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Lord McIntosh of Haringey: My Lords, have you noticed something? Have noble Lords noticed that every single speaker from the Conservative Benches has started by congratulating the Government on the economic
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figures in the Pre-Budget Report? They all then go on, like Lilliputians attacking Gulliver, to attack individual issues in the Pre-Budget Report. Of course, that is legitimate and, of course, I shall reply to those points. Perhaps the noble Baroness, Lady Noakes, did not congratulate us—that is not her style. But she said that she did not challenge the fact that the economy was strong.

Baroness Noakes: My Lords, I said that it continued to be strong.

Lord McIntosh of Haringey: My Lords, "continued to be strong" will do for me.

Have noble Lords noticed something else? Every single one of the three Back-Bench Conservative speakers complained about having to speak either before or after my noble friend Lord McKenzie. They would much rather that he did not speak at all, while I would rather that he spoke before and after each one of them. On every occasion he knocks the stuffing out of their arguments in a way which is becoming familiar to those who have had the pleasure of listening to him.

The noble Lord, Lord Newby, has not quite caught up yet. He has talked about storm clouds and given dark warnings about the economy for years and years. Now the best he can say is that there are growing uncertainties. At last I can agree with him. Of course, there are uncertainties; this is an uncertain world. The global economy is full of uncertainties. We have said that in Budget speeches and Pre-Budget Reports for a very considerable time. Perhaps within the next few years the noble Lord, Lord Newby, might also recognise that the economy is strong and that the policies of this Government have contributed to the strength of the economy.

When they cannot really attack the performance of the economy, noble Lords opposite have to fall back on attacking the economic forecasts that the Government make. They claim variously that the average of the Government's forecasts is more optimistic than those of independent forecasters. Sometimes—I did not note which noble Lord said this—they say that they are more optimistic than all the other forecasters.

The noble Viscount, Lord Trenchard, may have referred particularly to forecasts of revenues. I have to point out to him that what the Government are forecasting concerns net borrowing, which is, of course, the difference between revenues and expenditure. If you do not get either revenues or expenditure right, you will not have a correct forecast of net borrowing. The Treasury's forecast differences for net borrowing have tended to be smaller than those of the OECD, the IMF and the European Commission. Our forecasts have, on average, been cautious. They have deliberately indicated a growth of 0.25 per cent below the central estimate. The result of that has been that the Treasury's growth forecasts have been very close indeed to the average consensus of independent forecasts. Those independent forecasts
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show that the hard-won platform of stability is expected to remain in place, confirming the credibility of the new macroeconomic framework.

It is all in the Pre-Budget Report. The record of Treasury forecasts as compared with those of other forecasters stands up very clearly. I am afraid that the selective quotations which have been used against it are not particularly effective. The result is—and this time no noble Lord has attempted to deny it—that we are meeting both parts of the fiscal rules. Because of the cautious assumptions we are making, public sector net debt is low and stable at just over 37 per cent of GDP. The average annual surplus on current budget over the whole economic cycle is projected to be 0.1 per cent of GDP, ensuring that the Government are meeting the golden rule. No other G7 country has had lower average debts and deficits since 1997.

I refer to the attack which says that the fiscal rules have been redefined. That is simply not the case. It is not just the Treasury Select Committee that says so: Martin Weale, Goldman Sachs and the Institute for Fiscal Studies have all recognised that the methodology for the fiscal rules and the methodology for dating the economic cycle—which are all in the public domain—have not changed and have not been seriously criticised.

The noble Lord, Lord Stevens, seems to object to the calculation being made on the percentage of GDP. What else should it be made on? Should it be made on some out-of-date figure that does not change?

Lord Stevens of Ludgate: My Lords, I think it will be generally accepted that most people were under the impression that it was an absolute figure, such as £4 billion, £6 billion or £8 billion, and that it was not a percentage of GDP. My point is that it was generally accepted as that in my opinion. The Government now explain that it is meant to be a percentage. The answer to the noble Lord's question is that I thought it was an absolute figure, and I believe that most other commentators did as well. If you take an absolute figure, you are already in breach of the golden rule. But as I said, I do not consider the golden rule to be important. If I may correct the noble Lord, I did not comment on the noble Lord, Lord McKenzie; in fact, his name did not come into my speech.

Finally, I hate to make a speech, but regrettably I am not a Conservative Back-Bencher. I no longer take the Conservative Whip; I am a party of one called the Conservative Independent Party.

Lord McIntosh of Haringey: My Lords, on that final point I certainly beg the pardon of the noble Lord, Lord Stevens. I was confused by the position in which he chooses to take his seat in the House, which is, he will admit, surrounded by Conservative Back-Benchers, when there are any there, of course; there are not at the moment.

No, I do not agree with the noble Lord. It is not generally thought that the correct measure is an absolute figure rather than a percentage of GDP. If the noble Lord looks back over not just the period of office
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of this Government, but the previous administration, he will find that the calculation has always been as it ought to be; on the percentage of GDP. That is the basis on which we have been calculating the fiscal rules since the beginning. I am sure that Conservative Chancellors have done the same.

The noble Viscount, Lord Trenchard, thought that national debt was increasing relentlessly. Now I understand that he thought that we were talking in absolute terms rather than as a percentage of GDP. In fact, the figure of 37 per cent in 2003 is considerably lower than it has been in previous years. Now that I understand what party he belongs to, I understand why the noble Lord, Lord Stevens, queried the other member states' observance of the stability and growth pact. I hope that he will be pleased with the conclusions from the November ECOFIN, which turned out in the end to agree with what the Chancellor has been saying for many years, that you need a prudent interpretation of the stability and growth pact that takes local circumstances into account. He will agree that that is an improvement on the rather more rigid interpretation.

A number of comments were made about taxation. I have now finally solved the 66 stealth taxes. It is clear to me for the first time that the noble Baroness, Lady Noakes, is confusing tax rates with tax yield. The examples that she gave were about increased yield from taxes on which there is no increase in tax rate. If you cannot tell the difference between tax yield and tax rate, all sorts of consequences flow from that.

I suppose that is how she can get to her figure, which I deny, that indicates that the average household is now paying more in taxation than at the beginning of this Labour Government. If you take, as you should, tax and benefit together, in 2005–06 the average household will be paying £800 a year less than in 1997.

I agree with the noble Lord, Lord Stevens, that investment is never high enough. On the other hand, for the most recent year for which we have measures, there has been an increase in investment of 6 per cent. That is a welcome turnaround from far too many years of low investment.

The noble Lord, Lord Northbrook, asked me about savings ratios and what we were proposing to do about them. There are two answers to that. First, savings ratios are not the only measure of a sound and stable economy. Savings ratios tend to be lower when there are lower levels of return on savings, lower interest levels, and a more stable economy. Despite that, our stakeholder products, our individual savings accounts, our matching and saving gateway and our child trust funds are all activities designed to increase savings.

If we look at the economy as a whole and take an overview, it ought to be recognised, and it was not seriously challenged in debate, that the UK economy has benefited significantly from the improvement in global conditions because of the domestic stability that has been delivered by this Government. This year has been one of particularly fast global growth; the sound domestic economic fundamentals have allowed the economy to
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grow strongly and at above trend rates. Unemployment rates are at record lows; inflation is low and stable; and interest rates remain low by historical standards. The Government are meeting their strict fiscal rules under any of the assumptions that we make.

I was interested in what the noble Lord, Lord Stevens, said about exporting. Exports—and a majority of exports from this country are of manufactured goods—are up by 4.2 per cent in the last year that we can measure.

A number of noble Lords made comments about employment and the labour market, and particularly about what the noble Viscount, Lord Trenchard, called the rise in public sector employment. Well, of course there are different kinds of public sector employment and I take it that the noble Lord deplores the increase of 20,000 in the number of doctors and 70,000 in the number of nurses, just as much as he would deplore any increase in the number of civil servants. If he does not, then he should not use the public/private sector divide in the way that he does. In answer to him, the biggest feature in the increase in employment in this country has been the New Deal—1,160,000 young people have benefited from the New Deal and its effect has been a decrease of more than 75 per cent in the long-term unemployed for both those aged 25 and over and younger people.

The noble Lord, Lord Stevens, rightly drew attention to the problems of an ageing population, but he will agree that we were not saying that it was not a problem, but that we were better equipped to deal with it than some of our competitors in other countries. We have done that because we have a strong pension regime and more funded pensions than many other countries.

A number of observations were made about debt and housing finances. It is true that there has been an increase in household debt, as the noble Lords, Lord Northbrook and Lord Newby, said. But that is in circumstances of lower and stable inflation and of low mortgage rates. The result is that household balance sheets are stable, as they have seldom been before, and that interest on debt is, on average, 7.6 per cent of household income compared with the figure in 1990, for example, of 15 per cent. Under those circumstances I do not take the apocalyptic view that, in macroeconomic terms, is taken about household debt, although of course I recognise the social problems which can be brought about in individual households who are suffering from excessive debt.

A number of comments were made about the business and manufacturing sector. In a situation where, in summary, a majority of our exports are of manufacturing goods and our exports are up by 4 per cent over the past year, the decline in employment in manufacturing to which the noble Baroness, Lady Noakes referred—she is quite right and she does not get her figures wrong, merely the interpretation—is deplorable and it would be desirable to reverse it. However, on the whole, our manufacturing industry is performing well.

Regarding questions about what exchange rate assumptions would be made, I said in the rarefied atmosphere of Starred Questions, where I am supposed
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to respond in 75 words, that it was not appropriate to deal with the matter. The sterling exchange rate forecast in the PBR is made on the assumption that the exchange rate grows in line with an uncovered interest parity condition. As the UK currently has higher interest rates than a weighted average of other major economies, this condition results in sterling depreciating by around 3 per cent per annum in 2005 and 2006. I do not understand that and I shall find out what it means and write to the noble Baroness, Lady Noakes.

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