The Economy

HC Deb 04 November 1998 vol 318 cc877-934

Madam Speaker

I have selected the amendment standing in the name of the Prime Minister.

3.44 pm

Mr. Francis Maude (Horsham)

I beg to move, That this House notes that there is now a black hole in the public finances; that the increased burdens on business since the General Election now account for £1,500 more per employee; that the UK will be the first major European economy to suffer a serious downturn and the worst affected; further notes that the Government is squandering the last Government's golden economic legacy by its four basic blunders of increased taxes, attacks on savings, particularly pensions, excessive regulation of business and irresponsible public spending; and deplores the Government's complacent attitude to the handling of the economy and public finances.

The highest responsibility of the British Chancellor of the Exchequer is to tell the truth about the British economy and to set out for Parliament and the people the real prospects, the real problems and some real answers. Yesterday, the Chancellor casually abandoned that responsibility. He thought he could carry on for ever spinning a web of words that would protect him from reality. Yesterday, he had a duty to tell the truth, but we got a fairy tale.

The responses of economists and commentators to the Chancellor's forecasts have spanned a wide range, from scepticism to outright disbelief. What has caused most disbelief is that he not only downgraded his forecast for next year by much less than the consensus, but he—almost alone—has upgraded his forecast for future years. What has happened between June, when he made his last forecast, and now to encourage him to upgrade his forecast for future years? The clear answer is that he was becoming aware that, with growth on a downward path, a black hole was appearing in the Government's public finances.

The analyses that have been done by outside commentators, by the National Institute of Economic and Social Research, by Goldman Sachs and by many others show that the Chancellor is seriously at risk of failing to meet his supposed golden rule. The growth forecasts were crucial to his analysis and it was crucial for his credibility with Labour Members that he produced figures that showed that a black hole did not threaten the economy. So what did he do? He performed a classic bit of results-driven analysis. Instead of the usual process of rubbish in, rubbish out, Ministers got the rubbish out first and decided separately how to put the rubbish in.

Mr. Barry Jones (Alyn and Deeside)

Will the right hon. Gentleman give way?

Mr. Maude

I shall continue to outline my argument for a little while longer, if the hon. Gentleman will allow me. That process is why we have had that incredible upgrade of future forecasts and why the responses range from scepticism to disbelief. Bronwyn Curtis of Nomura says: Clearly his growth forecasts are much more optimistic than the market's … forward looking surveys suggest output has fallen off a cliff. The National Association of Pension Funds says: The growth forecasts are a hostage to fortune Paribas says: Our central forecast is for 0.9 per cent. growth and we think all the risks"— not the balance of risks, but all the risks— are on the downside. The chancellor's central forecast is for 1.25 per cent. growth. I hope he is right, but I believe he is wrong. HSBC says: There's not a case for growth turning round in the following years. However, that is the central assertion the Chancellor makes and on which he bases his optimistic outlook. Anthony Hilton, the city editor of the Evening Standard writes today: What is going to happen to put the British economy back on to its sustainable growth path? Why should it bounce back so soon and so conveniently when the rest of the world economy may be going to hell in a handcart… it was 'Crisis? What crisis?' all over again. Philip Stephens writes, in that well known Labour-supporting newspaper the Financial Times: We shall know soon enough whether Mr Brown's gamble on optimism pays off. I hope so, but I fear not. The danger is he will become trapped in his own rhetoric.

Mr. Barry Jones

When I first came to the House, the right hon. Gentleman's father was a Conservative Front-Bench spokesman who displayed great courtesy and was always unflappable. He demonstrated his mordant wit both in the Chamber and at his party conference. The son is not as good as his father.

Will the right hon. Gentleman tell my right hon. Friend the Chancellor to his face that he welcomes the £250 million for our national health service?

Mr. Maude

I am sorry that the hon. Gentleman spoilt what I took to be an affectionate tribute to my late father, which I appreciated.

The hon. Gentleman asked whether I supported the extra money for the health service. Contrary to what the Chancellor has repeatedly asserted—I heard him do so again on the radio this morning although he knows that it is not true—and contrary to what the Prime Minister said at Question Time, we have welcomed the increases in spending for health and education. We did so at the outset, and we have done so again. Let there be no doubt about it: that is what we say, and we shall say it again. The Chancellor can carry on, but Adlai Stevenson's old phrase applies: if he stops telling lies about us, we will stop telling the truth about him.

Mr. Derek Twigg (Halton)

The Opposition's motion refers to "irresponsible public spending". What would the right hon. Gentleman cut from the £40 billion allocated to schools and hospitals?

Mr. Maude

I suggest that the hon. Gentleman re-read his election manifesto, and the words of his Prime Minister. I can well understand that many other people do not believe what the Prime Minister says, but I should have thought that the hon. Gentleman would believe it.

The Prime Minister said that Labour would increase spending on health and education by cutting social security bills. The Treasury engaged in a fierce argument over social security spending for a year with the then Secretary of State who, against all the odds, defeated it, a feat for which she was dismissed.

Mr. Twigg

Answer.

Mr. Maude

The hon. Gentleman has his answer.

The Chancellor has made a reckless three-year commitment on money that our economy has not earned. Problems are coming down the track as a result.

Mr. Twigg

Answer me.

Mr. Maude

I shall give the hon. Gentleman a specific answer. We do not believe that family credit—a good system that has worked well—should be abolished to be replaced by a system that will, for example, entitle some families who are higher rate taxpayers earning up to £39,000 a year to receive tax credits and welfare benefits. If the hon. Gentleman wants to say that a system that takes money from people at 40 per cent. on the one hand and gives them a welfare benefit with the other is a good use of taxpayers' money, let him stand up and do so.

Mr. Twigg

I am grateful to the right hon. Gentleman for giving way again. Will he say specifically what he would cut from the £40 billion allocated to schools and hospitals?

Mr. Maude

The hon. Gentleman should simply read his election manifesto. I assume that he stood on the same manifesto as his colleagues. It contained a clear commitment, which the Labour party has broken.

I was encouraging the Chancellor by referring him to some of the comments that have been made about yesterday's statement. No one believes that his downgrade of the economic forecasts to a mid-point of 1.25 per cent. is at all credible. The poll of forecasts in The Economist—a serious piece of work, regularly done among independent forecasters in the UK and other countries—finds a mid-point of 0.8 per cent. The most recent Treasury consensus of outside forecasters shows a mid-point of 0.9 per cent. How the Chancellor can justify making a forecast for the economy that is above all of those no one in the outside world can understand or believe—and I hope that the next intervention will be a little more sensible.

Mr. Geraint Davies (Croydon, Central)

Will the right hon. Gentleman confirm that that same independent group of forecasters was forecasting a growth rate of 1.4 per cent. when, in fact, the revised projection for 1998–99 is 2.25 per cent?

Mr. Maude

The hon. Gentleman should look at what the forecast says. The consensus group suggests that the most recent forecasts—those made during October, which is the most up to date—come out at a mid-point of 0.9 per cent. How does the Chancellor reconcile that with his mid-point forecast of 1.25 per cent? It just does not add up, and he knows it.

The reality is that the Chancellor has made these numbers up to justify his public spending figures. There is one league that the Chancellor has come out top of. He has come out top of the fantasy forecast league.

To sum up the response, there is none better than Bridget Rosewell, the director of Business Strategies, who said: A combination of nice words signifying little, with an attack on business … set against forecasts nobody believes. What coloured the Chancellor's statement and all his pronouncements, and those of his team since, has been arrogant complacency. He thinks that it is all right just to use the language. It was interesting to run a word count on yesterday's statement. Poor old "prudence" is down to only 10 mentions now. She is on the way out—bit out of favour now, as if we did not know. She has been replaced by the Chancellor's new best friend "stability". She rated 14 mentions in the course of his speech. The clear winner of the word count race was "long term", with a record 18 mentions. Well, that is pretty rich from a Chancellor whose idea of the long term is what is in next week's headlines.

Mr. Ian Stewart (Eccles)

Will the right hon. Gentleman give way?

Mr. Maude

In a moment. I shall just point out something else that will interest the hon. Gentleman.

We searched and searched for one word that I thought must feature in the Chancellor's statement. It is high in the minds of countless people up and down the land. He knows the word pretty well; he used to use it a great deal. That word is "unemployment". That is what he left out. There was not a single mention of unemployment, not a single mention of job losses, not a single mention of redundancies; and even more shamefully, not a single measure to prevent unemployment.

Yvette Cooper (Pontefract and Castleford)

Will the right hon. Gentleman give way?

Mr. Maude

In a moment, once I have given way to the hon. Member for Eccles (Mr. Stewart). What a slap in the face for people facing day by day, thanks to the Chancellor's policies, the prospect of losing their job and their livelihood! They will have been disgusted by his complacency.

Mr. Ian Stewart

Does the right hon. Gentleman believe that it is a useful use of a shadow Chancellor's time to count words—and then only three?

Mr. Maude

I will let the hon. Gentleman into a carefully guarded secret. One can do a word count on a computer very easily now. The Chancellor spent half his time yesterday prating on about information technology, about which he seems to know a little. At least he has heard of it. The hon. Gentleman does not seem to have heard of it

Yvette Cooper

If the right hon. Gentleman cares so much about unemployment, why does he want to cut the new deal and the working families tax credit, which make work pay for working families?

Mr. Maude

The hon. Lady has' learnt the soundbites very well. I commend her. She is very new Labour—learn the soundbite and forget about the substance. The reason is that the new deal pilots have not worked. That is why we think that it is a waste of public money and a fraud perpetrated upon a great many people.

Ms Margaret Moran (Luton, South)

Will the right hon. Gentleman get his abacus out and, instead of counting words, count the 300,000 people who by next year will have been assisted by the new deal? That is about employment, not unemployment, on which the Conservative Government had such a poor record.

Mr. Maude

If the hon. Lady thinks it matters so much, when she goes back to her constituency this weekend and people talk to her about job losses and the threat of redundancy and say, "Hang on, I didn't hear the Chancellor say much about that in his statement on Wednesday," what is she going to tell them? Is she going to say, "It's all right—he just doesn't care about it"? She is going to have to defend the Chancellor, whose policies are creating unemployment and job losses every day of the week. He did not think it mattered; he did not bother to mention it.

The Chancellor of the Exchequer (Mr. Gordon Brown)

First, will the right hon. Gentleman recognise that welfare to work and the new deal are tackling unemployment? Secondly, will he recognise that there has been a 30 per cent. fall in unemployment in his own constituency over the past 18 months? Will he now give us straight answers to the following questions? Is he saying that the Conservative party is going to go into the next election to scrap the new deal? Will he confirm that he will go into the election to scrap Bank of England independence? It is about time we had some answers.

Mr. Maude

The right hon. Gentleman comes here crawling for advice on how to get out of the mess he got himself into. If he is so interested in Bank of England independence, why does he not ask the Chief Secretary to the Treasury whether he believes in it? Why does he not stop the Chief Secretary making gaffe after gaffe, when he stands at the Dispatch Box or goes on the radio telling the Bank of England that it should cut interest rates? If he cares so much about Bank of England independence why does he not do what the Bundesbank or the American Fed do—have people appointed for eight years or 14 years? He knows that members of the Monetary Policy Committee were appointed for three years by him and that their appointments will come up for renewal before the next election. Is that independence?

Mr. Brown

Will the right hon. Gentleman answer the questions? Will he scrap the new deal and will he scrap Bank of England independence? The Leader of the Opposition did not answer those questions, so will the shadow Chancellor have the courage to tell us?

Mr. Maude

What I shall tell the right hon. Gentleman about Bank of England independence is that he has made a botched job of it. He has bungled it. He does not believe that it works and nor does the Chief Secretary, which is why his adviser spent his time in Washington briefing, behind his hand, against the Bank of England; and why the Chief Secretary goes on television and stands in this Chamber putting pressure on the Bank to change its policy and cut interest rates. They do not believe in Bank of England independence, that is for sure.

Mrs. Teresa Gorman (Billericay)

Is my right hon. Friend aware that the chairman of Marks and Spencer does not agree with the Chancellor either? He has announced that the company will have to transfer much of its manufacturing to other countries because the current Government have imposed so many regulations and extra costs on the company that it can no longer afford to buy British. Is my right hon. Friend also aware that the chairman of Marks and Spencer yesterday reported a fall of a quarter in the company's profitability and said that we were in for a rocky ride? Perhaps my right hon. Friend would like to give his opinion on whether the Chancellor or the chairman of Marks and Spencer is better at predicting the future.

Mr. Maude

My hon. Friend makes the point that, week by week, many companies for which Britain used to be the best location for manufacturing and doing business are deciding that they do not want to do business in Labour's Britain. That is sad, because it means that the businesses on which people's jobs depend are failing.

Ms Gisela Stuart (Birmingham, Edgbaston)

Will the right hon. Gentleman give way?

Mr. Maude

No. I want to make some progress and I have already given way many times.

The Government's arrogant complacency continues. As late as this morning, the Secretary of State for Trade and industry said that business was "upbeat". He said that on the same day as the latest survey by the Chartered Institute of Purchasing and Supply showed the slowdown spreading from manufacturing to the service sector. The CIPS director general said that growth in the service sector continues to decline as the level of new business has fallen. Both business and consumer confidence are deteriorating. That is not the only such survey—the Institute of Directors survey tells a similar story.

Labour Members might not like it and they might prefer to rest on the warm words that flow endlessly from the Chancellor, but that is the real world in which people have to live, work and do business. It would be helpful if they recognised that.

Mr. Michael Wills (North Swindon)

Will the right hon. Gentleman give way?

Mr. Maude

No, I want to make progress, and this is a short debate.

The Institute of Directors survey revealed a fall in company optimism over the past quarter. Not a week goes by without another survey showing a downturn. The CBI industrial trends survey demonstrates that confidence is at its lowest level for 18 years. So whom has the Secretary of State for Trade and Industry been talking to? All that evidence matters because one cannot solve problems unless one recognises them, but it is different for the Chancellor and the Trade Secretary—they live in a problem-free world where any talk of problems is just idiotic hysteria. Why does the Chancellor not talk to people who are doing business in difficult circumstances and find out whether they think that such talk is idiotic hysteria?

The Chancellor had the chance to put matters right but he has blown it. He is now simply playing the blame game, as the hon. Member for Gordon (Mr. Bruce) said yesterday. The Chancellor should not blame the world. Why, in the midst of all the problems around the world, is Britain doing worst? Why, in the economic downturn, is Britain in worst and in first? The Economist survey shows that Japan is the only industrialised country forecast to be weaker than Britain next year, and Japan is mired in a deep slump. The next weakest country after Britain is forecast to have twice Britain's rate of economic growth next year. If the downturn is due to global problems, why is Britain worst and first? That may have something to do with the Chancellor and his arrogant refusal to accept that there is a problem.

Ms Stuart

The right hon. Gentleman has spoken of arrogant refusal. What is his position on the Bank of England's independence? Would the Tories reverse that policy?

Mr. Maude

I realise that as the Chancellor has made such a mess of that, the hon. Lady is anxious for guidance on how to sort it out. The one absolute certainty is that the policy cannot be left as it is. It was a botched job; it breached an election commitment; it is not working; and it must be sorted out. We shall make our proposals in due course.

Mr. Tim Collins (Westmorland and Lonsdale)

Does my right hon. Friend agree that it is a little rich for a party that refused to tell the public its policy on the Bank of England three days before the previous general election to expect us to clarify our policy three years before the next election?

Mr. Maude

My hon. Friend makes the point well. We see the Chancellor smiling nervously because he knows that what he said before the election was sharply at odds with what he did. That is why the policy was botched and he got it wrong, and it cannot be left as it is.

Mr. Edward Davey (Kingston and Surbiton)

Will the right hon. Gentleman give way?

Mr. Maude

No, I want to make progress.

I return to why Britain is in first and worst. The Chancellor said blithely yesterday that every country has downgraded its forecasts because of world events. If one compares The Economist poll with what was forecast in June when the Chancellor published his fiscal and economic strategy, one finds that there have been downgrades—not universally, but in almost all industrialised countries—but no country in Europe has been downgraded as much as Britain. Not only is The Economist proposing a worse growth forecast for Britain next year than for anywhere else in Europe, but it has downgraded its forecast for Britain by more than for anywhere else.

Japan is the only industrialised country in the world that will have less growth than Britain—we know about Japan's problems—and the only other comparable country is Australia, which also has a downgrade of 1 per cent. However, even that is a downgrade from 3.2 to 2.2 per cent., so the proportional downgrade is very much less than Britain's. There is a problem, and it is a problem for Britain, which will be first into the downturn and, as I said, will have the worst growth of any country except Japan.

Mr. Alan Johnson (Hull, West and Hessle)

You have said that three times before.

Mr. Maude

The hon. Gentleman should listen. Things have to be said three times if Labour Members are to understand. They are living in their own little fantasy world, with fantasy figures, adrift from the real world where there are problems that need to be solved.

Mr. Edward Davey

Will the right hon. Gentleman give way?

Mr. Maude

The hon. Gentleman made such a silly point earlier that I shall not give way to him.

We have said this before and we shall say it again: the Chancellor took over a golden economic legacy. There were the best prospects for a generation.

Yvette Coope

Will the right hon. Gentleman give way?

Mr. Maude

I have given way to the hon. Lady once; I shall make progress now.

The economy was showing growth faster than that of any other major European country. It had low inflation—the longest period of consistently low inflation seen in Britain for nearly 50 years—and we hit our inflation target. There is nothing very special about all the stuff that the Chancellor was saying yesterday about having brought inflation down; he has simply managed to get inflation back to where it was when he inherited it.

We had low unemployment—unemployment had been falling steadily. The Chancellor now takes credit for its continuing to fall for the first year and a bit after he took over. It is very nice of him to take the credit for it, but I honestly do not think that it was his doing. That was part of the economic legacy, and it has taken some time for the malign effects of his change of policies to come through—sadly for those people who, week by week, are losing their jobs.

Mr. John Bercow (Buckingham)

rose—

Mr. Jonathan Sayeed (Mid-Bedfordshire)

rose—

Mr. Bercow

Will my right hon. Friend give way?

Mr. Maude

If my hon. Friend will forgive me, I shall not give way. I shall make progress now.

We also saw record inward investment. What is happening today is very different. Business failures are up already. The Dun and Bradstreet survey shows that, after five years of falling business failures, the figures are rising. Jobs are being lost and factories closed; it is happening all the time. I have a very long list of job losses and factory closures. Many of them are extremely familiar to the Chancellor; many of them are taking place in constituencies represented by Labour Members.

Labour Members know the truth. The Chancellor could not see it yesterday but, when he announced his growth forecast for next year of 1 to 1.5 per cent., we saw the looks of blank disbelief on the faces behind him. Labour Back Benchers did not believe him any more than did the commentators outside.

That is the reality—job losses, factory closures. What should the Chancellor be doing about it? Why did he commit the country to three years' public spending way above any conceivable growth in the economy? He is behaving exactly like the hedge funds that he was so keen to criticise earlier in the week—making long-term commitments against short-term revenues. He is being as irresponsible and reckless as they were.

As a result of that recklessness, Britain will bear the burden of higher borrowing—and, therefore, of higher interest rates than would otherwise have been needed.

Yvette Cooper

Will the right hon. Gentleman give way on that point?

Mr Maude

No; I shall not give way.

Why did the Chancellor attack savings as he did? I am sorry not to see the Paymaster General in his usual place; or perhaps he is in his usual place. How crass it was to let the Paymaster General loose on the savings culture that had been so carefully built up over the years, with his bungled plan to scrap PEPs. In March, the Red Book showed the savings ratio falling gradually over the Parliament, but already, such a short time later, the savings ratio is down by a quarter—at just the stage in the cycle when people should have been encouraged to save more, not less. The effect has been to push money into consumption, and to push interest rates higher than they need have been. Well done, Paymaster General: another outstanding contribution to British business.

Why did the Chancellor chase up business costs as he has? He knows, because his figures and the Red Book show it, that his business taxes and the Government's extra regulatory burdens will cost British business £40 billion a year. That is the cost of Labour: £1,500 for every person employed in this country.

Yvette Cooper

Will the right hon. Gentleman give way?

Mr. Maude

No, I shall continue; I am drawing to an end.

The Chancellor talked a great deal yesterday about productivity. Apparently, low productivity is now entirely the fault of British workers and British managers—it is all their fault. The Chancellor, the Trade Secretary and the Prime Minister wander round the countryside lecturing British business men and workers on how they must work harder and do better, and on how low productivity is all their fault and nothing to do with the Government. However, the Chancellor should listen to some comments made by business people who have invested in Britain in recent years.

In October 1995, three years ago, the president of Philips said: The most competitive country in Europe today is the UK. It has a great sense of realism, a great sense of competitive spirit—the factories we have in the UK are the most changed factories in the world. For manufacturing, Britain is the most competitive country in Europe today. What has changed? Has the work force changed? Has the management changed? Has the country changed? No, only one thing has changed—the Government.

In October 1995, BMW—which owns Rover, and was memorably told last week by the Trade Secretary to sharpen up its act—stated: Great Britain is currently the most attractive country among all European locations for producing cars. This results from the structural reforms initiated by Margaret Thatcher in the early 1980s What has changed? Why is BMW now closing plants, laying people off and reducing capacity? What has changed since 1995?

The Prime Minister may remember that Siemens opened a plant in his constituency. In August 1996, Siemens stated: Our decision to build the new semiconductor plant here in the UK is a recognition of the pro-business environment which exists and the skills and commitment of the British workforce"—

Several hon. Members

rose—

Mr. Maude

I shall not give way.

The chief executive of Siemens went on: But let me make one point clear here, and that is that we have not invested here because we see the UK as a low-wage economy. On the contrary.

The Government have concerns about productivity? Those great multinational companies chose to come to Britain because Britain was a good place to do business. Why are those companies now closing their plants and laying people off? What has changed, besides the Government? Nothing.

The Chief Secretary to the Treasury (Mr. Stephen Byers)

Will the right hon. Gentleman give way?

Mr.Maude

No,I shall not give way; I am finishing my speech.

It was 10 Downing street, not the Opposition that ascribed psychological flaws to the Chancellor. Although I would not go along with that ascription—I would go along with economically flawed, for sure—I encourage the Chancellor to keep open somewhere in the dark recesses of his mind a tiny place where he acknowledges even the merest possibility that he may be wrong. He knows that the price of his mistakes will be measured in lost jobs and business failures. If that happens because of his arrogant complacency, he will never be forgiven.

4.17 pm

The Chancellor of the Exchequer (Mr. Gordon Brown)

I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof; notes that the Government inherited an economy set to repeat the same cycle of boom and bust seen over the past 20 years, that inflation was heading way above target because of the previous Government's failure to accept the Bank of England's advice and the public finances were in large structural deficit; recalls that under the previous Government inflation rose to 10 per cent. interest rates remained in double figures for four years and one million manufacturing jobs were lost, while net borrowing increased to £50 billion and the national debt doubled in just four years; notes that the previous Government's policies increased inequality and failed to tackle the structural weaknesses in the economy; commends this Government for its decisive action to build a stable economy, introducing a new framework for monetary policy under which inflation is now at target and set to remain there and interest rates are less than half their previous peak, reducing government borrowing by £20 billion last year and, because of prudent management of the public finances, remaining on track to meet its tough fiscal rules and invest an additional £40 billion in education and health, with an extra £250 million for the National Health Service this year, addressing structural weaknesses by tackling unemployment and poverty with the New Deals and tax and benefit reform, supporting British business by cutting corporation tax, doubling public investment to improve Britain's infrastructure and addressing Britain's productivity gap; and notes that there are now 400,000 more people in employment than at the General Election and that Britain is better placed to steer a course of stability in an uncertain and unstable world.

I am grateful to the Opposition for today's debate, which gives us an opportunity to explain why independence of the Bank of England is the right policy for Britain; why international financial reform is necessary to deal with the world situation; why the welfare-to-work programme introduced by the Government and the working families tax credit—which Conservative Members would abolish—are the right policies for Britain; why there is a productivity gap that even the previous Government recognised had to be dealt with, even if the shadow Chancellor will not admit it; and why good, efficient public services, in which we will invest £40 billion over the next three years, are right, and the best thing for Britain's future.

I do not think that the House or the country will take lectures from the former Financial Secretary to the Treasury, who glossed over the fact that, between 1990 and 1992, when he was Financial Secretary, interest rates were without exception above 10 per cent. During that time, interest rates went up to 15 per cent., the public sector deficit was rising to £50 billion, unemployment was rising by a million, manufacturing output was falling by 7 per cent., manufacturing investment was falling by 15 per cent. and inflation rose to nearly 10 per cent. That is why the country will take no lessons from the Conservative party on how to run the economy.

Mr. William Cash (Stone)

Does not the Chancellor accept that the real reason for the catalogue that he has just set out is that we mistakenly stayed in the exchange rate mechanism for far too long? Furthermore, are not the policies that he is pursuing, including the granting of independence to the Bank of England, in pursuit of a policy that means that we will no longer have control over our economy? Both he and the Secretary of State for Trade and Industry clearly committed themselves to that policy at the recent CBI conference. Does he accept that, by throwing away our ability to control our own affairs, he will condemn this country and those who work in it to massive continuing unemployment?

Mr. Brown

I know that the hon. Gentleman seeks every opportunity to bring the European debate to the Floor of the House, and I was grateful for his support during the general election campaign by raising those issues, but the mistakes made in the late 1980s were to allow inflation to get out of control, to allow wages to rise uncontrollably—to 11 per cent. in 1990—and to have interest rates at over 10 per cent. for four years.

The hon. Gentleman asks about the Bank of England and monetary policy. By making the Bank of England independent, we have set in place a long-term monetary framework for this country. It is the first building block of an economic strategy for the future. The shadow Chancellor says that that must all be changed. In other words, his policy is to scrap independence of the Bank of England—

Mr. Maude

indicated dissent.

Mr. Brown

The right hon. Gentleman shakes his head. Is that his policy or not?

Mr. Maude

As the Chancellor has made such a mess of it, it cannot be left as it is. If he could not tell the country what his policy was three days before the election, we shall not outline our final policy three years in advance. However, one thing that is for certain is that, because he has botched and bungled independence of the Bank of England, it cannot be left as it is. Most people agree with that.

Mr. Brown

The Opposition say that they have the answers to the problems of the economy, but they cannot answer the first fundamental question about monetary policy. I take it that the right hon. Gentleman would not leave the Bank of England in control of interest rates. He says that it must be changed. He is at odds not only with the rest of the country and the Labour party, but with many sensible Conservative Members, who know that it is the right course of action for the country.

Mr. Kenneth Clarke (Rushcliffe)

rose—

Mr. Brown

I shall give way to someone who supports a central bank, even if it is an independent central bank in Europe.

Mr. Clarke

I did not seek to intervene on that point. However, I happen to believe in the liberty of Back Benchers to be attracted by the independence of the Bank of England. I know of no independent central bank whose membership comprises full-time officials of the Bank of England plus academic economists who are friends of the Chancellor and his advisers, nor a central bank that has made such mistakes as unnecessarily to raise our interest rates to the highest level in the developed world to avoid an inflationary boom that was never a danger.

In reply to my hon. Friend the Member for Stone (Mr. Cash), the Chancellor talked as though he took over the economy in 1988 rather than 1997. He draws comparisons with the boom and bust of the late 1980s, not with what he actually inherited. The last peak in interest rates was, if my memory serves me right, at 6.5 per cent., when we achieved a soft landing in 1996. We then resumed steady growth and falling unemployment, for which the right hon. Gentleman has just taken credit. We hit an inflation target of 2.5 per cent., which he and his botched-up independent bank have wrecked.

Mr. Brown

That was an amazing intervention by the former Chancellor. He wants to forget the 1980s and the fact that he was Secretary of State for Trade and Industry and for Employment, and held many other Government offices, just as the shadow Chancellor wants to forget that he was Financial Secretary to the Treasury between 1990 and 1992. They cannot escape their record: interest rates at 15 per cent., and they were above 10 percent. for four years. The answer to that is to have a credible long-term framework for monetary policy. I am glad that he now agrees that there is an attraction in the independence of the Bank of England.

Perhaps now Conservative Members can resolve this problem among themselves. The former Chancellor supports the idea of independence; the shadow Chancellor opposes it. Perhaps they should have a referendum of their party members to resolve the problem.

Sir Peter Tapsell (Louth and Horncastle)

As the right hon. Gentleman knows, I have made several speeches in the previous Parliament and in the present one explaining why I wholly oppose an independent central bank, but I speak for myself. Assuming that the Bank remains independent, may I put this important point to him—a technical point that he should consider?

It will not have escaped the right hon. Gentleman's attention that the new Finance Minister of Germany, Mr. Lafontaine—presumably he has a good deal of political sympathy with him—has been telling the European central bank that he is extremely unhappy that it is limited by the Maastricht treaty to having purely an inflation target. As he has made clear publicly, he wants those criteria changed to include growth and employment.

If we had to go on with an independent central bank, which I hope we will not, can we not move at least to change its criteria, so that it has to take account of growth and employment, and becomes much more like the Federal Reserve bank in the United States, which does not operate with such narrow criteria and instructions?

Mr. Brown

I am grateful to the hon. Gentleman for entering the debate about the independence of the Bank of England. The Conservative party now seems to be as divided on that as it is on Europe. The former Chancellor is attracted to it, the shadow Chancellor is clearly against it, and now a Back Bencher says that he has to speak in a personal capacity because he does not know what the policy is.

Sir Michael Spicer (West Worcestershire)

rose—

Mr. Kenneth Clarke

rose—

Mr. Bercow

rose—

Mr. Brown

I must take the intervention of the hon. Member for West Worcestershire (Sir M. Spicer). Perhaps he can tell us what the policy is on the independence of the Bank of England.

Sir Michael Spicer

I was wondering what the Chancellor's policy was. He has made a virtue of the independence of the Bank of England, yet it seems that he is one of those who have been outed as hellbent on handing over its powers to the central bank of Europe and on abolishing all its independence. How does he square those two things?

Mr. Brown

We have set the five economic tests for membership of the single currency. On the future of the Bank of England, the reason why I support independence and believe that the Conservative party, on reflection, will believe that it is against the national interest to scrap the independence of the Bank, is because, for 30 or 40 years, this country has lacked the long-term monetary framework that is necessary for stability—long-term objectives that are set down clearly, free of party politics and short-term pressures, rules that the Bank and the system have to follow, and transparency in the reporting of decisions.

One reason why long-term interest rates fell from 7 per cent. and why the differential with Germany, which has been a low-inflation country, has narrowed on long-term interest rates is precisely because we made the Bank of England independent.

Mr. Malcolm Bruce (Gordon)

rose—

Mr. Brown

Of course the Liberal Democrat party supports us in that, although not in everything else. I do not believe that any sensible political party will veer from that position.

Mr. Bruce

Will the right hon. Gentleman acknowledge the curious position of the Conservative party on this issue? The only major country in the G7— indeed, in the western world—that still does not have an independent central bank is Japan, which the shadow Chancellor has been pointing out is locked in a serious slump, and is hardly an ideal role model for having a bank that is under political control.

Nevertheless, will the Chancellor acknowledge that the shortness of the appointments to membership of the Monetary Policy Committee has been a genuine issue? Will he accept that it would be much preferable if those appointments were extended beyond the life of a Parliament, so that independence would not only be granted, but go beyond the life of any single Government?

Mr. Brown

I am happy to enter a debate about the future arrangements for the Bank of England. I believe that the arrangements that we have set down, with a five-year appointment for the Governor and up to four years for membership of the Monetary Policy Committee, are right. We are hearing sensible questions about the way forward from the Liberals. We have not heard what the Conservatives would do. Would they scrap the independence of the Bank of England? If they cannot answer that question soon, nothing in their economic policy has any credibility. The shadow Chancellor—

Mr. Maude

rose—

Mr. Brown

Ah, the shadow Chancellor is going to answer the question now. I am very grateful to him.

Mr. Maude

I am getting fed up with the Chancellor of the Exchequer, who would not even answer the question on polling day, yet is pressing for an answer from us three years before the election. There was nothing about the issue in Labour's manifesto, and nothing was said to the electorate before the election, yet he criticises us three years before the election for not producing a final answer.

Mr. Brown

The right hon. Gentleman is getting very excited—and more and more red—but he does not seem able to answer the one question that the House is waiting for him to answer: would he scrap the independence of the Bank of England? The Conservatives cannot have a credible economic policy unless they can tell us their position on monetary policy and the independence of the Bank of England.

Mr. Kenneth Clarke

Will the right hon. Gentleman give way?

Mr. Brown

I shall give way after I have made some progress, because there are five issues to be addressed.

The first is on monetary policy. We have set out a clear policy. Long-term interest rates have come down. Because of our policies and the early action that was taken against inflation, it was possible for the Monetary Policy Committee of the Bank of England to respond to the international economic conditions as it did last month, bringing interest rates down from 7½per cent. to 7¼per cent. That is a big contrast with the 15 per cent. interest rates at the beginning of the 1990s.

The second issue is that we should play our part in rebuilding and making changes in the international financial system. That is why we have proposed a global financial regulator. Our proposals have been accepted by many countries. We have also taken action on a fund that will be available to help countries in difficulty. We are insisting on transparency in the future workings of the private and public sector. Those are sensible proposals that G7 countries have agreed to.

I said when the former Chancellor was not here on Monday that he had contributed to developing proposals for the international financial architecture. The problem is that those on the Conservative Front Bench cannot tell us the party's position on those issues. The Conservatives seem to be opting out of the world as well as opting out of Europe. A sensible economic policy for this country requires answers on how to reform and strengthen the international financial system.

The third issue of economic policy is international and national economic stability, which must be backed up by a policy for welfare to work in this country. That is why we have taken the action that we have. Some 300,000 people will benefit from the new deal by next Easter. Almost 30,000 companies have agreed to take people on. About 150,000 young people are part of the new deal, and 90,000 long-term unemployed men and women will be offered opportunities in 26 areas from the end of November.

Disabled men and women are being invited to join, backed up by a disabled persons tax credit. Lone parents are being given the chance to get advice, information, help and child care to enable them to get the chances that they want. Almost every household name company in the country supports the programme, and I am grateful to them.

I invited individual Members of Parliament from the Opposition parties to be ambassadors for the programme. We sent them details of how it would work, so that they could play a part in their constituencies. However, six months into the new deal, the shadow Chancellor said yesterday that it was a failure, and today that it is a fraud. I do not think that it is either a failure or a fraud. I think that, on reflection, the Opposition will change their mind about that policy as well.

The Opposition opposed the windfall tax, which made the welfare-to-work programme possible, yet one of their own Members, the hon. Member for South-West Bedfordshire (Sir D. Madel)—I do not know whether he is present—was reported in his local newspaper as saying: When we are returned to power, we will build on this scheme, which is doing a lot to help people. Do not other Conservative Members agree that the new deal is doing much for young people? It is about time that the Conservatives recognised that that policy, too, is right for the country.

The Conservative party is opposing the working families tax credit—a measure which is similar to the earned income tax credit that was expanded by Ronald Reagan in America. The programme enjoys all-party support—from Republicans to Democrats—in the United States. The Conservative party wants to prevent work paying more than benefits as a result of the introduction of the working families tax credit, which improves family credit. Why do Conservatives refuse to extend to 1.5 million people, as we want to do, the benefits that they, under family credit, made available to 800,000 people? What dogma has taken over the Conservative party to the extent that it does not want to reduce the marginal rate of tax for low-paid workers?

Mr. Nick Gibb (Bognor Regis and Littlehampton)

indicated dissent.

Mr. Brown

The hon. Gentleman, a Front-Bench spokesman, says that the Conservatives will definitely abolish the working families tax credit. I am sure that my hon. Friends will agree that this has been a very revealing debate. The Conservatives would abolish the working families tax credit; an Opposition Front-Bench spokesman is prepared to say it.

Mr. Gibb

indicated dissent.

Mr. Brown

If the Conservative party stands on that policy, 1.5 million low-paid workers will face a major wage cut as a result. It will have to answer to the British electorate for that.

Mr. Kenneth Clarke

May I remind the Chancellor that he inherited the welfare-to-work policy? We argued that the working families tax credit would simply replace our system of family credit, and we rejected it because the American experience is that it is more expensive, less effective and more open to abuse. The only reason why the Chancellor adopted it was to fiddle public spending figures—to pretend that money spent on it was not public expenditure any more—in order to keep down the anticipated growth of public expenditure over the next three years to a mere 2.75 per cent. in real terms per annum.

Mr. Brown

History books will show that the original proposal for family credit in the 1980s was very similar to the working families tax credit. It was rejected due to opposition in the Conservative party. That was not right for the country.

As people see the benefits not of just family credit but of a guaranteed minimum income of £190 a week, which is available to those who have families and who take up the opportunity to work, they will realise that the working families tax credit is a far superior system. Even the right hon. and learned Gentleman, a former Chancellor, who has changed his mind on issues such as the Bank of England, will change his mind on this policy. Our policy of building on stability is a new deal for young people and the long-term unemployed, backed by a minimum guarantee of money for families in work, so that work pays for everyone who is able to do it.

I think that, on reflection, the Conservative party will change its policy on the minimum wage, too. A minimum wage, which was acceptable to Sir Winston Churchill and is applied in America and all countries that have a higher standard of living than ours, is a minimum necessary not simply for economic efficiency but for social justice. On that issue, the Conservative party has much thinking to do. I look forward to hearing the results of it.

The next building block in our economic policy is what we will do about productivity—[Interruption.] We mention productivity and the Conservatives start to laugh, as if they do not recognise it as a problem. I can tell them who first wrote about productivity as a problem in the 1990s. It was the former Deputy Prime Minister, the right hon. Member for Henley (Mr. Heseltine), who, year after year, published competitiveness White Papers saying that our productivity had to improve. [HON. MEMBERS: "It did."] Does the shadow Chancellor say that there is no productivity gap with any of our competitors?

Mr. Maude

rose—

Mr. Brown

He may be able to correct us now.

Mr. Maude

What I will say is that, as a result of what we did, productivity did improve. It is since the election that it has started to fall. Why did Siemens, Philips and BMW praise Britain to the skies as a place to do business then, whereas they are now withdrawing?

Mr. Brown

The revealing aspect of the shadow Chancellor's answer is the fact that he started it with the words, "What I will say is that—". In other words, he cannot deny that there is a productivity gap with our competitors. It is a sad reflection on 18 years of Conservative government that we have a gap of 20 per cent. with some of our European competitors and 40 per cent. with some of our American competitors.

British business and the Government, unlike the Conservative party, are prepared to examine those issues, to discuss them seriously and to consider practical things that can be done. We have been prepared to consider the venture capital industry, for example, and what we can do about employee shareholding and how to encourage science and innovation. The shadow Chancellor may not want to comment on any of those announcements, but they represent significant advances for science and innovation, and for small businesses in this country. We have cut small business taxation and given advances for training and skills—

Mr. Bercow

rose—

Mr. Brown

I shall not give way at this stage—[HON. MEMBERS: "Oh."] All right, I will.

Mr. Bercow

I thank the Chancellor for rethinking his decision; let us hope that it presages a rethink on all sorts of other issues on which he has cocked up in massive style—

Hon. Members

Wash your mouth out.

Mr. Deputy Speaker(Sir Alan Haselhurst)

Order. The hon. Gentleman might like to withdraw that remark and rephrase it.

Mr. Bercow

I withdraw that ill-advised term,Mr. Deputy Speaker.

In his foreword to Labour's business manifesto of April 1997, the Chancellor wrote: We will not impose burdensome regulations upon business because we understand that successful businesses must keep costs down". How does he square that ringing declaration with the reality of an additional £1,500 per person tax and regulatory burden in the lifetime of this Parliament? Is that not a contradiction, and will he not apologise?

Mr. Brown

We have cut corporation tax— [Interruption.] Now the Conservatives want to deny that we have cut corporation tax. This is a revealing debate. We cut corporation tax—[Interruption.] They are getting angry. We cut corporation tax from 33p to 30p, and small business taxation from 23p to 20p. We have introduced a long-term capital gains tax rate of 10p in the pound. All those measures have been welcomed by business. It is a pity that business and the Conservative party are so much at odds these days that the Conservative party cannot also welcome them.

I have raised the issues of monetary policy, stability and the international financial system and how we shall improve it. I have also challenged the Conservative party on welfare to work, and Conservative Members do not seem to be able to give answers. Productivity, which they seem to regard as a joke, is serious to every business; it is something on which business wants to work with us.

Let us deal with the final building block of our policy— the fact that the country needs and deserves good and efficient public services. I thought that the shadow Chancellor would welcome the fact that we had a surplus of £5.5 billion on the current account this year, the fact that we have kept under our spending ceilings, which he and his party said we would never be able to do, and the fact that a net borrowing requirement, prudently estimated in March, has turned into a surplus and allowed us to repay debt.

I thought the right hon. Gentleman would have welcomed the fact that the public finances have eliminated the current structural deficit as a result of the work that has been done. Instead, he is unprepared to recognise that we were left with a £28 billion deficit, and that the Labour Government have been prudent, sensible and cautious with public finances in a way that his party was not.

Mr. John Townend (East Yorkshire)

rose—

Mr. Andrew Lansley (South Cambridgeshire)

rose—

Mr. Brown

I shall not give way; I am explaining to the Conservative party what has happened to the public finances.

Conservative Members' answer on every issue is that they would cut public spending. Their answer to the question about what they would do about the economy is that there should be a moratorium on our public spending commitments. They started off by saying that public spending was unwise; then they said that they would not carry it out themselves; then they said that it was reckless; and then the shadow Chancellor, who needed a further comment to get attention, said that our public spending programmes were madness.

This afternoon, we have heard the shadow Chancellor say that he does not want to cut into health and education, but the only way that he could make the savings for reckless, extreme—as he calls them—spending programmes would be to cut into the £40 billion for health and education. That is the majority of the additional spending that we are undertaking; that £40 billion is absolutely central to the increase in public spending.

If the shadow Chancellor is telling us that he would not put health and education at risk, he must tell us which other billions he would cut, and in which areas. The Conservative defence and law and order spokesmen say that they would spend more. In which area would he achieve those billions of pounds of public spending cuts? Again, the public deserve a proper answer.

Mr. Maude

As he so often does, the Chancellor has said something that is plumb wrong. He said that the health and education spending increases are the majority of the public spending increases. The total, under the Government's funny accounting, is £110 billion over the next three years, of which health and education is no more than £40 billion. Nearly as much as both of those put together is social security spending, which the Chancellor and the Prime Minister promised to cut.

Mr. Brown

Let us be clear about this. The Conservatives entered the election campaign saying that they would maintain the basic state pension, and raise it in line with inflation. I assume that that is still their commitment. [Interruption.] No? Well, the debate gets more and more interesting, and is quite a revelation. The shadow Chancellor cannot give us a simple answer. Would he maintain the level of the basic state pension in line with inflation? If he cannot give that answer, he is breaching—[Interruption.] It has taken the shadow Chancellor some time to come to this point. Let us hope that we get a direct answer.

Mr. Maude

The country will be disgusted by a Chancellor behaving in such a way. He is responsible for the downturn starting in this country, and all he can do is make cheap debating points. He should grow up, stop being an adolescent. student politician, and take his job seriously.

Mr. Brown

The whole House, including Conservative Members, will note that the shadow Chancellor did not answer that question. He cannot give us an assurance, even though it was in the Conservative manifesto, that he would raise the basic state pension in line with inflation. This has been a very revealing debate.

Mr. Owen Paterson (North Shropshire)

rose—

Mr. Lansley

rose—

Mr. Brown

I do not think that two Back Benchers can rescue a shadow Chancellor in this difficulty, no matter how hard they try.

If the shadow Chancellor will not answer the question, every pensioner in the country should know that the Labour Government are raising the pension in line with inflation and have provided winter fuel payments, but the Conservative party will not guarantee that it would do that if it was in government.

We know now that there would be cuts in public spending if the Conservatives were ever in government. We know that health and education would be at risk, but there has been a £40 billion increase, which we will stand by. We know also that the pension is not something which the shadow Chancellor will guarantee. The Conservative party initiated the debate, and Conservative Members wanted to ask questions of us. The Conservative party must now answer all the questions. This Government are maintaining economic stability. We are improving public services. We will work with business to increase productivity. Unlike the Conservative party, we will be fair to every citizen, and that is why the House should support our amendment.

4.49 pm

Mr. Malcolm Bruce (Gordon)

I was confused by the direction of the Conservative attack. I have come to the conclusion that the only matter about which the Conservatives are sure is that they want the country to go into recession as that is their only hope of making some political gain. Although there are differences between the Liberal Democrats and the Government, we agree that we want the country to succeed. Our debate is about the policies that will ensure that success and the revenues that will underpin the public services in which we want to invest.

The Conservatives talk about fantasy forecasts, but we have had many opportunities to debate their forecasts and the substantial revisions that they had to undergo when the outturn did not fulfil the early promise. What is the Conservative policy on inflation these days? The Chancellor pressed the Opposition for clarification on several occasions on the subject of the Bank of England without receiving any coherent answer. The rhetoric appears to be that it was wrong to give the Bank of England independence and that it should be taken back under political control, which should then be used to reduce interest rates regardless of the implications for inflation.

Mr. Maude

That is what the Liberal Democrats say that they would do.

Mr. Bruce

It is not and the right hon. Gentleman will hear why. The reality is that Japan is the only country in the Group of Seven with a nationalised bank and, as a consequence, there has been a cosy arrangement between the politicians and the private sector, which has brought the country to its knees—hardly a model that we want to emulate. The reality is that markets recognise that independent banks take the short-term political interference out of decisions to control monetary policy. The Chancellor is right to say that that yields the benefit of lower interest rates in the long term.

The issue that dare not speak its name is how we learn to live with the euro. The Conservative party thinks that it has resolved the issue by simply saying, "We want nothing to do with the euro for eight years." That is completely at odds with the traditional pragmatism of the Conservative party when it had aspirations to government. No one knows what will be the responsible decision in eight years' time and the meaning behind much of what the Conservatives are saying appears to be, "Under no circumstances will we ever join."

Mr. Cash

rose—

Mr. Bruce

The hon. Gentleman should contain himself. Given that the euro will be established by 11 countries on 1 January, we will have to do business with that market and live with it. How will we compete if our interest rates continue to be double the European average? The Conservatives have nothing to say about that. They have no strategy or game plan as to how we should live with the euro. They want political control of the Bank of England so that they can manipulate interest rates regardless of the effect on inflation. They want the freedom to have interest rates double those of the rest of Europe. If that is an economic policy, I want no part of it.

Mr. Cash

Does the hon. Gentleman accept that, in practice, he is saying that the Liberal Democrats are prepared to tell their constituents that they will no longer have any real control—through the ballot box—over interest rates and inflation and, therefore, employment? Does he accept that it is ultimately a political decision and that the Liberal Democrats, in common with the Government and some others, are prepared to sell this country down the river?

Mr. Bruce

The hon. Gentleman should stop deceiving his constituents that he, let alone the Government—perhaps even more than the Government—has the power over such issues that he implies by his questioning.

We live in a global market—that is reality, not an opinion—and markets must be taken into account. Interest rates across Europe are at least 3 per cent. lower than those in the United Kingdom. It is unrealistic to expect us to compete with no strategy to close that gap.

The hon. Gentleman is naive if he thinks that the rate set by the European central bank—whether we are in or out of the euro—will have no effect on the decisions that this country takes, regardless of whether the Bank of England is under political control.

Mr. Bercow

The hon. Gentleman seems badly confused. In an interdependent economy, of course Sainsbury's must take account of the prices that are set by Tesco. Does he seriously believe—as he seems to, on the logic that he used in response to my hon. Friend the Member for Stone (Mr. Cash)—that the chairman of Sainsbury's would give up to the chairman of Tesco the right to set prices at Sainsbury's?

Mr. Bruce

That is a classic example of treating the economy of a family or a business as if it were the economy of a nation. We operate in a market, and we must take account of trends in that market.

The Government will have to decide on a strategy to deal with the situation in which we find ourselves. The downturn in the economy—which the Chancellor acknowledged yesterday, although he did not dwell on today—has been caused much more by the management of domestic policy than by international factors. In his reply to my question yesterday, he cited the $3 trillion fall in the world stock markets, but that figure takes account only of what happened between July and September. Over the year, the stock markets have not fallen at all—they are still, on the whole, at record high levels. For the vast majority of citizens, what has happened in the stock markets is not a factor that will fundamentally alter individual decisions.

In the pre-Budget report, the Chancellor compares our growth forecast with the weighted average of the G7 figures, which include the figures for Japan. If Japan is taken out of the equation, the downward thrust of British growth is, as the shadow Chancellor said, sharper than that of any of our major partners. The Chancellor has not acknowledged that fact; he certainly has not admitted that it has anything to do with his policies.

Liberal Democrats support the independence of the Bank of England. We believe that it is unwise for Ministers inadvertently or deliberately to lean on the Bank, as that could be counterproductive. As Trichet warned yesterday, the greater the pressure from politicians, the more likely independent bankers are to resist it—bankers must be allowed to make objective decisions.

That does not mean that the Chancellor can say, "It's nothing to do with me, guv." His fiscal and spending policies provide the framework within which the Bank operates, and that is where he has failed to strike the right balance. Because he has not pursued the strategies that would have enabled the Bank to reduce interest rates, which has created the disparity whereby our exchange rate has continued to be uncompetitively high, there has been a recession in manufacturing—he admits at least the risk of such a recession next year.

If the downward revision of our growth forecast and productivity is more to do with domestic economic management than world activity, which the Chancellor chooses to blame, his failure to make any changes will mean that his figures are over-optimistic and the Government's ability to sustain investment in public services may be undermined, which neither he nor I want.

Sir Michael Spicer

The hon. Gentleman makes a good point about the fact that the Government's fiscal policy does not match their monetary policy. However, should he not address that point to the Liberal Democrats? His party is the most profligate of all in pressing for more public spending, so how does he square that circle?

Mr. Bruce

I understand where the hon. Gentleman is coming from but, like so many hon. Members, we do not read one another's policy documents in detail. To have a proper fiscal policy, if one makes a commitment to invest in health and education, one shows how one will raise the money to pay for it. The Conservative Government did not do that. The irony is that they told us that they would cut spending and then boasted about the increases that they delivered; they told us that they would cut taxes, and they increased them. One does not get something for nothing. If one wants to make an investment in public services, one has to raise taxes.

Mr. Christopher Leslie (Shipley)

Will the hon. Gentleman give way?

Mr. Bruce

No, I will not, because I think that our position is clear and I want to discuss the Government's pre-Budget report.

We welcome the innovation of the report and the principle that it establishes, allowing better consideration before tax changes. As one who participated in the process last year, I know that the consultation was genuine and led to improvements in the quality of the changes that were introduced or, indeed, not introduced.

I hope that the Government will reconsider some of the tax wheezes that they seem to favour to provide incentives for various types of behaviour. We are in favour of simplifying the tax system and removing anomalies and will support the Government when they endeavour to do that, but well-meaning tax breaks often end up as wasteful tax loopholes that are quickly abused. The Chancellor, in opposition, was a master of exposing tax loopholes, so I hope that he will not create too many in government.

In evidence to the Treasury Select Committee, Andrew Dilnot said: Thinking back over the last 20 years, I can think of no tax scheme which has been particularly successful in its original objectives… any attempts to use the tax system to encourage a particular activity will generate all of the foreseeable problems we can imagine, a number we had not foreseen, and in general rather less of the good than we had hoped for. Those are reasonably wise words. The Government's proposals on individual savings accounts and capital gains tax are already causing problems, to which we will return on the Finance Bill.

It is easier to identify problems with productivity than to come up with practical solutions. There is an argument about how much of a productivity gap there is and how much it has improved in recent times. We will support measures that genuinely improve productivity, but most of those should come from the companies and businesses themselves, not from the Government. The problem has not arisen suddenly, and it is certainly not the cause of our current reduction in growth forecast.

The weakest chapter in the pre-Budget report is the section on productivity, which contains an awful lot of waffle. I think that we would all agree that it is desirable to keep to a minimum the number of unnecessary corporate failures", as we are told on page 37, but does that really need to be written in a Government report?

We welcome the extra money for the health service, but would it not be better to be realistic about funding in the first place? I know that the Chancellor likes to have a lollipop to pull out of the hat in his pre-Budget report, but is it sensible to throw £250 million at the national health service in the last five months of the financial year rather than providing it in a planned way over the course of the year?

We welcome the commitment to new measures to reduce pollution and the work that the Government are doing on tax to reduce carbon emissions from businesses, but am I right in thinking that the Chancellor's welcome for Lord Marshall's report was less than overwhelming? He promised to look at the matter very carefully and said that the report "moves forward the debate". Thank you, Lord Marshall, and goodbye? Will the energy tax join pensions reform, monetary union and other matters in being kicked into touch? As one political commentator said yesterday, it will soon be standing room only in the long grass.

The central issue in the pre-Budget report was the outlook for growth, employment and borrowing. The Chancellor has forecast a modest and short-lived downturn, but the question being asked in the House and outside is whether that is wise. Unlike the Tories, the Liberal Democrats do not pray for a recession before going to bed each night. We understand that recessions tend to occur when economic policy cannot respond to deflationary forces—for example, if there is an inflation problem or a profound currency problem—but we do not currently have such problems in the United Kingdom. The Liberal Democrats, therefore, agree that the best guess is a slowdown and not a collapse in growth, and we hope that that is the outcome.

I am surprised that the Chancellor has chosen to be quite so relaxed about our prospects. He has even revised the growth figures for 2001. I wonder whether he could not resist the chance to stick the shadow Chancellor's black hole down his throat. I accept that that prospect was inviting, but I am not sure that a 3 per cent. central prediction for growth for 2001 is prudent. It would be above trend if it were delivered. If that figure is too optimistic, the Chancellor may find that his borrowing forecasts are a little optimistic.

We agree that the Chancellor has given latitude on the golden rule and he has a margin for error built into the calculations, but we are concerned by his estimates for manufacturing output. Many people working in farming and manufacturing industries will have listened in vain for some words of encouragement from the Chancellor. He forecasts 0 per cent. growth next year as a central tendency, so even he acknowledges that we could face a recession. The private sector consensus is closer to minus 0.5 per cent. and some commentators have gone as low as minus 3.5 per cent. The CBI survey, the results of which are the worst since 1980, estimates that manufacturing is likely to be in recession next year and that, over the two years, job losses could exceed 400,000.

The Government have not addressed that crisis. The Chancellor's manufacturing forecasts look like proving both complacent and wrong.

The situation may be even worse. No Chancellor wants to forecast a recession in any sector of the economy, but the danger is that, in masking his concern, he has produced a policy complacency that puts jobs at risk. I made that argument last week and I shall not repeat it, but I remind the Chancellor that lately the pound has been higher than it was in the 1990 recession and real short-term interest rates have been higher than in the 1980 recession. If those problems are not addressed, we face a continual haemorrhage of jobs from the manufacturing sector. In his July Budget last year, the Chancellor diagnosed that problem, but he has failed to deliver his own prescribed cure for rebalancing the economy.

Yesterday, the Chancellor failed to give the Bank of England a clear message. If he had said that he will not ease fiscal policy in March and, in the present climate, that he will not go ahead with his 10p tax rate, that would have enabled the Bank to bring down interest rates sharply. The Chancellor must surely acknowledge that interest rate cuts—and not tax cuts—must now be the priority. It is unnecessary to dangle in front of us tax cuts that he cannot deliver at the risk of failing to give the Bank of England the scope to the deliver the rate cuts that are desperately needed. If his complacency causes the Chancellor to ignore that need, interest rates may not come down sufficiently fast. I worry that the Chancellor's reading of the situation is that we have passed the worst and that the Bank of England is so depressed by the situation that it will reduce interest rates as a consequence of its negative outlook. The Bank has certainly not received any policy guide from the Chancellor. Without a shift in policy, thousands—even hundreds of thousands—of manufacturing jobs will be lost.

I hope that the Chancellor's optimism is borne out. He is in charge of the economy and we all hope that he is right. I hope that he understands that the issue is neither the global economy nor the productivity gap. He has a responsibility to share with the Bank of England the policy that will deliver what all of us need. That policy is lower interest rates and a competitive exchange rate that can ensure a slowdown, followed by sustainable growth and the ability to fund quality public services.

5.9 pm

Mr. Christopher Leslie (Shipley)

I am glad to follow the hon. Member for Gordon (Mr. Bruce) as it was interesting to hear him say that it is wrong to dangle major tax cuts before the public. I know that he has advised people not to read the policy documents of other parties, but I have read closely his pronouncements in "Moving Ahead", the financial policy he set out at his party conference. His proposals included changing personal income tax allowance from £4,195 to £10,000, which would cost the Exchequer £29 billion.

I do not like to quote the hon. Gentleman's words back at him, but those proposals hit me in the face when he said that when we make a commitment, we have to take responsibility for saying where the money is coming from. As long as we establish that the Liberal Democrats are beginning to say where the money is coming from, that is the important thing. They have said that they want to cut what they regard as ill-judged tax reliefs and to impose a significant energy tax, although the details are unclear.

To raise £29 billion would mean astronomical changes in the tax system. That amount is nearly half the total income tax take, and it is more than the combined amount we spend on law and order, trade and industry and defence. We must find out how the Liberals would raise the money. They talk of ill-judged tax relief, but scrapping tax relief on occupational pension schemes would raise only £9 billion. It would be interesting to know whether they would do that, and I would be happy to give way to the hon. Member for Gordon if he wants to clarify the point.

Does the hon. Gentleman want to scrap tax relief on redundancy payments? That would raise only £1.1 billion. If the hon. Gentleman were to try to raise the whole £29 billion by adding to the price of petrol, he would have to triple its price. I urge him to take his own advice: when he makes a commitment, he must take responsibility for saying where the money will come from. I shall happily give way to him if he wants to specify how he wants to pay for that. Will he? No answer. I need not dwell on the Liberals, who are obviously not interested in their own policies.

Let me focus instead on what is left of the rabble that is the official Opposition. Not many of them are here, and I am sorry that the shadow Chancellor has gone because I had many questions for him. He came out with so much concern for employment that I wondered whether he was considering resigning his directorships at Asda and at Gartmore Shared Equity Trust to let someone else have a go at those extra jobs. Perhaps employment does not figure so personally in his interests.

The Conservatives persist in talking down the economy. They constantly pick away, trying to find any loophole that will gain them some political advantage. They point out any statistic they can find, throwing bar charts and all sorts across the House at us. They try desperately to say that there will be a meltdown, a catastrophe or a depression. Many economists, industrialists and bankers are worried that if the Tories continue to talk like that—and they must take responsibility for what they say—they may talk down the economy. Lloyds bank said last week that talk of global meltdown raised a real danger of talking ourselves into a United Kingdom recession.

The Conservatives contribute—perhaps unwittingly—to that problem. Or maybe that is exactly what they want. They want to keep the ball rolling. They want to cash in on political opportunism whenever they can. That is their agenda. They play games and throw mud without ever saying how they would change things. Would they reverse the Bank of England's independence? We heard policy-making on the hoof from the shadow Chancellor when he tried to answer that question, until the hon. Member for Westmorland and Lonsdale (Mr. Collins) stepped in and said that other Governments have not laid out policy until after elections. Now we have the threat of their not being prepared to say what they will do about the Bank of England.

Mr. Townend

Rubbish.

Mr. Leslie

Will the hon. Gentleman say exactly what Conservative policy is?

Mr. Townend

We did not say that we would not tell the public. The Chancellor will not tell the public the tax changes in the next Budget. We shall tell the public the policies on which we shall fight the next election in a year or two years from now. We shall not tell them now. Your party is in Government. It is your duty to debate the issue.

Mr. Deputy Speaker

Order. The hon. Gentleman knows that I have nothing to do with that.

Mr. Leslie

The hon. Gentleman is on the fast track towards becoming the new shadow Chancellor. They certainly need a new one following the performance given earlier by the right hon. Member for Horsham (Mr. Maude). We have just heard that Conservative policy has changed again within the past hour. The Opposition were not going to announce what they would do about Bank of England independence until after the next election. Now the hon. Member for East Yorkshire (Mr. Townend) says that they will announce their policy within the next two years, and we can look forward to that. Let us write the date in our diaries in red while we wait to hear what their policy will be. It is not only Conservative and Labour Members who will be interested. The whole country waits to hear what the Conservatives propose. The risk that their election would pose to the economy is substantial. The people of the UK need to know what they would do. [Interruption.] They can bluster all they want, but they clearly do not like to be asked what their policy is. They are all over the place on public spending, too.

Mr. Lansley

Would the hon. Gentleman try to explain something in the Chancellor's pre-Budget report rather than talking about Opposition policies? Why has the Chancellor reduced from 2 to 1 per cent. his economic assumption underlying public finances for growth in 1999–2000, while simultaneously increasing from £344 billion to £348 billion his anticipated Government receipts? Why does he forecast that growth will go down, but receipts go up? Is that another of the Chancellor's fantasy forecasts?

Mr. Leslie

That is an intriguing intervention. The Conservatives plainly do not want to talk about the solutions that they offer to the country. After all, this is only an Opposition debate.

The hon. Gentleman knows that the UK is not in isolation from the other countries of the world. We live, work, employ and manufacture in a global economy. We must recognise that worldwide downturns and problems will affect us. We must put policies in place that will get us out of difficulties.

Mr. Barry Gardiner (Brent, North)

Does my hon. Friend agree that if the hon. Member for South Cambridgeshire (Mr. Lansley) had been in the Chamber earlier or, if he were here, had unblocked his ears while his point was being answered, he would know that revenue projections for next year are based on this year's growth, which has not been downgraded, not next year's growth which has been.

Mr. Leslie

I thank my hon. Friend.

Mr. Lansley

Will the hon. Gentleman give way?

Mr. Leslie

No. My hon. Friend the Member for Brent, North (Mr. Gardiner) offered the embryo of a great speech that we shall perhaps hear later this evening.

Mr. Lansley

Will the hon. Gentleman give way?

Mr. Leslie

No.

I want to focus on public finance and expenditure over the next three years. An extra £40 billion has been committed for health and education. That financial expenditure will not only bring benefits to the whole country in terms of better public services, improved infrastructure and better capital but have an impact on the economy as a whole. I am intrigued to know just what the Conservative party proposes. Conservative Members talk about the downturn, the slump, the great depression and the meltdown that they foresee, or rather they would love to see as they rub their hands, yet they want to slash public expenditure right at the time when the supposed downturn is taking place.

I want to know from the Front-Bench spokesman how the Conservatives reconcile cutting public expenditure at the time of a supposed downturn. Do they not realise that that would magnify all the economic problems as a result of changes in the global economy and hurt this country in a much more significant and ingrained way? I should like to know whether they realise what effect their proposed massive spending cuts would have on the economy. Such cuts would be devastating. The Conservatives' blindness to even the most obvious economic factors will come to haunt them at the next general election.

There were discussions earlier about exactly what public spending on services the Conservative party would consider cutting. We all know that health and education would be a target. The Conservatives were specific in setting out the social security budget as something that they wished to target. They would scrap the £5 billion of expenditure on the new deal to get people off benefit and into work, which is thereby reducing unemployment and, as a corollary, cutting costs to the Exchequer such as jobseekers allowance and other things over the long term. That is the way to bring down social security expenditure, and that is exactly what we are doing.

The Conservatives want to scrap the working families tax credit. They are not bothered about the poverty trap or getting people off benefit and into work. It is the old, 1980s Conservative party coming back and haunting us. I am not old enough to remember the election of Margaret Thatcher in 1979—[Interruption.] Well, I probably am, but it might not have been the first thing on my mind at that time. It was refreshing to hear again all the mistakes that were made in the 1980s. The Conservatives still have not learnt. They want to start right back where they began. They have no concept of where they went wrong. That is good because, as long as they do not realise what is happening, the rest of the country will. We realise what is going on and the people realise what went wrong, but the Conservatives are absolutely nowhere on economic policy.

Mr. Geoffrey Clifton-Brown (Cotswold)

The hon. Gentleman seems to be advocating the old Labour Keynesian economics of spend, spend, spend. Can he explain why some of his socialist friends in Governments in Europe, who are much better at spending than his Government, have higher unemployment than Britain? Will his Government have higher or lower unemployment when they leave office—in the not too distant future, I hope—than when they took office?

Mr. Leslie

There we have it—the dogma of the Conservative party. Conservative Members wish to slash vital public services regardless of the effect on the wider economy. They are oblivious to the needs of the wider economy and the state of demand in this country. The effect of cutting public services would be astronomical. Conservative Members need to think carefully about their position.

During proceedings in Committee on the Finance Bill, the Conservative party proposed a number of changes. They moved a series of amendments which amounted to a £6 billion reduction in the funding available for public services. So as well as opposing the windfall levy on the privatised utilities, the Conservatives have committed themselves to reducing the funds available for public services by £6 billion. They have a variety of choices available to them. They could add the extra money that they would need to borrow, raise other taxes to compensate, which is what I suspect is on their agenda— they would increase VAT on fuel, among other things— or they could cut vital public services. Those are the questions that the Opposition need to answer and pursue.

We have heard today that the Conservatives threaten the basic state pension and its uprating by inflation. Perhaps when they target social security expenditure, they also threaten child benefit and benefits for disabled people. We shall have to find out in the coming months. We await their policy with interest.

The state of the economy is interesting, not least because we have to acknowledge that we do not live in a vacuum. I think that the Conservative party sometimes imagines that we do. The old protectionist agenda cloaks it in its historical role. There have been significant international changes. Change has occurred in Japan and ricocheted around Russia, and through Latin America and other areas. Serious threats have been posed by large financial institutions such as the hedge funds, Long-Term Capital Management and others. Economic issues affect us all.

I am proud of the leadership that has been shown by my right hon. Friends the Chancellor of the Exchequer and the Prime Minister on the international level in the G7 and other forums to move to a more transparent international financial system, to ensure greater supervision and regulation of large capital movements and to ensure that the International Monetary Fund and World bank are more able to nip embryonic problems in the bud. That is an important point. As we saw on Monday, the Conservatives have no answers to give.

The Government have put us on the right course to the sustainable, high-productivity, high-growth economy that we all want by setting domestic fiscal policy, committing themselves to public spending and the capital expenditure that we know is so important. The monetary policy framework has been set out, with independence for the Bank of England so that stable, long-term objectives can be met. I congratulate my right hon. Friend the Chancellor of the Exchequer on putting those firm foundations in place.

5.28 pm

Sir Michael Spicer (West Worcestershire)

The hon. Member for Shipley (Mr. Leslie) made a good speech for the first 90 seconds. He was right about the Liberals. Given his Front-Bench's love-in with the Liberals I am not sure whether he will earn himself promotion, despite all the flattery in the last part of his speech—it was not such a good speech at the end—but he is right about the Liberals. He was especially right in saying that, although the Liberals would increase taxes—they are unashamed about that; it is something that they think would be a good thing—the revenue would in no way meet the bills for the profligate suggestions that they make. Never a day goes by without some Liberal spokesman making some great grand gesture for expenditure. The idea of the hon. Member for Gordon (Mr. Bruce) that the Liberals are the people who have the balanced view is wrong. The hon. Member for Shipley was right to point that out, and I am glad that he did.

The real irony of this debate has been that for the past two hours, Labour Members, including the hon. Member for Shipley, have been jumping up and down like a jack-in-a-box defending the independence of the Bank of England and asking all sorts of rude questions of us. Yet they are the same people—including the Chancellor, to whom I put this question in an intervention—who are hellbent on abolishing the independence of the Bank of England and handing over its reserves and powers to the European central bank. It is an enormous hypocrisy on the part of the Government and the governing party to pretend to take the line that they do when they are hellbent on abolishing the independence of the Bank of England.

Those who have not been jumping up and down defending the independence of the Bank of England are likely to be those such as the Chief Secretary who are muddled about the exact nature of that independence. As my hon. Friend the Member for Louth and Horncastle (Sir P. Tapsell) pointed out in a sharp intervention earlier, the nature of that independence needs thinking about carefully, especially on the afternoon when the Monetary Policy Committee is deliberating on what interest rates will be tomorrow. I congratulate my hon. Friends on the Front Bench on having chosen today for this debate, and I am glad that Labour Members have raised the pertinent question of the Bank of England, on the very day that the Monetary Policy Committee sits.

The Chief Secretary to the Treasury does not appear to have taken on board the exact nature of the remit given to the MPC. It is worth quoting section 11 of the Bank of England Act 1998, because in meetings of the Select Committee on the Treasury, it has become clear that many Labour Members are becoming more and more muddled about the role of the MPC. That role is clearly defined in section 11, which states: In relation to monetary policy, the objectives of the Bank of England shall be— (a) to maintain price stability, and"— this is the crucial point— (b) subject to that, to support the economic policy of Her Majesty's Government". The legislation goes on to define how the inflation target is to be set. None of that is the same as that which applies to the Federal Reserve or the European central bank. Therefore, it is interesting and relevant to make clear the role of our central bank in relation to economic policy.

Given that extremely tight context, which makes the inflation target the only real objective that the MPC has to consider as a matter of priority, it is relevant to ask what inflationary pressures face the MPC this afternoon. That is not a subject which has arisen in our debate, but it is one that the members of the MPC will discuss if they are doing their job properly, according to statute and the law of the land. It is by no means an easy question for the MPC to answer.

The first point is that not one single forecast provided by the Government shows any sort of undershoot of the inflation target. Most of the forecasts veer either towards the target or above it, but no one is talking about there being an undershoot of the statutory target at the current rates of interest. I did not invent the target—the Government invented it and they set the law of the land.

If, when looking at inflationary forces, one takes the figures for broad money, one sees that the latest figures show that 12-month growth rates have risen to 9 per cent. from 8.7 per cent. in August. The money supply is a definite determinant of the rate of inflation. Although there are arguments to be had about how strong a factor it is, no one would deny that, if one is printing more money, one is creating inflationary pressures. The figure for M4 is currently rising, not falling. Furthermore, no one would deny that the labour market is still extremely tight—for example, unemployment is considerably lower than it was in the first quarter of this year.

The hon. Member for Shipley asked why we worry so much about expenditure, which brings us to the question of the Government's fiscal policy. That policy has to be seen, not only in terms of new hospitals and the context in which the Government wants it to be seen, but in terms of its effect on the MPC's remit on inflation and, therefore, its effect on interest rates. One of the hypocrisies that we hear time and again from hon. Members of all the other parties, including the Liberals, is their failure to take the point that, having for better or worse established by statute such a clear-cut policy on inflation—I personally think that having a fixed inflation target is for the better—if they are profligate in public spending and print money in the way they are printing it, the effect can only be to force the MPC to keep interest rates up, with all the detrimental effects on unemployment and other economic consequences that that carries with it. That is the point which continues to be missed: if the Government are profligate in their fiscal policy and spend beyond what the country can afford and if, therefore, inflationary pressures are created, it will result in higher interest rates and in poverty.

Mr. Andrew Love (Edmonton)

The hon. Gentleman has twice mentioned the so-called profligacy of the Government's public spending targets. Will he tell us in which areas he would make cuts in order to bring public expenditure back under control?

Sir Michael Spicer

The hon. Gentleman's party is in government and it is the Government's job to set targets and to write statute. It is up to them. That is what winning elections means: if one wins an election, one is in charge of priorities. I do not have the books in front of me and I do not know the Government's priorities. I can list various things that I would not be doing were I in government— for example, I would not be reforming at vast cost to the country the highly effective GP service that the Conservative Government left behind. There are many things that I would not be doing, were the Conservatives in government, but, sadly, we are not in government.

It is the responsibility of Labour Members, whose party is in government, to go to the councils of the parliamentary Labour party, or wherever such matters are discussed, and determine what action will result in a public expenditure policy that keeps interest rates down. That is the point which Labour Members keep missing. They Miss it because many of them believe that, somehow or other, someone will give the thumbs down to the Governor of the Bank of England and the MPC when they try to raise interest rates. They have not read the statute properly and believe that we operate the same system as the Federal Reserve, but we do not: we live under a different system, one which is of the Labour Government's own making. It is the Labour Government who have to find the solution; otherwise, interest rates will continue to rise. The question is whether the pressures from public expenditure will, as the Government suggest, create a balanced economy.

Mr. Love

Does the hon. Gentleman agree that it is dishonest of the Opposition to set up this debate to chide the Government on their economic policy, but to refuse to offer any alternatives on the best way forward?

Sir Michael Spicer

It is not the job of the Opposition to govern the country. That is what the electorate determined a year or so ago. As my right hon. Friend the Member for Horsham (Mr. Maude) said, why should the Government come crawling to us for solutions to problems that are entirely of the Government's own making? That is the crucial point.

The reason the problems are of the Government's making is that, when one examines the concept of balanced growth, of which the Government have been making much for the past 24 hours, one realises that it does not stand up. The growth assumptions on which the so-called relatively balanced budgets are projected simply do not stand up to scrutiny. No serious economist or commentator would agree with the Government's growth projections, or be able to give any reason why the projections should be increased for the year after next. That is the most extraordinary thing for the Government to have done.

Even given the Government's own projections, the MPC is sitting down this afternoon having to take into account a deficit for the next five years that is £11 billion higher than it had to consider when it last discussed interest rates. That £11 billion has arrived out of nowhere, based on extraordinarily optimistic growth figures. Although it has not been widely noticed, it is no wonder that long-term interest rates have begun to harden in the past 48 hours. That is absolutely logical.

I asked the Chancellor yesterday how he can square a profligate expenditure programme with trying to help the MPC to reduce interest rates. I got no answer. The members of the MPC must be scared out of their wits this afternoon as they consider the public expenditure plans in cold print in the context of the interest rate policy, which no doubt they want to try to accommodate with what are conceived to be the nation's needs on growth, unemployment and so on.

Unless the Government stand ready to change their expenditure or tax plans if their growth forecasts prove to be wrong—we have not heard anything to that effect— the MPC can have no alternative but to assume that the Government are embarking on an expenditure programme that the nation is unlikely to be able to afford and which will therefore be inflationary. Given the Government's stance and, above all, the terms of reference that they have set the MPC, it would not be surprising if the committee decided to hold interest rates at their present level. The crucial point is that the nation should understand that all the pain that that would cause would be entirely the Government's fault.

5.40 pm

Mr. Geraint Davies (Croydon, Central)

There has been a pathetic and miserable attempt by the beleaguered Opposition ranks to talk down Britain. They are not in the real world, let alone the global economy. Opposition Members think that we can arbitrarily set interest and exchange rates as if Britain exists in a vacuum. They live in a fantasy land of away days dreamed up by the Leader of the Opposition where everyone dresses up as Val Doonican and pretends that the UK floats around on its own.

Global circumstances are difficult. A quarter of the world is in recession; global growth forecasts have been halved; the US is rescuing hedge funds; the Japanese are rescuing banks; Hong Kong is rescuing companies; and the UK has, rightly, adjusted its growth rates. Where has the Tories' black hole gone? Why has it disappeared?

First, the starting point of the economic analysis is much better than people had assumed. The 1998–99 Budget forecasts growth of 1.75 per cent., but that has been revised up to 2.25 per cent. because, under Labour, the economy has fared much better. [Interruption.] No, it is true, and therefore public expenditure has improved and borrowing is lower. Prudent management has reduced the budget deficit from £28 billion a year to £8 billion a year. The projected surplus over five years is £33 billion. A reduction of 1 per cent. in the gross domestic product growth rate would cost £6 billion over two years, so there is a large margin of opportunity for manoeuvre.

The revised growth targets and rates are realistic and cautious. People will remember that the Chancellor revised the original trend forecast from 2.5 to 2.25 per cent. The economy is in good shape to face a slowdown which, by now, everyone should accept will occur.

Mr. Bercow

Like other hon. Members, I am accustomed to the hon. Gentleman's display of gut-wrenching deference to the European Commission in most debates. Will he explain to the House whether he agrees with the European Commission's prediction that this country will next year slump to the bottom of the European growth table; if not, why not?

Mr. Davies

The last time the hon. Gentleman spoke after me, his mother was in the audience; sadly, she is not here to take him home. I shall move on to EU growth rates in a moment. It is important that we discuss why the growth rate projections from the European Commission are lower than they were.

We are In good shape to face a slowdown in the world economy because the Government have cut debt and controlled expenditure and inflation, and interest and exchange rates are beginning to fall. If the Conservatives were in power, with their resistance to the independence of the Bank of England and current interest rates, inflation would go out of control and, in the midst of a downturn in the global economy, they would increase interest rates at the worst time while cutting back on public expenditure on health and education. That would be a disaster.

Looking back over the past 18 years, it is remarkable that the Conservatives caused two domestic recessions when the global environment was relatively stable. We now face choppier waters in the global economy and this Government are steadily and surefootedly leading us ahead using long-term investment.

The European Commission has forecast growth rates. First, anyone who has rudimentary knowledge of economics—which the hon. Member for Buckingham (Mr. Bercow) appears to lack—knows that Britain is at the top of the economic cycle and other economies are at a different stage. The economy is near capacity, but we have created an extra 400,000 jobs since we have been in power. The economic management challenge for the Chancellor is to put into productive work more people who have been dislocated from the economy through lack of training or opportunity. We have introduced the new deal and the working families tax credit to make work pay for people who were left on the scrap heap by the Conservatives.

We have done so well and are so high in the economic cycle that we have fewer opportunities for growth than our European counterparts. As I said, interest rates are beginning to fall because of the slowdown in the world economy. Exchange rates are now 10 per cent. lower; the pound has fallen from DM3.10 to DM2.75. Britain will come out of the slowdown more quickly and strongly than other EU countries, and that is implicit in the growth forecast. Hon. Members may ask why, and I shall answer that in a moment.

Mr. Desmond Swayne (New Forest, West)

I acknowledge the hon. Gentleman's point that Britain is at a different stage in the economic cycle, to which he has pertinently drawn attention. Will he develop his argument further and say what are the principal causes of our cycle being different from the continental norm and what measures the Government will take to correct that so that we can enjoy the benefits of a single European currency?

Mr. Davies

I am glad that certain Conservative Back Benchers are so enthusiastic about the single European currency.

Current and past events demonstrate that the United States and the UK lead the economic cycle while the core of Europe—Italy, Spain, France and Germany—lags. The UK and the United States went into recession in 1991, and France, Italy, Germany and Spain did not follow until1993. The UK and the US began to move out of recession by 1992, but the rest of Europe did not follow until after1994. Those cycles explain some of the changes in the EU forecasts of which the shadow Chancellor, the right hon. Member for Horsham (Mr. Maude)—who, I presume, has returned to Asda—has made such play.

Mr. Swayne

Will the hon. Gentleman give way again?

Mr. Davies

No, because I know that other hon. Members want to speak.

The first of the Government's main planks for tackling economic developments has been to introduce monetary stability through the independence of the Bank of England. That means that interest rates are now responding to the global environment rather than the domestically created environment, as under the Howe and Lawson recessions.

Secondly, although we inherited about £400 billion of debt, which was costing £28 billion a year, we have brought those costs down to £8 billion a year. As a result, we need not make cuts in health and education spending; in fact, we have drastically increased that spending, by £40 billion. The Opposition would obviously cut some of that amount from their pronouncements about our recklessness. They deny that, but it is self-evident.

Thirdly, as has been alluded to, Britain is now a leading player—the Chancellor is probably the leading player—in pioneering international reforms to enable us to live in a more stable world, by supporting reforms of the International Monetary Fund and making financial transactions transparent. Governments are shaping the future, instead of reacting like headless chickens, as they did previously. You will remember, Mr. Deputy Speaker, how humiliating it was for the Conservatives when we dropped out of the exchange rate mechanism.

Fourthly, we have the welfare-to-work measures—the new deal, making work pay, to bring back into the productive economy more and more people left permanently on the scrap heap by the Conservatives.

Fifthly, we have a focus on increasing productivity. It is no use saying, "It has nothing to do with us." In productivity, we lag between 20 and 40 per cent. behind many of our competitors. We are in the process of generating an enterprise culture by linking business enterprise into the school and university system, by encouraging venture capitalists and by encouraging regional development. Our challenge is to engage more people in the economy and to make them more productive, to make the whole of Britain more successful. Those changes, be they in management training, venture capital or enterprise, are some of the assumptions that underpin the Chancellor's cautious growth rate projections, which have been dismissed by the Opposition, who have no ideas for improving British industry.

If the Tories were in charge today, there would be no new deal. Where would they find the £5 billion? The people would still be on the dole. There would be no increase in opportunities for affordable work, so people would languish on the dole. There would be no Bank of England independence, so interest rates would have been held back for political reasons, then jacked up as the world economy slowed. Finally, there would be savage cuts in health and education. Opposition Members ask, "What about the welfare budget?" I remind them that, when we talk about welfare, we talk about old people, pensioners, children and the disabled. All those people would suffer if the discredited Opposition had an opportunity to govern, as has again been revealed today.

I very much commend the opportunities that have been placed before the British public again by our magnificent Chancellor, and I am happy to reject the ridiculous motion and to support the Government amendment.

5.52 pm

Mr. John Townend (East Yorkshire)

With respect, some Labour Members need to learn that the Opposition's job is not to do the Government's job, but to hold the Government to account. I shall try to do the latter in my contribution.

This is supposed to be a green Budget. Incredibly, in yesterday's statement and in today's debate, Labour Members have hardly mentioned the word "taxation". Yesterday, I tried to intervene on the Chancellor. I now ask the question that I would have asked him, and I hope that, in her reply, the Economic Secretary to the Treasury will answer me. My question is, do the Government expect that, in this Parliament, the total burden of taxation—national and local—will rise or fall as a percentage of our national wealth? It is a simple question; I should like an answer.

Yesterday, as I listened to the Chancellor's statement, I was struck by his self-satisfaction, and his complacency and gross optimism made me think that he was living in cloud cuckoo land. He was self-satisfied about the condition of the public finances, and proudly boasted that this year the budget would be £5.5 billion in surplus.

Hon. Members who have been in the House for a long time know that I always welcome a surplus. However, the Chancellor did not say who has paid for that surplus. First, it has been paid for by tomorrow's pensioners, who have seen the Government rape their pensions by no less than £5 billion—not in one year, but every year. Secondly, it has been paid for by the motorists, who have suffered the biggest increase in fuel tax in living memory, yielding the Government an extra £2 billion a year. For the first time in my life, it is possible, on the way home from the continent, to fill up in Calais more cheaply than in this country.

Obviously, we have an anti-motorist Government, who are hitting people who live in rural constituencies such as mine, who need a car to get their children to school and to get themselves to work.

Mr. Gardiner

Does the hon. Gentleman accept that it was stated in the previous Government's Budgets—their plans were laid out for all to see—that fuel tax would increase each year? Does he accept that, in the first year of the Labour Government, we are keeping exactly in line with those plans, so the increase was as projected by the Conservative party?

Mr. Townend

That is not correct. The Government have inflated the increase by far more than we would have done.

I readily accept that the previous Government made a mistake in putting up tax to that level—falling for the greens—but the present Government have put it up by 6 per cent. more than inflation. If that process continues for five years, there will be a horrendous increase of 30 per cent. more than inflation.

Mr. Clifton-Brown

My hon. Friend has given the House the correct figures. The Government have increased the fuel tax inflator by 6 per cent. over and above inflation, and value added tax is imposed on top. That means that his and my constituents, in rural areas, will face a staggering 35p a gallon increase in April 1999. Does he believe that his constituents will be disadvantaged by that?

Mr. Townend

I do, and I assure my hon. Friend that I shall urge the Conservative Front-Bench team and the Leader of the Opposition not to go into the next election as an anti-motorist party. I should like us to give a commitment not to increase the price of petrol by more than inflation. That, of course, is a personal opinion.

I shall now talk about complacency. The Chancellor is still fighting the last battle—the battle against inflation—whereas the battle that threatens us in the months ahead is the battle against deflation. As was correctly pointed out yesterday, Japan, the second largest economy in the world, is suffering from deep deflation. Despite an interest rate of 0.25 per cent., its economy is shrinking rapidly, with no sign of recovery. Russia is broke, and the German banks will have a large write-off of their Russian debts. Latin America is teetering on the edge of a financial crisis. Those events, and the problems of some of the American hedge funds, have severely weakened and damaged the world banking system, to an extent as yet unknown.

However, I believe that, in the United Kingdom, despite the Chancellor's optimism about growth next year, we face recession. Agriculture is in deep trouble. Farm incomes are collapsing. Bankruptcies are increasing. Regrettably, because of their Euro-fanaticism, the Government are taking no meaningful action to tackle that problem. As a result, in the beef and pig sectors, British farmers do not have a level playing field with the continent.

Mr. Love

According to Budget projections, growth should be about 1 per cent. next year, increasing to 2.5 or 2.75 per cent. in succeeding years. Is not the hon. Gentleman's talk of recession actually talking Britain down?

Mr. Townend

Certainly not. It would be pointless for me, a representative of a rural constituency, to pretend in the House that everything in the garden was lovely in respect of agriculture. I should not be doing my job if I did that. I am not a professional politician like many people here. I entered politics as a business man because I believed in things. It has always been my practice in the House to say what I think—even if my comments are not always approved by my own party—and I do not think that the hon. Member for Edmonton (Mr. Love) is right.

I should be very surprised if the hon. Member denied that manufacturing industry has for months been suffering because of the high pound and high interest rates. Now, service industries are weakening, and each week brings more announcements of job losses in banks and City financial institutions.

I am very proud to be one of that small and—I should like to think—distinguished hon. Members who have run and owned a small business. I am therefore able confidently to tell Ministers, "I know what is going on out there." I can also tell the Chancellor that, in the past six weeks, in the north of England—not only in manufacturing, but increasingly in service industries—small businesses are suffering from the downturn and from declining profitability.

I know that the Chancellor will say, "I'm not to blame." Labour Members have already said, "We're not to blame—it's the world economy." What rubbish— [Interruption.] Labour Members laugh, but do they deny that small businesses' profits are falling largely because of the rising costs of implementing Government legislation? The Chancellor should be more honest and accept his share of the responsibility.

Does the Economic Secretary to the Treasury really know the cost to small business of implementing the working time directive? The directive is having a serious effect on the hotel and hospitality industry in my constituency. It is also undermining the split-shift system that is vital to the industry. Furthermore, individual proprietors, small business men, are having to keep far more detailed records—do far more paperwork—to satisfy the horde of Government inspectors who will enforce the regulations.

Does the Economic Secretary realise that the cost of the minimum wage to small business is not only the cost of merely raising workers' wages to the minimum wage, but the cost of raising the remuneration of those earning more than the minimum wage, to retain differentials?

Mr. Bercow

Does my hon. Friend agree that Ministers are guilty not only of arrogance but of ignorance? Last week, on the Floor of the House, the Chief Secretary, and this morning, in Select Committee, the Secretary of State for Trade and Industry were both utterly ignorant of the report recently produced by the distinguished firm of accountants, Chantrey Vellacott. It showed that the rise in regulatory burdens in the first two years of this Labour Government will be no less than 17.3 per cent. Is not their ignorance of that dramatic impost on British business a worrying portent for the future?

Mr. Townend

My hon. Friend is right. Furthermore, do not Ministers show their hypocrisy when they talk about productivity and competitiveness? It is the Government who have been destroying the competitiveness of much our industry.

Does the Economic Secretary know the cost to small business of implementing the packaging waste regulations that came from Europe? Does she realise the cost to small business of implementing the new European parental leave regulations—which came to Britain as a consequence of accepting the social chapter? Does she realise how massively costs to small business have been increased because of fuel tax increases, particularly on DERV? Every small business is involved in the delivery and the receipt of goods.

Does the Economic Secretary appreciate the burden of high interest rates, which bear down disproportionately on small businesses, which suffer from one of the highest overdraft rates in Europe? The Chancellor says, "Don't blame me, guv—blame the Bank of England." The hon. Member for Shipley (Mr. Leslie) gets very excited and asks whether Conservative Members would take away the Bank's independence. That question will probably be irrelevant because, if the Chancellor has his way, the Bank of England will have no independence, its functions having been transferred to Europe. We should certainly like to take away the independence of the European central bank and maintain our own independence.

Interest rates are the Chancellor's responsibility. He was the one who gave away the right that he and his officials had to fix the Bank rate. He must have done that because he did not think that he and Treasury advisers were capable of fixing interest rates at a level that was appropriate for the efficient running of the United Kingdom economy. Alternatively, perhaps he gave away the power because he did not think that he would be able to resist the political pressure applied by his spendthrift colleagues.

When we talk about lowering interest rates and reducing inflation, Labour Members should realise that—as my hon. Friend the Member for West Worcestershire (Sir M. Spicer) said—there are two sides to the equation: whereas a tighter fiscal policy allows lower interest rates in ensuring economic efficiency, a lax fiscal policy and high expenditure necessitate higher interest rates. Yesterday's green Budget proposed some small measures that will help. However, compared with the burdens on small business that the Government have imposed since they have been in power, those measures are chickenfeed.

I should like specifically to deal with tax incentives enabling employees of large companies to buy shares in the companies in which they work. Although I welcome such incentives, they distort the investment situation to the detriment of those who work in small businesses and are unable to buy shares, because the businesses in which they are work are either sole traders, partnerships or family-owned companies in which the family is not prepare to allow equity to be held outside a small family circle. If the Chancellor really wants to encourage saving and investment, he should give equivalent tax allowances for stock market investment to people working in small businesses.

All the signs are that the Government will end up like every other socialist Government—as a Government of high spending, taxing and borrowing. For the sake of our country, I hope that I am wrong. However, I believe that the pre-Budget statement will come back in future years to haunt the Chancellor. Ultimately, it will be the British people who will pay for his complacency.

6.7 pm

Mr. Geoffrey Clifton-Brown (Cotswold)

What a difference a year makes. In last March's Budget statement, the Chancellor was predicting that the economy was growing at an unsustainable rate, and maintained that interest rates might have to rise five times. He predicted also that the Bank of England would be able to meet its inflation target by using only one narrow measure: raising interest rates. If the Government had not run such a tight fiscal policy, the Chancellor would be able to reduce interest rates, and our competitive exchange rate would be down much more than it is from the April 1998 level of DM3.1 to the pound.

Last March, the Chancellor predicted growth of 1.75 to 2.25 per cent. He now states: My forecast for 1999 of 1 to 1½ per cent. growth in our economy will see Britain steering a stable course, even when one quarter of the world is in recession."—[Official Report, 3 November 1998; Vol. 318, c. 682.]

How can anyone accept the Chancellor's predictions when, only yesterday, he had to reduce so drastically his previous growth forecast? What growth rate will he forecast by the time we get to the real Budget, next March? I suspect that he will have to reduce his growth forecasts even further.

Britain's leading financial institutions are forecasting growth rates that are lower than those complacently forecast by the Chancellor. For example, Barclays bank predicts a growth rate of 0.8 per cent. next year; Goldman Sachs predicts a rate of 0.5 per cent; Morgan Stanley predicts a rate of 0.5 per cent; Warburg predicts 0.3 per cent; and JP Morgan predicts no growth whatever.

Regrettably, the Chancellor's forecast is complacently high. He is complacent about the amount of tax take that he will have next year and wants to spend more in real terms on the health service, on education and, above all, on social services. Indeed, next year the social services budget is likely to bust through the £100 billion mark for the first time ever.

Mr. Geraint Davies

What cuts would the hon. Gentleman make in health and education? Is he keen to cut funds for the disabled, children and pensioners? The shadow Chancellor would make no commitment to retain the state pension. What else would the Opposition cut?

Mr. Clifton-Brown

That is a stupid question. Labour are in government, and it will be found that over the economic cycle the Labour Government have spent money unsustainably. If the hon. Gentleman really wants to know how to save money, he should look at the £7 billion of fraudulent claims in the social security system. What about the £1 billion budget for health service computers, which do not even work properly and are unlikely to meet compliance targets by 2000? What about the £150 million wasted on reforming the GP fundholding system in the huge primary care groups, which will disadvantage my constituents? Savings can be found in plenty of areas of Government policy, if only Labour Members had the imagination to look for them.

Mr. Davies

rose—

Mr. Clifton-Brown

I hope that the hon. Gentleman's next intervention will be a little more sensible than his last one.

Mr. Davies

Does the hon. Gentleman accept that the previous Government had 18 years to make savings from the long list that he has just given, particularly from social security fraud, but that they failed to do so?

Mr. Clifton-Brown

We left the Government a golden economic legacy. Such a scenario, with growth exceeding inflation, has been achieved only twice since the war. That is the only way sustainably to increase Government expenditure commensurate with lower taxes.

I now wish to deal with the subject of keeping taxes down to their optimum level. We spent 18 years encouraging inward investment and were very successful at it. One year, we had a quarter of all Europe's inward investment from firms such as Siemens, Fujitsu and Lucky Gold, which all invested huge sums in this country. They are now so worried about our long-term economic future that they have decided that it is no longer viable to remain here. We shall lose jobs. The Government are far too complacent about the employment figures. No Labour Member has been able to say whether employment will be higher when Labour leaves office than it was when they took office. I fear for the jobs of my constituents and those of other hon. Members. Jobs will be lost over this economic cycle owing to the Government's economic mismanagement.

One has only to look at some of the measures, both economic and social, that the Government have implemented. One of the first was to join the European social chapter; emerging from that was the disastrous working time directive. They have instituted domestic measures, such as the minimum wage, which will damage employment. All those measures combined will lead to an unemployment rate that is common in Europe, but not yet common here.

In Europe, the average unemployment rate is 10 per cent. and there are almost 20 million unemployed people. I never want to see this country with unemployment rates approaching that figure, but I fear that the Government's complacent economic policies will lead us in that direction.

Mr. Bercow

My hon. Friend is developing a powerful thesis. Does he share my shock that, this morning, the Secretary of State for Trade and Industry described the estimated annual £200 million cost of the parental leave directive as "marginal" and merely a drop in the ocean? Is not that outrageous?

Mr. Deputy Speaker

Order. Before the hon. Member for Cotswold (Mr. Clifton-Brown) resumes his speech, may I advise the House that only a short time remains for Back-Bench speeches? Constant interventions will remove the opportunity for some hon. Members to speak.

Mr. Clifton-Brown

I shall observe your strictures, Mr. Deputy Speaker, and try to be as succinct as possible.

My hon. Friend is absolutely right. The red tape that has been imposed on businesses, particularly small businesses, which has come from both this country and Brussels—

Mr. Ivan Henderson (Harwich)

Will the hon. Gentleman give way?

Mr. Clifton-Brown

Labour Members cannot hear, let alone understand; and if they cannot hear, they cannot understand.

I am worried that the Item Club predicts the loss of 500,000 jobs in this country. Some of the policies introduced by the Government seem to be leading us in that direction.

I wish to deal with fiscal policy. There have been five base rate increases since the Government came to power. Interest rates are now at an unsustainable 7 per cent., which is 2 to 3 per cent. above the European average. That imposes huge cost burdens on businesses, particularly small businesses. However, the most important factor is that millions of people are paying more for their mortgages each month than they need to. Interest rates could now be lower if the Government had not botched up matters. We should look towards more stable spending, and the Monetary Policy Committee must decide whether confidence will prevail in the world economy. If it does not, the problem will not be meeting inflation targets; it will be deflation.

The world economy is based on confidence. In Japan, confidence has disappeared from the system and the Japanese Government have had to take extraordinary measures to try to reflate the economy. Just last week, they gave each man and woman £160 each to spend in an attempt to boost the economy. If confidence starts to disappear from the American economy, we shall all be affected. As an old prophet said, if General Motors catches a cold, we all catch 'flu—or something like that. If the American people stop spending, we shall undoubtedly be hit.

I urge the Government to look seriously at the role of the Monetary Policy Committee. First, it needs to be given a much wider role, not just the single remit of hitting an inflation target set by the Government at 2.5 per cent. That could drive the country into even deeper recession. Secondly, the Government should look at the MPC's composition. Only one member of the committee has had real experience of business, so members do not understand the misery that they are imposing on small manufacturing businesses by not running a more realistic interest rate policy. An interest rate that is more in line with those in Europe would make this country more competitive.

I wish quickly to mention a number of other issues. A Cabinet Committee is looking into public expenditure. Will the Economic Secretary explain what would happen if a Government Department were to overspend its budget? We are told that some expenditure might be held back next year. Does that mean that if the Department of Social Security overspends, some people will not be paid their jobseeker's allowance next year?

The Government's economic policy has led the country into recession, and we shall go into deeper recession still. This afternoon, the Prime Minister could not make up his mind on one of the most important economic topics that the country has faced since the war—whether to join European monetary union. He could not tell us whether, in principle, we would join—[Interruption.] Labour Members laugh, but it is one of the most important questions that business men want to know. The Prime Minister would not and could not say because half his party is opposed to it, and half is in favour, and he does not know what economic conditions will be in place when we face the prospect of a referendum. Therefore, why cannot he tell us whether he is, in principle, in favour of joining if the economic conditions are right? I believe that that is what his policy is, but why cannot he tell the House in clear terms what it is?

This recession has been made in Downing street. We will get a deeper and deeper recession. Tax receipts will drop, unemployment will go up, and we can blame it fairly and squarely on the Chancellor's botched economic policy.

6.19 pm

Mr. Edward Davey (Kingston and Surbiton)

When the House has debated the record and policies of Chancellors, it has debated the mix between monetary and fiscal policy: whether he is going for a tight monetary policy with a tight fiscal policy, or some other combination. Since the Government made the Bank of England independent, with the possibility of the euro down the track, our debates on the economy have changed. We welcome that, but what the House has not caught up with is the different ways in which fiscal policy can be actively used to affect the management of the economy.

One of our major criticisms of the Government is that they have not caught up with the dynamics of the changed decision-making process that they gave birth to. We feel that the Chancellor and Her Majesty's Treasury are not taking sufficient account of the effect of their fiscal policy on the interest rate decisions of the Bank of England.

So we have to start at the basics—analyse the way in which active fiscal policy can work. The Conservative Government, particularly in the Lawson era, said that active fiscal policy had no role in demand management. The new Government have rejected that ideology, but they have not made it clear how they envisage fiscal policy working in the short and medium terms.

The Government have set fiscal rules. They have set a framework for the long-term direction of fiscal policy, which we welcome, but they have not made clear how they envisage the role of fiscal policy in the short and medium terms. That is an important theoretical issue, with practical implications because of the independence of the Bank of England and the way in which fiscal policy, set in the short and medium terms, affects its decisions.

There are three ways in which fiscal policy helps in managing the economy. First, there is the aggregate effect—tightening or loosening fiscal policy can affect aggregate demand. Of course, there can be cyclical tightening or loosening, but there is also discretionary tightening or loosening. That is the decision of the Chancellor: whether, on a discretionary basis, he wants to take money out of the economy, or put it in through tax and spending.

Secondly, the way in which fiscal policy is tightened or loosened can affect the economy—the decision between different taxes and different spending; between whom in the economy to hit with taxes and whom to relieve of taxes; the decision on whether to increase public sector pay of certain groups of workers. All those types of decisions—micro-elements of fiscal policy setting—have a macro-effect. It is in that sector that the Government have made some of their major mistakes.

There is a third way in which fiscal policy affects macro-economic management. That is the rhetoric that lies behind the setting of fiscal policy because it can affect expectations of consumers and business. We saw that in the Lawson boom period. His rhetoric after the 1988 Budget seemed to suggest that national debt would be paid off, and that there would be income tax cuts for ever more. That engendered a feeling of euphoria, so people in the private sector borrowed loads of money and spent, spent, spent. Nigel Lawson's rhetoric fuelled the economic boom.

Similarly, the rhetoric of today's Chancellor is important in relation to the decisions that private sector agents take. Of course, with the independence of the central bank, the Chancellor's rhetoric is also important in relation to the Bank's decisions.

I am glad that the House has allowed me to explain the process in which fiscal policy affects economic management. When we look at fiscal policy from its theoretical basics, we can understand where the Government have made their mistakes in their first 18 months in office.

Our contention is that the Government got the fiscal policy judgment wrong in the July Budget of 1997. The Chancellor said in the House that the economy was unbalanced, manufacturing was slowing and consumers were still spending at quite fast rates, but the fiscal policy that he then proposed did not match that analysis. He failed to take the heat out of the booming sector—the consumer sector—but ladled taxes on to the sector in decline: the manufacturing sector.

Mr. Clifton-Brown

Does the hon. Gentleman agree that, if the remit to the Monetary Policy Committee had been wider than merely trying to meet an inflation target—for example, if things such as growth and unemployment had been built into the remit—we would have had a more realistic fiscal policy last year?

Mr. Davey

I cannot agree with the hon. Gentleman. I do not think that there is a connection. It was his party that signed the Maastricht treaty, whose mandate for the European central bank was similar to that introduced by the United Kingdom Government, but my point is that the fiscal policy that was set in the July 1997 Budget was wrong.

In yesterday's pre-Budget report, the Chancellor set out the fact that fiscal policy was tightened on a discretionary basis. That is clear because the Government increased taxes on industry and savings and squeezed public spending in their first two years—there was a discretionary tightening of fiscal policy. However, they failed to apply the tightening of the fiscal policy correctly. They tightened it not on those people who were spending, but on those who needed help. That is why manufacturing has been hit so badly—because of the Chancellor's mistaken judgment on where the tightening should take place in the economy.

The rhetoric was wrong. It gave all the wrong signals. Consumers were not told that their actions—the way in which spending was still taking off—were damaging economic prospects. The euphoria of the election victory or the fact that the Government's hands were tied after their fairly irresponsible election promises never to use personal taxation to govern the economy may have been the Government's excuse; but if they are really serious about managing the economy for the long term, and we have heard how many times the Chancellor uses that phrase in the House, they should be prepared to take difficult decisions, tough decisions, on personal taxation when they are necessary.

The evidence that the markets felt that the Government had got their fiscal stance wrong in July 1997 was shown almost immediately after that Budget because there was a rise in the pound. The expectation was that, because of the Chancellor's fiscal decisions, interest rates would have to rise—and indeed they did.

The point of that analysis is to show that this downturn, the recession in manufacturing, has been directly caused by the Chancellor. It is, to use the soundbite that is so popular among Conservative Members, a recession made in Downing street. By using fiscal policy properly, we can affect our country's economic future, even though the Bank of England is in charge of interest rates.

Mr. Gardiner

I have listened with great care to what the hon. Gentleman has said about fiscal policy and tight fiscal policy. Does he recall his remarks on 10 July last year? He urged the House to face up to the need for higher interest rates. He blamed the Conservatives for their reluctance to raise them at the correct time, but also blamed the Government.

What did the hon. Gentleman blame the Government for? He blamed the Government for their too tight fiscal policy, yet at the same time he opposed the £5.2 billion tightening of fiscal policy, which was the windfall tax, and the £5 billion tightening of fiscal policy, which was the abolition of the advance corporation tax credit.

He should remember his remarks, made in this Chamber not so long ago, when he lectures the Government about fiscal tightening.

Mr. Davey

The hon. Gentleman quotes me out of context. In that full speech, I made it clear that it was the way in which the Government were tightening fiscal policy—the fact that they were loading taxes on the business sector—that was the problem. In our alternative Budget, we proposed clearly where taxes should go up, so it was not tightening of fiscal policy that we were running away from. We were criticising the Government for the fact that they were making the wrong fiscal policy judgments.

It is now time the Government looked at the way in which fiscal policy can be used to support the economy in the short and medium terms. They have had many reviews to do with fiscal policy and launched many papers about how it should be set for the long term; but with an independent central bank and with monetary union a not too distant prospect—I hope—the Government need to revisit fiscal policy theory and decide whether they are prepared to use fiscal policy actively to promote the interests of this country.

6.29 pm

Mr. David Heathcoat-Amory (Wells)

The House cannot take too seriously speeches calling for taxation to be used as a means of fine-tuning the economy. Those policies are understandable from the Liberal Democrats, because we know that they want to give up control of monetary policy to the European central bank in Frankfurt, which would leave us with only fiscal policy to regulate or control the economy, but we cannot take them seriously because they never say what they are calling for. What taxes do they want to increase, and what taxes do they want to reduce, now or in the future? Their policy is confused and confusing.

Mr. Edward Davey

Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory

The hon. Gentleman has made his contribution.

No economist seriously suggests that tax changes can be used to regulate the economy. They are too blunt and slow-acting in their effects. That is why it is generally accepted that interest rates must be used from time to time. It is a matter of regret that the Liberal Democrats want to give up that domestic instrument to a bank based in Frankfurt, whose interest rate changes would only by coincidence have anything to do with the domestic requirements of the British economy.

Mr. Davey

Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory

As I have referred to the hon. Gentleman, I shall give way.

Mr. Davey

The right hon. Gentleman incorrectly says that we have not stated our fiscal policy proposals. If he is so concerned about Opposition parties stating their policies, will he tell the House the Conservative party's policy on the independent central bank?

Mr. Heathcoat-Amory

The hon. Gentleman has a short memory. I do not remember whether he was a member of the Standing Committee that considered the Bank of England Bill. I think he was, in which case he will have heard us at length and repeatedly setting out our objections to the Bill. It was the wrong policy brought forward for the wrong reasons at the wrong time, in defiance of an election promise to the contrary. That is why we opposed the Bill. By the way, the legislation has not resulted in an independent Bank of England. If that is what the hon. Gentleman was after, he has not got it. All our criticisms and observations about that mistaken policy have turned out to be tragically justified and true.

Mr. Ivor Caplin (Hove)

Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory

Later, possibly, but I am aware of the shortness of time.

I want to place on record our disappointment that the Chancellor, who had an opportunity in the debate to defend and explain the figures in his pre-Budget report, instead engaged in irrelevant bluster and obfuscation that left no one any better informed about the implications of his policies for the British economy.

We may be witnessing an unfolding tragedy, because the Government are defying almost all independent observers and commentators in their growth forecasts. Instead of recognising the severity of the growth decline that the British economy faces, the Chancellor has gone, almost isolated, for a little dip next year and then an extraordinary acceleration in subsequent years, way above what he forecast only four months ago. No explanation was given for this sudden spurt—a sort of millennium boost for the British economy that we are told will manifest itself in 2000 and thereafter.

In addition, the pre-Budget statement contains a £9 billion increase in public expenditure over the next three years, set out on page 121. Meanwhile, on page 120, the Government are assuming that unemployment will remain flat at its September level. No one can believe that that is a realistic or prudent assumption. Then the Chancellor tells us that his new annual borrowing requirement—what used to be called the public sector borrowing requirement before all the definitions were changed—will be less than he predicted only four months ago.

The truth, as has been widely said in the press, is that we are faced with fantasy economics. That discredits the Chancellor's announced policy for everyone else in the G7 of increased transparency and rigour in the publication of national accounts. If he continues to defy what the rest of the world knows about the real economy, he will undermine confidence in public policy.

I should like to re-engage the Chancellor for a moment with the real world of job losses and increased job insecurity. The small print of the pre-Budget document contains some evidence of a severe manufacturing downturn. Page 109 records, almost in passing, that manufacturing output next year may fall by 0.25 per cent. The Chancellor did not refer to that in his statement, but it is in the small print. The same page contains the frightening fact that by far the fastest-growing items of national accounts are imports, which are increasing by 7.25 per cent. this year. The balance of payments will weaken by between £7 billion and £9 billion every year. That is the real economy.

I recognise and forgive the fact that no Treasury Ministers have any experience of running, or even working in, a business. Perhaps the only exception is the Paymaster General, who sadly attends none of our debates these days. He certainly has experience of dealing in a number of companies, but no one in the Government, from what I can tell, has ever worked in or run a business of any size, as my hon. Friend the Member for East Yorkshire (Mr. Townend) pointed out.

Mr. Gardiner

The hon. Member for East Yorkshire (Mr. Townend) referred to the distinguished and honourable club of those in the House who have experience of running a business. I count myself among the members of that club. I particularly recall the time under the previous Government when the exchange rate stood at ․1.95. Trying to run a business with such a high exchange rate was very difficult.

Mr. Heathcoat-Amory

I did not know that the hon. Gentleman had made it to the Front Bench. I was simply pointing out that no one in the Government had any experience of running a business. If the hon. Gentleman has such expertise, I wish that he had a little more influence.

I wish that the Government would at least listen to business men. Ministers may have no direct experience, but that does not mean that they cannot listen. We have heard nothing for businesses of any size from the Chancellor. He merely crows about his one great achievement, which was getting inflation down to his target of 2.5 per cent.

Some unkind people might observe that that had a great deal more to do with the downturn in the world economy and the strong pound leading to cheaper imports than anything that the Chancellor has done, but let us be generous and concede that the Chancellor has achieved the goal of getting inflation down to the level that he inherited. In the last month of the previous Parliament, we achieved our inflation target of 2.5 per cent. or less. Inflation then went up under the new Government, and the Chancellor has now at last got it back down to our level.

If that is such a triumph for the Chancellor's management of the economy, why does he not take similar responsibility for everything that has gone wrong? At that point he falters, and suddenly the problems have nothing to do with him, but are all the fault of the global slowdown. As many of my hon. Friends have pointed out, that does not explain why the slowdown in the global economy has affected this country almost uniquely. We are by far the worst affected, except for Japan, where different considerations apply.

The reason is not a mystery. It is a result of the policy errors of two Budgets over the past 17 months. There were 17 tax rises in the first Budget. There has been an ill-judged attack on savings, too. The two most successful savings vehicles of all time—TESSAs and PEPs—were abolished and supposedly replaced by the wholly untried individual savings accounts, details of which are still unclear. There was the notorious £5 billion-a-year raid on pension funds. At the same time, the Chancellor was exhorting everyone to save more. That was exactly what the British economy did not want. That is why we are facing a downturn and a drop in growth that is far worse than any of our continental and overseas competitors— bar Japan.

Mr. Caplin

Will the right hon. Gentleman give way on that point?

Mr. Heathcoat-Amory

I will not; I have several other points to make in answering those already made.

My hon. Friend the Member for West Worcestershire (Sir M. Spicer) pointed out the mismatch between Treasury policies on taxation and expenditure, and Bank of England monetary policies, which are pulling in the opposite direction. To try to compensate for policy errors, the wretched Monetary Policy Committee has had to set interest rates way above what was otherwise required. That has helped to drive the economy to the brink of recession.

The Government's fourth policy error is the huge extra regulatory burden that has been dropped on British industry. The Chancellor has suddenly discovered a productivity gap—he mentioned it again in his speech earlier—yet he has done more than anyone to widen it. He tried to widen it when he was in opposition, by voting day after day, year after year, with all his hon. Friends, against all the trade union reforms, industrial reforms and privatisation measures that transformed the productive potential and productivity of the British economy.

Now that he is in office, the right hon. Gentleman is widening the productivity gap by imposing a £39 billion burden on business in this Parliament through extra taxes and extra business regulation. All those figures are from the Government. Departments have calculated in compliance-cost assessments the additional burden on British business men who face international competition.

Businesses do not want fantasy economics or lectures about their lack of productivity from the Chancellor; they want the measures to be reversed. They do not want gimmicky trivia about what the Government may do to tackle the problem in consultation in the years ahead; they want to be relieved of the £39 billion burden of extra regulation. They do not want another energy tax that is dreamed up by a consultative committee on the environment, consultation about a new banking committee, or another inquiry into the venture capital industry. They are not interested in the drawing up of what the Chancellor calls public service agreements— especially because they know that, for this Government, consultation means the Government talking to representatives of a few big businesses in London and totally ignoring the real concerns and requirements of business men in our constituencies.

Nor do business men like the misleading way in which the Chancellor pretended in his speech that employers will not pay national insurance contributions on earnings below £83 a week. Incidentally, that is a recycled policy. The Chancellor did not tell the other side of the story: businesses' national insurance contributions will rise in April from 10 to 12.2 per cent. That is the bad news; that is what will cost jobs. The Chancellor is entirely silent on that. That is why businesses do not trust the Government. They are not a business-friendly Government, because they speak only in half-truths.

The Chancellor is paying the price of 17 months and two Budgets of policy mistakes and financial blunders. The tragedy is that the rest of the country—businesses, savers and unemployed people—will shortly be paying the price. In winding up, will the Economic Secretary confirm that, even at this late stage, the Government will, in all modesty, propose a package of reforms to restore and revive the economy, rather than simply presiding over its decline?

6.44 pm

The Economic Secretary to the Treasury (Ms Patricia Hewitt)

This debate on the economy was called by the Conservatives, and how revealing it has been. It certainly revealed in the first half hour that the Conservative party will shortly have to find another shadow Chancellor.

The Conservatives have made it very clear today that they are saying no to Bank of England independence, no to £40 billion extra spending on health and education, no to the minimum wage, no to the new deal for unemployed people, no to the working families tax credit, which will make work pay, no to parental leave, no to fair standards for working people, and no to the single currency—even if it is best for British people and their jobs. Most revealingly, we heard from the shadow Chancellor that the Conservatives are even saying no to protecting the basic pension against inflation.

Mr. Maude

The hon. Lady knows perfectly well that that is untrue. Our position remains exactly the same; we remain committed to the basic state pension, as we always have been. Are the Government committed to maintaining the basic state pension without means testing—yes or no?

Ms Hewitt

We made plain in the manifesto our commitment to the basic state pension as the foundation for security in old age. The right hon. Gentleman has refused to say, just as he did in his opening speech, whether the Conservative party is still committed—as we are—to raising the basic state pension in line with inflation.

Mr. Maude

rose—

Hon. Members

Give way.

Ms Hewitt

No, the right hon. Gentleman will not answer the question.

Mr. Maude

On a point of order, Mr. Deputy Speaker. The Economic Secretary has directly misquoted me, and is refusing to give way in order to allow me to set the record straight.

Mr. Deputy Speaker (Mr. Michael Lord)

Whether hon. Members give way is entirely a matter for them.

Ms Hewitt

rose—

Mr. Maude

Will the hon. Lady give way?

Ms Hewitt

indicated assent.

Mr. Maude

I should make it clear, in case the hon. Lady does not understand, that our commitment to the basic state pension and to raising it in line with inflation remains exactly as it always has been. She knows that perfectly well. Is her party committed to maintaining the basic state pension without means testing?

Ms Hewitt

It was in our manifesto, as I said, and as the right hon. Gentleman knows. I am delighted that, after giving the shadow Chancellor three opportunities to answer during his opening speech, we have finally heard a reply on the question of inflation.

Mr. Quentin Davics (Grantham and Stamford)

rose—

Mr. Deputy Speaker

Order. The hon. Lady is clearly not giving way at the moment.

Ms Hewitt

The next question for the Conservative party is where it would cut public spending. It is against our public spending.

Mr. Davies

rose—

Mr. Deputy Speaker

Order. I have just told the hon. Gentleman that the Economic Secretary has no intention of giving way at the moment. He should therefore resume his seat.

Ms Hewitt

Thank you, Mr. Deputy Speaker.

The Conservative party has now said that it would not wish to cut public spending by breaking the link between pensions and prices. I welcome that, but the shadow Chancellor has said that our public spending commitments on health and education are madness, and one of his colleagues described them as profligate.

Where would the Conservatives cut public spending? They have revealed this evening that they are against the additional public spending on health and education. The Conservative party is saying no to British business and no to the British people; no wonder British business and the British people are saying no to the Conservative party.

Then we heard from the hon. Member for Gordon (Mr. Bruce). What a difference there was between his constructive opposition and the shambles of the official Opposition. The hon. Member for Gordon, like the Chancellor and all my other right hon. and hon. Friends, supports the British economy, and will not talk it down as so many hon. Members have done this afternoon.

The hon. Gentleman asked a specific question about the excellent report by Lord Marshall, a former president of the Confederation of British Industry, about business use of energy—the report that has just been denounced by the Conservatives. The question for the hon. Member for Gordon is whether he is in favour of an immediate energy tax on business or whether, like us, he thinks it sensible to consult on the complex technical issues that Marshall raises, before we make a final decision on the recommendations of that interesting and helpful report.

Mr. Edward Davey

Are the Government in favour of an energy tax in principle?

Ms Hewitt

As the Chancellor said yesterday, we welcome the Marshall report. It is a constructive contribution to the debate, and we want to consult further on the technical and design issues it raises before making any decision on its recommendations.

My hon. Friend the Member for Shipley (Mr. Leslie) made another of his immensely enjoyable and well-informed contributions. They are becoming one of the most entertaining and welcome features of the economic debates in the House. I welcome the fact that he explained that it is the Conservative party that is talking down the British economy.

Mr. Lansley

As the Minister is keen on the Labour manifesto, will she explain why it said An explicit objective of a Labour government will be to raise the trend rate of growth"? All that has happened since the election is that the Government have reduced their estimate of the trend rate of growth, and they are now predicting that they will consistently under-perform it in this Parliament.

Ms Hewitt

I hope that the hon. Gentleman will therefore support the measures that we are taking to raise productivity in the British economy and put the macro-economic framework and public finances on to a sound basis. That is how we will raise long-term growth.

The hon. Member for West Worcestershire (Sir M. Spicer) complained about the Chancellor's revised economic forecasts. Perhaps I should remind him that the International Monetary Fund forecasts 1.2 per cent. growth for the United Kingdom economy next year, the European Commission forecasts 1.3 per cent. growth next year and 2.1 per cent. growth for 2000, and the National Institute of Economic and Social Research forecasts 1.1 per cent. growth next year, 2.2 per cent. for 2000 and 2.6 per cent. for 2001.

The Government's forecasts announced yesterday are revised, of course, to take account of what is going on in the world economy.

Mr. Nick St. Aubyn (Guildford)

rose—

Hon. Members

He has not been here.

Mr. St. Aubyn

I attended the opening speeches, and I should like the Minister to explain whether she would like the Bank of England tomorrow to concentrate on her Government's great forecasts for next year and deliver only a small cut in interest rates, or to concentrate on the average of the growth forecasts, which are much lower, and deliver a bigger cut in interest rates?

Ms Hewitt

I realise that the hon. Gentleman has not been present for most of the debate, but perhaps he would like to tell us where he stands on independence for the Bank of England. We have given the Bank of England the responsibility to take the tough decisions that are needed to keep inflation under control, and we will back it in the decisions it makes.

To return to the hon. Member for West Worcestershire, what he did not tell the House is that, since the general election, there has been a 15 per cent. drop in unemployment in his constituency. We all welcome that, and I hope that he does too.

My hon. Friend the Member for Croydon, Central (Mr. Davies)—

Sir Michael Spicer

Will the Minister give way?

Ms Hewitt

No.

My hon. Friend made a thoughtful and well-informed speech, in which he rightly paid tribute to the Chancellor for his work and his role in bringing together the G7 countries in agreement on the steps urgently needed to stabilise the world economy. What a pity that neither on Monday nor this evening could the Conservatives bring themselves to welcome that statement, which was agreed with Governments of the right as well as of the left and centre. They lack the generosity to congratulate my right hon. Friend on his work in bringing that about.

The hon. Member for East Yorkshire (Mr. Townend) talked about rural motoring—an extremely important issue. However, he did not tell us that, as the Chancellor announced in the Budget, the Government are putting £50 million into rural transport funding, are freezing vehicle excise duty, and will cut that duty by £50 for the least polluting cars. He also failed to tell the House that there has been a 20 per cent. drop in unemployment in his constituency since the election.

Mr. Townend

rose—

Ms Hewitt

I am afraid that I cannot give way; I am conscious of the time. I have taken enough interventions, and I must make progress.

The hon. Member for Cotswold (Mr. Clifton-Brown), in a rather excitable contribution, seemed to suggest, although the shadow Chancellor takes a different line, that he does not want the inflation-proofing of the basic pension that is part of our social security budget for next year.

Mr. Clifton-Brown

rose—

Ms Hewitt

Let me ask the hon. Gentleman one more question first. Does he want to see the minimum income guarantee for pensioners to which we are committed, which we have introduced and which is in the social security budget for next year? Does he want to see the increase in child benefit that is also in the social security budget for next year?

Mr. Clifton-Brown

Will the Minister now tell the House clearly whether her party is committed to means-testing the basic state pension, and whether she intends to tax child benefit?

Ms Hewitt

It is high time that the hon. Gentleman and his colleagues read our manifesto; we made the position absolutely clear.

Mr. Quentin Davies

Will the Minister give way?

Ms Hewitt

No; I have answered the question.

Mr. Gerald Howarth (Aldershot)

On a point of order, Mr. Deputy Speaker. I do not know whether you are aware of the fact, but the hon. Lady does not appear to be in command of her brief. Every time one of my hon. Friends puts a question to her, she merely repeats the answer already given by the Chancellor of the Exchequer. Is it proper that she—

Mr. Deputy Speaker

Order. That is clearly not a matter for the Chair.

Ms Hewitt

I am afraid, Mr. Deputy Speaker, that it is the Conservative party that is not in command of itself in the House.

Of course, the hon. Member for Cotswold failed to mention that unemployment in his constituency has fallen by 29 per cent. since the general election.

Mr. Clifton-Brown

rose—

Ms Hewitt

No.

The hon. Member for Kingston and Surbiton (Mr. Davey)—

Mr. Kenneth Clarke

The hon. Lady, rightly, keeps mentioning the fact that unemployment has fallen in all those constituencies. We all welcome that, but she sounds as if the Government are taking the credit for it. They inherited a situation in which unemployment had been falling for years, but since her Government have been in power, the rate at which it has been falling has been slowing all the time. The reason for the debate is that unemployment will go up next year—sharply in the north and the midlands, and probably in my hon. Friends' southern seats as well. Does she intend to say a word about monetary or fiscal policy to explain why the Government's policies have produced a reverse in this country's jobs market?

Ms Hewitt

Not even the right hon. and learned Gentleman can rescue the Conservative party—there are 400,000 more people in employment since the general election, and more people in employment than ever before. We have tackled the inflationary pressures, and cut the £28 billion deficit which we inherited from the previous Government, we have reduced unemployment, and we are now tackling the productivity gap. We have made the tough decisions needed to end the boom and bust of the Conservative years and to achieve the macro-economic framework, the sound public finances and the investment in good public services that will enable the United Kingdom to steer the course of stability that we want and need in an increasingly unstable world.

I regret that the official Opposition are unable to recognise the mistakes they made, and unable to acknowledge the steps that we have taken. I commend our amendment to the House.

Question put, That the original words stand part of the Question:—

The House divided: Ayes 135, Noes 303.

Division No. 369]	[7 pm
AYES
Ainsworth, Peter (E Surrey)	King, Rt Hon Tom (Bridgwater)
Amess, David	Kirkbride, Miss Julie
Ancram, Rt Hon Michael	Laing, Mrs Eleanor
Arbuthnot, Rt Hon James	Lait, Mrs Jacqui
Atkinson, Peter (Hexham)	Lansley, Andrew
Bercow, John	Letwin, Oliver
Beresford, Sir Paul	Lewis, Dr Julian (New Forest E)
Blunt, Crispin	Lidington, David
Body, Sir Richard	Lilley, Rt Hon Peter
Bottomley, Peter (Worthing W)	Lloyd, Rt Hon Sir Peter (Fareham)
Bottomley, Rt Hon Mrs Virginia	Loughton, Tim
Brady, Graham	Luff, Peter
Brazier, Julian	MacGregor, Rt Hon John
Brooke, Rt Hon Peter	MacKay, Rt Hon Andrew
Browning, Mrs Angela	Maclean, Rt Hon David
Bruce, Ian (S Dorset)	McLoughlin, Patrick
Burns, Simon	Madel, Sir David
Butterfill, John	Major, Rt Hon John
Cash, William	Malins, Humfrey
Chapman, Sir Sydney (Chipping Barnet)	Maples, John
	Mates, Michael
Chope, Christopher	Maude, Rt Hon Francis
Clappison, James	Mawhinney, Rt Hon Sir Brian
Clark, Dr Michael (Rayleigh)	May, Mrs Theresa
Clarke, Rt Hon Kenneth (Rushcliffe)	Moss, Malcolm
	Nicholls, Patrick
Clifton-Brown, Geoffrey	Norman, Archie
Collins, Tim	Ottaway, Richard
Colvin, Michael	Page, Richard
Cormack, Sir Patrick	Paice, James
Cran, James	Paterson, Owen
Davies, Quentin (Grantham)	Pickles, Eric
Davis, Rt Hon David (Haltemprice)	Prior, David
Duncan, Alan	Randall, John
Duncan Smith, Iain	Robathan, Andrew
Emery, Rt Hon Sir Peter	Robertson, Laurence (Tewk'b'ry)
Evans, Nigel	Roe, Mrs Marion (Broxbourne)
Faber, David	Ruffley, David
Fabricant, Michael	St Aubyn, Nick
Forth, Rt Hon Eric	Sayeed, Jonathan
Fowler, Rt Hon Sir Norman	Shephard, Rt Hon Mrs Gillian
Fox, Dr Liam	Simpson, Keith (Mid-Norfolk)
Fraser, Christopher	Soames, Nicholas
Gale, Roger	Spelman, Mrs Caroline
Garnier, Edward	Spicer, Sir Michael
Gibb, Nick	Spring, Richard
Gill, Christopher	Stanley, Rt Hon Sir John
Gillan, Mrs Cheryl	Steen, Anthony
Goodlad, Rt Hon Sir Alastair	Swayne, Desmond
Gorman, Mrs Teresa	Syms, Robert
Gray, James	Tapsell, Sir Peter
Green, Damian	Taylor, John M (Solihull)
Greenway, John	Taylor, Sir Teddy
Grieve, Dominic	Townend, John
Gummer, Rt Hon John	Tredinnick, David
Hague, Rt Hon William	Trend, Michael
Hamilton, Rt Hon Sir Archie	Tyrie, Andrew
Hammond, Philip	Whitney, Sir Raymond
Hawkins, Nick	Whittingdale, John
Hayes, John	Widdecombe, Rt Hon Miss Ann
Heald, Oliver	Wilkinson, John
Heathcoat-Amory, Rt Hon David	Willetts, David
Horam, John	Winterton, Mrs Ann (Congleton)
Howarth, Gerald (Aldershot)	Winterton, Nicholas (Macclesfield)
Hunter, Andrew	Woodward, Shaun
Jack, Rt Hon Michael	Yeo, Tim
Jackson, Robert (Wantage)	Young, Rt Hon Sir George
Jenkin, Bernard
Johnson Smith, Rt Hon Sir Geoffrey	Tellers for the Ayes:
	Mr. Stephen Day and
Key, Robert	Mr. Nigel Waterson.

NOES
Abbott, Ms Diane	Davey, Valerie (Bristol W)
Ainger, Nick	Davidson, Ian
Ainsworth, Robert (Cov'try NE)	Davies, Rt Hon Denzil (Llanelli)
Alexander, Douglas	Davies, Geraint (Croydon C)
Allen, Graham	Dawson, Hilton
Anderson, Donald (Swansea E)	Dean, Mrs Janet
Anderson, Janet (Rossendale)	Denham, John
Armstrong, Ms Hilary	Dismore, Andrew
Ashton, Joe	Dobbin, Jim
Atkins, Charlotte	Dobson, Rt Hon Frank
Barnes, Harry	Donohoe, Brian H
Barron, Kevin	Dowd, Jim
Battle, John	Drew, David
Bayley, Hugh	Drown, Ms Julia
Beard, Nigel	Eagle, Angela (Wallasey)
Beckett, Rt Hon Mrs Margaret	Eagle, Maria (L'pool Garston)
Bell, Martin (Tatton)	Edwards, Huw
Bell, Stuart (Middlesbrough)	Efford, Clive
Benn, Rt Hon Tony	Ellman, Mrs Louise
Bennett, Andrew F	Ennis, Jeff
Bermingham, Gerald	Field, Rt Hon Frank
Berry, Roger	Fisher, Mark
Best, Harold	Fitzsimons, Lorna
Betts, Clive	Flynn, Paul
Blair, Rt Hon Tony	Foster, Michael J (Worcester)
Blears, Ms Hazel	Galbraith, Sam
Borrow, David	Galloway, George
Bradley, Keith (Withington)	Gardiner, Barry
Bradley, Peter (The Wrekin)	Gerrard, Neil
Bradshaw, Ben	Gibson, Dr Ian
Brown, Rt Hon Gordon (Dunfermline E)	Godman, Dr Norman A
	Godsiff, Roger
Brown, Rt Hon Nick (Newcastle E)	Goggins, Paul
Browne, Desmond	Golding, Mrs Llin
Buck, Ms Karen	Gordon, Mrs Eileen
Burden, Richard	Griffiths, Jane (Reading E)
Burgon, Colin	Griffiths, Nigel (Edinburgh S)
Butler, Mrs Christine	Griffiths, Win (Bridgend)
Byers, Rt Hon Stephen	Grocott, Bruce
Campbell, Alan (Tynemouth)	Grogan, John
Campbell, Mrs Anne (C'bridge)	Gunnell, John
Campbell, Ronnie (Blyth V)	Hall, Mike (Weaver Vale)
Campbell-Savours, Dale	Hall, Patrick (Bedford)
Cann, Jamie	Hamilton, Fabian (Leeds NE)
Caplin, Ivor	Hanson, David
Caton, Martin	Harman, Rt Hon Ms Harriet
Cawsey, Ian	Heal, Mrs Sylvia
Chapman, Ben (Wirral S)	Henderson, Ivan (Harwich)
Chaytor, David	Heppell, John
Clapham, Michael	Hesford, Stephen
Clark, Rt Hon Dr David (S Shields)	Hewitt, Ms Patricia
Clark, Dr Lynda (Edinburgh Pentlands)	Hinchliffe, David
	Hodge, Ms Margaret
Clarke, Charles (Norwich S)	Home Robertson, John
Clarke, Eric (Midlothian)	Hoon, Geoffrey
Clarke, Rt Hon Tom (Coatbridge)	Hopkins, Kelvin
Clelland, David	Howarth, George (Knowsley N)
Coaker, Vernon	Howells, Dr Kim
Coffey, Ms Ann	Hoyle, Lindsay
Cohen, Harry	Hughes, Ms Beverley (Stretford)
Coleman, Iain	Hughes, Kevin (Doncaster N)
Connarty, Michael	Humble, Mrs Joan
Cook, Frank (Stockton N)	Hurst, Alan
Cooper, Yvette	Hutton, John
Corbett, Robin	Iddon, Dr Brian
Corbyn, Jeremy	Jackson, Ms Glenda (Hampstead)
Cousins, Jim	Jackson, Helen (Hillsborough)
Crausby, David	Jenkins, Brian
Cryer, Mrs Ann (Keighley)	Johnson, Miss Melanie (Welwyn Hatfield)
Cryer, John (Hornchurch)
Cummings, John	Jones, Mrs Fiona (Newark)
Cunningham, Jim (Cov'try S)	Jones, leuan Wyn (Ynys Môn)
Curtis-Thomas, Mrs Claire	Jones, Ms Jenny (Wolverh'ton SW)
Darling, Rt Hon Alistair
Darvill, Keith	Jones, Jon Owen (Cardiff C)

Jones, Dr Lynne (Selly Oak)	Pound, Stephen
Jones, Martyn (Clwyd S)	Powell, Sir Raymond
Kaufman, Rt Hon Gerald	Prentice, Ms Bridget (Lewisham E)
Keeble, Ms Sally	Prentice, Gordon (Pendle)
Keen, Alan (Feltham & Heston)	Prosser, Gwyn
Keen, Ann (Brentford & Isleworth)	Purchase, Ken
Kelly, Ms Ruth	Quin, Ms Joyce
Kemp, Fraser	Radice, Giles
Kennedy, Jane (Wavertree)	Rapson, Syd
Kidney, David	Reid, Rt Hon Dr John (Hamilton N)
Kilfoyle, Peter	Robertson, Rt Hon George (Hamilton S)
King, Andy (Rugby & Kenilworth)
Kumar, Dr Ashok	Robinson, Geoffrey (Cov'try NW)
Ladyman, Dr Stephen	Rogers, Allan
Lepper, David	Rooker, Jeff
Leslie, Christopher	Rooney, Terry
Levitt, Tom	Ross, Ernie (Dundee W)
Lewis, Ivan (Bury S)	Rowlands, Ted
Linton, Martin	Roy, Frank
Livingstone, Ken	Ruddock, Ms Joan
Lloyd, Tony (Manchester C)	Ryan, Ms Joan
Lock, David	Salter, Martin
Love, Andrew	Sarwar, Mohammad
McAvoy, Thomas	Savidge, Malcolm
McCabe, Steve	Sawford, Phil
McCafferty, Ms Chris	Sedgemore, Brian
Macdonald, Calum	Shaw, Jonathan
McDonnell, John	Sheerman, Barry
McFall, John	Sheldon, Rt Hon Robert
McGuire, Mrs Anne	Shipley, Ms Debra
McIsaac, Shona	Short, Rt Hon Clare
Mackinlay, Andrew	Simpson, Alan (Nottingham S)
McNulty, Tony
Mactaggart, Fiona	Singh, Marsha
McWalter, Tony	Skinner, Dennis
McWilliam, John	Smith, Rt Hon Andrew (Oxford E)
Mahon, Mrs Alice	Smith, Rt Hon Chris (Islington S)
Mandelson, Rt Hon Peter	Smith, Miss Geraldine (Morecambe & Lunesdale)
Marsden, Gordon (Blackpool S)
Marsden, Paul (Shrewsbury)	Smith, John (Glamorgan)
Marshall, David (Shettleston)	Smith, Llew (Blaenau Gwent)
Marshall-Andrews, Robert	Soley, Clive
Martlew, Eric	Southworth, Ms Helen
Maxton, John	Spellar, John
Meacher, Rt Hon Michael	Squire, Ms Rachel
Meale, Alan	Starkey, Dr Phyllis
Merron, Gillian	Steinberg, Gerry
Michael, Alun	Stevenson, George
Michie, Bill (Shef'ld Heeley)	Stewart, Ian (Eccles)
Miller, Andrew	Stoate, Dr Howard
Mitchell, Austin	Strang, Rt Hon Dr Gavin
Moffatt, Laura	Straw, Rt Hon Jack
Moonie, Dr Lewis	Stringer, Graham
Moran, Ms Margaret	Stuart, Ms Gisela
Morgan, Ms Julie (Cardiff N)	Sutcliffe, Gerry
Morgan, Rhodri (Cardiff W)	Taylor, Rt Hon Mrs Ann (Dewsbury)
Morris, Ms Estelle (B'ham Yardley)
Mowlam, Rt Hon Marjorie	Taylor, Ms Dari (Stockton S)
Mudie, George	Taylor, David (NW Leics)
Mullin, Chris	Temple-Morris, Peter
Murphy, Denis (Wansbeck)	Thomas, Gareth (Clwyd W)
Murphy, Jim (Eastwood)	Timms, Stephen
Naysmith, Dr Doug	Tipping, Paddy
Olner, Bill	Todd, Mark
O'Neill, Martin	Trickett, Jon
Organ, Mrs Diana	Truswell, Paul
Osborne, Ms Sandra	Turner, Dennis (Wolverh'ton SE)
Palmer, Dr Nick	Turner, Dr Desmond (Kemptown)
Pearson, Ian	Turner, Dr George (NW Norfolk)
Pendry, Tom	Twigg, Derek (Halton)
Pickthall, Colin	Twigg, Stephen (Enfield)
Pike, Peter L	Vaz, Keith
Plaskitt, James	Vis, Dr Rudi
Pollard, Kerry	Ward, Ms Claire
Pond, Chris	Wareing, Robert N
Pope, Greg	White, Brian

Williams, Rt Hon Alan (Swansea W)	Worthington, Tony
	Wright, Anthony D (Gt Yarmouth)
Williams, Alan W (E Carmarthen)	Wright, Dr Tony (Cannock)
Wills, Michael
Winnick, David	Tellers for the Noes:
Wise, Audrey	Mr. David Jamieson and
Wood, Mike	Mr. Keith Hill.

Question accordingly negatived.

Question, That the proposed words be there added, put forthwith, pursuant to Standing Order No. 31 (Questions on amendments), and agreed to.

MR. DEPUTY SPEAKER forthwith declared the main Question, as amended, to be agreed to.

Resolved, That this House notes that the Government inherited an economy set to repeat the same cycle of boom and bust seen over the past 20 years, that inflation was heading way above target because of the previous Government's failure to accept the Bank of England's advice and the public finances were in large structural deficit; recalls that under the previous Government inflation rose to 10 per cent. interest rates remained in double figures for four years and one million manufacturing jobs were lost, while net borrowing increased to £50 billion and the national debt doubled in just four years; notes that the previous Government's policies increased inequality and failed to tackle the structural weaknesses in the economy; commends this Government for its decisive action to build a stable economy, introducing a new framework for monetary policy under which inflation is now at target and set to remain there and interest rates are less than half their previous peak, reducing government borrowing by £20 billion last year and, because of prudent management of the public finances, remaining on track to meet its tough fiscal rules and invest an additional £40 billion in education and health, with an extra £250 million for the National Health Service this year, addressing structural weaknesses by tackling unemployment and poverty with the New Deals and tax and benefit reform, supporting British business by cutting corporation tax, doubling public investment to improve Britain's infrastructure and addressing Britain's productivity gap; and notes that there are now 400,000 more people in employment than at the General Election and that Britain is better placed to steer a course of stability in an uncertain and unstable world.