Broad Economic Guidelines

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Ruth Kelly: We have had an interesting debate and I particularly welcome the comments of the hon. Member for Truro and St. Austell (Matthew Taylor), who welcomed the progress that has been made by European Union countries, particularly on pension liabilities and generally on reforming their economies. They have tackled successfully some of the challenges of globalisation and competitiveness and promoted employment and social inclusion. Member states can be proud of the fact that 5 million jobs have been created in the EU since the Lisbon Council.

In the time available, I shall try to tackle some of the points raised by the hon. Members for Buckingham and for Truro and St. Austell. I thank the hon. Member for Buckingham for his kind words at the start of his speech. However, he said that he approved of discussions with the European Commission if, and only if, they were useful. It is common sense to talk to people if it is useful, but maintaining good relationships is also useful. In the context of peer review, discussions on broad economic policy guidelines and stability and growth programmes are useful in both our own context and the broader context of European policy co-ordination.

The hon. Gentleman asked me to confirm that the Government would reduce public expenditure or increase taxes only for national reasons rather than artificially to meet some Commission objective. That is clear, and I should point out that we are broadly in agreement with the Commission's outlook on the need for promoting structural and economic reform across Europe and for liberalising our labour, product and capital markets. We support the thrust of the broad economic policy guidelines and welcome the comments that have been made about the United Kingdom because they tally neatly with our own domestic objectives. We are taking action to continue that process of economic reform.

The hon. Gentleman asked whether the UK was taking action to strengthen the incentives to take up work, and I point to our record of job creation. We have created 1.5 million jobs since 1997. We have put

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in place a framework that makes work pay, by introducing for the first time a minimum wage supported by a comprehensive system of tax credits. We have a comprehensive strategy to create employment and support jobs. The hon. Gentleman mentioned the national insurance reforms. He should examine national insurance as a package and not neglect the reforms that we made in 1998, which had a positive effect on the labour supply. Indeed, the Commission has recognised the UK's achievements in reforming the labour markets and creating jobs.

Both hon. Gentlemen pointed to the need for our population to save more during their working life and for us to examine the incentives to save. The hon. Member for Buckingham noted that the savings ratio has fallen under this Government. It is fine for him to point to a high savings ratio as a measure of success under his Government, but most people would see that high savings ratio as a response to boom and bust—dare I repeat the words—and the need for consumers to retrench and save in the face of extremely unstable economic conditions. A high savings ratio by itself is no sign of economic success. We want people to be able to take a long-term view about their savings needs for the future. We also want a macroeconomic environment in which it makes sense for a rational consumer to choose to save.

Matthew Taylor: While it is a pleasure to hear the Financial Secretary attack the Conservatives, her comments seem a little odd, if I am to judge her correctly. She is arguing that the low savings ratio is good, because people do not need to save in a stable economy. Will she clarify that she is concerned that the current level of saving is too low?

Ruth Kelly: Of course I am concerned. Although, as I was saying, a high savings ratio is not in itself a sign of success, I agree that we must raise the savings ratio and that people are not saving enough for their retirement. That is why we have commissioned various reviews. For the DWP, Alan Pickering is considering the simplification of pensions, and for the Treasury, Ron Sandler is considering the competitive forces underlying the long-term retail savings industry. The Inland Revenue is considering the simplification of the taxation system for pensions across defined benefit and defined contribution schemes. We have asked those reviews, which are co-ordinated, to consider ways in which it might be easier for people to save in future and to report to us. We accept that people need to save more and we are taking action to ensure that doing so is as easy as possible.

The hon. Member for Buckingham talked about the number and the cost of regulations that we have put in place, and the way in which the Government are business-friendly. Regulations must be fair and effective so that they protect the vulnerable, but clearly they must not stifle enterprise or productivity. That is why we are committed—through the small business service, for example—to ensuring that the voice of small business is heard throughout Whitehall; why the ministerial panel on regulatory accountability holds Ministers to account for their regulatory

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performance; and why there is a central unit in the Cabinet Office to ensure that all new regulations meet the principles of good regulation.

The Government are also taking measures to cut red tape on business. If the hon. Gentleman looks back at the Budget, he will see that there was an increase in the statutory audit threshold for companies from £350,000 to £1 million, relieving up to 150,000 small firms from the burden of statutory audit. The VAT registration threshold has been increased to £55,000—the highest level in the EU—and the optional flat rate of VAT has been introduced, saving more than 500,000 small firms up to £1,000 a year in compliance costs. Other deregulatory measures were announced in the Budget, including the fact that my right hon. Friend the Chancellor is taking forward Patrick Carter's recommendations to encourage the filing of PAYE returns and help small employers to manage the task of dealing with the payroll. We take our responsibility to cut red tape extremely seriously.

Mr. Bercow: The Minister is trying hard and she has a brief, but unfortunately it does not stack up on this occasion. Does she recall that the noble Lord Haskins, charged with responsibility for the Better Regulation Task Force, criticised Government policy on these matters as a dog's breakfast? Is she aware that the average small business now faces a greater burden of regulation than at any time? That includes the burden of person hours that owner/managers or managers have to spend attending to these matters each week. When the Minister talks about cutting regulation, is she seriously committed to ensuring that the burden of regulation on companies in Britain is lower at the end of this Parliament than it was at the beginning?

Ruth Kelly: We are committed to fair and effective regulation that protects employees and introduces decent minimum standards—something that the Opposition have failed to grasp over decades—while reducing compliance costs by the greatest degree possible. We are committed to that, and we are carrying it out.

The hon. Gentleman pointed to our record on productivity, an issue that the European Commission raised. We are committed to raising productivity growth over the long term, and I believe that the policies that the Government have put in place, and those that we are actively pursuing for the future, will continue to narrow the UK's productivity gap with our major competitors. Since 1991, productivity within the UK has improved, leading to a narrowing of the UK productivity gap with our European competitors. Between 1995 and 2000, the productivity gap with France was reduced by 9 per cent. from 27 per cent. to 18 per cent. and the gap with Germany fell by 6 per cent. from 14 per cent. to 8 per cent. The Government are building a platform of economic stability and pursuing microeconomic measures that will increase productivity in the long term. The hon. Member for Buckingham should know that the only year in which productivity in this country fell was under his party's Administration.

The hon. Gentleman raised several other points, including the gender pay gap. I accept that the UK still has a problem with a 19 per cent. gap, partly

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accounted for by the fact that women are choosing lower paid jobs and work fewer hours. Further progress remains to be made and my right hon. Friend the Secretary of State for Trade and Industry, also the Minister for Women, is actively pursuing an agenda to close the pay gap. The new deal for lone parents, the introduction of child care tax credit and improving the availability and quality of child care are all important. In comparison with our European partners, this country has a high women's employment rate, of which we should be proud.

Mr. Bercow: I would not detract from the significance of those measures, but do the Government centrally keep details, including statistical evidence, of cases brought against rogue employers by employees who are legitimately indignant about unequal treatment? If so, would not periodic communication of such details act as a deterrent to such rogue employers and an incentive to good behaviour?

Ruth Kelly: I am heartened by the hon. Gentleman's interest in this matter.

Mr. Bercow: There is nothing new about it.

Ruth Kelly: The hon. Gentleman says that there is nothing new about it, but I am genuinely delighted at his active interest in these issues. I shall pass on his comments to the Minister for Women. I am not sure what records are held centrally on particular cases, but I am sure that my right hon. Friend will look further into the matter.

The hon. Gentleman also asked about financial services. He mentioned that the Commission wanted to continue to maintain momentum towards completion of the financial service action plan and had stressed the importance of developing an integrated single market in capital—both for industry and, ultimately, for consumers who should benefit from lower prices and greater choice. The United Kingdom Government remain committed to the financial service action plan and my right hon. Friend has been active in championing these measures.

Since the Barcelona summit earlier this year, progress has been made in several respects with political agreement already reached on the market abuse directive, the conglomerates directive and the pensions directive, which I mentioned earlier in response to my hon. Friend the Member for Broxtowe. We have already adopted measures on national and international accounting standards, which will make an important contribution to the EC. The Danish presidency will also make progress on the prospectives directive. Momentum has been maintained at the EU level. We must ensure that all directives go back to first principles and that we always argue about their effect on lowering capital costs across Europe and the achievement of an integrated capital market. We must ensure that industry and consumers benefit from measures agreed at the EU level. That remains our priority when we negotiate the directives.

The hon. Member for Buckingham asked about the Government's attitude to encouraging risk taking. I would have thought that he would have realised by

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now my right hon. Friend the Chancellor's commitment to encouraging risk taking, small firms, entrepreneurship, innovation, and the links between science and industry. He will see from the recent Budget that cuts in corporation tax and capital gains tax mean that the tax regime for entrepreneurship in this country is more favourable than in any other major industrialised country, including the United States. We are also setting up regional venture capital funds throughout the regions that will enable small growing firms to access the capital that they so clearly need.

The hon. Gentleman also referred to the remarks made by Mr. Clementi—the deputy governor of the Bank of England and a member of the Monetary Policy Committee—at a recent hearing of the Treasury Committee. Unfortunately, I could not attend that meeting, although, of course, I read some of the commentary on those remarks. This country has a stable and effective monetary and fiscal policy framework. As the hon. Gentleman knows, one of our first acts on coming to power in 1997 was to make the Bank of England independent. We now have the lowest inflation and interest rates in 40 years. Strong, decisive and early action can be taken on interest rates because there is no political interference in our monetary policy decisions. Inflation expectations over the longer term have also been lowered.

 
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Prepared 18 June 2002