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7.59 pm
Mr. Mark Fisher (Stoke-on-Trent, Central): I am grateful for the opportunity to speak in tonight's debate. I hope that the hon. Member for Orpington (Mr. Horam) will forgive me if I do not follow him down the curious byways of his selective memory and his interesting political career.
Between 1983 and 1985, I was a member of the Treasury Select Committee, but having spent 13 years on the Front Bench developing policy on just one issue--the arts--I welcome the opportunity to resume my contribution from the Back Benches to the somewhat wider debate on the economy. However, I wish that it were taking place in happier circumstances.
There is too much evidence, which has been rehearsed by hon. Members on both sides of the House, that economic storm clouds are gathering around the world. The reasons for this darkening situation are beyond the control of any one nation, even the United States, but that makes it all the more important that we do all that we can by way of economic and fiscal policies to put our national economy in the best possible state to withstand any
damage. That is why my right hon. Friend the Chancellor is absolutely right to press for reform of international economic institutions, not to cut public expenditure, to work as closely as possible with other European Finance Ministers and to do as much as he can to prepare for economic and monetary union.
As my right hon. Friend the Chief Secretary to the Treasury said at the start of his speech, the main theme of the Queen's Speech is modernisation--as essential a contribution as any to preparing the economy for the hard times ahead. Indeed, the word "modernise" appears no fewer than 11 times in the text. It is used to describe the Government's approach to the law, the welfare state, local government, parliamentary and constitutional reform and industry. After 18 years of poor government, it is vital that we tackle the neglect of our predecessors, but using one word in so many contexts is not necessarily an aid to clarity.
What do we mean by modernisation, particularly in relation to industry and the economy? In our first Session, we cut corporation tax, introduced a national minimum wage and gave independence to the Bank of England--all modernising and very necessary initiatives.
Mr. Woodward:
Will the hon. Gentleman give way?
Mr. Fisher:
I am limited to 15 minutes. I am sure that the hon. Gentleman will be able to make his own speech.
In this Queen's Speech, the Government address the growth of electronic commerce. On Wednesday, my right hon. Friend the Secretary of State for Trade and Industry told the House that we had to adapt our legal and regulatory environment from one that addressed the needs of trade and material goods to one that met the requirements of electronic commerce. He called for a national crusade to make us world leaders in internet business. I welcome that.
At last the Government recognise the commercial importance of information in a way that quite eluded Ministers in the previous Administration, with the honourable exception of the hon. Member for Esher and Walton (Mr. Taylor), who spoke earlier. His Cassandra-like warnings that we were being left behind in the race to develop new technologies were ignored by his ministerial colleagues. That market, which is conducted in the English language, is growing every day, is already generating substantial profits and can play a major part in reducing costs. For example, the electronic booking of an airline ticket can reduce the cost of the transaction from $8 to $1. However, I hope that we are not so glamorised by the thrill of the new star, electronic commerce, that we allow the old trouper, manufacturing industry, to shuffle off the stage. That there could or should be a choice between them is a delusion.
Although it is not a fashionable view, I believe that manufacturing remains of great importance to our economy. Lady Thatcher and Lord Lawson refused to accept that. They looked at the statistics and pronounced the terminal decline of manufacturing, declaring that we were a service economy. That was a simplistic judgment which we must not repeat in our pursuit of modernisation.
It is true that, partly as a result of the policies of the previous Government, manufacturing jobs fell from 6.75 million in 1979 to 4.8 million in 1986 and to just over 4 million today. It is also true that growth in
manufacturing, which, on average, has been 1.8 per cent. a year since 1986, is well behind growth in services of 3 per cent. a year and growth in the general economy of 2.5 per cent. and that the contribution to general domestic product of production industries of 25.4 per cent. compares unfavourably with that of the service industries at 67.9 per cent. However, the figures conceal a more complicated and, I believe, more positive picture.
The service sector is not, as it may appear, a coherent whole. It is made up of a number of disparate parts: transport, communications, leisure, catering and financial services. Our economy continues to comprise three major players: finance and the financial sector, at 22.4 per cent.; public administration, at 22.2 per cent.; and manufacturing, at 20.6 per cent. We cannot afford to ignore the importance of manufacturing industry. Crucially, manufacturing remains central to our balance of trade and export performance as it contributes 63 per cent. of total exports. That percentage has been constant over the past decade, compared with the contribution of services of between 20 and 30 per cent--last year, it was 24 per cent.
To maintain that export performance, manufacturing industries, such as ceramics in my constituency, have not waited for the Government's call to modernise.
Mr. Woodward:
Will the hon. Gentleman give way?
Mr. Fisher:
I am sure that the hon. Gentleman will have the opportunity to make his own speech. I would have been happy to give way had it not been for the 15-minutes rule.
Manufacturing industries have done much to modernise products, develop new markets and harness new technologies such as robotics in production and computer-aided design to improve productivity.
What role is there for the Government to support the modernisation that is already taking place? In recent months, the CBI, employers' organisations, such as the Engineering Employers Federation, and almost all the trade unions have called for a cut in interest rates to reduce the level of the pound. Although the recent cuts are welcome, they are not sufficient. I believe that more would be beneficial, and they will come. The reason for caution that the Governor of the Bank of England consistently gave throughout the summer was the desire to avoid overheating the economy. Sadly, that is no longer a problem. Nor would a cut in interest rates be an artificial help to manufacturing industry; it would be good sense. It is in our national interest that the goods that we produce, as long as they are well designed, well marketed and competitive in every other way, should be able to compete, particularly in Germany, France and Italy, without being inhibited by the level of the pound.
The economy generally and manufacturing industry in particular would be helped if the Government widened the remit given to the Bank of England as part of its new independence to consider factors such as growth and employment as well as inflation. As hon. Members have said, Dr. Alan Greenspan's remit at the Federal Reserve bank is considerable wider than that of Mr. Eddie George.
Perhaps of even greater general importance to manufacturing industry is the Government's attitude. If they can bring the same concern, energy and
imagination to manufacturing industry as they are undoubtedly bringing to electronic commerce and new technologies, that will be a huge improvement.
I would have liked to relate the theme of modernisation in the Queen's Speech to one piece of legislation that will not be introduced this year--a freedom of information Bill. It is a crucial element in modernisation and could be important in helping industry and therefore the economy. Freedom of information legislation could have helped the previous Government to identify some of the problems of bovine spongiform encephalopathy far earlier, thus avoiding much of the consequent damage to agriculture. However, the 15-minutes rule is against me and I look forward to plenty of opportunities in this Session to participate in the scrutiny of the draft freedom of information legislation that the Queen's Speech promises. I welcome that as an imaginative and important way of airing the difficult choices that lie behind the introduction of such legislation.
Mr. Steve Webb (Northavon):
The majority of speeches so far have concentrated on the macro-economy and the euro. I want to concentrate on a central plank of the Government's economic policy that has been mentioned, only briefly, by the hon. Member for Bolton, West (Ms Kelly) and the right hon. Member for Fylde (Mr. Jack), who is no longer in his seat: the working families tax credit.
The working families tax credit puts me in a quandary. It is £1.5 billion for the low paid. Perhaps low paid is stretching it a bit, given that it will reach higher rate taxpayers, but in principle it is for the lower paid. On the whole, I tend to favour extra money for the poor and the low paid. However, that is about the only good thing that I can say about the scheme, because it is incredible how little evidence there is for the Government's views on how that £1.5 billion should be spent.
It is said that the working families tax credit will make work pay. That sounds laudable. It is said to be good for work incentives. Whom is it supposed to encourage into work? It applies to only two groups--lone parents and working couples or couples with children. The biggest barriers for lone parents are not primarily low pay or the incentive structure, but the availability of child care and jobs. In the debate some months ago on cutting lone parent benefit, the hon. Member for Cynon Valley (Ann Clwyd) said that there were barely any vacancies at her local job centre, but there were dozens of lone parents looking for work. The failure to tackle the supply of jobs will not help incentives.
There is a more fundamental issue. The Chancellor has cut the taper in the working families tax credit. Clearly, that will mean that fewer people will lose 70p in the pound at the margin, but more people will lose 50p in the pound at the margin. Is that unambiguously good for incentives? Where is the evidence? The Chancellor has not put any forward and I do not suppose that there is any. It is an act of faith.
What about the argument that paying the benefit through the pay packet rather than through the social security system will reduce stigma? Where is the evidence for that? The money will still have to be claimed. Where is the evidence that the take-up of the working families tax credit will be greater than the high take-up of family credit? There is none.
The key evidence that we have is that, when people on income support are asked what the biggest barriers are to moving off income support, they talk not about child care or the lack of in-work benefits for being a family, but about the lack of help with housing costs. If they take a low-paid job, they lose help with their mortgage or their rent rebate falls rapidly. The Government have missed a golden opportunity to address that. Those who take a low-paid job will lose all help with their mortgage. That is why people in my constituency tell me that they cannot afford to take a job. They will get a little extra help through the tax credit, but that will not come anywhere near covering mortgage repayments of, say, £400 a month.
What about child care? The child care subsidy seems to have been structured bizarrely. It will take us right up to the reaches of higher rate taxpayers. How can it be rational for state subsidy to reduce the cost of child care for higher rate taxpayers? The state will pay up to £100 a week towards the child care costs of children being looked after by their grandparents, provided that the grandparents jump through the hoop of becoming registered child minders. That is insulting on two grounds. First, why should the state be involved in subsidising grandparents looking after their grandchildren and, secondly, why should grandparents have to show that they are any good at bringing up children? It is bizarre for the state to be involved.
One of the key issues of the working families tax credit is paying it through the pay packet, typically to the man in a couple. In 80 per cent. of family credit cases, the principal breadwinner in the couple is the man. The Government were embarrassed about that initially and conceded that there would be choice for families, but there are fundamental problems. It will be in the families in which men are not good at passing on money to their wives that the women will have difficulty exercising the choice for the money not to be paid through the pay packet. I predict that the Government will weight the dice to ensure that the system discourages people from opting for anything other than payment through the pay packet. If large numbers of mothers opt to have the money paid through the benefit system rather than the pay packet, will not the Government's fundamental argument--that the big point about the tax credit is that it is better for incentives because there is no stigma because the money goes through the pay packet--be undermined? I intervened on the Chief Secretary on that point, but he did not really respond.
If most of the money does not go through the pay packet, why bother with the administrative mess of the tax credit? We could have the extra money, the lower tapers and the child care assistance through family credit. The key difference between family credit and the tax credit is the use of the pay packet, which the Government are letting people opt out of, so what is the point?
When fraud was mentioned, the Chief Secretary was dismissive of the right hon. Member for Birkenhead (Mr. Field)--rather rudely, I thought. The right hon. Member for Birkenhead has a strong reputation for pursuing fraud in the benefit system and the tax system. The key issue is to design systems so that fraud is not an integral part of them. The American evidence on fraud is embarrassing. There was a huge fraud industry associated with the American tax credit scheme. There is every possibility that the same could happen with the British tax credit scheme. For a Treasury Minister to dismiss the issue as the rambling of a has-been is outrageous.
A thought that might be dearer to the heart of the Paymaster General, who is on the Treasury Bench, is the cost to business of administering the working families tax credit. Many small firms will have perhaps one or two employees on relatively low pay. They will have to pay out more on the working families tax credit than they hand over to the Treasury in income tax and national insurance. It has been said that they can claim the money back, but how far in advance can they do that? When will they know how much they have to pay? Wages go up and down as people join firms and others leave. How can small businesses know in advance how much tax credit they will have to pay if the amount keeps changing? Will they have to predict a month in advance to ensure that there is time for the money to come through? How will the cash flow problems of small businesses be addressed? The problem for small businesses is one of the many issues on which we have not yet had an answer. I hope that the Leader of the House will tell us when she sums up that, when the Bill is presented to the House, some of those issues will be addressed rather than brushed under the carpet.
My final point on the tax credit is the way in which it will work during periods of relationship and family breakdown. Family credit goes almost exclusively to the mother in a couple, who is typically the person with responsibility for the children. That is right. Suppose that the Government get their way and the tax credit is paid principally to the father through the pay packet. What happens when a relationship breaks down? We are not necessarily talking about marriage--although marriages also break down--but about any form of cohabiting relationship. Presumably the woman, who may have been a victim of domestic violence, has to contact the authorities to say that she is no longer living with her partner. The authorities then have to contact the employer, who tells the man that he will not be paid any tax credit that month. When he is told why, he says that he is still living with his partner. What happens then, how long will it take and what will the woman live off in the mean time?
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