Government's Economic and Financial Assessment

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Mr. Redwood: The debate is meant to be about whether we are converging. We are meant to be approving a report to the European Union, which will use it to judge whether our economy is converging with that on the continent, and whether we are meeting the rules that it laid down under the growth and stability pact, as well as other rules relating to the conduct of European economic policy.

I find the report an unconvincing and unwieldy document, and I am minded to recommend that members of the Committee vote against the motion. The document does not answer the questions that any sensible, intelligent bureaucrat in euroland would wish to have answered. It certainly does not answer the questions of those in Britain who are interested in a serious debate about whether strengthening our links with euroland would be good or bad for our economy.

I was heartened by the comments of the right hon. Member for Newport, East, who made a distinguished contribution to the debate. He pointed out many of the difficulties that would arise if the Government were more serious about meeting the requirements of the growth and stability pact and were more strenuous in their efforts to converge our economy with those on the continent, which, in several respects, are doing less well than the British economy has done in recent years.

The Minister let out a cryptic and unexplained remark during her interesting observations, saying that there was a convergence programme. That is an

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important programme that should be reported to the House of Commons. I have often asked written—and sometimes oral—questions to elicit whether we are converging, and if so, how we are to do so. I have asked whether the Government's economic policies, set out in many documents and statements, are designed to bring us closer to our European partners' economic performance.

For example, is the idea of a big national insurance hike—a tax on jobs—part of a strategy to try to get our unemployment up to the levels more customary in France or Germany? Is the decision to have much higher stamp duty part of a strategy to ensure that fewer people can buy homes, especially younger people on lower incomes, and have more of them living in rented accommodation so that we are more like our European partners? Was the decision to keep many of the Government's obligations off the balance sheet part of an ill-concealed strategy to keep deficit figures in line, or are we following a policy, as the right hon. Member for Newport, East thinks, of ignoring some of the budget rules because they do not suit the Government's programme of investment?

The most important thing that one would have thought the Government would want to set out for the House as they continue to hunt the euro is the price that they wish to pay. They are being about as effective in that hunt as those who hunted the Snark in the famous poem; when they got it, it was, indeed, a rather unpleasant Boojum. If I listen to a salesman or saleswoman, I want to know early on how much a product or service will cost me amid hearing about its alleged and fabled advantages. The one piece of information that we can never get out of the Government is the rate at which they would prefer to enter the euro—the price of the euro.

I rarely praise Liberal Democrats, but at least they have had the decency and courage to outline the kind of devaluation that they believe to be required. I think that, given the current rate of the euro, my figures on devaluation are broadly right. I accept the point made by the hon. Member for Kingston and Surbiton (Mr. Davey) that the figures are not right if one considers the top of their range, but my figures were within the range that Liberal Democrats set out. At least they have set out an estimate of what the exchange rate would have to be in order for them to be wholeheartedly in favour of doing what they welcome in principle. Surely the Government would benefit by telling the markets the rate at which they think that the deal would be more reasonable, because the markets might then start to adjust. If the Government, rather than the Liberal Democrats, gave the information, it would be taken more seriously, because they would be in a position to do something, and presumably some of their wishes would come true because the markets would probably adjust quickly and those concerned would say, ''Right, if the Government think that the pound is wrongly valued against the euro, we will help to sort that out, especially if they are urging a devaluation.''

It would be worth knowing whether the Government are happy with the current exchange rate, because if they are, that might stabilise the rate.

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The pound has recently been going down against the euro—or the euro has been going up against the pound. If the Government do not think that that is a good idea and want a vigorous anti-inflation policy by joining the euro at a relatively high rate, surely it is now time to say that, in order to try and arrest the current decline in the pound against the euro. If we are to be invited to buy a pig in a poke, it will be useful to know what the price will be.

I want to know more from the Government about unemployment. They have noticed that unemployment is much higher on the continent, which is one of the main reasons why I do not wish to link our fortunes so strongly with our European partners. I do not want to have to tell my constituents, who have enjoyed high employment and low unemployment over recent years, that we might participate in a policy that could lead to higher unemployment than the level that we have taken for granted in recent years. Despite all the German and French Governments' efforts, they find it impossible to get unemployment down to anything like British levels—or acceptable levels in a normal democracy. One of the main reasons must be that they are very constrained by the combined pressures of the growth and stability pact, which limits how much they may spend in excess of their revenue, and the monetarism of the European Central Bank, which seems to be tougher, less flexible and less conscious of the damage that that can do to economic growth and output than the central banks of the United States of America and the United Kingdom, which follow rather different policies.

I wanted the Minister to tell us rather more about the contrast in the housing markets. As I mentioned earlier, I sometimes fear that the Government are a secret critic of people owning their own home. I think that that is one of the most liberating things that a family can achieve and aspire to. One of the best things about the social revolution during the 20th century in the United Kingdom is that many more people own their own home and may paint, decorate and enjoy it as they like. They have an asset that they can use as they go through their life and need extra cash, or they can pass it on to their children, who have then something with which to begin their lives, or something early on in their careers. Continental economies do not have the same reliance on flexible mortgages or the same competitive mortgage market, and they have much lower levels of owner-occupation. The question is whether we are trying to converge with that, as it appears that the Government's policies are designed to price people out of the market. The planning policy is restrictive, and the policy on stamp duty is difficult. There have also been odd decisions about where building does and does not take place.

My next worry about the document relates to the budget deficit, and the way in which it is described. Table C2, which the Minister invited us to read, shows large differences between European definitions and the United Kingdom definitions that the Government prefer to use. With regard to the table for 2000–01—the outturn on debt—public sector net debt, according to the Government, is 31.3 per cent. of gross domestic product. On the same table, the core debt—another

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little idea of the Government's—is 31 per cent. However, on a treaty basis—the European definition—the figure shoots up to 40.1 per cent. According to their own tables and main statements, the Government are clearly not meeting the tighter requirements of the European Union, which properly, on this occasion, wants to examine all, not just part of, the debt that the Government are incurring.

What worries me about the reporting document, shoddy as it is, is that that gap will get bigger with the massive off-balance-sheet liabilities that Her Majesty's Government are incurring on behalf of the taxpayer. No doubt, those figures do not include any of the £21 billion that is now being guaranteed for Network Rail. That astonishingly large sum has been miracled off the public sector balance sheet, but is a contingent liability on the public sector. In the private sector, that would undoubtedly have to be put on the balance sheet or given a strong note to draw people's attention to it. The Opposition do not see any reference in the documents to the recent events at Consignia, which now appears to have been renamed the Post Office. We know that dividend had to be repaid to the Post Office after all the years of successful husbandry and management. We also know that there may be a larger cash requirement from the Post Office. That contingency does not appear to be included in the figures.

To judge from recent press reports, there may be a similar problem at the United Kingdom Atomic Energy Authority and its related businesses. There are also obvious problems with National Air Traffic Services where the requirement for funds from the public sector may be much greater. The London Underground public-private partnership will be the greatest problem of all. The large sums are said to be private sector, but any prudent accountant would say that the rules and regulations and the way in which the liabilities were underwritten would have to be on the Government's balance sheet.

The Minister appeared to suggest that the Government's final report to the European Union would not be the one before the Committee today. It should be more honest and open about the off-balance-sheet liabilities and contingencies. If it is not, I am sure that the European Union will soon be on to the Government and will want clarification and improved figures. The European Union successfully challenged some of the questionable accounting practices in countries such as Italy. I fear that we

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appear to be going down the same route as Italy. Will the European Union be happy with benefits being counted as tax reductions, not public spending? Will it be happy with the way in which many of the public-private partnerships are being treated?

The Government's strategy is predicated on a continuing growth rate that is high compared with that of our European partners, and on an accelerating growth rate next year. As my hon. Friend the Member for Buckingham (Mr. Bercow) admirably said, the Government's figures for the first half of this year have been extremely disappointing. A rapid acceleration of growth will therefore be needed to get anywhere nearer. The Government look at the situation the other way round and say that the figures would improve dramatically if growth were faster. I agree that they would. However, the converse is also true: the figures will look bad if the growth rate disappoints.

Mr. Patrick Hall (Bedford): On a point of order, Mr. Pike. Conservative Members wrongly stated that the Minister sought to avoid responding to the debate. Is it in order for them deliberately to talk out the time available, thus fulfilling their prediction that she will not respond?

The Chairman: Whoever is speaking has the right to make his own speech. My two comments earlier in the sitting indicated the time constraints.

Mr. Redwood: I did not say such a thing about the Minister. I merely wanted to make my point.

Question put:—

The Committee divided: Ayes 7, Noes 5.

Division No. 1]

Clapham, Mr. Michael Hall, Patrick Howarth, Alan Kelly, Ruth
Stinchcombe, Mr. Paul Sutcliffe, Mr. Gerry Wright, Mr. Anthony D.

Bercow, Mr. John Davey, Mr. Edward Horam, Mr. John
Liddell-Grainger, Mr. Ian Luff, Mr. Peter

Question accordingly agreed to.


    That the Committee has considered the Government's Assessment, as set out in the Financial Statement and Budget Report 2002–03 and the Economic and Fiscal Strategy Report 2002–03, for the purposes of Approval under Section 5 of the European Communities (Amendment) Act 1993.

Committee rose at one minute past Six o'clock.

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The following Members attended the Committee:
Pike, Mr. Peter (Chairman)
Bercow, Mr.
Clapham, Mr.
Davey, Mr. Edward
Hall, Patrick
Horam, Mr.
Howarth, Alan
Kelly, Ruth

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Laws, Mr.
Liddell-Grainger, Mr.
Luff, Mr.
Stinchcombe, Mr.
Stringer, Mr.
Sutcliffe, Mr.
Wright, Mr. Anthony D.

The following also attended, pursuant to Standing Order No. 118(2):
Redwood, Mr. John (Wokingham)

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Prepared 8 July 2002