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House of Commons

Thursday 14 December 2000

The House met at half-past Eleven o'clock


[Mr. Speaker in the Chair]

Oral Answers to Questions


The Chancellor of the Exchequer was asked--


1. Mr. Peter Brooke (Cities of London and Westminster): If he will make a statement on trends in United Kingdom productivity. [141833]

The Chancellor of the Exchequer (Mr. Gordon Brown): To encourage long-term improvements in productivity growth, we are pressing ahead with labour, capital and product market reforms. We are establishing a Competition Commission, and opening up competition in the utilities and in other sectors. We are encouraging investment by cutting corporation tax, and cutting capital gains tax to a long-term rate of 10p. To encourage innovation, we are introducing the first research and development tax credit. To encourage new business dynamism, we are introducing a lower rate of small company tax, permanent capital allowances, and 100 per cent. allowances for the introduction of information and communications technology.

We are investing heavily in education and skills, and we are working with business, rejecting stop-go in favour of a stable monetary and fiscal policy. Productivity growth, which was at 1.3 per cent. when we came to power, is running at 2.4 per cent. in the last quarter of the financial year.

Mr. Brooke: Has the Chancellor observed that, while United Kingdom productivity rose sharply in 1999, net rates of return in manufacturing fell to less than a third of comparable rates in the United States? If investment is a key component of improved productivity, how do we end the vicious circle--especially when higher business taxation is helping to fund higher public sector investment?

Mr. Brown: Business investment as a share of national income rose to 14.5 per cent. last year. That is the highest rate that we have seen, and it is far higher than the rates that obtained under the Government of which the right hon. Gentleman was a member.

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Moreover, we are seeing much-welcomed improvements in the introduction of new technology: most businesses now have e-commerce and information technology. There is also more investment in skills and education.

We are seeing improvements in all the drivers of productivity growth to which the pre-Budget report gave attention. Over a period the productivity growth rate is rising, and I believe it will continue to rise. The right hon. Gentleman will note that in America productivity growth was relatively low between 1992 and 1995, while employment was rising; then employment and productivity growth rose together.

The challenge in this country--I hope it is accepted on an all-party basis, because we are involving the Confederation of British Industry and work forces in the issues--is to combine high productivity with high employment. Of course, what would damage prospects of higher growth and higher productivity most of all is a return to the old stop-go and boom-bust that we saw under the last Government. [Hon. Members: "Oh, no!"]

I know that the right hon. Gentleman agrees with me about the independence of the Bank of England. I hope that he also agrees with me about the importance of monetary and fiscal stability.

Mr. Stuart Bell (Middlesbrough): The House will have been amused by the Opposition's response to my right hon. Friend's comments. Is it not a fact that, during many years of a Conservative Administration, there was low productivity and low employment? Is there not a stark contrast--acknowledged even by the right hon. Member for Cities of London and Westminster (Mr. Brooke)?

Productivity rose in 1999. Is not the secret of our huge success, currently and in the future, high employment and high productivity?

Mr. Brown: I have considerable respect for the right hon. Member for Cities of London and Westminster (Mr. Brooke), but the fact is that in the late 1980s, when he was in the Treasury, productivity descended into a negative state. In 1996, when the Government of the day produced their own competitiveness White Paper, they said that productivity trends in both manufacturing and service

It is to tackle precisely that problem that we have introduced changes. We have opened up competition policy by making the Competition Commission independent, in the same way as the Bank of England is independent in making decisions.

The Government are also moving forward in terms of labour market reform, capital market reform and product market reform. I repeat, however, that the challenge in this country is to produce high employment--which we are achieving--and high productivity, rather than returning to low employment and low productivity.

Mr. Edward Davey (Kingston and Surbiton): Will the Chancellor not admit that the United Kingdom's productivity has been severely hit by the railway crisis? The Government's failure to increase transport investment early in the current Parliament has not only made the lives

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of the travelling public miserable, but hit the British economy. Is it not time that the Government said sorry to commuters, and to British industry?

Mr. Brown: It is precisely because of the need to improve our infrastructure in the economy that we have reversed the long-term trend against investment in transport infrastructure. The Liberal party likes big figures. The £180 billion that we are investing--[Interruption.] The hon. Member for Buckingham (Mr. Bercow) is right. The Liberals have no means of financing such investment; we have.

I hope that the Liberal party will support our £180 billion programme of investment in transport. It is a programme of public and private investment. It is in the national economic interest, and I hope that members of all parties will feel able to support it. Unfortunately, the Conservative party will not fund that investment.

Gillian Merron (Lincoln): The Chancellor--unlike the last Government, who failed us--will be aware of the importance of engineering to constituencies such as Lincoln, where companies are well aware that increasing productivity requires a highly skilled work force. Will he consider ways of covering training costs for companies such as Alstom Power and Wyman Gordon in Lincoln, so that they can boost their competitiveness?

Mr. Brown: My hon. Friend is absolutely right that investment in education and skills is vitalto the future of this country. That is why, this year, education investment is increasing in real terms by 10 per cent. That is why, over the next four years, education investment will increase by 6 per cent. in real terms. That is why there are more than half a million more students in full-time or part-time higher or further education. That is also why we are investing in our schools. However, we know that the CBI, the TUC and all parts of industry and the work forces must now work together on a programme of skills upgrading. That is why we are introducing the new university for industry and why individual learning accounts are moving forward. It is also why all the tax incentives have been made available to enable people to get training in the new computer skills.

Those are the ways forward for the British economy, and they cost money. We need a Government who are committed to the levels of public investment in the economy that are necessary to end the neglect of the past 20 years. It is unfortunate that we have a Conservative party that wants to make huge cuts in public spending which would be completely unacceptable for the future of our economy. I believe that business, as well as the work forces, oppose that view.

Mr. Michael Portillo (Kensington and Chelsea): Has not the Chancellor today further diminished his reputation for candour by his highly selective quoting of statistics? Does he not remember promising before the general election that he was going to turn around productivity in this country? Has he not achieved that in the most bizarre way? In the first half of the 1990s, productivity was increasing by 3.1 per cent., whereas, over the past three years, it has been increasing by 1.3 per cent--an exact mirror image. Is not the fact of the matter that,

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industrially, his policies of extra regulations and extra taxes have taken us from success to failure and from competitiveness to uncompetitiveness?

Mr. Brown: The shadow Chancellor must first acknowledge the record of the previous Government. In 1996, they published a competitiveness White Paper saying that productivity in Britain was a real problem and that it had fallen behind that of France, Germany and the United States. That is the situation that we inherited.

Secondly, the shadow Chancellor must also acknowledge that, in the past three quarters, the trend rate has been 2 per cent, 2 per cent. and 2.4 per cent, and that, in America, expansion of employment was followed by employment and productivity growing together. In my view, that is exactly what will happen in the United Kingdom. Why? Because we are making the changes that are necessary--such as opening up competition, sponsoring research and development, encouraging innovation, encouraging enterprise that is open to all, and investing in education and skills.

If the shadow Chancellor could stand up and say that he will support our investment in the infrastructure of the economy instead of making public spending cuts, we would think more of what he says about the state of the economy. Will he support our public investment in transport and the infrastructure as well as in education?

Mr. Portillo: The previous Government told the nation that productivity was a problem after it had been growing every year by 3.1 per cent. Why cannot this Chancellor admit that he has a problem now that, year after year, it has been growing at 1.3 per cent? Did he not say that productivity was the fundamental yardstick by which a nation's performance would be judged? Is not the fact that, while he goes on telling the CBI and the Institute of Directors what to do, he has put £5 billion of extra taxes on business every year and £5 billion worth of extra regulation on business every year?

After the Vauxhall crisis, the Chancellor said that the Government are here to help. If they are here to help, let me tell the right hon. Gentleman what they should be doing. He is about to impose a £1 million energy tax on every car manufacturer in this country. Will he scrap that job-destroying tax--yes or no?

Mr. Brown: We are proceeding with the climate change levy, which was proposed by a committee chaired by Lord Marshall, the then president of the CBI, but it is being introduced with a tax cut in national insurance for industry. There is therefore no direct gain to the Treasury from introduction of the climate change levy. The shadow Chancellor will have to explain this. Although his environment spokesmen say that the Conservatives will implement the Kyoto targets, he will have no measures to implement them if he abandons both the fuel escalator and the climate change levy.

The shadow Chancellor has been more honest on other occasions about the state of the economy. When he went on to the "Today" programme, he said:

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Let us look at what he says about the economy as a whole. He said on the Jimmy Young show:

Instead of attacking our policies, the shadow Chancellor should start to consider whether he has a policy. Yesterday's debate revealed to us that the Conservatives have no fiscal rules; they will not invest in the supply side, which is the infrastructure of the economy; and their monetary disciplines are suspect because they would sack Bank of England independence under certain circumstances, which they define as incompetence. At the same time they are promising tax cuts based on a surplus one year that they cannot guarantee for every year. [Hon. Members: "Get on with it!"] They do not like it, do they? Until the general election we will tell the country that the measures that the Conservatives are proposing would bring the country back to stop-go and boom-bust.

Mr. Portillo: When will the Chancellor of the Exchequer admit that under him the economy is growing at 2.6 per cent. a year, which is less than the growth rate in the previous 15 years; less than the growth rate in the eurozone countries; and half the growth rate in the United States? Why will he not admit that our export share was 5.1 per cent. when he came to office whereas it is now 4.5 per cent? Why will he not admit that our productivity growth rate has been halved under this Government and is now half that in the United States? Why is he so pitifully complacent when there is so much that he has done wrong and so much to do in future?

Mr. Brown: The fact that the right hon. Gentleman's figures are completely wrong is illustrated by his reference to 15 years. Was the Conservative party in power for 15 years or 18 years? Was the growth rate of the economy over those 18 years not 2 per cent. rather than the figure he cites, and is not the average growth rate under us already 2.7 per cent? Let us remember what the Conservatives were saying three years ago. They said that there would be a recession--all of them. What happened? That year the economy grew by 2 per cent. Last year they said that our spending plans were completely unaffordable. Now they have to recognise that our spending plans are affordable. I believe that, over time, not only will it be revealed to the country that the Conservative party under the shadow Chancellor is the party of public spending cuts and higher unemployment, as it would abolish the new deal, but the Conservatives will have to face up to the fact that, with no fiscal rules and with tax cuts promised for every year on the basis of a surplus in one year, they will return the country to the time of boom-bust and stop-go--when the people who were in the Treasury included the shadow Chancellor.

Several hon. Members rose--

Mr. Speaker: Order. May I remind the House that this is Question Time and ask for brief questions and, of course, brief replies?

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