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Lord Bach: My Lords, the noble Lord is certainly right in that there is clearly an increased threat worldwide as a consequence of Al'Qaeda's activities. It will be a matter for other government departments and the Government as a whole to decide what should happen to commercial aircraft generally. It would be a huge expense, but perhaps one that has to be thought

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about with great care. Meanwhile, in the MoD, we are thinking carefully about the consequences of this terrible act.

Baroness Walmsley: My Lords, at what design stage is the A400M at the moment?

Lord Bach: My Lords, I cannot answer that question exactly. I can say that Airbus, which will be responsible for the manufacture of the A400M, is a distinguished company with a proud record of aircraft design and manufacture. We want to get the contract signed and under way and start manufacturing the aircraft, which is vital for the increased airlift that we very much need in this country.

Lord Elton: My Lords, the question asked by my noble friend Lord Marlesford went wide of the Ministry of Defence, but not of the Question on the Order Paper. Will the Minister, who answers for the whole of the Government, ensure that the issue is drawn to the attention of his colleagues and that if anything necessary comes out of that, it will be placed in the Library?

Lord Bach: Yes, my Lords, I shall certainly ensure that.

Greater London Authority Act 1999 (Repeal) Bill [HL]

3.11 p.m.

Lord Ampthill: My Lords, I beg to introduce a Bill to repeal the Greater London Authority Act 1999. I beg to move that this Bill be now read a first time.

Moved, That the Bill be now read a first time.—(Lord Ampthill.)

On Question, Bill read a first time, and ordered to be printed.

Consolidated Fund Bill

Brought from the Commons endorsed with the certificate of the Speaker that the Bill is a Money Bill, and read a first time.

Consolidated Fund (Appropriation) Bill

Brought from the Commons endorsed with the certificate of the Speaker that the Bill is a Money Bill, and read a first time.

London Development Agency Bill

Read a second time, and committed to an Unopposed Bill Committee.

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Business of the House: Debates, 11th December

The Lord Privy Seal (Lord Williams of Mostyn): My Lords, I beg to move the Motion standing in my name on the Order Paper.

Moved, That the debates on the Motions in the names of the Lord Peyton of Yeovil and the Baroness Oppenheim-Barnes set down for tomorrow shall each be limited to two-and-a-half hours.—(Lord Williams of Mostyn.)

On Question, Motion agreed to.

Budget Report

3.13 p.m.

Lord McIntosh of Haringey rose to move, That this House takes note with approval of Her Majesty's Government's assessment as set out in the Pre-Budget Report 2002 for the purposes of Section 5 of the European Communities (Amendment) Act 1993.

The noble Lord said: My Lords, each year the Government report information to the European Commission on our main economic policy measures. The procedure is set out in Articles 99 and 104 of the EC treaty, which relate to the broad economic policy guidelines, convergence and stability programmes and the excessive deficits procedure. The objective is to ensure that member states' economic policies are consistent with the goals of the treaty, as set out in Article 2: non-inflationary economic growth; respect for the environment; a high level of employment and social protection; and raising the standard of living and quality of life for citizens across the United Kingdom and the entire European Union.

These goals are consistent with the Government's own approach to economic policy. Section 5 of the European Communities (Amendment) Act 1993, usually known as the Maastricht Act, requires Parliament to approve the information sent by the Government to the Commission for this purpose.

The Government's strategy for economic policy is set out in the 2002 Pre-Budget Report, published on 27th November. This material will form the basis of the information that we send to the European Commission. Sharing the information in the Pre-Budget Report with our European partners allows us to influence the development of the European Union, bringing enhanced employment and growth to Britain and other member states.

In this Pre-Budget Report, we have shown that last year, of the major economies, the British economy was the fastest growing. This year and next year, Britain and North America are now forecast, even in a still uncertain and unstable world, to grow faster than all other major economies.

As the Chancellor set out in his Statement to the House on 27th November, with the lowest inflation for almost 40 years and long-term interest rates also the lowest for almost 40 years, Britain's monetary and

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fiscal framework is meeting the challenges of each stage of the economic cycle. We have made very clear that we will not let anything put that hard-won stability at risk.

In the Pre-Budget Report, we have also outlined further labour, capital and product market reforms to improve British science, skills and entrepreneurship, and proposals for continuing public service reform and tax and benefit modernisation showing that, both in Britain and abroad, strong economies and fair societies move forward together.

Twenty of the world's biggest economies, accounting for 60 per cent of the world's output—the United States, Japan, much of Europe and Latin America—have been or are in recession after what has been the sharpest slowdown in global economic activity for almost 30 years and the biggest contraction in industrial output in the world's major economies since 1975.

The challenge for the British economy in this more uncertain and unstable world has been to steer a stable course, combining low and stable inflation with sustained demand growth and with high levels of employment. Our monetary and fiscal foundation, which is based on the independence of the Bank of England, imposes a symmetrical target for inflation, requires debt at low levels, holds to tough fiscal rules over the economic cycle and is thus designed not just for times of high growth, but for a global contraction with all its attendant difficulties.

Because the Bank of England has established credibility through year after year meeting our 2½ per cent symmetrical inflation target, it has been able, supported by fiscal policy, to sustain growth. So while, against the background of the international slowdown, the euro area is forecast to grow by 0.8 per cent, France by 1 per cent, Germany by just 0.4 per cent and Japan by -0.9 per cent, for the UK, GDP growth is forecast to increase by 1.6 per cent this year, rising to 2½ to 3 per cent next year, rising again to 3 to 3½ per cent in 2004.

I turn to the public finances. As the Chancellor set out in his Statement, with this Government's long-term and deliberately cautious approach, we are, with current surpluses and historically low debt, able at every stage of the economic cycle to meet our fiscal rules, including in the cautious case. We meet our golden rule over the cycle, not just achieving a balance, but with an estimated surplus at 46 billion. And we meet the golden rule on the cautious case. Taking the full economic cycle into account, the current surplus for each year is forecast to be 0.2 per cent of GDP this year, 0.3 per cent next year, then 0.6 per cent, 0.5 per cent, 0.6 per cent and 0.7 per cent.

Our second rule—the sustainable investment rule—is that over the cycle net debt should be kept below 40 per cent of GDP. Net debt this year and in future years will be at 31 per cent, 32.1 per cent, 32.4 per cent, 32.6 per cent, 32.7 per cent and 33 per cent—comfortably meeting our sustainable investment rule, doing so over the cycle and in every year.

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Our commitment to meeting our fiscal rules is, moreover, for the long term, so we have also published a report which examines the sustainability of Britain's fiscal position decade by decade and compares our position with other countries. It shows that, taking account of population changes and the cost of ageing on public spending, the British fiscal position in this period is sustainable and in a strong long-term position compared with other countries.

Because we have built sound foundations of low debt and low inflation and are today meeting our fiscal rules in every phase of the economic cycle, we have rejected the view that we should cut back our spending plans. So we have confirmed that we will fund our planned investments: by 2006, 8 billion more a year for local authorities; 15 billion more a year for education; 63 billion more a year for public services as a whole; and by 2008, for health alone 41 billion more a year, paid for by our national insurance rise.

I turn to productivity in the United Kingdom. If stability is the precondition for economic progress, enterprise is the driving force. Britain today is challenged by a long-term global restructuring of industry. In this next wave of globalisation, now upon us, it is the flexibility of our product, capital and labour markets, the strength of Britain's science base, the level of British research and development, and the scale and dynamism of knowledge transfer from our universities to our businesses that will drive our productivity growth and thus future prosperity.

This Pre-Budget Report continues the Government's programme of microeconomic reform, targeting historic weakness in five key drivers of productivity performance: strengthening the competition regime through the Enterprise Act; promoting enterprise by modernising the UK's business tax regime, and promoting an entrepreneurial culture, including for small and medium-sized businesses, local economies and high-unemployment communities; supporting science and innovation through the Government's comprehensive science strategy, and two complementary reviews into business innovation and university-business links; improving UK skills through measures to support the expansion and improvement of the modern apprenticeship scheme, and by continuing to pilot new measures to improve access to training for adults; and promoting investment by reforming the planning system.

Our policy is to combine enterprise with fairness. As the Chancellor announced in his Statement, to continue to make work pay more than benefits, we are, from April, extending the principle of the working families tax credit to single adults and couples aged 25 and over without children. Couples with wages less than 280 a week, or 14,000 a year, and single people with wages less than 200 a week, or 10,500 a year, stand to receive more money, taking forward our belief that an enterprising economy and a fair society advance together.

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A flexible, efficient labour market must not only promote employment, but also be fair to parents. Next month, a joint Treasury-DTI report will publish proposals for enabling parents to make real and effective choices on balancing work and family life. Building on our increase, from April, in maternity pay to 100 a week, on the first ever paternity and adoption pay, on the new tax credits, and on the first ever national childcare strategy, we will consider further reforms including new tax and national insurance incentives to expand employer-supported childcare; paying the childcare credit for approved home childcare by carers who are not already childminders; and increased flexibility in parental time off, including giving fathers time off to attend antenatal care.

Our goal, stability and prosperity for all, also means fulfilling our objectives of tackling child and pensioner poverty. The child tax credit based on support for all, and on most support for those who need it most, will become the most powerful weapon in tackling family poverty. The levels of the new pension credit from next October will reward, instead of penalising, modest savings and small work pensions.

In conclusion, we have been tested by world events and have resolved to steer a steady course. That steady strength of purpose will continue, and we will honour our commitments to invest in public services, to advance enterprise and fairness, and to meet and master the global challenges. That is the programme set out in the Pre-Budget Report, and that, with the approval of the House, is the programme that we will send to the European Commission. We are fulfilling our commitment under the Maastricht Act to report on our main economic policy measures, and maintaining our position, developed by this Government, at the heart of the EU policy process. I beg to move.

Moved, That this House takes note with approval of Her Majesty's Government's assessment as set out in the Pre-Budget Report 2002 for the purposes of Section 5 of the European Communities (Amendment) Act 1993.—(Lord McIntosh of Haringey.)

3.23 p.m.

Lord Saatchi: My Lords, I am grateful to the Minister and to the usual channels for allowing what is usually a formality to be the occasion for a full debate in your Lordships' House. As the Minister said, the Motion invites noble Lords to note "with approval" the national accounts as set out in the Pre-Budget Report. Looking at the most distinguished list of speakers—which is another tribute to the expertise of your Lordships' House in economic affairs—it is clear that there will be a thorough analysis of the Motion and of the financial situation it describes. Therefore, although the report may contain many figures which are wrong by accident, I shall, if I may, concentrate on the figures which seem to be wrong by design.

Since the report was laid before Parliament, a pall of gloom has descended over the economy and the country. There are, however, some bright spots. The

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report shows extra effort going into manufacturing—the manufacturing of figures. The Government are also pouring investment into engineering, of the financial kind, and giving a big boost to the creative industries, especially accounting. What is the Government's motive for all this? It is simple: they are running out of money, and they would rather that we did not know it. This year, government spending is up by 7.5 per cent on the most favourable measure, but GDP growth is up by 1.5 per cent. That means that the Government now have five times more money going out each month than they have coming in.

Consequently, last year, the Government told us that they would need to borrow 34 billion over the next four years. Then, in April, they said that they would need 72 billion. Now, in the report, they say that they need more than 100 billion. Sadly, however, that is not the end of it. The 100 billion figure arises before taking into account another 100 billion in two additional forms of borrowing, neither of which is mentioned in the report. This invisible 100 billion of borrowing has increased dramatically from just 10 billion five years ago. Yet not one penny of that huge sum appears on the Government's balance sheet, because the Government have found a way to make 100 billion of public sector capital expenditure vanish. That is why the noble Lord, Lord Barnett—who I am delighted to see in his place—asked the Government:

    "to say conclusively that the reason they are borrowing in this way is that the Treasury understandably wants to take the percentage of borrowing" [out of the percentage of GDP].—[Official Report, 23/10/02; col. 1330.]

In order to explain, I ask noble Lords to put themselves for a moment in the Government's position. Let us say that we wished to build a road, although this could apply also to a school or a hospital. We would go to a private company and say, "We haven't the money for this road. You build the road for us. When it is finished, we will pay you every year for the next 25 years". That is what they call the PFI. There were 450 such contracts in place in April, and the Government have signed another 300 in the past six months. The value of all these liabilities to pay under PFI has now reached 73 billion.

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