Broad Economic Policy Guidelines

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Mr. Lidington: My reading of the Council recommendations is that all member states are committed to presenting comprehensive strategies to

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address the economic and budgetary challenges posed by ageing populations in future, and that those documents will be presented with the annual stability and convergence programmes. They will also be examined in the context of multilateral surveillance, which presumably means something comparable to the ECOFIN consideration of the broad economic policy guidelines. What are the Government doing to implement that commitment?

Ruth Kelly: I am sure that the hon. Gentleman is aware that the UK is better placed than most other EU countries to meet its pension liabilities in future. The recent report on ageing populations by the economic policy committee of ECOFIN projects that public pension spending will fall as a percentage of GDP from its present figure of 5.5 per cent. to 4.4 per cent. by 2050. The difference between our pension structure and those in the rest of the Europe is well known. We rely much more on the funded pension system, and face less severe demographic pressures than other European countries do.

We are committed to ensuring that we tackle pensioner poverty as part of our agenda to help people in their old age. That is why we introduced reforms such as the minimum income guarantee, the winter fuel allowance, free eye tests and help with concessionary fares for pensioners. It is why we have introduced the pension credit—the relevant Bill recently passed through Parliament—to help pensioners who also have modest savings to gain the benefit of those savings.

Mr. Hopkins: I wonder whether I might help my hon. Friend in relation to the apparent contrast between our public spending figures and those of other European nations. On 2 December, The Observer suggested that some of the eurozone countries indulged in

    ''fiscal acrobatics that saw billions of euros of future spending parked off member countries' balance sheets''.

They disguise their public spending, to an extent, by removing some inconvenient items. The article suggested that that was

    ''the slimming equivalent of weighing yourself with one foot resting on the bathroom carpet''.

Perhaps we do not do that in Britain while some of the eurozone countries do. If so, that is why we are more honest and why there might be a contrast between them and us.

Ruth Kelly: I enjoyed my hon. Friend's remarks, but it would not be wise to debate specific policies and confront the liabilities that other EU countries may face. Our country is fortunate to have a system that relies more heavily than those of others on the funded pension scheme. We shall face strong demographic pressures in future, but they will not be as intense as those faced in other countries. The European Union system also has no bail-out for countries that do not adequately tackle such issues, which clearly intensifies the pressure on them to prevent demographic pressures from overwhelming them. We watch that

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debate with interest, but it would not be wise for me to comment on the individual policies that member states pursue.

Mr. Wilkinson: The United Kingdom approved the present proposals at the ministerial Council in June. First, will the Economic Secretary explain why the UK endorsed the pursuit of further tax co-ordination to avoid harmful tax competition? The UK's low-tax regime has given us a higher growth rate and more jobs than elsewhere in the European Union. Secondly, how will a more uniform application of VAT systems in the European Union help entrepreneurship? How will VAT on children's clothes and shoes, food or transport improve our competitiveness and our ability to create jobs and prosperity?

Ruth Kelly: I do not know how many times the Government have said that they are not in favour of forced tax harmonisation. Clearly, we are not in favour of imposing VAT on items such as domestic fuel, as the Conservative Government did—a move that we were forced to reverse.

David Cairns (Greenock and Inverclyde): They doubled it.

Ruth Kelly: Exactly. My hon. Friend tells us by exactly how much VAT on fuel went up.

Mr. Wilkinson: I voted against that.

Ruth Kelly: I am glad to hear that the hon. Gentleman voted against it; that shows, at least, that he is a man of integrity. However, he well knows that the Government are not in favour of tax harmonisation. We favour a sensible policy of tax competition, which is why we have argued for co-operation and competition, where they make economic sense. We shall never be forced into a situation where Brussels asks us to adopt a particular tax regime, because that would be far beyond its competence and would require unanimity. The hon. Gentleman reads far too much into the documents.

Dr. Palmer: As a slight gloss to the Minister's alternative view of the issue, I should say that there has traditionally been a variety of opinions in the Committee on such subjects. Does she agree that the harmonisation of excise rates would be helpful? As regards tobacco smuggling, we can hardly sustain different rates from those across the channel, and there are similar problems with alcohol and other products. The distinction seems to be between goods, which can be moved easily around the European Union and which are easy to smuggle, and services, individual taxation and corporate taxation, which cannot be so easily transferred and for which harmonisation would be inappropriate.

Ruth Kelly: I thank my hon. Friend for his comments but, as he is probably aware, I disagree. Taxation matters are properly left to democratically chosen national Governments with competence in such matters. Tax competition is a natural and good thing, but I would not want to follow the line that my hon. Friend suggests.

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Mr. Lidington: In view of that answer, why have the Government signed up, on page 25, to

    ''an appropriate framework for energy taxation at the European level''?

Ruth Kelly: Clearly, some energy matters have a wider application than to the United Kingdom alone. The initiatives that we are considering include emissions trading, which would allow energy-intensive firms that pollute the environment to trade with one another. That would help reduce the level of emissions at as low a cost as possible, which is why we are piloting such measures. Some initiatives can be examined in the European context.

Mr. Hopkins: I strongly endorse my hon. Friend's reference to the right of member states to set their own excise duties. I think particularly of alcohol duties; if they were reduced to European levels, there would be a surge in drinking in this country that would be even more damaging than at present. I should declare an interest, in that I chair the all-party alcohol group, but my question is on a different subject.

Reference has been made to the employment of older workers in the European Union. On page 19 of the document, a table shows the percentage of older workers employed in the member states. It lists Britain in fourth place. Denmark is second and Sweden is first. Economic performance and employment levels generally are better in those countries at the top of the table. Is it significant, or is it a happy coincidence, that those three countries are outside the eurozone?

Ruth Kelly: I do not know whether my hon. Friend would agree, but one of the factors that has promoted job creation here—it has been an important force behind the rise in our employment rates, which are now among the best in the world—is the flexibility of the labour market, and the fact that it is now much easier for firms to employ workers without risk. The flexibility of our labour market has been widely recognised, and it is endorsed in the broad economic policy guidelines. It does not depend on whether member states are participating in the eurozone. It is about measures that promote structural reform. We are committed to economic and structural reform, and the labour market is an important element of that framework. I am pleased to say that Spain, which has just assumed the EU presidency, has made labour market reform one of its five key objectives, and I hope to see that strategy gain momentum over the next few months.

We have a good employment record for older workers, although I would be encouraged if the rate were to increase. We still have a significant degree of inactivity among older workers, but the Government take it seriously and want to help through our initiatives on active ageing and other forums such as the new deal for the over-50s. We must continue to take those issues seriously. We certainly should not congratulate ourselves too much.

Mr. Lidington: May I take the Economic Secretary back to the question of the ageing population? My previous question was not about pensions policy but

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about the process to be implemented at European level that is documented in the papers before us. The commitment in the guidelines that each country should submit a report on its pensions, welfare and other policies affecting the elderly in the same way as it now submits a plan on its economic policies, implies that those welfare and pensions documents will be considered at Council level. If so, that is a major shift in the scrutiny—and, to use a mild word, co-ordination—of welfare and pensions policies at supranational level. Is that what will happen?

Ruth Kelly: No; the hon. Gentleman is incorrect. The Government are committed to a process of peer review and benchmarking, particularly in areas of structural and economic reform. We already have the Cardiff process of peer review of structural reform. We also have the Luxembourg process on employment, where the framework is agreed and the objectives set at the European level, but national Governments are free to implement policies in their own area that they consider to be suited to their economic, social and cultural environment. I welcome the process of peer review. As member states, we have much to learn from one another. The peer review process will go some way to encourage co-operation and learning, which will, in the end, raise productivity growth and increase job creation throughout the EU.

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Prepared 9 January 2002