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6.9 pm
Mr. Robert Sheldon (Ashton-under-Lyne): The hon. Member for Gordon (Mr. Bruce) rightly welcomed the widening of interests of the members of the Court of the Bank of England. It does indeed have a very narrow base and it must be widened. I look forward to much greater representation from the different parts of the country and its industrial life.
The most important part of the Queen's Speech was the commitment to growth and employment. That was reinforced by what the Chancellor said today. The Queen's Speech stated:
The Chancellor's decision to grant some independence to the Bank of England is critical. I see that decision in the context of economic and monetary union. The problems of implementing EMU are great, and they are known. In particular, the harnessing together of widely differing economies and conditions would usually be regarded as an insuperable problem, but it is now clear that the will to succeed is so great that countries with respectable standards of economic integrity are proceeding to cook the books so as to meet the Maastricht criteria. We know that those criteria were arbitrary and were formed at a time when the economic problems of the past few years were not so clear as they have subsequently become.
Far from devising new and perhaps more sensible criteria, it seems that the forces of action in this area are now becoming unstoppable. That was highlighted by Germany's willingness to revalue its gold holding to meet the EMU criteria. We always knew that Italy would be the great book cooker. France, with its assets sale, has also affronted EMU principles. That did not greatly surprise us, but Germany--the protector of financial rectitude and integrity--has certainly surprised us by entering the murky world of financial compromise.
I have always been less than convinced that the Bundesbank had much to do with Germany's economic success. The cause of its success was always the industrial might of German industry, with its technically educated work force and highly qualified management. It was industry that made for success, and the Bundesbank merely followed in its wake. The Bundesbank was not the cause of Germany's economic success--it was the beneficiary of it. Nevertheless, it gained Germany a reputation for extreme financial prudence and the tarnishing of that reputation is highly significant. Those countries are determined to proceed with EMU, and on the timetable that has already been set.
The question for us, then, is to adjust to the clear expectation and determination of those countries which are throwing in their lot with EMU. On that basis, I understand the Government's decision to grant some sort of independence to the Bank of England. I do not believe that the Bank's record has been above criticism. In any discussions between the Governor and the Chancellor, their roles have always been clear: a Chancellor may underrate the threat of inflation for political purposes, but the Governor will always exaggerate it--so it has proved over the past few years, and it is always likely to remain so.
I should have liked EMU not to proceed--or if it did, to have a long delay to prepare for it as economies converge in the early years of the next century. Such delay now appears highly unlikely. What worries me is the prospect of Europe proceeding without Britain, making
decisions that will greatly affect us without our being part of that decision making. Our economy is increasingly geared to Europe, so we must decide whether to throw in our lot with our partners or whether to stand aloof.
In this context, the decision to give the Bank its independence is understandable. There are a number of safeguards--particularly in the form of the possibility of reviewing the financial arrangements of the Bank. The letter from the Chancellor to the Governor stated:
I should like the Select Committees to be set up as soon as possible. In its last report at the end of the previous Parliament, the Liaison Committee asked that they be set up quickly, even if they are not complete in all respects. It is important not to wait several months, especially as so many of these matters need to be referred to the Committees.
I was interested to learn that the Public Accounts Commission is to have a role. The Chancellor of the Exchequer has said that the National Audit Office will report on the assumptions and conventions underlying the Treasury. I recall that in about 1984, after I had become Chairman of the Public Accounts Committee, the Treasury suggested that it might do an efficiency audit of the National Audit Office. I responded by saying that that was a good idea, but that perhaps the NAO should first do an efficiency audit of the Treasury. We never heard anything more.
Now the National Audit Office is being brought in to scrutinise the assumptions and conventions of Treasury forecasting. That is a sensible way to proceed. The National Audit Office has been one of the most successful parliamentary institutions of recent years and the Comptrollers and Auditors General--Sir Gordon Downey and later Sir John Bourn--have been enormously important in maintaining standards in the public service and accountability in public finances.
I am not sure what is to happen to the reports emanating from the National Audit Office questioning certain aspects of the Treasury's activities. Perhaps we shall hear Ministers' thoughts on that later.
The critical decision for entry to EMU will be the rate of the pound on entry. Exports are undoubtedly suffering, and the target of 2.5 per cent. for inflation has been met only because the cost of imports has fallen by about 15 per cent. in the past year. That has helped enormously to sustain the target of 2.5 per cent. If we get the entry rate for the pound too high, we may begin our membership at a severe disadvantage, leading to deflation at home while other countries begin their expansion under the new rules.
After Black Wednesday, the pound declined to DM2.30, with enormous consequential advantages to our exports. It is difficult to envisage a rate of that sort following entry into the European monetary union. I would hope for a rate of about DM2.50. I know that the negotiations will be difficult, but the Government's aim should be clear.
I was particularly encouraged by what my right hon. Friend the Chancellor of the Exchequer said about investment. There is undoubtedly an important role for
the tax system in increasing investment opportunities. We have a system not of investment incentives, but of investment disincentives. If someone buys a capital product, for every £1,000 of that cost he receives £250 as his initial allowance. Few capital items are worth 75 per cent. of their initial value at the end of the first year, so the person loses money in the first year and is not compensated by the tax system. The allowance is not even set on the basis of equality: there is a loss.
I want an investment incentive that encourages people to invest more. I know the arguments that the best investment is based on the need to get something out of the article that the person is procuring, but even when that happens the investor should get some encouragement, which can come from the tax system.
Another matter that I feel should be raised, particularly at the beginning of a Parliament, is mortgage interest relief at source--MIRAS. During the campaign and in the weeks since then, we have heard of the need to plan for two Parliaments. I hope that we shall be able not only to plan for that, but to achieve it. The scope for effecting change during one Parliament is considerable, but it is not enough for certain areas in which we might wish to bring about change. Some planning decisions need longer time scales. That time is required to bed in the changes as well as to present certain programmes which require longer to introduce. Foremost among those must be the further reduction of mortgage interest relief.
Over several Governments, housing was turned into a national investment. People were led to believe that house investment was better than productive investment, and so it proved in those years--to our great disadvantage. Tax relief was handed out with serious consequences for stability in the housing market. Beyond a certain minimum level, housing should be regarded as an expenditure, not an investment. If we are able to enjoy the concept of planning for a long period ahead, as I hope that we may be able to do, we should consider mortgage interest relief. It should be phased out over a long enough period of years not to have too dramatic an effect on the expectations of people taking out mortgages. Lower interest rates will reduce the benefit in any case, so there is a possibility of phasing it out over a long enough period, which should not prove too painful.
"The central economic objectives of my Government are high and stable levels of economic growth and employment . . . They will aim to deliver high and sustainable levels of growth and employment by encouraging investment in industry, skills, infrastructure and new technologies".
These are certainly the key issues facing the Government, and I am encouraged to find them given such prominence in the Queen's Speech.
"The Bank of England will make reports to and give evidence to the House of Commons, through the Treasury select committee, on an enhanced basis, and I will write to the chairman of the committee."
I am not sure what that "enhanced basis" is. Perhaps the Deputy Prime Minister will give me an answer to that question.
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