Economic Growth (Hansard, 22 October 2002)

§ Lord McIntosh of Haringey
My Lords, United Kingdom gross domestic product expanded by 0.6 per cent in the second quarter of 2002, compared with 0.3 per cent in the second quarter of 2001. The United Kingdom economy has performed relatively well during the current global slowdown. Growth last year was the fastest in the G7 and, unlike many of our major competitors, the United Kingdom economy has avoided any declines in output since the beginning of 2001.

§ Lord Roberts of Conwy
My Lords, I am grateful to the noble Lord for that reply. Nevertheless, knowing that he will not wish to anticipate the Chancellor's autumn Statement, will he confirm that the Government are facing a shortfall in revenues at a time of increased public expenditure? Does he agree that, if the shortfall is dealt with by further taxation on top of the April increases in national insurance yet to come, then the chances of the economic run-down continuing are very likely, whereas, if the Government cover the shortfall with increased borrowing, at least the Chancellor's golden rule will be maintained?

§ Lord McIntosh of Haringey
Too right, my Lords! I shall certainly not anticipate the Pre-Budget Report, which will be made by the Chancellor next month. 1220 However, I am a little surprised by what the noble Lord, Lord Roberts, said about an economic run-down. I gave the figures for the first two quarters. Our general experience is that there is a greater increase in gross domestic product in the second half of the year than in the first half. However, none of that affects the fact that the public finances are in an exceptionally good state. In 1997, net debt as a proportion of gross domestic product was 44 per cent; it is now 31 per cent. In fiscal terms, we are in very good shape.

§ Lord Newby
My Lords, does the Minister accept that over the past three years our share of total EU inward investment has halved and that the level of trade in goods with other EU countries as a percentage of GDP has fallen? Does he further accept that those factors are now adversely affecting our growth rate and will continue to do so until we join the euro-zone?

§ Lord McIntosh of Haringey
My Lords, we are moving a long way from the Question, but we are used to that in this House, are we not? The answer is: no. In the time that has elapsed since the establishment of the euro, it would be far too early to say what our share will be. There are reports of a great increase in trading between different countries within the euro-zone. However, our position still remains to be seen.

§ Lord Sheldon
My Lords, is it not the case that, due to changes in our economic growth rate, it may not be possible to avoid mirroring what is happening in many other industrial countries? However, the difference is that we have built up a considerable surplus year by year. The proper way to manage that surplus is to ensure that it is available for contra-cyclical changes over the next year or two. Is that not the proper way to manage an economy?

§ Lord McIntosh of Haringey
My Lords, my noble friend is absolutely right. It is because of the hard decisions that we took in the years immediately following 1997 that public finances are now in a healthy state. Because of that, it is possible for us to maintain our position under the golden rule and under our rules on sustainable investment. We are succeeding in doing both those things.

§ Lord Lamont of Lerwick
My Lords, following the first part of the question raised by the noble Lord, Lord Sheldon, will the Minister say whether he believes that the euro is helping or hindering Germany?

§ Lord McIntosh of Haringey
My Lords, the noble Lord asks whether the euro is helping or hindering Germany. That follows from a Question about our economic growth rate. I do not think so.

§ Lord Northbrook
My Lords, in view of the poor progress of the economy so far this year, does the 1221 Minister believe that the Chancellor's forecast of economic growth for this year and the next is hopelessly optimistic and, if not, why not?

§ Lord McIntosh of Haringey
My Lords, we make forecasts of economic growth at two-yearly intervals, in contrast with previous governments, who made them less frequently. The next forecast will be made at the time of the Pre-Budget Report.

§ Lord Saatchi
My Lords, could not anyone with a bank account tell the Government why they will have to admit in a few weeks' time that their figures are wrong? Is that not because in each month this year they have had five times more money going out than they have had coming in?

§ Lord McIntosh of Haringey
My Lords, that is a very nice way of expressing the situation, I must say. Only an advertising man could do that. But the truth is that our fiscal situation is as I described it in my earlier answers. We now have a net debt of just over 30 per cent compared with 40 per cent when we came into office. Under those circumstances, the monthly figures to which the noble Lord, Lord Saatchi, refers have to be seen in perspective.

§ Lord Peston
My Lords, can my noble friend confirm that he agrees with my noble friend Lord Sheldon? When, because of world forces, an economy moves ahead rather less rapidly than was the case, it would be foolhardy beyond belief to raise taxes and cut public expenditure. What matters is that my right honourable friend the Chancellor has adopted the correct policy. That policy involves considering the situation over the cycle and over the medium term. This is the first time in a great many years that that has happened in the economy. He should not in any circumstances be deflected from that very sensible policy.

§ Lord McIntosh of Haringey
My Lords, I thought I had agreed with my noble friend Lord Sheldon. I certainly agree with my noble friend Lord Peston. A feature of our present levels and of our plans for government consumption and investment is that not only are they valid in their own right—in other words, they are directed at producing better public services for the people in this country—but, in cyclical terms, they are the right thing to do from an economic policy point of view.