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Session 2008 - 09
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Public Bill Committee Debates

The Committee consisted of the following Members:

Chairman: Mr. David Amess
Bailey, Mr. Adrian (West Bromwich, West) (Lab/Co-op)
Blizzard, Mr. Bob (Lord Commissioner of Her Majesty's Treasury)
Cable, Dr. Vincent (Twickenham) (LD)
Caborn, Mr. Richard (Sheffield, Central) (Lab)
Duddridge, James (Rochford and Southend, East) (Con)
Eagle, Angela (Exchequer Secretary to the Treasury)
Gardiner, Barry (Brent, North) (Lab)
Hamilton, Mr. David (Midlothian) (Lab)
Hands, Mr. Greg (Hammersmith and Fulham) (Con)
Lilley, Mr. Peter (Hitchin and Harpenden) (Con)
Miller, Andrew (Ellesmere Port and Neston) (Lab)
Osborne, Sandra (Ayr, Carrick and Cumnock) (Lab)
Pugh, Dr. John (Southport) (LD)
Robertson, John (Glasgow, North-West) (Lab)
Taylor, Mr. Ian (Esher and Walton) (Con)
Tyrie, Mr. Andrew (Chichester) (Con)
Mick Hillyard, Committee Clerk
† attended the Committee

Ninth Delegated Legislation Committee

Tuesday 20 January 2009

[Mr. David Amess in the Chair]

Government’s Assessment as set out in the Pre-Budget Report for the purposes of Section 5 of the European Communities (Amendment) Act 1993

4.30 pm
The Chairman: I apologise to the Committee for the slightly late start. There seems to have been some confusion about the membership of the Committee, and matching photographs up to names, but it has all been sorted now. I hope that, as far as membership is concerned, everyone now has the right list in front of them.
Mr. Greg Hands (Hammersmith and Fulham) (Con): On a point of order, Mr. Amess. First, let me welcome you to the Chair. My point of order is similar to that raised in relation to the same matter last year by my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke). His point of order was that the documentation had been made available extremely late, and that it was difficult to get hold of the correct documentation. This year, the documentation was available in good time, but it has not been entirely straightforward to get hold of the right documentation. Everybody was sent a copy of the front page of the Act, but it took some ingenuity, involving reading last year’s debate, to find out that there was a substantial document attached to the debate. I suggest that in future the actual report should be sent out at the same time as the front page of the Act.
The Chairman: The points that the hon. Member has made are not for me to deal with directly, but I have noted that this matter has been raised on a previous occasion. The Minister has heard the hon. Member’s comments and will no doubt deal with the matter in her own way.
4.32 pm
The Exchequer Secretary to the Treasury (Angela Eagle): I beg to move,
That the Committee has considered the Government’s 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 those comments, Mr. Amess. It is a pleasure to serve on the Committee under your chairmanship. Everyone here knows that they have drawn the short straw, and that these proceedings are not the main event in the political world as we approach 5 pm. My apologies go to colleagues who have been torn away from the ongoing fascination with what is happening in Washington in order to attend this extremely important Committee.
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 the Government report information to the Commission on the economic and budgetary position of our main economic policy measures. By formally sharing information from the pre-Budget report with our European partners, we can help to ensure a proper, accurate and effective EU system, and can meet our commitments, contributing to enhanced employment and growth in Europe as a whole. That information was set out in the pre-Budget report in November, which forms the basis of what we are sending to the Commission in the document before us, dated December 2008.
The hon. Member for Hammersmith and Fulham raised a point of order. I shall certainly investigate whether there is anything systemically wrong with the way in which information is made available. I hope that no more such points of order will have to be made in future debates on this annually recurring issue.
The 2008 pre-Budget report was made against a background of economic uncertainty that has not been seen for generations. These extraordinary and challenging times for the global economy are, as we would all expect and are beginning to see in our advice surgeries, having an impact on businesses and families across the UK and across the world. Our central objective is to respond to the consequences of the global recession in our country. When faced with a global shock on the scale that we have experienced, international co-operation is of primary importance. The European Union, its institutions and its member states are among our most important allies in that regard. In that spirit, the European Council has agreed a European economic recovery plan, which rightly calls for a fiscal stimulus from member states that is equivalent to about 1.5 per cent. of European Union gross domestic product.
The Council has stressed the importance of flexibility in these exceptional times, and has encouraged member states to allow borrowing to rise to support the economy, acknowledging that this will lead to a deepening of deficits in the short term. The stability and growth pact should be applied in a manner that reflects the current exceptional circumstances.
Mr. Hands: Does the Minister agree with the comment made by the Leader of the House just before Christmas that it is right that our level of debt should rise? Does she see it as in itself virtuous for the UK to have increasing levels of debt?
Angela Eagle: No, and I do not think that that was what my right hon. and learned Friend the Leader of the House implied in her statement to the House on that occasion.
It is important and incumbent on policy makers across the world to respond flexibly to the unprecedented circumstances that we are in. We certainly should not repeat the mistakes of the past by not recognising that there is a demand issue, as well as a global credit crunch, to deal with. In those circumstances, the position of deficits and borrowing has to be taken account of, but not in a rigid manner, regardless of the objective circumstances that world economies face. The right hon. Member for Hitchin and Harpenden (Mr. Lilley) has leapt to his feet, so I shall give way.
Mr. Peter Lilley (Hitchin and Harpenden) (Con): It is a pleasure to serve under your chairmanship, Mr. Amess.
I am confused. The Minister has said that the key message in the document that we are approving is that we should join in providing a fiscal stimulus of 1.5 per cent. of GDP. In response to my hon. Friend the Member for Hammersmith and Fulham, however, she has said that she is not necessarily in favour of increasing borrowing. What is a fiscal stimulus if it is not an increase in Government borrowing?
Secondly, does that fiscal stimulus include the increase in borrowing that results automatically from the loss of revenues in a recession and increased expenditure on welfare and other things, or is it on top of that? I would be grateful if she could clarify that.
Angela Eagle: I am sorry if I inadvertently led the right hon. Gentleman to believe that I said borrowing in a recession was necessarily a bad thing. That was not the impression that I meant to give at all. By their nature, deficits tend to rise in a recession, if there is going to be a reasonable response. The right hon. Gentleman also made it clear that those countries fortunate and civilised enough to have reasonable welfare systems experience the interplay of what are known as automatic stabilisers when there is a recession. By definition, one would expect Government revenues to decline and Government expenditure to rise. Over and above that, if there is to be a fiscal stimulus, it is clearly right for borrowing to rise further on a temporary basis to deal with the recession with which the economy is faced due to whatever circumstances—in this case, the credit crunch and the resulting slow-down in the world economy. It is important to recognise that a fiscal stimulus adds further to borrowing in the short term in order to ensure that the resulting recession is shallower and shorter than it would have been without co-ordinated Government action both nationally and, as we will see, internationally. The hon. Member for Hammersmith and Fulham wants to ask me a question and I am happy to oblige.
Mr. Hands: The Minister said that it was right for borrowing to rise on a temporary basis. What does she think that the optimal level of current Government borrowing should be to enable Britain to run sound finances and do something about the credit crunch?
Mr. Ian Taylor (Esher and Walton) (Con): The Minister is being very generous in giving way. Under the heading “Fiscal stimulus and economic recovery”, page 18 of this mammoth report states:
“growth is forecast to pick up to 11/2 to 2 per cent in 2010.”
That is allowing for the exact stimulus to which the Minister has just referred. Does that mean that growth will not pick up in the second half of 2009?
Angela Eagle: First, the pre-Budget report presents the Government’s forecasts using the best information available when it was drawn up. Clearly, circumstances have worsened since then, and the hon. Gentleman will know that we will update our forecasts as appropriate in the Budget process.
It is also important to say that forecasts are exceptionally uncertain both on the upside and the downside at the moment because of current volatility and the exceptional nature of the circumstances in which we find ourselves. Therefore, they are what they are. We keep an eye on the forecasts, they are the best we could make with the information that we had at the time, and we will update them at the Budget. Currently, the Government expect—as did the EU Commission’s most recent report forecast—to see some recovery and growth towards the end of next year. Clearly, we will keep that under review as we go through the Budget process for this Easter. We will update both the hon. Gentleman, the rest of the House and the country in due course. He will recognise that in such exceptional circumstances, international forecasters are commenting on how unpredictable and volatile—both on the up and the downside—their fiscal and economic forecasts are. Those are the circumstances in which we find ourselves now.
Mr. Hands: The Minister is extremely generous in giving way again. Will she confirm that in the Commission document, which was published yesterday, the interim forecasts across the 27 EU states registered 0.25 per cent growth in the UK in 2010, which is massively lower than the Government forecast in the pre-Budget report of 1.5 per cent? The Minister says that the downturn is affecting everybody, but will she also confirm that in the Commission’s document, the UK is the only country that is singled out as having a particularly deep recession?
Angela Eagle: No, I do not accept that. Will the hon. Gentleman accept that, according to the European Commission’s latest forecast, the United Kingdom’s gross Government debt will still be below most other advanced countries as we go through the downturn? There are a range of numbers that all forecasters consider. It is important for us to watch progress in the economy. It is not particularly useful to compare one forecast with another in great detail, and we should recognise that forecasts are highly uncertain at present.
I note that the official Opposition are alone in wishing not to have a fiscal stimulus. Many countries are now signed up to a fiscal stimulus, including the entire European Union. The soon-to-be President of the US will be announcing a £900 million stimulus. The Germans, who were much prayed in aid by the Opposition when they were arguing that we should not have a fiscal stimulus, have now introduced a €50 billion fiscal stimulus, their largest since the second world war. All advanced countries are doing the same. The only party that I have come across that is not only against fiscal stimulus but says that we should actively cut £5 billion of public expenditure by April is the Conservative party. It is far more out of touch than even some of the wildest economic forecasters who might be prayed in aid as we seek to look at the runes showing what is happening in the global economy.
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Prepared 21 January 2009