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Session 2000-01
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Delegated Legislation Committee Debates

Government Assessment for the Purposes of Section 5 of the European Communities (Amendment) Act 1993

Third Standing Committee on Delegated Legislation

Monday 18 December 2000

[Mr. Bill Olner in the Chair]

Government's Assessment for the purposes of section 5 of the European Communities (Amendment) Act 1993

4.30 pm

The Economic Secretary to the Treasury (Miss Melanie Johnson): I beg to move,

    That the Committee has considered the Government's Assessment as set out in the Financial Statement and Budget Report 2000-01, the Economic and Fiscal Strategy Report 2000-01, and the Pre-Budget Report 2000 for the purposes of Section 5 of the European Communities (Amendment) Act 1993.

Each year, the Government are required to send a report to the European Commission setting out our main economic policy measures. The procedures are set out in articles 99 and 104 of the Maastricht treaty, which relate to broad economic policy guidelines, convergence and stability programmes and the excessive deficits procedure. The purpose of the reports is to help to ensure that the economic policies of member states are consistent with the goals of the treaty as set out in article 2. Those goals include non-inflationary economic growth, respecting the environment, a high level of employment and social protection, and raising standards of living and quality of life—all of which are consistent with the Government's approach to economic policy. Section 5 of the European Communities (Amendment) Act 1993, usually known as the Maastricht Act, requires Parliament to approve the Government reports sent to the Commission for that purpose.

The Government's strategy for economic policy is set out in the Economic and Fiscal Strategy Report and the Financial Statement and Budget Report, which are brought together in the Government report Budget 2000. The Committee had the opportunity on 24 May 2000 to debate those documents for the purposes of section 5 of the European Communities (Amendment) Act 1993. Today, we have the opportunity to debate the pre-Budget report, published on 8 November 2000, which completes the information that we send to the European Commission.

Sharing the information in the Budget documents and the pre-Budget report with our European partners will allow us to influence Europe, bringing employment and growth to Britain and other member states. The pre-Budget report describes the Government's strategy to raise Britain's economic potential and to achieve high and stable growth and employment, with rising living standards for all. Building on Budget 2000, the PBR will help build a stronger economic future for Britain through reforms that will put work, enterprise and families first.

The key elements of the Government's economic strategy set out in the pre-Budget report are: delivering macroeconomic stability to provide a platform for long-term sustainable growth and employment; meeting the productivity challenge through promoting competition, enterprise and innovation skills, investment and public sector productivity; increasing employment opportunity for all to ensure fairness for families and communities; and ensuring a better quality of life for everyone—now and for generations to come—by protecting the environment.

On taking office, the Government's priority was to tackle the problems of economic instability. We recognised that economic stability is a precondition for achieving our objective of high and stable levels of growth in employment. The macroeconomic policy framework introduced by the Government is already promoting economic stability by delivering low inflation and sound public finance. We have introduced an open and transparent monetary framework to deliver low and stable inflation; a new fiscal framework based on a prudent approach to public finances, which is underpinned by strict fiscal rules; and a new public spending framework, which is integrated into the fiscal framework to deliver greater certainty in longer-term planning and to remove the previous bias against investment.

We are already seeing the rewards of Bank of England independence and a new fiscal framework. Inflation in the United Kingdom has been significantly less volatile since 1997, has been lower for longer than at any time since the 1960s and is in line with our target. For almost 30 years, the UK's long-term interest rates were, on average, 3 percentage points higher than Germany's. Now United Kingdom long-term rates are down to those of Germany, and lower than those of the United States, reflecting the sustained reduction in the level of inflation expectations.

The new fiscal framework has brought public finances to a healthy and sustainable state. The Government inherited public finances that were in poor shape. The Government have brought them back under control, cutting borrowing by £44 billion since 1996-97. Building on that achievement, Budget 2000 set a firm spending envelope for the three years covered by the 2000 spending review, locking in the fiscal tightening of Budget 1999. The Government have ensured that we remain on track to comply with the fiscal rules, while also releasing resources for sustained investment in key public services priorities. Public sector net investment will more than double to 1.8 per cent. of gross domestic product by 2004-05.

The spending review allocations included real growth of more than 5 per cent. a year from 2000-01 on average on education, real growth of more than 5 per cent. a year on average for health, real growth of 20 per cent. a year on average in transport spending, and real growth of 4.2 per cent. a year on average for the criminal justice system. The Government can provide those resources because of our prudent handling of the economy. Even using the most cautious assumptions, our projections show surpluses on the current budget for each of the coming five years. Net borrowing is also projected to be in balance over this Parliament with net repayments in this and the following fiscal years. That compares with an average cyclically adjusted deficit of 4.5 per cent. of GDP over the previous Parliament.

Public sector net debt has fallen from 44 per cent. of GDP in 1996-97 to 36.9 per cent. of GDP in 1999-2000. It is projected to fall further, to 32.3 per cent. of GDP at the end of this financial year, and to just over 30 per cent. of GDP by 2002-03. That compares with a doubling of public sector net debt in the previous Parliament. Our prudent approach to the management of the public finances means that that falling debt ratio can be combined with rising public sector investment, tackling years of neglect of the public infrastructure.

Under the Government's new frameworks for monetary and fiscal policy, a sound and credible platform of economic stability has been established. The Government's commitment to stability and prudence has a purpose. Unemployment is at its lowest level for 20 years, while pay pressures remain muted. Employment has risen by more than 1 million since the election, with more people in work than ever before. Inflation is historically low—among the lowest in Europe. Robust growth of 3 per cent. is expected this year, easing back to trend in later years, and inflation is expected to remain close to the Government's target in the period ahead. Independent forecasters agree with our assessment.

The pre-Budget report responds to the challenge of complying with the fiscal rules over the economic cycle and underpinning the 2000 spending review by continuing to lock in stability for the long term. That platform of stability provides the basis for raising productivity. Meeting the productivity challenge offers the prospect of higher growth and increased employment opportunities, with low inflation and low interest rates. The present moment is one of opportunity for the United Kingdom and a challenge for everyone.

The Government set a long-term ambition in the November 1999 pre-Budget report for the United Kingdom to experience a faster productivity rise than its main competitors over the coming decade. To that end, we established a long-term strategy to respond to the productivity challenge. The Government are taking further steps to boost productivity, including a package of measures from April 2001 to help small and medium-sized firms to manage entry to the value added tax system, reduce their administrative burden and improve cashflow; consultation on ways to expand the enterprise management incentive scheme so that small businesses can make more flexible use of the benefits in the ways that best suit them; examination, in the light of information on the take-up of the research and development tax credit, of the case for complementary measures to boost research and development in business; and planning to introduce a radical reform of tax incentives with the potential to raise business investment in disadvantaged areas by £1 billion.

Meeting the challenges of raising productivity and closing the gap with our main competitors will help raise living standards in the economy as a whole. We need to do more to build a fairer society by making work pay, giving families a better deal and protecting the environment.

The Government are working to deliver employment opportunity for all—the modern definition of full employment—thereby tackling a significant underlying cause of poverty and deprivation. Our strategy is based on helping people to move from welfare to work, easing the transition to work, making work pay and securing progression once in work. The Government have already taken significant steps towards that objective. We have introduced the working families tax credit, the national minimum wage and a new 10p rate of income tax. We have cut the basic rate of tax to 22p and reformed national insurance contributions to improve work incentives at the lower end of the labour market.

At the end of November, the Government announced that we had met our manifesto pledge of helping 250,000 young people move from welfare into work through the new deal.


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Prepared 18 December 2000