the mix that I have described had not been available, the pressures already in the system would have rendered it impossible to ensure the stability that has given us record low levels of inflation and interest rates in the past decade.
This is definitely the Prime Minister’s final Budget—at least, that is what I am told. However, both he and the Chancellor deserve congratulations on their commitment to maintaining the stability and confidence in our economy—something to which all the political parties are now signed up. In the early 1990s, the Prime Minister and the Chancellor committed the Labour party to that project, thus inspiring confidence in a system that the City, the business community and society as a whole have all accepted. The International Monetary Fund and the Organisation for Economic Co-operation and Development have analysed the British economy, and they have remarked on its stability. Indeed, the IMF recently said that Britain had the best growth levels in the G7.
Yesterday, Professor Charles Goodheart, an eminent former member of the MPC, told the Treasury Committee that the stability that Britain has achieved is remarkable. However, he warned that people might be taking it for granted, especially the young people who have grown up in the stable environment of the past 10 years. It is therefore important for all of us to work to ensure that confidence in the system and the credibility of the framework are maintained. That will be one of the many objectives of the Treasury Committee as it continues its inquiry into the MPC framework 10 years on.
I want to look at the Budget measures in the context of a number of themes that have emerged from the current and recent work of the Treasury Committee: for example, the prospects for economic growth in the medium term; the role of the fiscal rules, particularly in the next economic cycle; the prospects for public expenditure and the role of the comprehensive spending review; the importance of education expenditure—in particular the delivery of capital
expenditure on education, which exercised the Committee at the pre-Budget report stage; the need for transparency in demonstrating the success of the Gershon efficiency programme across Government, about which we have a number of questions; and lastly the importance of environmental considerations and the economics of climate change in Treasury policy, both now and in the future.
The Budget painted an encouraging picture of economic growth and the Committee has noted the signs for business investment—the Chancellor’s announcement today that business investment will grow by 7 per cent. is encouraging. The Committee was puzzled about why it had not grown in the past, given the prosperity and stability that have been brought about, so the Chancellor’s announcement is welcome.
Unemployment is falling, and the Chancellor mentioned that 220,000 more people were in work this year, which is extremely important. We need to continue the welfare-to-work programmes, not least the initiatives that have been mentioned, so that people aged over 55, in particular, can go back to the work force. One of the trends of the past year or so is that there are more older people returning to work, so we need to encourage them. A while ago, I pointed out that although people aged over 65 who work do not need to pay national insurance contributions, their employers do. Why does not the Treasury give a further boost to encouraging older people to work by ensuring that employers do not need to pay insurance contributions if their employees do not pay them? That would be an encouraging sign.
From the Committee’s inquiry into the MPC, it has become clear that for the past decade economic conditions have been exceptionally favourable. Indeed, the Governor of the Bank of England, Mervyn King, has described that decade as the NICE decade—the non-inflationary, consistently expansionary decade. Will those conditions be maintained for the next 10 years? Yesterday, one of the witnesses at the Committee said that we would have to be prepared for the fact that the next 10 years might be less rosy. The Governor has compared the economy to a car on the road; it is not that the wheels will come off the car, but that the car will be travelling over a bumpier road. We all have an interest in ensuring that we are realistic about what will happen in the next 10 years.
The Chancellor’s economic stewardship has been exemplary, as was his foresight in establishing the MPC. Global factors have helped, too; for example, the tail wind of globalisation has been beneficial for growth in our economy, as more individuals have entered the country to join the labour force. Will that situation prevail? We need policies to ensure that it remains a success.
Mr. John Redwood (Wokingham) (Con): During the Committee’s deliberations, were Bank of England representatives asked why we in Britain have had to pay much more for our borrowing over the past 10 years than our Japanese, American and euroland competitors? Why have we not reduced our rates to the global average?
John McFall: Witnesses have pointed out how favourable conditions are in the UK in terms of globalisation. The IMF has said that our growth is the fastest in the G7. In the Budget, the Chancellor showed how low our inflation is compared with America, France, Japan and Germany. We are doing well in that regard, as expert commentary tells us.
There are risks to the international economy. In the US, there are concerns about the sub-prime lending market, but comments I have received from individuals in the City do not lead me to consider that the sub-prime lending market presents the same problems in the UK. However, we have to focus on the social conditions in lending. In the last Parliament, the Committee was firm about looking at responsible lending and borrowing. We must be careful that people do not over-extend, especially if they do not have claimable assets. The sub-prime market is important for financial inclusion, so I am pleased with the Government’s response to our reports on that. I look forward to working with the Treasury on the 10-year programme for financial inclusion.
Threats from the rapid unwinding of global imbalances remain, as do risks from increased protectionism if the Doha round cannot be brought to a successful outcome. I attended a conference in Africa last week. Representatives from the developing world asked how fair trade really was when they had no access to the markets of richer countries. They pointed out that development aid was no use in the longer term if they did not have free trade. The Doha round is extremely important and I urge the Government to make more commitment to it.
The two fiscal rules—the golden rule and the sustainable investment rule—have played an important part in strengthening confidence in fiscal policy, and will also have a role in the next economic cycle. The Chancellor is to be congratulated on establishing the rules and the monetary policy framework. However, there have been comments that the fiscal policy framework is not as firm and transparent as the monetary policy framework. Changes to the dating of the economic cycle, even if justified by economic data, have not assisted with the understanding and interpretation of fiscal rules.
Mr. David Gauke (South-West Hertfordshire) (Con): The right hon. Gentleman rightly raises issues about the golden rules. An additional point that our Committee has considered is whether the last year of one economic cycle should be treated as part of the first year of the next economic cycle. Today, we are not clearer about the Chancellor’s policy on that point, but does the right hon. Gentleman agree that it would be right to apply the test consistently, and just as in the past we have treated the last year of one cycle as the first year of the next, so we should in future?
John McFall: The hon. Gentleman is a good, hard-working member of the Committee and I value his presence. In our last report, we argued that the end of an economic cycle provides the ideal opportunity to review and clarify the operation of the rules. No doubt, when the Chancellor appears before the Committee a week on Thursday I shall be alert to the hon. Gentleman’s desire to ask a question at the appropriate time.
In the case of the golden rule, the Treasury Committee has questioned whether it could be more forward-looking, to reflect tensions between fiscal planning, which looks forward, and the dating of the economic cycle, which looks backward. The evidence we have received, not least from the Governor of the Bank of England, suggests that we should be more forward-looking.
The Committee has sought clarification from the Treasury of how it proposes to interpret the sustainable investment rule in the next economic cycle. Clarity on the issue will enhance credibility and strengthen the framework, and will help one and all in ensuring confidence in the whole system.
On the prospects for public expenditure and the role of the comprehensive spending review, my right hon. Friend the Chancellor announced a tight envelope for the CSR in his Budget. However, he can expect much attention from the Treasury Committee in the months leading up to the announcement of the comprehensive spending review, especially in regard to allocations to Departments, and understandably so.
It is important not to lose sight of the framework of public sector agreements and delivery agreements that are intended to underpin the spending settlements. Public service agreements have sought to link increased expenditure with programmes for reform and targets for improvement. Frameworks for reform and continuous improvement are all the more important in the context of a period when public spending is expected to fall as a proportion of gross national product.
When the Chief Secretary to the Treasury appeared before the Treasury Committee, he informed us of plans for fewer but better PSA targets. That is encouraging, but Parliament, and Select Committees in particular, should be involved in the formulation of those targets to see that they are clear, measurable and linked to the resources available. I ask the Government to work more closely with all Select Committees to ensure that that is the case, because insufficient work has been done in that area.
Along with the Chairman of the Public Accounts Committee, I am looking at the issue of financial reporting by the Treasury to Parliament. Financial reporting is complex; indeed, some would say that it is gobbledegook in many cases. If we cannot trace the money and we do not have that parliamentary accountability, confidence is reduced. The Treasury can expect further contact from me and the Liaison Committee on this issue in order to simplify the financial reporting to Parliament so that we can inform the House of where the money is and where it is going.
There is also the issue of the importance of education expenditure, and the delivery of capital expenditure in education in particular. The Chancellor made that very much the centrepiece of his Budget. The themes that I have just referred to demonstrate the challenges in education spending. The Chancellor is right to stress the centrality of education expenditure. An educated and skilled work force is important if we are going to respond to the global competitiveness agenda in front of us. But I suggest that extra resources are not enough. It is the responsibility of the whole Government, including the Treasury, to ensure that the money made available is spent to deliver the objectives.
At the last pre-Budget report hearing, the Chancellor appeared before the Treasury Committee. Members of the Committee, not least my hon. Friend the Member for Leeds, East (Mr. Mudie), questioned Treasury officials and Ministers thoroughly on what they do to ensure that the money allocated is spent. The answers received, particularly in the context of the ‘building schools for the future’ programme, were not always convincing.
I warn the Chancellor that when he comes before the Committee, that theme, in terms of education and new schools, will be raised. What about the money that is being allocated to those schools? When are they being built? When will they be completed? Those are simple questions and we wish to have the answers to them, particularly when the Chancellor comes before the Committee next week. More money for education is welcome, but attention needs to be paid to the capacity of schools, local authorities and Departments to deliver allocated spending, particularly in the context of capital programmes.
Mention has been made about money going to front-line services by means of efficiency savings in the Chancellor’s Budget statement. There is a need for transparency in demonstrating the success of the efficiency programme across Government. The Gershon efficiency programme is the most ambitious programme of its kind under any Government. The Chancellor today announced new figures on the progress being made, which is encouraging. However, the Treasury Committee has found it hard to match up the assertions of massive efficiency savings, achieved without reductions in service to the public, with the experience on the ground in areas such as Jobcentre Plus. Many of us in the Chamber have had representations from our constituents who work in the Jobcentre Plus area.
It is also hard to correlate reported efficiency savings in Departments such as the Home Office with other evidence on effectiveness and financial management. In the last pre-Budget report, it was mentioned that the Home Office has achieved 95 per cent. of its targets on efficiency savings. That was at the same time as the Home Secretary called it a Department that was not fit for purpose. That just does not add up and therefore there is more need for transparency and clarity. Challenging targets for efficiency savings in the years up to 2011 have already been set, but the Government need to attach priority not only to managing the new efficiency programme within government, but to ensuring that it is reported in ways that ensure parliamentary and public confidence in its delivery.
I come to the importance of environmental considerations and the economics of climate change in Treasury policy, now and in the future. The Chancellor is right to put environmental considerations at the forefront of the Budget. He is also right to stress the role of incentives, as well as taxation, in changing behaviour. The carrot-and-stick approach works more than anything. Taxation can be a blunt instrument in an environmental context. That is clearly true for aviation, where both current and proposed taxation instruments have been criticised. When representatives of the aviation industry appeared before the Committee during our inquiry into environmental taxation, they were not very clear or persuasive about
what they were doing in this area. It is time for the industry to raise its game and to participate fully and constructively in the public debate, rather than heckling from the sidelines. After all, the industry is not in the emissions trading scheme in the European Union until 2011. It does not pay taxation on its fuel, unlike the ordinary motorist or businesses in the country. It has a window of opportunity between now and 2011, when it will go into the emissions trading scheme, to show its metal and to show what it is going to do in terms of the environment. I make a plea to the Government to ensure that there is a fair price for carbon in the emissions trading scheme. There will be a lot of lobbying going on in the next few years, but if we do not ensure a fair price for carbon in the emissions trading scheme, the merits of that scheme will be lost.
Sir Nicholas Winterton (Macclesfield) (Con): The right hon. Gentleman is making a good case about a responsible attitude to climate change and global warming, but does he share my deep concern about the dramatic loss of jobs in manufacturing, which can be impacted upon by taxes that are brought in, perhaps for a good reason, in respect of climate change? I refer, in particular, to the aggregate levy that the Chancellor is increasing. That will affect construction, and construction is part of manufacturing. The climate change levy also impacts on the costs of manufacturing, making us less competitive. Is not the right hon. Gentleman, who chairs the Treasury Committee with great distinction, concerned to ensure that we have a proper balance?
John McFall: I am concerned about the position of manufacturing. I would be concerned if there were adverse consequences in that respect, but the challenge for us there is to ensure greater efficiency. It is important to have that efficiency drive, added to the technological expertise in this country. The hon. Gentleman could make me wax on about manufacturing, but I do not want to detain the House. Spending a lot of time, as I do, speaking to people in the City and seeing some of the bonuses and wages that they get, and then going into the manufacturing sector and seeing small businesses that have two or three people who are struggling, but have dynamic, innovative technological programmes, I think that there needs to be a little rebalancing. However, I will not be tempted by his question. I will leave it at that. He raises an important and profound issue, and we should debate it. We cannot allow the manufacturing agenda to be lost. Although 70 per cent. of our GDP comes from the services area, there is an important role for manufacturing. I hope that he is satisfied with that answer for the moment, but I will ensure that I report back to him at some other time.
I referred to the aviation industry and climate change. I also mentioned earlier that I was at a conference in Cape Town last week with representatives from European and African nations, and one of the big issues was climate change. We cannot look at development policies without considering climate change and therefore I make a plea for the Department for International Development, the Treasury and others to ensure that climate change comes further up
our agenda. In that respect, I welcome the £50 million that the Chancellor announced for the programme for 10 countries in central Africa to prevent the destruction of the largest rain forest in the world.
At Cape Town university last week, an expert on climate change told us that anything that we do to address climate change can influence the changes coming in the next 40 or 50 years. We must consider communications. The scientist graphically described being on the end of his mobile and warning people in Mozambique about tornados that were coming to their area. It will be extremely important for us to be prepared for the shocks and changes that climate change presents. We must step up our thinking about that aspect of climate change, and the Treasury Committee will take that forward when we report on the Stern review and the Treasury’s role in environmental policy.
Mr. Nigel Evans (Ribble Valley) (Con): The right hon. Gentleman mentioned Africa. He will know that there will be discussions at the G8 meeting in June about the commitment that the Government have already made to Africa in the form of £1.5 billion to help to fight HIV/AIDS. Will he join me in asking the Government to ensure that we stick to that commitment and try to persuade as many Governments as possible throughout the developed world to help fight the scourge of HIV/AIDS in Africa, which is clearly one of the problems that is holding back Africa’s development?
John McFall: I agree entirely with the hon. Gentleman from both a humanitarian and an economic point of view. When we visit Africa, we see that the people dying of HIV/AIDS are those who are the most economically active. The long-term future of the continent is thus being threatened, so I am 100 per cent. behind the hon. Gentleman on the need to ensure that we keep that issue on the agenda.
The Treasury Committee has announced that it will conduct a couple of further inquiries. We will hold one on the transparency of financial markets and another on dormant accounts and an unclaimed assets scheme. The themes of the inquiry on the transparency of financial markets will be the private equity business, hedge funds and insider trading. The recent activity regarding the takeover of Boots and Sainsbury has generated public debate about the private equity industry. My office has been contacted by many people involved in that industry and others. It is important to put down the marker that the private equity industry does a good job in ensuring efficiency in business. However, the Committee will be examining the effectiveness of such takeover activity, especially for the companies that are taken over. We will consider whether those companies get positive returns.
Sir Nicholas Winterton: The Chairman of the Treasury Committee is talking about a hugely important issue. While there might seem to be some advantage in UK companies being taken over, is the distinguished right hon. Gentleman aware of the amount of profit that is made by overseas companies that take over UK companies and that is then remitted overseas, rather than remaining in this country for the benefit of our United Kingdom economy? This is a critical issue; we are, indeed, selling our family silver.
| Next Section | Index | Home Page |