HC Deb 09 December 1998 vol 322 cc430-51 10.25 pm
The Chief Secretary to the Treasury (Mr. Stephen Byers)

I beg to move,

That the Code for Fiscal Stability, which was laid before this House on 3rd November, in the last Session of Parliament, be approved. As the House will be aware, section 155 of the Finance Act 1998 requires the Government to lay before Parliament a code for fiscal stability. We have put the code on to a statutory basis because it will make policy more transparent and Governments readily answerable for any departure from the code.

The code requires the Government to apply five key principles to the formulation of fiscal and debt management policy. They are transparency, stability, responsibility, fairness and efficiency. Those principles are fundamental to a commonsense approach to fiscal management. By requiring Governments to specify objectives and rules that are consistent with those principles, the code will ensure that policy is set for the long-term benefit of the British economy.

The code sets out in detail how the Government will apply the five principles to the formulation of fiscal and debt management policy. The first principle is that of transparency. This requires the Government to publish enough information to allow the public to scrutinise both fiscal policy and the public finances. We believe that transparency will encourage Governments to plan for the long term and therefore encourage a more sustainable fiscal policy.

The principle of stability requires the Government to set fiscal policy in a way that is consistent with high and stable levels of growth and employment.

Responsible and prudent management of public assets, liabilities and fiscal risks is also fundamental to managing public finances in the long-term interests of the United Kingdom. The principle of responsibility means that Governments should plan and operate policy to ensure long-term sustainability and viability of public services.

The Government are committed to fairness both between and within generations. The principle of fairness means that it is important to take into account the financial effects of current fiscal policy on future generations.

The last principle that the code requires is that fiscal policy be set in accordance with the principle of efficiency. That means that Governments should not waste resources or cause resources to be wasted elsewhere. Value for money in the use of scarce resources is of prime importance if the UK is to achieve its social and economic goals.

The Government believe that those five principles are the appropriate basis for setting out our fiscal policy. The principle of transparency outlined in the code requires the Government to be open about their fiscal and debt management objectives and rules. That is in stark contrast to the Opposition who, when they were in government, changed their fiscal rules so that we were never sure whether they were able to meet them.

The Labour Government set out their fiscal rules in their first Budget in July 1997. The first is the golden rule that, over the economic cycle, the Government will borrow only to invest. The second is the sustainable investment rule that public debt as a proportion of national income will be held over the economic cycle at a stable and prudent level.

Mr. Andrew Tyrie (Chichester)

Is the Chief Secretary aware that the German Government and the Bundesbank have all but abandoned the golden rule? They have concluded that the golden rule is completely meaningless—indeed there has been a supreme court ruling in Germany to that effect—and it is no longer used as a tool of fiscal policy. Why, at the very time that the Germans, who more or less invented the golden rule, have abandoned it, have the Government decided to try to adopt it?

Mr. Byers

That appears to be an argument in favour of the harmonisation of golden rules. We shall not endorse that, just as we shall not endorse tax harmonisation. We believe that the argument is well made in respect of the United Kingdom. If the hon. Gentleman wants to present the counter-argument, he is perfectly entitled to do so. It is for the German Government to make their own decisions on those matters; in this case, it is not a decision that we would have made ourselves.

Mr. Tyrie

Will the Chief Secretary give way?

Mr. Byers

No. The debate is a short one and many hon. Members will want to speak on an issue as important as section 155 of the Finance Act 1998. I know that many Opposition Members are eager to participate in the debate and, as always, I want to provide the opportunity for as many Back Benchers as possible to speak. The hon. Gentleman is perfectly entitled to try to catch your eye, Mr. Deputy Speaker, and I certainly look forward to hearing his pearls of wisdom.

I had better quit while I am ahead and return to the subject of the two fiscal rules being operated by the Government. Those rules are consistent with the principles outlined in the code. Parliament and the public will have available to them the information needed to assess our performance against those rules.

Mr. Robert Sheldon (Ashton-under-Lyne)

I welcome my right hon. Friend's setting out of the code, so that we know exactly what it means and what it implies. However, we had an economic forecast at the time of the Budget, in July, and at the time of the autumn statement. Is it the intention to have those three forecasts on a similar basis?

Mr. Byers

Later, I shall outline the publications that we intend to make available to ensure that we meet the principle of transparency, to which I referred earlier. At that point, I shall address my right hon. Friend's question.

The Government believe that we have put in place a coherent framework and set firm fiscal operating rules. We tightened fiscal policy soon after coming into office, reducing borrowing by £20 billion last year. That has re-established sound public finances in the United Kingdom. As my right hon. Friend the Chancellor said on 3 November, our cautious and prudent approach to the public finances means that, even with more moderate growth next year, we are on track to meet our tough fiscal rules.

Following the fiscal tightening last year, we expect a surplus on the current budget this year and over the current cycle. The expected surplus on the current budget this year contrasts with deficits in all but three of the past 25 years. In addition, the ratio of debt to national income is expected to fall below 40 per cent. from next year.

The principle of transparency defined in the code requires transparency in setting debt management policy as well. The Government's objective for debt management is laid down in the code for fiscal stability. The objective is to minimise over the long term the cost of meeting the Government's financing needs, without taking undue risks with, or hindering the operation of, monetary policy.

Mr. Nick St. Aubyn (Guildford)

The Chief Secretary says that he intends to bring down the level of debt to less than 40 per cent. of gross domestic product but, under the previous Government, it reached a low point of only 28 per cent. of GDP. When will the right hon. Gentleman reach that figure?

Mr. Byers

Regrettably, that low point occurred some years ago and, on 1 May last year, the figure was well over 40 per cent. Our objective is to reduce it to below that figure, as I explained.

An important feature of the code, following the principle of transparency, is the reporting arrangements that it lays down. Those arrangements will improve the ability of Parliament and the public to scrutinise fiscal and debt management policy. As my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) said, we have already foreshadowed that we will make three specific publications available as a result of the key transparency principle.

There will be a statutory requirement to produce a pre-Budget report, which will include proposals for consideration in the Budget. A financial statement and Budget report will report on Budget measures and economic and fiscal projections, and an economic and fiscal strategy report will set out the Government's long-term strategy and assess short-term outcomes against objectives. The code also requires the Government to publish—

Mr. Sheldon

When will the last report be published? Will it be in July?

Mr. Byers

At this stage, the Government do not want to be pinned down to any specific month. Our intentions are transparent in terms of the publications, but that does not mean that we have to announce six months in advance precisely when they will be published. We want to be in a position to publish reports when it is appropriate to do so—which is what we will do.

The code requires the Government to publish each year a debt management report on the structure of their borrowing. That report will give the public sufficient information to allow scrutiny of the debt management policy. I believe that those reporting requirements are a major step forward in transparency and scrutiny. Never before have such demanding requirements been made of a British Government. Clear objectives will be set and there will be an honest assessment each year of progress against those objectives. Unlike the previous Government, we will ensure that the objectives are met.

Transparency and prudence are the key themes of the new fiscal framework. That is why the code formalises the role of the National Audit Office in auditing any changes to the key assumptions underlying the public finances forecast. The National Audit Office has already audited those assumptions and found them to be "reasonable". The code ensures that the National Audit Office will continue to play a key role in the Budget process.

Mr. Nick Gibb (Bognor Regis and Littlehampton)

Given that there were changes to the assumptions used in the November pre-Budget report, can the right hon. Gentleman explain why no auditor's report was released before that pre-Budget report when one was produced in March and November last year and in March this year?

Mr. Byers

The National Audit Office will undoubtedly comment on the changes that were introduced. The hon. Gentleman will be aware that they were implemented to ensure that we complied with the European standards on accounting introduced in 1995. They are perfectly in order and the National Audit Office will report on them in due course. It is no secret that the changes were made to meet those 1995 requirements, which is perfectly understandable.

High-quality information is the basis for good decision making, so the code requires the Government to use best-practice accounting methods. A key element of that is the adoption of resource accounting and budgeting, which will help with planning and accounting for the resources used by Government.

This Government were elected because we promised to modernise Britain—a modernisation that was long overdue. We inherited an economy with fundamental weaknesses: a poor record of productivity and investment and a constant cycle of boom and bust that had afflicted our economy for too long. In the past 20 years, we have endured the two worst recessions on record and an unsustainable boom. Over the past 10 years, no European Union country has suffered as much instability as the United Kingdom.

Our first task on taking office last year was to put in place the building blocks for stability. It is only through stability that individuals and businesses can plan with confidence for the future so that we can achieve the higher levels of growth and employment that we all want to see. We took action immediately on coming to office by giving the Bank of England independence in setting interest rates.

Mr. John Bercow (Buckingham)

Will the Chief Secretary tell the House at what stage drafts of the pre-Budget report were circulated to his Cabinet colleagues? The Secretary of State for Trade and Industry was ignorant of important features of the report when he appeared before the Trade and Industry Committee on 4 November, 48 hours after the report's publication.

Mr. Byers

I am beginning to regret giving way to the hon. Gentleman. I was pleased when he received the Back Bencher of the year award a couple of weeks ago. It does not need to be returned. I told him that it was well deserved. He made an amusing speech about being picked up by the political sketch writer of The Guardian for splitting his infinitives. I can tell him that there are a few Labour Members who would gladly split his infinitives.

I honestly cannot remember exactly when the drafts were circulated. It was a few weeks ago. I am sure that my right hon. Friend the Secretary of State for Trade and Industry is never ignorant about such matters. He is always perfectly on message, as we know.

I was talking about giving the Bank of England independence in setting interest rates and I thought that that was why the hon. Member for Buckingham (Mr. Bercow) wanted to intervene. Interest rate decisions are now made in the long-term interests of the economy, not for short-term political gain. As a result, long-term interest rates have fallen to their lowest level for 35 years, which is a clear demonstration of the credibility of the new monetary framework. People and businesses can plan ahead and invest with greater confidence, knowing that high and damaging inflation episodes of the past will not be repeated.

Just as we had to put in place a new monetary framework, we also had to put in place a new framework for fiscal policy. The previous Government's fiscal policy led to a record deficit of £50 billion and, over the previous economic cycle, they had a current budget deficit of £149 billion. Their fiscal policy was made behind closed doors and lacked openness and predictability, which made worse the problems of instability. As with monetary policy, we have introduced a new framework for fiscal policy that is based on an open, transparent and accountable approach.

That is the right way forward for fiscal policy. It is vital for economic stability that public finances are managed responsibly and prudently. The code for fiscal stability will ensure that the Government can live up to the tough standards of fiscal practice imposed on them. I commend the code to the House.

10.42 pm
Mr. David Heathcoat-Amory (Wells)

The Finance Act 1998, which followed this year's Budget, is one of the longest ever. It was presented to the House in two volumes. Now that it has become law, it has been consolidated into a single volume of more than 400 pages, costing £28.

The Act would have been even longer, and the tome even heavier, if it had included all the taxation measures announced in the Budget, but unfortunately many of them are to be implemented by secondary legislation. For example, the change to corporation tax, which will require accelerated payments from big companies, will be set out in statutory instruments that will never become before the House for scrutiny. That is a scandal, but it means that the Act is not as long as it could have been.

The Act is so long partly because it contains many gimmicks instead of the substance of tax changes. One of those gimmicks is before the House this evening. Section 155 imposes no obligation on the Government beyond a requirement that they should present to the House a code for fiscal stability. A code for fiscal stability already exists. Indeed, the Government published the first one in November 1997, so what is gained by having this one presented to the House? Presumably, a code published by the Government was to be observed by the Government anyway. Nothing is gained by this debate.

The code imposes no rules or discipline on the Government. That became clear from the Chief Secretary's speech. Even the golden rule, which he did mention and of which the Chancellor has been very proud, is not included in the code for fiscal stability. The new document contains no obligation on the Government to abide by any fiscal rules. The Chief Secretary was very unconvincing in his reply to my hon. Friend the Member for Chichester (Mr. Tyrie) about the golden rule, but the Chancellor believes very strongly in it. The idea that the Government should borrow only for investment prompts the question of what is to be categorised as investment. There are many examples of the Government reclassifying expenditure as capital expenditure to get around or obey the golden rule.

We conclude either that the Government do not believe that they can keep to the golden rule, and that is why it is not in the code, or—this is more likely—the entire exercise is to create the illusion of financial responsibility and prudence, while in practice they do nothing whatsoever to enforce it. The code will undoubtedly be approved at the end of the debate, but I hope that Back Benchers are aware that this is an entirely vacuous undertaking. It is yet another example of the triumph of spin and presentation over substance and reality.

Even if we take the code as a sort of general guide to action and as a collection of suggestions, the Government are breaking the few suggestions that it contains. They are in breach of the principles for fiscal stability enunciated in the code. The word "prudence" litters the code. Poor old prudence—she is usually wheeled out by Treasury Ministers when they want to cover up some especially reckless affair.

How is it prudent to take a growth forecast for next year, as the Government have, which is so much higher than that of independent analysts and commentators? The Government have done the same for the year after, too. Independent forecasters are predicting that growth in 2000 will be no more than 1.6 per cent. Why is it that the Government have chosen a growth target for that year of 2.5 per cent.? That is higher than they were predicting in the summer. What is prudent about that? How is it right to take a prediction in which no one else believes?

Even the Confederation of British Industry is now talking about a black hole in the public finances. Earlier this week, the director general of the CBI said that the Government risk finding a black hole in public finances unless they can reduce demand for increases in social security spending, health and education. Instead of being prudent, in line with the code for fiscal stability, the Government are being reckless.

Let us consider the treatment of unemployment, and the cost of it in published documents. Everyone agrees that the level of unemployment is a crucial determinant of public expenditure, especially the social security budget. In the comprehensive spending review in July, the Government estimated that unemployment would be flat at the April 1998 level. Why, four months later, in the pre-Budget report that was published just a few weeks ago, has that suddenly been changed? Suddenly, unemployment is predicted at the September 1998 level. Accordingly, social security expenditure has been reduced.

We all know that the unemployment figure in September was probably the low point. No one outside the Treasury seriously believes that unemployment will not rise in the coming months. Indeed, it has already started to rise. Why therefore pretend in the pre-Budget report that it is realistic to hold unemployment and spending on benefits for the unemployed at that September level?

The code of fiscal stability talks about prudence, responsibility and transparency. Will the Chief Secretary explain how it is prudent or responsible or transparent to lock in at a wholly unrealistic prediction of social security expenditure, based on the low point in the unemployment cycle? If he cannot tell us now, will he confirm now or later that, when unemployment starts to rise, he will revise upward his estimates of social security expenditure?

That leads directly to the mystery of the National Audit Office involvement. As the Chief Secretary said, the National Audit Office is asked to comment on key assumptions, especially on whether any assumptions have been changed. As my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) pointed out, the National Audit Office commented on the Government's first Budget of July 1997, their pre-Budget statement of November 1997 and their Budget in March 1998 but not—suddenly and mysteriously—the pre-Budget statement that they presented to the House last month.

Not only has the NAO suddenly stopped auditing the assumptions, but doing so breaches the code for fiscal stability. It is written very clearly on page 4 of the code, which the House is invited to approve, that the Government will invite the National Audit Office to audit changes in the key assumptions and conventions underpinning the fiscal projections". That is repeated and expanded upon on page 10. Yet there was no National Audit Office audit of last month's figures.

The Chief Secretary rather lamely said that he expected that the NAO would take some interest in the figures—but that is not the point. The code for fiscal stability requires that the Government ask the NAO to audit such changes. I have just pointed out changes to key assumptions; I described the one affecting unemployment. Assuming that it will be flat at the April level is a major change in the assumptions, yet the National Audit Office has not been invited to comment on it. I wonder why not. Actually, I do not wonder why not. I know the answer, and shall tell the House.

In July 1997, the Government made an unemployment assumption of 1.65 million claimants, which was examined in considerable detail by the National Audit Office. The Comptroller and Auditor General reported on that, and went into the fact that the Government's assumption corresponded to similar estimates made by outside commentators. He concluded, on page 8 of his report:

As a level assumption for claimant unemployment, the figure of 1.65 million would seem consistent with the available independent assessments of unemployment prospects. In other words, the Comptroller and Auditor General very carefully compared the Government's figure with outside assessments. He concluded that it was a reasonable assumption, and he listed at the back of the report the names of all the outside commentators and forecasters whose views he had taken into account.

The reason the Government have not done the same for the latest pre-Budget report is that their latest unemployment assumption is plainly ludicrous. As I mentioned, it is now down to 1.3 million—the September level—but none of those independent forecasters could be brought to believe, or could be induced to suggest, that the figure was anything but a temporary phenomenon and, I am afraid, set to rise. Everyone outside the Treasury knows that unemployment is already rising. That is why the National Audit Office has not been asked to do its checks on the pre-Budget statement, already in contravention of the code of fiscal stability.

Mr. Steve Webb (Northavon)

I understand that the right hon. Gentleman used to be a Treasury Minister; I do not recall exactly when. When he was a Treasury Minister, was the practice on assumptions about unemployment to use a consensus of estimates, or to assume level unemployment?

Mr. Heathcoat-Amory

We made estimates of unemployment, and they turned out to be correct. The hon. Gentleman knows that the golden economic legacy that we bequeathed to the Government included falling unemployment, in addition to stable inflation and steady growth. Therefore, we were absolutely right to estimate, in our published documents, that expenditure on that part of social security was falling. We published our forecasts, and they turned out to be right. The Government have published their forecasts and already, a month later, they are shown to be unrealistic.

However, I am arguing that the Government, by failing to invite the National Audit Office to audit their assumptions, are breaching the rules, not only of common sense, but of their own code of fiscal stability, which they are inviting the House to approve tonight.

Mr. Andrew Lansley (South Cambridgeshire)

One of the key determinants of the assumption on tax receipts is the assumption relating to economic growth, and the audited assumption is the trend GDP. Does my right hon. Friend agree that it is interesting that, between the Budget in March and the pre-Budget report in November, the Treasury did not update its assumption relating to trend GDP, or its assumption relating to economic growth, as it did with the unemployment count, because that might have led to a reduction, and a challenge to the Government's assumption about future tax receipts?

Mr. Heathcoat-Amory

My hon. Friend has spotted another—and glaring—flaw. There is an asymmetry. The Treasury does not alter its assumptions if they help the Government's case on the revenue side, but it does alter the assumptions when they flatter the expenditure forecasts.

The disturbing aspect of all this is the fact that the Comptroller and Auditor General, who knows perfectly well what is going on, has suddenly been frozen out of the entire process. The series of NAO reports, going back to the first Budget, has suddenly been stopped; and yet, bizarrely, it is a written requirement in the code of fiscal stability that such a report be produced. I hope that the Minister who replies to the debate will explain to the House, before we approve this ludicrous document, exactly how the Government expect to get away with breaking the rules before the ink is dry on the documents.

Not only unemployment assumptions are changed; there is an effect on social security expenditure generally, the forecasts for which have been reduced between the July figures, the comprehensive spending review and the pre-Budget statement figures produced last month. The total of those social security expenditure forecasts is now lower by £7 billion over the next three years. Why was not that figure audited by the National Audit Office?

I believe that we are getting near to an answer when we detect a division between one part of the Government and another. My hon. Friend the Member for Bognor Regis and Littlehampton asked the Economic Secretary why the NAO had, apparently, not been asked to audit the figures. He received the following startling answer:

The assumptions and conventions … in the pre-Budget report were unchanged". We have already discussed how the unemployment assumptions clearly have been changed. Help for this view comes from an unexpected quarter. I asked the Secretary of State for Social Security why it was that there had been this rather dramatic cut in social security expenditure projections. The right hon. Gentleman helpfully confirmed to me: Revisions to the forecast of social security expenditure published in the pre-Budget report reflect new information about caseloads and economic assumptions. There we have it. The Treasury thinks that there are no changes in the economic assumptions and we all know that there have been. To be fair to the Secretary of State for Social Security, he also understands that there have been those changes. Again, can those on the Treasury Bench explain themselves? We have an interesting split between the Treasury and the Department of Social Security and we need to get to the bottom of it.

At least one of the answers that we have received is misleading. They cannot both be true. Either there have been changes to economic assumptions or there have not. Either the Treasury is telling the truth or the Department of Social Security is. Someone is misleading the House. The Minister who replies to the debate owes the House an explanation.

I can well understand why the Government are so sensitive about these forecasts of social security expenditure. We all remember the broken promises, and what the Prime Minister said bears repeating. The right hon. Gentleman said that as we get the welfare bills down … then we can release more money into education and health". So first there would be cuts in social security, then extra expenditure on education and health. That is one of the promises that went out of the window in the first few months. I cannot remember which happened first. Was it the sacking of the then Minister for Welfare Reform or was it that the Government published an estimate for social security expenditure requiring an extra £37.5 billion on the budget over the next three years—almost as much as the additional expenditure that they promised for health and education combined?

Mr. Christopher Leslie (Shipley)

Will the right hon. Gentleman take the opportunity to let us know what exactly he proposes to cut from the social security budget?

Mr. Heathcoat-Amory

I am asking the Government for no more than what we achieved. In the last three years of the Conservative Government, and in the expenditure targets that we left behind, social security expenditure in total rose by only 1.5 per cent. I am asking the Government to continue with our record. Instead, they have published figures showing that, in the next three years, social security expenditure will rise by more than 3 per cent. every year in real terms. I am not asking the Government to do the impossible. I am asking them instead simply to continue the record of controlling expenditure that the Conservative Government achieved in practice.

Mr. Webb

Presumably the only relevant comparison would be non-cyclical social security spending over each of the Parliaments. Since 1979, every Conservative Parliament increased social security spending by more than the Labour Government plan to.

Mr. Heathcoat-Amory

The figures which I have quoted come from the Library. The Government may be frightened of submitting their figures to the National Audit Office but I am not frightened of my figures being audited, checked and verified by the Library. I shall gladly pass over to the hon. Gentleman after the debate the figures that set out the record that we achieved in practice and left behind in the expenditure targets, which the Government said that they were taking over from us. The document states that the object is to allow the public to scrutinise the conduct of fiscal policy". That is a laudable aim, which I share, but what would a member of the public find if he attempted to do so? He would be met by a blizzard of changed statistics. Familiar and tested measurements of the public accounts have been renamed. The public sector borrowing requirement, familiar to all of us, has suddenly become the public sector net cash requirement. The control total, which was effective in controlling public expenditure, including social security, when we were in office, has been abolished. Privatisation has become the public-private partnership, and we discovered earlier today that tax harmonisation in Europe is to become tax co-ordination in Europe.

Changing all the terms does not aid transparency. The figures have not changed, but a smokescreen has been thrown before members of the public who seek to discover what has happened to their money under Government control.

Mr. Denis MacShane (Rotherham)

Accountants have changed their means of accounting at least 10 times in my lifetime. Will the right hon. Gentleman remind the House how many times the previous Government changed the means of recording unemployment figures?

Mr. Heathcoat-Amory

The hon. Gentleman is wrong, because we did not change the definitions in the public accounts or the published documents. We held to the definitions that existed when we took office and we always accounted to the public, transparently, against the previous year's figures. The Government are now recasting the public finances so that they are incomprehensible to a lay reader, despite the obligation in the code for fiscal stability to make the information understandable to the taxpaying public.

I shall give a specific example. My hypothetical member of the public might want to know what had happened to what is now called annually managed expenditure. That is the element in the public accounts that comes under each departmental heading but is under the control of the relevant Secretary of State. The member of the public would find, on page 107 of the comprehensive spending review, that the third biggest departmental item is "Accounting and other adjustments". That is not a trivial sum, because it amounts to £20 billion in the third year. Is it transparent to hide expenditure of that magnitude under that heading?

As someone lucky enough to be a Member of Parliament, I have tabled a parliamentary question to find out what is included under that general heading. I found—surprise, surprise—that the largest item is social security expenditure. It is that part of the working families tax credit that the Government do not wish to show up as mainstream social security expenditure. Why have the Government sought to disguise the full level of social security expenditure? They must be embarrassed by their failure to control the welfare state and they have resorted to fiddled statistics to try to disguise what has happened.

The code contains some permitted exemptions from the transparency principle. The Government need not provide information in a transparent form if it would harm national security or if it would damage the Government's ability to undertake commercial activities. Will the Chief Secretary tell the House under which heading he claims exemption from the transparency principle when disguising a large element of social security expenditure under the heading "Accounting and other adjustments"?

Mr. Jim Cousins (Newcastle upon Tyne, Central)

Does the right hon. Gentleman think that mortgage tax relief should be reclassified as housing expenditure, or that tax relief on pensions should be reclassified as social security expenditure? Does he think that the distinction between current and capital is a useful one in the public accounts?

Mr. Heathcoat-Amory

We are talking here about a social security benefit. This is a welfare benefit and it should be classified as such. If the Government wish to take out part of that and show it as a different line, let them do that. Is the hon. Gentleman seriously claiming that it is part of the transparency principle not to describe it as in any way connected with the working families tax credit, but to bury it as an accounting or other adjustment?

The code, and the whole of section 155, is an exercise in posturing. It places no real disciplines or obligations on the Government. Even if it can be taken as a suggestion of some general principles, the Government have already broken them, in the way that I have described.

To some extent, this is a useful debate. To that extent, perhaps it is a useful guide; not for what it requires from the Government, but for what it tells us about the Government. Instead of the principles of transparency, stability, responsibility, fairness and efficiency, we are increasingly finding from the Government an opaque treatment of unstable accounts, presented in an irresponsible manner, unfair to the tax-paying public and inefficient to the economy at large.

By all means, let the Government publish this code and let them try to prove the opposite, but they will be found out. They will be judged not on the code or on what they say, but by what they do in practice. There is a large and growing gap between the Government's rhetoric and what they do in practice. The publication of the code simply goes to show that that is the case.

11.12 pm
Sir Michael Spicer (West Worcestershire)

As my right hon. Friend the Member for Wells (Mr. HeathcoatAmory) has just said, the code for fiscal stability is a load of rubbish. My right hon. Friend put it more politely. He described it as misleading spin. However, it is more than just misleading; it is dangerously misleading.

Principle 3a is transparency, but the code is the opposite of transparency. As my right hon. Friend said, the golden rule, which the code does not mention, but which the Chief Secretary did, lies behind the whole concept of fiscal probity. The golden rule is probably the most muddling, obscure and spin-infested concept that one could imagine.

First, it is wrong and misleading because the distinction between capital and current spending in public expenditure is false.

Mr. Cousins

What!

Sir Michael Spicer

If the hon. Gentleman allows me to develop my point, I shall happily give way to him. We debate matters happily on the Select Committee on the Treasury, so we can do so in the House for once.

The Government recognise that the distinction is misleading, because, as has been said, they keep on reclassifying capital and current spending. The blur is there, and the Government know it. It is misleading because, as we all know, there is a direct connection between decisions on capital spending and decisions on current spending. That link has been recognised for many years. A capital expenditure programme is started, and the current expenditure flows along behind it. Roads may be classified in one case as capital spending, although not always, and maintenance as current spending, and the same applies to hospitals. The distinction is a false one.

The fundamental point as to why the matter is so confusing is that all public spending has to be funded in the same way. Whether it is capital or current spending, public spending is funded through taxation or by borrowing. The macro-economic effects are therefore the same.

In the late summer, the Government said that they would spend £40 billion more than they had originally intended—on health and education—but would magically balance the books on current account. The Budget forecast was couched entirely in terms of balancing the books on current account. That was the spin, but they slipped in a footnote that the total deficit on public spending would go up by £11 billion in the next two or three years.

The measure is so dangerous because the whole thing is presented through the fiscal code and the golden rule by using mirrors—in a way that obscures what is going on with public spending and the public borrowing requirement in particular, which is going up strongly. The Government keep talking about having been frightfully careful with the public finances over the past couple of years, but they have failed to say that they inherited and stuck with Conservative policies—unashamedly, but to the embarrassment of their Back Benchers.

We are now out at sea with Labour. Public spending is going up—no doubt the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) would approve of that—but the Government cannot have it both ways. Public borrowing is also forecast to go up. The false distinction between current and capital accounts in terms of public spending is helping to obscure that from the public, and it is therefore dangerous.

Mr. Desmond Swayne (New Forest, West)

Does my hon. Friend agree that what matters is not whether an arbitrary distinction is made about current or capital spending so much as whether capital expenditure has sufficient return to repay the initial investment? If that is not the case, the golden rule is no more than rust.

Sir Michael Spicer

My hon. Friend makes a good point. Most public spending does not have such a rate of return.

The Government's problem is that they may be deceiving themselves about the so-called golden rule. They have divided up fiscal and monetary policy in such a way that they have been forced into this position on fiscal policy. In reality—as opposed to the spin and this golden rule idea, which may even be deceiving the Government, let alone the public—public expenditure, and with it the borrowing requirement, is going up. That is the small print in the Government's own document.

The monetary authority—the Bank of England—is being asked in statute to keep inflation at 2.5 per cent., although fiscal policy is becoming more profligate and pushing up inflation. As some of us keep reminding the Governor when he appears before the Treasury Committee—much to the embarrassment of some of my Labour colleagues—the Bank is charged specifically and overwhelmingly with keeping inflation at that level. Everything else is subsidiary.

The bank is bound by law, therefore, to keep interest rates higher than they would otherwise be, because of profligacy and perhaps because of the Government's self-deception about the golden rule. Such self-deception is dangerous. Keeping interest rates at such a level will be economically disastrous for the country. The only good news is that the public will start to rumble the Government, and their position will be eaten into.

Although it would be good news if the Government were undermined by all this, such deception—or self-deception—on fiscal policy, fed through the Bank of England on interest rates, has the makings of immediate economic disaster as we face a recessionary period. That is why the code of practice is not merely a con; it is dangerous, and should be exposed and resisted.

11.20 pm
Mr. Edward Davey (Kingston and Surbiton)

Unlike the right hon. Member for Wells (Mr. Heathcoat-Amory) and his colleagues, the Liberal Democrats welcome the code for fiscal stability. The Conservative party's view on this issue is not consistent. When it was in government, it believed that there should be a clear framework for setting economic policy. Some of us remember the publication of the medium-term financial strategy. The economic theory that underpinned that framework is not dissimilar to the economic theory underpinning this code for fiscal stability. One no longer expects consistency from the modern Conservative party.

However, I agreed with the right hon. Member for Wells that there is nothing new in the code. I studied the document with anticipation, because, having read the Prime Minister's speech at the Lord Mayor's banquet, in which he expressed his new-found excitement and desire for stability, I thought that there might be something new in it, but I suppose that a code of fiscal stability should not change too much. That is the benefit of it: it gives clarity to economic policy and reduces uncertainty, which helps the public and the House to hold the Government to account for their economic policies.

That is the theory, and it is, in principle, a good way forward. However, I share some of the concerns of the right hon. Member for Wells, because it is not the theory but the practice that matters. We have yet to see the worth and substance behind the code, and we shall be able to measure that properly only when we see what the Government will do when the chips are down. Will they revert to the practice of the previous Government, who fiddled the figures when they did not turn out as they had predicted, or will they rely on the independent auditors? Will they ensure that the figures they put before the House have wide acceptance?

Concern was expressed about the recent pre-Budget report. There were arguments over the growth forecasts, which did not relate to the consensus reached by external forecasters, and there was anxiety that the Government will not be quite as up front and honest as the principles outlined in the code suggest.

We shall give the Government the benefit of the doubt for the moment. We urge them to make progress on some of the points in the code. Page 7 of the code refers to accounting practice: The Government shall, as soon as reasonably practicable, adopt a Resource Accounting and Budgeting approach for planning". I am pleased that the Chief Secretary mentioned that in his opening remarks. I hope that those plans for a new form of accounting will be implemented as soon as possible, because they are vital for the objectives of the fiscal code.

Resource accounting and budgeting will, for the very first time, provide the House and the public with the information that we need to assess whether the Government are promoting fiscal stability and are taking good care of the public purse.

I disagree with the hon. Member for West Worcestershire (Sir M. Spicer). I have not heard anything so ridiculous in a debate for some time. There is a clear distinction between capital and current spending. There is an economic difference between a building and a pay cheque, and between a battleship and a benefits cheque. The Conservative Front Bench contains some former distinguished accountants. I hope that, when the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) winds up the debate, he will confirm that the private sector is used to making those important distinctions. It is about time that the public accounts also made those distinctions.

Mr. Lansley

Would the hon. Gentleman care to reflect on the point that he has just made? A battleship is an asset that is used but offers no economic return, whereas revenue expenditure on education may be construed as having a direct economic return. Which of those two should be capitalised in a firm's accounts.

Mr. Davey

There is obviously a difference. It clearly makes sense to budget on a cash flow basis for large sums that are consumed over a period of years. A battleship has value over its lifetime, and there is no reason why the accounts should not reflect that.

It is time that the House had access to the sort of meaningful information that would be provided by resource accounting and budgeting. I am astonished that the Conservatives should talk about the sovereignty of the House in terms of the European debate. When they were in government, they failed to produce information of the kind that the House needs to hold the Government to account. The House does an appalling job in holding the Executive to account over the spending of billions of pounds of taxpayers' money; but the Conservatives, when they were in power, failed to provide the House with the information that we need in order to hold the Executive to account. That was a lamentable failure.

The Conservatives talk about sovereignty, and about defending the rights of the House. When they were in office, they did nothing to enable the House to do its job properly.

Mr. Derek Foster (Bishop Auckland)

I find the hon. Gentleman's argument interesting. How would he propose to strengthen the ability of the House—particularly that of Select Committees—to bring the Government to account? In fact, we do not scrutinise any accounts in this place, do we? They all go through on the nod, when no one is here. It happened for years under the Conservatives. Only when the then Opposition called votes—as we often did, until 3 am: unfortunate people were having to vote every 15 minutes—did we actually vote on the accounts. We did it just to keep hon. Members here: we did not do it in order to scrutinise the Government. [Interruption.]

Mr. Deputy Speaker (Mr. Michael Lord)

Order. The right hon. Member for Bishop Auckland (Mr. Foster) has probably finished his intervention.

Mr. Davey

I am grateful for the intervention, which enables me to draw hon. Members' attention to a report that will soon be forthcoming from the Select Committee on Procedure—a Committee of which, for my sins, I am a member. We are reporting to the House on financial procedure, and on financial reporting to the House.

A number of issues will feature in our report. It relates to information, and resource accounting budgeting will go some way towards providing that. It relates to resources for Select Committees. It relates to changing procedures in the House to enable it to vote on Select Committee reports that have examined departmental spending programmes. A change in procedures and information could enable the House to hold the Executive to account far more effectively.

Let me add a rider. I do not think that this will appear in the Select Committee's report, but we need to change the political system—the rules of our political culture in the United Kingdom. I believe that proportional representation would be very effective in enabling the House to bring the Executive to account.

If the next code for fiscal stability really does develop my theme of resource accounting and budgeting, that will take the fiscal framework much further. Let me say to the Chief Secretary that I hope that that theme will be linked with the public service agreements which I believe that he is soon to announce. I think it very important for those targets to be linked with the accounts, so that the House can see the targets in the context of the money that it votes to the Executive. There is a link there, which follows from the principles of transparency and efficiency that are embedded in the code.

Having praised the Government to some extent, let me add that there are some shortcomings, some of which were mentioned in the Standing Committee that gave rise to this discussion of section 155 of the Act. Those shortcomings are still germane, and I hope that the Government will produce better codes in future. The main point, however, is that there is still no link with the environment—no link with sustainable development. Clearly, sustainable development is connected with fiscal stability, and it should be at the heart of Government economic policy.

Recently, the Deputy Prime Minister published a document called "Sustainability Counts"—and a very good document it is. My only concern is that it was launched by the Department of the Environment, Transport and the Regions, not by Her Majesty's Treasury. If the environment is going to be put at the heart of government, such documents should come from the Chancellor of the Exchequer. That would be a case of joined-up thinking.

The Deputy Prime Minister's foreword to the document states: The Government is committed to a new way of thinking. One which puts environmental, social and economic concerns alongside each other at the heart of decision making. That is absolutely right. It continues: We are used to judging the economy's performance on the basis of statistics such as GDP, inflation and employment figures. I want these broader 'quality of life' headline indicators, over time, to become just as useful and familiar. That is why they should be in the code. The code refers to gross domestic product, to inflation and to employment. I hope that, in due course, the code will refer to those other indicators, which the Deputy Prime Minister at least thinks are important.

Another aspect of that document is directly linked to fiscal stability. One of the headline indicators proposed by the Deputy Prime Minister is social investment. That is introduced in the document with these words: Sustainable development means living off our income, not eroding our capital base, so that we are not storing up problems for future generations. Especially important is investment in 'public' assets which benefit everyone. The Deputy Prime Minister was right. The previous Government eroded social investment, ran down public assets and reduced public wealth in an attempt to create an economic golden legacy, but we knew that just switching things from the public to the private sector did not necessarily create any wealth.

I am not suggesting that privatisation was not a good thing in many industries, but it did not create any new wealth; it just switched ownership. The headline indicators in that document could usefully be incorporated into the code.

There is another shortcoming in the way in which the codes are being framed. They do not talk much about the role of fiscal policy in economic management—how it can be used counter-cyclically, and how, within a single currency, it could, as we heard earlier, take a proactive, not a passive, role in the national economic management of the United Kingdom.

The final shortcoming is that such a code and the documents that it requires a Government to publish, particularly economic and financial projections, will not be updated just before a general election. One of the benefits of the code is that it enables us and the general public to hold the Government to account, so what more important time do we need the code to be updated and published? We need it just before a general election.

History shows us why we need the code to be published at that time. In 1992, I had the pleasure of being economics adviser to my right hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith). We were analysing the pre-election Budget, which was published by one of my predecessors, now Lord Lamont. He had published the Budget two days before the general election was called in 1992. In that Budget, he introduced the 20p income tax rate, and published a public sector borrowing requirement of £20 billion.

That was not audited. It was much disputed and debated during the general election. When the Conservatives managed to scrape back, unfortunately, after the 1992 election, they changed the PSBR within a few months. It magically went up from £20 billion to £50 million. That is why we need such codes, and why we need them to be published just before elections—so that the British people can vote on facts, not on fatuous made-up figures from the Executive.

The code borrows from an innovation from New Zealand. It borrows many of the ideas in its Fiscal Responsibility Act 1994, but the one lesson that it has not borrowed is the requirement to publish the code just before a general election. That is one reason why Liberal Democrats, although for the moment we are prepared to give the Government the benefit of the doubt, remain sceptical about how they will use the code. If the code is merely an illusion—that was the charge made by the right hon. Member for Wells (Mr. Heathcoat-Amory), from the Conservative Benches—it will be a great disappointment. There is the potential for a significant innovation in economic policy. If it is missed, it will be a great shame.

There is room to extend the concepts contained within the code. Independent auditing of the assumptions behind other Budgets would help. For example, could the Audit Commission review the local government grant settlement and study the assumptions behind that? Could it establish whether the resources that the Government provide to councils—obviously, I have Kingston council in mind—are sufficient for them to meet their statutory obligations? For many councils, I very much doubt it. If we could extend the concept of the fiscal code to such areas, it would be welcome.

I hope that the code will be developed and improved in the years ahead, and that the Chief Secretary will respond positively about how he views the code and its future.

11.36 pm
Mr. Nick St. Aubyn (Guildford)

Conservative Members have been sceptical as to whether the code for fiscal stability" will achieve anything. In the hope that it might, I remind the Chief Secretary to the Treasury that paragraph 19 of the code mentions an economic and fiscal strategy report and promises that it should present illustrative projections of the outlook for the key fiscal aggregates for a period not less than 10 years into the future, based on a range of plausible assumptions. The subsequent paragraph states that the report should provide an analysis of the risks surrounding the economic and fiscal outlook, including Government decisions and other circumstances that have still to be quantified". Finally, paragraph 22 states:

The financial statements shall also include any other such indicator as is required to judge … the Government's European commitments". We are talking about projections and, if those are to include assumptions on Government policy, they must include the policy assumption that this Government intend to join the euro. Therefore, will the Chief Secretary acknowledge that the projections to be published under the code will show the effects on fiscal policy of joining the euro?

I wonder whether the Treasury is aware of a study undertaken by Oxford Economic Forecasting last December, which used the Treasury forecasting model to study what would happen if we joined the euro in 1999. It clearly showed that, because of the dramatic cut in interest rates that would be required for us to join, there would have to be a corresponding increase in general taxation, equivalent at that time to a rise of 3p in the standard rate of income tax.

The stability of our economy is not provided for by a code; it is rooted in the balance and structure of our economy. As that report pointed out last year, in this country, mortgage debt is nearly 60 per cent. of gross domestic product, compared with only 40 per cent. in Germany and 24 per cent. in France. In this country, 80 per cent. of all mortgage debt is on a variable, as opposed to a fixed rate, of interest. According to that research, the comparable figures for Germany and France are only 5 per cent. and the rest of their mortgage debt is on a fixed rate.

Clearly, not only would a cut in interest rates within the euro have a different impact on the stability of our economy, but the sudden reduction that would occur if we joined in the early years, would have a dramatic impact on the stability of our economy. That is why, according to that research, there would have to be a significant increase in general taxation if we joined.

Has the Treasury done a study and will the Chief Secretary's forward projections under the code include an analysis of what will happen if the Government join the euro in the near future? Will he show us the honesty for which the hon. Member for Kingston and Surbiton (Mr. Davey) asked, and tell us by how much taxation would have to increase?

I asked the Library to undertake further research, in the light of the current economic environment, 12 months after the Oxford research was published. According to the Library, we would now be contemplating a 3 per cent. change in short-term interest rates if we were to join the euro at its start. The analysis clearly shows that general taxation would have to be increased by the equivalent of 5p in the pound on income tax, or nearly £10 billion a year in total, for every single year of the projection. That extra taxation would be money taken out of the economy, not to be spent by the Government.

Will the Chief Secretary undertake to make his own analysis, within the terms of the stability code, and tell us what his corresponding figures are.

Mr. Cousins

The hon. Gentleman cited some interesting figures on the impact on mortgages of a hypothetical interest rate if we joined the euro. How much better off would the average mortgage payer be if we were to have those interest rates? Frankly, my appetite is being somewhat whetted by his argument.

Mr. St. Aubyn

Surely hon. Members are familiar with the low fixed-rate mortgages offered by many mortgage brokers. As the "Money Box" programme on Radio 4 has been telling its listeners, the catch comes in the long term, when one tries to renegotiate the terms of the mortgage and finds that there are high penalties for withdrawal. The problem with the cheap offer available from the euro is that the penalty for withdrawal is totally excessive and that, later, when the penalties have to be paid, there may indeed be no withdrawal and no exit.

That is the problem with the euro. At least, under the code, the Government are now duty bound to admit that any benefit to be gained from lower mortgage rates, even in the short term, would be offset by higher taxation. Many retired people on fixed incomes, part of which depends on deposit interest, will be hit by a double whammy. The retired would not only have lower interest on their deposit savings but would have to share the burden of higher taxation.

Does the Chief Secretary accept, in all honesty, that the code, in the range of assumptions on pages 8 to 10, requires him to show the effect on taxation if we were to join the euro in the early years? Has the Treasury made an analysis of the issue, and if not, why not? When will we get Treasury figures on the amount that tax will have to rise—immediately—if we join the euro, as a fiscal offset to the monetary easing that would take place.

11.44 pm
Mr. Nick Gibb (Bognor Regis and Littlehampton)

It is clear from this debate that the code is vapid and meaningless, full of airy phrases that can be interpreted to mean exactly what the Government want them to mean. However meaningful they may be, and there are considerable misgivings about that, the Government's two fiscal rules—the golden rule and the sustainable debt rule—are not even incorporated in the code.

The explanation of the code, published in March, said that

to embrace the Government's two fiscal rules in the code would be unduly restrictive. How strange then that the Government's consultative document on a proposed code, published six months earlier, said that the code needed to be restrictive so as to rule out the possibility of profligate fiscal behaviour. Just six months later, the Government have changed their minds. No longer do they want to be restricted. No longer do they want to rule out profligate fiscal behaviour, perhaps because in July this year they engaged in profligate fiscal behaviour with their public spending plans for the next three years.

What of the two fiscal rules? The golden rule involves splitting out current expenditure from capital expenditure and declaring that borrowing should not exceed capital expenditure. As my hon. Friend the Member for West Worcestershire (Sir M. Spicer) correctly said, the distinction between capital and revenue in this context is false. Willem Buiter, a member of the Government's Monetary Policy Committee said, "It has no merits" as a guide to optimal borrowing. The Ernst and Young Item Club in its summer report said that borrowing to fund capital expenditure has exactly the same effect as borrowing to fund current expenditure. They both increase the pressure of demand.

Not only is the golden rule meaningless but it is dependent on the definition of capital expenditure. That is open to abuse by Governments. They can change those definitions. There is nothing in the code about not manipulating the definition of capital expenditure. Indeed, the reason why Willem Buiter is so opposed to the golden rule is just such manipulation that occurs in other jurisdictions such as Germany. That is why my hon. Friend the Member for Chichester (Mr. Tyrie) was right to say that Germany had decided to abandon a golden rule. But this Government are perpetrating that manipulation here.

On page 124 of the November 1998 pre-Budget report published just a few weeks ago, paragraph B28 says: Some expenditure that was previously classified as current—chiefly dual-use military equipment and computer software—has been redefined as capital. Here we come to the nub of the debate—the pretensions in the code to transparency, which is the first of the five principles of fiscal management.

How is it transparent to introduce a new and bogus concept of a surplus on current budget, which the Chancellor, the Prime Minister and the Chief Secretary again this evening have tried to shorten, in an outrageous attempt at obfuscation, to current surplus? They give the impression that the Government are running a budget surplus, whereas the reality is a budget deficit.

The current surplus is merely a sub-total of revenue less current expenditure before taking into account the so-called capital expenditure. Once the capital expenditure is included, as it should be, the result is a budget deficit. It is a wholly bogus concept—opaque, not transparent.

It gets worse. After the July comprehensive spending review, the Chancellor trumpeted his £30 billion current surplus. That figure was cobbled together by adding up the next three years of so-called surpluses on current budget of £7 billion, £10 billion and £13 billion, equalling £30 billion.

When, some five months later, the Chancellor was forced to recompute his numbers due to lower growth, by some miracle of creative accounting that would rate a place in the campaign of the hon. Member for Great Grimsby (Mr. Mitchell), that surplus rose—rose, not fell—to £33 billion. How was that calculated? It was calculated by taking the next five years rather than the three years of so-called surpluses on current budget of £1 billion, £3 billion, £8 billion, £10 billion and £11 billion. So it seems that the code does not apply to the statements that the Chancellor makes about the public finances. There is no requirement for him or his Ministers to present to the public the public finances in a clear and transparent way.

"The Code for Fiscal Stability" is a meaningless document. It has no force of law. It has no credibility. It is circumvented at every turn by the Government. I trust that the Chief Secretary will answer the question put by my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) about why there is no audit report of the assumptions in the November 1998 pre-Budget report.

11.50 pm
Mr. Byers

With the leave of the House, Mr. Deputy Speaker, I shall reply to the debate.

I begin by addressing the point made by the right hon. Member for Wells (Mr. Heathcoat-Amory), which the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) mentioned at the end of his speech, about the involvement of the National Audit Office and the reasons why it has not reported on the November 1998 pre-Budget report. The reason is simple. As the code says, the Government will invite the National Audit Office to audit changes in the key assumptions and conventions underpinning the fiscal projections". There have been no such changes; therefore, there was no necessity to invite the NAO to carry out such an audit.

The right hon. Member for Wells spun an interesting web of conspiracy about why the September unemployment figures were used for example, but that is a good illustration of how we are following the normal conventions. The pre-Budget report came out in November and used the most recent unemployment figures available, which were the September figures. That is the convention that has been used for many years—indeed, it was used by the Government in which the right hon. Gentleman was a Minister—and we are simply continuing its use.

Mr. Heathcoat-Amory

Will the Chief Secretary give way.

Mr. Byers

I shall give way, if there is time after I have answered some of the many points raised by right hon. and hon. Members in the debate. I understand that that is the purpose of a winding-up speech.

The right hon. Gentleman asked why we have a new format for public finances and was extremely critical on that point. The reason is simply that we are aligning our accounts with international and national definitions, and we make no apologies for doing so.

The hon. Member for West Worcestershire (Sir M. Spicer) started an interesting discussion about the distinction between current and capital expenditure. Given the way in which the Conservative Government slashed capital spending, I can understand why Conservative Members do not like a clear distinction to be made between the two forms of expenditure. The Labour Government are perfectly happy to have an analysis of spending divided into current and capital, because we believe that a real distinction can be made between the two. We are not hiding behind an artificial distinction, but being open and transparent about our spending in those areas.

The hon. Member for Guildford (Mr. St. Aubyn) raised the subject of the euro and the estimates and projections that have been built into forecasts in the light of our possible entry into the single currency. It is interesting that Conservative Members find it difficult to speak in any debate on the economy without bringing us back to the euro and what they see as its disadvantages.

Let me make the Government's position clear: we shall decide whether or not to join the euro based on whether that is in the national interest, and subject to a vote of the British people. That is not the policy that the Conservatives have adopted, of ruling out entry for 10 years because of political dogma and in an effort to paper over the cracks in the Conservative party. That is not our approach. We shall decide in the national interest whether or not the euro is appropriate for the United Kingdom.

The hon. Member for Kingston and Surbiton (Mr. Davey) spoke for the Liberal Democrats. I accept the importance of transparency and openness and the code seeks to achieve those aims. It is especially important that we move to resource accounting and budgeting, and we intend to do so. The hon. Gentleman was right to say that public service agreements and the targets that they include will be a means by which the Government are judged on whether the new money that we are committing to crucial areas, such as hospitals and schools, is valued and brings something extra in terms of improving standards and raising the quality of provision. The agreements will be made public and Parliament and the public will be able to judge how well we deliver those ambitious but challenging targets.

This evening's short debate has revealed that, if there is a black hole, as the right hon. Member for Wells says that there is, it is a black hole in Conservative thinking on the economy. I regret that this evening has witnessed yet another attempt to talk down our economy and a failure to recognise its underlying strengths. There are now 400,000 more people in jobs than there were on 1 May last year and inflation is at its target of 2.5 per cent. Under the Labour Government, there will be no going back to the days of boom and bust. When the right hon. Member for Horsham (Mr. Maude) was a Treasury Minister, interest rates were at 15 per cent., inflation was at 10 per cent. and more than 1 million jobs were lost. We shall not turn back the clocks to those days. The code for fiscal stability will assist the Government in steering a course of stability for our economy, and I commend it to the House.

Question put and agreed to.

Resolved, That the Code for Fiscal Stability, which was laid before this House on 3rd November, in the last Session of Parliament, be approved.