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Section 5 of the European Communities (Amendment) Act 1993

8.35 pm

The Economic Secretary to the Treasury (Ruth Kelly): I beg to move,


I am delighted to be here, but I am even more delighted to see the hon. Member for West Dorset (Mr. Letwin) sitting on the Opposition Front Bench. I thought for a minute or two that the Labour party might have to put up another "Wanted" poster while the Whips desperately tried to find him, but luckily, here we are, face to face.

Each year, the Government are required to send information to the European Commission setting out our main economic policy measures.

Mr. Desmond Swayne (New Forest, West): Shocking.

Ruth Kelly: Nevertheless, it is the case.

It is important that we provide the information. The procedure is set out in articles 99 and 104 of the EC treaty, which relate to the broad economic policy guidelines, convergence and stability programmes and the excessive deficits procedure. The purpose of the reports is to help to ensure that member states' economic policies are consistent with the goals of the treaty. Those goals are set out in article 2, and include non-inflationary economic growth that respects the environment, a high level of employment and social protection, and raising the standard of living and quality of life, as is consistent with the Government's approach to economic policy. Section 5 of the European Communities (Amendment) Act 1993, which is usually known as the Maastricht Act, requires Parliament to approve the Government report that is sent to the Commission for that purpose.

The Government's strategy for economic policy is set out in the "Budget 2001" report. Today we have the opportunity to debate that document, as it will form the basis of the information that we send to the Commission. Sharing the information in the Budget documents with our European partners allows us to influence Europe, and to bring employment and growth to Britain and other member states. "Budget 2001" describes the Government's strategy to raise Britain's national economic potential and to achieve high and stable levels of growth and employment along with rising living standards for all. The Budget will help to 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, as set out in the Budget report, are to deliver macro-economic stability to provide a platform for long-term sustainable growth and employment; to meet the productivity challenge through promoting competition, enterprise, innovation, skills, investment and public sector productivity; to increase employment opportunity for all; to ensure fairness for families and communities; and to ensure a better quality of life for everyone, now and for generations to come, by protecting the environment.

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The Government's first economic priority on coming to office in 1997 was to deliver stability for the long term, with the recognition that economic stability is a precondition for achieving our objective of high and stable growth and employment. We therefore introduced the new macro-economic policy framework, which is based on the principles of transparency, responsibility and accountability. The framework is already promoting economic stability by delivering low inflation and sound public finances.

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 the public finances and underpinned by two strict fiscal rules; and a new public spending framework, which is integrated into the fiscal framework, to provide for better long-term planning and ensure a greater focus on the quality of public service provision. We are already seeing the rewards of the new macro-economic framework.

Mr. Edward Davey (Kingston and Surbiton): Will the Economic Secretary remind the House of the Government's policy for the exchange rate within that new macro-economic framework?

Ruth Kelly: The Government want a long-term, stable and competitive exchange rate, and that is exactly what we are working towards, as we seek to provide a foundation of stability based on low inflation and prudent public finances. That is the best way of delivering a platform for stability.

Inflation in the United Kingdom has been significantly less volatile since 1997—lower for longer than at any time since the 1960s, and in line with our target. Now, long-term interest rates are about the lowest for 35 years, reflecting a sustained reduction in inflation expectations.

The new fiscal framework has put public finances in a healthy and sustainable position. The Government inherited public finances that were in poor shape, yet since 1997 they have been transformed. The Government have cut borrowing by more than £44 billion since 1996–97. Building on that achievement, the Budget underpins the spending plans set out in the 2000 spending review, and locks in the fiscal tightening of the previous Budget.

The Government have ensured that we remain on track to meet our fiscal rules, while releasing resources for sustained investment in key public service 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 average growth of more than 5 per cent. a year from 2000–01 for education, more than 5 per cent. a year for health, 20 per cent. a year for transport spending in England, and 4.2 per cent. a year for the criminal justice system in England and Wales.

In the Budget we have been able to allocate an extra £1 billion for education, an extra £1 billion for health and an extra one third of a billion pounds to help to tackle drugs. That is over and above the sustained investment announced in last year's spending review. The Government can provide those resources because of their prudent handling of the economy. Even under the most cautious assumptions, our projections show surpluses on the current Budget in each of the next five years.

Public sector net debt has fallen from 44 per cent. of GDP in 1996–97 to 31.8 per cent. at the end of 2000–01. It is projected to stabilise at about 30 per cent. of GDP

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for the remainder of the projection period covered in the Budget. That compares with a doubling of the debt burden in the 1992–97 Parliament. Our prudent approach to the management of public finances means that the debt ratio can be combined with rising public sector investment, thus tackling years of neglect of the public infrastructure.

A sound and credible platform of economic stability has been achieved under the Government's new frameworks for monetary and fiscal policy. Our commitment to stability and prudence is for a purpose: unemployment is now the lowest since the 1970s; since the 1997 election, employment has risen and unemployment has fallen in every region. Employment has risen by more than 1.2 million since the 1997 election, with more people in work than ever. The United Kingdom is enjoying the longest period of sustained low inflation since the 1960s.

Growth of 2.5 per cent. is expected this year, and inflation is expected to remain close to the Government's target in the period ahead. Independent forecasters agree with our assessment.

The Budget responds to the challenge of meeting the fiscal rules over the economic cycle and underpinning the 2000 spending review by continuing to lock in stability for the long term. The 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. It is a key route to raising living standards. It is a moment of opportunity for the UK, and a challenge to everyone involved.

The Government's long-term ambition is to close the productivity gap between the UK and its main competitors. To that end, we have identified five key topics for action: strengthening competition, encouraging enterprise and innovation, creating incentives for investment, investing resources in skills, and working to improve public sector productivity.

Mr. Swayne: Does increasing productivity apply to the public as well as the private sector? The Economic Secretary said that competition was one of the methods of achieving that. Why, therefore, is competition excluded from the public sector?

Ruth Kelly: If the hon. Gentleman had listened to me, he would have noted that I specifically spelled out that we were taking steps to improve public sector productivity. They must go hand in hand with improving our overall competitive position.

Building on previously announced provisions, the Budget contains a package of measures to help small businesses, including implementing the pre-Budget report proposals to reduce the impact of VAT, reduce their administrative burden and improve their cash flow. Consultation will take place on proposals for a new research and development tax credit for large firms and there will be full financial flexibility for regional development agencies from 2002–03, matched by increased accountability through objectives and targets to meet their strategic goals.

We shall be working to make capital markets more efficient by taking forward all the recommendations of the Myners review, addressing distortions in decision making

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by institutional investors and expanding the scope of enterprise management initiatives. Meeting the challenges of raising productivity and closing the gap with our main competitors will help to raise living standards in the economy as a whole. However, 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 people are in work. Our goal is that by the end of the decade there will be a higher proportion of people in work than ever before.

The Government have already taken significant steps towards achieving that objective. To help make work pay and to improve work incentives, they have introduced the national minimum wage and a new 10p rate of income tax, cut the basic rate of tax to 22p, and reformed national insurance contributions. For low and middle income families with children, the introduction of the working families tax credit has made a significant difference to family incomes.

The Budget took action to increase employment opportunities by enhancing the new deal, which has already helped more than 270,000 young people from welfare into work. In the new deal for lone parents there will be further help with training, with starting up in self-employment, and with child care costs. Resources will also be allocated to enhance the new deal and other programmes over the coming three years, focusing on employer needs, on the hardest to help, and on the most disadvantaged areas.

To help make work pay, the Budget increased the basic credit in the working families tax credit by £5 on top of indexation, and extended the 10p rate of income tax by £300 over and above indexation, helping 2.5 million taxpayers. There is no better time to encourage the long-term unemployed, and those who have become particularly detached from the labour market, back to work. It is estimated that there are 1.2 million vacancies in the economy as a whole.

The Government continue to work on building a fairer and more inclusive society—in particular by tackling child poverty, helping pensioners, rewarding saving, investing in public services and ensuring that the tax system is fair. Everyone should have the opportunity to fulfil their potential and enjoy the benefits of high, stable economic growth.


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