Government's Economic and Financial Assessment

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Mr. Redwood: My hon. Friend may have noticed that the Government have made the assumption that productivity growth will be 2 per cent. per annum for quite a large part of the forecast period. There is an interesting table that points out that if productivity growth were faster, the Budget deficit would come down much more rapidly, and it rightly points out that the deficit is incredibly sensitive to the rate of productivity growth. Independent forecasters think that there will be a surging Budget deficit, because they cannot see any way in which productivity growth can get up to anything like 2 per cent. That might be what my hon. Friend is saying.

Mr. Bercow: I suspect that one of the reasons why most independent forecasters doubt whether productivity can rise in the way that the Government hope and anticipate is that they are judging the Government on the basis of the record of their policies, rather than on their expectation of the future.

The truth is that productivity growth is inextricably bound up with other economic considerations. If business is burdened with ever-increasing regulation that is in itself increasingly complex, it will be much more difficult for companies to achieve good records on productivity: that is so obvious that only an extraordinarily clever person could fail to see it. There is no doubt that this country's poor productivity record under the Labour Government is, at least in part, a consequence of the fact that the sea of regulation that faces British businesses is now deeper and more hazardous than any with which they have previously had to contend.

In an earlier intervention on the Minister, my right hon. Friend the Member for Wokingham (Mr. Redwood) rightly referred to the prognosis for growth, and the marked difference between what most independent forecasters anticipate and what the Chancellor predicts. It is important for us to know whether the Government stand by their projection. Despite two successive quarters of 0.1 per cent. growth, do they still believe that the forecasters' consensus position of 1.7 per cent. is wrong and that, somehow, their 2 to 2.5 per cent. prognosis is correct? Are they still convinced that growth in the next year will be 3 to 3.5 per cent.? If so, can the Minister explain what will change in the economy to make it more likely that her targets will be realised, rather than that the forebodings of the commentators will be fulfilled?

There is also a problem with the savings ratio. The Government's performance on that has been abysmal. That ratio has collapsed from 9.5 per cent. in 1997 to 3.75 per cent. now. What are the Government going to do about that?

The Minister prosaically referred to the increase in state pensions, and she kept a straight face when she trumpeted and magnified the Government's policy on pensions. There was a surreal quality to what we heard, in mellifluous tones, from the Minister, because only the other day the Government admitted that

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there is a £34 billion black hole in pension funds, according to official estimates. What are the Government going to do about that?

A further problem in our economy is increased strike action. In 1997, about 235,000 working days were lost to strike action. By 2001, the figure had more than doubled to 510,000. About 1.3 million public sector workers are planning a one-day pay strike on 17 July. That will be the biggest industrial action in more than 20 years. What are the Government going to do about that?

Let us consider the balance of trade. In 1997, this country's trade-in-goods deficit with the European Union stood at £4.7 billion. Last year, it had been ratcheted up to £5.2 billion—an increase of £500 million. In 1997, the trade deficit in goods with non-EU countries stood at £11.1 billion. Five years later, it is £28.3 billion. That is an exponential increase from the figure that the Government inherited. Inflation in the property market has been rising at a ferocious pace. To put it at its most modest, there is uncertainty as to whether such a rate of house price inflation can be sustained. The Minister had next to nothing, if anything at all, to say on the subject.

There have been marked changes to national insurance. As a consequence, the average earner will be £15 a month worse off. A nurse consultant on £34,000 a year will be £24 a month worse off; a police inspector on £37,000 a year will be £27 a year worse off. The head of economic analysis at the Confederation of British Industry said that the result would be an

    ''extra incentive to keep employment to an absolute minimum.''

That was his verdict on not only the national insurance changes but the Budget as a whole. The Forum of Private Business says that the Budget will be

    ''a further disincentive to employ.''

The chief executive of the recruitment specialists, Reed Executive plc, said that the national insurance increase goes

    ''directly against the Government's professed objective of full employment''.

The Institute for Fiscal Studies estimated that, even after positive measures for business are considered, the Budget's cost to business will be roughly £1.1 billion.

Under the Government, there has been a £100 billion increase in taxes. I appeal to the more independent-minded Labour Members fully and fairly to consider the matter. [Interruption.] I must put on record that the Government Whip is astonished at the suggestion that there might be an independent-minded Labour Member. I suspect that is one of the most telling and succinct responses made by a Government Whip in any Parliament. As I am a person of generous spirit, I am prepared to name the right hon. Member for Newport, East (Alan Howarth) as being reasonably independent and fair-minded. I am sure that he will want to favour the Committee with his thoughts on the important matters under discussion when I, and others, have finished speaking.

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That £100 billion extra in taxes amounts to £1,600 per man, woman and child. Under the Government, pensions savings have been taxed by an extra £25 billion. Business taxes have risen by £6 billion a year, and there has been a comparable increase in regulatory costs. Despite that and despite a Government with a massive majority, and a Prime Minister who is in a supposedly impregnable position, we have rotten public services at rip-off prices in the form of higher taxation.

Mr. Ian Liddell-Grainger (Bridgwater): I wonder whether my hon. Friend would like to say more on the subject of further education. People in every college and further educational establishment—certainly those in Somerset, a rural area—are up in arms over the behaviour of the Government, who, year after year, are cutting what is given to further education in real terms. Matters are now worse because of financial black holes in the economy. Does my hon. Friend agree that we should explore and expose what is going on in education in the longer term?

The Chairman: Order. I point out to the Committee that there are 46 minutes left, and several hon. Members want to participate in the debate. That is not a reflection on the speech of the hon. Member for Buckingham (Mr. Bercow), but I want to ensure that hon. Members are aware of the time.

Mr. Bercow: I am extremely grateful, Mr. Pike. I shall not be much longer.

My hon. Friend the Member for Bridgwater (Mr. Liddell-Grainger) makes a sound point. The allocation of funds is a subject for legitimate challenge. As he and other hon. Members know, the Government are guilty of a significant underspend of resources allocated to the Department for Education and Skills, and even some of the sums trumpeted by the Chancellor of the Exchequer have not found their way to the grass roots—the school room, the further education college and the university. There is much to explore. The Government's rhetoric is self-congratulatory, but their performance in education, as in many other respects, has been extremely disappointing.

It is fair to mention public service agreement targets. My right hon. and hon. Friends will be aware that PSA targets are the responsibility of the Treasury. The Government's performance on that front has been decidedly mixed, to put it mildly, and I suspect that we shall hear more about that in the coming period. It is only right to give a little publicity, even within the Committee, to the Treasury's 1998 PSA target on efficiency gains, as it has been heavily under-reported. The Committee would be disappointed if I did not mention it, and it is right to do so.

The target committed the Treasury to delivering 2.5 per cent. annual efficiency gains and to securing at least 2.5 per cent. savings in running costs in real terms each financial year from 1997 to 1998. To find out the result, I consulted the annual report. I was all atremble to have the Government tell me that they had achieved their target. Astonishingly, I was to be disappointed. Unbelievably, the Treasury—home of the PSA target—said:

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    ''It has not proved possible to measure aggregate Treasury output.''

The Department that is known for its eggheads and bluestockings could not measure such a basic and necessary commodity. It cannot measure its own target or, indeed, claim to have met it. The real possibility exists that it has failed to meet that target. Until now, the Treasury has been regarded as cynical but competent. Now, even that competence has, at the very least, been brought into question.

I wanted to tell the Committee more about our sound commitments on monetary and fiscal policy, public services and reversing the burden of regulation. I fear that that must await another day.

The Government have overdosed on complacency. The rhetoric has been extravagant, and the performance has been disappointing. The challenge is enormous, and expectations are falling daily. It is time that the Government bucked up their ideas, showed a little modesty and a readiness to respond responsibly to criticism, and accepted that they are a long way from achieving perfection.

5.19 pm

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Prepared 8 July 2002