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3. Mr. Philip Hammond (Runnymede and Weybridge): What recent discussions he has had with the Governor of the Bank of England regarding trends in levels of business activity in the United Kingdom. 
4. Dr. Andrew Murrison (Westbury): What recent discussions he has had with the Governor of the Bank of England regarding patterns of business activity with specific reference to (a) region and (b) sector. 
The Chancellor of the Exchequer (Mr. Gordon Brown): I last met the Governor of the Bank of England yesterday for the Standing Committee on Euro Preparations, and I am today publishing the sixth progress report on euro preparations. Copies of the report are available in the Vote Office and the Library.
On business activity by sector and by region, I regularly discuss those matters with the Governor, and hon. Members will wish to know that the Government today accepted undertakings from the four main clearing banks that, from no later than 1 January next year, they will pay interest of no less than 2.5 per cent. below the base rate on current accounts or offer free banking services to their small business customers in England and Wales. That will be of great help to many of the 3.5 million small businesses throughout the country.
Mr. Hammond: Would the Chancellor nevertheless agree that the level of business activity tomorrow depends critically on the level of investment today, and that that investment depends on business confidence, which has been severely damaged over the past five years by the Government's imposition of £12 billion a year in extra taxes and regulatory burdens on business? It was further damaged by the lack of consultation before the Budget announcement of increases in national insurance contributions and North sea taxes, and will it not be damaged again by this morning's revelation that the Government's union paymasters are demanding a massive expansion of trade union powers and rights in exchange for the continued funding of the Labour party?
Mr. Brown: What business wants and needs is economic stability. Under the Conservatives, inflation averaged 6 per cent.; under Labour it has averaged 2 per cent. Under the Conservatives, unemployment averaged more than 10 per cent.; under Labour it is averaging 5 per cent.indeed, it is the lowest it has been since 1975.
As far as business investment is concernedthis is perhaps an answer to those who talk about the dividend tax credit, as wellthe share of business investment as a percentage of gross domestic product has risen significantly under this Labour Government. It was 10 per cent. and 11 per cent. in 199596, 14 per cent. by 1998, 13.9 per cent. in 1999, 13.7 per cent. in 2000 and 13.4 per cent.
On the other concerns of small business, 700,000 businesses will benefit from the new VAT simplification scheme that we are introducing as a result of consultation with small business. That will cut the amount of paper forms and form filling and will be a major reason why there will be less red tape for small businesses.
On the small business corporation tax rate, this Government cut it from 23p to 20p, then, in the last Budget, to 19p. This Government introduced a 10p corporation tax lower rate, then abolished it in the Budget, meaning that 150,000 businesses will pay no corporation tax whatsoever. Again, the hon. Gentleman should welcome our measures for business.
Geraint Davies (Croydon, Central): Does my right hon. Friend accept that with 28.5 million people with jobs, there are more people in work than ever; that inflation is at its lowest for 27 years at 1.5 per cent.; that interest rates are at their lowest for 38 years; and that wage increases are modest at less than 4 per cent. Does he accept that those are the conditions for business to invest and succeed, and that it will do that under his leadership?
Mr. Brown: Proportionately, the organisation that has suffered most job losses in the past five years is the Conservative party. It lost so many Members of Parliament in 1997 and was unable to recover in 2001. The Opposition should welcome our actions: 1.5 million more people are in jobs; our measures have led to a 70 per cent. cut in youth and long-term unemployment, and unemployment is lower than in America, Japan and the euro area.
If we had taken the advice of the Conservative party, we would have made the wrong decisions. We made the Bank of England independent, and the Conservatives opposed that; we created the Financial Services Authority, but the Conservatives opposed it; we created the new deal, and they opposed that, too. They advised us not to implement the minimum wage; the shadow Chancellor
Mr. George Mudie (Leeds, East): I welcome the Chancellor's statement that the Government have managed to persuade the arrogant four major banks to end the monopoly position on small businesses. As my right hon. Friend knows, that cost small businesses £750 million over three years. Will he assure hon. Members that he will maintain the pressure on the four banks to accept the Competition Commission's other recommendations on their position so that the monopoly that has harmed small businesses and consumers is broken?
Mr. Brown: I am grateful to my hon. Friend, who, as a member of the Select Committee on the Treasury, takes an interest in such matters. The shadow Chancellor should be on his feet welcoming the fact that the four large banks have accepted the Competition Commission's recommendations and that, therefore, either interest rate charges for many thousands of businesses will be reduced in the next few months, or they will get a free service from the banks. That is the result of a Competition Commission referral that was made under the Labour Government and of recommendations to improve competition in the banking market. I wish that there were all-party support for that, and I hope that Conservative Members will recognise that the 3,000 or 4,000 small businesses in their constituencies will welcome it. Conservative Members should also welcome it instead of opposing it.
Sir Peter Tapsell (Louth and Horncastle): The Chancellor is proud of the current very low rate of inflation, but what does it signal? Did he point out to the Governor that the current rate of inflation, whether asymmetrical or not, is considerably below the Bank of England's target? Does he recall that after the 1929 stock market crash, public service index-linked pensions fell year by year until 1936? Does he have any fears that we may move into negative inflation? That would be extremely damaging, as it was in the 1930s, to business activity.
Mr. Brown: This is the first time that the hon. Gentleman has asked me a question without mentioning the word "Europe". The Opposition cannot have it both ways. When we introduced our spending review in 2000, they said that it was unsustainable and would cause galloping inflation. The Opposition should welcome the current low rate of inflation. However, the shadow Chancellor presided over 10 per cent. inflation, whereas we have 2 per cent. inflation.
Mr. Barry Sheerman (Huddersfield): Does my right hon. Friend agree that, after hard times, it is good that the manufacturing sector has flipped back into life in the past two quarters? However, does he also agree that, although the news about extra resources and a broader remit for regional development agencies is good, regions that were much more dependent on manufacturing will need even more help? Only this week, we had bad news about a pit closure in Yorkshire. We will need help with jobs, reinvestment and new wealth.
On manufacturing and the general industrial economy, the research and development tax credit that we announced in the Budget, which will now be for large firms as well as small ones, the measures that we announced in the spending review to boost sciencethis is especially important in respect of the technological products that could lead to manufacturing successes in futureand the rise in regional development agency budgets from £1.6 billion to £2 billion over the next few years are a means by which we can build modern manufacturing strength in every region and nation of the United Kingdom. I hope that there will be a general welcome for what the regional development agencies, the research and development tax credit and the investment in science can do.
Mr. Howard Flight (Arundel and South Downs): The Chancellor made no mention of our productivity performance. Back in 1997, he asserted that the first challenge was to increase our productivity, and I agree with him: productivity is the ultimate measure of our economic success or failure. Why, then, has Britain's productivity growth rate over the past five years been half that for the last five years of Conservative government? Why have the figures for the first quarter of this year shown not only lower growth, but an actual fall in productivity?
Mr. Brown: When we came to power, we inherited a situation in which manufacturing productivity had fallen in 1995 and 1996. We had to rebuild with a number of very difficult measures the conditions for business investment and productivity growth in this country. If the hon. Gentleman considers the situation in 2001, for example, he will see that what happened in the manufacturing sector was this: textiles, footwear and clothing were up by almost 4 per cent.; food, drink and tobacco productivity were up by 4 per cent.; paper, pulp and printing were up; chemicals were up by 7.1 per cent; and rubbers and plastic were up by 3.1 per cent.
What happened in the manufacturing sector last year is that, because of what was happening throughout the world in information and technology, there was a drastic fall in productivity as a result of a major fall in outputin some cases, it was 50 per cent.in the telecommunications industry. That was happening in America, the rest of Europe and Britain, but the general gains being made in manufacturing industry are again something that the hon. Gentleman could welcome. I repeat that the only Governments in the past 25 years under whom productivity and manufacturing productivity have fallen have been Conservative Governments.
Mr. Barry Gardiner (Brent, North): Will my right hon. Friend confirm that business investment growth in the past five years has been at 6.2 per cent., in comparison with long-term business investment growth of 3.5 per cent.?
Mr. Brown: The right hon. Member for Wokingham (Mr. Redwood), who is waiting to pounce on the shadow Chancellor, must despair of those on the Conservative Front Bench and the way in which they put their case about the national economy. We have created greater stability by making the Bank of England independentbut initially the shadow Chancellor opposed that. We have created a better competitive framework by making the Competition Commission independentand originally the Conservatives opposed it. We have created a new deal that gives people, through responsibilities and rights, the opportunity to get back to workand the Conservative still oppose the new deal. We are creating the conditions for both stability and growth. It is a pity that on all the major decisions made in the past five years, the shadow Chancellor and the Conservative Opposition were generally against them.