Global Downturn (Hansard, 24 January 2002)

§ 8. Fiona Mactaggart (Slough)
What assessment he has made of the impact of the global downturn on the future performance of the UK economy. [27558]

§ The Economic Secretary to the Treasury (Ruth Kelly)
No country can fully insulate itself from developments in the world economy, but the UK is now in a better position than on previous occasions to cope with turbulence in it. As a result, leading external forecasters expect UK economic growth to be the fastest in the G7 this year.

§ Fiona Mactaggart
I thank the Economic Secretary for that reply, and I believe that the very challenging global 1002 circumstances—this is the first time for 30 years that every region of the world is facing a downturn—are only matched by the fact that this is the first time in the same period that Britain is the best-placed country in the world to face them. Does she agree that this is a very difficult time to consider increasing taxation to improve our public services because of that challenging global situation?

§ Ruth Kelly
I thank my hon. Friend for her comments and for pointing out that Britain is indeed in a very positive economic situation and better placed than any of the other 29 member countries in the Organisation for Economic Co-operation and Development to weather the very serious global economic downturn that has taken place since 11 September and as a result of the unwinding of the high-technology boom, as she rightly appreciates. Of course, we in this country must have a debate about the funding of our public services; it is important that people realise that, to correct 30 years of underinvestment, we need to put public services on a sustainable footing. What the Opposition consistently refuse to tell us—it became apparent just this week in the debate on public services—is whether they would match our funding plans, or whether they would slash public services.

§ Chris Grayling (Epsom and Ewell)
May I ask the Economic Secretary to turn her attention to one of our key international trading partners and markets—Germany? What assessment has the Treasury made of the degree to which the problems in Germany are either caused by the current international situation or, as increasingly frequent independent analysis argues, are long-term, structural and caused by the fact that it joined the euro at the wrong rate? Is that latter analysis the accurate answer?

§ Ruth Kelly
The hon. Gentleman refers to the problems that the Germans are currently experiencing. In fact, growth in the euro area has turned out to be weaker than most independent forecasters were predicting only a few months ago. However, the European Council confirmed at the December ECOFIN meeting that the economic fundamentals are sound in the EU and that it expected a gradual recovery during 2002. What is important is that we have sound fundamentals and that we take the measures on economic reform to improve labour market flexibility and product-market competition and to ensure that it is as easy as possible for the EU to recover from the slowdown in global demand.

§ Mr. Peter Pike (Burnley)
Does my hon. Friend agree that, at this time of global downturn, it remains an absolute Government priority to allow industry to invest, especially in research and development and in high-value, high-skill products, so that we are best advantaged when the markets start to pick up?

§ Ruth Kelly
I completely agree with the points made by my hon. Friend, and it is incredibly important that we improve the manufacturing base and increase productivity in our manufacturing sector, so that we can take full advantage of the upturn in global demand when it comes. That is why the Government have introduced tax credits for small and medium sized enterprises and are consulting on how to extend those measures to larger firms. It is why we set up regional development agencies to drive forward economic growth in each of the regions. It is why we set 1003 up venture capital funds to ensure that small and medium sized enterprises have the access to capital that they so desperately need to grow, and it is also why we are working in partnership with the CBI and the TUC to look at ways of raising skills in the workplace, so that we have people who are fully trained and able to take advantage of those opportunities as they arise.