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Lord Hardie moved Amendments Nos. 104 to 108:


Page 95, column 3, leave out line 15.
Page 95, line 34, column 3, at beginning insert--
("In section 122(1), the definitions of "initial primary percentage" and "main primary percentage".")

Page 96, line 16, column 3, at end insert--
("Section 146.In section 147(1), (2) and (3), the words "or 146".")

Page 96, column 3, leave out line 29 and insert--
("In section 190, in subsection (1)(a), "146," and subsection (4).")

Page 97, line 46, column 3, at beginning insert--
("In section 6(6), the words "("the first determination")".In section 7(7), the words "("the first determination")".")

On Question, amendments agreed to.

Clause 84 [Short title, commencement and extent]:

Lord Higgins moved Amendment No. 109:


Page 56, line 8, at beginning insert ("Subject to subsection (2A)").

The noble Lord said: My Lords, this amendment is concerned with the introduction of the various proposals in the earlier sections of the Act, in particular Sections 4 to 7. It is suggested that they should not come into operation until such time as the Secretary of State has been satisfied that decisions have been improving and he should evaluate them before the proposals which we discussed earlier come into effect. In a sense this is a probing amendment and I would appreciate the Minister's comments. I beg to move.

Lord Hardie: My Lords, noble Lords will appreciate that these amendments are identical in substance to Amendments Nos. 160 and 163, which the noble Lord, Lord Higgins, and the noble Baroness, Lady Anelay, tabled in Committee and which we debated fully. It remains our position that a delay in changes to the appeal system would be in no one's interest and would have unwelcome consequences.

Let us consider once more some examples of what the amendments would leave in place. A legal framework for appeals has grown up piecemeal over time as the welfare system has developed. There are five separate appeals jurisdictions with different powers and different rules. There is a leaflet of over 100 pages which tries to explain the differences. Appeals have to go to commissioners when tribunals know that an error has been made because tribunals cannot correct their decisions. There is a lack of clarity about the proper functions of the tribunal as regards the reopening of undisputed aspects of a case. There is a statutory requirement for every type of appeal to be heard by a

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three-person tribunal regardless of the issues that are raised. Most importantly, there is an average wait of six months for each appeal to be heard by a tribunal and an average of one year for an appeal to the commissioners.

I welcome the support which noble Lords have given for the changes that we are making to improve the standards of decision-making at first tier. It is our intention that those changes should also help to reduce the number of disputes which lead to an appeal; for example, by providing better explanations making it easier for agencies to correct mistakes. As my noble friend Lady Hollis has said, we shall be monitoring closely the effect of the changes.

However, I do not believe that reforms of the first tier alone will make sufficient inroads into the time that people have to wait for their appeal to be heard. Noble Lords will recall that the noble Lord, Lord Renton, who is not in his place, indicated at Committee stage that he was concerned, as noble Lords were, about the length of delay. He quoted the well known phrase that justice delayed is justice denied.

Current waiting times are not acceptable. I do not believe that we would be fulfilling our responsibilities to claimants and appellants if we did not take active measures now to deal with delays. In our view a fundamental review of the system from one end to the other is long overdue and that is what we are aiming to achieve. We believe that now is the time to do it and that the benefits will be greater if reforms are introduced as a coherent package with links between the first and second tiers properly thought through.

As I also pointed out in Committee, there are a number of difficulties about these amendments. There will be unwelcome consequences. We have identified at least 16 consequences. I do not propose to go through them, but the effect of some of them will be that there will be no right of appeal against any decision under Clauses 8, 9 or 10 because Clause 12 would not be in force. That is the theme that runs through the consequences of this amendment; that the power to revise an appeal decision in relation to child support or vaccine damage would also be lost. I am sure that these consequences are not such that noble Lords would intend or wish. In those circumstances I invite the noble Lord to withdraw his amendment.

Lord Higgins: My Lords, I think that was the most convincing set of arguments that I have heard all afternoon--

Baroness Hollis of Heigham: Thank you!

Lord Higgins: My Lords, I shall not go so far as to say that it was the only set of convincing arguments that I have heard all afternoon. None the less, in the light of what the Minister said, I do not want to press the issue. We look forward to resuming these discussions in greater detail on Third Reading. I thank the Minister for his reply and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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Lord Hardie moved Amendments Nos. 110 and 111:


Page 56, line 11, at beginning insert ("subsection (1) of").
Page 56, line 13, at end insert ("and subsections (1A) to (3) of that section,").

On Question, amendments agreed to.

[Amendment No. 112 not moved.]

Lord Hardie moved Amendment No. 113:


Page 56, line 27, after (" 58") insert (", (Expenditure for facilitating transfer of functions etc.)").

On Question, amendment agreed to.

Royal Assent

8.20 p.m.

The Deputy Speaker: My Lords, I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified her Royal Assent to the following Act:

Bank of England Act.

The Financial Statement and Budget Report 1998-99

8.21 p.m.

Lord Whitty rose to move, That this House take note with approval of the Government's assessment as set out in the Financial Statement and Budget Report 1998-99 for the purposes of Section 5 of the European Communities (Amendment) Act 1993.

The noble Lord said: My Lords, despite the soon-to-be quite sparse attendance in this House, it is important that Parliament satisfies Section 5 of the European Communities (Amendment) Act in relation to the report that we shall be giving to the European Union on Britain's economic performance. Despite the misapprehension that appeared to exist in another place about the debate on this measure, I should point out that this is not the point at which to discuss the single currency, but it is the point at which Parliament agrees the submission to the European Union under Section 5 of that Act.

Section 5 requires that Parliament approves the government report which is the basis of information that is sent to the Commission or the Council for the purposes of Articles 103 and 104c of the Maastricht Treaty. These articles relate to the broad economic guidelines and excessive deficit procedure respectively, not to the convergence criteria.

The text of Section 5 of the Maastricht Act specifies that the Government should report to Parliament for approval--that is what we are doing tonight. We shall be submitting to the European Union the Financial Statement and Budget Report, published in March, in order to fulfil that requirement. The report provides an appropriate assessment. It describes the Government's tax and spending plans and sets out a comprehensive set of policies which meet the broad social and

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environmental objectives, as well as the economic objectives, required by Section 5. Indeed, this year it goes further and for the first time it also includes a full environmental assessment of Budget measures.

Your Lordships will be familiar with the Government's central economic objective of high and stable levels of growth and employment. That was reflected in both the March Budget and the July Budget. The package of measures was designed to secure economic stability, reward work, encourage enterprise and create a fairer society. In line with the transfer of operational responsibility for setting interest rates to the Bank of England, the fiscal framework is being developed further to apply a similar approach to that for monetary policy. The Government are to legislate for a code for fiscal stability, which will set out the requirements for an open, transparent and accountable approach to managing the public finances. Along with the changes to monetary policy already announced, that will ensure that macro-economic policy is set in the context of a stable, long-term outlook.

By sending the information from the Financial Statement and Budget Report to the Commission and the Council, the Government will be participating fully in the multilateral surveillance of economic policies and performance across the European Union. That is sensible. Sharing information and discussing issues of common interest helps to promote the adoption of sound policies and forms the basis for a positive and constructive approach to economic policy across Europe. Moreover, there is nothing new in that. Full arrangements for economic surveillance at Community level have been in place for more than 20 years. The Government support elsewhere the principle of independent examination of our economic performance by bodies such as the OECD, IMF and G7. That will help us to strengthen the European economies. It will be particularly important at the beginning of the single currency. We shall secure Britain's influence in resolving the economic problems which Europe faces.

An excellent example of what can be achieved through a positive and co-operative approach is the Chancellor's "Getting Europe to Work" initiative which was broadly accepted by the Luxembourg jobs summit in the autumn. Member states are now preparing action plans to help to reduce unemployment by targeting employability, flexibility and entrepreneurship. By sharing best practice across Europe, we can learn best how to reduce the unacceptably high levels of European unemployment.

Approval of the Financial Statement and Budget Report allows us also to participate in multilateral surveillance, under which procedure the broad economic guidelines are drawn up each year. They can provide a basis from which economic developments in member states can be monitored.

The procedure under Section 5 also allows us to contribute to the excessive deficit procedure which allows us to bring pressure on member states to adopt sound public finances. Your Lordships will be aware that the UK was well within the 3 per cent. and the 60 per cent. reference values in 1997. The report clearly

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shows that the deficit reduction plan is ensuring the sustainability of public finances. The measures outlined in the report to promote stability and investment are designed to help to achieve stable and high levels of growth and employment.

When we were in opposition, we occasionally criticised earlier Financial Statements as giving insufficient detail on social and environmental objectives. The statements now give such information. The Budget announced a range of measures to make families better off. It announced the extension of the scope of the welfare-to-work package and in addition an extra £500 million for health and an extra £200 million for education, all of which is reflected in the economic objectives outlined in the report. As I have said, in terms of meeting our environmental objectives, an environmental assessment of the impact of the Budget was published for the first time. It included a range of measures to improve air quality and to reduce greenhouse gas emissions.

Those are the terms of the report which we are intending to submit to the Commission and to the Council with the approval of this House. As I have said, when these provisions were debated in another place, the main attention appeared to be focused on the single currency. Clearly, the sharing of information and the co-ordination of economic policy and strategy are important in this period.

The Government's position as regards Britain's membership of the single currency has been stated clearly and is unchanged. The Government have stated that it is not in this country's interest to join the single currency on 1st January 1999. However, we have also said that British membership of the single currency would be beneficial when the economic benefits for jobs and industry are clear and unambiguous. With that in mind, the Government have made it clear that both government and business need now to prepare intensively, during this Parliament, in order to create a real and positive option of British membership of the single currency early in the next Parliament.

Our economic future is bound up with that of our European partners and we want the single currency to be a success. It will affect us drastically, whether or not we participate. It is in all our interests to make sure that the potential benefits can be realised. Sharing information in the way in which the report allows will help us to ensure that the single currency succeeds, as well as ensuring broader elements of economic co-operation across Europe.

By approving this Motion, Parliament will enable the UK to meet its treaty obligations. Full participation in the EU surveillance procedures must be one way in which we can influence the whole of Europe's economic agenda. I beg to move.

Moved, That this House take note with approval of the Government's assessment as set out in the Financial Statement and Budget Report 1998-99 for the purposes of Section 5 of the European Communities (Amendment) Act 1993.--(Lord Whitty.)

23 Apr 1998 : Column 1336

8.28 p.m.

Lord Mackay of Ardbrecknish: My Lords, I thank the Minister for that brisk run round the field. I am slightly more used to doing his job on this particular piece of business than I am to carrying out the job of the Opposition spokesman. However, I hope to reassure him on one point. I shall not employ the tactic which the noble Lord, Lord Eatwell, employed when he spoke from this Bench, which was to go on at some length with a textual and analytical criticism of the Red Book. That included asking me a large number of questions to which not only did I sometimes not know the answer, but I did not even understand the question. On a number of occasions I chided the noble Lord, Lord Eatwell, about his lecturing techniques and said that I would not particularly have wanted to be one of his students given the way in which he threw questions at me. I shall not do that to the noble Lord, Lord Whitty. I had hoped that I might be able to get my revenge on the noble Lord, Lord Eatwell, but, for whatever reason, he is not a member of the Government--either he was not asked or he did not wish to join. I have not been able to get my own back but this evening I shall not make the Minister a proxy.

However, I intend to make some textual analysis of the Red Book. Does the Minister intend to send the Red Book as it was published at Budget time or with the various corrections that the Government have been forced to make since the Budget? I take one example to illustrate why I believe this to be a very important matter. I refer to the representation of tax revenues and receipts and how one scores tax credits, primarily the working family tax credits, as negative tax revenue. Frankly, the Government have indulged in a fairly shabby trick in order to massage downwards the tax burden. They did not even wait for the Office for National Statistics to arrive at a decision on whether or not income tax credits should be scored as negative income tax. Having made the decision, however, that tax credits should be scored in that way, it appears to diminish the tax burden on the British public, whereas it can be argued that these credits should have been put in as expenditure because they are part and parcel of the welfare and social security system, not the revenue system. That is a question well worth asking, but they decided to do it in the way set out in the Red Book. They did not even get their figures right in that regard.

I draw the attention of the Minister to tables B5, B8, B9 and B24. Rather than delay your Lordships by looking at every table, I take the most critical one, B8. In that table the second line down indicates income tax credits. Your Lordships will see the 1996-97 outturns right up to the estimates for 2002-03. In most cases the figure is minus 0.3 per cent. of GDP. In two years the figure is minus 0.2 per cent. I do not intend to dispute--although I believe that I could--the correctness of putting in an income tax credit as a figure that actually reduces the amount of tax taken by the Government.

It is of interest that on 27th March this year there appeared in Hansard of another place a Written Question put by Mr. Timms. Whether he had spotted a

23 Apr 1998 : Column 1337

problem or had been invited to table a Question I know not. I suspect that it was the latter. Mrs. Dawn Primarolo answered the Question by saying:


    "There were some minor errors in these tables. Corrected versions are printed in the following tables. A corrected copy of Chart B2 has been placed in the Libraries of the House".--[Official Report, Commons, 27/3/98; col. WA 348.]

Noble Lords will be glad to hear that I am not very interested in chart B2. However, tables B5, B8, B9 and B24 were then printed in Hansard with major alterations in them. Referring to B8, your Lordships will recall that I said that income tax credits in the past two years, this year and in future years ran at minus 0.3 and minus 0.2 of GDP. The corrected table has the following line: minus 0.3, minus 0.4 and minus 0.2. Those are the same because they are the past and estimated outturns for this year. Then, instead of the figures being fairly level as the original table in the Red Book demonstrated, they begin to go up: minus 0.4, minus 0.7, minus 0.8 and minus 0.8. Your Lordships may think that a difference of minus 0.5 per cent. is a minor error. I do not believe that it is the kind of minor error that your Lordships would like their banks to make when dealing with their personal bank accounts. The minor errors add up to £1 billion next year, £3 billion the year after and £5 billion in each of the two years after that; in other words, a cumulative error in that and the other tables of £15 billion during the period covered by the Red Book. If Mrs. Dawn Primarolo believes that to be a minor error I hate to think what is a major error. Certainly, her bank can rest in peace if it makes any error in her account of any magnitude because clearly it will be able to treat it as a minor error. Therefore, it is an amazing minor error.

I should like to have an assurance from the Minister that the Red Book, with the corrections clearly attached and the proper table, not the false table, will be sent to the Commission. Perhaps an explanation can be sent to the Commission as to how the figures have been massaged by the Government to reduce the tax take. I do not believe that that is a straightforward or correct way of dealing with matters. I suspect that if any company tried to carry out the same kind of operation in its accounts its accountants would quickly tell it that it must not do it.

The Red Book also shows, as it must--even if it is pretty well buried--the increases in taxation that have been suffered since 1st May of last year. On 8th January 1997 Mr. Tony Blair, then Leader of the Opposition, said in response to a question, which clearly irritated him:


    "Look, I am not going into the election with anybody saying [that] there is a hidden agenda anywhere. There are no tax increases implied by the programme".
Yet the Red Book makes perfectly clear, for example on page 152, that considerable tax increases have fallen very heavily on business. The Red Book makes quite clear in the eighth line of table C1 on page 152 that business will be paying an extra £1.6 billion in 1999, £2 billion in 2000 and £3.1 billion in 2001. The total is £6.8 billion in this Parliament. If we add to that the abolition of ACT credits the total is about £18.5 billion over the lifetime of this Parliament.

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The most damaging and least understandable of these tax increases--the noble Lord will be aware that I have expressed this view a number of times--is the £5 billion a year Maxwell-type raid on pension funds. The one thing that I thought we had agreed on all sides of the House when I was pensions Minister in the previous government was the importance of people accumulating their own pensions and that everything in our power should be done to encourage them to do so. To take £5 billion in additional taxation every year out of pension funds is a funny way to encourage people. The Government began by refusing to accept that there were any serious consequences for SERPS but, by jove, they soon had to recalculate SERPS when the Government Actuary's number crunchers got at it. Therefore, there were serious consequences for SERPS.

As I warned the Minister, and as my right honourable and honourable friends in the other place warned Ministers, there have been serious consequences for the minimum funding requirements (MFRs) which are the protections put in following the actions of Robert Maxwell. At the time these were brushed aside. I invite the Minister to ask anyone involved in the world of pensions how he is evaluating the MFR in the light of the £5 billion pension raid by the Government. I believe that this is a most serious matter and that the Government will deeply regret it in the longer term. They have put pensions and all savings in an awkward position by moving from TESSAs and PEPs--presumably because they did not like them as Tory Party policy--to ISAs. They intended to put ceilings upon them but had to review that. However, they are still not as attractive as TESSAs and PEPs. I remain puzzled as to what additional attractions they will provide to people to put their savings into pensions as opposed to TESSAs and PEPs. I make this part of my speech with deep regret. I thought we had all agreed on the huge importance of encouraging people to put as much of their savings as they possibly can into pension provision.

I turn to table B18. The noble Lord may be thinking to himself, given the fact that I had promised I would not do a textual analysis of the Red Book, that I am making a pretty good fist of it to date. I have to tell him that if he reads any of the speeches of the noble Lord, Lord Eatwell, he will realise that I am but a boy when it comes to textual analysis of the Red Book.

Table B18 shows the control totals by department. I want to lift out only one control total by department because it coincides with an exchange we had in the House yesterday when the noble Lord, Lord Clinton-Davis, was answering for the Government on the various objective 1, 2, 3, 4, 5 statuses around the country and whether we were going to lose some of them.

If we look at the line on the European Communities and what we pay net. I presume it is net. That is my first question. I know it must be net because we actually pay gross a great deal more than that, but then we get back, first, a tranche of money through various schemes, through agriculture and so on, and then another tranche through the Fontainebleau Agreement negotiated by my noble friend Lady Thatcher.

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The noble Lord, Lord Clinton-Davis, yesterday warned us of two things which I fear might impinge in the future on that line. He warned us, first, about the loss of some of the assisted area status positions under the European Community. I did not get the opportunity to ask but I did idly wonder if the loss of, say, objective 1 status to the Highlands and Islands of Scotland could be taken as a measure of the huge economic improvement the last government achieved in the Highlands and Islands and therefore they lost their status because they no longer required it, or if it was more an indication of the failure of the present Government to carry any clout with Brussels when it came to negotiating these matters. But I did not get the opportunity; some of my noble friends were asking even better questions than that.

If we lose some of these advantages, that will mean that we will have to pay in some more money net, unless the Fontainebleau Agreement comes in. I am pretty certain that with the extension of the Community to the east, which was the other point the noble Lord, Lord Clinton-Davis, was rightly making, a lot of money will be needed for Poland, Hungary or whoever joins in order to help them to come up to the economic standards and so on of the rest of the Community. I fully understand that. But all of it seems to mean that some more money will be needed. I wonder to what extent the Government would be prepared to defend the Fontainebleau Agreement? How well will they defend that agreement?

Before I leave the Red Book, I noticed in the Minister's speech that he pointed to a number of additional issues that the Government were submitting to Brussels, environmental assessments and so on, but also an assessment of what was happening to families. I notice that the Minister did not actually tell us what was happening to families. I am not surprised because the Library have said, and their figures have not been contradicted, that a typical family in Britain, on a typical family budget, is actually £1,000 worse off as we come up to this 1st May than they were on 1st May last year. So they are paying a price for the election of the party opposite--£1,000 a year for the typical family.

We are sending this document and this work to Brussels because it is part and parcel of the Maastricht Treaty. It involves the collection of information on convergence and moves towards the single currency. I should like to say a few words about that before I sit down.

We are also approaching decision day on a number of important issues. For example, who will be the governor of the new European central bank? Will those responsible for the decision ever be able to make up their minds who it is going to be? That is not something we can wash our hands of. We chair the Council of Ministers at the present time, so we are responsible for making sure that a sensible decision is arrived at in proper time to get the European central bank show on the road. I hope that the Government will do a slightly better job in the second half of their presidency than they have managed to do in this field in the first half.

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The other matter that intrigues me is the way that the Government, chairing the Council of Ministers and chairing ECOFIN, have just waved through some of our colleague countries who are nowhere near meeting the criteria set down for the single currency.

The Chancellor of the Exchequer, on the "Today" programme of 10th December 1996, said:


    "There can be no fudging of criteria".
I do not know what his definition of "fudging" was then but it does not accord with my definition of fudging. There has been a lot of fudging, to such an extent that the French Interior Minister, M. Jean-Pierre Chevenement, has told a German newspaper, only the week before last, that the EMU project is "charging full steam towards the pack ice. By the time we see the iceberg, perhaps it will be too late." It is remarkable that it is the French who have signed up to the EMU who are raising concerns while the British Government, in the chair of the Council of Ministers, are happily waving through countries without any regard to the fact that at least some of them not just fail the test but fail it by a long way. The net result is that the markets see the euro as potentially a soft currency. That is one of the reasons why the value of the pound is currently so strong against European currencies. It is not just because we have high interest here, the Chancellor of the Exchequer having washed his hands of any responsibility by handing interest rates to the Monetary Policy Committee of the Bank of England. I notice that the Bank of England Bill, which we discussed only a few hours ago, has now received Royal Assent so I assume the Government decided to do it quickly in case the Liberals had another change of mind on whether there should be a Scot on the Monetary Policy Committee. But that is, perhaps, another matter.

Mr. Eddie George, for example, when he talked to the Treasury Select Committee, compared the decision to press ahead with EMU without first addressing the problems of the high level of unemployment as putting the cart before the horse. "I would have preferred to put the horse before the cart", he said. "I would feel much more comfortable if the problem of structural unemployment had been addressed." In a recent report on convergence in the European Union the Bundesbank was heavily critical of the failure of many member states to reduce their debts and deficits to the levels required by the convergence criteria. The Bundesbank says of Belgium, Greece and Italy--for although Greece is not seeking membership at the moment, Belgium and Italy are and, as I understand it, have been waved through--


    "In those member states considerable government surpluses would have to be generated each year for a prolonged period for the reference value to be achieved within 10 years".
I do not deny that our European friends, and indeed ourselves, have worked very hard in each of our countries to get the deficit ratios below the Maastricht level of 3 per cent. and the debt ratios below the level of 60 per cent. They have worked very hard and taken some difficult decisions, very difficult and sometimes just quite difficult decisions. In some cases they have just taken one-off decisions which solve the problem for a year but do not seem to have a long-term consequence. The European Monetary Institute has said that

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adjustments of recent years need not only continue but need to be taken very much further. I pinpoint that, remembering that 60 per cent. was the criteria. Belgium has a debt percentage of GDP of 118.1 per cent. That is nowhere near 60 per cent. Italy has 118.1 as well. Even the poorest mathematician knows that that is nowhere near 60 per cent. Many other countries are much nearer, some just under 60 per cent. and some just over. The United Kingdom, for example, is at 52.3. and we are well down the league. We have done very well in that regard thanks to the golden legacy of the last Conservative government, a golden legacy on which I fear the sun is beginning to set as problems begin to rear their heads.

I worry greatly about the fact that we appear to have decided that whoever wants to join can join and that the convergence criteria can be wished away. The dangers of that are twofold. First, the euro will be looked upon as weak. Secondly, the important stability pact, which is critical to the long-term success of the EMU, will not begin in a good condition, given some of the problems of some of our European friends. There are huge dangers for us all in Europe if the convergence criteria and the stability pact are not rigorously adhered to.

I agree entirely with the Chancellor of the Exchequer that there should be no fudging. Unfortunately, he appears to have forgotten what he said and a great deal of fudging has gone on. I hope that we and our European colleagues do not live to regret that.

With that tiny bit of textual analysis of the Red Book and a look at the wider picture of which this forms a part, I shall not attempt to prevent the Motion passing tonight.

8.51 p.m.

Lord Wallace of Saltaire: My Lords, I hesitate to follow the example of the noble Lord, Lord Mackay of Ardbrecknish, in giving a basic economics lecture to this crowded House, tempting as that is. Indeed, I feel more warmly to the noble Lord since discovering that as a young man he was an active supporter of the then David Steel in the Roxburgh, Selkirk and Peebles by-election. I look forward to swapping old campaigning stories with him on a later occasion.

I understand that the purpose of the Motion is to discuss the convergence criteria and not to go into detailed technical analysis of the Red Book. However, I am grateful for the opportunity to study the various tables with the noble Lord, Lord Mackay, as my guide and mentor. Clearly, we need multilateral surveillance of the European Community. We have an increasingly integrated European economy and therefore there must be consultation, co-ordination and economic debate. One of the concerns which I and many of my party colleagues have about the current structure of monetary union is that there is not sufficient counter-balance for a co-ordination of economic strategy at the European level. We are a little concerned about the extent to which the new Labour Government are approaching the whole issue of economic co-ordination. When I hear the presentation of the third wave being that the Anglo-Saxons have got it right and that we must explain

23 Apr 1998 : Column 1342

to our benighted continental colleagues what it is that one needs to do I begin to be a little cautious about whether we will succeed in persuading them, even when they are wrong, that they have to change their views.

There are many views across the Channel. The noble Lord quoted Jean-Pierre Chevenement. I do not know whether he is aware that Jean-Pierre Chevenement has for years been the Peter Shore of the French Socialist Party and the most strong anti-German member of the government. Therefore, it is not unnatural that he in particular should express those views.

Perhaps I may briefly discuss the convergence, not wishing to detain your Lordships too long. The convergence criteria set out in the Maastricht Treaty were imposed at the determination of the Germans. I regret that they were incomplete and did not include criteria which also required the liberalisation of labour laws and the building of more flexible labour markets with which all three parties in this House would agree. Today, I debated with one of the German economic professors who is most opposed to allowing the Italians into the single currency. He seemed unwilling to accept the extent to which the Italian Government have made remarkable strides towards shifting the basis of fiscal and monetary policy within Italy and have been totally unwilling to accept that the Germans need to undertake a number of economic policy and labour market reforms in order to address themselves for the single currency.

My nervousness about the single currency relates more towards French and German policy than towards Italian policy. French policy is the most worrying. The French Government are all too willing to give in to manifestations on the streets rather than face up to some of the major structural changes that they need to carry out within France.

As regards sterling and the fiscal mix in this country, the worry which Members of this House and another place should have about the Government's convergence strategy is the extent to which, by holding down consumption only by the use of monetary policy and not by altering the fiscal mix, they have allowed the pound to rise to a point where it is clearly hurting the British economy and is putting our economic cycle further out of line with the economic cycle on the Continent. As a result, we are in some ways diverging rather than converging with our partners on the Continent.

My party believes that we would do much better to announce a definite date soon for joining the exchange rate mechanism and that we will be moving down towards £2.80 to the deutschmark or below and should make it clear that we see that as a first step towards joining the single currency. There are severe problems for this country and our national economy in staying out for too long because that threatens that our economy will diverge rather than converge. Britain needs to be in the middle of the European debate on economic strategy, not at the edge. We risk being left at the edge until we have made clear that we intend at a particular date to join the single currency. I look forward to the Minister's reply to what I hope is not too long a debate.

I make a final reference to the current debate on the Amsterdam treaty; that is, the European Communities (Amendment) Bill now going through the House to

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which there are a large number of amendments which require the Government, before they do this, that and the other, to submit reports to one House or the other. The size of this House at the moment suggests that it may be a little risky for Oppositions to wish to attach too many such conditions to Bills amending the treaty as they go through the House.

8.57 p.m.

Lord Whitty: My Lords, I cannot tell your Lordships how grateful I am that the noble Lord, Lord Mackay, did not follow my noble friend's erudition on these matters and has left me with a relatively limited and statistical rather than theoretical analysis of the Red Book. Nevertheless, he raised a number of valid points which require an explanation. Whether he will find the explanation entirely satisfactory I doubt because we have had a number of debates on these matters in this House. I am not about to announce changes in government macro-economic strategy here on a Thursday night.

The noble Lord asked in particular whether the corrected versions of the tables would be submitted to the European authorities. Clearly, where there is a mistake in the figures, as in table B8 and some consequential tables, we will submit the corrected versions. I am assured that the correction was required due to printing errors and not to sleight of hand, although the noble Lord appeared to imply that we were changing the convention of the way in which we represent tax credits. Clearly, that is not the case as he will see from the notes in the Red Book. We are treating the new form of tax credit in the same way as tax reliefs have been treated in the past, in particular, the MIRAS tax relief.

The noble Lord also suggested that we had broken our election promises and subsequent promises in regard to the level of taxation. I dispute that.

We said that there would be no increase in income tax rates and there has not been. We said that there would be no extension of VAT and there has not been. But we have also cut taxes for low income families. We have cut national insurance contributions. We have cut capital gains tax on long-term investment and we have cut corporation tax twice so that it is now at its lowest level ever.

The noble Lord referred to the figures relating to the tax burden on the corporate sector and in particular the abolition of advance corporation tax. I remind him that the corporate sector--the CBI--welcomed the abolition of ACT. It brought Britain into line with other countries, and after a transitional period--and I admit that there is a cash flow implication here--companies will benefit significantly from those changes.

The long phase-in period will ease the cash flow impact of the transition. After the transition, companies will gain £1.6 billion per year from those changes and the benefit to companies in terms of the net present value will be about £9 million or 8 per cent. at discount rates. That is surely a major investment incentive for companies.

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At the same time as improving the long-term taxation position for the corporate sector, we have improved the taxation system for families. The tables within the Red Book and related documents indicate that we have done so in--and some of my colleagues may hesitate to use these terms--a progressive and redistributive way in that the poorest 20 per cent. of households with children will benefit by 4.4 per cent. from the effects of the changes in the last Budget. The richest 20 per cent. of families with children will also benefit to a more limited degree of 0.3 per cent. Therefore, families have been looked after in the Budget and have been looked after in the general strategy in relation to social security and taxation which is being pursued by the Government. That is reflected in this report.

As regards the point raised by the noble Lord, Lord Wallace, in relation to sterling, clearly, as the Government and the Chancellor have recognised, there are serious concerns, particularly among manufacturers and exporters, about the current level of sterling. However, we are committed to taking a long-term view. We need a stable situation as regards the exchange rate. The last thing that manufacturers and exporters want is a return to the stop-go policies of the past. We regard it as a key factor to deliver a stable long-term, economic framework. As I say, we do not wish to return to the boom-bust period which cost us nearly 1 million manufacturing jobs between 1989 and 1993.

I shall not pursue the suggestion of the noble Lord, Lord Wallace, to name the desirable ultimate level of exchange rate for sterling. Despite the fact that the world's financial press does not seem to be overwhelmingly present here tonight, it would be unwise for anybody purporting to speak for the Government to do any such thing. Nor shall I embellish the statements already made by the Chancellor with regard to entry to EMU. The Government's position is clear and I reiterated it earlier in my remarks.

Two other dimensions were raised. The first was raised by the noble Lord, Lord Mackay, in relation to the European budget and trying to relate it to the figures given by my noble friend Lord Clinton-Davis, yesterday. The figures in this document relate to the relatively short-term position; that is, the position for this year and the expected position for next year. Since these documents were published, further details have been released by my honourable friend the Economic Secretary. But that relates to the short term. My noble friend Lord Clinton-Davis was addressing the position under the Agenda 2000 proposals which relate to the period from 1999 to 2006. Some very serious negotiations are required in relation to the structural funds mentioned by the noble Lord, the common agricultural policy, and in relation to providing resources in order to ease the position of the applicant countries in the enlargement period.

The 15 current members of the EU are agreed that those must be contained within the 1.27 per cent. of GDP limit in the period from 1999 to 2006. That does not necessarily imply a cut in expenditure in total as from now because we have not yet reached that 1.27 per cent. ceiling. We shall also be negotiating substantial changes in the distribution both of the CAP

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and the structural and regional funds. In the very detailed negotiations which will be required on the European budget and the future financing of the EU in the period which covers enlargement, we are extremely anxious that the cost of enlargement should not be borne unfairly by British regions, British business and British citizens generally.

I started by saying that this debate is not about the single currency. However, I must make a few matters clear. The noble Lord, Lord Mackay, asked when we are going to make decisions on all this. It is clear when we are going to make the decisions, including the decision in relation to the chair of the central bank. The key decisions will be made on 1st May; that is, ECOFIN's decisions, the European Parliament's opinion on ECOFIN's decisions and the heads of state and government confirming those decisions. On 2nd and 3rd May there will be a further ECOFIN meeting to fix the conversion rates for currencies which are entering the first phase of the EMU. Therefore, those decisions are imminent and it is vital that the United Kingdom's presidency of the European Union conducts those negotiations from the chair in a way which will maintain stability and will ensure that the single currency is launched in the best possible way.

We have done so hitherto despite our position that we should not immediately wish to join a single currency. In the non-partisan spirit in which this debate has been conducted, I pay tribute to the previous government who also, through the efforts of the former Chancellor and the officials of the Treasury and the Bank of England, have helped greatly to ensure that the technical side of those discussions has gone smoothly. It is in that area that British expertise will be of greatest benefit to the successful launch of the single currency.

The noble Lord also referred to what he called the "fudging" of these criteria. We have the Commission's view and that of the European Monetary Institute on such matters. Much of the allegation in relation to fudging relates to words that were in the original Maastricht Treaty. Some of the criteria are pretty clear and those countries which are deemed to have achieved them have met those criteria or virtually met them. Others of those criteria, in particular those in relation to historic debt, are less clear. So far as concerns the clear ones, it is apparent that, in 1990 when the Maastricht Treaty was being negotiated, the EU average deficit was 6.3 per cent. of GDP. It rose after that to 5 per cent. in 1995, but now stands at 2.4 per cent. Those countries which are deemed to have qualified have made major progress on that front as they have on the interest rate and on the inflation front.

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As regards the debt criterion, the Maastricht criteria require that debts should not exceed 60 per cent. of GDP, as the noble Lord said, unless the ratio is diminishing sufficiently in approaching the reference value at a satisfactory pace. That is clearly a less than absolute criterion, to which the previous government signed up, albeit indicating at the same time at the Maastricht conference that they did not wish to participate . Given the fact that that was the criterion, clearly there is a political as well as a technical judgment to be made as to whether "sufficiently diminishing" and "approaching the reference value" applies to those countries, especially Belgium and Italy where their historic debt is clearly still well above the 60 per cent. figure.

Nevertheless, the general economic management of Italy, for example, over the past five years has been astoundingly good. For those who always point the finger at Italy as being the potential weak underbelly of the European single currency, I should point out that the turnaround in the economic management of that country has been truly amazing. I hesitate to mention this, but it has of course been under a centre-left government when it has achieved most of those changes. Indeed, it has been a major achievement of that government. It is also true to say that the historic debt criterion is the least important in the eyes of most economists in terms of how one judges the current and prospective performance of the government.

Our view is that member states have made substantial progress in reducing their deficits and the reports of the EMI and of the Commission make that clear. We have not issued a definitive British Government or, indeed, a presidency view, because that information will be made available at the May Day weekend in those very important meetings, which will be conducted under the presidency of my right honourable friend the Chancellor of the Exchequer.

To that extent at least, I believe that the single currency is in safe hands. The British economy, as reflected in the Red Book which we are debating tonight, is also in safe hands. I hope that the contribution we are making to the sharing of information and expertise in economic management will both benefit the launch of the single currency and the economic prosperity of Europe. On that basis, I trust that the House will be prepared to accept that we submit this assessment to the European authorities. I commend it to the House.

On Question, Motion agreed to.

        House adjourned at ten minutes past nine o'clock.


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