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

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Mr. Clappison: I believe that saving is good for individuals and the economy as a whole. It is worrying if insufficient saving is taking place, because that is plainly bad for us all. Some policies enunciated by the Government, such as the minimum income guarantee, must be analysed closely for their effect on savings. I appreciate that Liberal Democrats always want to ride to the Government's defence, but I hope that the Minister will also comment in due course on savings.

Paragraph 2.46 of the Red Book states that

    future growth will depend increasingly on securing an improved productivity performance.

That is a subject in which the Government say that they have a great interest—or on which they feel vulnerable, according to one's point of view. It certainly occupies a good deal of the reports before us. Indeed, one document issued alongside the pre-Budget report was entitled ``Productivity: the evidence and the Government's approach''. The Minister has spoken about the Government's view on productivity, but what is the evidence about their performance on productivity to date? Again, the Minister looks quizzical—

Mr. Graham Allen (Vice-Chamberlain of Her Majesty's Household): Just bored.

Mr. Clappison: The hon. Member for Nottingham, North (Mr. Allen) may find it dull to debate productivity, but the Government find it so interesting that they have produced a document about it. We should do justice to a document submitted as part of the report by scrutinising it. I am sure that the hon. Gentleman agrees.

Table 1.1 on page 3 deals with trend labour productivity and is not a ringing endorsement of the Government's record of achievement in that field. According to the column on actual trend labour productivity, between 1990 and 1997 trend labour productivity grew by 2.1 per cent. each year. From 1997-99—the first two years of this Government—it grew by 1.6 per cent. The Government's forecast for 2001 onwards is growth of 1.9 per cent., which is below the level of growth achieved between 1990-97.

The other column in the table deals with underlying productivity growth. The years 1997-99 show a slightly worse performance than 1992-97. On the Government's own assumptions, the forecast for underlying productivity growth shows a growth rate no better than that between 1992-97.

Productivity was highlighted by last week's sad news about General Motors in Luton. Although General Motors is cutting jobs across Europe, Luton is bearing the brunt of the losses with 2,000 of the total 5,000 being suffered there. Further job losses will follow in relation to suppliers and service companies.

Mr. Hendrick: The 2,000 losses out of 5,000 across Europe means that 3,000 losses will occur elsewhere in Europe. That raises questions about productivity in other countries. Jobs are also being lost in the United States.

The hon. Gentleman talks about the current Budget as if it were simply a preparation for entering the single currency. I remind him that multilateral surveillance procedures are in place whereby all member states—irrespective of their membership of the single currency—have to manage their finances soundly. We are signed up, as are Denmark and Sweden, which, like us, are not members of the single currency. The hon. Gentleman's continual charge that this is all about preparation for the single currency is bonkers.

Mr. Clappison: No doubt we shall hear the Minister's answers to the questions that I posed about the single currency. The hon. Gentleman well knows that the Government are greatly interested in that matter. I agree with him about the job loss figures. Of the total European figure of 5,000 losses, 2,000 are being sustained in a single—

Mr. Allen: What about the point that my hon. Friend posed about the United States?

Mr. Clappison: The hon. Gentleman spoke about the European figure.

Mr. Hendrick: No, the whole figure.

The Chairman: Order.

Mr. Clappison: The hon. Member for Preston (Mr. Hendrick) will be able to make a speech if he is successful in catching your eye, Mr. Olner. If he disagrees with me, I look forward to hearing his reasons in due course. I am sure that he would agree that the job losses at Luton are sad and that further losses in relation to suppliers and service companies are likely. These losses come on top of other manufacturing job losses, including those at Rolls-Royce, Coates Viyella and throughout the textile industry. There are reports of further problems for other manufacturers.

Ministers make statements about what they intend to do to make things better, but one key thing that they should do is to avoid making things worse. They should reconsider the burdens that they either have, or are about to, create for the manufacturing sector. We shall soon witness the introduction of a new tax—the climate change levy, to which the Minister referred. It is the subject of a special section in paragraph 6.20 of page 121 of the pre-Budget report. The levy is said to be fiscally neutral because it is accompanied by a cut in national insurance contributions, but there is no guarantee that that approach will continue in future. It is certainly not fiscally neutral for manufacturing industry. Many manufacturing industries will bear the brunt of the tax, and every car manufacturer will face a big bill, in net terms, each year as a result of the climate change levy. We believe that it is a job-destroying tax and we have called on the Chancellor to scrap it, though I am not holding my breath.

Will the Minister explain the Government's position on measures intended to mitigate the impact of the climate change levy on industry? In paragraph 6.30 of the pre-Budget report, we are told that such measures will require European state aids clearance and that the applications must be appropriate. We are told:

    The Government is continuing to work with the Commission to ensure a timely approval of its application.

Earlier this month, I was told in a written parliamentary answer that the Government were still working with the Commission on that package of measures. Given that the introduction of this tax is little more than three months away, when does the Minister expect to receive EU approval for the package of measures to mitigate the climate change levy?

That brings me to the burden of taxation in general, an important issue in the context of the documents before us. We are all aware of the Government's pre-election pledges on tax and that the tax burden has risen by the equivalent of 10p on income tax since they came to power. For a long time, the Government were in denial about the fact that the tax burden has risen, but, in March this year, the Prime Minister was forced to admit that taxes have risen. I have yet to hear a Treasury Minister admit that, and perhaps the Economic Secretary will tell us today whether she believes that the tax burden is higher or lower now than in 1997.

Even the Government's own figures in table B8 on page 175 of the pre-Budget report show that the tax burden is set to be higher every year until 2005-06 than in 1997. Can the Minister confirm the figure that was supplied to me by the Library, based on the figures in the pre-Budget report, that during the five years of the previous Conservative Government the average tax burden was 34.4 per cent. and the average tax burden for the following four years from 1997-98 to 2000-01 will be 36.9 per cent.? Those figures were analysed by the Library on the basis of tables B10 and B26 and at a time when other members of the European Union—for example, Germany, France, Italy and Spain—are cutting taxes. The important fact that emerges from the documents that comprise the report required by section 5 is that since 1997, we have all too readily given up the competitive advantages that had been secured by the United Kingdom. That loss bodes ill for the future.

Mr. Borrow: During their final year, the previous Conservative Government borrowed £28 billion to balance the books, which is about £500 for every man, woman and child in the country. The hon. Gentleman is accusing the current Government of increasing the tax burden. Is it part of his solution to increase the public deficit to reduce the tax burden, or would a future, reformed Conservative Government follow the path of previous Conservative Governments, which ran a huge public sector deficit every year?

Mr. Clappison: If the hon. Gentleman studies table B6 in the pre-Budget report, he will see that his Government will achieve both at the same time. During the period 2005-06, the tax burden will be higher than in 1997. At the same time, after five years of this Parliament, we shall go into deficit and the Government will again borrow. The Minister may care to confirm that when she replies.

The Government are giving away the competitive advantages that had been secured up to 1997. We hope that the assumptions behind the documents will not be thrown into disarray by anything that happens to other world economies, including that of the United States. However, because of the Government's actions, the UK will face whatever circumstances arise without the competitive advantages that we should have had, and we shall have lower growth, lower productivity and higher taxes than we would otherwise have had. That bodes ill for this country and will make our position with our competitors in Europe and the rest of the world more difficult.

5.19 pm

Mr. Edward Davey (Kingston and Surbiton): I, too, welcome you to the Chair, Mr. Olner.

The Committee should consider whether it is sensible to send documents to the Commission as required under section 5 if they contain information that is unhelpful to the United Kingdom. This debate is an annual event and I said in previous debates, particularly in 1999, that one or two statements in the documents that we send to Brussels are hostages to fortune. At some stage, pending the approval of Cabinet, Parliament and a referendum, the UK will doubtless enter into negotiations on whether to join euroland, and whether sterling should be replaced by the euro. Those negotiations will be critical to the future of the economy, and they will focus on the pound's rate of exchange in relation to the euro. That exchange rate will be crucial to the future of the economy and manufacturing industry, and it is vitally important that we get it right. Many who survey Britain's economy believe that sterling is significantly overvalued. In the past week, some reports have provided fresh evidence that the value of sterling is creating huge problems for regions dependent on manufacturing, and for manufacturing exporters throughout the UK.

References in the documents to sterling should therefore be carefully phrased, as they might be thrown back at a future British Government who engage in such negotiations. That is why I expressed concern in last year's debate about paragraph 2.37 of the pre-Budget report for 1999, which stated:

    Evidence is now emerging that adjustment to sterling's earlier appreciation may be nearing completion.

In other words, the Government were rather relaxed about sterling's rate against the euro. I found that rather worrying, given reports that emerged at the time.

Since then, evidence has suggested that the 1999 report's judgment was incorrect in respect of adjustment to sterling's appreciation. With that in mind, I am also worried by one or two apparently complacent phrases in the documents before us. It takes time to find any reference in them to the exchange rate, which is odd in itself.

 
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Prepared 18 December 2000