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Lord Barnett: My Lords, the noble Baroness looks so well that I will give way to her later. Is my noble friend aware that I agree with much that is contained in the Statement, particularly in relation to Maastricht? I do not even want to make fun of it. I do not object to the noble Lord, Lord Mackay of Ardbrecknish, having fun; he will be there a long time and I understand that only too well. He enjoys himself and is welcome to it.
I welcome much in the Statement. However, I know that my noble friend is aware that the Bank of England and the Monetary Policy Committee are obliged only to consider the Government's economic policy after bringing down the rate of inflation to 2.25 per cent. That is the priority. In those circumstances--I mention this as a possibility--what if those eight economists got the rate of inflation wrong?
I know that economists occasionally get things wrong; they could certainly have got it wrong in suggesting an increase in interest rates, with its impact in two years' time. However, given that, what are the Government's priorities, let alone the priorities of the Monetary Policy Committee? Is the policy to bring down inflation? Is it to bring down the borrowing requirement? Or is it to obtain the levels of growth that
The answer is that the primary target set for the Monetary Policy Committee is to adhere to a rate of inflation set by the Chancellor of the Exchequer and, subject to that, to promote the highest possible levels of growth and employment. The Monetary Policy Committee has adhered exactly to that remit. That means, in terms of what has been announced this afternoon, that in anticipating a real rate of growth in current public expenditure of 2.25 per cent. a year for the rest of this Parliament we are planning that public expenditure should benefit, as it can from the revenues available, from the growth which we expect in the economy. That means that public expenditure, both capital and current, will make its contribution to the regeneration of this country, the creation of jobs and assistance to growth which is the fundamental objective of all economic monetary and fiscal policy.
Baroness Trumpington: My Lords, at last! The noble Lord, Lord McIntosh, briefly mentioned the Tote in the Statement. Will he elaborate a little more on what he said? Is the object of the exercise to help racing? It is in a difficult position. Or is it simply to add to the list of bookmakers who do not put enough into racing and the Tote? To eliminate the bookmakers and give all that money to the Tote would be much better.
Lord McIntosh of Haringey: My Lords, I must confess that our plans on the Tote are not well advanced. As the noble Baroness knows, the Tote is already in a public-private financial partnership with Ladbrokes. However, the discussions that have taken place with the chairman of the Tote elicited the response that he believes that further public-private partnerships would be valuable and could increase the efficiency of the operation of the Tote and produce benefits for the public purse. We do not yet know how that will operate and I certainly do not understand how it relates to the private side of the betting industry.
Lord Razzall: My Lords, will the Minister expand on one specific aspect of the Statement which we on these Benches, as indicated by my noble friend Lord Newby, very much welcome? I refer to the long-overdue distinction between revenue and capital spending which, in my view, is the most significant aspect of the Statement today.
Those of us who have been arguing for the distinction to be made between capital and revenue spending by government would argue that one of the reasons that public sector capital spending has been so low is
Perhaps I can probe a little on the impact of that decision on public-private partnerships and the private finance initiative. One of the reasons why the previous government, and indeed this Government, wished to try and encourage public-private partnerships and the private finance initiative is the absence of distinction between capital and revenue spending. There was significant pressure on the Government's resources and capital spending suffered.
If we now have the situation enshrined in the Statement in which we are to distinguish between capital and revenue spending; and if--as indicated on page 43 of the larger book--the public sector net borrowing requirements from 1998-99 onwards for the next five years will be negligible; will not the Government have to consider using the fact that they will be the keenest borrower and will be able to obtain the keenest rates in financial markets for capital spending? If they wish to encourage public-private partnerships, it is silly for the private sector to go into the markets and borrow at rates higher than the rates at which the Government can borrow. Will not the Government take into account the fact that, in those public-private partnerships and PFI initiatives, they ought to be in there as the borrower, if necessary, in respect of lending to the private sector vehicle? The overall cost of borrowing and the overall cost of the investment will then be lower.
Lord McIntosh of Haringey: My Lords, I am grateful to the noble Lord for those very thoughtful comments. I tend to over-simplify these matters. The Treasury hate it when I say that its traditional way of looking at these things is that £1 of capital and £1 of revenue equals £2 for cash accounting purposes. That is the truth of the matter and what we are getting away from. That is the value of the whole exercise.
Everything that we are doing in this regard must be constrained by the two basic framework statements that we have made. First, there is the golden rule and, secondly, the stable debt ratio. Having said that, what we shall get from resource accounting and budgeting is a clear structural distinction between current and capital expenditure so that they are no longer treated as though they were equivalent economic categories.
What we shall get in terms of value for money is twofold. First, we shall be focusing on capital as it is consumed rather than as it is financed. That puts the long-term investment implications of public capital on a more transparent footing similar to that in PFI at the moment. Secondly, there will be greater emphasis on the objectives to which departments devote taxpayers' money; namely, the outputs and, over a longer
Lord McIntosh of Haringey: My Lords, there are a number of ways in which that can be achieved. Rather than bore the House with a long exposition, perhaps I may refer the noble Lord to the Deputy Prime Minister's Statement about the Channel Tunnel rail link. Under those proposals bonds will be raised which will be guaranteed by central government. I probably will not be thanked for this, but on that basis the effect will be that we are borrowing at below market rates because there is no risk involved. That is what we are trying to achieve.
Lord Randall of St. Budeaux: My Lords, is my noble friend aware that the PSBR system that we have been operating in this country for many, many years has undermined our public services and seriously impeded investment? Does he agree with me that today's Statement takes a brand new approach to the management of capital expenditure and to our fiscal balances which will have a significant impact on productivity in this country both in terms of the economy, public services, jobs and, therefore, families?
Lord McIntosh of Haringey: My Lords, I am tempted to agree tout court. In earlier statements we indicated that we were proposing to move to resource accounts. We shall be publishing the first of them for the year 1999-2000. We shall be producing them parallel with the cash-based supply estimates and appropriation accounts until the years 2000 and 2001. I thank my noble friend for his congratulations. We are not abandoning entirely PSBR at the moment. It represents something real, which is cash coming in to government. When I say that we are producing, as private businesses do, balance sheets as well as income and expenditure accounts, we cannot neglect what private businesses also produce, which is cash-flow accounts.
Lord Boardman: My Lords, I share my noble friend's surprise at the somersault which the Government appear to have carried out in many parts of the Statement. In the interest of time I shall confine myself to one question. The noble Lord suggested that the separation of capital from revenue was a new inspiration by the Government. There has not been a Chief Secretary over the past 40 years who has not tried with the Treasury to get the separation of capital and income. The noble Lord will probably agree that the Treasury has a list which goes back to when chief ministers questioned whether there should be capital or income, starting with the battleship and turning down all kinds of things.
Has the noble Lord a clear definition of what is going to fall on the capital side and the income side? Does he accept that no doubt this has been gone over many times by governments in the past?
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