Economy and Trade and Industry

HC Deb 18 November 2002 vol 394 cc385-473 4.33 pm

The Chancellor of the Exchequer (Mr. Gordon Brown)

At the heart of the Queen's Speech are policies for stability, enterprise and fairness—policies that in the past five years have helped to build strong economic foundations and brought us the lowest unemployment for 25 years, the lowest inflation for more than 30 years, the lowest long-term interest rates for 40 years, and the lowest debt interest payments as a share of national income for nearly 100 years. These are policies for enterprise, stability and fairness that this Queen's Speech—and, later, the Budget—will reinforce, as we overcome the uncertainties since 11 September and the most difficult world economic down-turn for 20 years. Twenty other countries, accounting for 60 per cent. of the world's output, have been in, or are in, recession, while Britain, despite world uncertainties that are felt here, has continued to grow.

In this debate on the economy and on trade and industry, my argument is that, in a world where we are more aware every day of both the opportunities and insecurities of globalisation, and the challenge constantly to upgrade our technology and skills, the best way forward for the British economy is, first, to hold firm to our policies for stability and not risk monetary or fiscal instability; and secondly, to continue to create new enterprise, new jobs and better services with reform, and to reject policies that would undermine investment, undermine our new deal for jobs, and undermine our commitment to make work pay.

Mr. Steve Webb (Northavon)

There is one economic statistic about which the Chancellor is uncharacteristically coy: he never seems to mention the whopping great trade deficit. Does he believe that that is a problem, and if so, when will it be solved?

Mr. Brown

The trade deficit rose to 4 per cent. of gross domestic product under the last Government. It is now around 2 per cent. of GDP. While it is obviously better when exports are rising faster than imports, the hon. Gentleman must recognise that world trade has virtually stalled over the past two years.

I want to say something about our responsibilities in a more insecure world and to make two announcements. This is the first Queen's speech since the tragic events of 11 September. Over the past year, we have worked ever more closely with the United States of America and other authorities not only to confront the threat of terrorism but to cut off the finance that makes it possible. I can tell the House of the progress that we have made, starting with the $100 million of assets of more than 100 organisations and 200 individuals suspected of terrorist financing that have been frozen.

The new terrorist finance unit has been passed 3,500 suspicious reports, and 600 have been referred to Scotland Yard. There have been 20 arrests in connection with terrorist fundraising, and 15 people have subsequently been charged. The first conviction for terrorist financing has taken place in the United Kingdom under the Terrorism Act 2000. As the House knows, police have acted swiftly against suspects here in London, with a substantial seizure of terrorist funds last week. Only yesterday, there was another significant seizure from an al-Qaeda suspect listed by the United Nations. Tomorrow, I will make a further announcement that adds to our list of individuals and organisations designated because they are suspected of financing terrorism. Next week, the US Treasury Secretary, Paul O'Neill, will visit Britain, and our common aim, working together, is to ensure that every financial centre in the world has measures in place to identify, and then stop the flow of funds to, terrorists. I believe that I will have the support of the whole House when I say that we must take all the steps necessary to intercept, root out and cut off all the sources of terrorist finance.

As we insist on exchange of information not only to stop and track terrorist financing but to tackle money laundering and tax avoidance, I want to thank Jersey, Guernsey, the Isle of Man and the Caribbean authorities for their co-operation, and so that all countries are included, I can announce that we will do all that is necessary to ensure that the Cayman Islands joins the list of territories offering full exchange of information.

Not only because of 11 September, but with events unfolding in Iraq, high oil prices, the problems that we know with the IT sector, the danger of contagion from further emerging markets where there is instability, and remaining major current account imbalances between major economies, the ongoing uncertainties facing the world economy are unprecedented in number and more widespread than at any time in our recent economic history.

Of the 20 of the world's biggest economies that have been or are in recession, the US was in recession for three quarters of 2001, as was Germany, and Japan was in recession for most of last year, resulting in a contraction of output. The global economic background to this year's Queen's Speech, as for the pre-Budget report next week, is, continent by continent, throughout Europe, America and Asia, the first simultaneous world slowdown for almost 30 years. The G7 countries as a group are experiencing the sharpest annual reduction in growth since the recession of 1974 and the worst deterioration in their industrial activity since that oil crisis. As a result, there are the largest increases in Government deficits around the world since the series of figures began in the 1970s.

Beyond the G7 group, the sharpest contraction is taking place in world economic growth also since 1974, and world trade, which was rising by 13 per cent. two years ago, was at a standstill last year and is barely growing this year.

Chris Grayling (Epsom and Ewell)

Does the Chancellor believe that the situation in Germany is cyclical, or does he agree that there are also longer-term structural problems affecting that economy?

Mr. Brown

I talked about this last week, when we debated the matter at Question Time. The Germans believe that their deficit will fall below 3 per cent. within the next two years. That is why they have announced today measures to cut their budget deficit and a rise in capital gains tax and said that they intend to deal with public expenditure. As I said last Thursday in the House, the stability and growth pact should take account of cyclical factors and investment. There is no doubt that countries with low debt to GDP ratios are in a better position to be able to borrow for investment. I believe that the stability and growth pact needs that reform to enable a cyclical problem to be taken into account. The right hon. and learned Member for Rushcliffe (Mr. Clarke) might wish to comment on the pact, as he was one of those who negotiated it and is probably the only Member of Parliament who now supports it.

I believe that most hon. Members will agree that in this period of continuing uncertainty, we should continue to steer a course of stability, be vigilant to the risks, maintain strong fundamentals, and be ready to act decisively with our international partners with the toughness and determination to take the right long-term decisions. Here in Britain, we will not be diverted from that tough and disciplined approach. There will no risks taken with inflation and no attempt at the old quick fixes, and just as we must have continued discipline on pay in the private sector, it is essential that there be continued discipline in our approach to public sector pay.

When the issue is how we can maintain growth and employment in an uncertain and unstable world, it is exactly the wrong time, with the wrong claim, pursuing the wrong methods, to demand wage rises that are so much higher than inflation that they would, if they were repeated across the public sector, lead to a rise in the wage bill that no prudent and responsible Government could be expected to finance. Every additional 1 per cent. on the nation's pay bill costs an additional £1 billion. To have to pay excessive wage rises would be at the cost of jobs or other investment in public services. That is why we must have the strength to take the right long-term decisions for our country.

This morning, my right hon. Friend the Deputy Prime Minister met the firefighters leader to discuss safety issues. Those discussions were encouraging and we hope that the local authority employers and the firefighters will return to the negotiating table this week to discuss pay and modernisation. Every pay negotiation demands, responsibility on all sides, and every pay rise must be related to productivity so that investment is matched by reform.

Mr. David Cameron (Witney)

In the light of what the Chancellor has just said and what the Governor of the Bank of England said yesterday on "Breakfast with Frost", will the right hon. Gentleman explain why ACAS workers—who I am sure will be busy—have had a pay rise of 17 per cent., Welsh Assembly staff have had a pay rise of 22 per cent., and Ministry of Defence staff have had a pay rise of 20 per cent.? Why did we not hear such fulminations when they were happening?

Mr. Brown

Overall rises in public sector pay over the past five years have been less than rises in private sector pay. The ACAS settlement was to make good problems that arose from the application of the Equal Pay Act 1970. Every pay rise within the public sector has to be related to the needs of the sector and productivity—but we take no lectures from one who was a special adviser to Lord Lamont when he was Chancellor of the Exchequer.

It is by holding fast to our economic disciplines that Britain, despite the world slowdown, has not only achieved low inflation and low interest rates, but managed to combine low inflation with low unemployment—indeed, the lowest unemployment for 25 years. Today, Britain has the lowest unemployment among men since 1979, the lowest unemployment among women since 1976, and the lowest long-term and youth unemployment since 1975. The International Labour Organisation unemployment rate is 8.3 per cent. in Germany, 8.6 per cent. in France, and 8.3 per cent. in the euro area as a whole, while in the United Kingdom it is 5.3 per cent.—more than 50 per cent. lower. Today, unemployment in Britain is lower than in Europe, Japan and America together for the first time since the second world war.

I believe that we are better placed because our monetary regime was designed not only for times of high growth, but for times of global difficulty as well. Because that regime has established credibility by meeting our inflation target year after year, the Bank of England has the capacity to make the right decisions at the right time for the long-term interests of the British economy. In the same way, it is because our fiscal rules are set for the long term that our fiscal policy can adjust to the economic cycle, with the automatic stabilisers able to play a full role. Fiscal and monetary policy can respond because we have kept within the sustainable investment rule, which demands that debt be less than 40 per cent. of GDP.

It is precisely because we have created a fiscal and monetary regime that targets inflation with a symmetrical target, works within clear rules and requires low debt before investment, and is therefore rigorous and disciplined, that during the recent downturn we have been able to respond to the world economic cycle, its risks and uncertainties. Although not immune to the downturn, we are one of the few countries to have averted recession in the past few years. The figures show that in a global downturn deeper and more serious than that of the early '90s, Britain is doing better than the rest of the world, whereas in the early `90s, faced with a lesser contraction in global growth and output, Britain did far worse.

Let us remember that in that earlier downturn the world economy continued to grow but we contracted by 1.5 per cent. Today, with the world in a worse growth trajectory, we continue to grow. Indeed, last year, growth in the UK was the fastest in the G7 countries. Instead of being, as in previous downturns, first in and last out of recession—the country that suffers most—we have continued to grow.

Let us remember also that, in the last world downturn, interest rates were above 10 per cent. for three years and at 15 per cent. for an entire year. No one will ever forget the 250,000 mortgage repossessions or the negative equity that affected 1.5 million homeowners and, for many, lasted nearly a decade. It is because we have consistently achieved low inflation, which averaged 6 per cent. under the previous Conservative Government but is 2.3 per cent. under Labour, because debt has reduced from 44 to 30 per cent. of GDP and because we have achieved lower interest rates, that the UK, spared 10 per cent. inflation and 15 per cent. interest rates, is in a stronger position to maintain our economy, sustain high employment and meet our commitments to health, education and the public services.

Mr. Jonathan Djanogly (Huntingdon)

The Chancellor has repeatedly referred to increased employment, but is it not the case that it is the public sector that has been growing, while the private sector has had massive job losses?

Mr. Brown

No, both the public and private sector have been growing over the past year, and the vast bulk of the 1.5 million jobs created in the economy in the past five years are in the private sector. I should have thought that the hon. Gentleman would be the first to congratulate us on that.

Mr. Patrick McLoughlin (West Derbyshire)

The Chancellor mentioned negative equity and the problems that it causes. Does he expect to see negative equity in the property market in this country in the next two years?

Mr. Brown

It is certainly true that house prices, as a share of income, have risen a great deal, but it is also true that because interest rates are low, mortgage rates, as a share of the income of people buying houses and of those who already have houses, are lower than at other times. Whereas, in the early 1990s, mortgage payments were about 36 per cent. of the average income of a house buyer, they are now about 14 per cent., which is why people have been in a position to make their mortgage payments.

Mr. Kenneth Clarke (Rushcliffe)

The Chancellor is supplying many hostages to fortune. Had he forgotten, when he replied to my hon. Friend the Member for Huntingdon (Mr. Djanogly), that in the third quarter of this year the number of full-time jobs in the private sector fell by 72,000?

Mr. Brown

The right hon. and learned Gentleman cannot deny that 1.5 million jobs have been created in the last five years and that half of the jobs created in the last year are in the private sector. At the same time, we have the lowest claimant unemployment that this country has seen for 25 years.

I listen carefully to the right hon. and learned Gentleman because his contributions give an added dimension to Tory party thinking, given that he normally disagrees with his Front-Bench colleagues, and I have followed carefully what he has been saying over the last few years. He said in 1997 that he was against the independence of the Bank of England and he predicted that there would be a recession. He then said that we were wrong not to keep to the spending rules when we cut debt so that we are in a position to borrow at times that are more difficult for the economy, and he now says that our spending is unacceptable. It seems—this may give comfort to the shadow Chancellor—that on every major issue since 1997 the right hon. and learned Gentleman has been wrong, and he is wrong, of course, in being the only person in the past week to come out in favour of the existing interpretation of the stability pact.

Mr. Kenneth Clarke rose—

Mr. Brown

I will give way once more so that the full views of the Conservative party are represented.

Mr. Clarke

I shall refer to some of the inaccurate descriptions of my forecast when I get the chance, if I catch your eye, Mr. Deputy Speaker.

The only reason why the Chancellor is defending the growth and stability pact is that he does not want to raise taxes before the next election, so the only criticism of my forecast may turn out to be its timing, which could be extremely embarrassing for him when tax and spend on the present scale finally comes home to roost.

Mr. Brown

In 1997, the right hon. and learned Gentleman said: Gordon Brown's claim that he could control public spending is beyond belief. Hell will freeze over before Gordon Brown could control spending. We kept to our two-year spending guideline and we maintain the view that I have expressed continuously since 1997: the stability pact, which, unfortunately, the right hon. and learned Gentleman must take some credit for negotiating, must be reformed to make it more consistent with the needs of the economic cycle—which, many people now accept, is affected by what is happening in Europe—with the need to recognise investment as an important part of public spending and with the need to recognise that countries such as ours with low levels of debt, compared with others with high levels of debt, are in a position to borrow, whereas others are not.

In the last world downturn in the early 1990s, employment fell by 3.5 per cent, and unemployment rose by almost 1.4 million. Today, as I have said, employment has risen, with 1.5 million more jobs since 1997. The record is undeniable—world conditions are worse now than in the early 1990s, but Britain is doing better. When world conditions were relatively better in the early 1990s, Britain did not just relatively worse, but decisively worse.

Labour has attacked the previous Tory Government's record. The Liberals, of course, continue to attack their record. Home owners and industry have attacked it, and so have the British people. I watched the Conservative party conference, where Tories were attacking it. It was even attacked by the Tory party chairman and the Tory leader, or should I say the current Tory leader? In an interview with The Sunday Telegraph on 6 October—[Interruption.] I think that the Opposition should listen to their own leader. Speaking about the early 1990s, he said that businesses went to the wall, we broke our pledge on taxes, there was negative equity in homes, the public felt hurt. Then we lectured them, and we seemed arrogant. We said it was all your fault, not our fault—you are the problem, not us…they still remember that we were in power, and that is what we left them with. So who are the guilty men, and where are they now? Where was the shadow Chancellor when all that was happening? He held three Cabinet posts, but perhaps he did not attend Cabinet meetings. The Tory chairwoman has said: You know what some people call us—the nasty party". To whom was she referring? When she said that Tory Ministers were unrepentant and unattractive, whom did she have in mind? She said that the previous Government were arrogant. Is there a specific exemption for the shadow Chancellor because he has been so humble? The current Leader of the Opposition said that the previous Tory Government were uncaring, but was not the shadow Chancellor Employment Secretary when unemployment went up by 1.5 million, and did he not destroy the employment programmes that were in place? The Tory chairwoman said that the previous Government were incompetent and broke their promises, but was it not the shadow Chancellor who, as Employment Secretary, was reporting every month on inflation, which rose to 10 per cent., and interest rates to 15 per cent.?

Was it not the shadow Chancellor who had ministerial responsibility for financial services when there was pensions mis-selling? Was he not also Home Secretary? Under the Tories, crime doubled. The Tories complain that the last Government were hectoring and lectured people, but was it not the shadow Chancellor who, as Minister for Local Government, told us—indeed, insisted—that the poll tax that he was introducing was clear, simple and fair? The record that is being denounced by the Tories' current leader is the record of the poll tax-introducing, inflation-raising, unemployment-creating, pensions mis-selling, crime-doubling shadow Chancellor, so it is difficult to take lectures from him.

Now, the shadow Chancellor is showing the same good judgment about the economy. He says that Britain is less well placed to weather any world economic slowdown, and that the British economy is less able to withstand the dreadful events of September 11th and their economic consequences". However, I have just given the figures for 20 countries in recession and for Britain's continued growth.

Since 1997, every shadow Chancellor has made forecasts of gloom. We had four shadow Chancellors before the right hon. and learned Gentleman, all of whom predicted recessions. It was not the recessions that came and went—it was the shadow Chancellors. Now we have a fifth shadow Chancellor predicting the worst for the economy—I just wonder what the sixth will say. I ask the right hon. and learned Gentleman and his colleagues on the Front Bench: what is Conservative policy on monetary and fiscal matters? Does anyone know? Does anyone care?

During the 1980s and 1990s, when other countries were making decisions on central bank independence, the Conservatives could have made the Bank of England independent. Even after 1997—even after we had made the Bank of England independent—the shadow Chancellor continued to oppose the decision.

What of the fiscal disciplines? I see that it is now the shadow Chancellor's argument that ours are too lax, despite the fact that in a speech in April he said that neither of the Government's fiscal rules is entirely new. The golden rule was anticipated in Ken Clarke's last budget document …the origins of the sustainable investment rule can be traced to Tim Congdon's 1976 proposal…that was incorporated into policy in the 1980s. In April, the right hon. and learned Gentleman was claiming authorship of the golden rule and other fiscal rules, but he now questions their validity.

If the shadow Chancellor agrees with fiscal discipline, has he in mind another fiscal rule? What fiscal rules would the Conservative party follow? Would it go back to the balanced budget rule, for which the right hon. and learned Gentleman argued in 1997—a rule that would mean that we would have to cut billions of pounds from investment in education, health and other public services?

Would the Tories follow the ideological rule, which reveals the truth about the shadow Chancellor and the Conservative party? That is the one that the right hon. and learned Gentleman set out when he stood for the Conservative leadership and received 23 votes in 1997, but has sought to keep quiet about since. He said: For the past few years we have held real spending growth to 1 per cent. per year…We had planned to maintain that performance over the course of this Parliament. If he had got his way, spending by 2006 would have been £72 billion less than we plan it to be.

Is the shadow Chancellor's fiscal rule the one that he also enunciated in 1997: that public spending should be cut to 35 per cent. of GDP? Let us remember what he said: I believe our aim should now be to reduce the proportion of national output taken by the state towards 35 per cent…I believe that 35 per cent. is a realistic and attainable long-term goal. By the end of our spending round, that would mean £78 billion a year less—the equivalent of the entire UK hospitals budget. Each of those rules would mean massive cuts in our public services. That explains so clearly why the shadow Chancellor will not commit himself to matching our health and education spending plans.

The Conservatives can visit housing estates, single-parent clubs and night shelters, and talk about compassion for the poor and how they are helping the vulnerable and supporting public services, but if, as at the last election, they refuse at the next election to match us on education and health, we will ensure that they will have to spend all their time explaining which hospitals or schools will close and how many nurses, doctors and teachers will lose their jobs under their plans. We will pursue them into every constituency to explain what their plans will mean for British families and people across Britain.

Chris Grayling

Perhaps the Chancellor can answer a question that has puzzled me for some years. He says that the policies that he inherited in 1997 were built on Tory economic and spending guidelines. If the policies were so fundamentally wrong, why has he spent five years talking about their virtues?

Mr. Brown

I did not say that; I said that after 1997 we, first, made the Bank of England independent; secondly, we devised a new monetary regime that was based, unlike the Tories' regime, on a symmetrical inflation target; and, thirdly, we introduced new fiscal rules so that we could reduce the debt, which rose under the Conservatives, by not spending additional moneys over the first two years. The result is that we have cut debt, which had been rising under the Conservatives, from 44 per cent. to 30 per cent. of GDP. I should have thought that the hon. Gentleman would want to congratulate us on our prudence and the stability that we have tried to create for the British economy.

Having created a platform of greater stability with clear monetary and fiscal rules—unlike those of the Conservative party—the next stage is to make Britain better equipped to face the new challenges of globalisation, with more competition, more business creation, more investment and a more skilled work force. So, in the Queen's Speech, we have matched last Session's Enterprise Act 2002 with measures that will open up competition, which will be in a water Bill; with measures that will reduce barriers to entrepreneurship; and with measures to reduce planning delays by introducing business planning zones, which will be in a planning Bill.

At any point in the past 20 years, it was open to the Government of the day to make our competition authorities, like the Bank of England, independent and free of political influence. At any point, it was open to them to reform the insolvency laws. At any point, it was open to them to cut capital gains tax from 40p to 10p for business assets held for two years or more, to create a more favourable tax regime for capital gains than that of the United States. At any time over recent decades, it was open to the Government of the day to cut corporation tax from 33p to 30p, to create the lowest corporate tax in our history. I am pleased that it is this Labour Government and the Budgets that we have introduced that are pushing forward this agenda for business prosperity.

At any time in the past 20 years, a Government could have reduced the tax on small companies. It was open to the previous Government to introduce a new flat rate and simplified system for payment of VAT to replace accounting for every VAT item, thus cutting form-filling for nearly 700,000 businesses. We should be pleased that it is a Labour Government who have reformed VAT, cut the small companies tax rate from 23p to 19p and reduced the new starting rate to zero for 150,000 small companies.

Andrew Selous (South-West Bedfordshire)

What does the Chancellor say about the statement from the Confederation of British Industry last week that the £47 billion that he has taken from British business is enough, and that if he goes any further, we will not have the money to pay for the services that he has been describing?

Mr. Brown

The CBI welcomed what we achieved on stability and continues to do so, whereas it criticised the last Conservative Government every year. On tax, it is hardly surprising that the CBI, representing businesses, should press for less taxation of business, but I point out to the CBI, as I point out to the House, that we have reduced corporation tax from 33p to 30p, that the small business tax is now at 19p and that we have eliminated the 10p band, so that the first £10,000 of a small company's profits are not subject to taxation. In all these ways, including the cuts in capital gains tax, we are helping business. We should be pleased that it is a Labour Government who have cut corporation tax in this way, and in the Queen' Speech it is a Labour Government who are extending competition and introducing much needed planning reforms that will remove the need in many areas for detailed planning permission.

These announcements are just the start. In the pre-Budget report, working in partnership with local authorities and regional development agencies, we will designate 2,000 new enterprise areas, so that we can encourage home-grown economic activity in areas that were formerly areas of high unemployment, by cutting the cost of starting up, investing, employing, training and managing the payroll for those businesses.

At the heart of our response to the world economic downturn and the challenge of globalisation are policies for more flexible labour markets to raise employment and make work pay, and policies for family prosperity, including a child tax credit and a pension tax credit. I want to explain why, at every point, our policies are right for this country, and why we reject as wrong the policies of the Conservative party.

When the previous Government were in power, longterm unemployment among young people went as high as 350,000. By contrast, it is now less than 6,000. What was an average of 500 per constituency is now an average of nine per constituency—single figures. This was the purpose and the achievement of the new deal, with 1.7 million participants, 830,000 young people and, for the long-term unemployed, more than 500,000 participants.

However, this is not the time to relax. Instead, we must accelerate our efforts in pursuit of the goal of full employment in the longer term, not just in one region, but in all parts of Britain. Where vacancies exist side by side with large numbers of unemployed, we are introducing intensive targeted initiatives to help the unemployed back to work and to break the destructive culture summed up by the claim, "No one around here works", which damages areas and diminishes people's hopes. In pilot areas, we plan to test a more intensives approach to tackle the worst concentrations of unemployment street by street and estate by estate. As we insist on unemployed adults and young people going back into work, we will identify the barriers to their employability, offer them training, advice and sometimes cash help, and link them to the jobs that exist in their vicinity.

Yet the new deal, which has helped nearly 2 million men and women, has been opposed throughout by the Conservative party. The work spokesman for the Conservatives said: We would not have had the new deal…we would not have had the windfall tax on the public utilities. He said that the new deal was making no improvement to the job opportunities of young people."—[Official Report, 11 March 1999; Vol. 327, c. 522.]

Mr. Djanogly

Will the right hon. Gentleman give way?

Mr. Brown

I have already given way to the hon. Gentleman.

The hon. Member for Havant (Mr. Willetts) also said: The new deal has had no effect whatever."—[Official Report, 27 March 2000; Vol. 347, c. 53.] But let us remind Opposition Members of the effect: a 75 per cent. reduction in youth and long-term unemployment in this country. What is now the policy of the Opposition? Do they support the new deal or not?

When the shadow Chancellor was Secretary of State for Employment, he cut the enterprise allowance scheme, jobstart and the job share programme. Even as jobs were being cut, he was cutting help for the jobless. The question is: do we want the Labour policy, which has created 1.5 million more jobs, or do we want the shadow Chancellor's policy as it was when he was Employment Secretary and 1 million jobs disappeared?

The difference is not only about employment, but about making work pay. Our policy is to ensure that work will pay more than benefits, so we have introduced the working families tax credit and are now ready to expand it to make work pay. For the first time, next April, single persons and couples aged 25 or over without children will be eligible for in-work support that makes jobs pay. Couples with wages of less than £280 a week or £14,000 a year and single people with less than £10,000 a year will start to gain from that tax cut.

In return for the responsibility to take up the opportunities that are available, the working tax credit fulfils our promise not simply to families with children, but to single people and couples without children, to make work pay by paying more to be in work than to be on benefits. We have introduced those changes on the foundation and building block of the national minimum wage—it could not have been done otherwise—which is now £4.20 an hour and covers 1.2 million people. Through the new chairman of the Low Pay Commission, we are now reviewing that rate.

What is the Conservative policy on that issue? Let me read out what the shadow Chancellor said when we discussed the minimum wage while he was Employment Secretary. He said that it would wreck our economy…smash job prospects and add up to 2 million people to the ranks of the unemployed."—[Official Report, 9 July 1991; Vol. 194, c. 795–97.] He said that it would mean increased inflation and maximum unemployment…and drive out investors. He later said: The minimum wage is Labour's axe on jobs and that it was not just a threat to jobs: it would damage every indicator of economic performance. The minimum wage would raise inflation, reduce growth, undermine the value of the currency"— and that comes from the Conservatives. He also said that it would "send unemployment soaring". Of course, we know that he is an expert on inflation and unemployment. He said that a minimum wage would cost at least 1 million jobs. At least he got the number right; under the minimum wage, Britain has not lost 1 million jobs, but created them. Does he now admit that he got it wrong, and will he now accept the minimum wage?

What does the right hon. and learned Gentleman's party have to say about tax credits? The Conservatives now oppose tax credits, yet tax credits and the integration of tax and benefit were introduced in the United States of America by Ronald Reagan. They are supported by President Bush, who has just raised the tax credit. Ronald Reagan said that it was the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress. That integration of tax and benefits was supported by the Conservative party in 1974 and 1979. The former Secretary of State for Social Security, Norman Fowler, said that he was prevented from pursuing such a policy when he held that position. On the pension credit, he said only a few months ago in the House of Lords: To be frank, I should have preferred it if my government had introduced the pension credit…It is long overdue, and my hope is that it will provide support for some of the most deserving people in this country."—[Official Report, House of Lords, 18 December 2001; Vol. 630, c. 165.] The shadow Home Secretary, one of the few people in the Conservative shadow Cabinet who is prepared to say what he thinks, said: I think that some aspects of the Budget are admirable…aspects that should be welcomed include the general principle of transferring from one form of benefit to a tax credit."—[Official Report, 19 March 1999; Vol. 308, c. 1492.] The Leader of the Opposition opposes tax credits. He said:

we would cut the working families tax credit…saving us all money…stop wasting our time".—[Official Report, 19 October 1998; Vol. 317, c. 951.] We have a policy that was supported by the Conservative party in the 1960s and 1970s. Presidents Reagan and Bush also supported it. It is even supported by the shadow Tory Home Secretary. However, with the rightwards lurch of the Tory party, it does not have the support of the shadow Chancellor and the Opposition Front Bench. On the minimum wage and on tax credit, the Conservatives are completely out of touch with the people.

Sir Peter Tapsell (Louth and Horncastle)

I congratulate the Chancellor on his conversion to Reagan economics, but will he follow the example of Reagan and start reducing taxes across the board instead of increasing them all the time?

Mr. Brown

I remember that it was a Republican Administration who ran up the greatest deficit ever as a result of not being able to take the right decisions. The key issue is that we do not allow ourselves to return to the days of Conservative government of the early 1990s, when we had a £50 billion deficit—it rose to 8 per cent. of gross domestic product—that led to 22 tax rises, despite the promise that the Conservatives made at the election that they would never increase taxes. I am determined that we will pursue prudent and responsible public finances, even if the shadow Chancellor cannot begin to tell us what his fiscal rules will be.

We shall announce the new level of the pension credit, which will be introduced in October. I can confirm that the winter fuel payment is being sent out now. The free television licence is worth £112 for the elderly. The shadow Secretary of State for Work and Pensions wanted to take it away from pensioners, but it will continue. For tomorrow's pensioners, my right hon. Friend the Secretary of State for Work and Pensions will shortly publish our Green Paper on pensions.

The Tories would cut investment in education, and in every major public service. We know that in the modern economy we cannot afford to waste the potential of one child. Investment per school pupil will rise from just under £2,500 a year under the Conservatives to £5,000 a year on average per pupil—twice as much—by 2006. That requires 10,000 more teachers, 50,000 more classroom assistants, 20,000 schools renovated and the right to nursery education for not only every four-year-old but every three-year-old.

The new resources that we will put in will be accompanied by reforms—for example, freedoms and flexibilities for head teachers through the direct payments that were introduced in previous Budgets; a reduction in ring-fenced funding; new incentives for successful schools; new specialist schools and city academies; a national roll-out of education maintenance allowances to persuade young people to stay on at school and get qualifications, even when their families do not have the income to support that; and further education reform under the paper that is to be published this week to increase opportunities for post-16-year-olds, including an expansion in the number of modern apprenticeships. We shall widen access to higher education. University reforms will be outlined by my right hon. Friend the Secretary of State for Education and Skills in the new year.

Again, there are questions for the Opposition. They refuse to match us on education. They say that we are spending too much on it. How can they claim that it is not cost-effective for expenditure on education to rise to £5,000 per pupil when they are prepared to spend money on assisted places schemes for pupils to go to private schools that charge an average £9,000 a year? We say that it benefits the nation to invest substantially not only in some pupils at some schools but in every pupil at every school.

Matthew Taylor (Truro and St. Austell)

As it appears that each member of the Cabinet is to have a free vote on university top-up fees, will the right hon. Gentleman tell the House whether he believes that top-up fees are an acceptable way forward for higher education?

Mr. Brown

I know that the Liberals will oppose every change that we even consider. Even on the Queen's Speech—I know that I share common ground with the shadow Chancellor on this—the other shadow Chancellor has set out 19 new spending proposals. That is on top of the Liberal Democrats' calls since the previous Queen's Speech for an end to prescription charges and for free personal care for the elderly. I could go through the list.

The hon. Member for Truro and St. Austell (Matthew Taylor) would like to support us on university funding because we are increasing it to 2006. We will honour our manifesto commitment on top-up fees, and he, like everyone else, will have to be patient and wait until the White Paper on universities is published. However, he cannot go on claiming that he will spend more and more on everything. At some time, the Liberal party, and the hon. Gentleman with his new, dignified title of shadow Chancellor, will have to face up to their responsibilities.

Let us consider the national health service. To ensure that it has the resources that it needs, we announced in the Budget the largest sustained increase in funding in NHS history: 7.4 per cent. a year for five years. thus raising spending to £90 billion by 2008. We also announced that spending on social services would increase. As the Queen's Speech makes clear, resources will be matched by reform. That includes: NHS foundation hospitals with growing devolution of money; multi-year budgets; flexibility down to primary care trusts and hospital trusts; payment by results; new and streamlined audit and inspection, with new national regulators; an annual report to Parliament and local reporting. The public have a right to know how health service money is being spent.

Mr. David Wilshire (Spelthorne)

Will the Chancellor give way?

Mr. Brown

I have given way enough.

Reform and investment will reduce waiting lists and times. I believe that the British people will listen to what we say about taxation to pay for the NHS. Like us, they will agree to put public services before tax cuts; like us, they know that a properly funded NHS through general taxation is the best insurance policy in the world. It is clear that the difference lies between those of us who want to invest in the NHS and public services and those who want to introduce and subsidise private medicine.

Let us consider Conservative policy again. In the general election campaign, the Conservatives said that they would match us on spending on hospitals and the health service. After the election, they decided that that was too moderate and left wing. Now, they refuse to match us on health service spending. Worse, they prefer subsidies for private medical insurance and subsidies for private operations to spending on the NHS.

How would the shadow Chancellor fund private insurance tax relief at a cost of at least £500 million? How would he fund subsidies for private operations at a cost of £1 billion? How does he square a precise and absolute commitment to spending public funds on subsidising private medicine with his failure to make any commitment to financing the NHS?

Does not it say something about today's Tories that their first pre-election commitment is not to the NHS but to subsidising private medicine? They used to tell us that they could not give us their spending commitments because they would make no early decisions. After claiming for a year that they would not make spending commitments on health, they were prepared at their party conference to make them on private medicine but not on the NHS. There is no better illustration of the priorities of today's Conservative party. It is not that they cannot but that they will not announce their commitment to the NHS.

It matters more to Conservatives to finance one person on BUPA than to fund the 50 million people who depend on the NHS. Dogma, not economics, leads them to deny the health service money. Let us remember the letter that the shadow Chief Secretary, who is present this afternoon, wrote to the shadow Chancellor a few months ago. It stated that the reforms that he proposed will require a degree of charging for healthcare services…The reforms which we will propose…entail those who can afford it making some payment for healthcare services. Such a policy leads to vouchers, extra charges and privatisation. The Conservative party has again become the party of public spending cuts and privatisation. It has become the party that is not for but against the health service and public services.

In the most difficult world economic circumstances, the Queen's Speech tells the country that even in exacting times, the Government will continue to steer a course of stability. We will reject the Opposition's policies for instability, unemployment, cuts in public services and undermining family and pensioner prosperity. Instead, we will pursue policies for a strong economy with employment opportunities for all, strong public services and a Britain that is enterprising and fair. I commend the Queen's Speech to hon. Members.

5.19 pm

Mr. Michael Howard (Folkestone and Hythe)

For the avoidance of doubt, I draw attention to my declaration in the Register of Members' Interests.

It is no part of my attitude, unlike that of the Chancellor, to denigrate anything and everything that emanates from the other side of the House. I shall, therefore, begin by welcoming the announcement that he made on the financing of terrorism. We are at one with the Government on that issue, and we welcome the progress that has been made. Indeed, we look forward to more progress being made in that important endeavour.

This afternoon, we have once again heard a speech from the Chancellor that was a masterclass in complacency. It is the latest in a series; he made a very similar speech at the Labour party conference. Then, too, he tried to give the impression that all was for the best, in the best of all possible worlds. The moment he sat down, however, his spin doctors were scurrying around telling the world that his forecasts would not be met. Indeed, the private press briefing in advance of next week's pre-Budget report has already been going on for some time. Two weeks ago, the press were briefed that the Chancellor had told the Cabinet that he was running out of money, and no doubt his spin doctors are scurrying around briefing privately as we debate these matters in public this afternoon.

Today, the Chancellor had stern words to say about public sector pay. Yesterday, the Governor of the Bank of England warned against a high pay settlement for firefighters, saying that wage inflation would impact the whole of the economy", with "not just inflation higher" but "unemployment higher", too. He said that that would be "very damaging indeed". How does the Chancellor reconcile what the Governor said yesterday with those above-inflation settlements in the public services—referred to by my hon. Friend the Member for Witney (Mr. Cameron)—that have already been made? There have been increases for ACAS workers of 17 per cent. over two years, increases of 22 per cent. over three years for the staff of the Welsh Assembly and increases of 20 per cent. over four years for civilian workers in the Ministry of Defence. The Governor of the Bank of England said that other elements in the public sector … would say 'me too' and … that would be very difficult to stop if it were allowed to start. As it has already started, how does the Chancellor propose to stop it?

The Chancellor also said something about the public services today; he did not say as much as he normally does, but he referred to them. Nowhere is the Government's failure more stark than in their failure to deliver on those services.

Tony Cunningham (Workington)

Will the right hon. and learned Gentleman give way?

Mr. Howard

The hon. Gentleman will have to wait just a minute.

In its 1997 manifesto, the Labour party said: The level of public spending is no longer the best measure of the effectiveness of government. Now, all that the Government can do is to boast about the level of public spending.

Tony Cunningham rose—

Mr. James Plaskitt (Warwick and Leamington) rose—

Mr. Howard

I give way to the hon. Member for Workington (Tony Cunningham).

Tony Cunningham

At a recent press conference, the Leader of the Opposition was asked about his commitment to matching Labour's investment in health and education. He said: You cannot say I am committed to matching anything. Does the shadow Chancellor agree with that view? To use the Leader of the Opposition's recent words: yes or no?

Mr. Howard

We have made this absolutely clear. I shall say it again for the hon. Gentleman and the Chancellor, and I hope that, this time, it will register with them. Our commitments on public spending will not come from the failing policies of this Government; they will come from our policies, which we believe will succeed and provide the country with the public services that it needs and deserves.

Mr. Plaskitt

In that case, will the right hon. and learned Gentleman confirm that it is still his view that public spending should fall to 35 per cent. of gross domestic product?

Mr. Howard

I have said this a hundred times before, too: no, it is not. When that statement was made, the proportion of GDP that was taken in tax in this country was 36 per cent., so that was not really as radical or dramatic a policy as the hon. Gentleman makes out. Since then, however, the burden has increased substantially, and we shall have to deal with the situation as we find it when we return to office, and not with the situation as it was in 1997.

Although, understandably, Labour Members do not want to talk about their record on public services, that is what I want to talk about now. The Chancellor's recipe for reform could be found in his public service agreements. In his first spending review, he said that they were an "essential change", helping to ensure that Government would do what they did "to the highest standard". But what has happened? The Government have failed, or are on course to fail, to meet nearly 40 per cent. of the targets that they set in 1998 and 75 per cent. of those that they set in 2000—and that is if we accept their own assessment, and their own interpretation of success or failure, at face value.

A helpful guide to the Government's interpretation can be found in today's edition of The Times. Under the heading "Avoid slippage by rolling forward", we read: New Labour target talk (a glossary of the baffling terms used by Treasury target-setters)". We then find the following helpful guidance: Slippage: A target that has not been met, but might yet be Rolled forward: Not the Lotto jackpot, but a way of keeping a target going past its sell-by date, rather than admitting it has been missed Not met: As near as ministers come to saying 'failed' or 'broken'; this passes for strong language Baseline not verified: Baffling term; basically means a target the terms of which are so unclear that it cannot be measured Not yet assessed: Crops up frequently, a way of keeping a difficult target going indefinitely Ongoing: A bit like 'rolled forward', only not so specific. Rolled forward carries a slight admission of failure; ongoing is target speak for 'we never said this would ever be finished' On course: 'Stop asking so many awkward questions, we'll let you know when we're ready' Measure changed: Admission that the original target has never been completely revised Cannot assess: The Treasury's admission that a target is too baffling to make sense of Non-smart: A target that was never meant to be assessed, has no set timetable and no set definition. Some of the targets themselves beggar belief.

Mr. Colin Challen (Morley and Rothwell)

Will the right hon. and learned Gentleman give way?

Mr. Howard

The hon. Gentleman will have to listen to this first.

Some of those targets are just targets for the setting of targets. In 1998, for example, the Department of Transport was given the following target: Establish in 1999 new targets for reducing road casualties from road accidents in the period up to 2010. To be fair to the Department, it met that target: it did indeed set a new target, which counts as a success. I fear, however, that the same cannot be said of the Lord Chancellor's Department. This is one of the targets set for it: Reduce by 2004 the time from arrest to sentence or other disposal by reducing the time from charge to disposal for all defendants with a target to be specified by…March 2001. Well, March 2001 has been and gone. March 2002 has been and gone. But still no target has been specified by the Lord Chancellor's Department.

What about this target for the Department for Culture, Media and Sport? Facilitate and promote our competitiveness both at home and abroad of the creative industries. That target has been declared met. We do not know how this remarkable achievement has been assessed, what benchmark was used or what the criteria were for meeting the target; what we do know is that the achievement has not been repeated in respect of either the 2000 or the 2002 set of targets. Apparently the target was met in 2000, and that is that.

Let me give one final example. This is a target set for the Treasury, by the Treasury, in 1998: To ensure that all departments are set efficiency targets by the end of 1998, and to work with them to ensure that they meet their targets by their deadlines. That target, too, has not been met. Indeed, the Treasury now says that it cannot even assess it. Perhaps it should have thought of that before setting it in the first place.

David Wright (Telford)

Will the right hon. and learned Gentleman give way?

Mr. Howard

Yes, I will give way to the last surviving defender of the Treasury's targets.

David Wright

Will the right hon. and learned Gentleman tell us what the target for inflation was under the last Conservative Government? Was he pleased when it reached 10 per cent?

Mr. Howard

I can understand why the hon. Gentleman will go to any lengths to try to divert us from his Government's failed targets, but the people of this country are more interested in the Government's failure than the paths down memory lane that he wants us to take.

Mrs. Angela Browning (Tiverton and Honiton)

Does my right hon. and learned Friend recall that, in 2000, the Government set a target to improve palliative care? They put £50 million behind it, but, two years on, a ministerial written answer to me given only this week says that it is disappointing that not a penny has yet been delivered to hospices to meet that target.

Mr. Howard

I am grateful to my hon. Friend for reminding me of that shameful statistic. In fact, this would all be laughable were it not so serious. Those targets are at the heart of the Government's attempts to deliver on our public services, and they are the particular brainchild of the Chancellor. They are well on the way to making him a laughing stock.

Meanwhile, the Government continue to pour money—taxpayers' money—into those unreformed public services. This Government are taking £115 billion more every year from the taxpayers of this country, which is nearly £40 a week for every man, woman and child. That is before next April's national insurance contributions rise—the Brown tax on incomes and the Brown tax on jobs. Under this Chancellor, next April's tax rises will not be the last, because the Government's failure to modernise the public services means that their only answer is higher and higher spending and higher and higher taxes. Despite that extra spending, we are not seeing the improvements in our public services that we all want.

Laura Moffatt (Crawley)

My constituents are still completely confused by the right hon. and learned Gentleman's view, and it is not surprising that they say to me, as a former nurse, "All this criticism is coming at the Labour Government, who are putting so much more money into public services, but there is a given statement from the Conservatives that we would have to pay for particular services in the health service." What services are they? He needs to tell my constituents clearly what health services they would have to pay for under a Conservative Government.

Mr. Howard

I am sorry to say that confusion in the hon. Lady's constituency is obviously contagious and it is hardly surprising, given her state of mental confusion, that it has been transmitted, as she suggests, to her constituents.

The truth is that all we see under this Government is more and more money being taken out of people's pockets and the slow but inexorable undermining of the competitive advantage of British business on which everything depends. The problems in the UK economy have been building for some time. Of course it is true, as the Chancellor says, that all countries are affected by events such as 11 September, but the causes for concern in the UK economy run deeper. It is five and a half years since Labour took office, so it is time to test the Government, not merely against the much-hyped forecasts for growth and public spending this year, but against the promises and objectives that the Chancellor set out before he took office. Let us take a look at just a few of his promises.

In opposition, the Chancellor said that the test was "how you increase productivity". Britain was one of the poor productivity performers of Europe. In his first pre-Budget report, he said: The first challenge is to increase our productivity."—[Official Report, 25 November 1997; Vol. 301, c. 773.] Here we are, five years later. How has he fared on the very first challenge that he set himself? Britain's productivity growth has more than halved in that time, falling behind that of the United States. In the immortal words of the Chancellor's spin doctors, there is plenty of "increased room for catch-up".

What about the Chancellor's other promises? In opposition, he was concerned about the vicious cycle of poor competitiveness". So, what has happened to competitiveness under his stewardship? On the world competitiveness scoreboard, Britain has fallen out of the top 10, slipping from ninth to 16th. There is plenty of room for catch-up there too.

In opposition, the Chancellor said that he would implement an industrial policy so that our manufacturing industries can grow again. How is that industrial policy faring? Since 1997, half a million manufacturing jobs have been lost. Indeed, manufacturing jobs are being lost at the rate of 12,000 a month. Output in the manufacturing sector is lower than it was when the Government came to office.

As part of the new industrial policy, the Chancellor promised that Government must implement a co-ordinated programme of manufacturing investment. However, manufacturing investment in the last four quarters was 13 per cent. lower than in the last four quarters before Labour came to office. Business investment as a whole has fallen for six quarters in a row. We do not have to look far to see the root cause of many of those failures. For five years, the engine of wealth creation in this country has been over-taxed and almost run into the ground. It can take no more.

Rob Marris (Wolverhampton, South-West)

Will the right hon. and learned Gentleman give way?

Mr. Howard

The hon. Gentleman should take heed before he rises to his feet. Those are not my words: they are the words of the director general of the Confederation of British Industry. That organisation has estimated that the combined cost of the burdens on business over the past five years—taxes and red tape—could be as high as £15 billion a year.

Rob Marris

The right hon. and learned Gentleman talks about rising taxes. Does he think that that is a more undesirable way to proceed than doubling the national debt, which is what happened when he was in government?

Mr. Howard

I fear that the people of this country are much more interested in what is happening today and in the damage that the Government are doing to our economy than in the hon. Gentleman's mistaken and misleading history lesson.

In its pre-Budget report submission today, the British Chambers of Commerce talked of the excessive burden of taxation and regulations facing businesses". Far from acknowledging the concerns of business, still less doing anything about them, the Government's reaction is to spend their time rubbishing them. The Chief Secretary, that renowned authority on these matters, informed the CBI that its figures on tax were "wrong and misleading". He said that Britain is doing better on tax than our competitors. That is despite the fact that Britain has overtaken Germany in the high tax league.

The Secretary of State for Trade and Industry has gone one better. I am sorry not to see in her place, although she was here earlier. Not content with telling Britain's business leaders that they are wrong, she has informed them that they are incompetent too. She said: Too often it is poor management that accounts for Britain's low productivity. Apparently, she believes that the quality of management has declined in the past five years, and that that is what has gone wrong with productivity. Meanwhile, her colleague Lord Macdonald thinks that the way to increase his productivity is to write press articles defending the 4,642 new regulations brought in by the Government last year. That is a record number: one for ever 26 minutes of the working day.

I referred earlier to Labour's statement in opposition. In its business manifesto in 1997, the Chancellor said: We will not impose burdensome regulations on business, because we understand that successful businesses must keep costs down". Can any promise have been broken more comprehensively than that?

Mr. Tom Harris (Glasgow, Cathcart)

Will the right hon. and learned Gentleman give way?

Mr. Howard

I hope that the hon. Gentleman will answer that question.

Mr. Harris

The right hon. and learned Gentleman mentioned that business is now over-regulated. Can he name three regulations that he thinks should be removed from the shoulders of industry?

Mr. Howard

The question that the hon. Gentleman poses completely misses the point.[Laughter.] I shall answer his question in a moment. It is the cumulative consequence of 4,642 regulations that is so damaging. He asks for an example, and I shall give him one. I suggest that he look at new part L building regulations, statutory instrument 2002, No. 440. He may not know what that does; it forces building firms and traders to pay new charges to be allowed to install windows, conservatories, roof lights, roof windows and doors. If the installer is not registered, building regulation consent and a fee to the council is required, which costs a minimum of £150 for new windows. I suggest that the hon. Gentleman ask small builders in his constituency what they think of that regulation.

The Chancellor said two weeks ago that enterprise would be the theme of the pre-Budget report, but enterprise was supposed to be the theme last year, too. In fact, it seems to have been the theme every year but, every year, his policies damage enterprise. Only this week, a study by the London business school reported that the interest shown by would-be entrepreneurs in starting new businesses dropped by 31 per cent. last year. Strangely enough, the London business school did not blame this on the failure of managers. Paul Reynolds, its professor of entrepreneurship, said that the Government were

failing to convince people that it is worth setting up a business and that they will not be unduly penalised if they do.

Mr. John Bercow (Buckingham)

My right hon. and learned Friend is rightly highlighting the impact of costly and damaging regulation. However, will he confirm, for the balance of the argument and the completeness of the record, that we in the Conservative party have no intention whatever of abolishing the national minimum wage and that the logic of the existence of such a wage is that it will be periodically and affordably increased?

Mr. Howard

My hon. Friend knows that we have made it clear that we would not abolish the minimum wage, and I am happy to confirm that again this afternoon.

No one is denying that some of the decisions that the Government have taken on the economy—notably their reforms to the Bank of England—were the right ones. I have fully acknowledged that on a number of occasions. The Government inherited a golden legacy—[Interruption.] Labour Members who doubt that should wait for just a moment. Thankfully, unemployment, inflation and mortgage rates are still low. But, now, clouds of uncertainty are gathering and it is when times are less good that the foundations of the economy will be tested.

It was the supply-side reforms of the previous Government that led to what the Financial Secretary described, in a radio interview just a few weeks ago, as the good times in the late 1990s when we first came to office. How right she was. Those "good times" did not happen by chance, but the solid foundations on which they were built are being weakened little by little with every new regulation and burden that the Government introduce; each one seemingly harmless and defensible but, cumulatively, causing untold damage. Is it any wonder that the director general of the CBI has said that we are "sleepwalking to decline"?

The Government do not want to face that reality. After more than five years in office, business is getting fed up with Labour, fed up with Labour's red tape and regulations, fed up with Labour's new business taxes and fed up with Labour's inability to improve public services such as health, transport and education that are vital to a first world economy.

Of course it was not just on business that the Chancellor made promises against which he will be judged. Five years ago, he criticised our low level of national saving and announced new measures that he said would encourage more people to save"—[Official Report, 25 November 1997; Vol. 301, c. 775.] So what has been the result of the Chancellor's new measures? The savings ratio is forecast to fall this year to the lowest level ever recorded. Meanwhile, borrowing has risen, with household debt at record levels.

Far from alleviating this problem and encouraging people to save, the Chancellor has done precisely the opposite. It was the Chancellor who brought in the £5 billion a year pensions tax. So far, that has taken £25 billion from our pension funds. Some £400 is removed in tax every year from every single contributing member of a pension scheme. Another £130 is taken every year through the miserly uprating of the contracted-out rebates. When the Chancellor introduced the pensions tax in July 1997, he tried to justify it by saying that pension funds were in surplus and companies were enjoying pension holidays. In June this year, the Prime Minister defended the policy by claiming that the stock market was "up massively" on where it was five years ago. Alas, the pension funds are no longer in surplus and, unlike the American stock market, our stock market value is now lower than when the Government came to office, yet the tax continues to drain money from our pensions at the rate of £5 billion a year.

Nor have the Chancellor's other measures encouraged savings. The replacement of personal equity plans and tax-exempt special savings accounts with individual savings accounts was complicated and unnecessary. The last pensions Green Paper said that stakeholder pensions were likely to be taken up by "many people" but they have been such a dreadful flop. Help the Aged has said that pensions have faced a disastrous year of chaos and confusion", with the pensions credit creating a new range of anomalies". The Government still have not acted on the proposal in last year's Budget to abolish the minimum funding requirement, yet the Chancellor is having to bring in another pensions Green Paper to clear up the mess that his first Green Paper made worse. What about the effect on savings of his tax and pensions credits and the growth in means-testing, which send the message loud and clear that the more people save, the less they get? So much for the Chancellor's promises to cut means-testing.

The Chancellor also promised a transparent system. Indeed, that was the first of his five so-called "principles of fiscal management". In December 1998, Parliament approved his code for fiscal stability, which said that there would be transparency…in the publication of the public accounts". Four years later, the Government are financing, off balance sheet, some £100 billion of public sector capital spending through the private finance initiative alone. On top of that, they are guaranteeing through letters of comfort and similar schemes some £50 billion in public-private partnership deals with London Underground, London and Continental Railways and the not-for-profit structure of Network Rail.

Those deals do not feature in the accounts at all, not even as a note in the Red Book. They would send the Chancellor's debt ratio closer to 40 per cent. than the 30 per cent. of which he frequently boasts. Indeed, if we took the PFI liabilities into account, it would be well above 40 per cent.—o much for transparency in the publication of the public accounts.

The Government have said that their treatment of those items in the national accounts conforms with all accounting rules. Perhaps they are not aware that the executives at Enron said very much the same thing. Is it any wonder that the wannabe iron Chancellor is in danger of becoming the Enron Chancellor?

Next week, the Chancellor will deliver his pre-Budget report. We look forward to hearing what he has to say about his growth forecasts and revenue forecasts but most of all we look forward to how he responds to the concerns of taxpayers and of business. Will he start to mitigate their burdens? Will he start to address the economic imbalances that his policies have exacerbated? Will he change direction on the public services or will he continue his policy of spending without reform? Will spending continue to grow faster than the economy year after year? Will taxes continue to go up and up? Will he carry on taxing and spending and failing?

Those are the questions that the Chancellor must start to answer: questions about the long-term effects of his policies, about the sustainability of his approach to taxes and spending, about the way in which we are sleepwalking to decline. After five and a half years, it is time to start judging the Chancellor and his colleagues against the promises they made. That is the basis on which we and the nation will hold them to account.

Several hon. Members

rose—

Mr. Deputy Speaker (Sir Michael Lord)

Order. Before I call the next hon. Member to speak, I remind the House that Mr. Speaker has placed a 12-minute limit on Back-Bench speeches and that it starts now.

Mr. Patrick McLoughlin (West Derbyshire)

On a point of order, Mr. Deputy Speaker. Can you confirm that, under the new rules that have been passed by the House, when interventions are taken not only will the clock stop, but each hon. Member will get an extra minute, up to two interventions? The rules were debated just a few weeks ago. I raise the point of order so that everyone can be assured that they are in operation today.

Mr. Deputy Speaker

The hon. Gentleman is correct. For the first intervention, the clock will stop while the intervention is made and then a minute will be added to the time allowed for that speech. For the second intervention, the clock will stop again while the intervention is made and a second minute will be added to the time allowed for the speech. After those first two interventions, no allowance will be made either for the intervention or the response. I hope that that is clear and that I have not taken too long in explaining the position.

5.49 pm

Mr. John McFall (Dumbarton)

Thank you, Mr. Deputy Speaker, for providing such clarity on that point.

The shadow Chancellor's speech could be described as a commitment-free zone. We are still waiting, although perhaps I should modify that a little. After the Tory conference, the entire shadow Cabinet went into a conclave. Its members emerged with one, perhaps unanimous, commitment: to attack their leader, day after day after day. I should like them to add other commitments to that one.

I congratulate my right hon. Friend the Chancellor on his speech, and on highlighting the issues in the Queen's Speech that he considers important, and with which we empathise: economic stability, high and stable growth, the delivery of good public services, the international obligations that he and the Secretary of State for International Development have set in train, and Europe. We all agree that we are operating against a dismal global background. We are witnessing the first simultaneous downturn of the global economy in 30 years. Last year, Japan's economy retrenched by 0.5 per cent., Germany is suffering the threat of deflation, and the International Monetary Fund has recently estimated eurozone growth of 1 per cent. for next year.

The background is dismal, but last year the United Kingdom enjoyed 1.9 per cent. Growth—the fastest growth of any G7 country. We must celebrate and rejoice at the fact that we have the lowest inflation for 30 years, and the lowest inflation in Europe. We also have the lowest unemployment for 25 years—lower than that of Japan, the United States and the eurozone. Many Labour party members remember when we marched against unemployment more than 10 years ago, when unemployment stood at 3 million. Now, we have the lowest unemployment for decades, which is a cause for celebration.

As the Chancellor said, we have reached this point not by accident, but by design. Ten years ago, full employment was just a dream. It became an aspiration and then a commitment; now, it is almost a reality. The House need not take Labour Members' word for it. As recently as last month, the economic correspondent of The Times, Anatole Kaletsky, said that the British people have a level of relative prosperity higher than they have enjoyed since the 1940s. He continued by stating that Britain's "economic fundamentals" are as strong as they have been for a century past. There are worries, however, such as pensions, the falling stock market and pay demands. On pensions, the issue of trust is extremely important. As a result of past actions, trust has been dented. In recent months, the Treasury Committee took evidence relating to the split capital investment trust industry. As its chairman, I have received many letters from people who, on approaching their local independent financial adviser or a fund managing company, were sold zeros as part of a split level capital trust investment. Those products were advertised as being safer than a Volvo. It was said that if people put their money into such investment funds, it would sleep more soundly than a baby. Some people told us that having invested £7,000 or £8,000 to look after their elderly parents a few years down the line, their investment had reduced to less than £25. That is a scandal. It has dented people's confidence in the financial market and the stock market, and that confidence needs to be restored.

I need not say too much about Equitable Life, because we know, all too sadly, about the scandal that has affected it. Last week, with-profits annuities for pensioners were cut by almost 20 per cent. People who have saved every week of their lives, thinking that they were going to receive a pension and that they were investing in a blue chip company, have suffered a 20 per cent. cut. The Government should look urgently at that matter.

I firmly believe that the firefighters 40 per cent. pay demand is absurd and that we should refuse to entertain it, even though we should acknowledge the good work that firemen and women do. Incidentally, I should point out that women and ethnic minorities each account for only 1 per cent. of the fire service, so there is a long way to go in that regard. I am not condemning firefighters, but if we give in to the 40 per cent. demand, our current low level of debt—at 30 per cent., it is lower than that of the eurozone—will increase. If debt increases, borrowing will increase, and so will the cost of borrowing. As a result, public investment will decrease, the good investment in public services will be no more, and we will end up with a black hole. Money will go into a pit, and nothing will come out at the other end. Investment, standards and wages will suffer. It is for that reason that such demands must be resisted.

Mr. Simon Thomas (Ceredigion)

There is a lack of women recruits to the fire service. The hon. Gentleman says that a 40 per cent. target is not feasible, yet a lot of women must be put off by the fact that so many firefighters do two jobs to pay their mortgage. Surely it would be better to reach a settlement, no matter what it costs, to achieve a modernised fire service that can attract women.

Mr. McFall

Perhaps the hon. Gentleman has been speaking to the Deputy Prime Minister, because the issue is indeed modernisation and ensuring that we get a change in practices. Negotiating the issue of modernisation might result in a better service, so I thank the hon. Gentleman for his intervention.

On the spending levels to which the Chancellor has committed himself, I note with interest that spending for September 2002 has risen by almost 14 per cent.-a move that I support. Such an increase is encouraging, as is the knowledge that the goal of quality public services is being delivered.

I agree entirely with the Chancellor that we should encourage enterprise, particularly in the disadvantaged areas that a number of Members represent. For every three jobs created in the best areas, only one is created in poorer areas. That results in reduced income for services in the poorer areas, reduced quality of life, and increased poverty. The best anti-poverty programme is to assist people in poorer areas in starting up their own businesses, but at the same time we must ensure that they have access to capital, advice and skills.

On the Chancellor's international obligations, one big issue is economic reform in Europe, which has not been delivered. The hon. Member for Epsom and Ewell (Chris Grayling) mentioned structural reform in Germany, and I agree with him. The problem with Germany—and with several other countries—is that it has not reformed structurally. The Treasury Committee visited Frankfurt last week—we also visited Paris—and it became obvious to us that the German economy needs a great deal of restructuring. That problem has yet to be tackled.

Chris Grayling

Does the hon. Gentleman believe that Germany has a further long-term problem, in that—as many economists now argue—it joined the euro at the wrong exchange rate? Of course, there is no way out of that.

Mr. McFall

I agree. Sotto voce, several German politicians told us that German interest rates ought to be lower.

The big issue in Europe is the common agricultural policy, which is in urgent need of reform. A typical family of four now pays £16 a week in taxes for higher food prices, when food prices should be lower. They are propping up a regime that has as its centrepiece overproduction and environmental degradation. That conflicts with the Chancellor's wider aim on the international stage of helping developing countries. The CAP undermines the livelihoods of millions of farmers in developing countries by dumping cheap food on those countries, while denying them export opportunities to the single largest market in the world. Developing countries are getting fed up with western countries saying, "You liberalise while we subsidise." That has to change.

Despite World Trade Organisation commitments, agricultural support from the Organisation for Economic Co-operation and Development has risen from $300 billion to $330 billion in the past decade. That is five times the global aid budget, so the Chancellor's worthy aims, aspirations and actions on behalf of developing countries are being undercut.

Three quarters of the world's 1.2 billion extremely poor people live and work in rural areas. The average for developing countries is 50 per cent. of the work force in agriculture, and in some countries it is as high as 80 per cent. Women are particularly affected. Anyone who has been to developing countries knows the crucial role that women play not only in keeping families and society together but in the economic field. Agriculture plays a crucial part in reducing poverty, and I would like the Chancellor and others to put it high on their agenda.

We know that the WTO met at Doha last week. We should all bear it in mind that if all the trade barriers were cut by half, the world's income would rise by $400 billion, which is equivalent to adding an economy the size of Australia's to the global economy. It would liberalise and bring prosperity to people who are living in abject poverty. Quality of life would improve, and so would international stability. We cannot get away with a world in which we increasingly gather material resources to ourselves and deny them to the vast majority of the world population. Disorder and anarchy will surely flow from that. Our economic and our social objectives must be at one. I urge the Government to work towards both sets of objectives, to make this not only a more prosperous but a more peaceful world.

6.1 pm

Matthew Taylor (Truro and St. Austell)

The Chancellor spent a lot of time on the Conservative Government's record, and the Conservative shadow Chancellor spent no time at all on what a future, hypothetical Conservative Government might do. The Government's approach to the economy in the Queen's Speech was notable as much for what it did not say as for what it did. We heard about sound public finances, high levels of employment, economic stability, investment, and reform in public services—nothing new or objectionable in those aims. The Queen's Speech said that the Government would not renege on the commitment to assess the five tests on the euro by June 2003, but of course gave away nothing new.

More significant was what it did not mention. There was no mention of investment, which is down 10 per cent. on the year and has fallen faster over the past year and a half than that in the United States of America, France, Japan or Italy—yes, faster even than in the sluggish, depressed economy of Japan.

There was no mention of the longest manufacturing recession since the second world war, the deepest recession since 1981 and the loss of 500,000 manufacturing jobs since Labour took office. There was no mention of the problems in tourism, with visitors down 2.5 million on the 2000 level. There was no mention of lower productivity growth in this cycle than in previous cycles. Output per job has increased at an average annual rate of 1.4 per cent. since the mid-1990s, and output per person by just 1.2 per cent., compared with average productivity growth of just over 2 per cent. since the 1960s. Let us not forget that the Chancellor used to say that productivity is his first test.

There was no mention of the fact that growth is sustained by an unsustainable consumption boom while manufacturing withers. Between 1995 and 2002, the economy expanded by 20 per cent. and services by 28 per cent., but manufacturing fell by 1 per cent. Returns in manufacturing are now down to only 4 per cent. compared with 14.1 per cent. in services. In the same period, consumption grew by 4.2 per cent. per annum, while gross domestic product—the wider economy—grew by only 2.6 per cent. Consumption has consistently been rising 1.5 per cent. faster than growth. How long does the Chancellor believe that that is sustainable? How much personal debt can people build before it all goes bust?

We intend to say what we think the Government's fiscal and monetary stance should be, even though—perhaps unsurprisingly, a week before the pre-Budget report—the Chancellor did not give much away. The Conservative shadow Chancellor had nothing at all to say on the subject, which is rather more surprising from someone who supposedly offers an alternative to the Government position. Despite the speculation, we do not believe that, with an economy facing the current risks, with the record that I have spelled out, this would be an appropriate moment, economically or in any other respect, to have further tax rises or cuts in spending.

Indeed, the present spending plan, before the Chancellor had any idea of the economic situation that would unfold, has fortuitously proved to be the best timed piece of counter-cyclical spending that any Government have introduced. It always used to be said that Governments never step on the accelerator at the right time, but this time, arguably, the Chancellor has, although even he would not claim to have foreseen the problems coming down the track.

Chris Grayling

The hon. Gentleman said that his party does not believe that there should be any further tax increases. What, then, is the status of its spending commitments made in recent years, and most notably the intention to abolish tuition fees? Does that commitment remain, and if so, how will it be financed?

Matthew Taylor

As the hon. Gentleman knows, the Chancellor has announced substantial extra spending on both education and health—more than enough to fund the programme for which we argued. As yet, the Government have not told us how they will allocate that spending. We will press them to abolish tuition fees. We await delayed announcements early in the new year. We would not now need to argue for the penny on income tax for education for which we argued in the past because the money is there, but if the Government mis-spend the money, as they may well do, we will be honest enough to say, in the approach to the election, whether a tax rise may be necessary. Certainly, that would not be right for the economy now, and we have spelled that out.

Perhaps the hon. Gentleman can clarify the position of Conservative Front Benchers, who have said that they do not believe in the extra spending for the health service and have voted against it, while announcing a series of spending policies to give tax breaks to those who already have private health insurance. Perhaps he will explain how they intend to pay for that—although if he did he would get into trouble with the shadow Chancellor, who assiduously avoids giving any clue to his tax or spending plans.

Mr. Martin O'Neill (Ochil)

Will the hon. Gentleman take me back two steps? As I understand it, he told the House that there is sufficient money in the notional budget afforded to education by the Chancellor to pay for tuition fees. If that is the case, surely it must be at the expense of something else in the education budget—or has the Chancellor, with his characteristic generosity, afforded even more largesse than we had anticipated?

Matthew Taylor

When the Chancellor tells us how the money is to be spent, I will be able to answer that question, but as any answers on higher education have been delayed until at least the new year—they are now two years overdue—we are no more able than the hon.Gentleman is to second-guess how the Government intend to spend that money.

While the Conservative shadow Chancellor has been reticent about Conservative plans for the economy, his party leader has been somewhat more forthcoming. In a recent speech to the Institute of Directors, he backed our view that this was a moment for neither tax increases nor spending cuts. We agree that it is perfectly reasonable for the Chancellor to plan his spending on the long-term growth potential of the economy, not on fluctuations around the trend.

In that respect, it is the Conservatives who are in a complete muddle. Do they want to spend less, or more, or the same? Do they want to tax less, or more, or the same? Some Conservatives want to tax and spend more. The hon. Member for Tunbridge Wells (Mr. Norman) said just last week that

Investment in those services, if it comes at the expense of temporarily raising taxation, can be a good deal.

Chris Grayling

Will the hon. Gentleman give way?

Matthew Taylor

I will in a moment, because the hon. Gentleman might want to add to the range of views expressed, or at least align himself with one of them.

Some Conservatives want to spend less—perhaps that is the hon. Gentleman's view. We were told by the Conservative shadow Chancellor, speaking not so long ago: the lower we can get public spending as a proportion of GDP, the better Although the right hon. and learned Gentleman says that this might not be the moment to do so—he will not say whether it is or not—presumably he believes that at some point it will be desirable to cut spending. Some Conservatives want to tax and spend the same. Their health spokesman, the hon. Member for Woodspring (Dr. Fox), told the BBC earlier this year that he conceded that Taxes may have to rise to pay for improvements to the NHS. However, he subsequently voted against tax increases.

The Conservative leader described the Chancellor's penny national insurance increase as a tax on jobs, which contradicts what he told BBC Online on 19 April and shows that the right hon. Gentleman has more than one policy of his own. In addition, those competing to lead the Conservatives all offer different interpretations. The Conservatives voted against the tax increase, which comes as no surprise, given that tonight we have already heard Conservative Back Benchers calling for across-the-board tax cuts. Perhaps the hon. Member for Epsom and Ewell (Chris Grayling) would like to tell us with which faction of the Conservative party and which leader he aligns himself.

Chris Grayling

I am intrigued by the hon. Gentleman's use of the word "muddle", because he has just told the House that as of today he does not believe in a tax increase or a tax cut, but he may well change his mind before the next election. In my view, that constitutes a muddle.

Matthew Taylor

What I said was perfectly coherent. I said that given the state of the economy, the Government do not have to either raise taxes or cut spending; it would be inappropriate to do so and it would worsen the risk of recession. Conservative Front Benchers have failed to give any indication of whether they believe that that is true, or whether they want to cut spending or increase taxes. Because they have no policy that they are prepared to make public, the shadow Chancellor instead read out a long section from The Times today—presumably that is a replacement for a policy position of his own. However, he should be wary of reading from The Times because it has a lot to say about the Conservative party. I will not read out the full text, but less than two weeks ago, under the headline "Stop digging", The Times editorial said about his leader's comments: Rarely can a political boast have seemed so shallow…counter-productive and embarrassing as a firework that misfires and goes swirling off into the crowd. That is not a bad summary of the Conservative party's current position.

We are concerned about the long-term strategy being followed by the Chancellor. In the last Budget and the comprehensive spending review, he built his whole programme around his belief that there would be an increase in long-term growth from 2.5 per cent. to 2.75 per cent. We now know that that was optimistic. It is one thing to even out fluctuations in the economy over time in one's spending plans, but it is quite another to assume that long-term growth will continue to be strong when one's policies are consistently weakening it and one has thrown prudence to the wind in one's assumptions about increased growth.

To be fair to the Chancellor, he built his spending projections around a figure of 2.5 per cent. growth, not the 2.75 per cent. that he thought the economy would deliver. He called the difference the margin of prudence—the margin for error. However, the Government's own figures reveal that that margin has entirely evaporated. The Chancellor increased his growth forecast on the basis of population growth, yet the Government Actuary's latest estimate of the British population is 1.2 million less than the Treasury figure, and the Government Actuary says that the population is growing by 65,000 fewer people a year than the Treasury assumes in its fiscal projections. At the end of the current spending period, that difference will account for a loss of income for the Chancellor of some £5 billion a year.

Worse still, the Chancellor appears to have known that by using those figures, he was flattering himself. On the very day that he published the assumption of increased population growth, he published in the Wanless report on the national health service another assumption of population growth that was some 1 million lower. That figure, too, flattered the right hon. Gentleman, because a lower population reduces the amount he has to spend on the national health service, whereas the figure used for the wider economy flattered him by suggesting that growth and therefore Government income would be higher.

The latest Government Actuary's Department figures suggest that matters will worsen for the Treasury, because they predict that there will be more than 2 million fewer people by 2020. No wonder that those figures—unlike most Government assumptions of that sort—were never put to the National Audit Office for its comments. The Treasury's increased growth estimate increases tax revenues by £1 billion in the first year, rising to £5 billion in 2006–07. There has therefore been a significant loss of the room for error that the Chancellor had built into his projections. I hope that he will put that right in the pre-Budget report. My argument is based entirely on the Government's own figures and the assumptions that he used in the detail underlying his last Budget. The National Audit Office was not asked to audit the revised estimate of growth. It noted that although the new estimate was reasonable…it would be less cautious than the previous assumption. That was before the latest figures were produced by the Government Actuary.

That leaves us the entirety of the Government's spending plans balanced on a tightrope—the assumption of 2.5 per cent. growth. That brings me to the underlying structural problems that raise serious questions about the Government's ability to deliver their plans—[Interruption.] That is one Back Bencher who might also have difficulty delivering.

The underlying structural problem in the economy is the over-valuation of the pound driving a booming consumer sector and a depressed tradeables sector. Services growth is at more than 2 per cent., whereas manufacturing is suffering the deepest recession since 1981. The trade deficit was almost £40 billion last year, and it is on course to be £35 billion this year. Demand is driven by Government spending and consumers while exports fall and investment slumps. Investment accounts for a lower proportion of national income than it has done for five years, manufacturing profitability stands at less than half that of services, and services price inflation is 6 per cent. higher than goods price inflation.

Those are fundamental imbalances in the economy. I believe that the Chancellor knows that, but he has failed to come to grips with them. He talks about increasing productivity, but productivity growth has been lower than in the past. He talks about increasing investment, but investment is slumping. He talks about our success compared with other economies, but the truth is that success in the British economy is now built almost entirely on a consumption boom and increasing levels of consumer debt, house prices and house equity withdrawal. The Governor of the Bank of England, the Monetary Policy Committee and all serious commentators know and have argued that that is unsustainable. Unless the Chancellor can pull a rabbit out of the hat and turn manufacturing around, he faces a long-term problem with his spending and tax plans, not the short-term problem with which we are all familiar.

Mr. Kelvin Hopkins (Luton, North)

The hon. Gentleman suggests that all our problems—if problems there are—arise from the strength of the pound. Is he suggesting that we intervene actively in the currency markets to bring down the value of the pound?

Matthew Taylor

I do not believe that all the problems are the result of the pound's value, and I shall talk later about some of the other issues. Clearly, there is no agreement in the House on what I regard as the best solution, which is entry into the euro at a sustainable rate. The Chancellor has not yet told us his view on that.

The other issues about which I shall speak include the red tape, tax complication and bureaucracy that have been the Chancellor's hallmark. He prides himself on being a micro-interventionist and believes that the Treasury's role is to try, through micro-management, to affect business investment decisions. The figures that I have given the House show that all of that has proved to be wholly counterproductive.

Mr. Mark Hendrick (Preston)

Will the hon. Gentleman give way?

Matthew Taylor

I shall give way in a moment.

We must remember that Britain's record of investment is astoundingly bad. The Bank of England recently noted that the fall in investment in the last two years is comparable with those in the recessions of the early 1980s and 1990s and worse than those in the supposedly worse economies of the USA, France, Japan and Italy. If this is not, therefore, a reflection of what is happening globally, it must be a reflection of what is happening in 11 Downing street.

The figures for foreign direct investment seem to confirm that. Foreign direct investment into the eurozone increased by 383 per cent. in the first two years of the euro, compared with an increase of 12 per cent. for the non-eurozone countries. A report by Ernst and Young showed that, in 2001, Britain attracted 21 per cent. of new European investment projects. We are still leading in the EU, but that lead is falling, as is the proportion of projects, down from 28 per cent. in 1998 and 26 per cent. in 2000. Again, the fall in investment does not reflect what is going wrong in the wider economy; something is going wrong here in Britain, and that is down to the Chancellor, whose policies are not delivering.

Mr. Hendrick

I thank the hon. Gentleman for finally giving way. He says that his party would not alter the Government's spending plans—it would spend no more and no less—but asserts that growth projections are over-ambitious and that the figure should be, say, 2 per cent. Would his party still stick to the spending commitments and run up a deficit, or would it make a cut, and if so, what cuts would it make?

Matthew Taylor

That is a perfectly reasonable question, and the answer is equally reasonable. In the short run, the Chancellor does not have the problem that some are suggesting. The simplistic view is that one runs up a deficit because economic times are bad, so one should cut spending or raise taxes. That would worsen, rather than improve, the situation. However, there is a long-term problem, and I shall propose changes that the Chancellor should make that would allow him to deliver his planned spending increases. To be fair, the right hon. Gentleman has recognised over and over that no Chancellor in the world, if he does not get the economy right, can afford the spending that we all believe—at least the Liberal Democrats and the Labour party believe; I am not sure that the Conservatives do—is necessary to deliver the public service improvements for which we have argued.

We welcome the fact that the Government are now making real spending increases, financed by tax increases, broadly similar to those for which we have argued. That should have been done earlier, but we will not now dispute it or shy away from it. However, long- term problems need to be tackled, and the reason they are not being tackled is a flaw in the Chancellor's view of how the economy should be managed. He desires to control, to meddle and to micro-manage, and that has not delivered, and will not deliver, the necessary improvements.

A Government obsessed with central control create bureaucracy and red tape for business as much as for the public sector. That process can be reversed, but that is not the Chancellor's solution. When his targets are missed and his controls fail, he adds further levels of bureaucracy to both the public sector and the private sector. He then finds that they are still not delivering, so he thinks that the process of control is not working and adds yet another tier. That is why there is a list of failures for the Government's targets, such as the ones that are not met or are rolled over. The process is flawed. Labour Members do not have far to go to find support for my view. They can ask the other Cabinet members, who are subject to those controls. The Chancellor's flawed personality seeks to control everything from a spider's web at 11 Downing street.

We need a simpler tax system. The Chancellor has to stop being a micro-meddler. The extraordinary thing about the extra layers of tax, which have increased the size of "Tolleys", the tax guide bible, by almost a third in the short time that the Government have been in office, is that the Treasury has admitted that it is not even checking whether most of the changes are having any effect. There is no process for analysing any of that complication to find out whether it is helping. The truth is that it is a total waste of money, and we can see that by the economic failure that I have described.

We need to cut red tape on business. We have published a long list of changes that could be made. It is time that the Chancellor recognised that one can load only so much red tape on to business before there is an inevitable cost in investment because companies will go to other countries where it is easier to operate.

We need to sort out the public transport system. I hardly need say more about that because hon. Members are among the biggest users of a system that is failing.

Finally, I turn to the euro. There is not agreement in the House on that and there is not agreement in the country, but our view has been consistent and clear—

Mr. Bercow

And wrong.

Matthew Taylor

The hon. Gentleman says that, but one of his colleagues does not agree at all. That is another example of the Conservative party trying to appeal to everyone by having every possible view on every subject.[Interruption.] Hon. Members may criticise the Liberal Democrats for putting our necks on the line and for consistently arguing the case for the euro, but it is perfectly apparent that the Conservative party has no consistency on the issue whatever.

The Conservatives offer no explanation that makes any sense of the present problems in manufacturing. Only a few years ago, they welcomed a fall in the exchange rate as rescuing British industry—some of them even called it White Wednesday. However, in recent years exchange rates have been substantially higher than the level from which we previously fell, and a similar deep recession in manufacturing has resulted. Each of the deep recessions in the early '80s, the late '80s and the early '90s has been associated with massive over-valuation of sterling based not on the realities of the economy but on speculators seeking to make a fast buck and, in the process, destroying jobs and industry. If the Conservative party has a solution that is an alternative to the euro, it has yet to tell us what it is.

Mrs. Browning

Following the hon. Gentleman's teasing of the Conservative parliamentary party for its views on the euro, will he clarify whether the Liberal Democrats' position is that, come a referendum, all his parliamentary colleagues will be expected to campaign for a yes vote?

Matthew Taylor

Unlike that of the hon. Lady's party, our Front-Bench team will certainly campaign on a consistent basis. We will have to see about the rest of the party when the time comes.

Mr. McFall

Will the hon. Gentleman clarify whether, in his opinion and that of his party, the five tests set down by the Chancellor in October 1997 have been passed?

Matthew Taylor

I hope that the hon. Gentleman's Select Committee will conduct an inquiry to tell us the answer to that question before, rather than after, the event. That would be helpful.

We have published a report to which we invited a wide range of senior economists to contribute, and they advised us that the five tests have either been met or are in the process of being met, and we believe that that is correct. However, one serious issue would have to be dealt with as part of the process of joining the euro—the exchange rate itself. We need confirmation from the Government that that test will be passed. It would be helpful if the Chancellor clarified what he believes a sustainable long-term exchange rate is. It is notable that every time that he has talked about euro entry, and noises are made, there has been a fall in the value of the pound. The markets believe that it is over-valued in the long term, but they constantly speculate about the short term and are making a fast buck. They do not care much about manufacturing in the United Kingdom or elsewhere suffering the costs.

Mr. Hopkins

To return to the eurozone, is it not in serious trouble, teetering on the brink of recession? Joining the euro at anything like the present parity—and even with a substantial devaluation-would still drag us into a zone facing long—term recession.

Matthew Taylor

People must bear in mind the fact that, since the creation of the euro, the average growth of the eurozone has been faster than growth in this country. Employment in manufacturing in the eurozone has increased when such jobs have plummeted by 500,000 in this country. In testing whether the British economy is genuinely performing much better than the rest of Europe, the hon. Gentleman must consider my points about the two-speed economy and whether our economic success in personal income and employment is built on long-term structural achievement or short-term debt explosion—the boom in consumer spending and house prices. If it is the latter, we have no reason to congratulate ourselves because growth is not sustainable in the long term. I believe that we would be better joining the euro, although we must do so at a competitive exchange rate. Frankly, that is more likely while eurozone countries continue to make it clear that they would like Britain to join early than if we join some years down the line when things have settled for them, but are less settled for us. Our past experience in agricultural and fisheries policy is pertinent in that respect.

Rob Marris

rose—

Matthew Taylor

I have spoken for a long time and have given way many times. I therefore hope that the hon. Gentleman will understand if I do not give way, as I do not want to detain the House.

I shall touch briefly on issues that affect the delivery of Government spending improvements. I have talked a lot about the economic background, but to be successful, it is necessary not just to have an economy that is functioning well but to spend that investment well. I shall sound two notes of caution. First, we agree with the Chancellor and the Government's stance—we cannot allow extra spending to be grabbed by large pay claims rippling through the public sector. We are sympathetic to much of what the firemen say about the lack of change over the years and the fact that there has been no proper review for a generation; nevertheless, a 40 per cent. pay claim was never realistic, and we are glad that the Fire Brigades Union appears to be changing a position that was never deliverable.

Investment cannot be spent on across-the-board pay increases, but in our last manifesto we identified areas of the public sector with a specific need for substantial increases—above all, areas where it is no longer possible to recruit or retain staff in sufficient numbers. If there were ever a sign that pay and conditions are not appropriate, it must be not being able to recruit or retain. That covers trainee teachers, for example, and certain grades of staff in the NHS and other sectors. Leaving things as they are is no more a solution than allowing general wage inflation to take a grip, as it wastes the opportunity for public service improvements.

Secondly, on central control, it is not right for the Chancellor or the Secretary of State for Health to describe as decentralisation and letting go the creation of foundation hospitals that are limited to certain communities and built, not according to local discretion but to whether local managers have followed to the letter and met centrally set targets, irrespective of their application to the locality. That creates not just further centralisation but the great unfairness that some people benefit from health service improvements purely because management have toed the Chancellor's line, following instructions to the last dot and comma.

Other communities, by contrast, will not get investment in their hospital because they have broken a tiny bureaucratic rule or Government target, often for reasons that have nothing to do with local management. In my area, for example, the hospital was downgraded for one reason alone—debt—as the Government pay for out-of-county treatment of tourists two years in arrears. In the future envisaged by the Chancellor, that would cost the Cornish community millions of pounds of investment in their local hospital, which cannot be right.

The Chancellor must therefore let go. He must simplify and stop micro-managing or we will not achieve improvements. Services cannot deliver improvements if they do not give doctors, nurses, teachers and police officers the discretion to do their front-line jobs properly or if the build-up of long-term economic problems is allowed to overwhelm and eventually destroy the effort to make badly needed investment.

6.36 pm

Mr. Martin O'Neill (Ochil)

Having had to listen to the last two speeches from Front-Bench spokesmen, I now understand what shadow-boxing involves—it certainly does not involve laying a glove on the Chancellor but on one another.

I welcomed the Chancellor's speech but, to be a bit churlish, I would have preferred him to make the autumn statement first. We are in something of a fiscal vacuum—the likely output and revenue figures as adjusted by the Treasury are central to several issues thrown up by his address, and it would have been helpful to have a more realistic framework. I am glad that the Secretary of State for Trade and Industry is in the Chamber, as the fiscal vacuum is not necessarily matched by a policy vacuum in her work for manufacturing industry. That is welcome—for a period after 1997 her Department was infatuated with issues involving information technology and so on, and did not focus clearly, effectively and consistently on other areas in the manufacturing economy which, it is only fair to acknowledge, it engaged with following difficulties in the car industry. Now, however, it has a more coherent policy. I am not sure whether the seven pillars will be the seven pillars of wisdom, but one—macro-economic stability—has been discussed today.

On macro-economic stability and the firefighters' dispute, in the 1970s I went on strike as a teacher to get a rise. We were lucky as, for about 18 months, we benefited from the Houghton award, getting about 23 per cent. to catch up with what had escaped our grasp in the early 1970s. Within 18 months of our receiving that award, however, inflation was even higher and interest rates were so high that the mortgage payments that my wife and I had to make made the increase virtually worthless. We cannot afford to go back to those levels. If we are going to achieve a settlement in the present dispute, it must be sustainable. We cannot afford to open the floodgates for deals that would destroy or certainly seriously jeopardise this Government's greatest single achievement: economic stability.

Although controlling inflation and keeping down interest rates are important, investing in our manufacturing base is a prerequisite to the survival of the sector. Our dependence on financial services has allegedly become greater—it is a matter of a couple of per cent.—but striving for manufacturing efficiencies will more than anything else impose self-discipline in the economy and be the most effective means of securing long-term economic prosperity.

I do not want to downgrade the financial services industry, but such services will be in decline for some period. There will be difficulties; we have not yet seen the level of lay-offs experienced in the United States. My point is completely independent of the issue of Enron. I refer to the fact that financial services are going through a period of difficulty, and that will be reflected in unfortunate but probably necessary savings, meaning redundancies and lay-offs.

If we want to sustain economic growth in this country, we need not just long-term but short-term improvements in manufacturing. It is highly appropriate that not only are the Treasury and the Department of Trade and Industry working together, but that there is a cross-departmental initiative which will involve investment in skills and people through various training on the shopfloor and of management, as my right hon. Friend the Chancellor has identified.

If we can start to equal the commitment to improvement in skills with that to improvement in equipment, we can go some way to sustaining such growth. Low interest rates ought to be an incentive to businesses to borrow to invest, but sadly, as has been said across the House, we are not investing. These facts do not bear disputation. France, Germany and Italy, with which we must compete and catch up, are still committing more to investment than us. Part of our problem is that, because our currency is over-valued, we are seeking to depress price by using profits to assist in keeping down costs rather than for funding investment in the way that we want.

I hope that the Chancellor will begin to look again at support for investment and at providing investment incentives. If it is good enough to invest in research and development, surely it is good enough to invest imaginatively. I use the word "imaginatively" because there is a Treasury mantra—perhaps in the case of the Chancellor a "metrical sang" that is repeated time after time—that if we give money to potential investors, we are really giving it only to those who would have invested anyway.

Last year, when I thought that investment levels were going to be very low, I was worried that the Treasury might slip in an investment-incentive stream that nobody would take up, and to which they would then point cynically, saying, "We tried it. We told you so; it is not having any impact." We should persist in trying to find ways of getting investment into industry because across the political divide we have not been successful in doing so over the years.

There are those who argue that if prices are too high on the international markets, it is because we are not in the eurozone. Even though there is an over-valued pound and an under-valued euro, the last thing that we require at the moment is a sterling devaluation. The Liberals can use all the euphemisms they like, but at the end of the day, if there is to be a currency adjustment and it does not quite work perfectly—I broadly subscribe to the idea that if we talk seriously about joining the euro, the pound will fall and the euro will rise-there will be a gap. That gap will have to be bridged by a package of deflationary, monetary and fiscal measures.

It would be wholly irresponsible given the fragility of the international economy for us to jeopardise the macro-economic stability that we are enjoying by prematurely entering the eurozone. Therefore, although I would like us to join the euro, we must remember that other parts of the world are in many respects unaffected by it. I think of North America, of the fact that China has just joined the World Trade Organisation and of the market possibilities in areas where the United Kingdom can provide goods and services as efficiently and effectively as anybody else. We should not forget the role of exports and trade. The work that has been done in the promotion of Trade Partners UK and the like has gone a long way to helping that matter.

There is a somewhat convoluted reference in the Queen's Speech to draft legislation on a nuclear liabilities authority. That will be an important piece of legislation not least because of the problems confronting British Energy. I am aware that there are some who use the problems of British Energy as an excuse to denigrate the whole nuclear industry. I cannot see the UK meeting its international commitments on carbon emissions, whether those made in Kyoto or anywhere else, without investing in the nuclear industry.

The significance of a liabilities management authority—LMA—is that it would assume responsibility for the historical cost component in the nuclear power equation. That would enable a proper debate on the cost of the next set of nuclear reactors. We must take account of that. I only hope that the Government will be able to move quickly not just on LMA but on steps towards a new system of electricity trading arrangements that will encompass the whole UK.

Mr. Crispin Blunt (Reigate)

Will the hon. Gentleman give way?

Mr. O'Neill

No, I have only one minute left.

Mr. Blunt

The hon. Gentleman will be given extra time.

Mr. O'Neill

In that case, I give way.

Mr. Blunt

I hope that the hon. Gentleman will make it clear in his extra minute that, like us, he regrets the absence of proposed legislation not only on LMA but on British electricity trading and transmission arrangements.

Mr. O'Neill

I do not think that LMA is an issue of contention. If a draft Bill is published in the next few months, I would imagine that the fact that it was mentioned in the Queen's Speech will allow it to be dealt with as carry-over legislation, and we would still be able to enact the legislation in a reasonable time. BETTA is a different issue. Legislation will be required, but I suspect that between now and next October there will have to be arm-wrestling and complex negotiation. It is important that we get things right this time. The new electricity trading arrangements—NETA—did not take account of the need for additional capacity and did not reward it. They also did not take account of the need for appropriate investment. Those matters must be incorporated in any draft of BETTA before we can talk blithely about legislation.

I want finally to address the options facing British manufacturing. We must ensure lean production. We need better investment behind our people and assured levels of charges for energy and the like so that our industries—manufacturing in particular—know where they are going. The Government's Queen's Speech offers several indications of the direction that we are taking, and they are a realistic basis on which manufacturing in Britain can hope to progress in the very difficult times over the next 12 months. I therefore welcome the Queen's Speech.

6.49 pm

Mr. Kenneth Clarke (Rushcliffe)

I refer the House to my business interests, as registered in the Register of Members' Interests.

The Chancellor of the Exchequer is skating on thin ice when he gives such a rosy view of the outlook for the British economy. He displays his usual fiery rhetoric in the House and exudes glowing optimism—both qualities that are not altogether suitable when one is skating on thin ice. I am worried, because I believe that in this Session of Parliament, it is possible that the Chancellor will face some of the toughest and most difficult decisions that he has faced so far during his tenure in the Treasury—thanks, I might say, to the inheritance that he had, and also to the way in which our economy was sustained in the wake of the American-led boom, before it went bust, for the most of the first Parliament of his period of office.

The Chancellor gave his usual robust performance to the House, but such a complacent description of our economic outlook ought to be worrying. I can only hope that he did not believe a great deal of it himself, and I trust that he had his fingers crossed behind his back when he gave us some of those descriptions of where he thought we were going. He tried to exchange with me some arguments about our past forecasts. I do not have a great regard for other people's forecasts. I do not want to go back into history defending all mine, and the Chancellor certainly could not defend all his, but I think that more of mine were right than he claims.

The forecasts most relevant to today's debate, as has already been said, are the forecasts of growth that the Chancellor of the Exchequer was giving to the House only six months ago. I took part in the Budget debate, as did most of the hon. Members who have spoken so far. I tried hard to mock the forecasts for growth that the Chancellor was then giving, in order to explain the sustainability of the plans that he was setting out. The mockery was justified. Those forecasts for growth are already wrong. The whole world knows from repeated briefing that they are already wrong. Presumably, we will be told officially next week, when we have the November statement, but I would guess that growth this year is 1.5 per cent. The hon. Member for Truro and St. Austell (Matthew Taylor) set out at some little length the reasons for casting doubt on the underlying estimates for growth upon which the next several years' spending plans were based.

One thing on which we are all agreed—I think the Chancellor joins in this—is that the politics of so-called tax and spend will become increasingly relevant as this Parliament goes on. They are an important matter for us to discuss. I object yet again to the way in which the Government, including the Chancellor of the Exchequer, try to cheapen the debate by claiming that if one raises doubts about the sustainability of their Harold Wilson-type programmes, one is somehow committing oneself to extraordinary figures for cuts in health and education. What they are committing themselves to is several years of growth in the totality of public spending. The explanations that they have given about how that is to be financed are unsatisfactory. We, as Parliament, are entitled to discuss that in terms of the prospects for future taxation and to discuss the impact on the real economy, which is where I part company with the Chancellor.

The British economy has had more than 10 years of growth with low inflation—the longest period that we have had in living memory. At present, that record is looking more sickly than it has for a long time, as I said. We are of course maintaining 1.5 per cent. growth. That is quite good. We have been growing at less than the average for most of the past four or five years among the G7 nations. Currently, we are just ahead of all the economies, although we have slowed down.

The problem is that the present growth of the British economy in 2002 depends fundamentally on two things, as far as I can see. One is a housing boom of an extremely worrying kind, with massive withdrawals of equity taking place and being turned into spending. The second thing sustaining our present sickly level of growth, which is well below trend, is a very high level of consumer spending, based on rapid growth in public sector spending and public sector pay. Both those, in my opinion, are extremely worrying. We should not expect to sustain a healthy level of economic growth on those two bases for very much longer.

First, on the housing boom, which I am sure we will discuss at greater length before this Parliament is out, house prices have gone up 30 per cent. over the past 12 months. I hate to say it, but I do not think that that is sustainable. There will be a correction. I hear all the arguments. They were not given today—the Chancellor did not get round to it—about why it is all right, it is different this time and we should not be worried about it. Those are pretty good arguments. I used many of them myself in some Cabinet office or other in the late 1980s. I have learned from experience on that front. One cannot have such rapid growth in house prices without there being a correction, and in a period of low inflation that will hit people hard. I hope that it does not, but negative equity may come back to trouble us before long.

Retail sales, as I said, are very healthy. In October they were up by 7.1 per cent. compared with a year earlier. That is all kept going by some public sector pay increases, and also by an extraordinary level of household debt. As a percentage of our gross domestic product, household debt is now 109 per cent. In France, for example, a healthy economy that until recently has been doing better than ours, it is only 46 per cent. of GDP. Household savings in this country have dropped as a proportion of GDP to 4.5 per cent. in the second quarter of this year. The savings ratio in France is 15 per cent.

The significance of that is that if we want stability—the Chancellor always goes on about stability—we need a higher level of personal savings and a lower level of household debt. It is all going in the wrong direction.

The Chancellor is doing nothing about it, but claiming credit for the fact that we are still growing a little faster than other troubled economies in the G7.

What is going wrong? I shall not repeat what has already been said. It is extremely important to notice that business investment is down 10 per cent. compared with a year ago. Investment in business in this country has fallen to 12 per cent. of GDP, a record low. Again, I will go back to the past. I can remember how, in opposition, the present Chancellor used to go on about our investment performance. It has deteriorated throughout his time in office. He spoke about employment and completely misanswered a question. Private sector employment in the third quarter of 2002 dropped by 36,000, but full-time jobs went down by 72,000. My hon. Friend the Member for Huntingdon (Mr. Djanogly) was right to say that it is public sector employment that is the only thing continuing to grow.

We have a dismal record of investment. What is the significance of that? Looking forward in the medium term, if we do not get business investment, the result is low productivity, when our record is already terrible, low growth of the economy, and lost tax revenues, compared with every forecast that has been given, when we get back to tax and spend.

What can be done to rebalance the economy? The Bank cannot help, because of the situation into which the Government have put themselves. Underlying inflation is 2.1 per cent.—below their target. That is the prime aim of the Bank of England, looking forward. Service sector inflation is running at 4.8 per cent. over the past 12 months. Public sector inflation is higher than that. Inflation is being kept down because there is a positive deflation in the price of goods. That is not a healthy way of hitting an inflation target.

The Bank of England is stuck. I agree with Sir Eddie George. If it were to lower rates, it would feed the housing boom and household debt. It cannot do that. If it raised the present rate of interest, it would worsen the difficulties for business investment and business in general. The Bank has therefore stuck at 4 per cent., somewhat powerless in the situation, and left us with the tightest monetary policy in the developed world, but it does not have much alternative.

The bank is stuck partly because of the fiscal policy of the Chancellor. Where does he come in? In my two remaining minutes, I am glad to say that I have no more than to echo what has already been said. What is the Chancellor contributing with regard to the uncertain outlook and the impossible problem of monetary policy? What is his fiscal policy? It has been the consistent increase of taxation. I shall again cite the CBI's perfectly accurate figure: a £47 billion cumulative increase in tax since 1997, which this Government have the nerve to scoff at because they are wrapping and rolling up annual increases, as the Government always used to do in presenting their public sector spending plans to the House. Another £6 billion has already been put in the pipeline for next April in a tax on jobs through national insurance hitting us at this time. The Government have been reminded about their taxation on pensions, which is plainly feeding into a serious pension crisis in this country. That is their contribution.

The Government say that they can pay for all their huge public sector plans without more taxation. Those plans are already feeding into public sector pay. They were bound to do so, as they were announced ahead of reform. They claim that the only way in which they can afford to finance those plans is borrowing and that the current debt level is low enough to allow that. It will not work. They will need more taxation if they commit themselves to those plans. Next week, when we return for the autumn statement on the pre-Budget report, we want some honest forecasts and accounts, and we want the Government truly to face up to the impact of what they have saddled us with and its implications for business.

Business must be the priority in the Chancellor's policies from now on, because if wealth creation is damaged in this country, all those plans will fall about his ears—and well before the next election

7.1 pm

Mr. Colin Challen (Morley and Rothwell)

I want to focus on the very last sentence in the Queen's Speech, in which the Government pledge themselves to

work for a successful outcome to the current round of world trade negotiations that benefits industrialised and developing countries alike.

I heartily endorse that aspiration, but I have some thoughts about whether success is around the corner.

The word "success" is highly relative in the context of trade liberalisation. If one harks back to the days of President Reagan, whose economic policies were based on an idea of wealth trickling down to the poor through market mechanisms rather than Government action, one may suppose that a little success has been achieved, as Governments seem to be surrendering more of their economic powers to the market. Our aspirations for lasting gains from trade will wither, however, unless we assert more strongly the human values that are meant to underpin the benefits that are meant to accrue from trade liberalisation. All too often, the terms of the debate have been set by business interests well before they enter mainstream discussion. There is far too much secrecy in the build-up to major negotiations and far too much privileged access to negotiations: our governmental involvement with a private sector committee on the liberalisation of trade in services—LOTIS—is one example of that. Not only do such shadowy groups exist to advance their own agenda, but they discuss ways of attacking their critics.

In a democracy, however, we can be sure that there will be public debate, even if it seems unbalanced at times. Talking in a roundabout way about how the British worker must seize the opportunity to downsize his or her pay packet, Digby Jones, director general of the CBI, recently told us how the Government had got our competitive position all wrong. He said that the Prime Minister is too focused on competing inside the European Union and that we should concentrate on getting the upper hand in competing with the likes of China. To many people, that might sound like very good sense. After all, China is a semi-industrialised nation with one fifth of the world's population, many of whom are skilled. Of course, what Mr. Jones meant was that we have to compete with what is euphemistically described as a flexible labour force—a labour force that is low paid and has low benefits, low pensions and all the rest that is implied by "flexibility". Needless to say, with the stock market currently failing to live up to its promise, low pensions are already here in abundance.

The time has come to take stock of what China's accession to the World Trade Organisation means for world trade. Its entry into the utopia of world trade liberalisation will have far-reaching consequences, not least for the Chinese. One issue on which I do not imagine the trade negotiators spent much time was China's human rights record. I am sure that they believe that, trade liberalisation being the panacea it is, all ills will be cured in time—the positive engagement myth that western countries have embraced since the Tiananmen square massacre. Positive engagement is the flip side to Reaganomic trickle-down, on the basis that unrestrained capitalism cures all if it is left to its own devices and that it must be left to its own devices above all else.

Today's China, with its endemic corruption and secretive, undemocratic Government, offers capitalist enterprise a land of many marvellous opportunities. The country has only one official trade union, the All-China Federation of Trade Unions. The evidence is clear that the absence of independent trade unions in China is a major boon to foreign investors. Here is a country where demands to be paid outstanding back pay, never mind a decent wage, can be crushed with the help of the police and the army, and where the suppression of the work force goes without comment elsewhere in the world. I have not heard of any WTO factotum speaking on the subject, and all that we hear from anybody else in authority is the usual positive engagement routine, saying that one day all will be well.

The right to join an independent trade union is not very high on the WTO agenda. Indeed, the issue is not on its agenda at all, since it says that labour issues are a matter for the International Labour Organisation and have been since at least 1996, when the ministerial conference in Singapore decided that the WTO should not have anything to do with them—I bet that our then Government's representative went along with that all right. That separation of responsibilities is very revealing, since the WTO has many powers to enforce the resolution of trade disputes, but the ILO, wonderful body that it is, has to rely on persuasion.

As always, labour is the underdog. In China's case, the underdog is now represented at the ILO by a representative of the All-China Federation of Trade Unions—in other words, a representative of the Chinese Government, as the two are components of the same machine. How does the federation see its role in protecting workers' rights? The following example of official Chinese trade union thinking, taken from the World Tibet Network News website, gives a mind-numbing flavour: To enhance the workability of trade union cadres at all levels, the trade unions at all levels in Tibet organised different forms of training classes on many occasions and gave professional and theoretical training to trade union cadres. With the help of the Workers' Movement College and the regional committee's party school, the regional federation of trade unions successfully trained more than 100 grass-roots trade union cadres, thus increasing the vigour of the trade unions. The job of those cadres is presumably to tell the people of the Tibetan region—Tibet appears no longer to be a country—that they should be grateful that they have such enlightened employers or, as they are often told, that they are indeed the masters themselves. They may also be told that if they try to organise themselves, as workers at the Tianshui City Auto Transport Company did when hundreds of them were being made redundant, they could face imprisonment of 10 years to life. They may also be told that their right to strike was abolished in 1982 because Chinese businesses belong to the people.

Today's newly appointed leader of China, Hu Jintao, described the role of the trade unions thus in 1998: Chinese trade unions are mass organisations of the working class under the leadership of the party, act as a bridge linking the party with staff and workers and play a role as a key social pillar of the state political power. Hu Jintao enjoins trade unionists consciously to accept the leadership of the party and consciously to submit to and serve the party and the state—a state whose central Chinese Communist party committee now accepts wealthy capitalists among its membership. No wonder that those who consciously seek to challenge the party and the state come off so badly; they will always be underdogs while they have no right to strike, no freedom of association and no right to organise independent trade unions.

Scores, possibly hundreds, of industrial disputes have led to public demonstrations in China this year and every year for the past decade. The closure of older industrial activities has made millions unemployed, but has also lined the pockets of asset strippers. An example is the fate of the 2,000 workers—mostly middle-aged women—employed at the Shuanfeng textile factory who went on strike. The police dragged them by their hair and jabbed them with cattle prods during a factory occupation. These workers had been forced to buy shares in their own company on pain of losing their jobs. Last November, the company had gone bankrupt, but was started up again by the same bosses, offering half the wages.

The owners, unlike their workers, were at least freed of their previous debts.

Mr. James Gray (North Wiltshire)

What has this to do with the Queen's Speech?

Mr. Challen

If the hon. Gentleman is patient, he will find the answer at the end of my speech.

Such bankruptcies—fake bankruptcies—are common in China. The Ferroalloy plant in Liaoyong province is another example. The average wage was $150 a month for technicians, when they were paid. Corrupt management issued false reports of inflated profits to pay themselves bonuses. Members of the management did so while working in collaboration with the provincial people's congress chairman, Gong Shangwu.

It all sounds pretty familiar, does it not? Supplant Ferroalloy with Enron and Shangwu with a former governor of Texas, and we can see the parallels clearly. As Ferroalloy faced bankruptcy, the workers tried to organise themselves and expose the misdeeds of the management. For their pains they were met with riot police, under-cover police, plain-clothes police, road blocks and paramilitary troops. The entire panoply of state oppression was there to greet them whenever they wanted to organise or demonstrate. These events took place in March and have been fully documented, along with other cases, by human rights watch. They were not fully documented by the local newspapers, of course, since they were told not to report them.

Is that what is meant by having a flexible labour force, against which, according to the CBI's Digby Jones, we must compete? Is it right that we should permit without question China's membership of the golden WTO club, the express concern of which is not to interfere with the comparative advantage of low pay, long hours, poor working conditions and the crushing of independent trade unions that challenge these iniquities? Will the Government call for real teeth for the ILO so that it can impose its sanctions with the same force as the WTO? Will countries that fall foul of the ILO face financial penalties? Or will we be told that insisting on the same standards as we seek to apply at home is an outdated mode of protectionist thinking?

If the WTO or the global business community believe that a nation's comparative advantage may reside in its ability to suppress working conditions and oppress workers, we should pursue a vigorous policy of elevating workers' rights to the same high altitude as is already enjoyed by the free marketeers. Our emphasis in future negotiations should elevate people above property. The current emphasis on the trickle-down approach and positive engagements must give way to a stricter international regime that supports human rights.

7.13 pm

Mr. John Bercow (Buckingham)

I shall focus on three themes, the first of which is that labour market flexibility must mean flexibility for employees as well as for employers. On current reckoning there are 28.6 million people in the British work force, of whom 25.1 million, or 87.8 per cent., are employees. It seems, therefore, that it is obligatory for members of all political parties rigorously, enthusiastically and publicly to debate how to translate personal choice from a political slogan into a welcome fact for millions of our fellow citizens.

It seems the reality that job sharing, part-time working, career breaks and home working will increasingly be vital if we are to achieve both economic efficiency and job satisfaction. There is a responsibility incumbent on each and every one of us to address these issues.

I recognise that the Government have taken a number of steps to facilitate progress. However, if we are to secure a proper balance, much greater attention should be paid to these issues by members of all political parties, including, and perhaps in particular, my own as we seek to take the agenda forward in the much more diverse economic situation and labour market of the 21st century. I would welcome anything that the Secretary of State might have to say on that subject when she replies to the debate. I would be particularly interested also in the vantage point of my hon. Friend the Member for South Suffolk (Mr. Yeo), the shadow Secretary of State for Trade and Industry.

Secondly, we need to improve both the quantity and the quality of child care—that is of the essence. I am fully prepared to acknowledge at the outset of commenting on this subject that the Government have taken several steps. These steps have been heavily but not exclusively focused on the demand side of the equation. I do not knock that because the various steps have made a difference and are proving to be useful. However, there is also a supply side that should not escape our attention. My experience, locally and elsewhere, is that two phenomena are potentially hampering the supply of child care and ensuring the continuation of large gaps in the provision that is required.

The first of the phenomena is the rigidity of the planning process, which frequently is much less friendly than it should be to prospective providers. I have had that experience in my constituency. People have wanted to provide child care, but what I might describe as a backward looking and—dare I say it?—otiose planning process has, regrettably, prevented them getting away from first base. If the Government are considering reform of the planning process—they have certainly earmarked their intention so to do in the Loyal Address—I appeal to the Secretary of State closely to consider how that reform might usefully apply in this context.

Malcolm Bruce (Gordon)

The hon. Gentleman is making a good and constructive point. Does he agree that there is an inherent unfairness in the system whereby people who go to employer-provided child care secure 100 per cent. tax relief, whereas those whose employers are too small to provide child care secure no tax relief? Is that not a penalty on individuals who work for small businesses and a penalty on small businesses?

Mr. Bercow

The hon. Gentleman is making an extremely valid point that bears focus and concentration by people in all political parties. It is a widely acknowledged truism that there are many citizens—overwhelmingly women—who would work if they had the option of available and affordable child care. Too often that is not the case. The consequence is both socially unjust and economically inefficient. Therefore, we should be prepared to consider all steps to change that state of affairs for the better.

The second phenomenon that seems to hamper the provision of desirable and affordable child care is an Ofsted inspection regime that is as inflexible as frequently it proves to be burdensome. Once again, constituency experience can aid and abet us in deliberating on these matters. I am aware, for example, of a provider who lives in my constituency who specialises in mobile child care provision. She goes to venues throughout the country offering a service at conference centres and so on. She laments to me and to the Government that she has to comply with a positively Kafkaesque regulatory regime if she is to deliver the service that she would like to provide, admittedly and perfectly properly for a profit. I hope that the Secretary of State will take my remarks in a constructive spirit and offer me a response to what I have had to say.

Thirdly, we need a balanced approach to regulation. Let me own up. I have been as insistent and ferocious in denouncing over-regulation as any other hon. Member. I make no apology for that and I do not resile from that stance. However, as we move forward, it is important to consider regulation in the round. As any commonsense analysis suggests, regulation can be onerous and debilitating but it can be equally enabling and protective.

The Conservative party has an honourable track record on regulating for enabling and protective purposes. Legislation includes: the Mines Act 1842, which stopped children going down mines; the Contracts of Employment Act 1963, which gave people the right to a written statement of their terms and conditions and a period of notice that they did previously enjoy; and the Offices, Shops and Railway Premises Act 1963, which established minimum standards for heating, lighting and ventilating commercial premises. To the enduring credit of my right hon. Friend the Member for Richmond, Yorks (Mr. Hague), the purpose of the Disability Discrimination Act 1995 was to outlaw discrimination in the workplace against people with disabilities. Those Acts were good, constructive, Tory social reforms in the finest traditions of our party. Their effect was to enable, protect and improve the quality of people's lives.

Some Government regulations are flawed. They include the ozone depleting substances directive and the physical agents directive. The Government have not taken as discriminating and robust an approach as they should have done to defend British interests. Those are examples of onerous and debilitating regulation.

Let us try to expunge the national minimum wage from the daily preoccupation and table tennis of political debate. I was a furious and, I believed at the time, inveterate opponent of the national minimum wage. However, the Tory party and Conservatives at their best are pragmatic. The national minimum wage has not been the disaster that Conservatives, including me, predicted. It has combated genuine exploitation without resulting in the heavy job losses that my hon. Friends and I predicted, partly because it has been set at a relatively low level. We should acknowledge and accept that reality.

Mr. Challen

Did the hon. Gentleman realise that the right hon. and learned Member for Folkestone and Hythe (Mr. Howard) did not answer the second part of his earlier question about increasing the national minimum wage?

Mr. Bercow

The hon. Gentleman expresses his view and I have expressed mine. I shall continue to do that. On the whole, my views on such matters are audible and comprehensible. Discretion dictates that I say no more about the subject this evening.

We have a choice about regulation. We can opt for healthy scepticism, which is sensible, or furious denunciations in principle of every regulation, which is not wise. First, it jars with our historical record; secondly, it strikes many people as indiscriminate; and, thirdly, it is politically counterproductive for my own Conservative party. We should not pursue the matter in that way; it is foolish to do so. We should be more constructive, reasonable and inclined to consider each issue on its merits.

If we accept the premise that employee rights are at least as important as those of employers or that each proposal should be considered in isolation on its merits, we might eventually lose the stigma that results from ritually opposing the rights extensions whenever they are made, only to accept them grudgingly long after the event. I am making a polite and, I hope, positive suggestion for taking forward our approach in the best Tory tradition. We should oppose what is bureaucratic, poorly drafted and unnecessary, and support what proves wise, beneficial and to the advantage of the British people.

Mr. Simon Thomas

Will the hon. Gentleman give way?

Mr. Bercow

No; I am drawing my remarks to a close.

I believe that my concluding remarks apply to all politicians, about whom there is pervasive cynicism in the United Kingdom. If we, as a class of public servant, are to become popular again, we must be respected. If we are to be respected, we must be credible. If we are to be credible, we must be reasonable. Those criteria must inform public debate and policy making on both sides of the House throughout this Parliament and beyond.

7.25 pm

Linda Perham (Ilford, North)

I believed that it was right to apply to speak in today's debate on the economy and trade and industry when I saw Friday's headline in The Guardian: "Hewitt Rules the World". Then I realised that I was reading the sports pages, not the business news, and that the headline referred to the world men's tennis number one, not my right hon. Friend the Secretary of State. Indeed, Mr. Deputy Speaker, you and I are cricket supporters, and therefore one moves on quickly from the sports pages at the moment.

I warmly welcome the concentration in the Queen's Speech on tackling crime and antisocial behaviour, and investment in and reform of the public services. I am sure that many of us can testify from our constituency surgeries that such matters deeply worry our local residents, who come to us desperate for help to cope with troublesome neighbours, yobbish behaviour, noise, dumped cars and other assaults on their environment and quality of life.

We share the goal of prioritising public services with our constituents. The investment that we have made is possible only because of the Government's achievement of economic stability, low inflation, low interest rates, record numbers of people in work and improvements in employment rights, especially for women and part-time workers.

Britain's entry into the euro is vital to our economy's continuing success. I therefore welcome the commitment in the Gracious Speech to make a recommendation on entry into the single currency on the basis of the famous five economic tests. Fifty-seven per cent. of our trade is with EU member states, generating 3.5 million jobs. My firm commitment to Britain joining the euro has been reinforced by my work on the Select Committee on Trade and Industry.

At the beginning of last year, the Select Committee produced a report on vehicle manufacturing in the United Kingdom after problems at Longbridge with BMW/Rover, at Luton with Vauxhall and at Dagenham with Ford. Clearly, some of the difficulties were caused by issues that related to the value of sterling and uncertainty about our future membership of the euro.

Major car manufacturers such as Ford, Toyota and Nissan have made it clear that they want us to join the euro and that otherwise, inward investment by foreign companies will be put at risk. On 13 October,The Observerquoted Unilever chairman, Niall Fitzgerald, who said that if we do not join the euro, Britain would float away from being a central part of Europe, which is its major market, and lose influence, investment, jobs and economic growth I am pleased with the commitment to rapid progress on EU enlargement. I especially welcome the accession of the Baltic states of Estonia, Latvia and Lithuania. The Select Committee was made aware of the enthusiasm of their people to join when we visited the region two years ago to investigate industrial and trade relations.

Cyprus is another country about which I feel passionately, as do many other Members of this House and the other place. I fervently hope that the island's future will be as a member of the EU with Greek and Turkish Cypriots living together in peace and prosperity.

My constituents are greatly concerned about trade with the developing world. A few weeks ago, at the end of One World Week, I spoke about fair trade at two churches in my constituency, St. Mary's in Woodford and Hainault Baptist church. I was therefore pleased that the Gracious Speech reaffirmed the Government's commitments to the agreements made in Monterrey and Johannesburg.

The agreement in Monterrey begins to define our global role. The developed world, through protectionist subsidies and tariffs, imposes poverty and deprivation on billions of people, including countless children. According to War on Want, halving such protection in agriculture, industrial goods and services could boost developing countries' incomes by about $150 billion a year, which is three times the total aggregate aid budget of every country in the world. The World Bank advises that substantial trade liberalisation could reduce the number of people living in poverty by more than 300 million by 2015. At this point, I would like to pay tribute to the Chancellor and to the Secretary of State for International Development for their world leadership on increasing debt relief to the poorest countries.

Hon. Members may be aware of my interest in corporate social responsibility, as I have presented two Bills on the subject to the House in the last few months. At the world summit on sustainable development this year, the UK agreed actively to promote corporate responsibility and accountability through the full development and effective implementation of national regulations, among other measures. I was disappointed, therefore, by the lack of any specific mention in the Queen's Speech of a companies Bill, which would have presented an ideal opportunity to fulfil that undertaking, particularly as our new House rules would enable the legislation to be carried over, if necessary. I should be grateful if the Secretary of State for International Development would tell the House how she intends to fulfil that commitment in the absence of such a Bill in the present programme.

I look forward to examining the proposals for changes to the planning system, particularly those relating to improving the involvement of local communities. I and many other hon. Members deal with a large number of inquiries from constituents regarding planning matters, and a frequent complaint from the public is that there is a lack of consultation. In recent months, I have had a number of representations from local residents who felt that they had not been consulted or kept informed about the siting of mobile phone masts. The Select Committee on Trade and Industry held an inquiry into mobile phone masts at the beginning of last year because of the growing public concern reflected in early-day motions, Bills and the formation of a national umbrella organisation, Mast Action UK. That organisation has been set up to reflect the concerns made known to us by constituents.

Two of the Committee's recommendations were on community consultation. The first stated: It is essential that those closely affected by a possible development hear about it early, directly and accurately. That is the responsibility of operators at least as much as local authorities.

Mr. Bercow

I strongly agree with what the hon. Lady has just said. Does she agree that there are many examples of mobile phone operators treating local communities in which they intend to erect masts with indifference, disdain and contempt, and that if it were not for effective local lobbying and action, those companies would not be brought to book at all?

Linda Perham

I thank the hon. Gentleman for his support on that matter. There have been a number of briefings from those companies, and they are certainly on the defensive. They know that local people should be kept informed, and I hope that we shall make some progress on that. I am sure that many other hon. Members have been lobbied about this; it is a serious matter, about which people care very much.

The second recommendation of the Select Committee stated: Changes in the planning regime fail to address the main problem, which is that objection to base stations comes not from local authorities but from individuals who suffer from loss of amenity or fear of ill-effects for themselves and their families. Unless it is clear that the planning system has a robust way of dealing with health fears expressed by people, the results of the changes will be yet more frustration. Speed of decision making is another cause for concern addressed by the planning Green Paper. A planning application to build a racecourse in my constituency took more than a year to be decided. We must do better. There is also concern that planning reform will be focused too closely on the needs of corporations and may fail to protect the interests of vulnerable individuals. I envisage planning reform providing opportunities for innovation that will finally turn the tide of the housing crisis in London. I dearly hope that the Government will be radical—and, dare I say, bold—in their plans to help the homeless, key workers and, in London, anyone whose salary is less than £30,000 a year, as people in those circumstances have very little chance of getting on the housing ladder. There are 190 families with children currently accommodated in bed and breakfast by my borough of Redbridge. Unfortunately, at the same time, the Tory council is proposing to reduce drastically the density of future residential developments, at a time when homes are most urgently needed.

The Trade and Industry Committee has looked at the matter of Britain's nuclear liabilities, and I am pleased that the Government are taking seriously the need for a resolution to this issue. Nevertheless, I stand by the Committee's recommendation that there needs to be an independent inquiry into the value for money for the taxpayer in transferring those liabilities. Nuclear power is expensive and dangerous, and I am concerned that we may be asked to bail out this industry with many billions of pounds of taxpayers' money. Perhaps we should consider what would be the relative benefit if that money were invested instead in the production of renewable energy or in energy conservation. I look forward to the publication of the energy White Paper next year, and I hope that it will include non-nuclear options.

I welcome the announcement of legislation to enable Parliament to reach a conclusion on hunting with dogs. I share the opinion of more than 300 of my constituents who have contacted me on the issue since my hon. Friend the Member for Worcester (Mr. Foster) introduced his Bill in 1997; the only conclusion is a complete ban. Four hundred and eleven hon. Members voted in favour of that Bill. There could have been no clearer statement of the will of this House than that, and we should have concluded the issue in the last Parliament. I hope that we shall at last, and not before time, end this monstrous, barbarous and cruel practice, which masquerades as a sport.

I support the Queen's Speech and the Chancellor's robust statement of the Government's achievements and future programme. In the absence of any policies being put forward by the shadow Chancellor, the public will judge which party can best be trusted with the future of the country.

7.36 pm

Alistair Burt (North-East Bedfordshire)

I am delighted to have the opportunity to contribute to what has already been an excellent and interesting debate. It was opened with characteristic ebullience by the Chancellor, but he seemingly has a certain amount about which to be ebullient. It would be a poor commentator on British public affairs who did not recognise that the public perception of the Labour Government and their handling of economic matters are completely different from that of previous Labour Governments. And yet, as in all classical tragedy, there is a moment at which the greatest strength can start to become the greatest weakness. At a moment of apparent control, having weathered the storms of public perception about what a Labour Government could achieve in relation to the economy, those little things that appear, on the horizon, to be no bigger than a man's hand start to take on greater and greater importance.

The Chancellor was well and successfully challenged by my right hon. and learned Friend the Member for Folkestone and Hythe (Mr. Howard) on some of those issues. Labour Members then listened to my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) in a very different way from the way in which they had listened to their own Chancellor, because my right hon. and learned Friend began to drive home to them that this was a moment of real uncertainty for the British economy, and that all the ebullience in the world will not prevent the Chancellor from missing the problems that will come to dominate the economy.

Those problems will include not noticing that a very difficult public pay dispute that is being massaged towards some sort of a conclusion is being carefully watched by others in the public pay round. They might also include the glossing over of the problem of the very low savings ratio in this country, and not being overly concerned about the steady increase in taxation. At the moment, with all the plaudits ringing in the Chancellor's ears, those things probably seem sufficiently far down the line not to be of concern. They are all, however, matters that will come back to haunt him.

Mr. Hendrick

Does the hon. Gentleman agree that the right hon. and learned Member for Rushcliffe (Mr. Clarke) did not make one reference in his speech to the fall in equity prices that has led people to put their money into property, which has, in turn, led to the property boom and to many of the problems that we now face? Neither did the right hon. and learned Gentleman give any indication of what he would do, if he were Chancellor in a future Tory Government, to put the matter right.

Alistair Burt

I think that the record of my right hon. and learned Friend, who created the economy in which the hon. Gentleman and his colleagues have enjoyed themselves so lavishly over the past few years, speaks for itself. As for the hon. Gentleman's concern about falling equity prices and people putting their money into homes, while for whatever reason there may be a housing boom, the fact that such a boom exists and is something of which the Chancellor should take serious note was the point made by my right hon. and learned Friend.

In that regard, my right hon. and learned Friend was rightly supported by the deputy governor of the Bank of England, Mervyn King, who said recently: Beneath the surface of overall [economic] stability lies a remarkable inbalance between a buoyant consumer and housing sector on the one hand and weak external demand on the other. My point is that there is enough evidence of problems for the Chancellor to be more worried than his performance this afternoon suggested. I feel that his failure to act, and the absence in the Queen's Speech of the sort of action that might be needed to assist the economy, imply that the Chancellor is missing something quite significant.

Let me now move from the general to the particular, and talk about some of the factors affecting business and the economy as they apply to my constituency. I want to say something about engineering, and in this regard I am grateful to the Mid-Anglia branch of the Engineering Employers Federation for its assistance.

Engineering and manufacturing represent the silent casualty of recent years. No wonder that casualty attracted no attention from the Chancellor—although it did attract attention from the hon. Member for Ochil (Mr. O'Neill), whose contribution I welcomed. According to the latest survey carried out by the Mid-Anglia branch of the EEF in respect of the third quarter of 2002, 46 per cent. of firms reported a drop in total output volume. Output volume has been in negative balance since the first quarter of 2001. Moreover, 46 per cent. reported a decline in new orders over the past three months. Fifty per cent. said that they had reduced the number of people whom they employed, and 38 per cent. expected reduced capital expenditure in the next three to six months. They, unlike the Chancellor, are worried about where the economy may be going, and are expressing that lack of confidence.

There may be many reasons for these pressures. Our manufacturing industry does not exist in a vacuum—we are part of a global economy, and the slowdown in the economy of the European Community naturally has an effect on us—but Governments can make matters worse. It is significant that those in engineering and manufacturing to whom we speak know that some of the problems lie with the Chancellor, and with the running of the economy. It worries them that the Queen's Speech has not dealt with such matters.

Let me quote from the September 2002 issue of "Engineering Outlook", produced by the Engineering Employers Federation, which covers a wider area than my constituency. We start by analysing where the government itself is exacerbating an already difficult situation… the overall tax burden has been rising since 1993/94 and is set to hit a 20 year high by the middle of this decade. At the same time, international surveys show that the UK's rating on the regulation burden has worsened in recent years. Though taxation and regulation remain lower than in the rest of the EU, a continuation of current trends risks eroding our historical advantages in these areas. The article looks at matters in more detail, and then states: The results suggest that many companies will take a hit on margins, indicating further bad news for investment. It concludes: Overall our message to government is simple. There is little it can do about the state of the world economy but there is much it can do to ease the administrative and cost burden manufacturers face.

Mr. Jim Cunningham (Coventry, South)

The hon. Gentleman probably feels that the issues he has raised are very important, and I do not think the House would necessarily disagree; but does he not expect the Chancellor to deal with some of the matters he has accused him of taking lightly in the pre-Budget report?

Alistair Burt

I might feel more confident if the general display from the Chancellor had suggested that at the back of his mind were certain niggles about where we were going. He has, of course, tried to appear confident himself—a confident Chancellor, with his finger on the pulse—but the impression that is given is one of someone who is missing something that is going on which others are spotting.

Those who have been here as long as the hon. Gentleman and me have seen what goes on. It does not matter which party is in power: Conservative Governments are not immune. A Government may start thinking that what they are doing is so right that they miss something else that is going on. With the benefit of the experience of colleagues, Members sense that the economy is in a particular state. It might be assumed that a Chancellor would say something to ensure that we understood that despite what he might think was going right, certain things might be going wrong.

Having quoted some general comments made by the engineering employers, I want to deal with particular examples of ill effects that we might expect legislation to deflect. The agency workers directive, which is currently being dealt with by the European Community, will hit industries and others whose time is given through contractual relationships with companies, as opposed to long-term employment. In the aerospace industry, those with particular skills have always tended to follow the work and the pay round. To gain experience, they have moved to different companies after a year or so. They have taken their skills to companies that have needed those skills. The agency workers directive will make it more difficult for them to be employed, and for companies to employ them. Where does the Loyal Address show any concern about that?

The climate change levy continues to have a disproportionate impact on manufacturing. It appears from surveys that Government measures are not encouraging even those hit by the levy to do anything about the problem, so it is doubly ineffective. I listened to the Queen's Speech, but I heard no suggestion that a measure that is damaging manufacturing so much would be repealed.

Small businesses in my constituency bring me problems of a more general nature. In a recent survey, more than 1,000 businesses in the area were asked whether legislative changes over the past year or so had helped them. According to the subsequent report, Changes in legislation were felt to have been far more negative than positive. Employment legislation changes were felt to have had a positive effect by only 4 per cent. of businesses compared with 35 per cent. who felt they had a negative impact. A similar story was true of responses on business taxation, such as IR35. Even health and safety changes were positively received by only 11 per cent. Greatest dissatisfaction was expressed at the rate of change, complexity and volume of legislation. Respondents in the East of England expressed similar levels of dissatisfaction as the rest of the country, with 66 per cent. dissatisfied against 1 per cent. satisfied. The problem is the cumulative burden of the issues I have raised. That applies whether we are talking about higher taxation, specific measures that damage particular industries, or the growing burden of regulation and bureaucracy. All that is fuelling the gradual collapse and disintegration of engineering and manufacturing in my constituency and the neighbouring area. The loss of jobs and the lack of investment lead to a further loss of confidence, and suddenly, instead of a boom, there is a wormhole. During a boom, as soon as certain issues raise their heads, everything starts to tumble. Given the amount of public expenditure that is based on the continuation of the boom—given the Chancellor's spending plans—once the hopes start to unravel, where will the Chancellor and the economy be?

Farming and agriculture are also important to my constituency. According to the latest survey by the National Farmers Union, 8,500 farmers left farming this year, and 6,600 farm workers followed them. A total of 67,000 people have left farming in six years. Farm incomes are 71 per cent. down on those of 1995. Yet, with rural deprivation growing, the Government plan to take money from rural areas and give it to urban areas in the future. I cannot see that as being fair and just.

Accordingly, I have tried to point out that although there is an understanding of where we are in terms of the world economy—better placed than some—the seeds of destruction are there. If a Government do not pick that up when times are good, they will not notice until things have turned much worse. Then, it will be too late. Be warned, because the House will address those issues again before too long

7.50 pm

Mr. Nigel Beard (Bexleyheath and Crayford)

Taken as a whole, Britain's economic performance has excelled beyond its own record and the performance of the rest of the world. The stability achieved over five years has provided the conditions to address structural weaknesses that have prevailed for many years. Coupled with prudent management of the public finances, that economic stability has enabled the notable deficiencies in our public services—education, health and transport—to be addressed for social as well as economic reasons.

There are powerful pressures toward recession in Europe, America and Japan. The major public investment programme planned for the next three years will help to counteract those recessionary forces in Britain.

The American authorities are also shaping their monetary and fiscal policy to head off recession. Whether it is admitted or not, the UK and USA are following Keynesian principles to enhance demand. In neither case does that take risks with inflation. The expansion is well within the capacity of both economies. That contrasts with the European Central Bank and the German Government, which appear to have a fixation with inflation although the alarm bells warn of recession. Moreover, the cautious inflexibility of the resulting monetary policy cannot be compensated for by more expansionary fiscal policies, because the stability and growth pact will not allow sufficiently large public spending deficits.

There is a need for a commonly agreed and firmly enforced policy to prevent extravagance in Government spending in the eurozone. However, that must take into account the position in the economic cycle and national debt, as the United Kingdom's fiscal rules do. I am sure that there is no one better placed than my right hon. Friend the Chancellor to remind his friends in ECOFIN of the difference between prudence and sadomasochism. Such an over-tight monetary policy and rigid rules restraining fiscal policy are dangerous not just because of the immediate economic consequence, but because, in the popular mind, the euro will become associated with stagnation and recession.

No doubt those anti-Europeans who associate everything from original sin to global warming with the European Union are already saying that those restrictive macro-economic policies are inseparable from monetary union, but they are wrong. The stability and growth pact needs amending to something nearer the UK's fiscal rules, but the concept of European monetary union does not need to be set aside to achieve that. Japan provides a cautionary tale as to what could happen if it is not done. That economy continues to be in thrall to deflationary forces, which have proved very difficult to throw off.

There is a real risk of the world economy in general moving into a similar position. With American interest rates at 1.25 per cent., there is not far to go before US monetary policy can have no further stimulating influence on the US economy. If Europe keeps on digging its current hole deeper, there will be no source of economic growth in the world and contraction of the world economy becomes possible. If that happens, Britain cannot escape the consequences, no matter how wise its economic policy may be.

I do not believe that deflation is the most likely future for the world economy, although I do believe that it is sufficiently possible that we should establish what to do if it happens. The nearest the world economic community has come to a contingency plan appears to be whistling in the dark to keep the evil spirits at bay. A beginning would be my right hon. Friend the Chancellor telling our European friends about the third law of holes, which is, "If you're in one, stop digging." That is a profound truth enunciated by his predecessor, Lord Healey.

Beyond that, no one really knows what to do to counteract world deflation. For that same reason, the world economy languished in such a condition throughout the 1930s, only to be pulled out of it by the second world war and the Keynesian economic policies that followed it. I ask the Minister, what steps, as a contingency measure, are being taken to map out an approach to deflation at home and to develop a concerted international approach if that should become necessary?

I turn from the gloomy possibilities to the more usual probabilities for the future—namely, that the economic cycle will continue, with counter-cyclical macroeconomic policies modifying the peaks and troughs so as to avoid the boom and bust that we have come to associate so clearly with Conservative Administrations.

In recent months, growth has been sustained by high consumer demand based, to an extent, on increased personal debt. Underlying that, however, have been certain imbalances such as the growth of the service sector along with difficulties for manufacturing, a significant balance of payments deficit and continuing house price inflation. Such inflation, which makes the conduct of monetary policy so difficult, reflects the fact that too few dwellings are being built. The programme recently announced by the Deputy Prime Minister is addressing that problem.

The other issues are interrelated. Despite the general growth in the economy, to which services contributed, domestic manufacturing has not been able fully to supply the increased demand for goods. Thus, imports have been sucked in. The high value of the pound against the euro has reduced the competitiveness of manufacturing exports, just as the volatility of the exchange rate over many years has reduced incentives to invest in manufacturing.

Manufacturing is the key to curing many weaknesses in the economy, and it is not just a few bricks in the economic edifice—it provides the keystones and the flying buttresses that keep the whole building upright. Manufacturing is the source of most of our export earnings. Without it, a vast range of skills and abilities could not be used for the economic benefit of either individuals or the country. For all those reasons, it is essential to place on productivity the emphasis that the Chancellor has provided. Government policy is now putting that into practice.

Our productivity lags behind that of competitors. For example, the USA has more graduates in the work force while the European Union has more people with intermediate qualifications in the work force. Investment levels are poor, because economic instability has led to uncertain expectations of reward. As a similar consequence of short-term horizons, research and development as a proportion of gross domestic product has been falling behind the figure among competitors and innovation has not been foremost among management objectives.

All those issues are being addressed by Government policy, which is underpinned by maintaining economic stability. The exchange rate remains a maverick element, distorting both import and export competition. The trade element of the $100 billion that crosses the world's exchanges every day is minuscule. The exchange rate is not settled by considerations of the competitiveness of goods traded, as traditional economic theory would have it.

To take the random foreign exchange element out of manufacturing competitiveness, it is imperative that this country join European monetary union. That would eliminate the impact of volatile foreign exchange rates for the majority of our overseas trade, which would also be no worse than for any other EU manufacturer when exporting outside the EU. For the same reason, the exchange rate affects the prospects for inward capital investment in manufacturing from overseas. There are already signs of that investment falling away because Britain is outside the European monetary union. We should not forget that after the industrial mayhem produced by the overvalued pound in the early 1980s, inward investment has sustained this country's technical and managerial skills in several industries, such as motor manufacture.

One the famous five tests is the impact on the financial services industry of joining European monetary union. I do not demur from that, but given the role that manufacturing industry plays in the economy, it has a claim to be up there, too.

Alone, we cannot escape from the effects of worldwide deflation, if that should happen, but we can prepare contingency plans to minimise the impact and to speed recovery. Equally, alone we cannot protect our industry and thus our economy against the maverick effects of today's foreign exchange markets. The solution to that is ready for us to take up by joining European monetary union.

Mr. Hendrick

My hon. Friend said that changes to the stability and growth pact were needed. If those changes were not made, would he still be in favour of entry, notwithstanding what he said about manufacturing industry?

Mr. Beard

I would still be in favour of joining European monetary union, because if we are to influence the stability and growth pact and what comes after it, we will do better within than without.

For the reasons that I have given—the exchange rate and the risk of deflation—the only way to protect and advance the welfare of this country is to take concerted action with allied nations. There is no economic future for Britain in the false superiority of sullen isolation.

8.2 pm

Mr. Simon Thomas (Ceredigion)

I am pleased to respond to the Government's legislative programme on behalf of Plaid Cymru. I was interested in the Chancellor's ebullient opening remarks. He was confident and positive, and much of what he said was correct. I want to concentrate on some of the regional disparities that have grown up in the past four or five years and the effect that that has had on Wales. Many Members from other parts of the United Kingdom, including the English regions, will find something to agree with in what I am about to say.

Some of the economic indicators of what has been happening in Wales in the past five years do not show such a rosy picture. In 1998, there were 204,000 manufacturing jobs in Wales, whereas the figure is now 187,000. When the Government came to office, gross weekly earnings in Wales were 89.1 per cent. of the UK average, which is more than 10 per cent. behind, and the figure is now 86 per cent., so the position has worsened. The number of VAT-registered businesses in Wales was 94.5 per cent. of the number of UK businesses, and now the figure is down to 90 per cent., so we are losing our businesses as well. When the Government came to power, the index of production and construction in Wales was 95.6 per cent. of that for the UK, and it is now 91.4 per cent.

However the economic fortunes of 1997–98 were created—I accept that there is a ping-pong battle about who was responsible—there is no doubt that in the past four or five years the position of Wales has declined in relation to the rest of the United Kingdom. It is that position that we want to see reversed, and that we want this legislative programme and next week's pre-Budget statement to address.

One tool that is specific to Wales is objective 1, which is a six-year programme of regional structural funds from the European Union. I welcome the objective 1 programme and the way in which it is working. It is a sign of weakness, but nevertheless it is a tool to improve the Welsh economy. It is regrettable that, in the first two years of objective 1, we have been able to commit only 77 per cent. of the resources available. The most under-committed part of objective 1 is that dealing with infrastructure, and I shall concentrate most of my remarks on that.

The subtext of the Chancellor's remarks was that unemployment was no longer a problem. We need to consider the unemployment figures very carefully. In Wales, the percentage of people living in households with at least one person unemployed has gone up in the past four years from 15.6 to 16.7. The number of people in employment, which is a bit different from the unemployment figures, has declined. In Wales, the figure is now less than 70 per cent., whereas the UK average is about 75 per cent. Neath-Port Talbot, which covers the constituency of the Secretary of State for Wales, is languishing at 56 per cent. of the working-age population in employment.

As well as the sickness statistics, the problem of people who do not choose to register for employment and the difficulty of getting women into the employment market because of the lack of child care are infrastructure problems in the Welsh economy. That is reflected in the average earnings figure for Wales, which is £380 a week compared with £440 a week for the UK. The infrastructure difficulties in the Welsh economy should be addressed.

It is fortuitous that this aspect of the Government's legislative programme is being discussed tonight, because today Plaid Cymru launched its economic strategy for Wales. I am sure that hon. Members will be interested to know what it contained, so I thought that I would take this opportunity to tell them what we propose. There is a UK economy and a set of UK fiscal measures to deal with that economy, but the presence of the public sector has a specific bearing with regard to Wales, because 60 per cent. of the Welsh economy is based on the public sector as opposed to 40 per cent. in the rest of the UK.

Certain aspects, such as the public finance initiative, public procurement and the Barnett formula, impinge on the economy of Wales in a way that they do not in most of the UK, although they have resonances in some parts of England. We would like a statement on the Barnett formula. It was not in the legislative programme, but it may be appropriate for the issue to be included in the pre-Budget statement next week. We do not think that Wales has anything to lose from a review of the Barnett formula or from the establishment of a more needs-based formula. Indeed, many areas in England would also benefit from such a review. I think that many Labour Members would be interested in a review to see what it would bring to their regions, particularly with regional government now being introduced in England. The United Kingdom overall would benefit from a lack of regional disparities.

Mr. Andrew Love (Edmonton)

Has the hon. Gentleman checked with the Scottish National party?

Mr. Thomas

The hon. Gentleman will be present tomorrow night when the hon. Member for Banff and Buchan (Mr. Salmond) will hopefully catch the Speaker's eye to make his views clear about where he stands on this matter. I am speaking for Wales and for Plaid Cymru.

The response of the Liberal Democrat and Labour coalition Government in Wales to these challenges has been pretty abysmal. The economic strategy of the National Assembly was published after the objective 1 programme started, so the unique fiscal tool that we have in Wales, which is separate from what happens at a UK level, was in place before any strategy was established. The strategy fails to address the real needs. It has wonderful targets: we would all like the GDP of Wales raised to 90 per cent. in the next six years, but it will not happen, certainly not as the strategy sets out. We would like 135,000 jobs to be created in Wales in the next six years, but I doubt that that will happen, not without a strategy to increase the number of businesses in Wales, especially small and medium-sized businesses, which is what Wales specialises in. It will not happen without helping existing businesses to grow, and without a way of sharing economic success throughout Wales.

Under the National Assembly for Wales and the objective 1 programme, the majority of jobs in agriculture are based in Cardiff, which is not the most agricultural part of Wales and nor is it in the objective 1 area. Surely at the very least we should roll out public sector jobs in Wales: agriculture to the west and objective 1 jobs to the north.

We have set out the key tasks for Wales in the economic development strategy, and we would like to see the Government's legislative programme help them. They include regional development within Wales and a plan for jobs within Wales; for example, we do not have control over the Office for National Statistics, so we do not know what the labour market assessment in Wales is at the moment. We must wait two years until it filters down to us. That is vital to Wales, as is selecting the most promising sectors for development in the Welsh economy.

In my constituency, we have just lost Dewhirst, a clothing manufacturer from the town of Cardigan. The company was lost because it is cheaper to make jeans in Morocco and Turkey than in Cardigan. It has nothing to do with the work force, who were effective and efficient. It was often said that they were the best in the group and they were the last to go, which says something about them. However, 400 jobs lost in a small market town of 2,000 people is a big blow to take. Some 80 people have found jobs with local businesses. The small and medium-sized enterprise sector has picked them up, although some have to drive for more than an hour and a half to get to work. However, that leaves 300 people without jobs and another 150 jobs are to go at the old Ministry of Defence range at Aberporth. Those constituents who are affected will ask what is in this legislative programme for them. What can they take from it? There is nothing that we could usefully use in Wales—"neutral" would be the most generous description—to support the sectors that we can grow in my constituency and throughout Wales.

There are sectors at which we can look, such as renewable energy. It is important that the energy review will come from the Government very soon and I agree with the hon. Member for Ilford, North (Linda Perham) that we need to invest in renewables and not nuclear. That is pertinent to Wales.

Mr. Love

The history of choosing winners in Wales is not a good one. Is the hon. Gentleman suggesting that politicians can choose those sectors of the economy in which we ought to invest?

Mr. Thomas

The hon. Gentleman makes a reasonable point. It is not for politicians to choose as such, but it is for politicians to note which sectors are likely to be goers in Wales. For example, we have the Welsh Development Agency—it is independent, and many parts of England would like something similar—to do the groundwork. However, without the labour market assessment, it is difficult to see the way forward. We are not talking about picking winners and then expecting inward investors; we are trying to pick some sectors that are growing with indigenous Welsh businesses, and support them to create more employment opportunities. That has been shown to be more successful in the longer term than getting interim investment. I do not have to talk about the LG plant in Newport; the hon. Gentleman may remember that example.

Another important factor is IT and, in this context, the communications Bill will be vital. Out of the 11 indicators of IT take-up promoted at an EU level, Wales lags at the bottom of seven in the UK and is in the bottom three in all 11. Only 30 per cent. of SMEs in Wales have a website. Here in London, the figure is 65 per cent. That digital gap in Wales, parts of England and Scotland will grow unless Ofcom and the Bill provide a statutory duty to ensure the roll-out of broadband and IT communications to all parts of the UK.

We can imagine what would have happened had we left electricity connections in rural areas to the free market. There are still businesses in my constituency that do not have mains electricity. That would have been worse had we not faced the challenges in the 1950s and 1960s of getting mains electricity to all parts of the United Kingdom. We must get IT and broadband to all parts as well.

My final point concerns agriculture. Reference has been made to common agricultural policy reform, and I agree. If there is genuine CAP reform, which looks at sustainability, the countryside and the unique role that agriculture plays in Wales in sustaining rural tourism, the language and social cohesion, I do not think that Welsh farmers will have much to fear. However, we do fear a fudged reform in which France, Germany and perhaps the United Kingdom fudge around the issues, try to protect some interests and do not address the over-production issues in agriculture. With farm incomes in Wales at £4,200 in upland areas, farmers have everything to play for within CAP reform. However, there are also huge dangers in the way in which the present bigger political game is being played out.

Plaid Cymru views the present legislative programme as a continuation of present policies. Regional disparity has widened in the past four or five years; it is likely to do so again under this programme. In Wales, we want a proper Parliament with tax-varying powers to look at things such as corporation tax, and to employ an economic strategy that builds sustainable development in Wales, to help indigenous businesses, to address the increasing number of economically inactive people in Wales and to raise the wealth of the people of Wales.

5 pm

Keith Vaz (Leicester, East)

I am happy to follow the hon. Member for Ceredigion (Mr. Thomas) in this interesting and important debate on the Queen's Speech. I was astonished that we heard yet again from my near neighbour in the east midlands, the right hon. and learned Member for Rushcliffe (Mr. Clarke), who claimed to have been responsible for the economic success of the Chancellor of the Exchequer and followed that shortly after by denouncing those same policies and predicting doom and gloom for our country.

I would like to pass on my thanks on behalf of my constituents to the Chancellor for his wonderful stewardship of his office and for delivering the prosperity that our country has had over the last five years. As we have heard from many of my right hon. And hon. Friends, we have the lowest inflation, the lowest level of unemployment and the lowest interest rates for years. I want a continuation of those policies because it is only through that that we will be able to implement the promises that we made in our manifesto.

The Queen's Speech is a repetition of the radical and modernising agenda that we have put forward over the past five years. Unless we have a proper stewardship of the economy, we cannot spend the money wisely on our social programme. The Queen's Speech sets out a number of important areas of legislation, all of which merit attention and none of which could have been carried out but for the economic success that we have achieved over the past few years.

I want to mention the emphasis in the Queen's Speech on law and order, and fighting crime and the fear of crime. If one looks at the printed version of the speech, the whole of the front page deals with law and order legislation, the reform of the criminal justice system and putting victims at its centre.

A constituent came to me last week. She was a victim of crime who had been assaulted by an individual. She went to court and waited in the witness room for more than 12 hours before her case was called, only to be told that the charges against the person who had hit her had been dropped by the Crown Prosecution Service. I want to ensure that once the proposed legislation in the Queen's Speech is passed, the victim will be at the centre of the Government's attention.

I welcome the thrust of the Queen's Speech. My hon. Friend the Member for Ilford, North (Linda Perham) mentioned Europe and the euro. I know that she was depressed when she read the sports pages recently because like me she is a supporter of Leicester City football club. I can assure her that we are second in the league, that we are going up and that we will be in Europe in two years. In the meantime, it is important that the Government have re-emphasised our commitment to the EU. The Government are pro-euro and pro-Europe. We have made it clear that the five economic tests will have to be assessed in June next year.

My plea to the Economic Secretary and, through him, to the Chancellor, is that once the tests are met, we need to get on with a decision on the referendum as soon as possible. If we do not, this could be a saga even longer than the Eurovision song contest. People are waiting for the economic tests to be assessed and we are happy to accept the judgment of the Chancellor on this issue, as we have been happy to accept his judgment in the way in which he has been running the economy. It is important that we get on with the decision. We know the Government's formula. If the tests are met, there will be a meeting of the Cabinet, a decision by Parliament and then an all-singing, all-dancing referendum. I hope that that timetable will be stuck to very soon after the tests are assessed. Of course, if the tests are not met, we will not have a referendum—I understand that—but it is important that we move forward.

Enlargement is very much on the agenda of the Ministers' meeting in Brussels. A date for enlargement should be set at that meeting—1 May 2004. It is essential that we stick to that date because the entry of the 10 applicant countries is vital to the success of our economy and the economy of Europe. It will create the largest single market anywhere in the world—a single market of 500 million people—and provide the security and umbrella of co-operation that have been missing from Europe over the past few decades.

All the applicant countries want progress on enlargement. I am grateful to our Ministers for doing so much to ensure that the enlargement process has taken place. In his speech in Warsaw two years ago, the Prime Minister gave it a suitable boost.

I have just two final points to make because I know that many of my colleagues wish to speak, although it appears that not many Opposition Members do. That shows that the case advanced by the Chancellor of the Exchequer is unanswerable. There appear to be only two Back Benchers left on the Conservative side—

Mr. Henry Bellingham (North-West Norfolk)

Conservative Members are at dinner.

Keith Vaz

Oh, they are at dinner. Some of us have been here for the past few hours listening to the Chancellor and to the other speeches but I am not surprised that the Conservatives have run out of speakers.

I want to say something about regeneration because I see that the Minister for E-Commerce and Competitiveness is on the Front Bench; the Department of Trade and Industry has responsibility for regeneration. I thank the Government for all the money and resources that they have given to the people of Leicester but I worry about our regeneration strategy. People do not understand when they hear the vast figures mentioned in relation to regeneration. They want to see regeneration on the ground. They want to be part of the regeneration process. We cannot have Canary wharf being built throughout the country. People can see flagship regeneration schemes. We must involve people in that regeneration process.

I am sorry that my right hon. Friend the Secretary of State for Trade and Industry is not here. I pay tribute to her for her work as Secretary of State and her outstanding work as a constituency Member. We share Leicester with my hon. Friend the Member for Leicester, South (Mr. Marshall), and she is assiduous in her constituency duties. She has been around a lot of the textile firms in our city and seen for herself the problems in the textile industry.

In 1981, there were 19,900 jobs in the industry in Leicester. Today, there are only about 7,700. I do not blame the Government for that but I ask the Secretary of State—I know that this matter is close to her heart—whether we can have some measures to help us to redress the balance—some assistance for the textile industry in Leicester. It has benefited from the economic policies of the Government but needs specific help, because many countries dump their goods within the EU area and many other EU countries do not stick to the EU's rules and guidelines. The textile industry in Leicester and throughout the country has been very good in sticking to the rules. We just want a level playing field.

If anyone can help us, the Secretary of State can. She will want to make a special initiative of that. I cannot invite her to visit Leicester because she is Member of Parliament for Leicester, West and visits every week. I just ask that, in her busy schedule, she remembers us in Leicester and the textile industry in particular.

I am happy to support every measure in this Queen's Speech. It is a radical and modernising Queen's Speech that Labour Members are proud to support in full.

8.24 pm

Malcolm Bruce (Gordon)

We have had a number of speeches that related to the euro and I want to say only one thing about it. Increasingly, I find among businesses throughout the country a deep desire to end the uncertainty that means that they cannot put in the necessary decisive planning. People can put up reservations about when the right time will be, but it is infinitely more damaging to the country to have a Government who say in principle they want to join but cannot tell us when or under what circumstances. They are not allowing businesses to plan. The uncertainty is deeply damaging.

I echo the concerns expressed about the fragility of the British economy. If we go through each sector of the economy, it is difficult to find what constitutes the success that the Government are claiming. Manufacturing has been effectively in recession and jobs and investment are falling. Farming is in a disastrous plight. Tourism is in huge difficulty. Telecommunications is not exactly thriving and the stock market is at its worst level for many years. The only thing sustaining the economy is property prices and the borrowing against that. If those were to take a nosedive, the Government would be in deep and serious trouble. No one wants that to happen but we are all saying to the Government that they should resolve the uncertainty of the euro and remove that one fundamental problem—it exists whichever side of the argument one is on. There is an inability to plan ahead. Businesses have to deal with the consequences of being outside. The Government must recognise that the economy is so unbalanced that if we do not use the opportunity before we hit a crisis, we will have nothing to fall back on when we do.

I want to raise a number of specific matters arising out of my constituency concerns. I represent an area that is heavily dependent on farming and food processing. There is no doubt that they are suffering severely. The biggest single thing that they are suffering from is the adverse effect of the exchange rate.

My other industries include paper making. There is no doubt that it is a difficult industry to be in at the moment. It is important that the UK maintain a paper-making capacity.

Mr. Love

Will the hon. Gentleman give way?

Malcolm Bruce

I will not because we are anxious to ensure that as many hon. Members as possible get to speak.

It is important that the Government recognise that many of those businesses are hanging by a thread and that if the issues are not resolved soon, they will not be able to hang in there for much longer.

The oil and gas industry is very important in my part of Scotland. The Government produced tax proposals in the last Budget without consultation and without warning that have deeply damaged confidence in the industry. I know that the Government will be able to point to academic studies that bear out the claim that the package of measures will benefit investment in the established fields. It will if the royalties part of the package is delivered. The industry is getting increasingly irritated that the Government are giving assurances that royalties will be abolished but have not yet explained why they have not been abolished, or abolished them.

The Government should not underestimate the damage that has been done to the confidence of what is a mature province. The industry has many opportunities to deploy its investment elsewhere in the world. There is no incentive within the Government's tax regime to look for new, more marginal fields that will sustain the life of our province. There is a real danger, therefore, that potential oil and gas reserves will never be recovered from the North sea, if the existing regime continues in its current form. To my mind, that would be both a waste of resources and deeply damaging to an industry that is very important. It provides about a third of a million jobs and a very high proportion of UK industrial investment, which the Government continually treat as a milch-cow rather than a real industry that sustains jobs at home and exports abroad.

On the back of that, it is important to take on board the ridiculous state of the electricity market, which is having very serious repercussions. A questionable investment of £650 million in British Energy may yet be vetoed by the European Commission—a clear indication that the electricity market that the Government boast about simply is not functioning. If it is functioning, it is telling us that nuclear power is so expensive and dangerous that it should be taken out of capacity and off the market. Doing that overnight would present a range of practical and capacity problems, but we should not allow the market to be distorted.

Those of us who want a real commitment to expanding energy efficiency, particularly through investment in combined heat and power and in renewables, want a framework that makes some sense. At a meeting in my constituency on Amec's proposal for a very large wind farm, I made it clear that I support wind technology. I am pleased that one wind farm has been given the go-ahead in my constituency, but we should note that a large protest movement is already asking a question that those of us who support renewables are having difficulty answering. That question is, "If we don't happen to like the look of these wind farms, can you explain to us what the benefit is to our rural community in accommodating them?"

We are talking about an international company that employs nobody from the area, sends letters from somewhere in deepest England and has no real understanding of, or connection with, what we are about. We get no rent for such farms, because Forest Enterprise is involved and the money will be taken outside the area. Indeed, there is no perceivable economic benefit. The Government should think very hard about structuring the development of renewable energy to ensure that the communities that play host also get a share of the economic benefit—for example, a royalty from the units of energy generated.

As an MP for a Scottish constituency, I know that Scotland has committed itself to 40 per cent. renewable energy by 2020. The question that is being asked, however, is why should Scotland do it? What will Scotland get out of it? The UK will get the benefit of assistance in meeting its Kyoto objectives, but if all these investments are to be carried out by multinational companies with no significant base in Scotland simply to export electricity to England, it seems that no obvious benefit flows to the Scottish economy. I urge the Government to think hard about structuring the development of renewable energy in a way that gives the host communities a real economic stake in it.

I am also concerned about the overall condition of the privatised utilities. It is some 12 to 15 years since they were privatised, and we need to reassess how they are performing in a somewhat contradictory market. Nobody is suggesting that we could, should or would wish to unscramble privatisation. As somebody who served on the Bills that privatised gas and electricity, I can testify that we did not oppose those privatisations in principle. We did criticise the way that it was done, and we pointed out that there would be problems. Gas's privatisation as a monopoly immediately led to an inquiry by the then Monopolies and Mergers Commission. In the electricity industry, distortion of the market led to the collapse of coal industry and the dash for gas. That wasted a great deal of money—never mind the billions of pounds of support that has been given to try to massage the real cost of nuclear power.

Whether we are talking about electricity or telecommunications, a clear conflict exists between the objectives of private companies and their need to make a return for their shareholders, and the fact that they remain public utilities, providing vital services for which there needs to be a public policy delivery. Last week, the Minister and I attended a meeting on post offices. At the end of it, I mentioned my concern about broadband. There are businesses in my constituency that depend heavily on a regular daily postal delivery service—preferably early in the day. They are deeply concerned at the prospect of a two or three times a week service and of perhaps having to collect their own mail. They regard that as an unacceptable threat to the viability of their business. They could of course get round that by using modern technology—broadband technology—except that it is not available in rural areas. Indeed, huge irritation has been caused by advertising campaigns by British Telecom and others asking people to sign up, and explaining that broadband is cheaper, better and more efficient. However, if it is a rural postcode, such companies say, "Ah, not only do we not serve your area, we have no plans to do so—unless you're prepared to go and find our customers for us." Ministers—I do not mean the Minister who is in the Chamber—say that they are talking to BT. Well, excuse me, BT is a private company but we are talking about a public service.

Many of us look to the Government either simply to require the providers to give a universal service or to help them to do so; I do not have a strong view about which would be best. When Hydro-Electric was set up in the 1940s, it was required to provide electricity to pretty well every property in Scotland, including the north and the highlands and islands, and it has done so substantially, and spread the cost among all the suppliers. That would be a reasonable way of delivering broadband, with only very marginal exceptions requiring to be paid for separately or excluded.

The electricity market is in a mess, and nothing in the Queen's Speech will help. The new electricity trading arrangements are not working, and now the British electricity trading and transmission arrangements are mooted. It is not the right moment to go to BETTA, when NETA is getting worse.

Other utilities are operating in a contradictory market, trying to make a return for their shareholders and operate as a private business while being asked to provide a service for the whole community, which they are conspicuously failing to do. The Government, in the Queen's Speech, seem unwilling to do anything about that.

8.36 pm

Laura Moffatt (Crawley)

I am pleased to support the contents of the Queen's Speech. It is difficult for us to choose which aspect of the speech to speak on, because it is apparent that all its aspects are interdependent: for example, a safer community attracts business, and education and skills training are essential for a thriving economy. It is important to consider all those aspects when we discuss trade and industry and economic matters.

It is important for me to contribute as a south-east Member. It is all too easy to think that the south-east is comfortable and has plenty of jobs, and that we do not need help from the Chancellor's policies. I hope to demonstrate that it is extremely important that we look after the region's delicate economy.

My constituency is in Sussex, in a region that is our second highest contributor to gross domestic product, and Gatwick airport is at its heart. It is easy to understand the impact of 11 September. People from my constituency had to leave their jobs on 12 September, because they could no longer pack metal cutlery to go on the aircraft. The impact was real and painful. Sussex Enterprise has been very helpful. We were afraid that it would be a very difficult picture, and although we have not got back to the employment position of before 11 September, the impact has been far less than we feared.

The reason for that is stability. Companies have felt reasonably calm about the future, so they have not overreacted and laid people off in a zealous attempt to protect their own interests. The stability created by the Chancellor's policies had a very positive impact in limiting job losses. It is difficult for those who lost their jobs, but they are far fewer than we expected.

We in the south-east face many challenges. It is a lovely place in which to live, but that is difficult because the average house price is £140,000. Low interest rates give people the opportunity to get into the housing market, so that policy has had an important and positive impact on my constituency. I remember when massive interest rates meant that young people felt they had no opportunity to enter the housing market, and they had no sense of having a future in the south-east. It is important to ensure that our young people can participate in the economy of the south-east and do not feel that they have to leave to find job opportunities elsewhere because of the difficulties of living in the region.

There is long list of policies—not only those announced in the Queen's Speech, but those introduced throughout this Parliament and under the Labour Government—that make it possible for families in the south—east with relatively moderate or low incomes to survive and feel good about the contribution that they make to the economy. Let me outline some of the specific issues that face us.

Many hon. Members have heard their constituents say, "Goodness, there are so many empty offices around—why are you building offices when we could have housing?" In the south-east, it is vital to have a healthy portfolio of offices to allow companies to change and grow. In any one year, about 1.5 per cent. of our business community changes premises—not leaving Sussex, but moving within the Sussex economy. It is vital that we continue to support that community, so reform of planning will be essential to ensuring that we have a healthy and vibrant business property market that enables that growth to continue. Limiting growth in the south-east does not benefit anywhere else in the United Kingdom. We now know that to be true. Once, we thought that if we tried to redirect everybody elsewhere, everything would be fine, but the reality is that we must allow our positive and vibrant business communities to thrive and survive.

Let me describe how important policies and fiscal influences are to my community. In education, we have to tackle the skills gap to ensure that we have people who are fit to take up the jobs that we need done. It is not good enough to say that we in the south-east have lots of jobs and people will fill them. We must make sure that people are in a position to fill high-tech jobs, or that they can go to university and then fill the graduate jobs that are so important to us.

It is important to understand that policies such as sure start and good child care are economic policies. Women walk into my office in Crawley and say, "Thank you very much. My child is now in a nursery, I have been to college and I now work at the airport." It is thrilling to be able to experience that sort of thing, and, to be frank, we would like more of the same.

The working families tax credit has transformed the lives of 10,000 families in Crawley, and I am sure that other hon. Members can say the same of their constituencies. On average, my local families receive £25 a week, which enables them to survive in an expensive part of the world. They have to pay more for housing and transport, so working families tax credit is crucial to them.

Investing in our health services ensures that people are able to live and work and be serviced by good public provision, such as hospitals. We in Crawley have had enormous investment: we await a decision on whether to have a new hospital or to have massive investment in our existing hospital. That sort of investment was unheard of before, but it is vital to our economic well-being.

In housing, ensuring that our local authorities are able to deal with the supply problem in the south-east and that we are able to provide decent, affordable housing are vital if people are to be able to remain in the south-east. The Government have also provided huge investment for transport—£12.5 million has been added to the £23 million scheme to allow people to move between Crawley and the airport. We have never before seen such investment.

This great family of policies contribute to our well-being. They are part of what is making this country a better place to live, and my constituents reflect that

8.45 pm

Mrs. Angela Browning (Tiverton and Honiton)

The Chancellor had much to say about enterprise, and I shall concentrate on a particular group of entrepreneurs—small businesses and the self-employed. Some 55 per cent. of our private sector work force is employed by small businesses, so they are in the majority. I was rather disappointed that the Gracious Speech did not include a robust deregulation Bill that sought tangibly to remove the burdens on small businesses.

This country has had a reputation for having flexible labour markets and low levels of regulation, certainly compared with some of our European partners, but that situation is being increasingly transformed, particularly by the introduction of European legislation. When will the Government call a halt to that? When will they demonstrate that such regulation, which is now a burden on businesses on all sizes, but especially on small businesses, will be removed or moderated?

The self-employed, many of whom start out working from home, have particular concerns.The Mail on Sunday, which I know is read avidly by Labour Members, reported yesterday that the Chancellor intends to cut out red tape to help entrepreneurs mainly as a result of the plunge in self-employment in the past year. Perhaps we shall hear more about that in the Chancellor's autumn statement, but with the possible exception of some relaxation in the planning laws for businesses, there was nothing in the Queen's speech to make me think that the problem is being taken as seriously as it should be.

Self-employment is becoming increasingly difficult, but once one has established a business, it is more difficult still to make the quantum leap to take on another person and to assume the responsibilities of an employer. I was alarmed to hear that the Inland Revenue is being extremely active in identifying self-employed people who work from home with a view to taxing them through the business rates. An article in The Times last month made it clear that thousands of people have already been hit with bills of up to £600.

I am referring not to people who have, for example, changed their outbuildings into a large business but to people who are working from a bedroom. Apparently the Treasury's guidance includes a 6 o'clock rule that if domestic use can take place in a room after work has finished it is unlikely that business rates will be charged. I was self-employed and based at home for many years, although I travelled a lot, and there is no way that I would have wanted somebody going into what I called "my office" after 6 o'clock and doing anything with my paperwork or my computer.

I have to say to the Minister that we are getting mixed messages. The Chancellor talks about entrepreneurs, who are the backbone of the economy, risking their own capital to set up a business, often in a small way to begin with. However, punitive laws and regulations will put them off taking that risk. We are already seeing enterprise stifled in many small business areas. Residential and nursing homes have come under pressure, and we have debated many times in this Chamber the difficulties facing them. Sub-post offices and rural petrol stations are also experiencing difficulty. We all know that it is hard to get a plumber or electrician. Regulations affecting self-employed plumbers and electricians put people off doing the job, even though they can apparently charge whatever hourly rate they like. At the moment, it is not a question of whether or not one can afford a plumber—they can name their own price. It is about getting someone reliable to come along and do the work.

Many small businesses in waste management are under huge pressure. My hon. Friend the Member for North-East Bedfordshire (Alistair Burt) pointed out that the Chancellor must be aware not just of burdens imposed by the Government on business but of external factors that have an impact on entrepreneurs and the business economy. At my surgery a fortnight ago, I met a gentleman who is the third generation of a family business in waste management and employs just 20 people. He has had great difficulty obtaining public liability and health and safety insurance—at my business breakfast club last week that theme was picked up by people from just about every sector in my constituency. People who have been able to get insurance have found that premiums have gone up by more than 100 per cent. this year. The gentleman in waste management, for example, has to have a minimum insurance cover to get a licence and undertake work for local authorities such as fridge and car disposal under contract. He went right up to the day that his policy was due for renewal—even then, he had difficulty getting sufficient cover to be licensed to carry out those contracts.

Businesses in my constituency have asked whether their problems getting insurance and, if they are lucky enough to get it, the huge increase in premiums are a one-off or whether they will experience the same difficulties next year. Many of them say that if there is a repeat next year they will think twice-they may lay off employees and shrink their businesses rather than expand them. For some, it will mean the difference between staying in business or going out of business completely. Since 1997, there has been a plethora of tsars, envoys and all sorts of people with grand titles who all turn out to be Lord Haskins trying to reduce regulation on the Government's behalf—it does not work. My hon. Friend the Member for North-East Bedfordshire mentioned the European Union directive on temps—the Government, we are told, are braced for defeat this week. Marketplace flexibility and 160,000 people will be affected, yet it looks like the EU will force the Government to comply. The Government, however, are completely impotent to do anything.

Environmental taxes are being introduced. The Government were warned of the impact of the climate change levy, particularly on the manufacturing sector—I attended a briefing at which the Minister was lobbied by the industry about that long before it became law. It is not as if the Government have not had fair warning of all the factors that are having an impact on engineering and manufacturing. The Engineering Employers Federation says that there is going to be doubling of the landfill tax. I do not expect the Minister to say yea or nay, because he is in purdah—he can nod discreetly across the Floor of the House to me if he wants—but businesses affected by the plethora and cost of regulation, as well as additional Government taxes, cannot take any more.

Entrepreneurs are far from thriving in the small business sector. People do not want to take the risks that they would take in an economic climate with low interest rates. It is always more difficult to set up and run a business when interest rates are high because few businesses can run on capital without a high element of borrowing. Even at a micro-business level, businesses are struggling and are disincentivised. Nationally, we are seeing a reduction in our competitiveness. Another factor that the Chancellor did not mention is how we have slipped down the world's competitiveness league table since this Government took office.

The Government seem unable to do anything about yet more regulations from Brussels—this time to do with financial services and the way in which our mortgages are set. We were told in yesterday's papers that the DTI is fighting back as new mortgage rules from Brussels hit us. It was interesting to hear the Under-Secretary of State for Trade and Industry, the hon. Member for Welwyn Hatfield (Miss Johnson), who is responsible for consumer affairs, pointing out how important mortgages are to such a greater number of people in the UK by comparison with other European Union countries.

I smiled just a tad as I heard the Chancellor talking about the five economic tests and I witnessed the euphoria of Government and Liberal Democrat Members over taking us into the euro and scrapping the pound sterling, because here we have a Minister on one hand pointing out the economic differential and differences in mortgage regulation between our economy and those of other EU states, while on the other trying totally to ignore the fact that the same would almost certainly apply to the setting of mortgage interest rates. Ministers seem very willing to concede such power to a body outside these shores.

The House has heard me before on the subject of the pound sterling versus the euro, and I promise will do so on future occasions. I would not want the unemployment of Germany or the fines imposed on Portugal. I certainly would not want the problems that Germany has experienced with its increased taxes. Why we should want to give up what the Chancellor paints as a sound economy for that sort of mess and chaos I really cannot imagine.

8.57 pm

Richard Burden (Birmingham, Northfield)

In the short time that I have available, I should like to say a few words on the regional angle of the Queen's Speech, which has been touched on already today, but on which we shall have our main debate tomorrow.

Getting regional government right is hugely important, not only constitutionally and because it concerns reconnecting the citizen with the political process, but because it is vital to securing sustainable industrial and economic development. The reasons for that are fairly clear. We know that the gap between the best-performing regions and the worst-performing regions of England in gross domestic product per head is 40 per cent—one of the biggest disparities in the European Union.

There are equally large disparities in productivity and in education and skills. It has been estimated in a Department of Trade and Industry and Treasury report that if we were able to level up average productivity performance to that of the best, the average person in the UK would be £1,000 better off. There are also disparities in the skills agenda. We have a great skills base in the west midlands, yet it is a source of anger to me and to many that we still have the second worst record on people having no qualifications.

Manufacturing is still hugely important to the west midlands; it accounts for 22.5 per cent. of the region's employment, compared with just over 15 per cent. nationally. The automotive sector is still at the core of the west midlands regional economy, and we are doing quite a lot regionally to try to bolster and modernise that. The Accelerate programme—a great partnership between the DTI and the Society of Motor Manufacturers and Traders forum—was pioneered in the west midlands and is doing very well. We have a modernisation and diversification programme, in which the regional development agency is actively involved. Indeed, I helped a number of businesses launch a seminar on that just a couple of weeks ago. The results of such effort are businesses competing not just domestically but internationally. Their ability to get the right advice and support to raise their game and productivity, and to spread best practice, is great to behold.

Motor sports and performance engineering—I draw Members' attention to my entry in the Register of Members' Interests—is a vital industry for the UK. In that industrial cluster we are world leaders, but we face big international threats. Again, it is great to see the RDAs coming together and working with the industry to secure the future. I am glad to see my right hon. Friend the Secretary of State for Trade and Industry taking a personal interest in that industry by bringing together a competitiveness panel to look to the future. If all those initiatives are to succeed, it is important that we keep them action-focused.

In the west midlands, our rich industrial heritage and our ideas base are being brought together in a bid to bring the national microsystems and nanotechnology centre to the west midlands, the heart of manufacturing, which would benefit other regions as well as ours. Birmingham international airport is an institution that is not only vital for transport links, but brings £165 million into the regional economy. All these aspects are important and are evidence that we are getting our act together in the region.

However, there is a gap. There is still a democratic deficit in that structure. About £8 billion is being spent in the west midlands by bodies that are often doing a good job, but do not have the necessary accountability to the public. That is a practical as well as a democratic problem.

We know that Germany is facing severe economic difficulties, but we should not lose sight of the fact that some of its successes in the second half of the last century, and some of its successes in rising to the present challenges, were conditioned by the fact that German political, industrial and financial institutions are intertwined at national and at regional level. On the Select Committee on Trade and Industry, we received powerful evidence from the Work Foundation about how and why it is so important for raising industrial competitiveness to get such intertwining and complementarity right. That is why the regional angle is important.

It is also essential for the Government to continue their good work in looking for new models of corporate governance. Community regeneration can play a role in building a healthy regional economy. That is why I was pleased that in the last Budget the Chancellor announced new initiatives to promote community reinvestment. I hope that in the winding-up speech today we will hear a little more about how that will be implemented.

I know that time is short and other hon. Members want to speak. In conclusion, one size will not fit all for regional assemblies. I am not interested in merely creating a new layer of county councils—county councils on steroids, so to speak. That is not what regional government or regional assemblies are about. If we can think creatively about democratic regional government, and be clear that we are not just combining local government functions, but providing a real voice for the region in the European and international context, regional government for England could be a very exciting prospect. It will help to reconnect the citizen with the political process. Equally important, it is a vital element in securing the industrial and economic regeneration that areas such as mine in the west midlands so desperately need.

9.3 pm

Mr. Jonathan Djanogly (Huntingdon)

British business is hurting; of that there can be no doubt. The Chancellor spoke earlier of falling unemployment, but I found that grossly complacent. Thousands of jobs are going by the day in the City of London, in manufacturing, where 400,000 jobs have been lost since 1997, in the high tech and communications sectors, which have had the stuffing knocked out of them—only last week, 3,500 jobs went at Cable and Wireless—and in agriculture-related businesses, which are in desperate straits.

My hon. Friend the Member for North-East Bedfordshire (Alistair Burt) gave a good picture of the situation in the eastern region, which is also my region. Some 41 per cent. of companies are showing falling output, and there are declining new orders, reduced staff numbers and reduced capital expenditure. All those issues present a very serious picture that goes somewhat against the complacency shown by the Chancellor. How the situation changes in the public sector, where there are increasing head counts across the board. Not only are there more employees, but requests for wage increases of up to 40 per cent. are being made at a time when people in the private sector are worrying about whether they will have a salary at all.

Business is now starting to see what Labour is all about. It, now realises that 80 per cent. of the £4.5 billion of taxes raised this year is coming from business. As more people in the private sector lose their jobs and start to see public sector salary hikes without improvements in public services, they will see how their companies—and therefore, indirectly, themselves—are having to pay for Labour's tax and spend policies. At the same time, companies are now also realising that they have had to pay 87 per cent. of all the tax hikes made since 1997—some £29 billion, according to the CBI. That is apart from the fact that they are reeling from so many regulations.

We have a Government who are increasingly obsessed with micromanagement and intervention to equalise regulations to the lowest common denominator with our European neighbours. The result is that we are fast losing our competitive advantage in an increasingly world economy. We have fallen from ninth to 19th on the world competitiveness scoreboard and our share of world exports is falling, together with poor rates of productivity that are rapidly falling behind those of America, France and Germany.

Burying our heads in the sand and ignoring the impact of the global economy and possible deflation, with the introduction of endless new regulations, may keep the unions happy, but, as the 950 employees of Black and Decker who lost their jobs in the Prime Minister's constituency know, it is destroying our ability to compete. Where are those jobs now? They are in the Czech Republic, because we can simply no longer compete in terms of labour costs and taxes.

Rather than face up to the problem, what are the Government doing at the moment? They are delaying the inevitable by restricting the movement of goods and people from our new eastern European partners. In short, we try to make them less efficient to hide our own deficiencies. Yes, the economic slowdown is global, but the less flexible our markets become, the less we can adapt to international pressure. While the Chancellor equivocates over the euro, we are losing sight of the big picture.

I do not feel that the Government are advising people on the real implications of technology; of course, cheap travel and communications are the core components of globalisation. The fact is that the service sector is now every bit as much at risk as the manufacturing sector. Clerical jobs can be carried out at a massively lower cost in the east than in this country, which is why banks and other institutions are now transferring their operations abroad. One can set up a call centre in India and employ bright university graduates who speak perfect English at one fifth the cost of employees in this country. Indeed, I was delighted to see that the Department of Trade and Industry has significantly increased its staff numbers in China, not least because, at this rate, that is where most of our services sector and manufacturing could be located in five years' time.

If we are to survive as a serious business player and encourage more investment, we must act now to cut taxes on business and start excluding companies from regulations—especially smaller growing firms. As the Federation of Small Businesses has rightly pointed out, such firms incur a much large proportionate negative impact from such regulations than larger companies.

Mr. David Laws (Yeovil)

Will the hon. Gentleman give way?

Mr. Djanogly

No, I am afraid that I will not do so, given the time that remains.

The lack of engineering-based apprenticeships and the shortage of skilled staff is also of enormous concern. Employers in my constituency continuously mention that to me, and much more needs to be done. Two weeks ago, I visited a university to be told that it is cutting its engineering courses because of lack of demand and increasing its psychology courses. I think that that says it all.

Finally, I was disappointed not to see the long-awaited companies Bill in the Queen's Speech. British company law is in urgent need of reform—I declare my interests as a corporate lawyer—and after three years of consultation on this largely uncontentious issue, business wants the Bill and we should get on with it.

9.10 pm

Mr. Jim Cunningham (Coventry, South)

The Queen's Speech gives Back Benchers an opportunity to talk about things that we would to like to see in the Queen's Speech but which do not appear in it. That being so, we hope to see them in the pre-Budget statement. I hope that my right hon. and hon. Friends on the Government Front Bench will take note of what I have said.

Today, the shadow Chancellor of the Exchequer missed a golden opportunity—it is only about a month since the Conservative party conference—to tell us about the 20-odd new policies that the Conservative party has developed. He was repeatedly challenged, and I thought that we would hear something about the new policies. We did not. We waited in vain. Perhaps we shall hear something about them next week. I look forward to next week's debate. Let us see whether the right hon. and learned Member for Folkestone and Hythe (Mr. Howard) announces his party's new policies then.

It seemed that at the Conservative party conference those present were going through the process of telling the truth and admitting their guilt in the past. The chairman of the Conservative party talked about the arrogance of previous Tory Governments, as did the Leader of the Opposition, and said that Conservatives wanted to change their image. No one really knows where the shadow Chancellor stands on that. He did not declare himself. I do not know whether the right hon. and learned Gentleman wants to put me right on that. He has the opportunity to do so. I do not know whether he is at variance with the leadership of the Conservative party or whether he will tell us all about where he stands.

The Opposition talk about regulation. When the Conservative Government were in office—I was working in industry at the time-we had a heck of a lot of regulations. Opposition Members in glasshouses should not start throwing stones at Labour Members. However, I take the point that we should not overburden small businesses with regulations. We should think through carefully any regulations that we introduce.

The Opposition are in danger of talking the country into recession. It is suggested that my right hon. Friend the Chancellor of the Exchequer is approaching the economic situation in a disinterested or cavalier manner. When we used to say those sorts of things in Opposition, we were told that we were talking the country down. I hope that the Opposition's intentions and their economic strategies are not designed to do that. Indeed, we have heard about generating confidence. I am sure that confidence is not generated when the Opposition go down the road that they chose to take this evening.

We all remember the exchange rate mechanism shambles. I remember it in Coventry, where companies were going to the wall. We also remember high interest rates. I am sure that many Members will remember that they reached 22 per cent., with VAT at 17.5 per cent. Conservatives say that they represent the party of low taxes, but we remember when there were high taxes under a Conservative Government.

I shall move on to the positive rather than the negative in having a go at the Opposition. As I have said, I look forward to the pre-Budget debate. Anyone who has been a member of the Select Committee on Trade and Industry and has visited Washington will know, having talked to people in world trade organisations, that the two big difficulties will be the French or the Americans. The Americans use their defence budget for various development projects, and we should not lose sight of that. When British Governments try to negotiate on the same basis, they are told where to go. At the same time, there are concerns about third world debt and the closure of European markets to third world trade. I appreciate that the Prime Minister and the Chancellor have taken a lead on that, but I hope that we shall return to considering such subjects shortly. Again, that must be placed against the background of the lowest interest rates for a generation and probably longer. It was probably in the early 1960s or late 1950s when interest rates were last at 4 per cent.

We should be worried about Britain's manufacturing base. The west midlands manufacturing economy probably employs a quarter of our labour force. That is a hefty chunk, which will be affected if there is a recession in the area. As hon. Members know, in Coventry, and probably nationally, there have been job losses at Marconi, and we do not know whether the company will survive. We all want it to survive, and perhaps the Government can reach some conclusion about whether we can use broadband to help it.

Other household names in Coventry, such as Massey Ferguson, have suffered, and Rover recently had to be assisted, in some instances by the Government, but also by the sheer determination of the labour force. In the west midlands, we have a labour force that is second to none; it has the ability to adapt and the determination to succeed.

I welcome the Government's new manufacturing strategy, which is the first for 30 years. It should help, but there remains a need for inward investment. We need more investment in transport, which is the basis of the economy. Transport costs can also affect product costs.

Some of my hon. Friends mentioned the regional development agency in the west midlands. It has established training and support programmes for automotive component companies. Nevertheless, I believe that it should be more dynamic and I hope that colleagues will accept that. The trade unions that I have met have not been impressed with the west midlands regional development agency's responses.

Many of my constituents are worried about tuition fees, and I hope that the Government will not introduce them in this Parliament.

On antisocial behaviour, I should like the Government to consider fireworks legislation carefully. Fireworks are a growing antisocial phenomenon.

9.17 pm

Chris Grayling (Epsom and Ewell)

Our economy has prospered recently under Conservative and Labour Governments because, unlike the rest of Europe, we have a diverse, deregulated economy that has also been a low tax economy for a long time. Those gains are now being wasted. Step by step, the Government are interfering, regulating and taxing the creative, wealth-generating parts of our economy. The consequences will come home to roost.

The past five years show what can happen. Businesses and industries in which the Government have interfered have almost universally taken a step backwards. For example, the pensions industry was burdened with a tax of £5 billion and considerable Government interference. The establishment of stakeholder pensions has substantially reduced the margins of the financial services industry without generating much take-up. Consequently, our financial services industry is in a worse state than it has previously been in my lifetime.

The Government have failed to recognise the importance of profit and of businesses making money. They use a rhetoric that consistently decries success in our businesses and does not like our biggest companies to make significant amounts of money. The implications for our companies are fundamental. That is apparent in the performance of our pension funds.

Mr. Marris

Will the hon. Gentleman give way?

Mr. Grayling

I am sorry, there is not time.

The utilities sector represents the worst example of Government intervention, with the windfall tax and the over-regulation of sectors such as the electricity industry, the consequence of which is that many parts of the industry are almost no longer viable. British Energy is having deep financial problems, we are seeing the closure of power stations, and electricity companies are being taken over. The truth is that today, five years after the windfall tax, most of our major utilities have been taken over by overseas competitors, because they are no longer able to withstand the strength of their competitors' balance sheets, or the pressure from companies in countries that provide a degree of protection to their utility sectors. Our utilities have been left bare on the international stage.

We must also consider the impact of over-interference in the telecoms sector. The Government were no doubt delighted by the windfall that they secured from the mobile phone auctions. Many of our providers had no option but to enter that auction; if they did not bid, they did not have a business. Our telecoms sector has been significantly weakened as a result.

It is in small business, however, that the real impact of over-regulation and over-taxation is being felt. It is crippling many of our smaller businesses, particularly those experiencing more difficult times. In the year and a half since I became a Member of Parliament, I have seen very little evidence that Labour Members truly understand the problems and issues involved in running a small business. Almost no Minister has had experience of running a small business. Ministers do not understand the human consequences of what they are doing.

Life in a small business is one of long hours and business uncertainty. Life becomes much more difficult when times are tough, as they are increasingly becoming now. I know that from experience. I have been in frontline business, in a concern in which the funding stream from a parent company dried up almost overnight when the company went into financial difficulties. I have also been in a company whose biggest customer went bankrupt, leaving us with a huge challenge to keep the business afloat. The last thing anyone needs when trying to keep a small business afloat in difficult times is additional taxation and regulation, yet that is what the Government are offering today. Next April, all small businesses will face a significant increase in the taxation on the employment in their companies, regardless of whether they are making money. That will mean fewer jobs.

This is the wrong moment to introduce more regulation. The Government are once again conducting a review of employment laws. We are seeing new directives coming from Brussels—often gold-plated in this country—such as those affecting agency workers and the haulage industry. We are also hearing about the Government's plans for landfill tax. Perhaps they are desirable for environmental reasons, but the consequences to a small business of implementing them could be devastating.

I see a common theme in the sectors that have suffered in recent years, and in the smaller business sector, which is increasingly coming under pressure, particularly in manufacturing—increased taxation and Government interference. The consequence to the wealth-creating part of our economy will be devastating if the Government carry on in this way. They must stop before it is too late.

9.23 pm

Mrs. Louise Ellman (Liverpool, Riverside)

I would like to call on the Chancellor of the Exchequer and the Secretary of State for Trade and Industry to intensify their good work in supporting enterprise in the knowledge economy, particularly in developing excellence and in building on the excellent research work being carried out in our universities and other institutions outside the south-east. There will be a number of opportunities for them to show that commitment during the next 12 months.

At Daresbury, the Centre for Accelerator Science Imaging and Medicine—the CASIM project—is proceeding, and the fourth-generation light source is moving ahead very satisfactorily. The Sirius project for the detection and treatment of cancer appears to be more problematic, however. At Liverpool university, five-star graded departments have set up the AIMES project—the application of internet technologies and emergent systems—to develop grid technology for the support of business.

In that gem, the Liverpool school of tropical medicine, expansion is being sought to enable the school to continue its work in beating disease, developing health services and fighting poverty in developing countries across the world. In the last two or three weeks its director, Janet Hemingway, and her colleague Alastair Craig have published groundbreaking research on malaria treatment.

We have some of the means to deal with such issues. The Government are clearly supportive, as is the North West development agency, and in appropriate cases Liverpool Vision is giving its backing; but I would feel far more confident if we had a directly elected regional assembly that demonstrated transparency in decision making and followed up these vital matters, recognising the importance of enterprise and the knowledge economy in the north-west and elsewhere. I support what was said about this by my hon. Friend the Member for Birmingham, Northfield (Richard Burden).

I urge the Government to engage in joined-up thinking in this vital effort. I urge them to continue to support enterprise and the knowledge economy in the regions, and to remember that enterprise, expertise and excellence are not confined to the south-east. Indeed, developing the regions is part of developing the excellence of the United Kingdom.

9.26 pm

Mrs. Annette L. Brooke (Mid-Dorset and North Poole)

I want to talk about funding for my local police authority in Dorset. I trust that the buoyant economy described by the Chancellor will provide a real opportunity to address the inequities in funds for different authorities.

This year's Queen's Speech contained even more proposals for law and order legislation. I believe that since 1997 there have been 20 such Bills, and we have criminal justice and antisocial behaviour Bills ahead of us. Some proposals are welcome and others less so, but the Government clearly recognise the concern and, indeed, fear that arise from a perceived or actual increase in crime. That is undoubtedly uppermost in the minds of many, including my constituents.

Violent crime has risen in Dorset, although Dorset is one of the safest places in the country. However, much of the existing and proposed legislation will do no more than move the deckchairs on the Titanic unless police authorities receive adequate funds. The Government have, at long last, increased police numbers, and my police authority is on target to achieve a record number of 1,410 officers by March 2003. Only last Friday, however, along with other Dorset Members, I was invited to hear powerful representations on future funding for our councils, police and fire authorities. We were told that the Dorset police authority needed £6 million just to stand still.

All our police authorities are experiencing pressures. There is, for instance, the issue of police pensions. Others have mentioned the general question of pensions today. It is vital for our public services—our fire and police services—that the Government help. It is predicted that pensions in Dorset will represent 25 per cent. of the budget by 2005–06.

My hon. Friend the Member for Truro and St. Austell (Matthew Taylor) spoke of micro-management. A further pressure arising from police reform relates to the expected national policing plan. Targets will be set, and it seems that individual forces will have to prove that they can use extra Government money to produce better results. It is a familiar story in every public service: more demand, more red tape, and, in this instance, the question, "Will officers be kept off the beat rather than, as we want, on the beat?"

There are further pressures, caused by public expectation, internet crime and so much more. What I want to know is whether Dorset's police will receive the extra money they need. Consultation is in progress on five options for funding. My police authority fears—let us set aside the "floors and ceilings" proposal for the moment—that 300 officers may be lost. It is an enormous problem, which applies throughout the south-west.

Either council tax will go up massively, or there will be massive cuts in police numbers. We have heard nothing about possible reforms in the way in which money is raised locally.

Successive Governments have reduced and changed Government funding of our local services, putting pressure on the council tax—an inequitable tax that needs to be reformed in the general round of the economy. We need a more equitable and fairer system of local taxation if the trend of pushing more and more on local councils and local bodies is to continue.

I want to refer briefly to the fire service, which has been mentioned by many Members. People want a quick and fair settlement, with modernisation taken on board, but the important point is that the Chancellor finds the funding from the Exchequer.

I shall conclude, as I am conscious of the time. The issue of policing, which is vital to my constituents, links into the economy, particularly the local economy. Unless we get our policing right, all our businesses and the quality of life of all our residents will be affected. It is essential that the Chancellor address it in the round.

9.31 pm

Mr. Tim Yeo (South Suffolk)

I congratulate the hon. Member for Mid-Dorset and North Poole (Mrs. Brooke) on making a speech that might be more appropriate to Wednesday's debate. She stuck honourably to the time available and I am grateful to her for that, as is, I am sure, the Secretary of State for Trade and Industry.

I hope that the Chancellor will return before I sit down, so I shall save my remarks on his speech for a moment or two. I pass straight to the speech of my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), his immediate predecessor as Chancellor, who gave a much more realistic and, indeed, sober analysis of the prospects facing the British economy than did the Chancellor. My right hon. and learned Friend included a timely warning about the unsustainable nature of a number of current trends, for example in household debt, the savings ratio, business investment and several other areas.

I would like to find something nice to say about the Liberal spokesman, the hon. Member for Truro and St. Austell (Matthew Taylor), but the kindest thing to say is that, on the evidence of his remarks, the Liberal Democrats remain firmly anchored in cloud cuckoo land.

My hon. Friend the Member for Buckingham (Mr. Bercow) gave one of the thoughtful speeches for which he is becoming renowned, although I am grateful for the fact that he has no opportunity to cast his vote at the end of the debate as I cannot be held responsible for failing from the Front Bench to persuade him to support us. He spoke eloquently on the need for flexibility for employees as well as for employers and on the need to maximise job opportunities for women. I say quite genuinely that I would welcome his advice on how regulations might be revised with those concerns and a number of his others in mind. I hope he discusses that with me in due course. He is engagingly frank about the direction and extent of his political journey; my only hope is that it does not take him too far.

My hon. Friend the Member for North-East Bedfordshire (Alistair Burt), whose remarks were reported to me, made a strong speech that rightly emphasised, among other things, the disastrous consequences of the agency temps directive not only for the engineering and aerospace industries, but for many others. Other Members referred to that most important measure, the key point of which is that it bears particularly onerously on this country. It is a European Union measure, but, because of our employment patterns, Britain will be hit harder than our main competitor countries

The hon. Member for Dumbarton (Mr. McFall), the Chairman of the Treasury Committee, rightly condemned the continuing scandal of the common agricultural policy. I can only say that it is a pity that France and Germany have so little respect for the Government's views that they recently stitched up a deal to preserve the CAP for many more years to come, without any reference to British Ministers.

The hon. Member for Gordon (Malcolm Bruce) gave a timely warning on the impact of Labour taxes on North sea oil and gas. I share those concerns. My hon. Friends the Members for Tiverton and Honiton (Mrs. Browning) and for Epsom and Ewell (Chris Grayling) made powerful pleas on behalf of small and medium-sized enterprises. I endorse all that they said about those vital contributors to the prosperity of the British economy. Few groups suffer from the burden of over-taxation and regulation as acutely as small and medium-sized enterprises.

The hon. Member for Birmingham, Northfield (Richard Burden) expressed the hope that the forthcoming regional assemblies may help the economy of the west midlands, among other places. I am glad to have a chance to express my opposition to the establishment of regional assemblies. Another tier of government will do nothing to improve the competitiveness of British business, just as it will do nothing to put a single policeman on the streets, a single nurse on the wards or a single teacher in the schools. There will merely be more politicians and bureaucrats, and I have never found anyone in my constituency or elsewhere who thinks that an increase in those two categories of people will do any good.

My hon. Friend the Member for Huntingdon (Mr. Djanogly) rightly described the damage to our competitiveness inflicted by more regulation and less flexible labour markets. I shall save up what I intended to say about the Chancellor in the vain hope that he will return before a quarter to 10.

The key question that we should address is what the Queen's Speech means for business and for enterprise. What is there in the Queen's Speech to arrest the deterioration in Britain's competitive position, to which my right hon. and learned Friend the Member for Folkestone and Hythe (Mr. Howard) referred in his powerful response to the Chancellor of the Exchequer? What is there to speed up productivity growth, which has halved in the five and a half years of Labour Government since 1997? What is there to halt the decline in business investment? The answer is not very much.

We know what is not in the Queen's Speech. There was no announcement of higher taxes; indeed, one was not needed, because the Chancellor already announced higher taxes for 2003 in his 2002 Budget. The increases in national insurance contributions hit both employees and employers with an extra £8 billion of taxation. The Engineering Employers Federation says that those increases will mean that more firms will send jobs abroad. More than half the companies surveyed by the EEF said that the national insurance contribution rises would reduce employment levels. I hope that when the Secretary of State for Trade and Industry concludes the debate she will tell us whether she spoke up for British business when she heard that the Chancellor was to impose those increases. Perhaps she was able to persuade the Chancellor to curb the amount by which he originally wanted to raise national insurance contributions. Possibly she heard about them so late in the day that it was too late to have any input. Like my right hon. and learned Friend, I fear that the third option is the most likely.

Tax increases do not have to be announced in the Queen's Speech, because, sadly, under the Labour Government, businesses have had to get used to having tax increases sprung on them year after year. The pensions tax takes £400 a year from every contributing member of a pension scheme. The climate change levy, which has nothing to do with climate change, is a burden on many businesses. A Queen's Speech that contained a proposal to abolish the climate change levy and replace it with an emissions trading system would have received a warm welcome from industry and from Conservative Members. The petroleum tax, the aggregates tax and many more taxes are burdens placed on business by the Government. The Confederation of British Industry estimates that Labour has added £47 billion to industry's tax bill. That burden has been referred to and needs to be stressed. Few people can be optimistic that that figure will fall in the near future.

Something else that was not mentioned in the Queen's Speech was the thousands of new regulations that the Government will introduce during this Session of Parliament. The Institute of Directors estimates that those regulations will cost business £6 billion a year. Ministers talk the language of deregulation, but the experience of millions of business people, small and large, up and down the country is different. More than nine out of 10 businesses surveyed by the Institute of Directors believe that the burden of red tape relating to employment law is growing. In view of that, is it any surprise that the number of jobs in the private sector has now started to fall, as my right hon. and learned Friend the Member for Rushcliffe said? Many of us fear that although unemployment may remain low for some time to come, we have a situation where the loss of jobs in the private sector is merely being masked by an increase in jobs in the public sector, another of the unsustainable trends that the economy is now facing.

Lord Macdonald has argued that not all the regulations are aimed at business. He cited orders dealing with road closures as an example in an article to which my right hon. and learned Friend the shadow Chancellor referred. Only someone who spends his days being whisked around in a chauffeur-driven limousine could make such an absurd claim. The traffic chaos caused by road closures, however necessary they may be, inflicts a huge extra cost on business in lost employee time and late deliveries. The British Chambers of Commerce has estimated that road congestion now costs business £19 billion a year. There is nothing in the Queen's Speech that addresses that problem, either.

There is no Bill to stop the Mayor of London bringing the traffic in our capital to a total standstill. There is nothing to prevent London's decline from a great capital city to one whose transport system would be an embarrassment to a developing country. The misery that Labour's transport disaster imposes on private citizens and business alike, the damage it has done to our tourist industry, the erosion of Britain's appeal as a location for international business; not one of those problems is addressed in the Queen's Speech.

Equally serious is the omission of any reference to another crucial element in our national infrastructure, broadband. Many parts of Britain—sadly, they include much of my own constituency and many other rural areas, as the hon. Member for Gordon said—cannot access broadband. They see advertisements for broadband and know that it will not reach them in the foreseeable future. Those parts will be at as much of a disadvantage as the areas with no proper road connections. The Government set an ambitious target for broadband in Britain but we have been lagging behind other G7 countries in terms of broadband subscribers. On this issue, as on so many others, Labour Ministers complacently seem to think that rural communities can be ignored.

Energy policy is another concern. In addition to the White Paper, which is late, we are to have a liabilities management agency Bill that is actually only a draft. The Government cannot postpone indefinitely decisions about nuclear power. The deadline for sorting out the future of British Energy now looms very close. The Secretary of State committed £650 million of taxpayers' money without having submitted herself to questions in the House since making the decision; questions such as when Ministers first heard about of the extent of British Energy's problems and whether the Treasury overruled the Department of Trade and Industry over the renegotiation of British Energy's contracts with BNFL. If she cannot shed light on those questions this evening, will, she at least confirm that an oral statement will be made to Parliament about the British Energy bail-out and the £650 million loan before the final date? Since Parliament is not sitting on 29 November, that means we need a statement no later than 28 November.

Another subject on which the Department has been conspicuously silent is rural post offices. Five weeks ago, when confirming the closure of many urban post offices, the Department was busy trailing news of a £450 million plan to help rural post offices, since when there has been total silence. Surely we are due at least a re-launch of the policy. Sub-post offices in my constituency and in other rural constituencies look forward to learning more details of what the Government have trailed in the press.[Interruption.] I am delighted that the Chancellor has returned just before I am to sit down.

The Chancellor opened the debate in characteristically cracking form—I have long been a connoisseur of his speeches. We all recognise that he is formidable debater, with a style that reminds me somewhat of my noble Friend Lord Heseltine, who had the same breezy disregard for facts that did not suit his argument and the same confident trumpeting of successes regardless of whether the achievements were his responsibility or someone else's.

The Chancellor shares another characteristic with Lord Heseltine. They both cherished ambitions to lead their parties and both believed that they could do the job better than the Prime Ministers whom they served. Indeed, the Chancellor's speech sounded to me suspiciously like a leadership bid, with so many successes being trumpeted. I have to say that many of my right hon. and hon. Friends wish him well in his leadership ambitions. But I wonder whether he has started to believe that the connection between hubris and nemesis has been permanently suspended.

The clear message from the debate is that the Government's mood about our economic and business prospects remains one not of optimism but of complacency, not of realism but of self-congratulation, while the people who have first-hand knowledge of what is happening at the sharp end know that business of all kinds is facing a tougher and tougher climate where new taxes and new regulations are increasingly undermining Britain's competitive position.

9.45 pm

The Secretary of State for Trade and Industry (Ms Patricia Hewitt)

This has been a lively, instructive and often thoroughly enjoyable and entertaining debate, especially for those of us on the Labour Benches watching the debate on the Conservative Benches—in particular the exchanges between Mr. Nice on the Conservative Back Bench and Mr. Nasty on the Conservative Front Bench

Several hon. Members referred to the position of manufacturing. My hon. Friends the Members for Ochil (Mr. O'Neill), for Leicester, East (Keith Vaz), for Birmingham, Northfield (Richard Burden), for Coventry, South (Mr. Cunningham) and for Bexleyheath and Crayford (Mr. Beard) all referred, rightly, to the importance of our manufacturing sector to the future of our economy. We all know—several hon. Members have referred to it—how tough it is for manufacturing firms and manufacturing workers when the markets in the rest of the European Union, in the United States and in south Asia have all been so hard hit.

As my right hon. Friend the Chancellor said today and on many other occasions, despite the decisions that we made five years ago and the enormous strength and stability that those decisions have brought to the British economy, it is impossible to insulate every one of our manufacturing firms and exporters from the difficulties and downturn in the rest of the world economy. However, as we know, not only from every manufacturer that we talk to but from just about every business leader, what they welcome and need most of all is precisely that climate of economic stability, the lowest interest rates, the lowest inflation, the lowest unemployment and therefore the lowest bills for unemployment for more than 30 years.

Mr. Ian Davidson (Glasgow, Pollok)

Does the Secretary of State recognise that French unemployment has risen every month for the past 17 months and does she accept that that is a clear indication that the euro is not working?

Ms Hewitt

My hon. Friend makes an important point about the level of unemployment in France. In many other continental countries, unemployment is far higher than our own. I would not myself attribute that to the effect of the single currency, which has enormous benefits in terms of transparency and the reduction in exchange rate and transaction costs that its gives, particularly to manufacturers. However, those problems of high and stubborn unemployment within the eurozone are one of the reasons why this Government have been the leading proponent of economic reform in the European Union and we will continue to be so.

Alistair Burt

No Conservative Member denied the problems and issues affecting manufacturing industry in relation to the global climate, but our point was that manufacturing had raised several specific issues that had caused it problems and had been laid at the Government's door, from national insurance to the climate change levy. The Government cannot blame world economic conditions for that. Why do not the Government take notice of what manufacturing is saying and change some of the things that manufacturing wants them to change?

Ms Hewitt

I do not know whether that was a bid to be the Mr. Very Nice of the Conservative party, but let me stress that under the climate change levy, which is precisely designed to increase renewable energy, any manufacturer who enters into an agreement for pollution reductions gets an 80 per cent. discount. For any manufacturer or other company that is contracting to buy clean electricity there is no impact from the climate change levy.

Of course, as I have said, what manufacturers need is the climate of economic stability that we have created. However, on top of that, and in response to requests from manufacturers, we have put in place the first Government manufacturing strategy that the United Kingdom has had for 30 years. In pursuit of that, we are opening in every region centres for manufacturing excellence that are directly helping manufacturers to be more competitive in these very difficult world conditions.

My hon. Friend the Member for Liverpool, Riverside (Mrs. Ellman) referred specifically to the importance of science and innovation. It is indeed the investment in our world-class science base, and the commercialisation arising from it, that will form the foundation for prosperity in the future. I particularly welcome, as I know she does, the very successful efforts—led by the North West Development Agency—of the north-west science partnership.

My hon. Friendthe Member for Ochil, the hon. Member for Gordon (Malcolm Bruce) and others have referred to the extremely important issues that we face on the energy question. I readily confirm that, with your permission, Mr. Speaker, I will make a statement to the House of Commons before the loan facility that we put in place for British Energy expires at the end of next week. As hon. Members know—I have said this on many previous occasions—the only reason why we extended that financial assistance to British Energy was the overriding priority, and our responsibility in government, of ensuring security of supply and the safety of nuclear generating plants. I shall have more to say on that subject in the statement, just as I will have far more to say—especially in the energy White Paper, which we will publish in the new year—on the important issues raised concerning the operation of the energy market.

The right hon. and learned Member for Folkestone and Hythe (Mr. Howard) and the hon. Members for Tiverton and Honiton (Mrs. Browning), for Huntingdon (Mr. Djanogly), for North-East Bedfordshire (Alistair Burt), and for South Suffolk (Mr. Yeo) raised the question of regulation. The shadow Chancellor was challenged to name three regulations—just three out of the thousands that he is supposedly complaining about—that he would scrap. He had some difficulty, but he finally came up with just one candidate for repeal out of all the thousands that led them to make accusations against us statutory instrument No. 440. Well, he clearly has not read it. I have had the opportunity to do so, and I shall give him a copy. What he failed to realise is that it is a deregulatory measure. In schedule 2(a), at the heart of this statutory instrument, are the exemptions from requirement to give building notice or to deposit full plans. It is a deregulatory measure—one of several that we have brought forward in government.

It is worth reflecting on this Government's record on regulation. In 1996—

Mrs. Browning

A document published in February, entitled "Realising Europe's Potential: Economic Reform in Europe", lists the next steps for such reform, the second of which is lighter and more targeted regulation Can the Secretary of State give us some examples of such regulation?

Ms Hewitt

I have just mentioned the excellent and now very well known statutory instrument No. 440, but I could also mention my right hon. Friend the Chancellor's excellent initiatives on VAT. A radically simplified VAT scheme has cut red tape for 500,000 small businesses, and saved a typical small business up to £1,000 a year. I could also mention that, in 1996, under the Government of which the right hon. and learned Member for Folkestone and Hythe was a member, 230 statutory instruments imposed a cost on business. That has steadily fallen: in 2001, 93 statutory instruments imposed a cost on business.

If the shadow Chancellor would bother to look at all the statutory instruments to which he is so fond of referring, he would realise that a large proportion of them derive directly from the foot and mouth crisis, and only 93 last year imposed costs on business. We have halved the proportion of regulation that imposes any costs on business

Chris Grayling

As the Secretary of State claims to be in deregulatory mode, will she give a clear undertaking that the agency workers directive will not become law in this country?

Ms Hewitt

We led the way in persuading European Union colleagues to sign up to the better regulation action plan. We are busy negotiating with our EU partners to ensure that they understand the completely different context for agency temporary workers in the United Kingdom, where they are extensively used, to the great benefit of both the workers and the businesses that use them.

Mr. Howard

Will the Secretary of State confirm that if the Government had not signed up to the social chapter, they could have blocked the agency workers directive, whereas now the matter will be decided by majority voting so they cannot block it even if they want to?

Ms Hewitt

The shadow Chancellor did not believe in the minimum wage when we introduced it and refused to say today whether he would be in favour of regular updating. Let me be clear: we are in favour of the social chapter. If he and his party want to continue to be against it, they can make that argument with the British people—but I do not think that the hon. Member for Buckingham (Mr. Bercow) will support him in that.

One of my predecessors in this job, a distinguished former Conservative Front Bencher, Lord Heseltine, recently said that one of the reasons why the United Kingdom is one of the best places in the world to do business is the lack of a regulatory climate here. Of course, that judgment is supported by the OECD, The Economist intelligence unit and all the benchmarking studies.

Both the shadowChancellor and the right hon. and learned Member for Rushcliffe (Mr. Clarke) made great play of taxation, so I want to take this opportunity to put on the table a few facts on the subject. The OECD shows that the United Kingdom remains a relatively lightly taxed economy, with one of the lowest total tax burdens in the European Union, well below the EU average. Conservative Members are very fond of citing the tax burden on business, but the OECD shows that in 2000 it was just over 7 per cent. in Britain, lower than in France, Italy or Germany—lower, indeed, than in 12 European Union countries.

Mr. Kenneth Clarke

I wondered where on earth those figures were coming from, and now the Secretary of State reveals that they are for 2000. Will she acknowledge that since that time Germany has overtaken us in having a lower tax base—or rather the reverse: Britain has overtaken Germany in having a higher one? The Chancellor has just told us that the Germans are about to put up taxation again, because they, too, have made reckless spending commitments over the past two years. We are now engaging in a race to put up our taxation into the higher levels of the European Union. Germany has forged ahead of us in getting taxes down since the time to which those figures refer

Ms Hewitt

The right hon. and learned Gentleman is, perhaps uncharacteristically, confused. The German Government announced just today that they are to put up taxes, and the only reason why receipts from business taxation have fallen in Germany is that corporate profitability is on the floor and the German economy is so weak.

The economy is safe in our hands. Under my right hon. Friend the Chancellor, and with the support at least of the hon. Member for Buckingham, whose journey has indeed been an interesting one-so interesting that we look forward to welcoming him to these Benches shortly—we will continue to create the best environment for business in the world.

Debate adjourned—[Derek Twigg]

Debate to be resumed tomorrow.