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Economic Stability and Public Services
[Relevant documents: Bank of England Annual Report 1999 and the Eighth Report from the Treasury Committee, Session 1998-99, on the Monetary Policy Committee--Two Years On (HC 505).]
Motion made, and Question proposed, That this House do now adjourn.--[Mr. Hill.]
The Chief Secretary to the Treasury (Mr. Alan Milburn):
This extremely welcome debate allows the House the opportunity to discuss the Government's approach to modernising our economy and to modernising--
Mr. Deputy Speaker (Sir Alan Haselhurst):
Order. I apologise to the Chief Secretary; I should have said at the outset that Madam Speaker has decided that there should be a 15-minute limit on Back-Bench speeches in the debate.
Mr. Milburn:
I, too, shall bear that in mind, Mr. Deputy Speaker, and I am sure that my hon. Friends and other hon. Members will be immensely relieved to hear it. The Government are pursuing twin objectives: the creation of an enterprise economy and the creation of a fair society. Creating wealth is the way to create jobs, opportunity and prosperity, but an enterprise economy requires a society in which the talents of all our people are deployed to the full. When we came to office, we inherited failures in both the economy and our public services. They in turn reflected outdated means of making economic and public spending policy. Modernisation of both is the key to creating a dynamic economy capable of sustained growth and reliable public services capable of meeting modern needs.
On 1 May 1997, we set ourselves two key objectives to help to build a stronger economic future for Britain: first, the establishment of a new economic framework to secure long-term economic stability and to put an end to the damaging cycle of stop-go and, secondly, to begin to strengthen Britain's productive potential by tackling the long-standing weaknesses of the British economy with policies to increase employment opportunities, to raise Britain's productivity performance and to build a fairer society. We had to do that against a background of mounting uncertainty and instability in the global economy. The economy that we inherited from the previous Government was set to repeat the cycle of boom-bust that has been the British disease for the past three decades or more.
Mr. Andrew Tyrie (Chichester):
Does the Chief Secretary think that the economy is in an upswing or a downswing, or have the Government abolished the business cycle?
Mr. Milburn:
I shall come to the details of where we are--[Interruption.] If the hon. Member for East Worthing and Shoreham (Mr. Loughton) would calm down for a moment, I shall have a word or two to say to him before too long. I shall come to the detail of where we are in the economic cycle in a moment.
As the hon. Member for Chichester (Mr. Tyrie) is aware, we have been creating a form of economic stability that this country has long longed for: low inflation, low
interest rates and employment growth. Most outside commentators now accept the forecast of between1 and 1.5 per cent. growth, which the Government made in the pre-Budget report last November. At the time, the Conservatives and many independent commentators pooh-poohed that, but thankfully, independent commentators are coming round to the Government's way of thinking.
Mr. John Bercow (Buckingham)
rose--
Mr. Milburn:
I spy an hon. Gentleman who is coming round to the Government's way of thinking.
Mr. Bercow:
I fear that it is a case of the right hon. Gentleman seeing pigs fly before his very eyes.
While the Chief Secretary mulls over the question of whether the economy is in an upswing or a downswing, may I ask him another question? What assessment has he made of the European Commission's proposal, in February 1999, for the imposition of lower rates of value added tax on labour-intensive industries?
Mr. Milburn:
I know that the hon. Gentleman is obsessed with Europe. Indeed, the Conservative party has increasingly become a one-issue party: its sole obsession is Europe. I remind the hon. Gentleman that this debate is about economic stability and public finances, which is precisely what my speech will be about.
Mr. Geraint Davies (Croydon, Central):
Does my right hon. Friend agree that the Conservative party's muddled position on Bank of England independence given yesterday--that the issue should be referred to a commission to look at the workings of the Monetary Policy Committee--shows that, had the Tories been in power, we would have had two years of muddle? We would not have had the lowest short-term interest rates for 30 years and the lowest long-term interest rates for 40 years, inflation would have been out of control and the economy would have been in chaos.
Mr. Milburn:
My hon. Friend is absolutely right. The shadow Chancellor is not even at first base on those issues. I presume that he aspires one day to be Chancellor of the Exchequer, but he cannot even answer the most basic question about monetary policy: is he in favour or against independence for the Bank of England? We do not need a review; we simply need him to answer yes or no. I am happy to give way to Conservative Members now if they can confirm the Conservative party's position on this. Apparently, they cannot.
The Conservative party's record speaks for itself. When we came to power, consumer spending was growing at an unsustainable rate, inflation was set to rise sharply above target once again, and there was a large structural deficit in public finances. By no stretch of even the most fevered of Conservative Members' imagination could that be described as a "golden economic legacy". Rather, we inherited an economy flawed by serious and fundamental weaknesses.
During the 18 years in which the Conservative party was in government, Britain's growth was substantially below the G7 and European Union average and we suffered two deep and damaging recessions. During those
18 years, Britain had lower investment levels than any of the member states of the Organisation for Economic Co-operation and Development. We also had higher average inflation than any other major industrialised country, with one exception--Italy.
When this Government took office, our first priority had to be to secure long-term economic stability. The events of the past two years demonstrate beyond all doubt that, in a world of ever more rapid international financial flows, monetary and fiscal stability is the precondition for economic success. We achieved that by setting clear objectives, establishing proper rules and requiring openness and transparency in the way in which we do business.
On clear objectives, price stability through a pre-announced inflation target--a symmetrical target, I remind the House--and sustainable public finances through tough fiscal rules--
Mr. Robert Sheldon (Ashton-under-Lyne):
Obviously, the Government are to be congratulated heartily on controlling inflation. That has been quite splendid and fully successful. However, there is the problem of house prices. Although there is an attempt to include an aspect of that in the retail prices index, it is not very successful and the matter is becoming increasingly serious. Will my right hon. Friend say something about that problem?
Mr. Milburn:
I understand my right hon. Friend's concerns about these issues. In pursuing and creating economic stability, we also want to achieve a stable housing market. I have listened carefully to what some of the major lenders have to say about the current state of the market. My right hon. Friend may be interested to know that the Halifax has said:
There should be well-understood rules. We have a new system of monetary policy making, at the heart of which is the independence of the Bank of England and its open letter system, and an equivalent and equally important set of fiscal procedures that are legally enshrined in the code of fiscal stability.
We must also have transparency in policy making, with an open system of decision making in monetary policy through the publication of minutes, a voting system and full reporting to Parliament. We should have the same openness and disclosure in fiscal policy, with key fiscal assumptions independently ordered.
Those are the new rules of the game. They are especially important for Britain, which, more than most nations, has been subject to boom-bust cycles and changing policies.
Mr. Nick St. Aubyn (Guildford):
The Minister says that those are the new rules of the game. Will he confirm that those rules fail to satisfy the Maastricht treaty in the degree of independence given to the Bank of England?
5.32 pm
"The current favourable affordability position will continue to underpin a healthy housing market over the remainder of 1999, we see no evidence to suggest that the market is returning to a 1980s style boom."
We have been pursuing policies for economic stability by setting out clear objectives. The golden rule is that over the cycle we balance the current budget. The sustainable investment rule requires that, as we borrow for investment, debt is held to a prudent and stable level.
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