Economic Growth (Hansard, 22 May 2002)

§ Lord Roberts of Conwy
asked Her Majesty's Government:
What was the economic growth rate in the first quarter of 2002 and how it compares with the rate in the last quarter of 2001.

§ Lord McIntosh of Haringey
My Lords, according to the preliminary estimate published by the Office for National Statistics, UK GDP growth strengthened to 0.1 per cent in the first quarter of this year, following zero growth in the final quarter of 2001. In 2001 as a whole, the UK economy grew by 2¼ per cent, the highest rate of growth in the G7.

§ Lord Roberts of Conwy
My Lords, does the Minister agree that those figures represent disappointing prospects so far as concerns growth, and especially the Government's annual growth target which has implications of course for revenue? Does the noble Lord further agree that the increase in national insurance contributions is detrimental to growth and will stimulate price and wage inflation as the Bank of England expects?

§ Lord McIntosh of Haringey
My Lords, as the noble Lord, Lord Roberts, knows, we do not produce forecasts intervening between the Budget forecast and the pre-Budget forecast six months later. We have no basis on which to alter the forecast made in Budget 2002 of growth this year of 2 to 2½ per cent. Our forecasts over the past few years have been exceptionally good. The 2001 forecast was predicted in each of the six-monthly figures produced between the Pre-Budget Report 1999 and the Pre-Budget Report 2001. So we are fairly confident that we stay within our forecasts.
No, I do not agree that the increase in national insurance contributions will be a danger to growth. On the contrary, it will be a significant contribution to the necessary funding of the National Health Service.

§ Lord Barnett
My Lords, does my noble friend accept that the more important growth figure is that given in the Budget report this year of the trend growth rate of 2¾per cent? Does my noble friend recognise that growth forecasts, even those made by the noble Lord, Lord Saatchi, or his researchers are as likely to be wrong as weather forecasts? In those circumstances, does he nevertheless accept, and is it the Treasury view, that if there is a blip in that 2¾ per cent the changes he would need to make would not affect the public expenditure forecast?

§ Lord McIntosh of Haringey
My Lords, with no disrespect to the Meteorological Office, no, I do not think so. Our forecasts are always produced within a range. They have been within that range for the past two years at least and, I would almost certainly say, further back. In Budget 2002, we forecast growth 763 this year of between 2 to 2½ per cent and next year of 3 to 3½ per cent. I see no reason why we should alter those forecasts.

§ Lord Lamont of Lerwick
My Lords, without in any way disagreeing with what the noble Lord, Lord Barnett, has said, is it not the case that Budget 2002 expects the budget over the next four to five years to grow 3 to 3½ per cent faster than the G7 average? Is it not also true that, as the noble Lord, Lord Barnett, has said, the long-term rate of growth is expected to be 2¾ per cent rather than the historic 2¼ per cent faster than the EU average? Given that in the short run we shall outperform G7 and in the long run we shall outperform the EU, what is the beef in the argument for the euro?

§ Lord McIntosh of Haringey
My Lords, the argument for the euro is not based on those calculations. There is no reason why it should be. It does not figure in the Chancellor's five economic tests.

§ Lord Newby
My Lords, the Minister will know that the increase to 2¾ per cent for trend growth is based largely on the Government's projections of continuing high levels of immigration. Can the noble Lord tell us what assumptions the Government have made about where those high future levels of immigration will come from; what skill levels the immigrants will have; and, of great importance particularly in London, what the implications will he for public infrastructure and, not least, housing?

§ Lord McIntosh of Haringey
My Lords, that is a little far away from the Question. I do not accept that the forecasts of medium-term growth are based in large measure on assumptions on immigration. Of course there are assumptions about levels of immigration contained in the forecasts, but I think that the noble Lord, Lord Newby, is exaggerating their impact. It is a fact that we have had a substantial level of immigration of people of working age. In view of the longer-term problem of the balance of people between working age and those older and younger who are not able to contribute to the economy, that may be rather a good thing.

§ Lord Saatchi
My Lords, if the Government's record of economic forecasting is as reliable as the Minister suggests, why is it that in Budget 2001 the Government forecast their own need for borrowing to be £34 billion and yet, just a year later, in Budget 2002, they forecast that they will need to borrow more than double that—£72 billion?

§ Lord McIntosh of Haringey
My Lords, there are two answers to that. First, when I referred to the validity—rather than reliability—of government forecasting, I was talking about government forecasting of economic growth. Forecasts of government borrowing are forecasts of a difference between two very large figures. One reason why there is a difference between the forecasts for government 764 borrowing is that the Government have made expenditure decisions to protect our public services, which the previous government failed to do.

Lord Berkeley
My Lords, if my noble friend is looking for people of working age to come into this country, may I remind him that there are several thousand of them sitting in Sangatte near Calais wanting to come over in a freight train?

§ Lord McIntosh of Haringey
My Lords, I do not like saying that supplementary questions are outside the scope of the main Question, but it is about the economic growth rate in the first quarter of 2002.

§ Lord Renton of Mount Harry
My Lords, in answer to my noble friend Lord Lamont, the Minister mentioned the five economic tests. When does he expect to give us an answer as to whether the five economic tests have been met?

§ Lord McIntosh of Haringey
By 2003, my Lords.