HL Deb 24 February 1994 vol 552 cc771-93

5.54 p.m.

The Parliamentary Under-Secretary of State, Department of Employment (Lord Henley) rose to move, That this House approves, for the purposes of Section 5 of the European Communities (Amendment) Act 1993, Her Majesty's Government's assessment as set out in Chapters 2,4 and 5 of the Financial Statement and Budget Report 1994–95.

The noble Lord said: My Lords, as the House will recall, Section 5 was introduced in another place as an amendment at Report stage of the Bill. Although the Government did not believe that the amendment was necessary— we had no intention, as we said at the time, of being secretive a pout the basis of the information we are required to submit to the European Commission on multilateral surveillance or excessive deficits— we were prepared to go along with the will of Parliament. And in this House my noble and learned friend the Lord Advocate made it clear that the Government interpreted the amendment as requiring a debate before information was submitted. Such a debate will need to take place each year, and as I shall make clear shortly, soon after the Budget. This is the first of these annual debates.

Section 5 is about the provision of information to the Commission on economic matters. The context is as follows. Under Stage 2 of EMU, economic and monetary policy remains the responsibility of member states. But there has been a role for the Community in economic matters from the outset. The Government believe that greater convergence between the economies of member states is both necessary and desirable, and see the Community's role as an important means of bringing that about.

The House therefore may find it helpful if I say something about the Community procedures themselves. First, multilateral surveillance. Although the treaty provisions are new, the idea, and indeed the basic procedures, have a long history. The concept was inherent in the Community from the outset. Article 2 of the Treaty of Rome gave the Community the task of, approximating the economic policies of member states to promote throughout the. Community a harmonious development of economic activities". A Council decision of 1974 provided for mechanisms to strengthen economic convergence, recognisably the ancestors of present procedures. These included the requirement that, in the light of annual reports, the Council should, adopt guidelines on economic policy which the community and each member state are to follow in order to achieve harmonious economic development". The Single European Act of 1987 extended the treaty base by adding a new Article 102a dealing with co-operation in economic and monetary policy, in order to ensure the convergence of economic and monetary policies which is necessary for the further development of the Community". This was followed by a further Council decision in 1990 which replaced the 1974 decision and set up multilateral surveillance arrangements very similar to those which are now in place post-Maastricht.

On multilateral surveillance, the Maastricht Treaty brought little practical change to the existing arrangements. It does lay down a new requirement on member states to, forward information to the Commission about important measures taken by them in the field of their economic policy". But in practice the Government have always sought to help the Commission when it has asked for advice, and it has received copies of the FSBR in the past. 'The treaty also provides for the Community to adopt "broad economic guidelines" which in effect act as a framework within which multilateral surveillance takes place. The first guidelines were adopted by the Council in December last year and a copy has been placed in the Library.

On excessive deficits, the treaty provides that during Stage 2 of EMU member states are to, endeavour to avoid excessive deficits". This is an objective that the Government would fully support. Sound public finances are at the heart of this Government's economic policy. My right honourable friend the Chancellor has taken the view that the size of the Government's borrowing requirement had become the biggest threat to economic recovery. His November Budget tackled that threat. Because of the Government's actions, the fiscal position should move into broad balance over the medium term. FSBR projections show the government deficit falling by 1996–97 below the 3 per cent. of GDP reference level which is set out in the treaty; and at no time does the government debt exceed the 60 per cent. of GDP reference level set out in the treaty. I should remind the House that at present only Luxembourg is within both reference values.

So much for the procedural background. But the real concern of this debate is with the substance of the assessment of the medium term economic and budgetary position which Section 5 requires. So I now turn to the economic issues. The Government's best view of short-term prospects for the economy was set out in the Budget Statement. My right honourable friend the Chancellor of the Exchequer is confident that we remain firmly on course to achieve those expectations. Growth is expected to broaden and strengthen this year, with output rising 21/2 per cent. Underlying inflation is expected to remain within the 1 per cent. to 4 per cent. target range.

The figures published in the past two weeks show a combination of economic recovery continuing and inflation remaining low. Over the past year, industrial production has risen 31/2 per cent., sales in the high street have risen nearly 4 per cent. and the unemployment figures have fallen by over 200,000. At the same time, underlying inflation has been at its lowest for more than 25 years.

We cannot promise that every figure or that the news every month will be uniformly good. That is not the way with any economy. But with low inflation, low interest rates, flexible markets and competitive business, we are in no doubt that we are well placed to turn recovery into lasting growth. The clear message from business surveys and forecasters is that they expect recovery to continue.

The FSBR which the Chancellor presented last November has been thoroughly debated and approved in another place. Since today's Motion asks us to approve the Government's assessment as set out in Sections 2,4 and 5 of that report, we are covering well-trodden ground. But I think it is worth reminding the House of the key elements of the assessment.

My right honourable friend the Chancellor made his policy objectives clear when he presented the Budget. These were: first, to sustain the economic recovery now under way and to create the right climate for lasting growth, more jobs and rising living standards; and, secondly, to take no risks with inflation. To achieve those objectives the task was to set the Government's finances on a sustainable path for the rest of the decade.

It is because one of the major risks to the recovery in Britain is the public finances that the Government decided their immediate and overriding need was to place the public finances on a sound footing. Business can plan ahead with confidence only if it knows that government borrowing is under control. The FSBR sets out how that is to be achieved.

Economic growth is generated by businesses and employees, not by governments. But governments have to ensure that markets work properly and they need to establish a macro economic framework which offers the stability that businesses require in planning for the future. Domestic policies which keep inflation down and bring about sound public finances create the right conditions for growth. Under the Government's medium-term financial strategy, monetary and fiscal policy are thus directed at two key objectives: permanently low inflation and sound public finances.

As the House will be aware, the Government have a target of between 1 per cent. and 4 per cent. for the underlying rate of inflation. The aim is to bring it down to the lower half of that range by the end of the present Parliament. Currently, underlying inflation, at 2.8 per cent., is well within that range.

Chapter 2 of the FSBR sets out the Government's projections over the medium term. It is explained there that spare capacity is expected to continue to put downward pressure on inflation over the medium term, with underlying inflation projected to fall to the lower half of the target range by 1996–97.

Those projections also show the economy continuing to gain momentum over the next few years. Growth rises year by year and reaches a rate of increase of 3 per cent. by 1996–97, which is projected to be sustained for the rest of the medium-term financial strategy period. The medium-term outlook is thus one of steady, sustainable growth and low inflation.

But that positive and enduring outcome could not have been projected without the tough measures that the Chancellor took in his Budget. A public sector borrowing requirement of £ 50 billion, as is expected for this financial year, even if largely a legacy of the recent recession, could not have been left to sort itself out. Its sheer size was a threat to economic recovery and the November Budget was devoted to tackling that threat.

That Budget was the first in Britain for many years to set out the Government's tax and spending plans at the same time. The Government took the opportunity to act on both sides of the account, cutting spending and raising taxes. That is all spelt out in Chapters 4 and 5 of the FSBR.

As a result of those firm and sensible measures it is now expected that the FSBR will fall to £ 38 billion in the coming financial year. Government borrowing should be eliminated altogether by the end of the decade.

The medium-term assessment, as set out in the FSBR, is a prudent and realistic one. It sets out clear measures by which government borrowing is to be reduced, leading towards a balanced budget. It confirms that the goal of monetary policy is low inflation, on which we have already made very substantial progress. Above all, it offers a credible path by which the economy can return to sustained non-inflationary growth and on which higher employment and living standards so critically depend.

It is on the basis of that medium-term assessment that, subject to the approval of the Motion before the House, the Government will submit to the Commission the information required under the treaty. But while the treaty requirement to submit information to the Commission on multilateral surveillance is not precise, the requirements on excessive deficits under secondary legislation are. Some noble Lords will have noticed that we have given some additional information on the government deficit and on the level of government debt in order to provide figures in the FSBR on something very close to treaty definitions. I should tell the House that in addition the Central Statistical Office published on 18th February historical data for the United Kingdom for deficits and debt levels based on treaty definitions. We will, of course, take that on board in the numbers we provide to the Commission. I beg to move.

Moved, That this House approves, for the purposes of Section 5 of the European Communities (Amendment) Act 1993, Her Majesty's Government's assessment as set out in Chapters 2,4 and 5 of the Financial Statement and Budget Report 1994–95— (Lord Henley.)

6.6 p.m.

Lord Eatwell

My Lords, Clause 5 of the European Communities (Amendment) Act requires that: Her Majesty's Government shall report to Parliament for its approval an assessment of the medium-term economic and budgetary position in relation to public investment expenditure and to the social, economic and environmental goals set out in Article 2 of the treaty. This report does not fulfil that requirement. Any references in the report to the environment and social protection are cursory, and the Article 2 goal of a high level of employment is not mentioned at all.

In putting forward chapters of the Red Book as a substitute for a proper report the Government are displaying a contempt for Parliament. Perhaps, given that this is the first time such a report has been required, the Government may be excused some improvisation. But will the Minister give an assurance that this ersatz report will not create a precedent and that in future the Government will produce a proper report as required by the Act?

Even this pseudo-report is a revealing document. It reveals the Government's economic objectives, and it reveals that they have no idea how to achieve them.

Let us take the Government's economic objectives first. The noble Lord, Lord Henley, quoted the objectives as set out in the report. On page 15 we are told: the Government … directs monetary and fiscal policy towards two key objectives: low inflation on a permanent basis and sound public finances". What a contrast with the objectives set out by the Government led by an earlier Conservative Prime Minister. That Government's commitment was uncompromising. It read: The Government accept as one of their primary aims and responsibilities the maintenance of a high and stable level of employment". That was the primary aim and objective of Sir Winston Churchill's Government, and of every government, Conservative and Labour, from the end of the Second World War until 1979. It is not, clearly, the objective of Mr. Major's Government.

Instead, as Mr. Lamont told us when he was Chancellor of the Exchequer, for Mr. Major's Government, unemployment: is a price well worth paying". But who is paying the price? Or, as the Prime Minister himself described his economic policy: If it isn't hurting, it isn't working". But who is getting hurt?

Today, 2.8 million of our fellow citizens are claiming unemployment benefit. At least a million more are unemployed, seeking work but ineligible for benefit. They are paying the price. They are getting hurt. Yet still the Government do not, and will not, accept as one of their primary aims and responsibilities the attainment of a high and stable level of employment. They have not even mentioned that objective in this report, as they were required to do by the Act.

Instead, unemployment today is just another tool of economic policy. In this report the millions of our fellow citizens on the dole are defined by means of the comfortable euphemism used by the noble Lord, Lord Henley, "spare capacity". We are told that: Spare capacity will continue to put downward pressure on inflation over the medium term". Translated into ordinary language, that means that the Government confidently expect the high level of unemployment to persist, see unemployment as their main weapon against inflation, and have no intention of doing anything about it. They can see the good side of unemployment— spare capacity keeps the workers in their place and, as an undoubted bonus, it solves the servant problem.

Of course unemployment is not costless. The current level of unemployment costs the Exchequer around £ 28 billion a year in lost revenues and higher benefit payments. That is a heavy burden. But the report makes clear that this burden will not fall on the richest members of our society.

This Government have an instinctive hostility to fairness. That is why the costs of unemployment are pushing up the tax bills of the middle classes to record heights, and driving down the real living siandards of the poor to levels below those of 1979.

And on top of the record income taxes that the report outlines are to be piled record levels of VAT— VAT on household fuel, higher excise duties, a new tax on home insurance, a new tax on car insurance, a new tax on air travel, all adding up to a higher tax burden than ever before.

But that burden will not be borne by the better off. The top I per cent. of income earners, those earning an average of £ 120,000 a year, will pay only 4 per cent. of the increased taxation having enjoyed 30 per cent. of all the tax cuts of which the Government used to be so proud.

And what do the ordinary families of this country receive for the record taxes they are paying? Do they have better hospitals, more generous pensions, better schooling, a railway system that would be the envy of the French? No, of course they do not. They do not even have the extra motorway toilets that the Prime Minister promised at the 1992 Conservative Party Conference.

The paradox of Conservative taxation is that the more you pay the less you get. While taxes go higher and higher, services, as the report makes clear, go lower and lower. That is a situation with which the Government appear eminently content. The speech which we have heard from the noble Lord, Lord Henley, was indeed a model of contentment. But is his contentment well founded? We know that the Government do not care about unemployment. But is the Government's economic policy likely to achieve the goals they apparently care about? Will it achieve "low inflation on a permanent basis and sound public finances"?

In the report the Government's interpretation of what exactly "sound public finances" might actually be is, to say the least, a little confused.

Paragraph 2.08 states: The objective of the Government's fiscal policy is to bring the PSBR back toward balance over the medium term That seems clear enough. But then the very same sentence continues: and in particular to ensure that when the economy is on trend the public sector borrows no more than is required to finance its net capital spending", which is not the same thing at all. Either the objective is for the PSBR to be zero, to balance, or the objective is for the PSBR to be equal to net capital spending. You can have one, or the other, but not both. Not, that is, unless the Government plan to cut net public spending to zero— which perhaps even this Government do not plan to do. So which is it? I hope that the Minister will be able to tell us. The Government ought to sort out the confusion, and correct the report before it is forwarded to Brussels.

Leaving aside the fact that the Government's economic thinking is so confused that they do not know exactly what their objective is, will the swingeing increases in taxation which are planned actually reduce the massive public sector deficit which the Government's policies have produced? Here the report is helpful. It states: the pace at which the PSBR declines will also depend significantly on the growth of the economy over the medium term". That is quite right.

To make that point the report provides some charming optimistic scenarios of the relationship between the growth and the PSBR."Illustrative paths", they are called. They are not projections, as the noble Lord, Lord Henley, claimed in his remarks. In those illustrations, the PSBR is reduced to zero in four years, assuming that is that the economy grows at 3 per cent. year after year. Then there is also a "low growth" scenario in which the economy grows at 2.5 per cent. and the deficit falls to just 2 per cent. of GDP by 1998–99.

That is all well and good, except that those scenarios look decidedly out of place when compared with the average growth rate of the British economy actually attained under the Government, which is a little over 1.5 per cent. What is the point of illustrating the effect of sustained 3 per cent. growth when the Government have demonstrated beyond all reasonable doubt that they do not have the faintest idea of how to achieve such a growth rate?

It may be amusing for officials in the Treasury to generate scenarios which bear no relationship whatever to the likely economic performance of the British economy under current policies. But for this House to play a part in forwarding such a piece of elaborate fiction to the European Commission is little short of humiliating.

Can the noble Lord treat the issue with the seriousness that your Lordships' House deserves? When he sums up, will he tell us what the prospective deficit would be if the average growth rate to 1998–99 is the average growth rate achieved in the past 14 years; namely,1.5 per cent.?

We need to know that figure because there is nothing in the report to suggest that the future will be any different from the past. The economy may be recovering from recession, but recovering from 14 years of Tory economic policy is a little more difficult.

The report displays a depressing lack of concern for the fundamental economic problem of this country: the lack of investment. The lack of private investment in new capacity, which the President of the Board of Trade tells us results in British productivity being anything from 25 per cent. to 40 per cent. less than our major competitors, is not addressed.

The appalling backlog of public investment in infrastructure which is so vital for a competitive industry is to be made even worse, we are told, by cuts in capital spending in real terms of 25 per cent. below the level of 1990.

As for the low skills of our labour force that cripple our performance in markets at home and abroad, the report tells us that there will be a new apprenticeship initiative for 40,000 young people. However, it fails to mention that it was the abolition of training boards by the Government which cut the number of apprentices by 120,000. So it is plus 40,000, minus 120,000.

Yet everyone except this Government knows that without new investment in capacity, infrastructure and people,3 per cent. growth is certainly not attainable in the medium term. Everyone knows that without a commitment to investment, the current trends of declining exports and rising imports will engulf the balance of payments. Everyone knows that without high levels of new investment the low inflation which is the Holy Grail of the report will be attained only by persistent recession. Everyone knows that the scenarios of the report are a more imaginative fiction than the colourful writings of the noble Lord, Lord Archer of Weston-super-Mare, and somewhat less interesting.

Without sustained investment in productive capacity, millions of our fellow citizens face a lifetime of unemployment. The Government should make tackling unemployment their first and overriding objective. They should be rallying our European Union partners in a concerted campaign to bring down the appalling levels of unemployment throughout Europe— levels of unemployment which are threatening the very fabric of European society.

But instead, as this complacent and confused report makes abundantly clear, the Government are trapped by their own prejudices, unwilling to act and incapable of constructive thought. The sooner we get rid of them, the better for all concerned.

6.19 p.m.

Lord Cockfield

My Lords, we have listened to an interesting and highly political speech by the noble Lord, Lord Eatwell. However, it has only marginal reference to what is contained in Section 5 of the European Communities (Amendment) Act 1993. That section is very narrowly drawn. It merely requires a report on the Government's responsibilities or reaction under certain named articles in the Treaty of Rome. It does not require a wandering across the whole vast field of economic, monetary, social and every other form of policy. In fact, if the noble Lord cares to refer to the treaty— I am sure that he is familiar with it; he has it in his hand; it might be better if he opened it— he might find the articles that he quoted appear under economic policy. They do not appear under monetary policy or indeed under anything else.

However, having said that, I started from the point of view that three lines on the Order Paper was a somewhat scanty response to a statutory requirement on the Government to report to Parliament. Nevertheless, if we look at the actual provisions of the treaty, the provisions of the sections and the report as presented, the references to the appropriate chapters in the Financial Statement and Budget Report cover the ground. They cover the ground; they do not require anyone to indulge in the kind of political tub-thumping with which the noble Lord has been entertaining us.

I have two specific points I wish to make on the Motion. First, chapters 2,4 and 5 extend to 70 pages. Admittedly, it may be good discipline for people to have to wade through those 70 pages to find the points which are relevant to the report which has been submitted to the European Community. However, it would have been helpful, at least to those of us more interested in the facts than in the political rhetoric, if we had had a document of possibly two or three pages, similar to what is normally called an executive summary, which brought out the important points involved. That might have helped us to concentrate on the relevant parts of the Motion and the report.

The second point I wish to make is this. Despite the debate that occurred in another place and what was said when Section 5 was accepted in another place at Report stage, I do not think that this is the right place in which to have a wide-ranging debate on the budget, economic and monetary affairs. That view is shared by noble Lords in general, if one looks around and counts not only noble Lords present tonight, despite the rousing speech of the noble Lord, Lord Eatwell, but also the length of the speakers' list. Unfortunately, it has now lost its most prominent star because the noble Lord, Lord Jay, has removed his name from it. I am sorry about that, I was greatly looking forward to his contribution which might have been more constructive than that of the noble Lord, Lord Eatwell.

I and a number of noble Lords— among them the noble and learned Lord, Lord Simon of Glaisdale and the noble Lord, Lord Bruce of Donington— have protested on many an occasion at the reluctance of the Government to give us adequate opportunities to debate the Budget and Finance Bill. I still strongly hold that view. However, what we ought to have is a proper debate, not one brought in on a side wind, which is what the noble Lord, Lord Eatwell, is trying to do.

Having been put in the position by the wording of the Motion of having to read the Financial Statement and Budget Report, I wish to raise a further matter. The financial statement deals with our financial relationships with the European Community only in a very sketchy way. In a document extending to 143 pages, only about half a page in total covers our financial dealings with the European Community. Adding all the parts together, it comes to a grand total of about half a page. All we are given is a single simple figure showing the amount of our net contribution to the Community. What we need to know, even to start with, is what our gross contribution is; how much we get back by way of subsidies and grants; how much comes back in the British budget rebate and what the net contribution is. After all, in a large degree, the Community is acting as a cash circulating enterprise. It collects a lot of money from the taxpayer in this country and the other member states. That money. or most of it, is then given back by way of agricultural subsidies, regional grants, grants for the support of science, research and technology, grants in structural funds, grants towards road transport, and so on. If we are to understand those matters, it is relevant that we know not only what those grants are but who gets them.

I wish to illustrate the point I am making in this way. I start— not just because the noble Lord, Lord Bruce of Donington, is here— with the common agricultural policy. I take it because it is the only grant on which anything specific was said in the Financial Statement and Budget Report. In fact, it is generous. It devotes two very brief and bland paragraphs to the subject. Paragraph 5.39 says: Expenditure on CAP agricultural market support in the United Kingdom increases substantially largely due to the depreciation of sterling since Autumn 1992". At least someone has benefited from Mr. Norman Lamont's activities. The next paragraph is equally long—six lines. Paragraph 5.40 states: Against a background of higher farm incomes, support for domestic agriculture has been reduced". But no figures are given for what higher farm incomes amount to. Nothing is quantified about support. for domestic agriculture or by how much it has been reduced. According to the press, farm incomes have increased by 64 per cent. If that figure is true, Mr. Norman Lamont emerges as the patron saint of the farming sector in the British economy. He also emerges as one of the biggest spenders of all time. But we are given no figures to check that.

When we come to the statement on the amount by which support for domestic agriculture has been reduced, I have some problems. Ploughing through the great document, I find in Table 5. B.3 that expenditure by MAFF has increased from £ 2.198 billion last year to £ 3.050 billion this year. That seems to me to be a somewhat peculiar definition of how one reduces expenditure. That is the CAP. I simply say I should very much like further elucidation of such matters.

When we come to other departments, we are given no information at all. Therefore, I pick one subject at random. Central government are making grants of £ 29 billion to local government. But in addition to the grants from central government, there are substantial moneys going to local government from the European Community. We need to know what those grants are if we are to get a balanced view of the state of local authority finance.

I cite those two examples not in any sense to be critical but because I feel that it would greatly help discussion on matters affecting the European Community if the Government gave us the figures in an easily ascertainable form. I realise that it may well be said that the figures are available "somewhere"; but one has first to know where that "somewhere" is. It may need a great deal of research to get the figures out.

I suggest the following, not in any spirit of criticism but merely in order to bring the debate down to earth so that we know what is going on and can form proper judgments on matters. I suggest that it would be helpful if next year the Red Book contained a relatively brief chapter on the financial relationships between the European Community and the United Kingdom Government. If we had that, we would be able to get away from rhetoric and deal with some of these matters on the basis of hard ascertained fact.

6.30 p.m.

Lord Bruce of Donington

My Lords, the House is most grateful to the noble Lord, Lord Cockfield, for having brought this whole matter down to what I would term its more correct perspective. Having said that, I most humbly congratulate my Front Bench colleague on his very admirable demolition of the case put forward by the Government in their Budget Statement as summarised by him. It is very good indeed to be able to mark at this very critical time that there are, after all, some fundamental differences between my Front Bench and the Government opposite.

There is, of course, a lot of background to this matter. Noble Lords will have known that one point was avoided by both Front Benches; namely, the whole question of the United Kingdom balance of payments. I venture to suggest to both noble Lords that there is a very great cloud on the horizon at the present time, so far as the United Kingdom is concerned, in that there is a current deficit on visible trade of some £ 8 billion, of which £ 7 billion is with what is euphemistically called "the rest of the world", and no less than £ 1 billion is with Europe. However, that position may be altered somewhat because trade with Europe is subject at the present time to some degree of estimation, following the breakdown, or the deliberate abolition, of the various customs checks on which we have in the past relied to get overseas trading figures.

Any discussion of these economic matters, admirable though my noble friend's contribution was, which avoids the whole question of the looming balance of payments crisis is more or less meaningless. If the position continues in this way, there will be a withdrawal of capital from the United Kingdom— a further withdrawal outside that which British finance already sends abroad— which will mean a rise in interest rates to stem the flow. That will make our exports less competitive and will, of course, make our imports cheaper. And if there is any increase in imports at all—bearing in mind the considerable tax increases that will take place this year, next year, and the year after that— it will probably produce yet a further incursion into British manufacturing capacity.

The reason why both Front Benches have avoided the issue is clear. It is because both parties are already quite thoroughly enmeshed in the Treaty of Maastricht. And of course, in amplifying what noble Lords have said about Section 5 of the European Communities (Amendment) Act 1993, I venture to draw the attention of the House to the preceding Section 4, which tells us what it is all about: In implementing the provisions of Article 103(3) of the Treaty establishing the European Community, information shall be submitted to the Commission from the United Kingdom indicating performance on economic growth, industrial investment, employment and balance of trade, together with comparisons with those items of performance from other member States". Section 5, under which this debate has been initiated, is concerned with the submission to this Parliament of the Government's views of their economic progress prior to their making a report to the European Commission as required in Article 103 of the treaty, to which I should like to draw your Lordships' further attention. It indicates why both Front Benches have avoided any reference at all to the balance of payments situation.

Article 103(1), as noble Lords will recall, refers to Article 102a, which states: Member States shall conduct their economic policies with a view to contributing to the achievement of the objectives of the Community, as defined in Article 2, and in the context of the broad guidelines referred to in Article 103(2)". Article 103.2 states: The Council shall, acting by a qualified majority on a recommendation from the Commission, formulate a draft for the broad guidelines of the economic policies of the Member States and of the Community, and shall report its findings to the European Council". Paragraph 3, which specifically relates to Section 5 of the European Communities (Amendment) Act, states: In order to ensure closer co-ordination of economic policies and sustained convergence of the economic performances of the Member States, the Council shall, on the basis of reports submitted by the Commission, monitor economic developments in each of the Member States and in the Community as well as the consistency of economic policies with the broad guidelines referred to in paragraph 2, and regularly carry out an overall assessment". The paragraph continues with the words: For the purpose of this multilateral surveillance". The purpose, therefore, of the information that will be provided by the Government is that of "multilateral surveillance". In other words, what we are really doing—and indeed what we did by Maastricht, as we pointed out at the time— is surrendering control of our macro-economic policy, in effect, to the Commission, as the Council acts on the basis of proposals coming from the Commission.

Before we consider the implications of carrying on further with what has now become a ritual dance of this Parliament in regard to Europe, we ought to consider just who these people are to whom we are delegating this extraordinary task of making recommendations as to the macro-economic policy that the Community, including ourselves, should be required to undertake. They are not God. They are ordinary human individuals. How is it that there is this extraordinary degree of reverence towards a commission— the members of which are very largely unknown to the general public—comprising various directorates?

I have in my hands at the moment the Directory of the Commission of the European Communities. I have been searching through it to see just which of the commissioners will be involved in considering the reports that come from the United Kingdom and elsewhere (on whatever basis the reports come) in order that the Commission can ultimately be persuaded to adopt a view for communication to the Council as to what kind of economic policies we ought to be carrying out. There are two commissioners. There is Henning Christophersen, who is a member of the Commission and who is in charge of economic and financial affairs and monetary matters (in agreement with M. Delors). Then there is another gentleman involved, Mr. Peter Schmidhuber, who is in charge of budget, financial control, anti-fraud measures and cohesion fund co-ordination and management. These two gentlemen are, I would think, possessed of the most admirable qualifications— I do not query them in any way—and they are assisted in the process by Directorate-General II, which deals with surveillance of the Community economy. Here we have Mr. Ludwig Schubert; Mr. Fabio Colasanti; Mr. Johan Hodes; Mr. Alain Morisset; Mr. André Louis Dramais; Mr. Jean-Fran¢ois Pons; and Mr. Andre Louw. They are all very estimable gentlemen. These are the intellectual resources of the Commission upon which Her Majesty's Government and all the other governments will consider reports as to how all those countries should conduct their economic affairs.

In fact, we have abandoned any concept that we shall carry out policies in the United Kingdom which are adapted to suit our own particular needs—in collaboration, one would hope, with other countries. That is what we have done. What we are doing today is merely to take the initial steps in the ritual dance towards the determination of policies in Europe, to which we shall inevitably subscribe because the other place will barely debate them. This place, to its eternal credit, will at any rate debate them, but not with any particular enthusiasm.

I pass to other matters in the financial statement itself. The noble Lord, Lord Cockfield, was good enough to raise the whole issue of Britain's net contribution which appears in Chapter 5 of the Budget Report itself. One ought to say perhaps that Britain's net contribution in the years 1994, 1995, 1996 and 1997 are likely, on the figures given in the appendix, to amount to £ 8.9 billion. That is not bad going. That is a net contribution of taxpayers' money out of the consolidated fund and after taking into account any abatement under the negotiations concluded at Fontainebleau. On current levels, according to the explanatory memorandum issued by Her Majesty's Government, the benefit of rebate amounts to some £2 billion to £2.5 billion a year. Consequently, without the rebate the contribution out of our taxpayers' pockets every year is likely to be in the region of £4 billion to £5 billion. If noble Lords wish me to document that, I shall be happy to do so on the basis of the Government's own explanatory memorandum to their own instruments and regulations. Is that the state of affairs that we wish to continue?

But more than that—I do not know whether your Lordships are aware of it—there are already moves to eliminate the abatement. True enough, the Government will take it as a matter of high priority to resist any such pressures and will bring all possible pressures to bear at the heart of Europe in order to avoid such an event. However, I must inform the House that according to a statement issued only a fortnight ago by the German Social Democratic Party, it came out wholesale for the complete abolition of the abatement. That is part of a very substantial party in Europe.

In the course of a visit to the Budget Committee of the European Parliament, which I revisited on Monday and Tuesday of this week, the European Parliament is quite openly coming out in favour of the simplification of the budget arrangements for Europe, in the interests of fairness. Those are the realities.

So in approving the Budget Statement made today, as one way of expressing our position and without prejudice to the final report that will be made or submitted to the Commission under Section 4 of the Act, we can agree that this debate has served a useful purpose. However, I sincerely trust that it will dispel from anybody's mind the illusion that the Government have done anything other than abandon any kind of hope of control— even on the assumption that they have the policies— over the development of British economic policy.

Baroness Elles

My Lords, before the noble Lord sits down, I wonder whether he would be kind enough to confirm that, during his visit to the European Parliament in Brussels this week, the British Conservative Members on that committee strongly rejected the idea that there was any question of abandoning the British rebate. I should be most grateful if the noble Lord could confirm that.

Lord Bruce of Donington

Yes, my Lords, I am very happy to confirm that. The British Member to whom I spoke from the Conservative Party was, I believe, Mr. Cassidy. He confirmed that in fact he intended to oppose that. But I have to draw the attention of the House to a resolution passed by the European Parliament on 20th June 1992 which spoke in rather different terms. I can only hope that the ideas of Mr. Cassidy (and, I am bound to say, also Mr. John Tomlinson) ultimately prevail. Whether or not they will prevail, heaven only knows.

6.45 p.m.

Lord Thomson of Monifieth

My Lords, I thank the Minister for his useful explanation of the European Community procedures in this matter. In fact it is almost the only thing for which I want to thank him.

The Minister made a very important point in response to the noble Lord, Lord Bruce of Donington, namely, that the multi-racial surveillance which sends up the noble Lord's blood pressure considerably is not a product of the Maastricht Treaty. It has been inherent in the commitments that we have freely accepted in this country and the treaty obligations that we have accepted as members of the European Community over a very long time.

Having said that, in its brief way this is a very curious Motion that is before the House and, as a result, we have had rather a curious debate. The Motion asks us in one sense to approve the Government's Red Book, to which quite properly the noble Lord, Lord Eatwell, applied himself. On the whole the Minister also applied himself to seeking to defend the Government's Red Book and the Government's general Budget policy. We are being asked to approve the Government's assessment of their medium term strategy for communication to the Commission.

I agree very much with the noble Lord, Lord Cockfield, that this does not seem an appropriate method of fulfilling our obligations under the treaty as set out in Sections 4 and 5 of the Act referred to. We always listen with great interest to the noble Lord, Lord Cockfield. He explained that his speech was not delivered in any spirit of criticism. That simply encourages us to look forward to speeches in which he does speak in a spirit of criticism, such as we have enjoyed on some previous occasions. However, on the point that he made about the method chosen by the Government to make their communication to the Commission, the noble Lord was absolutely right.

The real purpose of the Motion, however drafted, is to deal primarily with the Government's obligations to the economic convergence provisions of the new European Union treaty. As the noble Lord, Lord Bruce, reminded us, the question of Britain's adhesion to that treaty is still a matter of considerable controversy. The question of our seeking to join in the processes of convergence leading to economic and monetary union in a single currency is a matter on which the noble Lord, Lord Bruce, and others, who have not spoken— I see that the noble Lord, Lord Pearson, is now in his place—have retained deep hostility.

For myself, the least controversial and most objective way in which I can comment on that aspect of the remarks made by the noble Lord, Lord Bruce, is that whenever one thinks of British membership of the ERM, or ultimately of participation in EMU and the single currency, convergence around the Maastricht criteria seems to me to remain important and indeed is the most sensible policy in its own right in order to promote a more stable growth path for the United Kingdom economy. Without dissenting at all from the trenchant criticisms of the noble Lord, Lord Eatwell, that general proposition is in fact right. We have a tremendous interest in terms of the British economy in forming the convergence criteria set down in the Maastricht Treaty.

But from these Benches we would want to go a good deal further. The timetable for economic and monetary union and a single relationship may now be in question as a result of the recession. But the realities remain. I am bound to say that, listening to the speech of the Minister, one would not have thought that he was applying himself to fulfilling that specific obligation under the Maastricht Treaty in any serious way a few months after the beginning of the second phase of economic and monetary union to which the Government committed themselves. I hope the noble Lord will not mind if, in that sense, I suggest that the Government would be well advised to return to basics in regard to British adherence to the European Community and to the Maastricht Treaty.

France and Germany— we read with interest the speech of Chancellor Kohl this week— remain committed to marching down the Maastricht path of economic and monetary union. Our view from these Benches is that if Britain is to be at the heart of Europe, she should be with them. In terms of the European Union it is in the interest of the British people that the leadership of the Community should be Franco-British-German and not simply Franco-German. It is there wherein lies the welfare of the British people. We should play a major part in the shaping of future developments in the European Union and not be an offshore, semi-detached member, adapting ourselves to a union shaped by others in their interest.

Exchange rate stability is not some form of invention against our interests. It is very much in the interests of a trading nation like the United Kingdom. Competitive deregulation and competitive devaluation would be the road to ruin in Europe, returning it to the kind of situation between the two world wars which became a major contributor to the Second World War.

We need to combine and integrate our national economies if we are to compete with the United States and Japan and the new countries of the Pacific Rim. Information highways, I notice, are the flavour of the month and may even be the flavour of the decade. I came across a chilling statistic from the OECD the other day which pointed out that the European share of world product generally is around one-quarter, whereas our share of information technology product is around one-tenth. It was said that South Korea is producing four times the number of information technology graduates that the United Kingdom and Germany together produce. It is that kind of search for a greater European economic integration on which the living standards of the people of Europe will depend over the next generation.

The way ahead is not an easy one. The Community is suffering from recession. We are thankfully emerging from it but our neighbours on the mainland of Europe are still in its throes. That recession will pass for them as it is blessedly passing for us. As the noble Lords, Lord Bruce of Donington— I totally agree with him— and Lord Eatwell said, after the recession passes we shall be left with a western European society with a residual degree of structural unemployment of a totally unacceptable level. It is that which the European Commission and the European Council are trying to tackle in the White Paper that the Commission produced. It is a good deal easier to analyse the situation than it is to produce effective remedies. Indeed, some of the remedies are likely to widen the degree of convergence rather than to narrow it and to postpone rather than hasten the point at which one can have a single currency and an economic and monetary union.

I believe that the leading countries of the Community will move ahead on that path. The question is whether or not we will be part of it. I do not know whether any noble Lord has ever enjoyed having a pet tortoise in his garden. It is an interesting pet. It is peaceful and produces a mood of tranquillity as one sits in one's deckchair under the apple tree. It never seems to move. But if one closes one's eyes and falls gently asleep, on waking up one finds that it has moved a great distance. Sometimes it goes the wrong way and gets lost in the flower beds that one should have been weeding. But it goes on moving. The whole history of the European Community is that that is the way forward. For Britain the biggest single issue remains whether we are wholehearted participants in that process or nagging critics on the white cliffs of Dover.

Lord Henley

My Lords, I am sure that we can all take note of the analogy of the noble Lord, Lord Thomson, concerning the Community. Whether the noble Lord, Lord Bruce of Donington, would be happy with that analogy is another matter. I do not intend to take the matter further.

It has been an interesting debate— so much so that it will probably help if I remind the House again of the Motion before us. It is to approve the Government's assessment of the medium-term economic and budgetary position for the purposes of Section 5. Section 5 is about the basis of the material to be submitted to the Commission under the multilateral surveillance— not "multi-racial", as I believe the noble Lord, Lord Thomson, accidentally described it, although I suspect that I too made one or two slip-ups with "FSBRs" and "PSBRs", the difference between which is known to all of us— and excessive deficit procedures.

It follows that the issue is not about the principle of submitting information to the Commission. That is something that was decided when we debated the Maastricht legislation—in great detail I should add— and indeed in some cases long before that. As I mentioned in opening, the process of multilateral surveillance has a long history.

The principle of the Government submitting information to the Commission on multilateral surveillance and excessive deficits was accepted by Parliament when we passed the Maastricht Bill last year. I do riot think it was the intention, in having this debate, necessarily to go back over that principle. The noble Lord, Lord Eatwell, in criticising the report we produced, described it as a contempt of Parliament in one of his less kind expressions. When he was feeling kinder he described it as a mere ersatz report. My noble friend Lord Cockfield to some extent criticised the use of the FSBR, as did the noble Lord, Lord Thomson of Monifieth, as not necessarily providing the right amount of information on European expenditure and receipts. My noble friend in particular used the example of the common agricultural policy.

I take the point regarding the importance of the right and appropriate information being available. Unfortunately, constraints of both time and space— I believe the noble Lord, Lord Eatwell, recognised the constraints of time—impose real limitations on what can be included in the FSBR. The detail of public expenditure information is given, as it has been for the past three years, in the departmental reports. I am pleased to be able to tell my noble friend that all the information he seeks on the CAP will be in the MAFF departmental report to be published tomorrow. That explains how spending on CAP market support is increasing because of a switch to direct payments to farmers. It details the revised lower provision announced in the Budget for domestic agriculture programmes. Nevertheless, I note the comments made by all three noble Lords regarding the use of the report. We believe that it is satisfactory. Obviously, I shall draw your Lordships' comments to the attention of my right honourable friend the Chancellor of the Exchequer.

As I expected, we heard much this afternoon from the noble Lord, Lord Bruce of Donington, on the familiar theme of alleged dictation of our policies from Brussels. I should like to remind the noble Lord of two points. First, as I explained in opening the debate, there has been a long history of Community interest in the economic activity of member states. That goes back to well before we joined the Community in 1972. The record shows that this has not led to dictation of economic policies from Brussels. Secondly, the Maastricht Treaty makes it clear that in Stage 2 of economic and monetary union, responsibility for economic and monetary policy remains firmly in the hands of member states. It is only under Stage 3 that responsibility for monetary— but not economic— policy would pass to the Community. And as even the noble Lord, Lord Bruce, will be aware, the United Kingdom has an opt-out, negotiated by my right honourable friend the Prime Minister, which allows the United Kingdom to decide whether, and if so when, to participate in Stage 3. Under the terms of the Maastricht legislation, a further Act of Parliament would be needed were the Government to decide to exercise that option.

Nor do I believe that the broad economic guidelines, to which the noble Lord referred, in Article 103 take economic policy out of United Kingdom hands. They are quite simply non-binding recommendations which happen to coincide closely with government objectives on economic policy; for example, price and exchange rate stability, low interest rates and sound public finance. The Government retain primary responsibility for economic and monetary policy.

Perhaps I may also at this moment refer to the noble Lord's remarks about the abatement, negotiated, as the noble Lord will remember, by my now noble friend Lady Thatcher when she was Prime Minister some years ago. That abatement now reduces our net contribution by about £ 2 billion a year, and since 1984 has saved this country some £ 14 billion. I have to say to the noble Lord—and I repeat it because I think the noble Lord would like it repeated from the Dispatch Box and probably would like it repeated as often as possible— that the United Kingdom abatement is preserved unchanged under the agreement reached at the Edinburgh Council. That UK abatement is preserved unchanged until the year 2000, and even after that date could not be changed without United Kingdom agreement.

Lord Bruce of Donington

My Lords, I am grateful to the noble Lord for giving way.

Is he aware of the attitude of the European Parliament, living in cloud cuckoo land though it may be, that it will, if necessary, take Britain to the European Court of Justice on the basis of its interpretation of the application of the UK abatement rules agreed at Fontainebleau? The European Parliament regards the abatement as ending in 1995, and it may be prepared to take Britain to the European Court in order to establish that.

Lord Henley

My Lords, unlike the noble Lord, I should not like to accuse the European Parliament of living in cloud cuckoo land. But I can assure him— and I take the opportunity of doing so again— and the European Parliament that we believe we have the abatement as was agreed at the Edinburgh Council until the year 2000. We also maintain that any further changes in the abatement after that date would require unanimity; in other words, would require the agreement of this country. We stick by that. I do not think that the European Parliament would have much success— I trust that it would have very little success— in the European Court.

The real issue is the economic assessment. The background is that the recession has been the dominant fact of European economic life for the past three years. In much of Europe, it dominates still. In Britain we have had the good fortune to be the first country to leave it behind. The British economy grew by 2 per cent. last year and is set to grow somewhat faster in 1994. And if activity in the rest of Europe picks up— as we certainly hope it will— growth will be faster still.

Some commentators are worried that we have not yet broken our old inflationary tendencies. I must tell the House that the evidence suggests that we are beginning to break the habit of inflation. Over the period of our ERM membership, inflation fell from more than 10 per cent. to around 3.5 per cent. Sterling's depreciation, following our exit from the ERM, might have threatened that progress. But inflation continued to fall, currently to around 2.5 per cent,—2.8 per cent., as I quoted in opening the debate. That testifies to the success of the Government's new monetary framework, but it also shows that even as the economy began to recover, inflationary pressures remain subdued. The Government mean to ensure that the economic growth we are now experiencing will continue, and will not be impeded by an outbreak of inflation.

The other vital element to sustained economic recovery must be sound public finances. The Chancellor's view was that the size of the Government's borrowing requirement had become the biggest threat to the economic recovery. The November Budget was devoted to tackling that threat by acting on both sides of the account: cutting spending and raising taxes. We make no apology for that. On this occasion taxes quite simply had to be raised. The noble Lord, Lord Eatwell, accused us of unfairness in the imposition of the tax burden.

I should like to quote one figure to the noble Lord. I think he will accept that he will now find that the top 10 per cent. of earners are now paying some 45 per cent. of income tax; in 1979 it was a mere 35 per cent. of income tax.

Lord Eatwell

My Lords, would the noble Lord accept that one of the reasons for the high level of taxation being paid by the top 10 per cent. is that many members of that group have awarded themselves very high pay rises so that the distribution of pretax incomes in this country has become more unequal than at any time since the late 19th century?

Lord Henley

My Lords, I simply do not accept that last figure, which the noble Lord has used on other occasions, about the imbalance of incomes. The simple fact is that reducing higher rates of tax has increased the net take from that group. Certainly, the figures I have quoted go on to prove that.

Secondly, we have had both to cut spending and raise taxes. As a result, government borrowing, we believe, should be eliminated altogether by the end of the decade. I shall have a word or two to say in due course about the growth figures that the noble Lord, Lord Eatwell, questioned.

The noble Lord also criticised our employment policy. He claimed that our figures for unemployment were highly inaccurate and that the figures were 1 million higher than the official figures that we quote. I do not accept that. Nor does the leader of the noble Lord's party, Mr. John Smith, accept that in that he himself quoted the figure of somewhere a little below 3 million when he spoke to the CBI some time last year. If one uses international definitions, in its latest summer survey the Labour Force Survey showed United Kingdom unemployment at about 2.8 million. That was very close to the claimant count, as published monthly which shows a measure of 2.8 million. It is true that 1 million of the Labour Force Survey measure are not claimants, but that is virtually offset by 1 million claimants who are not unemployed for the Labour Force Survey measure. The noble Lord cannot take 1 million from one measure and not take 1 million from the other. The one that comes out quarterly and is based on the survey which is internationally agreed gives a figure which is broadly comparable with the unemployment count which, as the noble Lord appreciates, is purely a count of those in receipt of the various forms of benefit.

Lord Eatwell

My Lords, I am delighted to hear that the Government accept that the population defined as unemployed by the number of claims and the population defined with respect to the international standard are different. The noble Lord claims that the two cannot be added together. However, if one recognises the two definitions together as defining those unemployed, he will reach a figure of 4 million.

Lord Henley

No, my Lords, I do not accept that. One includes one set; one does not include the other. The two figures are measuring different things. They both have their advantages and disadvantages. What is interesting about them is that both produce roughly the same figure. We can say with some certainty that unemployment is about 2.8 million, give or take a few, and falling. The noble Lord, Lord Bruce, laughs. But as I said earlier, what is interesting is that the leader of the noble Lord's party, Mr. John Smith, accepts those figures and used them when he spoke to the CBI.

Lord Bruce of Donington

My Lords, I am indebted to the noble Lord. The reason I was smiling was because I have had the opportunity— which I am sure he has too of reading Mr. Alan Clarke's book on the subject when he was in the Department of Employment. He noted with amusement the way in which the figures were fiddled month by month. I recommend the noble Lord to read his diaries which are very readable indeed.

Lord Henley

My Lords, I have read Mr. Clarke's book. I do not accept what the noble Lord is saying— that we fiddle the figures. That is a quite unfair slur on the statisticians in the department that I have the honour to serve. If the noble Lord would like to come along and have a talk with our statisticians, they will explain exactly how the two figures are produced and why there is no fiddling of those figures whatsoever.

We have two broad counts. One comes out quarterly, based on a survey of employees. The other is a direct count in respect of those in receipt of benefit, whether unemployment benefit, income support or national insurance credit. It strikes me that those are two perfectly valid ways of achieving a count, but they both use slightly different bases—

Lord Bruce of Donington

My Lords, and invalidity benefit?

Lord Henley

My Lords, the noble Lord mentions invalidity benefit. As he will appreciate, invalidity benefit is not giver to those people who are available for work. It would be quite wrong to count people—

Lord Bruce of Donington

My Lords, —

Lord Henley

My Lords, people in receipt of invalidity benefit are not unemployed because, if the noble Lord knows anything about the conditions for receipt of invalidity benefit, he will know that it is for those who are incapable of work. If they are incapable of work, by definition one cannot include them in any count of those in work. No set of figures, in this country or internationally, would ever include people who are incapable of work among the unemployed.

Perhaps I may go on to say that the noble Lord, Lord Eatwell, criticised our policy on unemployment and said that we had a bad record on unemployment. Again, I do nor accept that. Our labour market policies have protected the interests of the unemployed as well as the employed. There is now greater diversity of hours and patterns of work in the United Kingdom than anywhere else in the Community. We have a far higher proportion of people of working age in jobs— some 71 per cent.—compared to any of the other major European countries. Self-employment and the rate of participation by women in the labour force have both increased and we have now virtually the highest participation rates in Europe. In the United Kingdom labour market the difference between unemployment rates for different age groups again is relatively low unlike, for example, France, where we believe the minimum wage has contributed to youth unemployment rates of some 23 per cent. That is far. far higher than the equivalent youth unemployment rates that you would find in this country.

Further, unemployment in this country is now coming down, and coming down far, far earlier than any of the economic pundits predicted a year ago. It is coming down against the trend in Europe, and it is coming down largely because of the reforms we made to the labour market in the 1980s, virtually all of which Labour opposed. Also, as the noble Lord knows perfectly well, further measures were announced in the Budget, which I do not think I need elaborate on now, which will bring yet further improvement as regards unemployment. Again, I simply do not accept his figures: the cost of unemployment being some £ 26 billion a year. The estimate is based on a number of assumptions, all of which are unsupported. This would assume that—

Lord Eatwell

My Lords, I am sorry: that is Her Majesty's Treasury's figure.

Lord Henley

My Lords, there is no figure from the Treasury that suggests unemployment costing anything like £ 26 billion, and we have never made any—

Lord Eatwell

I am sorry, my Lords. It is a parliamentary Answer.

Lord Henley

My Lords, if the noble Lord can point me to that, I shall appreciate it. Her Majesty's Government have never said that the cost of unemployment is of the order of £ 26 billion a year. We have always maintained that is impossible, because of the assumptions one has to make, to have such a costing. I simply do not accept what the noble Lord has said; but if he can point me to the Answer I shall certainly look at it.

Turning to growth under the Conservative Government between 1981 and 1989, the United Kingdom had eight successive years of economic growth averaging some 3 per cent. per year. The noble Lord, Lord Eatwell, quoted growth over the whole of the period of Conservative Government since 1979 which averaged, as has been said, some 1 Y2 per cent. The noble Lord is an economist, and he should know better than most that you simply cannot compare different points in an economic cycle. Even the noble Lord will accept that it is only fair to compare like with like. Looking at a comparable period under the last Labour Government, growth averaged 1.7 per cent. a year compared with 2.3 per cent. under the Conservatives. That is looking at peak-to-peak comparisons of GDP. I certainly believe there is no reason why we cannot continue to see growth over the next few years in terms of meeting our targets to eliminate the public sector borrowing requirement.

We have also heard a number of views about the convergence of the economies of member states. We heard from the noble Lord, Lord Bruce, about the broad economic policy guidelines, which are one of the new elements introduced by the Treaty. As I said to the noble Lord, I do not believe there is anything sinister in the convergence criteria on inflation or government deficits or on the policy guidelines. As I said to the noble Lord, in no way are we bound by them. The fact is they are consistent with the Government's own objectives on low inflation and sound public finances. Both aims are formalised in the convergence criteria of the Treaty of Maastricht. These criteria are thoroughly sensible in their own right, and they are an accompaniment to achieving greater exchange rate stability within the single market that we all wish to see.

Governments across all of Europe understand the importance of these matters because it is only this route which offers the prospect of steady, non-inflationary growth, more jobs and higher living standards. In the medium term financial strategy set out in the: PSBR, we have provided a clear framework for achieving our objectives of sustained growth and higher living standards based firmly on low inflation and sound public finances. The economy is at present still in a recovery phase, but adherence to the firm policies pursued by this Government will pay further dividends. In short, our assessment of the medium term is economic growth rising towards a rate of 3 per cent. a year, inflation falling further to 2 per cent. and the public finances moving back towards balance. We believe that is a highly promising outlook, and I commend it to the House.

Lord Eatwell

My Lords, before the noble Lord sits down, may I refer him to the important question I raised concerning paragraph 2.8 of this report? This is not a party political matter: it is a matter of the reputation of this country for putting forward coherent and logical arguments. Paragraph 2.8 expresses the objective of the Government's fiscal policy, and in the first part of the paragraph— just one sentence—we are told that the Government's objective is that the PSBR should return to zero and should balance over the medium term. In the second part of the paragraph we are told that the PSBR should not return to zero but should finance government's net capital spending. Those two propositions are contradictory. I quite understand that the noble Lord may not want to clear up this confusion at this moment, but could he refer this question to his right honourable friend the Chancellor and perhaps bring back to the House a redrafting of this paragraph, which removes the internal contradiction which is there at the moment?

Lord Henley

My Lords, I do not believe there is an internal contradiction there; but certainly I would prefer, rather than responding to the noble Lord's point from the Dispatch Box, to write to him. Obviously, if it was necessary to redraft, we would be quite prepared to do that. I beg to move.

On Question, Motion agreed to.