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Lord Mackay of Drumadoon moved Amendment No. 208:

Page 68, line 21, at end insert--
(" . It shall not be competent for the Scottish Parliament to pass a Bill authorising the Scottish Executive to hold a poll in Scotland for the purposes of ascertaining the views of those polled as to whether or not Scotland should become independent of the United Kingdom.").

The noble and learned Lord said: My Lords, I have already spoken to this amendment. I beg to move.

3.44 p.m.

On Question, Whether the said amendment (No. 208) shall be agreed to?

Their Lordships divided: Contents, 103; Not-Contents, 167.

Division No. 1


Aberdare, L.
Addison, V.
Ailsa, M.
Aldington, L.
Astor of Hever, L.
Barber, L.
Belhaven and Stenton, L.
Berners, B.
Brentford, V.
Brougham and Vaux, L.
Bruntisfield, L.
Burnham, L. [Teller.]
Butterworth, L.
Cadman, L.
Campbell of Croy, L.
Carnegy of Lour, B.
Carr of Hadley, L.
Charteris of Amisfield, L.
Chesham, L.
Clark of Kempston, L.
Cullen of Ashbourne, L.
Dartmouth, E.
Davidson, V.
Denton of Wakefield, B.
Dixon-Smith, L.
Downshire, M.
Dundee, E.
Dundonald, E.
Ellenborough, L.
Elles, B.
Elliott of Morpeth, L.
Erne, E.
Ferrers, E.
Gainford, L.
Gardner of Parkes, B.
Gormanston, V.
Hanningfield, L.
Harding of Petherton, L.
Higgins, L.
Holderness, L.
Hothfield, L.
Johnston of Rockport, L.
Kenyon, L.
Kimball, L.
Kinloss, Ly.
Knight of Collingtree, B.
Knollys, V.
Lane of Horsell, L.
Lauderdale, E.
Liverpool, E.
Lucas of Chilworth, L.
Lyell, L.
McColl of Dulwich, L.
McConnell, L.
Mackay of Ardbrecknish, L.
Mackay of Drumadoon, L.
Mar and Kellie, E.
Mersey, V.
Middleton, L.
Monro of Langholm, L.
Monteagle of Brandon, L.
Montgomery of Alamein, V.
Montrose, D.
Mountevans, L.
Mountgarret, V.
Mowbray and Stourton, L.
Munster, E.
Nelson, E.
Newall, L.
Northesk, E.
O'Cathain, B.
Palumbo, L.
Park of Monmouth, B.
Pearson of Rannoch, L.
Pender, L.
Peyton of Yeovil, L.
Platt of Writtle, B.
Plummer of St. Marylebone, L.
Quinton, L.
Rankeillour, L.
Rathcavan, L.
Rees, L.
Roberts of Conwy, L.
Rotherwick, L.
Saltoun of Abernethy, Ly.
Sandys, L.
Savile, L.
Selkirk of Douglas, L.
Sempill, L.
Sharples, B.
Shaw of Northstead, L.
Skelmersdale, L.
Stair, E.
Stodart of Leaston, L.
Strathclyde, L. [Teller.]
Swinfen, L.
Thomas of Gwydir, L.
Tugendhat, L.
Vivian, L.
Waddington, L.
Warnock, B.
Westbury, L.
Wynford, L.


Acton, L.
Addington, L.
Ahmed, L.
Allen of Abbeydale, L.
Allenby of Megiddo, V.
Alli, L.
Amos, B.
Ampthill, L.
Annan, L.
Archer of Sandwell, L.
Ashley of Stoke, L.
Bach, L.
Barnett, L.
Bassam of Brighton, L.
Beaumont of Whitley, L.
Berkeley, L.
Bethell, L.
Blackstone, B.
Blease, L.
Borrie, L.
Brightman, L.
Brooke of Alverthorpe, L.
Brookman, L.
Brooks of Tremorfa, L.
Bruce of Donington, L.
Burlison, L.
Callaghan of Cardiff, L.
Calverley, L.
Carlisle, E.
Carmichael of Kelvingrove, L.
Carrick, E.
Carter, L. [Teller.]
Castle of Blackburn, B.
Christopher, L.
Clarke of Hampstead, L.
Clement-Jones, L.
Clinton-Davis, L.
Cocks of Hartcliffe, L.
Craigmyle, L.
Crawley, B.
Dahrendorf, L.
David, B.
Davies of Coity, L.
Desai, L.
Dixon, L.
Donoughue, L.
Dormand of Easington, L.
Evans of Parkside, L.
Ezra, L.
Falconer of Thoroton, L.
Falkland, V.
Farrington of Ribbleton, B.
Fitt, L.
Gainsborough, E.
Gallacher, L.
Geraint, L.
Gilbert, L.
Gladwin of Clee, L.
Glenamara, L.
Goodhart, L.
Gordon of Strathblane, L.
Goudie, B.
Gould of Potternewton, B.
Graham of Edmonton, L.
Grenfell, L.
Hamwee, B.
Hardie, L.
Hardy of Wath, L.
Harris of Greenwich, L.
Harris of Haringey, L.
Haskel, L.
Hayman, B.
Headfort, M.
Hogg of Cumbernauld, L.
Hollis of Heigham, B.
Howie of Troon, L.
Hoyle, L.
Hughes, L.
Hughes of Woodside, L.
Hunt of Kings Heath, L.
Hussey of North Bradley, L.
Hylton-Foster, B.
Ilchester, E.
Islwyn, L.
Jay of Paddington, B. [Lord Privy Seal.]
Jenkins of Hillhead, L.
Jenkins of Putney, L.
Kintore, E.
Laming, L.
Linklater of Butterstone, B.
Lloyd-George of Dwyfor, E.
Lockwood, B.
Lofthouse of Pontefract, L.
Lovell-Davis, L.
McCarthy, L.
Macdonald of Tradeston, L.
McFarlane of Llandaff, B.
McIntosh of Haringey, L. [Teller.]
Mackenzie of Framwellgate, L.
Mackie of Benshie, L.
McNair, L.
Mallalieu, B.
Masham of Ilton, B.
Mason of Barnsley, L.
Merlyn-Rees, L.
Miller of Chilthorne Domer, B.
Milner of Leeds, L.
Mishcon, L.
Molloy, L.
Monkswell, L.
Montague of Oxford, L.
Morris of Castle Morris, L.
Morris of Manchester, L.
Newby, L.
Nicol, B.
Northfield, L.
Orme, L.
Paul, L.
Peston, L.
Phillips of Sudbury, L.
Plant of Highfield, L.
Ponsonby of Shulbrede, L.
Prys-Davies, L.
Puttnam, L.
Ramsay of Cartvale, B.
Randall of St. Budeaux, L.
Redesdale, L.
Rendell of Babergh, B.
Richard, L.
Russell, E.
Sainsbury of Turville, L.
Sawyer, L.
Sefton of Garston, L.
Serota, B.
Sewel, L.
Shannon, E.
Sharp of Guildford, B.
Shepherd, L.
Shore of Stepney, L.
Simon, V.
Simon of Glaisdale, L.
Slim, V.
Stallard, L.
Stoddart of Swindon, L.
Stone of Blackheath, L.
Strabolgi, L.
Taylor of Blackburn, L.
Thomas of Macclesfield, L.
Thomas of Walliswood, B.
Thomson of Monifieth, L.
Thornton, B.
Thurso, V.
Tomlinson, L.
Tope, L.
Tordoff, L.
Uddin, B.
Varley, L.
Walker of Doncaster, L.
Weatherill, L.
Whitty, L.
Williams of Crosby, B.
Williams of Elvel, L.
Williams of Mostyn, L.
Wilson of Tillyorn, L.
Winchilsea and Nottingham, E.
Winston, L.
Young of Old Scone, B.

Resolved in the negative, and amendment disagreed to accordingly.

3 Nov 1998 : Column 153

Baroness Amos: My Lords, before we move to the pre-Budget Statement, I should like to remind the House that the Companion indicates that discussion on a Statement should be confined to comments and questions for clarification. Peers who speak at length do so at the expense of other noble Lords.

Pre-Budget Statement

3.55 p.m.

Lord McIntosh of Haringey: My Lords, with the leave of the House, I shall now repeat a Statement that has been made by my right honourable friend the Chancellor of the Exchequer on the Pre-Budget Report. The Statement is as follows:

    "In this year's Pre-Budget Report we seek to steer a course of stability amid a world economic downturn. We set in place measures to increase productivity and provide support for enterprise. We introduce new measures to make work pay for all our people and we show how we will invest in health, education and our infrastructure to provide the modern services on which people rely, in each case long-term decisions that will equip our country for the future.

    "The background to this report is the global downturn, which started in Asia and which has reverberated throughout every continent. It has not only shifted the balance of risks in the world economy from fears about inflation to fears about growth but has forced every country, every continent, every

3 Nov 1998 : Column 154

    international financial institution to cut their estimates for growth. World trade growth is set to fall by two thirds. Forecasts for world growth as a whole have now been virtually halved. One quarter of the world is in recession. And my objective, the objective for Britain, is that in this uncertain world Britain not only steers a stable course but that, by building up our long-term strength, is more than equal to any and every challenge the global economy presents.

    "Because in the last 18 months British inflation has been brought down to its target of 2.5 per cent. and because Britain has set in place a new long-term monetary framework, with the independence of the Bank of England, Britain is better placed than in the past to face these global difficulties, and because, too, Britain has tackled its structural deficit in the public finances we are more able to steer that stable course.

    "But, as all forecasts round the world have made clear, there is acute uncertainty about the eventual outcome of the global financial instability. So we are conscious of the balance of risks--the risk on the one hand of a sharper slowdown in the world economy as a result of instability and its effect on confidence, the risk on the other that inflationary pressures might persist.

    "The Pre-Budget Report is set with this firmly in mind, no denial of short-term difficulties, no diversion from policies for long-term strength, and our challenge in the year ahead is to strengthen the three essential foundations for that long-term strength and success.

    "First, Britain now has, for the first time, a consistent long-term framework for both monetary and fiscal policy--one that has an inbuilt capacity to respond credibly to short-term pressures and one from which we will not be deflected.

    "Secondly, with business, we are putting in place a strategy to tackle a fundamental long-term economic weakness, the 40 per cent. productivity gap with our most successful competitors--and these measures include investment in education and innovation and new encouragement for enterprise and competition and, thirdly, with our Welfare-to-Work programme and by ensuring that work pays we are extending opportunity to all, creating a Britain where no one is excluded and everyone has a contribution to make, a Britain that is both enterprising and fair.

    "First, the foundation of long-term economic stability. Official figures now show that by spring 1997, with consumer spending growing at an unsustainable pace, inflation was heading way above the country's 2.5 per cent. target to twice that of our competitors, 4 per cent. and above, and that Britain was set to repeat the boom-bust cycle that has led to 15 per cent. interest rates for a whole year in 1990.

    "Because immediate action was taken--making the Bank of England independent and tackling the inflationary pressures--inflation is today at our target of 2.5 per cent., and I can announce that for future years our forecast is that it will stay on target. As a result, Britain's long-term interest rates have come

3 Nov 1998 : Column 155

    down from over 7 per cent. to 5 per cent.; the differential between Britain and Germany has narrowed by nearly 2 per cent.; and long-term interest rates are now the lowest for 35 years, the lowest since Britain's boom-bust cycle became entrenched. And because Britain has brought inflation under control it has been possible, as the world has turned downwards, for interest rates to be able to respond more quickly and in a more forward-looking way than in past British economic cycles.

    "In the previous economic cycle, interest rates remained in double figures for over four years. In contrast, the Bank of England has already been able to reduce interest rates to respond to a changed international environment.

    "Long-term monetary stability is a pre-condition of economic success and I reaffirm my support for the Bank of England's independence--its remit and membership--and I do not believe that any political party, putting the long term interests of Britain first, will, on reflection, bring party politics and short-termism back into interest rate decisions.

    "It is also because Britain now has a new long-term fiscal framework--with clear disciplines set out in the Code for Fiscal Stability that we are laying before Parliament today--that, as world growth slows, fiscal policy is able to make its contribution to stability and future growth in Britain. The official figures published today confirm that in our first year we cut the budget deficit from £28 billion to £8 billion. This tightening has continued throughout our second year, a total fiscal tightening in two years of 3¾ per cent. of national income. So fiscal policy has played its part with interest rate policy in tackling inflationary pressures.

    "I can tell the House that, because we have concentrated on our priorities and cut waste, spending will be a total of £2 billion below the ceilings we inherited.

    "As a result, our current budget this year is expected to be £5.5 billion in surplus, and what was prudently projected to be net borrowing of £1 billion is now expected to be a debt repayment of £1.5 billion.

    "The golden rule is that, over the cycle, we balance the current budget, in other words on current spending that we eliminate the structural deficit. I can report to the House that because of the tough action we have taken since we came to government this is exactly what we are now achieving.

    "Having broken with short-termism and created, for the long term, a stable monetary and fiscal framework, with an inbuilt capacity to be more responsive to the economic cycle, fiscal and monetary policy can both together contribute to stability and growth in the coming years.

    "My forecast for 1999--of 1 to 1½ per cent. growth for 1999--will see Britain steering a stable course even when one quarter of the world is in recession. And as the economy returns to its sustainable

3 Nov 1998 : Column 156

    growth path, we expect growth in 2000 to be between 2¼ per cent. and 2¾ per cent. And in 2001 between 2¾ per cent. and 3¼ per cent.

    "It is because we are cautious about the balance of risks in the economy that we have based public finance forecasts on deliberately more prudent assumptions than before. First, our public finances are planned on an estimate of 2¼ per cent. trend rate of growth, one quarter per cent. lower than the assumption that we inherited. Secondly, our forecasts have revised downwards the ratio of VAT receipts to projected consumer spending, reducing estimated revenues by nearly £4 billion over the next five years. Thirdly, revenues from tackling fraud have been set at a more cautious level than in the last Parliament. Fourthly, we have discontinued the imprudent practice of assuming revenues from privatisations that have not even been agreed.

    "In each case our assumptions have been independently audited by the National Audit Office. And, because of the experience of the early 1990s, we have adopted a more prudent approach to forecasting income tax and corporation tax revenues, including a cautious estimate of revenue from self-assessment. So, even after making most prudent assumptions and then taking into account the world downturn, we meet our first rule; to balance our current budget over the cycle.

    "We expect the current surplus to be £1 billion next near, £3 billion in 2000-2001, £8 billion the year after that, £10 billion and £11 billion in the two years to follow. For the same years, net borrowing is expected to be £4 billion and successively £5 billion, £2 billion, £2 billion and £1 billion figures better in every year of this Parliament than in any year of the last Parliament--an estimated current surplus for the coming five years of £33 billion, a margin that shows that we are equipped to cope with further uncertainties. This £33 billion contrasts with, under the last government, a deficit of £149 billion over the economic cycle, as national debt doubled.

    "Our second rule, the sustainable investment rule, requires that, as we borrow for investment, debt is set at a prudent and stable level. In the last year of the last government, that debt ratio was 45 per cent. In the next three years, to meet the needs of a modern infrastructure, public investment will double. As a result of our overall prudence, debt as a proportion of GDP is set to fall below 40 per cent. to 39 per cent. next year, to 38 per cent. and then to 36½ per cent. And Members who take a special interest in the Maastricht criteria will want to know that in each year of the next five years Britain is comfortably within the Maastricht guidelines.

    "Long-term economic stability, from which we will not be diverted, is the foundation for future success. But we will only achieve our long-term goals for growth and employment through an even more radical modernisation of our economic policy in favour of opportunity, enterprise and work.

3 Nov 1998 : Column 157

    "We need to push ahead with modernisation in every area--improving productivity, expanding opportunity and investing in our future. And in every one of these areas our economic policy is based on getting the best out of all our people and all their potential; in other words, on maximising economic opportunity for all. What makes for a good economy also makes for a good society; one that is fair and cohesive.

    "So I now turn to the first conclusions from the review we have conducted with British business into removing the barriers to productivity. As our seminars with business have revealed, the only way for Britain to be at the forefront of the new knowledge-based economies of the future is by modern policies for education, employee participation, small business development and science and innovation.

    "Our first recommendations concern the quality of education. With our £19 billion investment in educational reform, we have set out demanding targets for literacy, numeracy, teaching standards and qualifications. And with my right honourable friend the Secretary of State for Education and Employment's announcement today of a £250 million investment in a new traineeship programme for teenagers, we have now made it possible for every young person, after 16, to stay on in part-time or full-time education, to get qualifications and to have the opportunity of a job. But to meet the productivity challenge we must do far more to encourage the ambitions of all our children, not least by bringing the world of education and the world of work into closer contact.

    "Over the next year we plan to enlist business leaders to take the world of work and business into our classrooms. And to encourage businesses to offer expertise and management to help our schools and colleges, I can announce that the Budget will allow businesses to claim tax relief when they second staff to schools and colleges. But as our productivity discussions with business have also revealed, Britain can do more to remove the barriers to opportunity and to ambition.

    "The opportunity not just to acquire the best skills but the ambition to work your way up and use your creative talents, the ambition to start and build a successful business, the ambition to see the firm in which you work succeed and you succeed with it.

    "Today, only a fraction of British employees and an even smaller minority of those outside senior management own shares in the companies that they work in and yet the evidence is that employee commitment is a vital strength for companies competing and succeeding in the global economy. And I want, through targeted tax reform, to reward long-term commitment by employees and I want to remove, once and for all, the old 'them and us' culture in British industry. I want to encourage the new enterprise culture of teamwork in which everyone contributes and everyone benefits from success. So, in the Budget we will make it easier for all

3 Nov 1998 : Column 158

    employees--and not just a few--to become stakeholders in their company. I want to double the number of firms in which all employees have the opportunity to own shares.

    "Many employees already hold shares through their pension funds. So I will propose to pensions funds and other institutions that they should provide better and more direct public information to their members and investors.

    "In future, more of our wealth and jobs will come from small and growing businesses. In just 18 months we have announced cuts in the rate of corporation tax on large companies twice to 30 pence, and for small companies twice to 20 pence--its lowest level ever.

    "In the Budget we will consider a further tax reduction for small businesses. In particular we will consider converting the temporary investment allowance we introduced last year into a permanent tax cut. But I have in mind a bigger reform to cut the burden of tax and red tape. Small businesses getting started and growing lack not only the resources to pay tax but the back-up to administer national insurance, income tax, their VAT payments and their payroll systems.

    "From April 1999, the Inland Revenue and the Contributions Agency will be merged. And we propose to roll out, on a nationwide basis, a new comprehensive service for new businesses, helping replace time consuming bookkeeping by offering a one stop advice service administered by a national helpline, backed up by local offices. So from now on every department of government will have an obligation to encourage enterprise and entrepreneurs.

    "And I can confirm to businesses also that we will re-examine planning regulations and building control to identify barriers to productivity and job creation and how the planning system can be speeded up in Britain to help us emulate the success of hi-tech clusters and corridors like America's Silicon Valley.

    "Access to bank finance is critical to the success of every single small business. I have therefore asked the banks to work with Mr. Don Cruickshank to assess what steps can be taken more effectively to serve the needs of businesses in the economy.

    "And to open up and enhance competition we will ensure, with a 20 per cent. increase in new funding, that the Office of Fair Trading has the necessary resources to break down barriers which prevent new firms entering markets and keep prices high for consumers. Further announcements on how the new arrangements will proceed will come from my right honourable friend the Secretary of State for Trade and Industry when he publishes his competitiveness White Paper.

    "Our policy is pro-small business, pro-share ownership, pro-tax simplification and pro-competition.

    "Our policy is also pro-skills and pro-science.

    "To turn scientific inventions in Britain into jobs for Britain we need to do more to honour the spirit of invention, facilitate the exploitation of invention and encourage the commercialisation of invention.

3 Nov 1998 : Column 159

    "More than ever innovation is the key to higher productivity. So we must see that inventions which are created in Britain are developed and manufactured in Britain.

    "The first step is a higher quality and quantity of research and development. So the Government will consult small business on supplementing the current tax relief for R&D with a more effective tax credit for small business based on the volume of R&D investment.

    "Three months ago we announced a partnership with the Wellcome Trust to invest over £1 billion to re-equip university science in Britain, the largest ever investment in Britain's science base.

    "Having received an overwhelming response from universities to our new University Challenge Fund--the private public partnership for commercialising scientific inventions--we are now inviting further private sector involvement.

    "I now want to complete the path that takes inventions from the science lab through to high tech venture capital and then to the national and global marketplace.

    "So I am announcing today that to develop business expertise in science and to transfer technology from the science lab to the marketplace, we will endow up to eight new institutes of enterprise in British universities. A further signal of our determination that the genius of British invention will once again become an engine for British growth and jobs.

    "A strong venture capital industry supporting high-tech, high-risk investments is critical to the future of Britain.

    "Today we have only 6 per cent. of the early stage high-tech venture capital of the United States. So we will consult on and consider new incentives, including how to encourage our most successful companies to invest in start-ups, and how we can provide new sources of venture capital and management expertise for entrepreneurs.

    "The productivity challenge is one that must be met by the public sector and not just the private sector.

    "Next month, for the first time, the Government will publish public service agreements which set, for all departments, clear targets for improved performance. And to help them meet these targets and to monitor performance we are establishing an advisory panel from business and management.

    "Absenteeism costs the public sector up to £6 billion a year. Specific targets are being set for each department to reduce absence rates by 20 per cent. by 2001 and 30 per cent. by 2003.

    "We are working with business, not just to promote higher productivity, but to secure policies for a sustainable environment.

    "I am publishing today the report of Lord Marshall, formerly President of the CBI, into the role of economic instruments and the business use of energy. I thank him for his work, which substantially moves

3 Nov 1998 : Column 160

    forward the debate, and the Government will give full consideration to his recommendations as part of its wider strategy on climate change.

    "Today I am also publishing a consultation document, containing proposals for a £50 reduction in vehicle excise duty for the smallest and most environmentally efficient cars.

    "Just as the Government are modernising our industrial economy, so too we are modernising employment policy.

    "The House will be pleased to know that by next April 300,000 people will have benefited from the New Deal. That is now giving men and women previously left out and excluded a new sense of hope.

    "Already, 29,000 companies have signed up to the New Deal and 30,000 have found jobs with employers, jobs they would not have had without the New Deal.

    "We are now ready to extend the New Deal. From 30th November, 60,000 opportunities will be created for the long-term unemployed in 28 areas of the country.

    "In Northern Ireland, in support of the peace process, we will now guarantee new opportunities to all those men and women who have been unemployed for more than 18 months.

    "We will also extend nationwide the New Deal skills shortage programme, and offer up-front support for training to help fill the vacancies that come on-stream every month.

    "And, by March next year, I can confirm that to tackle skill shortages there will be 120 centres for IT and high-tech training in every part of the country.

    "Side-by-side with the New Deal there will be new guarantees that work will pay more than benefits.

    "From April, as a result of abolishing the entry fee to national insurance, all employees will receive a tax cut of £66 a year.

    "And business will be pleased that I can announce that from April, employers will not pay national insurance on earnings below £83 a week, the 1999 level for the personal tax allowance.

    "When it is economically right to do so--and so that work pays more--we will introduce the 10 pence starting rate of income tax.

    "From 1st April, 1.9 million employees, including 1.3 million women, will benefit from the minimum wage.

    "And I can also confirm that the minimum income guarantee for a low paid family, which as a result of the working families tax credit was announced at £180 will, as a result of the minimum wage and tax and benefit changes we are making, be raised to £190 a week from October next year.

    "So that work pays--a guaranteed minimum of £190--with no income tax to pay on incomes below £220 a week.

    "This will guarantee a minimum income for a lone parent with one child of at least £5.50 an hour, and for an adult with 2 children £6.37 an hour.

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    "To enable parents and carers to balance work and family responsibilities, I want to provide extra help for child care. We have provided resources for up to one million new child care places over the next four years. And today, consistent with our national child care strategy we will extend our new child care tax credit to cover all children up to age 14; and, in the case of children who are disabled and who have greater needs, until the school leaving age of 16.

    "We will also match the working families tax credit with a new disabled person's tax credit that will ensure that work pays for a disabled man or woman who takes a job.

    "A disabled person, with one child, moving from benefit to full-time employment, will be guaranteed a minimum income of £220 a week, with no income tax payable on income below £274 a week.

    "Disabled men and women taking up work will be as much as £78 a week better off.

    "So under this Government, disabled people, who want to work, will now be guaranteed fair treatment at work and work will pay.

    "And matching the minimum income guarantee for disabled persons in work there will be a new disability income guarantee of £128 a week for the severely disabled out of work.

    "And at the same time, we are guaranteeing pensioner couples a new minimum income of £117 a week. And this will be followed in the Budget with a guarantee that pensioners will have no income tax to pay unless their income rises above a new specified level.

    "And as a result of the measures we have taken--by following up our cut in VAT on fuel with tougher regulation and our new winter fuel payments--I can say that pensioners are saving £108 on their fuel bills and the poorest pensioners are saving £140.

    "So our task as a country for the coming year, steering a course of stability, is to meet the productivity challenge, to extend fairness and welfare to work, and to make the modern investment we need in our future.

    "And I am pleased to announce that, following the modernisation of the private finance initiative, there will be new investment in our infrastructure--in over 1,000 schools, in over 25 hospitals and in dozens of public transport projects--over the coming three years an additional £11 billion. And I can also confirm that over the three years from next April, public investment itself will double and do so at the right time--the right decision, the right course of action for our country.

    "I have one further announcement. Because of our prudence in the management of public finances, government spending is well within the limits we set. Our prudence is for a purpose. Therefore, to ensure in every part of the United Kingdom the health care that people--and especially elderly people--need this winter, I am today making an additional and

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    immediate winter cash allocation, to be spent in the next five months, of £250 million more for our National Health Service.

    "And I can confirm that, because this Government believe in the best health and the best education, not just for a few but for all our people, we will invest an additional £40 billion in the modernisation of education and our health service over the next three years: public services that in the months and the years ahead are safe in this Government's hands, a government who are steering a stable course, prudently investing in our future, proudly building strong public services and consistently keeping their promises to the British people. I commend this Statement to the House".

My Lords, that concludes the Statement.

4.21 p.m.

Lord Higgins: My Lords, the House will wish to thank the Minister for repeating the Statement made by the Chancellor of the Exchequer in another place. Noble Lords will also wish to congratulate the Minister on his stamina. Indeed, perhaps noble Lords should congratulate themselves on their stamina because it is certainly an extremely lengthy Statement covering a wide range of issues.

Such Statements are now adopting a particular pattern. The central points tend to be announced in the press the previous day, as they were in the case of this Statement. More particularly, there is a tendency now for the Statement to repeat points, as though they were new matters, which had been announced previously. That is true of a number of the items to which the Minister referred.

He started by referring to the position which the present Government inherited. He and I have disagreed about that before. My personal view remains that it was the best inheritance which any government have inherited in the post-war period. He picked up a particular point. He said that what was wrong was that consumer expenditure was out of control. If that were so, why did the Chancellor clearly fail in his first Budget to deal with that problem as a result of which, combined with the decision to make the Bank of England independent, he created a situation where interest rates were bound to rise; there was a corresponding increase in exchange rates; and manufacturing industry in this country has suffered severely as a result of that mistake?

While one must hope it is not so in the future, since the Government came to office there has been a marked lack of co-ordination between monetary and fiscal policy. We are told that the Treasury is in control of fiscal policy and that the Bank of England is in control of interest rate policy. But interest rate policy is not the same as monetary policy. Therefore, perhaps I may ask the Minister which of the two is concerned with and in control of the money supply. In particular, is it or is it not the Government's intention to fund the deficit in full? The Minister took some credit for what is happening to long-term interest rates. Is it the Treasury or the Bank of England which is responsible for that?

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The Minister has two particular favourite achievements to which he likes to refer. The first is the fact that public expenditure plans are set in concrete. In the light of his announcement, there would seem to be a considerable variation as regards what he has announced previously in that respect. Will he confirm that that is so and will he quantify it?

The Minister is a great enthusiast for the so-called golden rule. Indeed, he argues that the Chancellor of the Exchequer has continued to achieve that golden rule although its actual formulation has altered somewhat from that which was established previously. But is it not the case that, for example, the recent review of the National Institute of Economic and Social Research--and I must declare an interest because I have been a governor of it for many years but I certainly have had nothing to do with this particular piece of analysis--states:

    "Strategically, the government stressed the distinction between current and capital spending and committed itself to borrowing only what is necessary to finance capital investment over the economical cycle"?
It then goes on:

    "The projections in the EFSR show the 'golden rule', that borrowing is not used to finance current spending, being met throughout the period from 1998 to 2001 and beyond. Our projections do not show it being met in any of these years. This is despite making similar assumptions about public sector spending and investment".
One must have the gravest doubts as to whether the Government are in fact still going to achieve their golden rule.

The Minister has put much stress, as he did yesterday, on the international financial situation. He sought to argue that that was one reason for the Government making a very significant reduction in their forecast for economic growth. The fact is that all countries live in the global economy. Why is it then that the rate of growth which he is now forecasting is significantly lower, indeed, half, that which is expected in France and Germany and, indeed, half that which is expected in Australia, which has most certainly been affected more by the down-turn in the Asian markets than we have? I hope that the Minister can answer that point because it makes it clear that the problems which we are facing are, to a large extent, not international problems but those which have been affected by the Government's own economic policy since they came to office.

There is a great deal in this Statement which is way off the normal scope of Budget Statements. In particular, one should stress that a central aspect of the Government's economic policy was that they would reduce social security spending in order to spend more on health and education. The Minister and I exchanged views on this matter a few days ago. Will he now confess that there will not be any cut in social security spending? On the contrary, is it not the case that the increase in social security spending is almost as much as that on health and education combined? Will he clarify that particular point because it has undermined much of the Government's economic policy?

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Indeed, the effect of that has also been shown in other ways. The Government's policy has had a particularly serious effect on thrift, savings and on pensions. As regards pensions, in the first Budget, the effect of ACT was to reduce the funds available to pension funds by something like £5 billion.

It is also the case that the effect of the Government's present economic policy has been to produce an almost unknown situation where Stock Exchange prices and annuity rates have been going down together whereas previously, normally, if one went up, the other went down and vice versa. The effect of that is that people retiring now may well find that the pension which they can actually expect for the rest of their life is 35 per cent. less than they might reasonably have expected when this present Government came to power.

If there is one thing in the area of pensions and benefits and so on which adds insult to injury, it is the measure announced last week. Then we were told that if a disabled person had been able to find employment, and had been sufficiently prudent to contribute to a defined contribution company pension scheme, incapacity benefit would be reduced. That is something about which the noble Lord, Lord Ashley, has complained and I hope that the House will succeed in reversing that.

I have only two other points to make, although there are a great many matters which I am unable to cover. Perhaps I may first raise a matter which has already been before your Lordships' House. The noble Lord referred to a situation where the starting rate at which people pay income tax will be raised. That was announced by the Chancellor last year. Although he gave the impression that it was going to be done in last year's Budget, we now understand that it will be introduced next year. It was combined with a clear statement that the position of those who were then not going to contribute to the national insurance scheme would be protected. This measure was not going to be implemented until that was made clear. Can the Minister say how the Government will ensure that protection?

My final point is this. The Chancellor is now clearly determined to undermine the contribution principle, either because people will not receive benefits for which they have contributed under the national insurance scheme or other people will receive things for which they have not contributed. In the light of the international situation I said yesterday that Lord Keynes's shadow might well be lurking in the Gallery. Under this Government one asks what is happening to Lord Beveridge's shadow because there is a fundamental undermining here of something which has formed the basis of our welfare system since the end of World War II; and that is very dangerous indeed. When one considers the overall situation, to a large extent this Statement reflects the Government's failure to date. We must hope that they do a little better in the future.

4.30 p.m.

Lord Taverne: My Lords, I congratulate the Government on this Statement. Let us not be petty about it. This Statement is good news. It is much more

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optimistic than anyone would have expected. I just hope that it is right. The noble Lord, Lord Higgins, asked why our growth rate was lower than that of Germany and France. It is expected to be lower because we are at a very different stage of the economic cycle. Given the kinds of the projections that the Government have put forward--I hope to God that they are right!--that suggests that in due course we might converge because the picture for next year and the year after is very much more optimistic than I personally expected.

The Statement has to be judged by two criteria. The first is the macro-economic one: the outlook for growth and the policies to promote it. Secondly, there are the supply side measures and tax changes. The first question that arises is whether the Chancellor is right to be as optimistic--or, if one likes, relatively unpessimistic--as he has been. Obviously, there are great difficulties about the sources of information at the present time. When he was Chancellor, Lord Macmillan on one occasion referred to the difficulty of looking up train times in the previous year's Bradshaw.

The difficulty at present is that quite a few of the guides that we have are blank pages. One of the most important criteria which the Government have to take into account is what is happening to wages and earnings. At the moment we do not know. They have decided not to publish the figures because they have been so unreliable in the past. They were underestimated at one stage and over-estimated at another. We may well have higher interest rates now than previously because the statistics were so unreliable.

The crucial question which the Government have to judge is as regards the output gap. Without figures for earnings it is very difficult to make up one's mind. What are the signs? I have never been a doomster. It is sometimes fashionable, in particular in journalistic circles, to preach doom and gloom because it gives one a kind of spurious reputation for profundity. Certainly there are reasons for worry. I do not believe that anyone can be sure that the Japanese situation has bottomed out. One cannot be sure that the Brazilian economy will be rescued or that that of Latin America will not slide. If it does it will have the gravest implications for the United States. But the American position does not look too bad at the moment. The Fed is extremely flexible and very enlightened, as I mentioned yesterday.

The outlook for the European Union is fairly optimistic. It is likely that it will not have quite the rate of growth that it was looking for, but there will be a reasonable measure of growth. Against that background the position of the United Kingdom does not look too bad. As the Chancellor has pointed out, we start from a position of low inflation compared with the past. A number of companies are in a strong position. The question of corporate liquidity is not a very serious one. When one looks at the gloomy prediction of the CBI, which has often been the harbinger of recession in the past, one finds, as Mr. Anatole Kaletsky points out today, that there is a certain contrast between the general gloom expressed by businessmen who have been pronouncing their views as to what will happen to the economy--they are not necessarily worth more than the

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views that I or someone else would express--but when they are asked about their particular companies they are rather less gloomy.

At present there are very mixed signals. It seems to me that the best policy for the Chancellor in the circumstances is not to panic. Moods change very rapidly and we should stick to a long-term strategy. That is what he seems to have done. By that test the Statement is to be warmly welcomed. I do not know whether the projections will be borne out. Most of them are not. Almost inevitably they will be wrong, but which way they are wrong we cannot tell. Will they be too gloomy or too optimistic and by how much will they be wrong? What is required is a steady nerve and, on the whole, I believe that that is what the Chancellor has shown. It is to be welcomed.

As regards micro-economic changes, I was somewhat worried that because of all the special whinges for special concessions there would be a number of specific measures, but they seem to have been restricted. The tax concessions seem to be reasonable. However, can the Minister say whether the Government will look with a great deal of sympathy on the Marshall Report? In connection with our long-term survival, environmental well-being and economic welfare, there is clearly a need to shift taxes onto pollution and away from people and companies.

I am somewhat disappointed that there is nothing more definite about the taxation of company cars. It does not appear to be an insuperable obstacle to tax cars on engine size. Surely a great deal more can be done about company cars when there is so much evidence that people who have them undertake twice as much driving as they would if they had private cars. We cannot discourage car ownership, but we should discourage the amount of driving which people undertake.

I am glad that the Chancellor has postponed the 10 per cent. tax rate for the time being. Cannot the Government have second thoughts about it? When Chancellor Lamont introduced the 20 per cent. rate he made a profound mistake. All the evidence produced by the Institute for Fiscal Studies showed that it was not egalitarian. It does not promote equality and complicates the tax system. It is a gesture. The announced rate of 10 per cent. tax is equally a gesture. It is an absurdity. I hope that the Government will abolish that nonsense. Far more can be done for the poor, and the general wellbeing of the tax system if allowances are raised.

This is not strictly part of the Statement, but as regards social policy a number of measures have been announced. The one measure that would do far more for pensioners and their long-term wellbeing would be to grasp the nettle of poverty in old age in the long term and accept the need for a compulsory second tier funded pension. It is deeply disturbing that, according to a Financial Times report, it looks as though the Government have now shirked away from that important decision. That would be a great tragedy.

We on these Benches express some reservations about the micro-economic measures and the tax changes. No doubt we shall examine them in due course in greater

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detail. But as regards the most important aspects of the Statement, I hope that the Chancellor's relative optimism is justified. The overall view of the Chancellor, on the face of it, suggests that he is sticking to his long-term policy prescriptions. On the whole, we must welcome those whatever the reservations may be on the micro-economic front.

4.38 p.m.

Lord McIntosh of Haringey: My Lords, I hope the message gets back to the Chancellor about the difficult task I have in this House compared with the task he has in another place. I am faced with a governor of the National Institute of Economic & Social Research, and the chairman, I believe, of the Institute for Fiscal Studies, both purporting to be politicians when they are really experts questioning an amateur. Sometimes I quail before the quality as well as the quantity of the interrogation that I suffer.

The noble Lord, Lord Higgins, said that there is a tendency in these Statements to follow a pattern and to repeat previous announcements. I do not deny that. I used the word "confirm" on a number of occasions and it is true that the 10 per cent. lower level of income tax has been heralded on a number of occasions, though it has always been said that it will be when the economy can afford it, not that it would happen this year or next year. However, perhaps I may take comfort in the Bellman in The Hunting of the Snark, who insisted that,

    "What I tell you three times is true".
Perhaps the message will get through--not, of course, to noble Lords on the Front Benches opposite, but to noble Lords and the country generally--that we mean what we say, and fundamentally that is the message that we have tried to get over in the past 18 months.

The noble Lord went back to the record of the last government, which is his privilege. He does not have much else to go on except that. He complained about the first Budget not doing anything about the growth of consumer spending. In a situation where inflation was heading to over 4 per cent.--a level double that of our major competitors--what we did by devolving responsibility for short-term interest rates to the Bank of England and ensuring that long over-delayed decisions on interest rates were taken independently and effectively, now seems clearly justified. Similarly, the fiscal tightening on which we embarked and our control of public expenditure to the figures we inherited not just for one year, but for two years, seem in retrospect also to have been entirely justified.

The noble Lord, Lord Higgins, asked who was responsible for long-term interest rates; whether it was a matter of monetary or fiscal policy. He knows better than I do that long-term interest rates are set by the market and come down--as they have come down--when the market is confident that the Government are in good hands; that we have stable, long-term policies. That is exactly why they have come down and why the difference between our long-term interest rates and those of Germany have gone down by around 100 basis points since the last election.

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The noble Lord gave us evidence from the National Institute of Economic & Social Research in relation to the "golden rule". I say straight away that the national institute has the same assumptions about most of the economic and public finance variables with which we are concerned and therefore there is some puzzle as to why it comes to a marginally different view from that to which we come. The explanation must be that it is more pessimistic on the public finances. The explanation of that in turn must be that it has not taken into account the latest encouraging out-turn figures. If we look more widely than the national institute, at other forecasts, the collective view of independent forecasters' most recent forecasts is for growth of 1.1 per cent. compared with our lower figure of 1 per cent. and of the newest forecasts, 0.9 per cent. In terms of the accuracy of economic forecasting we are not talking about a great difference. It can be safely asserted that the Chancellor is in line with informed opinion.

The noble Lord, Lord Higgins, asked why we have lower growth than France and Germany when he turned to considering the global economy. The noble Lord, Lord Taverne, answered that entirely effectively. I agree with him. It is obvious that we are at a different stage of the economic cycle and it would hardly be expected that our growth figures could compete with those who are at an earlier stage of the economic cycle. Indeed, I remember forecasting, when Dominique Strauss-Kahn first came to office as Finance Minister in France that, paradoxically--though I fully support the Chancellor in terms of growth--he was more likely to have a successful record than we would in this country.

The noble Lord then returned to his old arguments about social security expenditure. We never said that there would be an absolute reduction in social security expenditure. We said that social security expenditure would be used for the purpose of getting people back into work and supporting those in most need; that we expected to do better in that regard than the previous government, and indeed we have. Over the period of this Parliament we expect social security expenditure to increase by 1.25 per cent. per annum in real terms compared with the figure in the last Parliament of 3.8 per cent. in real terms. The money now is going for children and pensioners, not those who are deprived of work by the mismanagement of the Government. That is in the context of there being 400,000 more jobs in this country than there were when we came into office almost exactly 18 months ago.

The noble Lord must be short of material for he again returned to argue about advance corporation tax--what is more properly described as the removal of the double relief anomaly. The experience over the past 15 months has shown that all the hysterical forecasts--I do not use that word in relation to the noble Lord--made in relation to the effects of those changes proved and are continuing to prove to be entirely unjustified.

The noble Lord made a great deal of issues relating to pensioners and yet there was no specific reference to pensioners in the pre-Budget Report. As he knows, a review is in hand and its results will be announced at the appropriate time. I believe he said that the return on annuities has been reduced to those who are seeking to

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cash in their annuities as they enter pensionable age. Indeed, that is correct; I recognise that. But returns on annuities reduce as there is greater confidence in the ability of this Government to control inflation and to move out of the "boom-bust" economy. We are sad for those pensioners who are receiving a reduced return on annuities, but in return they are getting a greater guarantee of a low inflation, stable economy and stable society in which they will pass their retirement years.

The noble Lord, Lord Taverne, made more points in relation to pensioners to which, if he will forgive me, I shall not respond in detail. We must await the definitive statement on that issue. I am grateful to the noble Lord for his very positive comments. He talks as though the Chancellor is making optimistic forecasts. But if I make the comparisons, as I have done, with independent forecasters, he will agree that we are being just as prudent in our assessment of tax revenues, and our assessment of most of the other ingredients of our forecasts.

He is quite right to say that pay figures are in disarray at the moment and that is something to which we shall no doubt have to return. I shall be interested to read Dr. Holt's evidence to the Treasury Select Committee today. The noble Lord is right in saying also that there is a huge element of world instability; that the whole thrust of the Statement has been that we have taken into account realistically the increase in world instability and the downturn in the growth in world trade and even in world growth. To that extent I believe it will be shown, as it has been shown since the last Statement, that we are being prudent rather than extravagant.

The noble Lord understandably expressed concern about micro-economic changes. But he will understand that this is a pre-Budget Statement and not a Budget. Your Lordships have never had Budgets presented to them in this House. Many of the comments are made in imprecise terms for perfectly good reasons; that is, to avoid evasion and so that there can be reasonable consultation on the details. I hope that the noble Lord will find that there is consultation in the months between now and the Budget.

The noble Lord asked us to assure him that we shall take the Marshall report extremely seriously. We would not have commissioned it unless we intended to do so--and the noble Lord, Lord Marshall, would not have agreed to undertake that work unless he believed that we intended to do so. We are certainly doing that.

My final point is on the CBI and expectations. I very much appreciated what the noble Lord, Lord Taverne, said about that. Expectations data are always perceptions rather than reports of reality; I have contributed to them so I should know. Even when businesses are reporting, they have order books which represent the future. They report the general climate of opinion in the country as much as actual fact. I am not saying that expectations data are useless, but they swing around a lot compared with the reality. I am grateful to both noble Lords.

4.50 p.m.

Lord Barnett: My Lords, although I do not agree with everything that my right honourable friend the

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Chancellor has said, I congratulate my noble friend on having read out that lengthy Statement so well. I agree that the Chancellor may need to borrow a little more. He has shown that that is a perfectly reasonable thing to do. I often feel terribly sorry for the noble Lord, Lord Higgins, on such occasions. He cannot really have believed what he was saying, but he did not have an alternative to put to us. So, there were no miraculous alternatives to the need to borrow at present and in the circumstances that the Chancellor outlined.

I have one or two questions to ask my noble friend. I note that the assumptions have been validated by the National Audit Office. I have a huge regard for the National Audit Office, having been chairman of the Public Accounts Committee for some years. However, it could be wrong on that point, just as the Government could be wrong on the whole question of statistical variations.

I note that the famous golden rule would enable the Government to borrow for capital expenditure and to balance current expenditure over the economic cycle. Does my noble friend accept that there are clearly problems with the definitions of "capital expenditure", "current expenditure" and "economic cycle"? Can my noble friend explain to me how variable the economic cycle could be and his definition of "current expenditure" and "capital expenditure"?

I have done some work on current and capital expenditure in another life. I have also done a bit of creative accounting in that sense, so I know that the definitions can vary quite substantially. As I have said, it is reasonable in the circumstances that the Chancellor has decided to borrow. I note that the noble Lord, Lord Higgins, did not refer today to a "black hole", but obviously he cannot yet have read what has been said in another place. I assume that the noble Lord did not refer to how to fill a "black hole" because he does not believe that there will be one. As I have said, I often feel sorry for the noble Lord, for whom I have great regard.

If we are to abide by the golden rule, regardless of the definitions, would it not be more reasonable for the Chancellor--perhaps my noble friend can confirm this--to recognise that there could be margins of error? Indeed, there have been margins of error over the years and in their Budget Statements most Chancellors recognise and admit to them. We now have so many Statements--pre-Budget, post-Budget and mid-Budget Statements. Clearly, given the world situation, there could be substantial margins of error and, although the Chancellor's forecast for next year of growth of between 1 and 1½ per cent. could be as accurate as those of anybody else, the rate of growth could equally well be zero. In those circumstances, if the forecasts were wrong to that extent, would the Chancellor still be able to meet his forecasts about the overall economic and financial situation? Although the noble Lord, Lord Higgins, did not talk about doom, gloom and recession--he is too nice a fellow--may I ask my noble friend his definition of "recession"?

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