The
Committee consisted of the following
Members:
Chairman:
Mr.
Eric Illsley
Allen,
Mr. Graham
(Nottingham, North)
(Lab)
Efford,
Clive
(Eltham) (Lab)
Gauke,
Mr. David
(South-West Hertfordshire)
(Con)
Goldsworthy,
Julia
(Falmouth and Camborne)
(LD)
Heyes,
David
(Ashton-under-Lyne)
(Lab)
Howarth,
Mr. George
(Knowsley, North and Sefton, East)
(Lab)
Leigh,
Mr. Edward
(Gainsborough)
(Con)
Morden,
Jessica
(Newport, East)
(Lab)
Newmark,
Mr. Brooks
(Braintree)
(Con)
Singh,
Mr. Marsha
(Bradford, West)
(Lab)
Smith,
John
(Vale of Glamorgan)
(Lab)
Streeter,
Mr. Gary
(South-West Devon)
(Con)
Taylor,
Mr. Ian
(Esher and Walton)
(Con)
Thurso,
John
(Caithness, Sutherland and Easter Ross)
(LD)
Ussher,
Kitty
(Economic Secretary to the
Treasury)
Watson,
Mr. Tom
(West Bromwich, East)
(Lab)
Wright,
David
(Telford) (Lab)
Annette
Toft, Committee Clerk
attended the Committee
Fifth
Delegated Legislation
Committee
Thursday 6
December
2007
[Mr.
Eric Illsley
in the
Chair]
Governments assessment as set out in the pre-Budget report for the purposes of Section 5 of the European Communities (Amendment) Act 1993
8.55
am
Mr.
David Gauke (South-West Hertfordshire) (Con): On a point
of order, Mr. Illsley. First, may I welcome you to the
Chair?
Today,
we shall be debating the Convergence Programme for the United
Kingdom: submitted in line with the Stability and Growth Pact,
as part of our obligations under the European Communities (Amendment)
Act 1993. That document was available in the Vote Office only from
yesterday lunch time. My office picked up a copy of it later in the
afternoon. I went to the Vote Office a week ago today to ask for the
documentation for this debate and was just given a copy of the European
Communities (Amendment) Act. No mention was made of the convergence
programme. I am not criticising the Vote Office; it had not been
provided with the
document.
I went again
to the Vote Office on Monday because I was sceptical that that was all
the documentation available, but it had no more information. Only
yesterday, having spoken to the Baroness Noakes, was I aware that there
was, in fact, an additional document. I went again to the Vote Office,
but it had no copy of it. We contacted the Treasury, but was told that
it did not have a hard copy, but that it could e-mail us a copy. It was
only some time later in the afternoon that an e-mail from the Clerk
arrived with a copy of the
document.
I
have had a chance to look through the document, but not with the detail
that I would have wished. We have been given inadequate time to study
it, especially since it was published in November. I accept that the
Treasury is having a difficult time at present, but it is not
unreasonable to expect such papers to be made available in the Vote
Office in advance of todays sitting. I should be grateful for
your guidance, Mr. Illsley, about whether the position is
acceptable and whether it is appropriate for us to continue this
mornings
debate.
On
a further point, the House of Lords debated the matter on 20 November.
The Government were keen to hold the debate on that date so that they
could submit the report to the European Commission before the end of
Novemberas they told Members in another place. I should be
grateful for clarification as to whether the report has already been
submitted to the European Commission and that we are debating a fait
accompli. It seems odd that we are having to debate a document to
decide whether it should be submitted, when it might have already been
submitted and was only made available
to the House with less than 24 hours notice. Such practice does
not seem to treat Parliament with the respect that it
deserves.
The
Chairman:
I will deal with the hon. Gentlemans
latter point first, mainly because it is not a point of order for me.
However, he can raise it in debate with the Minister to determine the
status of the document and whether it has been submitted to the
Commission.
I am
advised that the document was available in the Library from yesterday
lunch time or thereabouts. Its late availability is not sufficient
reason to delay this mornings proceedings. However, I can
reflect the hon. Gentlemans views back through the usual
channels and the House authorities to ensure that, in future, documents
of this size are more readily available in a timely manner to enable
hon. Members to digest fully the information available to the
Committee. I am also advised that the information in the document is
sourced from the pre-Budget report and could have been available from
that source. As I have said, I will take his views on board and reflect
them
back.
8.59
am
The
Economic Secretary to the Treasury (Kitty Ussher):
I beg
to move,
That the
Committee has considered the Governments assessment as set out
in the pre-Budget report for the purposes of section 5 of the European
Communities (Amendment) Act
1993.
Thank you for
your guidance, Mr. Illsley. I welcome this opportunity to
debate the information provided to the European Commission under
section 5 of the European Communities (Amendment) Act 1993. Each year,
as hon. Members know, the Government report information to the
Commission on our economic and budgetary positions and our main
economic policy measures. By formally sharing information from the
pre-Budget report with our European partners, we can help to ensure
that there is a proper, accurate and effective EU system and meet our
commitments to contributing to enhanced employment and
growth.
The
information was set out in the pre-Budget report in October and that
material forms the basis of what we are sending to the Commission. The
background to this years report and spending review is a time
of increased international economic uncertainty and a more fragile
global environment, which has already seen turbulence in America, Asia
and Europe. As the Chancellor set out to the House on 9
October,
provided we
maintain the course for economic stability that we have set, we can
respond to that global environment. We will do so by taking no risks
with stability and no risks with unaffordable promises that put the
public finances at risk.[Official Report, 9
October 2007; Vol. 464, c. 167.]
The full
impact from turbulence in the international markets is as yet unclear,
but the International Monetary Fund has said that the international
uncertainty will have an effect on growth across the world. Independent
forecasters expect growth next year in America and the euro area to
fall to 2 per cent. and 2.5 per cent. In these circumstances it is
right that we, too, are cautious. The forecast for growth next year is
also of 2 to 2.5 per cent. However, because of the strength of our
economy, our commitment to openness and liberalised trade across the
world, and our flexibility and dynamism at home, the forecast for
growth in 2009 and 2010 is 2.5 to 3 per cent. That is in line with the
economys trend rate of growth and with the forecast in the
Budget.
Against the
backdrop of recent events, decisive action in the UK has brought
inflation down to around our target of 2 per cent. and it is forecast
to be on target next year and the year after. Employment is at a record
level. Productivity is growing stronglyup 2.7 per cent. in the
past year. While this year, growth in America is expected to be 2.1 per
cent., in Japan 2 per cent., and in the euro area 2.6 per cent., growth
in Britainwith exports and investment risingis expected
to be 3 per cent. Britain is the fastest-growing major economy in the
world.
The
strength of the UK economy is the direct result of the monetary and
fiscal policy framework that we have introduced. First, the
Governments monetary policy framework seeks to ensure low and
stable inflation. The Bank of England Act 1998 gave full operational
independence to the Monetary Policy Committee. It has discretion to
decide when and how to react to events and has a clearly defined remit
to maintain price stability, subject to supporting the
Governments objectives for growth and employment. The monetary
policy framework has delivered the longest period of low and stable
inflation since the 1960s, along with low interest rates. That has
provided the platform for record employment levels, higher investment
and economic
growth.
Our two fiscal
rules are the golden rule that over the economic cycle the Government
will borrow only to invest and not to fund current spending, and the
sustainable investment rule that net debt should be held over the
economic cycle at a stable and prudent level. We are meeting our first
fiscal rule with a current Budget in surplus over the cycle. In the
last economic cycle from 1986 to 1997, that rule was missed, with a
deficit of £240 billion. Over this cycle, with a current budget
deficit last year lower than forecast, we have a surplus of £18
billion. We are therefore meeting our first fiscal
rule.
We will also
meet our second rule that net debt should be at a sustainable level.
Debt is at 44 per cent. in America, 49 per cent. across the euro area,
86 per cent. in Japan and 94 per cent. in Italy. In Britain, debt is
37.6 per cent. this year and below 40 per cent. in every year of the
projection period, so we are meeting our second fiscal
rule.
Mr.
Brooks Newmark (Braintree) (Con): Does the Economic
Secretary not share my concerns, notwithstanding the
Governments definition of debt to gross domestic product, that
perhaps more than £1 trillion is now held off balance sheet?
That is £2 for every £1 that is on balance sheet. Is that
a concern for
her?
Kitty
Ussher:
I am grateful for the question, but that is not a
concern because off balance sheet is nothing new and it is up to the
auditorsthe Office for National Statistics and othersto
determine whether it is correct that a liability should be on or off
balance sheet. Some things are on, some things are off and we have no
concerns about the definitions. Indeed, it is right that it is
independently scrutinised in that
way.
Mr.
Newmark:
Will the Economic Secretary give way
again?
Kitty
Ussher:
The hon. Gentleman is persistent, but of course I
will give way.
Mr.
Newmark:
I will be persistent because,
at the end of the day, the taxpayer has to foot the bill. Public sector
pension liabilities today are more than £700 billion, if
you add the private finance initiative and other costs. All those
liabilities must be paid for by the taxpayer. The Prime Minister, when
he was Chancellor, called for greater transparency in Government
accounts, but we have not seen that in the past 10
years.
Kitty
Ussher:
That is precisely why we comply with international
best practice with regard to what is on or off balance sheet. Our net
debt remains below 40 per cent. It is up to the auditors to judge
whether we account correctly for those liabilities. I am perfectly
satisfied that there is sufficient
transparency.
I have
been talking about net debt. Debt interest was 3.5 per cent. of
national income in 1997. Next year, it is expected to be just 2 per
cent. That low debt allows more investment in front-line services. We
can afford sustained investment in our priorities only because of the
two fiscal rules that ensure sound public finances. The rules have
protected a historically unprecedented increase in public net
investment, while debt and borrowing remain low and stable. Last year,
borrowing was 2.3 per cent. of national income; which
was £4 billion less than forecast.
Over the past 10 years of this
economic cycle, borrowing and debt in Britain have been lower than in
Japan, the euro area, America, and in the countries of the Organisation
for Economic Co-operation and Development as a whole. Net borrowing is
forecast to fall from 2.7 per cent. this year to 1.3 per cent. in 2012,
compared with a peak in 1993 of almost 8 per cent.the
equivalent of £110 billion
today.
The
UK also continues to meet the reference value on the treaty deficit
throughout the projection period, with the deficit reaching 1.6 per
cent. of GDP by 2012-13. The projections the Chancellor set out are
also consistent with the Governments prudent interpretation of
the stability and growth pact. Such an interpretation takes account of
country-specific factors including the long-term sustainability of
public finances, the economic cycle, and the important role of public
investment. The UKs public finances remain
sustainable.
As
I set out earlier, the UKs debt level compares favourably with
other EU member states and we continue to meet the EU treaty reference
value for general government gross debt60 per cent. of
GDPby a significant margin. The reforms to the stability and
growth pact agreed in March 2005 rightly place a greater focus on the
avoidance of pro-cyclical policies and on reducing and maintaining low
debt, with the flexibility for low-debt countries such as the UK to
invest in the provision of public
services.
Mr.
Newmark:
Will the Economic Secretary give
way?
Kitty
Ussher:
The hon. Gentleman is keen to intervene
mid-sentence. I shall give way
shortly.
The
challenges of the decade ahead require a balance to be struck between
delivering further investment in public services to equip the country
for change, and entrenching the macro-economic stability that is
essential in the increasingly competitive global economy. The
2007 Budget set out the overall spending envelope for the 2007
comprehensive spending review period, locking in the historic increases
in investment since 1997, while allowing total public spending to
increase by an average of 2 per cent. per year in real
terms.
Mr.
Newmark:
I appreciate the Economic Secretarys
point about investing in public services, but is it the
Governments intention still to use PFI as a means of doing that
and, therefore, put those liabilities off balance sheet again? Are
there not double standards when the Governments new standards
require that private and public companies must account for their
pension liabilities on balance sheet now, yet the Government persist in
holding public sector liabilities off balance
sheet?
Kitty
Ussher:
The hon. Gentleman does not seem
to have listened to what I said earlier. Some PFI liabilities are on
balance sheet and some are off, depending on the definition of the ONS.
We comply with international best practice in that regard. It is a bit
rich for a party that starved our public sector of the investment that
it required over time to start quibbling in this way. I would be more
interested in looking at its books to find out exactly how its
public-spending black hole is to be filled, rather than continuing
along this line. [
Hon. Members: Gaping
hole.] A gaping hole, as my hon. Friends point
out.
Having
assessed the future investment needs of the country, the continued
strength of the UKs public finances, with net debt remaining
below 39 per cent. throughout the forecast period, enables the
Government to announce an additional £2 billion to total public
sector net investment in 2010-11, with total public spending increasing
by 2.1 per cent. in real terms. We are extremely proud of that. Within
that envelope, current spending grows by 1.9 per cent. a year in real
terms and net investment rises to 2.25 per cent of GDP.
It is no
secret that this spending review is tighter for many Departments, and
the Government remain committed to ensuring that public spending
delivers the publics priorities and value for money for the
taxpayer. The spending review has identified substantial
savings that can be made by Departments. Building on the
£20 billion already achieved, Departments will save a further
£30 billion by 2010, and that money will be available for
reinvestment in public services. Departmental plans are being
published, setting out in detail how those savings will be
achieved.
The resources
released through that ambitious value-for-money programme, together
with the increased spending delivered in the CSR, will enable the
Government to sustain the pace of improvement in public services and
focus additional resources on their key long-term priorities. That will
be matched with reform and clear objectives set out in new public
service agreements defining the Governments top 30 priorities
for the coming
period.
Those key
priorities include: meeting the challenge of globalisation by investing
in the human and physical capital that will keep the UK economy
competitive over the long term; education spending in England growing
at 2.8 per cent. a year in real terms; investment in science and
university research rising to over £6 billion a year in
three years time; and increasing transport investment to £14.5
billion a year by 2010-11.
Other
key priorities include: making the UK a better place in which to live
by continuing to improve the NHS, with investment in health in England
rising from £90 billion this year to a total of £110
billion in 2010; progressing towards the objective of decent and
affordable housing for all, with total spending on new housing of a
least £8 billion over the next three years; protecting the
nation from external and internal threats, with total spending on
counter-terrorism and intelligence rising from £2.5 billion in
2007-08 to £3.5 billion in 2010-11; continuing the longest
period of sustained real increases in defence expenditure in over 20
years; and helping to tackle climate change and protect the
countryside, with the budget of the Department for Environment, Food
and Rural Affairs set to increase to £4 billion by 2010-11 and
the creation of a new environmental transformation fund with a
three-year budget of £1.2 billion.
Of course, the spending review
will help us tackle international poverty by increasing the budget of
the Department for International Development by 11 per cent. a year
over the CSR, enabling total UK official development assistance to
reach over £9.1 billion a year, which will put us on course to
meet our European commitment of having 0.5 per cent. of national income
devoted to development aid by 2010double what it was under the
Tories. It will help us to meet our commitment to achieving for the
first time the United Nations goal of 0.7 per cent. by
2013.
I
hope that I have summarised our task, which is to meet and master the
global economic challenge, making the critical decisions to secure
Britains long-term economic future. The pre-Budget report,
which has been before the House since early October, drives forward the
greater economic mission of our time: to meet the global challenge,
unleash the potential of all British people and deliver security,
prosperity and fairness for all. That is the programme set out in the
2007 pre-Budget report and comprehensive spending review, and that is,
with the approval of the Committee, the basis on which we are sending
updated information to the European Commission. I welcome the
opportunity to debate it this morning and look forward to the
contributions that will
follow.
9.13
am
Mr.
Gauke:
Once again, Mr. Illsley, I welcome you
to the Chair. It is a great pleasure to serve under your
chairmanship.
I shall
return briefly to the issues that I raised in my earlier point of
order. I am grateful for the clarification that the convergence
programme essentially reiterates the figures contained in the
pre-Budget report. Perhaps the Economic Secretary, in her closing
remarks, could confirm that there has been no change to the numbers
contained in that. I expected an apology for the failure to provide a
copy of that document to the Vote Office before an intervention by the
Clerks and, indeed, by my own office, but there we go. I also seek
clarification on what the Economic Secretary has just said with regard
to the sending of the report to the Commission. The implication of what
she was saying is that the report has not yet been
sent.
Kitty
Ussher:
I apologise to the hon. Gentleman; I meant to
include in my opening remarks that the report has been submitted
because there was a deadline of 1 December. However, it has
been submitted subject to
parliamentary approval. That is understood by the Commission and the
report will be deemed null and void if we do not approve it today. On
his earlier point, I made a ministerial statement on 20 November,
stating clearly that copies were available in the House, which we
thought was sufficient, but I will take his comments on board for next
year.
Mr.
Gauke:
I am grateful for that. The statement may well have
said that copies were available in the House, but the fact is that they
were not available in the House; that is the point that I was
raising.
The figures
contained in the convergence report are based on what is in the
pre-Budget report. The timing of the PBR was somewhat unusual. In
recent years, the PBR has tended to occur in early December; this year
it was in early October, in part to combine with the comprehensive
spending review, which had been delayed. It was originally due in the
summer but it got delayed and could not be delayed any further, so the
decision was made to combine it with the PBR in October. Indeed, the
PBR was moved back a further week to provide a springboard for a
crushing general election victory for the Government. That was just two
months agohow distant that time appears.
The submission is normally
submitted after 1 December, but given that there was an early
PBR, I understand why the Government were keen to submit it before the
beginning of December, in accordance with the code of conduct that
applies in these circumstances. However, it raises the question of
whether the information contained in the PBR is as up to date as it
might be. Normally these matters are debated shortly after the PBR is
published, but because we have had a two-month gap, which has
been a particularly eventful two-month gap as far as the economy is
concerned, there are reasons to question some of the numbers contained
in the PBR. I will do that in a
moment.
Even on the
PBR figures, the Governments borrowing figures are distinctly
unimpressive. Looking at the position for 2007-08 and the predictions
that the Government made for the borrowing figure in the PBR of
2006a year agothe prediction was that borrowing would
be £31 billion. In the Budget of March 2007, the figure was
£35 billion. By the time we got to the PBR in October, the
figure had gone up to £38 billion and the projection for
borrowing over the next five years was increased in the PBR by
£16 billion. We must remember that we have gone through 15 years
of economic growth and this year our growth of 3 per cent. and possibly
above is at the top end of, or above, our trend rate of growth. This is
a period in which we should be running a comfortable surplus. These are
the good years in an economic cycle, but we should prepare ourselves
for the slowdown that we may be about to enter. However, we enter more
difficult times at a time when the Government have little flexibility
as far as the public finances are concerned. They are running a deficit
and borrowing far more than they planned to or should do. We have the
worst structural deficit of any major western economy, which is not
something to be proud of.
I turn to the
fiscal rules that the Economic Secretary referred to and, first, to the
sustainable investment rule that net public debt as a proportion of GDP
will be held
over the economic cycle at a stable and prudent level. That has been
defined within the current economic cycle as keeping the public net
deficit below 40 per cent. for each and every year. Will the Economic
Secretary confirm whether that will be the test for a stable
improvement level for the next economic cycle? She referred to the 40
per cent. test and, indeed, the 40 per cent. test is referred
to within the convergence programme at paragraph 4.7, which states that
the net figure will be below 40 per cent. up to 2012-13. The
implication of that could be that the Government will apply the same
tests for the next economic cycle as it did for the current one, or the
past oneit is not clear where we are on economic cycles at the
moment. I would be grateful for clarification on the matter as the
Government have not made it clear.
I raise that point given the
concern expressed by my hon. Friend the Member for Braintree this
morning and on numerous other occasionshe is tireless in making
the pointthat some areas of public sector indebtedness, such as
some PFI liabilities, some public sector pension liabilities and
Network Rail, are not included within the tests. I would be grateful if
the Economic Secretary could confirm that. I think that it was implicit
in her remarks that there was no intention to reform either the
definition of public debt or, presumably, the 40 per cent. test, but I
would be grateful for clarification.
I turn to the other fiscal
rule, the golden rule that Governments should borrow only to finance
capital spending. It is widely acceptedalthough I do not expect
the Minister to accept itthat the frequent changes of dates of
the cycle made by the Treasury have undermined confidence in that
golden rule. The Financial Times
carried out a survey of
economists and institutions, and
said:
Almost
none use the Chancellors fiscal rules any more as an indication
of the health of the public
finances.
Kitty
Ussher:
The hon. Gentleman expresses scepticism about the
dates of our cycle. Does he not believe that the National Audit Office
was correct when it audited our cycles and said that they were
correct?
Mr.
Gauke:
It would be helpful if the economic cycles could be
not just audited but determined by an independent body. The fact that
almost every change to the economic cycle has made it easier for the
Government to comply with the golden rule leads to suspicion. We can
talk to economists and to economic commentators, and none of them take
the golden rule as seriously as they should do. That is a pity because
the objective behind the golden rule is laudable, but it is not
delivering. It does not provide confidence to the economy as a whole by
acting as a genuine restraint upon the Government, because of the
frequent changes in the economic cycle.
Kitty
Ussher:
Does the hon. Gentleman suggest that the National
Audit Office is not independent?
Mr.
Gauke:
No, I do not suggest that, but the NAO takes a
subsequent look at events, and that is not that same as determining
what the economic cycle is.
I was formerly
a member of the Treasury Select Committee. That all-party
Labour-dominated Committee has advocated on a number of occasions that
we should look again at the determination of the golden rule. There
seem to be two possible ways of doing that. One would be for an
independent body to determine what the economic cycle is; the second
approach might be a forward-looking rule. I would be grateful if we
could look at whether there is any indication of what approach we could
take.
Earlier in the summer, there
were hints about a possible reform of the golden rule. It was area in
which the new Chancellor might have struck out boldly. He would perhaps
not have been as attached to the existing rule and he could have set
out his independence by making a reform in this area. Sadly, that does
not appear to have happened, which is a great pity and perhaps we
should consider the matter. From what the Economic Secretary has said,
it would appear that there are no plans for reform, and I regret
that.
Mr.
Newmark:
I appreciate what my hon. Friend says, but
notwithstanding the points made by the Economic Secretary, the
goalposts of the golden rule have been shifted not once, not twice, but
three times. It smacks a little of reverse engineering. That is the
point that we are concerned with.
Mr.
Gauke:
I am grateful to my hon. Friend. We both served on
the Treasury Select Committee and particularly recall how the then
Chancellor, the current Prime Minister, steadfastly refused to answer
when I asked him whether, but for the changes in the economic cycle
that he introduced in December 2005, he would have succeeded in meeting
his golden rule over that particular economic cycle. I suspect that my
hon. Friend will recall that occasion
too.
I
turn now to the two European tests. The first is for general Government
net borrowingthe Government deficit. According to the figures
contained in both the PBR and the convergence programme, the treaty
deficit for 2007-08 is 2.9 per cent. of GDP. The cyclical treaty
deficit stands at 3 per cent, which is the reference value for an
excessive deficit, so we are very close to being in breach of that. It
would be fair to sayI acknowledge the point that the Economic
Secretary madethat we are well below the threshold for the
other test, which is the general Government gross consolidated debt.
However, that is rising quite rapidly and is up to 45 per cent. Clearly
there is concern about general Government net
borrowing.
That
brings me to a point about what has happened since October, given that
we have this relatively long period between the figures being
determined by the Treasury and the submission to the European
Commission. The decline in public finances in that period is striking.
On 20 November, the ONS published the public sector finances for
October 2007, so we now have the figures for seven of the 12 months of
2007-08. The Institute for Fiscal Studies projects that the public
sector net borrowing figure will not be the PBR figure of £38
billion, let alone the £35 billion or the £31 billion
that had previously been predicted by the Government, but £42
billion. That is more or less 10 per cent. higher than the figure that
the Government predicted just two months ago.
Essentially that is because
capital spending is growing at almost twice the rate predicted by the
Government in October. Moreover, corporation tax receipts are not
performing quite as well as they might do. The PBR forecast for 2007-08
was that they would be 4.5 per cent. more than 2006-07 but, for the
first seven months of this year, there has been no increase at all. The
figures do not tally exactly, but an increase in deficit of 10 per
cent. would result in a 10 per cent. increase in the deficit ratio too.
That would take us up to 3.2 or 3.3 per cent. on the European test,
which would clearly be an excessive deficit as defined under the
stability and growth
pact.
Notwithstanding
the figures that we already have, there is also reason for concern
about the future figures for the economy. We all hope that there will
not be a substantial slowdown, but Members on both sides of the House
recognise that there are concerns that it may occur. As the Economic
Secretary said, the growth forecast issued by the Government has been
downgraded from 2 to 2.5 per cent. However, one can simply look at the
comments that Mervyn King, the Governor of the Bank of England, made to
the Treasury Select Committee last week. He referred to the slowing of
growth in public finances. That is a concern because it will have an
impact on corporation tax receipts in particular, but on other tax
reliefs too.
The UK
may be vulnerable to a slowdown in the financial services market. We
all know that it is a difficult time for banks. Their profits are down
substantially. We have a major financial centre in London and a large
financial services industry, which is welcome but it may make us
slightly more vulnerable to a downturn within this sector. Figures
announced yesterday by the Halifax show house prices falling for the
third month in a row, with the sharpest decline for a long time over
the last month, which suggests that there is a concern recognised by
all parties about the slowing of the economy. Will the Economic
Secretary confirm whether the Government remain confident that
the 2 per cent. figure that they have predicted, which is at
the bottom of the range that they suggest for growth, is realistic? I
do not dispute whether it is or not, but I would be grateful for the
Governments views on whether that figure is
right.
Additional
demands on the Exchequer have emerged over the past two months and
should be discussed in the context of this debate. First, on the issue
of Northern Rock, with which I know the Economic Secretary has been
closely involved, the Government have provided a guarantee for the
liquidity of Northern Rock, which in itself is a contingent liability.
We are notor at least I confess that I am notclear
about how that liability will feature in Government accounts.
We must also consider
that, according to yesterdays business section of The Daily
Telegraph, there is a possibility that Northern Rock will be
nationalised. In those circumstances, the public sector net deficit
would be increased to the extent to which the Governments
financial liabilities are increased by more than the
Governments financial assets. As I have said, there is talk
that that may happen in February. In addition, reports in The Daily
Telegraph
say:
Downing
street has opened talks with the Conservatives over the nationalisation
bill.
That came as a complete
surprise to Conservative Front-Benchers. In September, my hon. Friend
the Member for Tatton (Mr. Osborne), the shadow Chancellor,
wrote to the Chancellor offering cross-party support to protect
taxpayers, but he has not yet had a response. Certainly, no approach
has been made to us about a nationalisation Bill. If the Economic
Secretary would like to open talks immediately after this sitting, I
will listen to what she has to say and pass it on to my colleagues.
None the less, I would be grateful for clarification about whether
there are any potential costs to the Exchequer, as they would be
relevant to the information that we have provided to the European
Commission on this subject.
Another subject about which we
have had some uncertainty is the changes to capital gains tax announced
by the Chancellor in his pre-Budget report, when he declared the
abolition of taper relief. We all know that that is a revenue-raising
measure, which will raise £350 million in 2008-09; £750
million in 2009-10; and £900 million in 2010-11. However, there
has been an enormous outcry about the measure and business
organisations, such as the CBI, the Institute of Directors, the British
Chambers of Commerce, and the Federation of Small Businesses, have been
in uproar about it. We know from a breakfast meeting that the Prime
Minister, who is the First Lord of the Treasury, had with the editor of
The Sunday Times that the Government are considering introducing
some kind of retirement reliefperhaps up to £100,000. To
be fair, I do not yet know whether the Treasury has been informed of
the First Lord of the Treasurys proposals on that matter, but
the Treasury did not seem to be aware of them on the day concerned. I
do not know to what extent the First Lord talks to the Second Lord
about such things, but the Second Lord of the Treasury said in his
speech to the CBI on 27 November that plans will be
revealed
in the next
three weeks.
That delay
increases uncertainty for businesses that do not know whether to
dispose of their assets before April 2008.
It is
unfortunate that there is such a delay, but any measures introduced may
well have a fiscal cost. If that is the case, the numbers that we are
submitting are already out of date, unless any changes to capital gains
tax, the introduction of retirement relief, or whatever plans will be
introduced over the next couple of weeks to reduce the strong
opposition to these proposals, are fiscally neutral. I would be
grateful if the Economic Secretary could confirm whether the further
changes to capital gains tax to be announced will be fiscally neutral.
If they are going to have a cost to the Exchequer, we need to know
about it today, and we ought to know about it when we are debating our
submission to the European Commission. If the Government have plans
that they have not yet announced, which are going to incur further
costs, we ought to be aware of them, and the figures should be
reflected within the convergence programme for the United
Kingdom.
I would like
to touch on two further issues where the report may be out of date. A
further cost may be related to the missing discs from Her
Majestys Revenue and Customs. First, there will be the cost of
reimbursing the banks for the various checks that they made over the
weekend of 17 to 18 November to record that no fraud had occurred.
Although I do not believe that the
Government have ever confirmed this to the House, their press office has
confirmed to journalists that the Government will pick up the cost for
that.
There is also
the huge potential liability for the Government from any identity
theft. Although they say that no fraud has yet occurred, it is very
difficult for them to establish that. Perhaps there has been a slight
failure of imagination. If these discs are in the hands of fraudsters,
they are not likely to undertake a big-bang approach to try to steal
billions in one day; they will do it gently.
If the banks
see any increase in identity theft over the next few months and, in
particular, if they can identify any statistical increase relating to
families with children, they are likely to go knocking on the
Governments door quickly and say that the Government are
responsible for that and that they are going to have to cough up. That
could be an expensive cost to the Government, and I would be grateful
for the clarification as to whether the Economic Secretary accepts
that.
Mr.
Newmark:
There is an additional cost. As my hon. Friend
may know, I have five children and my wife has received several
letters, so there is the additional cost of postagenot once,
but two or three timesthat has to be taken into
account.
Mr.
Gauke:
I am grateful to my hon. Friend. There will be
various possibilities. We read in the newspaper today that HMRC will
reimburse the Metropolitan police some £500,000 for the
additional costs of searching for the discs, and for sending police
officers into rubbish tips throughout the length and breadth of the
country in the hope that they will find a couple of computer discs. He
makes a good point about the costs of the letters, but an overall cost
will be incurred here. Potentially, the more substantial one is if we
start to see evidence of fraud, because it would appear that the
Government are clearly going to be liable in those
circumstances.
There
is one final point about how matters have changed. To be fair, it is
acknowledged within the convergence programme, at the top of page 47,
in paragraph 5.4. It refers to the fact that the ONS published a new
set of population projections on 23 October, and that it is too
late to be included in an assessment of the long-term sustainability at
the time of the October 2007 PBR. Those were very important figures,
and the Economic Secretary will remember that there was considerable
press attention given to the projections of a substantial increase in
the population of this country. Those figures are not taken into
account within this document for the perfectly good reason that they
were not available when the PBR was drawn up, but of course, those
figures are available now. Again, that underlines my point that we are
sending a document that is somewhat out of date.
I know that one point addressed
in the convergence programme document and that I could not find in the
PBR is close to the Economic Secretarys heartcompliance
with criteria to join the euro. I was not aware whether since the
change of Prime Minister, the Government have restated their policy on
that, but they say in this document that they remain in principle in
favour of Britains membership of the euro subject to
the five economic tests being fulfilled. I do not know why they would
not want to shout that from the rooftops, but they seem to have kept it
rather quiet, buried within this document at box 2.2 on page 18. I
would be grateful to know whether the Economic Secretary, who is a
distinguished member of the campaign for Britain to join the euro,
still believes that it is Britains
destinyto use the word used by Tony
Blairto be part of the euro.
There is
reference to plans to reassess the economic tests for the Budget of
2008. I would be grateful to know how many people are currently working
in the Treasury on the reassessment or whether it will essentially
involve a couple of people sitting down over a cup of coffee, saying
Should we do this? No, dont be silly, and then
leaving it for another year. Also, how seriously do the Government
still believe that, in principle, it would be in Britains
interest to join the euro?
In
conclusion, this PBR revealed that public finances have not been
prepared for the difficult times that may lie ahead. The evidence since
it was prepared reveals that times may indeed become difficult and
confirms how ill prepared the Government have made the public finances
of the UK. I am afraid that it is a demonstration of a degree of
irresponsibility and, at times, of incompetence that we find ourselves
in this position and that, after years of strong economic growth, our
public finances are in the mess that they are. This PBR and, indeed,
this convergence programme for the UK inadequately reflect the
situation that faces the
UK.
9.41
am
John
Thurso (Caithness, Sutherland and Easter Ross) (LD): May I
begin, Mr. Illsley, by saying what a pleasure it is to
appear under your chairmanship? However, I must confess that I am not
entirely certain why I find myself here this morning, or what I have
done to my Whips Office to find myself temporarily catapulted from the
quiet, sylvan pastures of the Back Bench into a spokesmans
position. I can assure the Committee that it will not happen terribly
often if I have anything to do with
it.
Not having a clue
what the procedure was for this morning, I therefore thought that I
would start by looking at the documents. I must confess that I had much
the same problems as the hon. Member for South-West Hertfordshire, so I
thought that I would go back to last years debate and have a
look at that. I got out the record of last years debate and I
must say that I have an awful feeling of groundhog day at the moment,
not least in witnessing the terrier-like tenacity of the hon. Member
for Braintree, which is clearly undiminished across the year. I read
the comments of my own colleagues and find myself none the wiser for
reading them. [
Laughter.
] Thatll teach
them to let me
loose.
The
ostensible purpose this morning is clearly to consider the Maastricht
Act provisions and to look at the convergence programme for the UK, as
the document before us is entitled. Clearly, there is not a convergence
programme of any significance. There is no real, active debate about
our joining the euro. I think that, at this precise moment, all parties
are quite clear that joining
the euro is somewhere in the future. However, there is a difference
between us. Both the Government and my party believe, with slightly
varying degrees of fervour, that joining the euro is a place where we
would like to arrive at some point in the future, whereas I think that
the hon. Member for South-West Hertfordshire, who represents the
Conservative party, rather wishes that the whole thing would just go
away for ever.
I
would like to make one point about the euro. Curiously, over the last
year the euros importance in world economic affairs has
increased. I was in Zurich last week, speaking to a number of people
responsible for investments for a charity. It was quite striking that
they really had no regard for what was happening in Great Britain; it
was a matter of supreme indifference to them. They were far more
interested in the euro, in its strength and in ensuring that their
euros were properly invested. We should at least take note that the
euro is maturing and strengthening, and a time will come when we shall
look at it again. It is not quite the basket-case currency that some
people suggested it might be at the beginning.
The rest of our debate allows
us to have another look at the Governments policies for the
economy. I do not want to spend a great deal of time doing that, but
there are one or two points that I would like to pick up. I was
interested in the debate on the point of order raised by the
hon. Member for South-West Hertfordshire in respect of the timing of
the document. In fact, I believe that the vast bulk of what we needed
to see can be found in the pre-Budget report, but the fact that there
is a document and that it is dated November but was printed some time
ago shows how fast things have been moving in the economy and in the
City in recent weeks. Indeed, if one reads the opening paragraph of the
convergence programme, one might see a hint of complacency, frankly. It
mentions the tremendous robust and sustainable growth.
It also
states:
The UK
economy is experiencing an unprecedented period of
growth,
which is a
dangerous claim to make in the light of what is happening in the
capital markets and other areas.
Later today, the Monetary
Policy Committee will make a decision on interest rates. It will be one
of the most difficult it has had to make since the inception of an
independent Bank of England because, probably for the first time, there
are a set of circumstances in which a politically motivated Chancellor
might have come to a different decision from that of an independent
MPC. It is therefore a testing time for the MPC, and I hope and trust
that with its independence and collective knowledge, it will make the
right decision. The Treasury Committee, on which I have the honour to
serve, will doubtless quiz the MPC as to the reasons for its decision,
and the report will make interesting reading.
The Economic Secretary was good
enough to say in her opening remarks that the Government will take no
risks with stability, which is, of course, an admirable objective. The
problem with risk is that we need to know what it is and we do not at
the moment know where the risks are. That is what the turmoil in the
capital markets is all aboutpeople do not have a clue where the
ultimate risk lies. It could lie with an investment company or with an
insurance company, or
with the banks. There is a parallel with our public finances in that we
are not entirely certain what the risks are and where they lie. The old
order of certainty is not what it was.
The level of consumer debt is a
critical element of that. A large part of consumer debt is secure
debtmortgagesand should therefore not be too much of a
problem. However, we are now learning, by the example of Northern Rock
and other things, that mortgages in excess of 100 per cent. are based
on a 95 per cent. mortgage with the balance of some extra 25
per cent. given by way of an unsecured loan. We have no idea how much
such loans are worth. As has been mentioned, the housing market has
been in retreat for the third consecutive month, which must build
pressure. We do not know how the situation will pan out, so I would
suggest that consumer debt is a major risk, as is the housing
market.
Credit must be
given when credit is due: in many ways, the Government have managed the
economy well in the past 10 years. I am therefore not attacking the
Government, but merely urging caution at a time of what is clearly
extreme difficulty that has been brought about by events in other
countries. Clearly, the direction of the housing market is cause for
concern. The fundamentals are stronger today than they were in 1991,
1992 and 1993, and there is good reason to hope that we will not have
the same level of problems, but we would be complacent if we believed
that they will definitely not
happen.
We can learn
the lesson from the example of Northern Rock. Interestingly, I asked
the Governor what he thought might happen as regards the general level
of the financial markets in May, and he told me that all the
fundamentals were in order and that there was no reason why anything
would go wrong. That remained truethere was nothing
fundamentally wrong with Northern Rock, other than that nobody wanted
to take its paper when it needed that. Subsequently, there was a
liquidity crisis, which was the one event for which it had no plan. A
major cause was sentiment and emotionthe one thing that we do
not enter into our calculations about the future economy. There was a
run on the bank because the man and woman in the high street decided
that there was a problem. It was not about economics; it was about
sentiment.
I want to
say a word about the PFI and being off balance sheet. I come back to
the lessons that we are learning. If we had talked to the banks about
their special investment vehicles and their off-balance sheet vehicles
three months ago, they would have said that they were absolutely sound.
Today, one bankCitigroupis publishing £141
billion of exposure, so it has gone from nothing to £141 billion
in two months. I am not suggesting that that will happen to the
Government, but what we have seen of auditing in the past is not
necessarily how to look at the
future.
Everything
we are looking atwhether growth or productivityand all
our aspirations for the country are wrapped up in where the current
problems in the economy will go. It is a testing time. I want all those
with responsibilities, whether they be in the Government, independent
governors of banks or other members of the tripartite arrangements, to
conduct themselves in a way that will lead us to come out with the best
possible
result. As for the Commission, I do not have the slightest doubt that it
will receive the report with the same enthusiasm with which we are
sending
it.
9.51
am
Mr.
Newmark:
I am delighted to see the
Government Members out in full force for this important debate. I know
that the Government Whip is particularly keen to hear what I have to
say. I congratulate the Economic Secretary on her commitment to
ensuring that the Treasury is run as a paperless office. Indeed, a copy
of the UK convergence programme was, of course, made available on the
Treasury website, but as my hon. Friend the Member for South-West
Hertfordshire said, paper copies did not reach the Vote Office. I was a
little amused to hear that, when my office requested a paper copy from
the parliamentary unit at the Treasury, the response was that a copy
would be sent over immediately, but that unfortunately it was the only
copy available. Perhaps the other copies had already been forwarded to
Brussels in anticipation of the Committees approvalor
perhaps it is the pre-Christmas
post.
Mr.
Gauke:
They might have been lost in the
post.
Mr.
Newmark:
Perhaps,
indeed.
The Government
notes at paragraph 1.7 of the report that
the
disruption in global
financial markets has meant economic prospects have become more
uncertain,
before
emphasising that they believe the economy to be resilient enough for
the impact to be minimal, and
that
growth could slow
by less than
expected.
Is
that judgment in accord with the Governor of the Bank of
Englands statement to the Treasury Committee that conditions
are not only highly uncertain, but rather uncomfortable? Is a revision
of emphasis in the programme required in light of those
comments?
Paragraph
2.4
states:
Stability
allows business, individuals and the Government to plan more
effectively for the long
term,
but how is
stability being reinforced by the Chancellors shilly-shallying,
for example, on capital gains tax rates since the pre-Budget
report?
Paragraph 2.7
makes another equally confident claim, and states that
the
most recent
assessment, published in the 2006 Long-term public finance
report, shows that the UK fiscal position is sustainable over the
long term. The UK is in a strong position relative to other developed
countries
the
point made by the Economic
Secretary
to
face the challenges of an ageing
society.
How does that
statement square with the fact that the Chief Secretary said last week
at Treasury questions that public sector pension
liabilities
should not
be grossly simplified and misrepresented.[Official
Report, 29 November 2007; Vol. 468, c. 424.]
I agree with the
principle, but at the same time he admitted that the ONS has already
released new figures, back in October, and that a revision of the
long-term public finance report was now both forthcoming and overdue.
Should this expected revision not be reflected in the convergence
programme?
My favourite claim is in
paragraph 3.4, which
says:
Central
banks have offered more liquidity at slightly longer maturities,
including in the three-month money market, and, in some cases, against
a broader range of collateral than
usual.
There is no hint
there of the mismanagement that caused the first run on a bank in 150
years, while the European Central Bank and banks in Europe avoided
difficulty. There is no mention that one particular central bank that
accepted a
broader range
of collateral than
usual
was
Northern Rock, together with its depositors, in return for a rapidly
escalating commitment of taxpayers money. There is no admission
from the Government that the slightly longer maturity
of the liquidity may well be indefinite. That is just a flavour of the
quite remarkable optimism with which the Government intend to regale
Brussels and that at least proves that Ministers are capable of keeping
a stiff upper lip abroad, whatever disasters befall them at
home.
I
move to some specific questions about the treaty deficit and the way
that it is calculated. It seems that the Treasury prefers to use the
cyclically adjusted treaty deficit because that measure has, in the
past, helped to push the Prime Minister in the right direction. We
begin to see from table 4.1 of the convergence programme that, next
year, it will push him even closer to another
breach.
The
figures themselves appear to move about quite a bit. Table Bl of the
pre-Budget report and table 4.1 of the convergence programme note this
years treaty deficit as 2.6 per cent. of GDP and the cyclically
adjusted treaty deficit as 2.4 per cent. of GDP. However, in its
release of 28 September, the ONS preferred to split the difference by
claiming the treaty deficit for this year as 2.5 per cent. of GDP. Will
the Economic Secretary comment on the difference between the figures
from the ONS and those that appear in the document before
us?
Furthermore, it
seems to be the practice of the ONS to publish the treaty deficit
figure in a different format, depending on the year in question. I have
the biannual releases going back a few years. Sometimes, as in the
latest release, they are based on the financial year, but on other
occasions they revert to the fiscal year. Moreover, it does not seem to
matter when in the year the figures are published. I have no doubt that
the ONS was already fully independent of the TreasuryI think
that this is the point that the Economic Secretary was
makingeven before the advent of the new Statistics Board, but
will she explain the methodology to
me?
Misplaced
optimism, the massaging of figures and a refusal to acknowledge
criticism have all been hallmarks of this Government in the past. When,
for example, the European Commission issued in January last year its
indictment of the UKs failure to adhere to the 3 per cent.
target for the second time in as many years, a Treasury spokesman said
in
response:
As
set out in the Budget last week, the UK treaty deficit is forecast to
fall to 3 per cent. in the coming fiscal year, and will reach 1.6 per
cent. by 2010-11. The UK continues to have the lowest average debts and
deficits of any major European economy with the public finances
sustainable and increases in public investment fully
affordable.
Again, that
point was made by the Economic Secretary earlier.
From table 4.1
of the convergence programme, we see that the treaty deficit position
for 2010-11 is predicted to be not 1.6 per cent., but 2.1 per cent. on
both the adjusted and the non-adjusted measure. That is an upwards
revision in forecasting of 0.5 percentage points, which is significant
for two reasons. First, in January last year, the Council made a
recommendation that the UK should correct its deficit by 0.5 percentage
points in a credible and sustainable manner between
2005-6 and 2006-7. It looks very much as if the Councils
recommended margin for improvement is exactly the same as the
Governments own margin for error in forecasting. Secondly,
given that the estimated deficit for 2007-08 is 2.9 per cent., or 3 per
cent. when cyclically adjusted, how confident is the Economic Secretary
that the latest estimate will not miss by a similar margin and result
in the UK breaking the Maastricht criteria yet again? Before
concluding, I would like to turn briefly to the sixth report of the
European Scrutiny Committee from the last Session, which addressed the
stability and growth pact and, in particular, both the Councils
opinion on the UKs convergence programme and the Commission
communication that arose from it subsequently. The European
Scrutiny Committee had already noted the substance of the
Councils dissatisfaction with the Governments data on
the UK convergence programme in an earlier report. Nevertheless, the
Government failed to address many of the points raised by the
Committee, which subsequently had to reiterate its request for an
explanation of the concerns that the Council had expressed.
Persevering, in its sixth
report the European Scrutiny Committee again drew attention to both
omissions of data and to the criticism that some data
was being
aggregated differently from the
harmonised measure.
The
Committee eventually received an explanation from the former Economic
Secretary to the Treasury, but it seems to have been the result of a
process which reads as if it was a bit like pulling teeth. I quote from
paragraph 9.6 of the Committees
report:
The
Economic Secretary to the Treasury writes belatedly in response to our
repeated request on points related to the UKs Convergence
Programme.
Later,
paragraph 9.15
says:
We note
the further comments the Minister makes now (and which we would have
liked to have seen much more promptly) in relation to the apparent
dissatisfaction with the Governments
data.
What
was the reason for the delay in answering the European Scrutiny
Committees queries? Clearly, the Government could have done
more and acted quicker to address concerns about the quality and the
presentation of the data in the UK convergence programme.
There are,
however, several questions that come to my mind out of all this. First,
is the new version of the convergence programme up to scratch and does
the new Economic Secretary feel that she can give it her full
confidence? Secondly, can she confirm for the record how much
importance the Government attach to the adherence to the Maastricht
convergence criteria? As with so many other policy areas, the Prime
Minister has in the past attached great significance to compliance with
the Maastricht criteria when the going was good but, surprisingly, he
became a little less interested when the rules were repeatedly breached
and the Council started issuing critical missives. So, will the
Economic Secretary signal whether the current Chancellor still
believes in the importance of the Maastricht criteria and that
convergence remains, to borrow the Prime Ministers favourite
phrase, in the national interest, or are we, once
again, just going through the motions here
today?
10.3
am
Kitty
Ussher:
I am grateful for this debate and I hope that I
will be able to respond to all the remarks that have been
made.
I
would like to start by congratulating the hon. Member for Caithness,
Sutherland and Easter Ross on his promotion, which I hope is not
temporary. He is extremely welcome, and I particularly welcome his
comments that we have, of course, managed the economy very well and
that the economic fundamentals are much better than they were under the
Conservative party. On that basis, I wish him a long and happy career
on the Liberal Democrat Front Bench.
I will address the questions
put by the hon. Member for South-West Hertfordshire, who speaks for the
Conservatives. No, there have not been any changes to our forecasts
since the pre-Budget report, the published forecasts of the pre-Budget
report and the Budget. As I said in my opening remarks, our forecasts
incorporate an assumption about various changes to economic indicators.
We have indicated a downwards revision of our growth forecast for next
year, although we still think that our growth will be positive and will
compare well with other countries.
Do we think that the document
is out of date? Quite simply, no. We had 61 quarters of growth, we are
fastest growing economy in the G7 and we are very proud of our record.
The IMF forecast released after the PBR has the UK as the
fastest-growing economy in the G7, alongside Canada.
With regard to economic cycles,
we had that debate when the hon. Gentleman was kind enough to take my
intervention. I simply make the point that the judgment of when the end
of the economic cycle should be is, by its nature, backward looking.
There are many forecasts, including our own, about the forwards likely
end of an economic cycle. To get the definitive answer, however, it has
to be retrospective, and when we make a judgment on that, we will
invite the National Audit Office, which is independent, to audit
it.
With regard to
the sustainable investment rule and whether it will apply in the next
economic cycle, perhaps the best thing that I can do is state what that
rule is. It states that public sector net debt as a proportion of GDP
will be held over the economic cycle at a stable and prudent level.
That is our rule. Other things being equal, net debt will be maintained
at 40 per cent. of GDP over the economic cycle. That is our
policy.
Mr.
Gauke:
I just seek clarification. I
accept what the rule is, but the question relates to the interpretation
of the rule. Is the Economic Secretary saying that the same
interpretationthe 40 per cent. testwill be applied for
the next cycle as has been applied in this
cycle?
Kitty
Ussher:
I am simply saying what our current interpretation
of that is.
With regard to
Northern Rock, the Chancellor of the Exchequer has made the position
clear on many occasions. We are obviously committed to protecting the
interests of the taxpayer as well as those of depositors and wider
financial stability. It is important to realise that the liquidity
support and the Treasury guarantee that have been put in place to
provide the company with a period of stability and maintain those aims
have had no impact on public finances. At this stage, it is a
contingent liability secured against the companys assets.
Obviously, we are working closely with the other members of the
tripartite authority to find a long-term solution that protects the
interests of
taxpayers.
Mr.
Newmark:
I understand why the Government
want to protect depositors: that is absolutely right and important.
However, I am still interested in why the Government would risk perhaps
£11 billion of taxpayers money to protect subordinated
debt holders and the medium-term note holders, who were actually
rewarded for the higher risk. I do not understand why they added
potentially £11 billion plus more of such
liability.
Kitty
Ussher:
We took the actions that we felt were necessary to
protect the stability of the financial system and I believe we did
exactly the right thing. On the issue of discsI remember being
asked this at Treasury questions only last weekI consider any
questions of cost completely hypothetical, since the banks have not
said that there is any indication of fraud having taken
place.
John
Thurso:
It might be helpful for the Economic Secretary to
read the transcript of yesterdays meeting of the Treasury
Sub-Committee, as the acting HMRC chairman admitted that there will be
costs and he is going to write to us with the details of
that.
Kitty
Ussher:
I was discussing costs to banks. If there are
costs to HMRC, I am sure that all members of the Select Committee will
look forward to the letter that they will receive on that, as, indeed,
everyone in the whole country looks forward to receiving letters from
HMRC.
With regard
to further changes to capital gains tax, the Chancellor of the
Exchequer made clear in his speech at the CBI conference on 27 November
that we are listening to the views of the business community and any
further proposals will be reported to Parliament before the Christmas
recess. I urge Opposition Members to hold their horses for another few
days.
Mr.
Gauke:
I am grateful to the Economic
Secretary. To be fair, she is being diligent in responding to all the
points raised. However, on the specific issue of capital gains tax, the
Governments finances, as set out in the pre-Budget report and
reiterated in the convergence programme, take into account the
Chancellors announcement of changes to capital gains tax. We
know that there will to be some changes to that. If it is fiscally
neutral, the figures contained in the report are up to date, but if the
changes are not going to be fiscally neutral, the figures contained in
the report are wrong. Therefore, will the Economic Secretary tell us
today whether the figures contained in the report are still up to date,
because the changes in capital gains tax will be fiscally
neutral?
Kitty
Ussher:
There have been no changes announced to the
proposed change to capital gains tax, and therefore everything before
us is up to date. The Chancellor has said that any further changes will
be announced to Parliament before the Christmas recess. In that event,
that is the appropriate forum in which to continue that
debate.
The hon.
Member for Braintree spoke at some length about the excessive deficit
procedure and Britains performance against the Maastricht
criteria. That has come up several times this morning. All that needs
to be said is that the treaty deficit threshold is 3 per cent. Our
forecast for the foreseeable future is below that, which I think
answers his point. An excessive deficit procedure was invoked in the
course of the last year and, only a few months ago, the Commission
agreed that we were now back within the necessary reference
level.
On the euro,
the Government policy on joining the economic and monetary union has
not changed. It remains as it was set out by the previous Chancellor in
his statement to the House in October 1997 and again on the five-tests
assessment in June 2003. We will continue to update Parliament through
the Budget. I have no idea how many people are involved in our
assessment of the euro.
On the question of public
service pension liabilities, I am sure that the Committee will be
delighted to hear that I agree entirely with the Chief Secretary to the
Treasury, that it is appropriate that updated estimates for unfunded
public service pension liabilities will be published alongside the next
long-term finance report on the state of the PBR. That will be
published later in order, as is suggested, to take account of data
released by the ONS more recently.
I hope that I have answered most
of the points that have been raised. If there are any gaps, I will
update hon. Members in writing later. The main point to be made is that
we are confident that Britain is well placed to withstand some of the
international risks that are out there at the moment. We have had 61
quarters of positive growth. I believe that is a record of which to be
proud. I commend the report to the
Committee.
Question
put:
The
Committee divided: Ayes 10, Noes
2.
Division
No.
1
]
Question
accordingly agreed to.
Resolved,
That
the Committee has considered the Governments assessment as set
out in the pre-Budget report for the purposes of Section 5 of the
European Communities (Amendment) Act
1993.
Committee
rose at thirteen minutes past Ten
oclock.