HL Deb 29 January 2004 vol 656 cc316-8

11.14a.m.

Lord Roberts of Conwy asked Her Majesty's Government:

How they respond to the latest report on the United Kingdom economy by the Organisation for Economic Co-operation and Development.

The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord McIntosh of Haringey)

My Lords, the OECD's assessment of the UK economy was published on 20 January 2004. The Government welcome the report and note the positive assessment of the performance of the economy over the past few years.

Lord Roberts of Conwy

My Lords, glowing as the report is in parts, nevertheless it points out that the budget deficit will exceed the euro-zone's 3 per cent limit by next year. Furthermore, the report casts doubt on whether the, massive spending increases will fully pay off in terms of improved service". Is not the Chancellor's golden rule on balancing the budget of the economic cycle under serious threat? Should we not be encouraging him to think about cuts in public spending as he himself suggested at the enterprise summit earlier this week, before he increases taxation or we return to the dreaded boom and bust?

Lord McIntosh of Haringey

My Lords, I heard what the noble Lord, Lord Roberts, said about glowing in parts. My copy of the OECD's statement is festooned with flags to positive comments. It looks rather different from Michael Howard's copy of the Hutton report, I have to say.

On the more serious issue, clearly there is a distinction between the wholly favourable opinion expressed by the OECD about the UK economy at present and its projections for the future. The OECD is entitled to its projections for the future; the Institute for Fiscal Studies has produced comparable projections, which are published today. They are fully entitled to their views; it is the Government's that the Chancellor will not break his golden rules.

Lord Sheldon

My Lords, is my noble friend aware that the report was really very positive about the UK economy, as he rightly mentioned? Should not notice be taken of the fact that in the whole of the past century—if we take that into account—we have had seven years of stability? That was never equalled in the whole of the previous century and for much of the century before then. This is a wholly new phenomenon, and we should pay tribute to the Chancellor for producing it.

Lord McIntosh of Haringey

My Lords, I am sure that we should, but I cannot resist recalling the view of the bursar of an Oxford college, who criticised the college's investment policy on the grounds that the past 200 years had been wholly exceptional.

Baroness Sharp of Guildford

My Lords, would the Minister agree that one element of the report that was somewhat critical of the UK economy dealt with the long-term productivity performance? In particular, the report identified the low levels of R&D as being a cause for concern. International comparisons indicate that British industry, with the noble exceptions of the pharmaceutical and aerospace industries, has a very poor record in that regard. The Government have introduced a series of measures, including a rather expensive R&D tax credit, which so far has had very little effect. Has the Minister any suggestions as to other measures that might be introduced, which might help industry to improve its performance?

Lord McIntosh of Haringey

My Lords, I am grateful for the comments of the noble Baroness, Lady Sharp, on the measures that have been introduced to improve productivity. I am sure that the Chancellor in his Budget, which is the only occasion on which such matters can be announced, will consider further measures if necessary. However, it is worth pointing out that, using the definition of productivity that the OECD uses, we have in fact already caught up with the European average. We are still behind the United States, of course, but we are catching up in relation to Europe and Japan.

Lord Marlesford

My Lords, does the Minister believe that the OECD report would be more or less optimistic if we were already in the euro? Secondly, can he remind us of the latest estimate of the budget deficit for this year and for next year, both in billions of pounds and as a percentage of GDP?

Lord McIntosh of Haringey

My Lords, the first question is of course, as the noble Lord, Lord Marlesford, knows, a try-on. It is a hypothetical question that invites me to anticipate any future statements about British membership of the euro.

On the second question, yes, I believe that I can give percentage figures, at any rate. The projection in the OECD report for the rest of this financial year—from 2003–04—is that the deficit will be 3.3 per cent. The projections for next year and the year after are 2.4 per cent and 1.8 per cent respectively.

Lord Howe of Aberavon

My Lords, will the Minister consider advising the Chancellor that the best contribution he could make to increased productivity in the years ahead would be to promise to introduce much shorter finance Bills than he those he has produced so far?

Lord McIntosh of Haringey

My Lords, I know from personal experience that the Chancellor is particularly grateful to the noble and learned Lord, Lord Howe, for the work that he does as regards the simplification of taxation and we are sympathetic to it. As I have said on many occasions in this House, complication of taxation arises because of the concentration of legal and financial support for those who wish to find new ways of avoiding taxes.

Baroness Wilcox

My Lords, does the Minister agree with the OECD statement that, improving the quality of public services in a cost-effective way in such priority areas as health and education will be a major challenge"? If so, will he explain why the Government's approach to public services is one of more tax, more spending and more failure, rather than enacting any meaningful reforms?

Lord McIntosh of Haringey

My Lords, on the noble Baroness's first point, the OECD report is very cautious indeed: The jury is still out on whether the massive spending increases will fully pay off in terms of improved service". That is a warning to us. On the second point, I disagree with all of the statements that she makes.

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