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Commons Chamber

Volume 301: debated on Tuesday 25 November 1997

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House Of Commons

Tuesday 25 November 1997

The House met at half-past Two o'clock


[MADAM SPEAKER in the Chair]

Oral Answers To Questions

Foreign And Commonwealth Affairs

The Secretary of State was asked—

Amsterdam Treaty


If he will make a statement on those provisions of the Amsterdam treaty title on immigration, asylum and visas that allow the United Kingdom to opt in subject to national veto. [15988]

The United Kingdom will have the right, under the Amsterdam treaty, to take part in the adoption and application of measures proposed under new title IIIa to be inserted into the European Community treaty. UK participation in measures on immigration, asylum and visas which form part of the existing third pillar acquis is an absolute right and not subject to challenge. In the case of the present Schengen acquis, to none of which the UK is a party, the unanimous agreement of the other states is required, but that is qualified by the Council declaration that the decision shall be taken on the basis of an opinion by the European Commission, and that every country shall use its "best efforts" to enable the UK to participate.

Does the Foreign Secretary accept responsibility for the late-night blunder during the negotiation of this title of the treaty, which led the Prime Minister inadvertently to mislead the House on 18 June this year, when he said that, if Britain decided to enter into those parts of the treaty, no other country could block us?

My right hon. Friend the Prime Minister was absolutely correct in what he said to the House. Article 3 of the UK-Irish protocol says:

"The United Kingdom or Ireland may notify the President of the Council in writing… that it wishes to take part in the adoption and application of any such proposed measure, whereupon that State shall be entitled to do so."
What the Prime Minister said to the House is accurately reflected in that protocol.

Why did Her Majesty's Government allow this part of the Amsterdam treaty to be framed in such a way that Gibraltar will never be allowed to opt in, because, as the Foreign Secretary must know, Spain will use and insist on its veto should Gibraltar ever want to join and opt into the arrangements? Is it simply that Her Majesty's Government do not care about Gibraltar and give it a low priority, or was it just a Government cock-up?

I am grateful to my hon. Friend for his friendly intervention!

First, I strongly resent the suggestion that Her Majesty's Government are not committed to the sovereignty or protection of Gibraltar. No part of Europe has more occupied my thoughts in the past two months than Gibraltar. Secondly, there was no cock-up during the Amsterdam treaty negotiations. Spain did propose an amendment to have the effect of bringing in unanimity for UK participation in the Schengen acquis. I did challenge it and Spain withdrew that amendment. There was an agreement that there should be an amendment only if it was submitted in writing by Spain. No such amendment was submitted during the hearings of the Amsterdam negotiations.

The subsequent change to the treaty was a bilateral agreement between Spain and the Dutch presidency. When, a week later, we received the text that contained that change, we obtained the declaration to which I have referred, but I repeat: there is no intention on the part of Her Majesty's Government to enter the Schengen acquis. On the contrary, the main gain from the Amsterdam treaty for Britain is that it has achieved a clear legal foundation for our border controls, which was never obtained by the Conservative party in 18 years.

The right hon. Gentleman's first and second replies clearly contradicted each other. Did not the Prime Minister boast to the House on 18 June that no other country could block our opt-in? The Foreign Secretary has now admitted that Spain can block that opt-in and he has claimed that Spain and Holland undertook some form of bilateral agreement after the summit. Was not the Prime Minister inaccurate in what he told the House on 18 June?

The Prime Minister was entirely accurate in what he told the House and I have quoted from the UK-Irish protocol. I advise the hon. Gentleman to consult the original text, where he will find that there is a clear distinction between immigration, visa and asylum provisions under pillar 3, which are clearly provided for in the way in which the Prime Minister told the House, and the Schengen acquis, to which we are not and have no intention of being a party.

Kyoto Conference


What communications he has had with the United States Secretary of State about the forthcoming Kyoto conference. [15989]

I spoke to Mrs. Albright at the end of last week about climate change and the Kyoto negotiations. I also had an extensive bilateral on those topics with Mrs. Albright in the margins of the United Nations General Assembly. My right hon. Friend the Deputy Prime Minister recently visited Washington to discuss the Kyoto conference. We shall continue to be in close contact with the United States Government in the run-up to Kyoto to help ensure a successful outcome.

I am glad that the Government are in close touch with the United States Secretary of State. Does my right hon. Friend agree that there is compelling scientific evidence of the dangers of global warming and that quality of life—and, for some people in future generations, life itself—will be threatened if we do not take action? Does he further agree that there is a special obligation on industrialised countries such as the United Kingdom—and especially the United States, as the world's biggest producer of greenhouse gases—to enter into a binding agreement to reduce the quantity of greenhouse gases emitted into the atmosphere?

I entirely agree with my hon. Friend on the severity and gravity of the problem. If the present trend of global warming continues, the world will face extremely unpredictable weather changes and a reduction in food-producing areas. For those reasons, it is vital for everyone that, at Kyoto, we achieve legally binding targets for reductions in CO2 emissions. I am proud to say that the British Government are playing an important part in working for a successful outcome at Kyoto. My right hon. Friend the Deputy Prime Minister has completed a visit to India. He spent the weekend in New Zealand and is currently in Australia working with those countries and taking the lead to achieve the environmental agreement that we need.

Will the Secretary of State acknowledge that the United Kingdom's exemplary record has afforded him a platform from which he can encourage other countries to meet their targets and that that record is largely a result of Conservative policy?

I am proud to say that one of the Government's first actions was to ditch the Conservative target of a 10 per cent. reduction and replace it with a target of a 20 per cent. reduction. That shows that our policies are twice as good as theirs.

Does my right hon. Friend accept that decisions about whether to invest in energy systems that burn fossil fuels and pump CO2 into the atmosphere or systems that promote energy efficiency and reliance on renewable sources of energy are essentially matters for elected Governments? When he meets Mrs. Albright, will he stress the point that next April the Government will not sign up to any multilateral agreements on investment that would take decisions away from elected Governments and hand them to transnational corporations?

I am happy to assure my hon. Friend that subsidiarity will certainly apply to those matters. However, Kyoto will be different from Rio in that we will be agreeing to a mandatory target that will then be obligatory on all parties that sign up to it. Although there are different ways in which that can be realised, it is important that Britain and other industrialised countries match their commitment to achieve that mandatory target if we are to have any hope of persuading developing countries to do likewise.

Export Forum


If he will make a statement on the impact on his Department of the recommendations of the export forum. [15991]

The FCO and the DTI launched the export forum in June to examine the effectiveness of Government support for UK exporters. Their recommendations were published in October. The Government accept their broad thrust. They give a positive and challenging basis for making the Foreign Office's efforts more focused on the needs of our customers—adding maximum value to their efforts and so leading to more jobs and prosperity for Britain.

I welcome my hon. Friend's reply and the initiative taken by the Government in asking the private sector what was needed to increase exports. Will the implementation of the recommendations of the export forum help small and medium businesses in Swindon and elsewhere in the country to reach out to the markets on which they are missing out?

I recently had the opportunity of visiting my hon. Friend's constituency in Swindon and seeing the work of the local business link and the support that it was offering to small and medium businesses. We very much welcome that support. One of the export forum's key recommendations is to ensure that greater emphasis and focus are placed on the work of small and medium enterprises, particularly in assisting them to open up new export markets and activities.

Information Campaigns


What European Commission finance is presently available in the United Kingdom to fund information campaigns. [15993]

General information and communication work concerning the European Union, including the Commission's information activities in the United Kingdom, is funded under chapter B3–30 of the European Community budget. For 1997, 107 million ecu—which is about £72 million at current exchange rates—has been allocated.

On 28 October 1997, the Foreign Secretary made it clear to the House that the Government would not apply for European Union funding to pay for a pro-single currency campaign. How is that statement consistent with the answer that the Minister has just given or with the views of the Chancellor of the Exchequer, who has made it clear elsewhere that the Government will be applying for European Union funds to pay for a euro campaign?

The Chancellor of the Exchequer has approached the European Commission on whether it would provide some funding for a general information campaign, so that British business and British citizens have access to information on very important matters which will be considered in the coming months and years. The difference between the previous Government and this Government is that they thought that everything should be kept secret, whereas we think that information should be provided to inform people.

Does the Minister agree that, for informed debate on Europe, it is imperative that essential information is provided? Is it not clear that the Tories want a debate informed by their own prejudice, and that they are not interested in the facts?

My hon. Friend is absolutely right. The Commission now knows where the Government stand on the issues. Before the general election, the Commission did not know whether it should speak to one end of the Government or the other, because each gave a different answer—making it impossible to provide information.

Is not the point that, on 28 October, the Foreign Secretary told the House that there would be no EU funding to promote the euro? The Minister has now had to concede that there will be a general information campaign, funded by the EU, to inform people about the euro. What is the difference? Is it not merely a disingenuous play on words? Does it not come from the same stable as the Prime Minister's assurance last week that he had paid back the £1 million, only to concede five minutes later that it had not been paid back? Would it not be better if Labour Ministers adopted a new policy of telling Parliament the truth in the first place?

I am surprised at the hon. Gentleman. I should have thought that he would realise that there is a huge difference between the propaganda against Europe that the previous Government frequently tried to perpetrate and giving information to people, so that they can make their own assessment of the issues involved and make their own preparations—so that, when and if a referendum is held on the matter, they can make a decision based on knowledge, not prejudice.



If he will make a statement on the United Kingdom's relations with Japan. [15994]

The United Kingdom enjoys excellent relations with Japan, which we regard as a special partner. Japan is our largest export market in Asia and a major inward investor in the United Kingdom. We work closely with Japan on a wide range of subjects, including joint science and technology projects, international peacekeeping, commercial collaboration in third markets and joint aid projects. There are also growing ties between the British and the Japanese people. We want to build closer relations in the future. The visit of my right hon. Friend the Prime Minister to Japan, in January, will be an important step towards that objective.

I thank my hon. Friend for his response. Will he confirm that future relations between the United Kingdom and Japan will be strengthened by an open acknowledgement by the Japanese Government of the crimes of the past? Will the Government and the Prime Minister, on his visit next year, continue to press for full appropriate compensation for Japanese labour camp victims and civilian internees? Does he acknowledge that full compensation is the basis for a stronger, better and more fruitful relationship in the future?

Since the Labour party was elected in May, I have had several meetings with representatives of the former prisoners of war. My right hon. Friend the Foreign Secretary and I have also had a series of meetings with Japanese Ministers and officials and we have suggested possible ways in which the wartime sufferings of the former prisoners of war could be recognised and acted on. I am sure that all right hon. and hon. Members welcomed the gesture by the Japanese ambassador in attending the Remembrance day service at Coventry cathedral the other week. That was a warming gesture of reconciliation and I hope that we can build on it in the next few months.

Do not events earlier today in Japan raise some profound questions about the issue of security? Is it not the case that, for a country such as the United Kingdom, economic turbulence—of the kind seen in Japan—is likely to be as disadvantageous as military threats? In the light of those circumstances, what measures have the Government urged on the Japanese Government, as a fellow member of the Group of Eight, as a means of restoring economic confidence in the domestic Japanese economy?

We all recognise the global significance of the events in south-east Asia, and Japan and Korea. We know that the Governments in the region are working closely with the International Monetary Fund and others, which is the right approach to open up their trade, to liberalise their markets and to take some of the measures that are crucial for their long-term financial and economic security.

One lesson that we must learn from the Japanese experience—much reinforced to me last week when I spoke to inward investors from Japan—is that, if we follow the Conservative party's European policies, Japanese inward investors will cut their investment in the United Kingdom. Every Japanese company that I visited told me that Conservative policies would put tens of thousands of jobs at risk.

I very much welcome what my hon. Friend has just told the House. Does he share the concern of my constituents in Dunfermline, and people elsewhere in the United Kingdom, who have benefited from inward investment from south-east Asia? What measures will the Foreign Office take to ensure that we remain an attractive destination for investment by Japan, South Korea and other south-east Asian countries?

There was no doubt, during my discussions with Japanese and Korean inward investors last week, that the United Kingdom remained an attractive location. We have become even more attractive since 1 May, because inward investors know that we have political stability, and that we are committed to Europe and intend to be a central part of it. The messages from the previous Government were a strong disincentive to inward investment.

I am sure that the Minister is right that one of the reasons why Japanese companies invest in Britain is our membership of the European Union. What steps will the Minister take to reassure inward investors that the very advantages that they see in investing in Britain—more flexible labour markets—will not be eroded by following the European social model?

Not one Japanese company mentioned that to me last week. They saw attractive propositions in the United Kingdom and they will continue to look to this country as a suitable location for inward investment. If the right hon. Lady had a strong message on Europe, it would be attractive to Japanese companies. My wish for her is that she could win more support in her party, but she is sadly isolated in her beliefs.

Israeli Prime Minister


If he will make a statement about his recent meeting with the Prime Minister of Israel. [15995]

Prime Minister Netanyahu and I had a two-hour meeting, covering the middle east peace process and other regional issues and bilateral relations. I made clear our support for Israel's security, but also set out our concerns about the current state of the peace process and the urgent need to move forward on issues such as the airport and sea port in Gaza, free passage between Gaza and the west bank, an end to the expansion of settlements and further redeployments of Israeli troops from the Palestinian entity. Britain is committed to a successful outcome of the middle east peace process on the basis of peace with security for Israelis and peace with justice for Palestinians.

Will my right hon. Friend assure the House that he will continue to encourage progress towards accelerated final status talks between Israel and the Palestinians? Does he agree that we can make a major contribution to the peace process by promoting the economic development necessary to underpin it?

I entirely agree that progress towards final status talks would be desirable, but there is a lack of confidence on both sides that an offer of accelerated final status talks would be genuine. There must be some interim agreements as a gesture of good will and good faith to make it possible to proceed.

It is vital that economic progress underpins the peace process. One of the problems in the middle east is that the income and standard of living of most Palestinians have declined during the period of peace. That must be reversed. We must show the people on the back streets of Gaza that the peace process will deliver real improvements in their standard of living.

Does the Foreign Secretary agree that pressure should be brought to bear on Chairman Arafat, who made certain agreements in Oslo that have not been kept? It is unfair to expect Israel to go beyond the Oslo agreement when that agreement has not been fulfilled.

Nobody is asking the Israeli Government to go beyond the Oslo accord. They are being asked to adhere to an agreement that, although it was entered into by a previous Government, is binding on the successor Government, as any international agreement is. We repeatedly urge on the Palestinian National Authority the need to deliver greater security. To be fair, most international observers agree that there has been an improvement in the authority's efforts on that. However, the authority is not helped in its attempts to improve security if it is denied the money with which to pay its policemen for two months.

As my right hon. Friend knows, 29 November is the 50th anniversary of United Nations Security Council resolution 181, which partitioned Palestine. As we approach that anniversary, has my right hon. Friend been able to impress on the Prime Minister of Israel the need to move towards final status negotiations, to resolve the problems with the Palestinians and to include in those negotiations the right of the Palestinians to a state?

It has long been the position of the British Government that the possibility of statehood for the Palestinian entity should not be excluded from the final status talks. The sooner we make progress on interim agreements, such as opening the Gaza sea port and airport, which would be an immense boost to the local economy, the sooner we can reach the final status talks to consider the larger issues.

Environmental Objectives


What recent representations he has received about the environmental objectives of foreign policy. [15996]

I have had extensive contacts with overseas Governments and with non-governmental organisations, covering a wide range of environmental issues, including in particular the forthcoming Kyoto negotiations on climate change and the UK presidency of the European Union.

A few minutes ago, the Foreign Secretary accepted the urgency of the problem of climate change. As the Prime Minister is always keen to claim a close and friendly working relationship with President Clinton, why have the Government failed even to attempt to persuade the United States of the importance of at least achieving the modest carbon dioxide reduction targets set down at Rio five years ago, let alone the far more challenging targets referred to by the Foreign Secretary earlier?

The hon. Gentleman failed to hear my right hon. Friend's earlier response. My right hon. Friend has already told the House of his contacts with the American Secretary of State, Madeleine Albright. I am sure that the hon. Gentleman knows that the Deputy Prime Minister was in Washington recently and has been talking to many Governments. Unlike the previous Government, we are working for success. We are committed on the environment and we shall make Kyoto a success.

Will the Minister explain how nuclear weapons, which would spread radioactive fallout throughout the world, fit in with the Government's environmental objective?

Nuclear weapons will not be under discussion at Kyoto, but of course there is a process of disarmament talks, and I am sure that my hon. Friend wishes those well.

Has the Minister had an opportunity to read early-day motion 461, in the name of the hon. Member for Putney (Mr. Colman), which deals with the activities of P and O in an ecologically sensitive area of India? In the light of the Government's environmental and ethical policy, does the Minister propose to take any action?

I must confess that I have not seen the early-day motion; it is night-time reading that I look forward to this evening, and I am sure that it will be impressive. None the less, I can tell the hon. Gentleman that we would always expect large organisations to operate in an environmentally sensitive way.

Republic Of Ireland


If he will make a statement on relations between the United Kingdom and the Republic of Ireland. [15997]

Relations between the United Kingdom and the Republic of Ireland are excellent. The two Governments are working closely in the Northern Ireland talks and in the European Union. Practical co-operation between Government Departments throughout the United Kingdom and their Irish counterparts has been intensified and I, like many of my ministerial colleagues, including my right hon. Friend the Foreign Secretary, have already had substantive meetings with our Irish opposite numbers.

Is the idea of Ireland's rejoining the Commonwealth ever discussed? Mary Robinson suggested that towards the end of her presidency. Is not the Commonwealth today very different from that which Ireland left in 1948? It no longer has imperial pretensions and is an area for tolerance, trade and democracy. Would it not also be attractive to Unionists, in terms of the peace process, to have their British identity recognised?

That is not a matter that I have discussed at my meetings with counterparts in Ireland; it would be a matter for the Irish Government.

In view of the likelihood of devolved government throughout the United Kingdom, would the Minister support unilateral action by Scotland or Wales to create a council for co-operation with the Republic of Ireland?

Visa Applications (Punjab)


What assessment he has made of the difficulties of Punjabi people travelling to New Delhi to pursue applications for entry clearance to the United Kingdom; and if he will establish a consular service in Chandigarh. [15998]

The size and location of diplomatic posts around the world are under constant review. The difficulties of travelling to New Delhi are well understood, but for logistical and resource reasons there are no plans to open a visa office in Punjab.

Does my hon. Friend appreciate the disappointment with which that statement will be greeted by many people in the Punjab and by their relatives in this country? Does he realise what long distances people on extremely low incomes must travel to New Delhi on missions to obtain visas, which are often fruitless because of the bureaucracy and inefficiency of the service there? Will he give at least some hope to the people in the Punjab that the matter will be kept constantly under review, and that an innovative solution will be found, such as opening a consular service in Chandigarh for one day a week?

We always review the possibilities and we are keen to provide the best possible service, but I meant to convey to my hon. Friend the fact that, although the process is under constant review, I cannot give any immediate hope that we will be able to open such a facility.

Export Promotion


If he will set out the initiatives taken by his Department to improve its role in export promotion. [15999]

Together with my right hon. Friend the President of the Board of Trade, I launched the export forum to examine the effectiveness of Government support for UK exporters. The forum reported in October, and my right hon. Friend and I have accepted the broad thrust of its recommendations.

This morning, I hosted a working breakfast with chief executives and chairmen of some of our top companies whom I have invited to act as ambassadors for British business. Whenever on visits abroad for their companies, they have undertaken to liaise with FCO posts to carry out promotional work for wider business interests. The invitation has been well received by business leaders and should enable the Foreign Office to use their prestige and their expertise to promote British exports and British jobs.

I thank my right hon. Friend for his full answer. Does he agree that we need speedy processing of export licences? A medium-sized company, Indentec, in my constituency of Stourbridge needs its licence application resolved, and this has particular relevance in relation to the knock-on effect on small feeder businesses.

I can assure my hon. Friend that as soon as I return to the Foreign Office, I will inquire into what has happened to the application. She was good enough to mention before Question Time that this was a licence application for Iran. The House will understand that we need to pay particular attention to the possibility of dual-use equipment going to Iran.

In relation to the promotion of Scotch whisky experts—[Laughter]—Scotch whisky exports; the Foreign Secretary will realise that that is one of the benefits of drinking Scotch whisky. What progress does he foresee towards the harmonisation of duty within the EU in the near future?

I am happy to say that I think I can speak as a whisky expert, and I can assure the hon. Gentleman that it is one of our high priorities to continue to press to make sure that there is fair duty on all alcohol so that our whisky has a fair opportunity in other markets. That will continue to be one of the major objectives of our European policy.

Further to the question from the hon. Member for Stourbridge (Ms Shipley), is not the only practical consequence of the Foreign Secretary's posturings on these matters that the delays in clearing applications for licences for the export of defence equipment have got so bad that orders have gone elsewhere before approval has been granted?

During his visit to Warsaw and elsewhere in central Europe this week, will the Foreign Secretary take time to compare the offensive marketing and promotion of commercial enterprise by the Germans with that of British business, which is generally tardy, despite one or two flagship companies like British Aerospace and Marks and Spencer which are getting stuck in? Private enterprise in this country does not recognise the vast market potential of central Europe, which is being exploited by others but which we are being slow to pick up on. Will my right hon. Friend take some action?

My hon. Friend tempts me to go slightly further than the brief of the Foreign Office. As regards our contribution to export promotion, since we have been in power we have carried out a major review of our export services; we have attracted 12 new short-term secondments from British business, who are now in key embassies in key markets abroad; and we are looking for more. We have today reached agreement with 37 top business people to promote British business while they are abroad.

I will be spending three days in central Europe this week. I shall be looking for opportunities for British business, and I shall be carrying the clear message that Britain strongly supports central European countries' membership of the EU—a message which I hope will not be entirely lost on Conservative Members. The rest of Europe is queuing up to join a union from which many of them appear to wish to detach themselves.




We stand firmly by the commitment enshrined in the preamble to the 1969 constitution. As I explained to the Spanish Foreign Minister last Friday, there can be no change in sovereignty over Gibraltar against the freely and democratically expressed wishes of the people of Gibraltar.

Does the Foreign Secretary agree that it is unacceptable that the citizens of Gibraltar are disfranchised, and have no vote in European elections? Now that the Government seem hell-bent on changing the electoral law for the Strasbourg Parliament, will the Foreign Secretary commit the Government to ensuring that, by one means or another, the citizens of Gibraltar get a vote in the forthcoming European elections?

This is not a matter that can be resolved by domestic United Kingdom legislation; it would require a change in the legislation that set up the European Parliament, from which Gibraltar is expressly excluded. Had this been a matter that could have been resolved in that way, the opportunity to resolve it was in 1984, when the Conservative Government allowed the accession of Spain to the EU.

Will the Foreign Secretary confirm his support for the 1969 constitution of Gibraltar? Is he as worried as I am by the hypocrisy of Spain, which has two enclaves in Morocco as well as the Canary Islands, which are further away from Madrid than Gibraltar is from London?

I can certainly please my hon. Friend by confirming our support for the 1969 constitution, and by reasserting that there will be no change without the agreement of the people of Gibraltar.

I am not entirely sure that it would necessarily help to bring about a resolution of outstanding matters to accuse Spain of hypocrisy, but we have been robust in defending Gibraltar's interests, and will continue to be so.

Does the right hon. Gentleman agree that it is unacceptable that, on a number of occasions, the Spanish authorities have not recognised British passports issued by the Governor in Gibraltar—and, moreover, do not seem to be recognising the identity cards that are produced in accordance with European regulations, and are recognised by the European Union?

The hon. Gentleman will be aware that the issue has been raised with the Spanish authorities by both the present and the last Government. Gibraltar is part of the European Union; as a consequence, its residents have the right to free movement throughout the European Union, which includes Spain.

Employment Summit


If he will make a statement about the outcome of the Luxembourg special summit on employment. [16002]


If he will make a statement about the outcome of the Luxembourg special summit on employment. [16010]

I refer my hon. Friends to the statement made yesterday to the House by my right hon. Friend the Prime Minister.

I congratulate my right hon. Friend on the positive outcome of last week's summit. Will he confirm that, while it reflects our "welfare to work" emphasis on employability and flexibility, the discussions made it clear that flexibility would not involve the worsening of conditions in the workplace or more insecurity in employment?

I am happy to assure my hon. Friend that the text of the presidency conclusions, which were agreed unanimously by those present, stresses employability and adaptability. The guidelines are entirely consistent with Her Majesty's Government's policy of providing a fresh start for young people who have been unemployed for more than six months, and a fresh start for all adults who have been unemployed for more than a year.

The British Government's success in achieving an outcome that is entirely consistent with our policy objectives reflects the fact that the summit only happened at all because we supported the employment chapter in Amsterdam, and because we demanded a special summit through the ECOFIN meeting. The outcome of the meeting is a success for Britain, and it took place only because Britain made tackling the jobs crisis such a high priority.

I thank my right hon. Friend for his reply. Will he tell us whether our European partners agree with the Government that the economic growth required to create jobs should be based on a highly skilled rather than an exploited work force?

It was a frequent refrain at the summit that we must ensure that more is invested in training. For that reason, the countries involved committed themselves to making training available to 20 per cent. of the unemployed.

My hon. Friend is right. If we are to protect jobs in Europe, we will not do it on the back of low pay and poor working conditions; we will do it only on the back of high investment, high skills and high technology.

Can the Foreign Secretary tell the House why the Prime Minister said in his statement that he wished to avoid old-style state intervention, and then went on to announce 1.5 billion ecu of old-style state subsidies for industry across Europe?

First, to be precise, the sum is 1 billion ecu, not 1.5 billion ecu. The hon. Gentleman is 50 per cent. out. Secondly, it was agreed by all members of the European Union that the money would be provided by the European investment bank for investment in high technology and in small and medium-sized enterprises. We are all agreed that the future of Europe and of our economies lies in high technology, and that the future for jobs lies in the small and medium-sized sector. That is precisely why it was right to encourage investment in that sector.

Why has youth unemployment been falling rapidly in this country for the past four years, whereas it has been rising rapidly in all the other major European countries?

I congratulate the Government on forcing jobs to the top of the European agenda, but does my right hon. Friend agree that flexible labour markets have very little to do with macho management, hire and fire, and forcing down wages and conditions of service for staff, and everything to do with high levels of education and training and with releasing the skills and creativity of staff to improve productivity and quality?

My right hon. Friend makes a profound point. If we are to achieve the long-term aim of good training and high technology, a commitment is required from both management and work force. That is precisely what the social chapter is devised to achieve. That is why we believe that it is so important that the staff of a large enterprise should have ownership of the strategy of the company, through the right to information and consultation under the social chapter.

Social Chapter


If he will make a statement on those provisions for bringing forward legislation in the social chapter which operate under qualified majority voting. [16004]

Under the agreement on social policy, legislation can be adopted by qualified majority in five areas: health and safety; working conditions; information and consultation of workers; equal treatment of men and women at work; and integration of those excluded from the labour market.

If in those five areas a matter should come up that is not in the British interest, how does the Minister propose to protect our interest, now that the Government have given away our veto; or does he anticipate that the Government will automatically agree with every measure in those five areas?

Conservative Members are getting repetitive. Before 1 May, the hon. Lady was a member of a Government who had such bad relationships with Europe that they could make no progress on any front, and particularly on the important front of the employment agenda to which my right hon. Friend the Foreign Secretary referred. Now British people have the opportunity to influence what is happening with the social chapter. That is a big advance, and everyone knows it.



What response he has received from the organisation of African states and the Arab League about his invitation to them to inspect the Scottish justice system in relation to Lockerbie. [16005]

The initial response of the Arab League and the Organisation of African Unity has been disappointing. The United Nations Secretary-General has accepted our invitation. We continue to press the Arab League and the OAU to send observers to join the visit of UN officials that we hope will take place before the end of the year.

After nine long years of non-communication, is it unreasonable to ask that an incoming Labour Government should at least talk to the Libyans and hear what they have to say, not least in the light of a written answer from the Home Secretary yesterday following my interview in July with Commander David Veness of Scotland Yard concerning the circumstances of the murder of Woman Police Constable Yvonne Fletcher, casting doubts—we shall put it no higher—on whether the Libyans were responsible? Before making a final decision not to talk to the Libyans, will my right hon. Friend at least have the Foreign Office lawyers consult Scotland Yard?

I have just completed an exchange of correspondence with the Foreign Minister of Libya, in which I made it robustly clear that Britain expects Libya to adhere to the United Nations Security Council resolutions that require it to provide for trial the two men who have been indicted for the mass murder of those travelling on the Pan Am jet and those who were in the village of Lockerbie where it crashed. That remains the Government's position. I am more than happy to have dialogue with all those other countries in the Arab League and the Organisation of African Unity, to remove their doubts, and I am absolutely confident that we can convince them that Scottish justice is fair.

The other matter that my hon. Friend raised is not currently a matter for dispute over the sanctions in relation to Lockerbie. It would help the dialogue between our countries immensely if Libya were to recognise that it has an obligation to provide the two men for trial in order that justice can be done.

Does the Foreign Secretary accept that it would set a dangerous precedent in international law if the trial were to take place in a jurisdiction other than Scotland?

There are several problems with having a trial in another country. The most immediate is that there is no legal basis for a Scottish court to sit outside the Scottish jurisdiction. The hon. Lady is right that if I were to ask the House for such legal provision, there is a danger that it would create a precedent whereby terrorists could object to trial in our jurisdiction. That is a heavy consideration which we shall weigh carefully.

On a point of order, Madam Speaker. Given the nature of my right hon. Friend's answer, I will attempt to get a 14th Adjournment debate on this matter.

Ministerial Visits


My right hon. Friend the Foreign Secretary has no plans to visit India again in the near future. He hopes to be able to visit Canada on European Union business in mid-January next year.

When the Foreign Secretary visits Canada, will he acquaint himself with the events of 24 July 1967, when President de Gaulle visited Quebec and gave his now infamous Quebec libre speech? That might give him some useful hints about what not to say when he next visits Kashmir.

The hon. Gentleman has reached new depths with that question. Perhaps we should congratulate him on his creativity in that respect. My right hon. Friend is looking forward to and will enjoy his visit to Canada, where he will strengthen our bilateral relations with Canada, as he has with every other country that he has so far visited.

Will the Minister assure the House that Her Majesty's Government will continue to make it clear to the Governments of Pakistan and India that we stand ready, as we are all members of the Commonwealth, to make available our good offices to enable those two great countries to try to resolve the problems surrounding Kashmir to bring peace and stability to that region and so improve the lives of people in those countries and in Kashmir?

We have said throughout that we intend to make our good offices available to both parties if that is the wish of both parties, and we stand by that statement.

Sri Lanka


What meetings he has had with representatives of the Government of Sri Lanka since 1 May. [16008]

My right hon. Friend the Foreign Secretary met the Sri Lankan Foreign Minister, Mr. Kadiragamar, on 11 September. I also saw Mr. Kadiragamar on 5 June, and the Minister of Justice and Constitutional Affairs, Professor Peiris, on 19 June.

I thank the Minister for that reply. Did he discuss the situation in northern Sri Lanka, which is of great concern to my Tamil constituents?

I am pleased to confirm that we discussed the situation on each and every occasion. It is important that there is a lasting and just peace for the internal problems of Sri Lanka. We always encourage political dialogue, which we regard as the best way to make progress and deal with the human rights issues that are so important to all communities in Sri Lanka.



The UK has had no diplomatic relations with Iraq since 6 February 1991. Last week, I chaired a meeting of the five permanent members of the Security Council, which demanded that Iraq accept the unconditional return of UN inspectors. I am pleased that Iraq has now accepted the return of those inspectors, including US inspectors, but we continue to be vigilant to ensure that the inspectors can carry out in full their mandate to prevent Iraq acquiring nuclear, chemical or biological weapons.

Can the Minister inform the House what we are doing to investigate the biological warfare programme of the Iraqi Government?

The report that has been heard in the past week by the United Nations monitoring organisation makes very sober reading, in relation to both the biological and chemical capacities of Iraq. It was reported that Iraqi stocks of VX nerve gas keep increasing and that Saddam Hussein can currently produce sufficient anthrax for two missiles a week. Those are serious and sobering figures that stress the importance of the United Nations being able to carry out in full its mandate to inspect the suspect facilities and to ensure that the world does not allow Saddam Hussein to develop weapons of mass destruction.

As the Foreign Secretary knows, the Government have the full support of Her Majesty's Opposition in their stance on Iraq. Is he confident that the inspectors will be able to make up the ground that they lost during the period when they were denied access to facilities in Iraq?

We have full confidence in the inspectors: it should be remembered that they have managed to destroy more weapons in Iraq during the period of inspection than were destroyed during the Gulf war. Their continuing to achieve that will depend entirely on whether or not the inspectors get full compliance from the Iraqi authorities and we are carefully monitoring that. The right hon. and learned Gentleman is right to draw attention to the damage done by the interruption to the inspection regime. We believe that Saddam Hussein has used that period to shift material to secret sites; it might take some time to uncover those, but we are determined that it should be done.

Will my right hon. Friend continue to press the UN Security Council to set up a permanent war crimes tribunal, so that Saddam Hussein and his closest associates can be tried for war crimes, crimes against humanity and genocide?

My hon. Friend will know that the Government fully support the two existing war crimes tribunals—one on the former Yugoslavia and one on Rwanda. It is also our position that a prosecution for a war crime or genocide should not depend on an ad hoc resolution of the Security Council. It is for that reason that the Government firmly support the case for an international criminal court where such crimes could be tried and where we could make sure that international law was firmly applied and that nobody could commit war crimes and genocide with impunity.

Strategic Defence Review


When he plans next to meet the Secretary of State for Defence to discuss the foreign policy basis for the strategic defence review. [16012]

My right hon. Friend the Foreign Secretary will remain in close touch with his right hon. Friend the Secretary of State for Defence on the strategic defence review as on the many other matters on which we work together.

Is the Minister not concerned that his right hon. Friend the Chief Secretary to the Treasury might well be even more diligent in meetings with the Secretary of State for Defence? Will he not accept that the strategic defence review is entirely Treasury driven? If his answer to that question is no, will he stake his reputation on that?

I stake my reputation on every answer to every question, but I can assure the hon. Gentleman that the defence review is Foreign Office led. When determining how to meet Britain's needs, foreign affairs dictate it and defence ensures that it happens.

European Union


If he will make a statement on the responsibilities of his Department in promoting enlargement of the European Union and in drawing up Agenda 2000. [16013]

We have lead responsibility within the Government for policy towards the European Union, including enlargement. The Department also co-ordinates the Government's overall position on Agenda 2000. Tonight, I depart on a tour of Hungary, the Czech Republic and Poland to prepare for the launch under the British presidency of negotiations on enlargement and to assure those countries of Britain's firm commitment to opening the doors of the European Union to the new democracies of central Europe.

Does my right hon. Friend agree that enlargement must involve substantial reform of the common agricultural policy? In the past, there has been a tendency to allow the CAP to be discussed only by farm Ministers, or the Council of Agriculture Ministers. Will he ensure that his Department and others are intimately involved in reform of the CAP? Sixty per cent. of the EU budget is spent on a system that is in need of dramatic reform and that money should be redirected toward other more productive uses.

I am happy to tell my hon. Friend that the matter was discussed by the Foreign Ministers of Europe only yesterday and that it is a priority of my right hon. Friend the Chancellor of the Exchequer. It is plainly not satisfactory that we should go into the next century with 50 per cent. of Europe's budget being spent on an industry in which less than 5 per cent. of the work force are engaged. We shall continue to press for realistic reforms.

European Co-Operation


How many times he has met EU Foreign Ministers since 1 May to discuss European co-operation. [16015]

I have met European Foreign Ministers on many occasions since 1 May.

Does the Minister agree that we—and he and the Foreign Office team in particular—should not get too starry-eyed about European co-operation? We have already heard at today's Question Time that the Common Market is in dispute over the Arab-Israeli argument and there is not agreement about Iraq or about Gibraltar. The reason why there are hundreds of people lobbying for mining jobs today is that when those in the Common Market who took the decisions had the chance to do so, they never bought the cheapest deep-mined coal in Europe. Those are the facts and I think that we ought to bear them in mind.

I assure my hon. Friend that I am never starry-eyed about any negotiation. I also assure him that since 1 May, the Labour Government have worked diligently and hard to get a better deal for Britain on a wide range of issues, including the Amsterdam treaty. We have been able to succeed because we have been in the dialogue, making our view count. That is what has made the difference in comparison with the performance of the last Government.

Pre-Budget Statement

3.30 pm

The purpose of this, the first annual pre-Budget statement, is to report the Government's assessment of the economy, to outline our Budget aims and to encourage an informed debate of the detailed choices before us. To achieve our national economic objectives, high growth and high levels of employment, the next Budget must address three challenges.

The first challenge is to increase our productivity. Britain today is some 20 per cent. less productive than our main competitors and has been for years. The second challenge is that of employment. Some 3.5 million working-age households—almost 20 per cent.—include no one earning a wage. The third is the challenge of stability. For 40 years, our economy has had an unenviable history under Governments of both parties of boom and bust. Stop-go has meant higher interest rates, less investment, fewer successful companies, and lost jobs. It has been the inevitable result of a failure to take a long-term view.

So the real choice facing Britain in the coming Budget and beyond is between muddling through as we have done for decades from one stop-go cycle to another, or breaking with our past, burying short-termism and securing long-term strength through stability, sustained increases in productivity and employment opportunity for all. This is not a challenge for Government alone. It is a challenge that must also engage both the understanding and the commitment, indeed the energies, of all of us— Government, investors, managers, work forces—together.

So at the heart of this pre-Budget report is the recognition that only by greater openness and informed debate can Britain achieve that shared understanding of the tasks ahead and that shared sense of national economic purpose that has eluded us for too long.

First is stability. The major industrialised countries are expected to grow by 2¾ per cent. this year and 2½ per cent. next year, despite the recent turbulence that we have seen in Asian economies and financial markets. It is imperative that Governments and central banks around the world remain vigilant, but at all times it is the task of Government to ensure a long-term stable framework— exactly the approach that the Government are pursuing.

When we came to power, the economy was already facing yet again the very pressures that have produced the boom-bust instability of the past. Consumer demand was accelerating. It was growing three times as fast as industrial production, as more than £30 billion was released in building society windfall payments. Inflation was predicted to go far beyond its 2½ per cent. target, and was expected to rise towards 4 per cent. next year.

All that was happening because the necessary decisions on monetary and fiscal policy had not been taken. It is because the Labour Government have learnt the lessons from past instability, when interest rates rose into double figures to 15 per cent. in the last economic cycle that, starting in May, we put in place a new monetary and fiscal framework.

Following our reforms at the Bank of England, long-term interest rates have come down, and no one doubts the Bank of England's determination to achieve the Government's inflation target. With our five-year deficit reduction plan, public borrowing, which was £23 billion last year, is now forecast—excluding the windfall tax revenue—to be £12 billion this year and £6 billion next year.

We said in our manifesto that we would work within existing spending limits, and this we are also achieving as we promised. The deficit has fallen from 4½ per cent. of national income just two years ago to just 1½ per cent. this year, and it will be ¾ per cent. next year, well within the Maastricht criteria.

There is a risk that the structural deficit, which takes account of the economic cycle, may turn out to be larger, so we shall be both cautious and prudent. I can tell the House that we will not make the mistakes of 1988, when it was wrongly assumed that the structural deficit had disappeared, and the penalty was the return to boom and bust.

Although I recognise the concern of exporters about the exchange rate, I understand that what companies fear most of all is a return to that boom-bust instability of the past. So this summer and autumn, hard decisions have had to be taken on both interest rates and deficit reduction, and I am now more optimistic that we are on course to put the economy on track for stable and sustainable growth.

It is to reinforce our commitment to the long term that we shall publish proposals for a code of fiscal stability. We shall legislate so that there is a duty on Government to report to Parliament on how they are meeting their fiscal rules; in that way, everyone can plan for the future on a much clearer and better informed basis.

Let me explain why meeting our fiscal rules matters so much—why they are essential preconditions for long-term social and economic progress. It is because the borrowing levels that we inherited are costing the country £25 billion a year in interest payments alone, which is more than our country's total budget for schools, that we had to act. Our aim is to reduce the huge sums spent simply servicing debts, so that more of our money can be spent on meeting the people's priorities.

The prize for this country, valued especially by a Government who are committed to good public services, is sustainable public finances that allow consistent and long-term investment in our priorities.

By reallocating resources, we shall be investing an additional £2.3 billion in education over and above that planned by the previous Government; and this year we shall be investing an extra £300 million in patient care in the national health service and next year an extra £1.2 billion over and above what the previous Government planned. I can tell the House that, as our comprehensive spending review reallocates resources towards higher-priority areas, there will be real year-on-year increases in spending on front-line patient care.

The key to strong public services is long-term prosperity through higher productivity. Government, industry and people must work together to systematically remove all barriers to high productivity—in product markets by encouraging competition and innovation, in capital markets by measures to enhance investment and growth, not least for innovative small businesses, and in the workplace by encouraging the creativity and flexibility of inventors, of managers and of the work force.

After our successful Budget initiative in July to encourage one of the most neglected of our creative industries—film—it is time to do more to encourage other creative industries where, from science, computer software and communications to design, fashion and music, our British genius for creativity has made Britain a world leader. This year, entrepreneurs in small and medium-sized companies can draw on £200 million, as we have doubled capital allowances to invest in new technology. From next year, the National Endowment for Science, Technology and the Arts will make grants available to encourage creative talents and industries.

I can also say today that, in advance of the Budget, the President of the Board of Trade and I are examining how to improve productivity, how we can help leading-edge businesses to gain funds to develop new technologies, how we can improve Britain's poor historical record of investment in research and development, and how we can make it easier for small businesses to draw on venture capital to create jobs in a more entrepreneurial culture. It is to encourage and reward long-term investment that we are completing a review of capital gains tax, the conclusions of which will be announced in the Budget.

Our poor record of investment in Britain also reflects a low level of national savings. Half the national population have hardly any savings. To encourage more people to save, we will be introducing from April 1999 new, individual savings accounts, the details of which will be put out to consultation next Tuesday in advance of the Budget.

However, there is one decision on investment that should not be delayed. In July we implemented the first stage of corporate tax reform. We cut the main rate of corporation tax by 2 per cent. to 31 per cent.—its lowest level ever. Following the abolition of payable tax credits we began to consult, as promised, on the second stage. Advance corporation tax, it has become abundantly clear, is now a hindrance to sensible business planning and investment decisions. Britain needs a reformed system that matches the needs of modern companies and favours the long term.

To allow companies to plan ahead I can confirm today that, in April 1999, advance corporation tax will be abolished. At that point we shall begin the move to paying corporation tax by quarterly instalments. Small companies will be exempt from this change; special arrangements will be made for medium-sized companies; we shall phase in the change over four years; and we shall substantially preserve companies' expectations for using their existing surplus ACT.

This afternoon the Inland Revenue is publishing full details of the proposed changes and we shall now start consultation on their implementation. In order to help ease the transitional costs and to take one stage further our pro-business and pro-investment agenda, in the Budget the main rate of corporation tax will be cut again by 1 per cent. to 30 per cent. from April 1999—that will be the lowest tax rate of any major industrialised country.

The July Budget started from the understanding that the greatest waste of our economic potential and the most serious cause of poverty is unemployment. It denies opportunity to 3.5 million working-age households where nobody works. In July, we said that, instead of simply compensating people for unemployment, our priority is to tackle the root causes of unemployment and poverty by providing new opportunities for work.

In the past few months, with the help of Martin Taylor, the Government have been systematically addressing all the obstacles that prevent people taking up and benefiting from work: the absence of workplace skills, the failure of the tax and benefit system to make work worth while, the poverty and unemployment traps that for too many people mean that work does not pay, the lack of employment opportunities and the scarcity of affordable child care.

We have concluded that, to help people move from benefits to wages, nothing less than a comprehensive tax and benefit reform and the modernisation of the welfare state are now required. This strategy involves three basic elements: providing skills for work, making work pay and creating new job opportunities.

First, in order to offer skill for work, my right hon. Friend the Secretary of State for Education and Employment will shortly publish his proposals for individual learning accounts and for the university for industry.

Secondly, I want everyone who can work to be better off in work than on benefit, so the Government now propose an integrated tax and benefits plan involving action at every level. In order to maximise the rewards from work, a 10p starting rate of tax and a reform of benefit tapers will be introduced when it is prudent to do so. To ensure that work pays for families with children, we propose a working families tax credit, backed up by affordable child care. To ensure that the rewards of these reforms flow directly to the employee, we are committed to a statutory national minimum wage.

We shall now consider in detail the working families tax credit—cash paid through the wage packet directly to families on low incomes, side by side with the national minimum wage. The proposal would build on the successful elements of family credit, and would involve better help through the tax system for child care costs.

We will now also consider the future structure of national insurance for the low-paid. Under the current system, some low-paid employees face marginal tax rates of more than 100 per cent. To improve the rewards from work, to simplify administrative burdens on employers, as we want to do, and to encourage them to take on more people, it is now right to consider the scope for bringing the national insurance structure for the low-paid more closely into line with income tax.

Finally, there are men and women who have been excluded for too long, and who need extra help to get back into work. In the Budget, we made our start by announcing a new deal worth £4 billion that provides jobs for young unemployed, the long-term unemployed, lone parents and the disabled. The new deal for the young unemployed will start in January in pilot, and extend nationwide in April, with the support of some of our best known companies.

I can announce today that some of Britain's leading rail and bus companies have agreed to play their part, by introducing a new travel pass for young people on our new deal, cutting by at least 50 per cent. their travel fares to work.

Disabled men and women who want to work should also have the right to work. As the first step in implementing the £195 million programme for people with disabilities, my right hon. Friends the Secretaries of State for Education and Employment and for Social Security will now be inviting bids for the first wave of new projects to start in spring 1998.

Helping lone parents into work is the most effective long-term way to tackle their family poverty. The new deal for lone parents began in eight areas in July. Already it is yielding results where it counts—in higher living standards for lone-parent families. From next year, our welfare-to-work programme will be extended to help every lone parent who wants advice and help, and from April every lone parent coming on to benefit will be offered help to find work, if that is what he or she wants.

Lone parents need, and have a right to expect, affordable child care. Since May, my right hon. Friends the Secretaries of State for Education and Employment and for Social Security have been working with the Treasury on plans to make a reality of a national child care strategy. Paramount in this family policy are the interests of the child. Tomorrow, my right hon. Friends will announce a five-year plan to extend out-of-school child care clubs to every community in Britain.

Funds will be available to set up as many as 30,000 new out-of-school clubs, which will provide places for almost 1 million children. The total cost over five years is £300 million, which is now budgeted for in our plans and represents the biggest ever investment in child care. The cost will be shared between the Exchequer and the new opportunities fund.

To staff these new clubs, 50,000 young people across Britain will be offered training as child carers through our welfare-to-work programme. Under our plan, every lone parent who needs it will be able to find an out-of-school club in his or her community. A national child care strategy is no longer the ambition of workless parents; it is now the policy of this country's Government.

While one in five working-age households have no one working, we also, unfortunately, have extensive skill shortages throughout our economy. The proportion of manufacturing firms reporting skill shortages is up 70 per cent. on a year ago.

We will now introduce pilot projects nationwide, under which any employer who takes on and trains a young or long-term unemployed person and keeps that person on can receive up to three quarters of the new deal allocation up front, thus giving immediate help with training costs. In the case of young people, that will be about £1,700, and for the long-term unemployed, £1,500 for their training.

Those skill shortages are a clear sign of the short-term pressures in the economy that must be tackled. At around this point in every recent recovery, when inflation and interest rates have started to rise, a second wave of wage inflation has brought a recurrence of stop-go instability. Past Governments have allowed themselves to be diverted from their long-term aims because of their inability to deal with these short-term pressures.

This time, we must do everything we can to make sure that the long term takes priority. It is because the previous Government held a simplistic and over-rigid view of the relationship between levels of inflation and levels of unemployment that they told us that high unemployment was a price worth paying.

However, there are three reasons to believe that, provided reform and responsibility go hand in hand, it is possible to lay the foundations to deliver both low inflation and high employment in the long term. First, the more our welfare-to-work reforms allow the long-term unemployed to re-enter the active labour market, the more it will be possible to reduce unemployment without increasing inflationary pressures.

Secondly, tax and benefit reforms that remove the barriers to work and structural reforms that promote the skills for work—in other words, Government intervention to create a more responsive labour market— can make possible long-term increases in employment without fuelling inflationary pressures. The more people return to the world of work and the more we tackle skills shortages, the less pressure there is on employers to bid up wages in the short term.

Thirdly, the reality of the more complex and flexible labour markets of Britain today is that pay decisions are made not by the few in smoke-filled rooms, but by millions of employers and employees across the country. The more we all take a long-term view of what the economy can afford, the more we will be able to have job creation and keep inflation and interest rates as low as possible. So we must all be long-termists now.

The reforms that we are introducing will, of course, take time, but it is in no one's interests if today's pay rise threatens to become tomorrow's mortgage rise. The worst form of short-termism would be to pay ourselves more today at the cost of fewer jobs tomorrow and lower living standards in the very near future. So wage responsibility is a price worth paying to achieve jobs now and prosperity in the long term: it is moderation for a purpose.

The choice is between responsibility and reform that would give us higher growth and more jobs, and short-sighted short-termism that will inevitably mean less growth and fewer jobs. In our forecasts for the coming two years, we demonstrate clearly the choices that we all face. If the economy works in the same way as in the past, growth might be 2¼ per cent. next year. If we can combine our reforms with responsibility across the economy, it is possible to achieve growth of 2¾ per cent. next year. Similarly, growth can be 1½ per cent. or 2 per cent. in 1999–2000. In either case, the Bank of England will ensure that the Government's inflation target is met.

So the more successful we are in tackling skills shortages and ensuring the success of the new deal for the unemployed and the more effective the exercise of responsibility in pay determination, the more we can achieve our goals of sustained growth and employment.

I have today submitted this new evidence to the public sector pay review bodies and met the chairmen to explain the choices before us. Just as the Government are offering leadership with responsibility in monetary policy and the management of public finances so that we can achieve those higher levels of growth and employment, so must business leaders and work forces match that with responsibility throughout the whole economy. That means responsibility not just on the shop floor, but from Britain's boardrooms outwards, where, in the interests of all, there must be moderation, not excess, and where an example should be set.

We recognise that, if we are to achieve our long-term goals and secure that new sense of economic purpose, fairness and openness must be at the heart of the approach to every Budget. Tax avoidance harms those who pay their fair share of taxes. 1 give notice today that the Budget will introduce those measures that are needed to root out tax avoidance. A fair and open approach to taxation will also be central to our Budget consultations now under way on North sea oil; on alcohol, where the review will conclude early next year; and on charities, where we are working towards a consultation document next spring.

In securing the long term, nothing is more important than our approach to the environment. On Thursday, the Deputy Prime Minister will publish a consultation paper on ways to help with water pollution, with a view to making proposals in the coming Budget. Together we are also looking at how the tax system can reflect our environmental objectives, and we shall do so in light of decisions taken at Kyoto.

In this pre-Budget statement, we are consulting in all areas where it is right and appropriate to consult, we are taking action in all those areas where action is needed immediately, and we are putting to the country the choices for debate—choices that can be made only by us all.

I promised to make one other announcement today. Following a review by Customs and Excise, which will be published tomorrow, I have decided that VAT on the installation of energy-saving materials under existing grant schemes, such as the home energy efficiency scheme, will be cut from 17½ per cent. to 5 per cent. in the spring Budget of 1998. That means that the funds under the schemes will go further and will help to insulate 40,000 more homes per year. The Government will now explore with our European partners the possibility of a reduced VAT rate for a wider range of energy-saving materials.

Our spending review, like our tax policy, is based on allocating resources according to priorities of investment, employment and fairness, so already, within the Government's tough spending limits, we have redistributed resources to priority sectors: from assisted places to cutting class sizes; £4 billion from the windfall tax paid by the utilities to creating jobs; another £1 billion to repairing our schools; from the defence and nuclear programme to the national health service. After the publication of the national asset register yesterday, there will be new scope to reallocate resources to high-priority capital investment.

I can announce one further reallocation today. I now expect our net payments to the European Union to be some £400 million lower than budgeted. Our pensions review is examining the long-term future of pension provision in Britain, including how we can do more to support Britain's poorest pensioners. We must help the thousands who do not claim benefits, but who need them most.

My right hon. Friend the Secretary of State for Social Security and Minister for Women is announcing today that she will finance several projects to find the best way in which to encourage improved benefits take-up by the poorest pensioners, so that they receive what they need.

We have already cut VAT on fuel and power to 5 per cent., as we promised, but it would be wrong to wait until we have the results of our pensions review to take action to help elderly people with winter fuel bills. Although the poorest do receive some help through cold weather payments, they go only to those on income support, who generally have to wait until after the cold weather for help to be available. The payments are no help at all to most pensioners, including the 1 million not receiving income support entitlements and those on the margins of poverty, and they are of doubtful help even to those who do qualify, who often do not know whether they can afford to spend extra money on fuel when it is cold.

My right hon. Friend the Secretary of State for Social Security and I are simply not prepared to allow another winter to go by when pensioners are fearful of turning up their heating, even on the coldest winter days, because they do not know whether they will have the help they need for their fuel bills. The pensions review will report next year, but we must act in the meantime to help pensioner households.

For this winter and next, every pensioner household will receive £20 extra to help with their bills and every pensioner household on income support—nearly 2 million households—will receive £50 extra. The cost will be met from reallocating the savings on our contribution to the European budget.

The money will be paid in time to meet winter fuel bills, so every pensioner household in Britain will have the benefit of the Government's cut in VAT on fuel, our abolition of the gas levy, new and tougher regulation and competition in the utilities, and the Government's new fuel payment to pensioners. As a result of those changes, the average pensioner household will be helped by up to £100 a year, and poorer pensioner households on income support will be helped by up to £130 a year.

In contrast with the previous Government, who put VAT on fuel, this Government keep their promises and are prepared to take action where it needs to be taken. It is a Government who are meeting the people's priorities, even as we confront the difficult choices that our country must make to build for the long term. In 1997, we have made a start and we will do more year on year. Our approach to the coming Budget shows that we are already setting a new course for Britain, and building a united country where everyone has opportunity and a contribution to make. I commend the statement to the House.

I begin by welcoming some aspects of the Chancellor's statement. In particular, I welcome the good economic news that underlies the Chancellor's forecasts that were published today—stronger economic growth bringing higher tax revenues, lower spending as unemployment falls and the consequent reduction in borrowing. Are they not the result of the golden economic legacy that we bequeathed the Government—the fruit of 18 years of Conservative reforms, every one of which the Chancellor opposed?

Does the Chancellor agree with the last Labour Chancellor, the noble Lord Healey, who said:
"We must remember that rarely, if ever, have a Government had such cause to be grateful to their predecessor when it comes to the economy"?
Will not the figures that the Chancellor has published today prove that his July tax-raising Budget was unnecessary? He did not need to break the Prime Minister's solemn election pledge:>
"We have no need to raise taxes at all".
He did not need to raise 17 taxes or impose a £5 billion-a-year pensions tax on people's savings. The simple truth is that he was determined to increase taxes in July, so that he could increase spending later.

In his statement and in the document he has published today, the Chancellor has promised us a fiscal stability code. We are happy to welcome that, but can he confirm what his officials are reported as telling the Financial Times: that it will not involve him publishing any information that the Government do not publish anyway? Does not his real motive have nothing to do with what happened under a previous Conservative Chancellor but all to do with what has happened under previous Labour Chancellors, all of whom have been engulfed by the spending demands from their Back Benchers? Previous Labour Chancellors have also tried similar devices to strap themselves to the mast of fiscal rectitude. The code seems to be an even flimsier cord, which will break under the strain of the demand from the Government Back Benches.

The Chancellor hints that he will reduce taxes soon. Is not the truth that none of his proposals will do much to help the typical home-owning family facing £650 a year in higher costs as a result of his mortgage increases, the cut in mortgage tax relief that he introduced and the tax on pension funds that he announced earlier this year, to say nothing of the £1,000 in tuition fees that every family with a student at university will have to pay?

In his document, the Chancellor proposes introducing a 10p basic rate of tax. The Opposition welcome any reduction in tax from a Chancellor who, so far, has broken his clear promise not to raise taxes, and has increased 17 taxes. We shall want to see that any new tax band results in a real tax cut, and is not paid for by messing around with personal allowances.

We shall not allow the Chancellor to get away with a pretence that the reduction is focused on the poor and those on benefits. Will he confirm the figures from the Institute of Fiscal Studies which show that a 10p lower-rate band that was worth £6 a week to a wealthy couple such as the Prime Minister and his wife would be worth only 9p a week to a family on in-work benefits? What other measures does he plan to introduce to benefit those on low pay?

Why is there not more detail in the Chancellor's proposal about the earned income tax credit? Has he cleared his proposal with the Minister for Welfare Reform, who is on record as opposing the payment of family credit as an earned income tax credit because
"more money will get to children … if we pay the money to mothers rather than to fathers".?—[Official Report, Standing Committee B, 18 March 1986; c. 949.]
However sceptical Opposition Members may be about the Chancellor's make-work schemes and welfare-to-work proposals, we want to see them work. Nothing would give me greater pleasure than to have my scepticism disproved. However, will he confirm that—so far, before his scheme has even got off the ground—the previous Government's dynamic labour market reforms and the jobseeker's allowance have succeeded in getting off the dole half the young people he wanted to help?

Will the Chancellor confirm that he has now abandoned the pledge made by the then employment spokesman, the hon. Member for Makerfield (Mr. McCartney), that a Labour Government would abolish the jobseeker's allowance, and that that pledge has gone the way of so many others?

The Chancellor mentioned the position of disabled people. Opposition Members have always believed in getting able-bodied people into work. We realise, however, that most disabled people cannot work, and deserve extra help, through the disability living allowance, the disability working allowance and severe disability premium. The previous Government introduced those benefits, and we were proud to increase spending on the disabled to four times the level spent by the Labour party. Will he say, here and now, that he will rule out cutting, taxing and means-testing benefits for the disabled, despite the prevalent rumours that are worrying disabled people?

The statement contains remarkably little on tax reform. What it does contain is an announcement that the Chancellor is abolishing advance corporation tax for those who pay dividends, but that he is introducing advance payments of corporation tax for everyone. The announcement merely shows that the pensions tax announced in his Budget had not been thought through. Nothing in the changes will reduce by a penny the £5 billion-a-year burden that he has imposed on pension funds.

It is clear also that the Chancellor has not thought through the consequences of the pensions tax on encouraging people to opt back into the state earnings-related pension scheme. Is he aware that many pensions providers were hoping today to have an assurance from him that he will increase the rebate, to make it worth while for people to stay outside the state scheme and inside personal and occupational schemes? Is he aware that, without such an assurance, pensions providers will advise all their customers to opt back into the state scheme? Is that what he wants?

We welcome the proposals for environmental, green taxes, if the revenues he raises from them are recycled to reduce the costs of employment, and to ensure that more people get jobs.

Does the Chancellor realise that most outside observers will think that his statement today is disappointing? It contains so little detail on future tax reforms, despite what we have been promised, so little to reassure savers who have been disturbed by his proposals and so little to clarify the confusion surrounding all his welfare reforms.

Above all, home owners, savers and taxpayers will be disappointed that there is nothing in the statement to undo the cost to them that the Government have already inflicted by five interest rate increases, 17 tax rises and a cruel tax on their pension funds.

After hearing the shadow Chancellor, the country will understand how fortunate it was to get rid of the Conservative Government in May. On 1 May, the Conservatives were not fit to be the Government of the United Kingdom; after Winchester last Thursday, they are not fit even to be the Opposition. The shadow Chancellor talked about statistics deteriorating since May, but the biggest deterioration has been from minus 2 to minus 21,000 in Winchester.

The shadow Chancellor spoke for some time, but he did not mention once what the Government have done for pensioners and their fuel bills. Why does he not congratulate us on doing what the previous Government failed to do on tackling fuel poverty? Even now, why does he not apologise for the previous Government putting VAT on fuel?

As for economic policy, the shadow Chancellor suggested that he agreed with what I have been doing, but he opposed our monetary policy reforms and even now he cannot tell us whether he would make the Bank of England independent or stop it being independent. He opposed our five-year deficit reduction plan, and even now he cannot tell us whether he thinks that our figures are too high, right or too low. He opposed our windfall tax to pay for the welfare-to-work programme; so, much as he says that he wants it to work, he would have done nothing to make it possible.

As for stability under the previous Government and what the shadow Chancellor hopes will be achieved under this Government, the people of this country will never forget what happened during the last recession, when interest rates went up to 15 per cent. and inflation went up to 10 per cent. The previous Government squandered the surplus they had, and destroyed thousands of businesses and 1.5 million jobs through their economic mistakes. Until we hear something that persuades the House that the Opposition would not make those mistakes in the future, it is hardly worth the shadow Chancellor coming to the House to give us his views.

As for taxation, the shadow Chancellor suggested—at lunchtime today—that we are responsible for 17 tax rises. Half of those are the closing of tax avoidance loopholes that should have been closed long ago. The others, such as petrol duty rises, are supported by the Conservative party.

Will the right hon. Gentleman congratulate us on cutting corporation tax, first in May and again today? Will he congratulate us on another cut in VAT on fuel? Will he congratulate us on cutting VAT on energy-saving materials? Will he congratulate us on abolishing the gas levy? Will he congratulate us on our proposals for a 10p tax rate and on improving the tax position of low-paid workers, whom the previous Administration ignored for 18 years?

It is not the Labour party that is not trusted on tax: it is the Conservative party that will never be trusted on tax again. The shadow Chancellor should think again about his proposals before the election, which he has not withdrawn, to remove tax relief from pension contributions paid by millions of people.

Finally, I shall deal with the other points that the shadow Chancellor made. [Interruption.] I am happy to speak longer and to give the Opposition a lecture on economic policy. On the question of the unemployed, does the right hon. Gentleman not realise that 370,000 young people under 25 are still out of work? Does he not realise that 400,000 people have been unemployed for more than a year? Does he not realise that 3.5 million families have nobody working? Surely he should support not only our welfare-to-work programme but the action we took, through the windfall tax, to make it possible.

As far as the disabled are concerned, it was not the Labour party that cut invalidity benefit for the disabled and changed it into incapacity benefit: it was the Conservative party. I should have thought that the shadow Chancellor would welcome the fact that we will provide opportunities for many disabled people who were denied the right to work under the previous Government.

On 1 May, there was a vote of no confidence in the Conservative party, which was repeated in Winchester. The Conservative party is divided and without policy. It is incapable of telling us what its policies are for the future, and it has nothing to offer the country.

The Liberal Democrats welcome this consultative Budget, which we think should help to improve the quality of the real Budget. We intend to submit our proposals to the Chancellor shortly, and we hope that the Conservative party will do likewise, to make this a constructive exercise.

We also welcome the code of fiscal stability, which we advocated last year; the proposals for the integration of tax and benefits, which we have long advocated; the cut in VAT on insulation materials; and the help for pensioners. I am happy to thank the Chancellor for those proposals.

There are a couple of points of concern in the Chancellor's economic forecasting. He has revised down the growth forecast for 1999–2000 by 0.5 per cent. and has revised up the inflation forecast by 0.5 per cent.— well above his inflation target. That suggests that there are some storm clouds ahead. I should be grateful for a comment on that. Should not Budgets involve expenditure as well as income? In that sense, is not this a Polo mint of a statement, with a hole in the middle where the spending plans ought to be?

Why is the Chancellor's press office briefing that the long-term objective of a 10p starting rate of tax should be delivered by next March, when the short-term pledges of bringing down NHS waiting lists and class sizes will have to wait until later in the Parliament? He has found the money for cuts in income tax and corporation tax. How can he find the money to cut taxes, but not the money to spend to stop hospital waiting lists rising or class sizes reaching a 20-year high? Are not those the people's priorities that he claimed to be fighting for?

The consultative Budget is a welcome innovation, but we need action to improve the NHS and education this year. Will the Chancellor confirm the figures that his colleague the Chief Secretary gave me last year, showing that there is £2 billion unallocated in the contingency fund? Should not that be used to meet the immediate needs of health and education? Will he also confirm that the control total is coming in lower than was planned by the Conservatives, which also gives him room to manoeuvre? Does the earned income tax credit require the ending of the independent review of taxation of husbands and wives?

I represent an area with a high engagement in oil and gas activity. Will the Chancellor accept that a review of taxation for oil and gas will not prejudice the long-term investment and financial viability of that vital industry? Will he acknowledge that, until he drops his Tory spending plans, national health service patients and those who rely on our state schools will be forced to conclude that, although the Tories are no longer in office, they are still in power in his Department? By the way, I think that he should be reminded who won Winchester.

I am grateful to the hon. Gentleman for supporting our code for fiscal stability, our reforms at the Bank of England—reforms that the official Opposition cannot support—and our intention to have an open consultation process on the Budget. I assure him that he and others will be able to contribute fairly to the review of North sea energy.

However, I have to part company with the hon. Gentleman when he says that we have not switched resources. We have transferred resources to health from defence and the nuclear programme—£300 million this year. We have transferred resources from the assisted places scheme to school class sizes. We are transferring resources next year to education, along with £1.2 billion to the health service.

The Liberal Democrats proposed £1 billion over two years for health. We have put in £1.5 billion— £500 million more. The Liberal Democrat proposals for the schools capital investment scheme—[Interruption.] They may be embarrassed, but they should hear this. They proposed putting in £500 million. We have put in £1.2 billion, which will rise to a great deal more with private capital. I also remind the hon. Gentleman that he opposed the windfall tax that is raising the money for education and employment.

I remind the hon. Gentleman that, during the debate on the Queen's Speech in May, the leader of his party said:
"If we tighten our belt now, we have a real opportunity to get to grips with the huge hangover of debt left behind by the Conservatives."—[Official Report, 14 May 1997; Vol. 294, c. 74.]
The leader of the Liberal Democrats said that there had to be fiscal prudence, but the Treasury spokesman goes to every by-election promising millions of pounds more, without giving anyone a clue about how the money can be raised. In their literature for the two by-elections last week, did the Liberal Democrats mention the lp extra on income tax, the 10p increase in the top rate of tax or their new environmental taxes? They have suddenly become coy about the means by which they would pay for their programme, and we do not see it in their election manifestos.

It is all very well to will the end, but if the Liberal Democrats are not prepared to will the means, by taking tough decisions about the use of resources as the leader of their party suggested he wanted to do— [Interruption.]
—they are not fit even to make their presence felt in the House in the way that they are suggesting. They should go back to their constituencies and prepare to adopt reality.

I congratulate my right hon. Friend on publishing a pre-Budget report. It is high time that we moved away from the doctrine of pre-Budget purdah and had a more civilised, informed and open discussion of ideas and policies. Of course, the Treasury Select Committee will want to talk to him about the issues that he has raised in his statement, but may I now warmly welcome the help that he has announced for pensioners, which will be most welcome in my constituency? May I also strongly support the idea of a code for fiscal stability, which I believe will help good housekeeping and improve accountability?

I shall be happy to work with the Treasury Select Committee, and my hon. Friend knows that he will receive whatever evidence he needs so that the Committee can make comments before the Budget.

Is the Chancellor aware that, after announcing some small and, on the whole, welcome spending increases and skipping over the spending cuts that he proposes to make in benefits for the disabled, defence and elsewhere, he has still announced public sector borrowing requirement figures that show him reducing public sector borrowing at a rapid rate, and even likely to hit a period of debt repayment that he never intended, despite the fact that we have one of the lowest debt to GDP ratios in the western world?

Does the right hon. Gentleman not accept that that underlines the fact that his July Budget was unnecessary, and that the most courageous social step he could have taken was to reverse his taxation changes affecting pension funds? That would have been the most significant announcement on social policy for the longer term that he could have made today.

As for the other changes in the forecast, has the Chancellor noticed that the Bank of England now forecasts that, as a result both of rapid increases in interest rates and the increase in the exchange rate that has resulted, and of tight fiscal policy, it expects economic growth to fall away very rapidly next year, and possibly to disappear? Does he accept that nothing he has announced today could have a significant effect on that?

Does the right hon. Gentleman really stake his reputation on the forecast of 2.75 per cent. growth next year, which seems highly unlikely? Will he stop justifying what he says with constant references to the late 1980s, when circumstances bore no relation to what we see now, earnings were running away at 8 per cent. per year, there was a balance of payments crisis, and economic growth of 4 per cent. had been running for two or three years?

Before the right hon. Gentleman revives the myth that the Conservative Government were profligate big spenders, reckless on inflation—that was not what he said in opposition—will he not accept that he inherited stable growth with low inflation, falling unemployment and public finances that have surprised him by how rapidly they are improving? Will he go back to the drawing board and consult genuinely on a more constructive long-term economic policy that might protect living standards and jobs?

I am grateful for the chance to continue my debates with the right hon. and learned Gentleman. I do not know which will happen more quickly—his reaching the leadership of the Conservative party or the Conservative party's no longer existing to be led.

As for the right hon. and learned Gentleman's three points, first I shall tell him why my July Budget was needed. First, it was needed to cut VAT on fuel, which he had refused to do. Secondly, there was the introduction of the windfall levy that was necessary for our welfare-to-work programme. Thirdly, I had to introduce measures for stability that he had failed to introduce during the three years that he was Chancellor.

The right hon. and learned Gentleman wants to create a myth about the difference between his record, which he wants to promote, and that of Lord Lawson, whom he is happy to see remain in a difficult position. I have to tell him that, when we came into office, we were told that inflation was forecast to rise way beyond the target. Therefore, it is hardly surprising that the Bank of England was telling him for six months before the general election that, on its understanding of the position, interest rates should have risen.

I was not prepared to go back to a situation, as in the late 1980s, where interest rates had to rise late because the action to tackle inflation had not been taken, forcing the country into the stop-go instability of recession. Let us remind the Conservatives that, in 1990, interest rates went up to 15 per cent. and wages had gone up by 10 per cent.—[HON. MEMBERS: "ERM."] That was before the ERM. Inflation was at 10 per cent. We are not going back to those conditions.

The right hon. and learned Member for Rushcliffe (Mr. Clarke) said that our changes to pension funds were unnecessary. Let me remind him that his special adviser on tax before the election has written an article in the Financial Times, supporting our reforms. From what he said in that article, I believe that he will support the further reforms in advance corporation tax announced today.

The tragedy is that the former Chancellor was in power for three years and could—and should—have made these reforms in the interests of long-term investment in this country. We will take no lectures from a Chancellor who should have raised interest rates before the election, but did not do so for political reasons.

Is my right hon. Friend aware that the costs incurred in earning a living have always been under-estimated, and are very large indeed? He should be warmly praised for what he has done to tackle the problems of child care—an essential part of earning a living. The arrangements he has made for transport are a beginning, and we should look at other areas to see how the tax system can be used to deal with some of the large costs incurred in getting work in the first place.

I am grateful to my right hon. Friend, whose work in the Public Accounts Committee on matters such as this and the use of public money has been invaluable.

I think that people will look back on today's statement, and the further announcements which will come tomorrow from the Secretaries of State for Education and Employment and for Social Security, and will say that, at last, a Government have taken on board the concerns of parents about child care costs, provision and facilities in every community of this country. The investment of £300 million over five years to do so is more than any previous Government have contemplated. Side by side with the reform of the tax and benefits system, our child care measures will ensure that child care is affordable, particularly for lone parents who need it.

My right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) referred also to transport costs. Making sure that travel costs to work are low enough for young people joining the new deal will allow them to have more choice of the jobs that they take up.

If our productivity deficit by international standards is now 20 per cent., by the same calculation what was the figure in 1979?

I am answering the question.

As I said in my statement, this has been the case for years. We are 30 per cent. behind some of the best countries in the world, and we must do far better. The right hon. Gentleman will understand the comparison with 1979. In 1979, we were 13th in the world of industrialised countries in terms of national income per head. Now we are 18th, as a result of the failure of the previous Government to bring us up the economic league. We are prepared to take action to do so.

As someone who has campaigned loud and long for warmer homes for pensioners, may I warmly welcome the increased payments and the reduction in VAT on insulation material? May I draw my right hon. Friend's attention to the fact that his figures make it clear that it is not necessary to abolish benefits for lone parents? As the abolition of those benefits will impoverish the poorest children, deepen the poverty trap and provide a disincentive to work, will he look again at this matter, bearing in mind always the fact that not only economic growth but children's growth is damaged by poverty?

I am grateful to my hon. Friend for supporting our initiative on cold weather payments. These go to every pensioner household in the country, with more going to those in the greatest poverty. I welcome what she has said about child care, but I remind her that child benefit is rising every year under this Government. The previous Government did not increase child benefit for two of the years after 1988 in which they were in power. Child benefit will rise. We are announcing the figures: there will be an additional £250 million this year.

The priority must be to enable lone parents to obtain work if they want it. That is why we have said that the £200 million that we have spent on the employment programme for lone parents will now be complemented by millions of pounds that will be put into the child-care element, so that lone parents can choose whether or not to work. From April next year, every lone parent who starts receiving benefit will, if he or she wants it, be given advice on work and training, as well as advice on how to collect money through the Child Support Agency.

We have had to make a decision. What is the priority for this Government? The priority must be to give choice to lone parents who never had it under the last Government, because training, child care and employment opportunities were not made available. We are giving them that choice: that is our first priority.

As the Chancellor of the Exchequer has repeatedly appealed— with increasing desperation—for congratulations, may I indeed congratulate him on one of his prophetic economic forecasts? Does he recall that, this time last year, he was assuring us that a new Labour Government would reshape the British economy along the lines of the Asian tiger countries? Is that still his intention?

The hon. Gentleman may search the libraries if he wishes, but I cannot remember saying that I wanted us to be like Korea or Thailand. What I have said is that we must increase our productivity, and what I did say was that we had fallen from 13th to 18th in the world industrial league.

As for the Asian economies, I said earlier that we must be vigilant. I believe that there are problems in relation to the disclosure of information, as well as the regulation of institutions, that will have to be dealt with on both a regional and international basis; but the most important thing we have learnt from the Asian economies, and from what has happened over the past few weeks, is that the economic fundamentals in every country must be sound.

I congratulate my right hon. Friend on the way in which he has changed the terms of the debate, and not least on the way in which he has combined economic efficiency with social justice. May I add my appreciation of the way in which he has involved parenting and child care with the efficiency of the economy? Some of the measures that he has announced will take time to work, but others will work much more quickly. They bear sympathetic consideration, and I congratulate my right hon. Friend.

I am grateful to my hon. Friend, who I know has been involved in campaigning on the issues that he has mentioned for a long time.

I have always believed that the proper provision of child care is not just a good social policy, but integral to a good economic policy. It is not a side show; it is central to the way in which we conduct our economic affairs. When people look at the figures that will be published tomorrow, they will see that work is to start immediately. It is a five-year programme, providing 30,000 out-of-school child care centres in all communities. That is an ambitious target, but one for which the money is now available.

For a green Budget, this is so short on detail that it could be described as a damp squib. Will the Chancellor reassure the many worried family businesses and family farms that, when he talks of reducing tax avoidance, he is not talking about reducing the inheritance tax reliefs that are so valuable in helping to keep family farms and family businesses in operation?

Will the Chancellor also apologise to pensioners? What he has given them back today is peanuts compared with the £5 billion that will be taken out of their pensions this year, next year and every year.

I suggest that the hon. Gentleman hold a poll among what I understand to be the 19,000 pensioners in his constituency. I urge him to ask them whether they support the last Government's policy of putting VAT on fuel, or whether they support the policy that I have announced today. I think that he will find that our policies, which have included cutting value added tax on fuel, abolishing the gas levy and introducing a new winter allowance that is far more generous than the cold weather payments scheme under the previous Government, are widely supported. He will find that his right-wing, free market views, which would do nothing to help pensioners, do not commend themselves to his constituents.

The Chancellor made a great point of employment, but is he aware that press reports suggest that the Government are not prepared to help the mining industry, and that up to 50,000 jobs could be lost in mining and associated industries; that the Governor of the Bank of England, when he came to the House of Commons last week, said that he expected interest rates to have an adverse effect on growth, for internal reasons and because of the higher pound; that the forecasts concerning British membership of the single currency suggest that unemployment in the European Union could rise above 18.5 million if the convergence criteria were imposed; and that instability in the global markets could certainly have an adverse effect?

There is a total absence in the statement of any reference to redistribution, although over the years the gap between rich and poor has widened, and it would appear that the poor are especially targeted in some of the cuts proposed.

I do not know what my right hon. Friend means about redistribution, because we redistributed £5 billion from the excess profits of the privatised utilities to job creation in some of our poorest and most deprived communities; if that is not an example of the proper reallocation of resources, from those who did not need them to those who do, I do not know what is. He should congratulate us on it.

The Labour party has always believed in a balanced energy policy, and we have always done what we can for the mining industry.

I am glad that the Campaign group and the Governor of the Bank of England are getting together to discuss issues of mutual interest. We are determined to avoid a return to the instabilities of the past, as when we had interest rates of 15 and 16 per cent. under the previous Government. We hope that by taking early action, with interest rates having had to rise to 7¼ per cent., we can avoid a return to the situation of the past.

My right hon. Friend asked me a similar question about economic and monetary union, which I answered, during the EMU statement. One of our economic tests for EMU is the effect on jobs. I have said that we will apply the tests strenuously, considering the effect on industry, jobs and investment, and we will insist that there is a clear and unambiguous answer in favour before joining a monetary union.

My right hon. Friend should look at what we have proposed, including the help for pensioners, and go back to his constituency and support it.

Will the Chancellor answer a factual question: other than the reduction in the deficit, what measures in his statement does he think will lead to greater convergence in the criteria in the Maastricht treaty, and what costs will that have for employment or for the economy generally?

The meeting of the convergence criteria is in itself right for Britain. I said in the House a few weeks ago that it is a question not only of meeting the nominal criteria on interest rates, inflation and deficit but of having real, sustained and durable convergence. That means that we are seeking improvements in productivity, structural reforms that will increase our economy's ability to grow, and greater investment. Those are all important factors in judging convergence. The measures are right in themselves, and achieving convergence would be right for Britain.

May I note with pleasure that, notwithstanding our commitments on tax and spend, it has been possible to provide a welcome improvement in benefits to help pensioners with their heating bills, and express the hope that my right hon. Friend will use some of the resources that are apparently available to cut corporation tax to provide the small amount that will be needed to prevent the cuts in lone-parent benefits? Lone parents will get no increase in their child benefit: it has been frozen, so there will be a cut in real terms. It is essentially an in-work benefit, and cutting it is contrary to our welfare-to-work programme.

May I welcome the Chancellors's statement on research and development, and the importance that he gave it, but also draw his attention to concerns in industry and the business community about the parlous state of our public sector research infrastructure? I hope that he will look at the recommendations from Dealing and the CBI that we should consider the way in which the Treasury accounts for such investment.

I am grateful for those questions. My hon. Friend mentioned corporation tax. Of course we cut it, but people know that the pension fund reforms that we introduced in July meant a gain to the Exchequer, not a loss.

On lone-parent benefits, let me remind my hon. Friend that we have put £200 million into new measures to create job opportunities for lone parents. At the same time, we have put £300 million today into child care, which is the best in-work benefit for lone parents, to enable them to work, in addition to raising child benefit.

We have to make up our mind about our national priorities. We stopped the iniquitous housing benefit change proposed by the former Secretary of State for Social Security. We decided that it was right to use the resources we had to encourage many hundreds of thousands of lone parents to enable them to get more income in work. The average difference between out-of-work benefits and in-work wages is £50 for a lone parent. That is what we want to encourage.

The right hon. Gentleman's proposals on cold weather payments will be much welcomed in the northern parts of the kingdom, certainly in Northern Ireland. They will at least do away with the inequities of the old system.

The right hon. Gentleman has announced a very large spending programme today. As the windfall tax on the privatised utilities and the return of extra money from Europe are one-offs, how will his programmes be financed in future years? It seems unlikely that the growth that he seeks in the economy will be sufficient to pay for them, so he will not be able to achieve a balanced Budget or repayment of capital debt unless he increases taxation. Can we take it for granted that the taxes that he intends to increase are taxes on capital? If so, will the Budget resolutions be framed so as to refer back to today rather than to the date of the Budget?

I am grateful for those questions. The payment to pensioners to deal with winter fuel bills will come out of the reallocation of money from the European Union payments, which we budgeted for but from which we can use £400 million. Those payments will be made this year and next year, until the conclusions of the pensions review produce results for pensioners right across the country. We levied the windfall tax this year and next year at £2.6 billion a year. Hon. Members will be pleased to learn that substantial cheques are being paid by the utilities into the Treasury this week.

That money will be used over the five years of this Parliament to create jobs. It is a fund that will be available for giving help to the young, the long-term unemployed, the disabled and lone parents to get back into work and is ring-fenced in that way.

I warmly welcome my right hon. Friend's announcement of extra help for pensioners this winter, which will warm not only the homes of pensioners but the hearts of all socialists, wherever they can be found in these post-modern times. On the same principle, can he confirm that the Tory spending plans that he accepted were based on the expectation that, in the first two years of this Parliament, there would be a public sector borrowing requirement of some £31.5 billion?

As my right hon. Friend has announced this afternoon a PSBR some £13.5 billion less than that, can he confirm that there is a significant sum in the current spending plans that is no longer required to service that higher level of debt? If so, can he explain why that unexpected windfall cannot be used to stop the planned cuts for lone parents, people with disabilities and students?

May I correct my hon. Friend on some points of detail? The spending totals are £266 billion for the control total, £274 billion next year. The full totals are £315 billion and £325 billion. Those are the totals that we are working within. They have not been reduced. As he would welcome, we have reallocated the money that became available from defence and nuclear programmes to the health service. We have reallocated money today from the European Union programme to help pensioners.

On the PSBR, bringing down public borrowing means that, over time, the £25 billion that we pay in interest payments—which we regard as something that should be reduced—will be reduced far more quickly. That means that, instead of one-off gains in public spending that cannot be continued, we will have sustainable public finances that will enable us to afford the regular, continuous increases in resources for health and education that we want.

Our aim is sustainable finances. We are not going to do what previous Labour Governments did: spend in the first two years, and then have to retrench in the last three. We will have sustainable public finances that allow us to improve health and education over time.

Why cannot the right hon. Gentleman bring himself to say thank you to his predecessors for the extraordinarily strong economy that they left behind? What is his answer to the question put to him earlier about the fact that, according to the Bank of England, under his regime the economy is set to run downhill?

I will not thank the Opposition for what they left behind. They left behind a £23 billion borrowing requirement; they doubled national debt to £360 billion; interest rate payments were £25 billion; and inflation was starting to rise again. We were going back to the old British disease. It remained for us to take action to create a new monetary and fiscal framework, which the Opposition have yet to tell us whether they support.

I welcome my right hon. Friend's statement, which is all about long-term planning to improve people's lives, especially for those who need it most. I particularly welcome the announcement on out-of-school clubs, which, like the West End Kids club in my constituency, will offer a safe and constructive environment in which children can learn and be cared for. Does he agree that, if it is good for children, it is good for parents and for the economy?

I am grateful to my hon. Friend. The generosity of her welcome contrasts with the way in which Opposition Members have failed even to welcome our measures for pensioners. On child care centres, we propose to have nearly 30,000 out-of-school centres, built and available as a result of the decisions taken today; £300 million is available, and potentially nearly 1 million children will benefit.

I am pleased that the model in my hon. Friend's constituency is one, among others, that will be looked at as we expand child care throughout the country. We must learn from the successful partnerships that are making child care possible in some communities, and we must provide a nationwide service for all mothers.

In welcoming the consultation exercise on which the Chancellor has embarked, I hope that he is listening to points of view that are being expressed.

What does the right hon. Gentleman have to say to exporters and manufacturers who are greatly troubled by the strength of the pound and higher interest rates, and the dangers that they cause to their business prospects? Does he recognise that, as public finances have improved, there is room for additional public expenditure to deal with the fact that NHS waiting lists are not improving and that many people on low incomes will have to suffer even more under this Government?

The announcement on payments to pensioners was welcome—unlike the Conservatives, I am happy to welcome it. Does the right hon. Gentleman accept that that announcement was caused by the utter arrogance displayed by the Department of Social Security in refusing to apply the wind chill factor in cold climate payments?

We have taken the right measures to help pensioners—far better measures than were ever proposed under the previous Government. My right hon. Friend the Secretary of State for Social Security inherited a review in progress that would have made little difference. Our changes in payments mean that every pensioner household benefits: the poorest pensioner households get £50 and, taken with all the other changes—for example, in VAT on fuel—the typical pensioner household could be up to £100 better off next year.

As for the hon. Gentleman's other questions about the exchange rate, I said in my statement that I recognise the concerns of exporters, but I would put it to him that what they are most afraid of is a return to the stop-go instability of the past. We will not take measures that prejudice the economy as a whole and return us to the boom-bust conditions of the past. If the hon. Gentleman examines the forecasts, he will see that exports are rising in volume by 7 per cent. this year, and are expected to continue to rise by 5 per cent. next year.

As for public spending, if the situation is healthier, that is because of the action that we have taken. The hon. Gentleman should also congratulate us on reallocating resources to the health service, with £300 million this year and £1.2 billion next year; and to education, with £1 billion next year and the £1.2 billion school capital investment programme from which many constituencies will benefit. It is about time the Opposition parties, who were asking for these things—in the case of the Liberal Democrats, asking for far less—congratulated us on what we did.

I congratulate my right hon. Friend the Chancellor on every detail of his pre-Budget statement, but may I question him more widely about interest rates? As we move towards joining the single currency, we need convergence on interest rates. How will my right hon. Friend produce the economic climate that will allow interest rates in Britain to fall from their current 7.25 per cent. to the 3.3 per cent. of Germany and the rest of Europe?

By getting stable and sustainable growth and tackling inflation, we will get interest rates down. Our interest rates will come down as we take the tough action that is necessary. My hon. Friend asks about monetary union, but we have yet to hear an answer to the question put to the Conservatives: do they support the principle of monetary union—yes or no?

Is the Chancellor aware of the real fear engendered among people with disabilities and disability groups that the Government will cut disability benefits through means testing, taxing benefits or a reduction in lifetime rights? Will he answer the question asked by my right hon. Friend the shadow Chancellor, allay the fears of people with disabilities, clarify the Government's position, and state categorically that the Government will not in any way reduce disability benefits?

Our proposal is for a comprehensive spending review that is fair—that is the underlying principle. Today, I explained how we were spending £200 million on helping men and women who are disabled and want to work, to do so. Criticism of the Government comes ill from an Opposition party that, when in government, blocked the Civil Rights (Disabled Persons) Bill, and then cut invalidity benefit for thousands of people.

Is my right hon. Friend aware that, at the end of last year during the coldest weather, a group of Labour Members of Parliament, including me, went to 10 Downing street and pleaded for help for poorest pensioners, and were refused? I therefore welcome the announcement today, which will certainly help many pensioners. Despite the justifiable points he has just made about disability and the sheer hypocrisy of the Tory party, is he aware of the concern felt by Labour Members—which is genuine, unlike that expressed by Tory Members—about any taxing or means-testing of disability benefit?

Will my right hon. Friend bear in mind the comments made over the weekend by Lord Ashley and Lord Morris of Manchester—two Members of Parliament who fought bravely and honourably in the House against strong Tory opposition on behalf of the disabled? Those two men know what they are talking about, and I hope that my right hon. Friend will note their words.

I am grateful to my hon. Friend for his first comments about cold weather payments. I assure him that, if he turns up at No. 11, or indeed No. 10, Downing street, he will be invited in, rather than kept outside as he was under the previous Government.

As for the comments of Lord Ashley and Lord Morris, I and many people throughout the country have great respect for their work on behalf of the disabled. Our comprehensive spending review is designed on the principle of being fair, and we will be fair to the disabled.

The Chancellor referred to the strength of the pound and the problems that creates. He may be aware that that is causing particular problems to agriculture by inhibiting exports, bringing in imports far too easily, and depressing the level of support payments. That, combined with the bovine spongiform encephalopathy crisis, is creating a catastrophic situation in areas such as my own in rural Wales, where livestock farming takes place. He will be aware that the European Union has a mechanism for dealing with such situations by providing compensation and that those payments have been made available by all eligible EU countries. May I plead with the Chancellor to access those funds in order to reduce the pressure on farming?

I cannot give the hon. Gentleman any promises, but I shall put his concerns to my right hon. Friend the Minister of Agriculture, Fisheries and Food.

Will the Chancellor give some forecast about the likely risk of slipping, not only down to 1.5 per cent. GDP growth in our third year, but into recession as the high pound continues to erode our export potential? Given the now inevitable devaluation of the yen, coming on top of the devaluation of south-east Asian currencies, and the fact that the deutschmark has led all the European currencies down about 15 per cent., will we not face a major balance of payments crisis unless we do something to bring down the value of the pound, which means tackling interest rates?

I have to tell my hon. Friend that, if we had failed to take action in May and left inflation to rise without taking action on interest rates, that would have caused a recession of the sort he describes. He should therefore support our action in respect of the Bank of England and our subsequent decisions. If he thinks the matter through, he will understand that the very conditions he is speaking in favour of were those that led to the problems the Conservative Government got into in the 1980s.

The Chancellor will, I am sure, agree that the achievement of higher productivity will require not only higher investment but higher savings. The Conservative Government introduced personal equity plans and tax-exempt special savings accounts to increase savings. Will the right hon. Gentleman tell us whether those schemes will be grandfathered in 1999—that is, the amount invested in them will remain under that contract— or whether his statement means that they will be terminated? Seven million people will be affected by the decision.

My aim is to increase the number of people with savings. As I said, half the population of this country have hardly any savings at all, and that will influence the proposals we introduce next week on the individual savings account. I look forward to discussing with the hon. Gentleman those detailed proposals, which will be published in a consultation document next Tuesday.

I welcome today's statement from my right hon. Friend. As the former chair of Working for Childcare, and on behalf of my constituents, many of whom are lone parents, I welcome the proposals on child care and reform of the tax and benefits systems and other measures to help low-income families into work rather than remaining on benefits for the rest of their life. I recently visited a centre in Doncaster for young mothers under 16 that enables them to continue their studies by providing support in child care and transport. What young parents need post-16 is policies of the future, not a re-hash of the policies of the past.

I remind my right hon. Friend that it was the Conservative party—[HON. MEMBERS: "Question."] Will my right hon. Friend comment on the fact that it was the Conservative Government who introduced a tax on workplace nurseries that put back the development of employer-led child care for 10 years? That was their only contribution to child care while they were in power.

My hon. Friend is right, and the jeers from Conservative Members show that they are not interested in child care issues. As she rightly said, there are three elements in our proposals: first, we want to help people to be able to afford child care; secondly, we want to create child care places; and, thirdly, we want to train young people to be child carers. That is why this is the first national strategy for child care, and I hope that, increasingly, hon. Members on both sides of the House will support it.

The Chancellor's statement contained some potentially far-reaching proposals for the integration of the tax and benefits systems. Will he confirm that it is in his mind to introduce any such changes in four months' time, in his Budget? Will he tell us how the Government will carry forward the process of consultation on that potential reform?

A comprehensive integration of tax and benefits is an extremely complicated thing to do. The Chancellor will know that one of the reasons why the interrelationship between the two systems is so often perverse is that past Governments have gone for short-term fixes, with dire long-term consequences.

I am grateful to the hon. Gentleman, who is a renowned expert in these matters, and the Chairman of the Social Security Select Committee. The report and the comments made yesterday about the maze of benefits and the chaos in the tax and benefit system up until now mean that there is a strong case for reform. I can confirm that we are looking at these things.

I told the Committee that we would be prepared to give evidence to it. I hope that the membership of the Committee will join us in examining these issues. We need to find a solution to the poverty and unemployment traps that prevent thousands from benefiting from work. We need to provide a solution that gives as many people as possible who are currently on low pay proper rewards for work.

Is it not true that one of our priorities has been to defuse the inflationary time bomb that we inherited from the Conservative Government—and, indeed, the work of the former Chancellor of the Exchequer? What estimate has my right hon. Friend made of the impact on the British economy if we had not raised interest rates since May?

I am grateful to my hon. Friend. I see that the former Chancellor has gone from the Chamber. I should remind him that, for six months, he was advised that interest rates had to go up. For six months before the general election, he refused to do so.

When I arrived at the Treasury, it was clear that inflation was going far beyond its target range. It was for those reasons that we took immediate action. We raised interest rates immediately, and made the Bank of England independent. There have had to be further rises in interest rates. The reason for those rises is that action that should have been taken was not taken by the previous Government.

Many will welcome the further expansion in child care facilities, but can the Chancellor confirm that what he has really done is raid the funds that the sports, arts, heritage and charities bodies were confidently expecting? Does his announcement not mark the end of the additionality and arm's-length principles? Should we now refer to the national lottery as the Chancellor's back pocket for pet causes?

I disagree entirely with what the right hon. Lady says about the national lottery. As she perfectly well knows, the mid-week lottery increased the amount of money that the lottery was able to provide for good causes by about £1 billion. [Interruption.] The right hon. Lady should listen, because we put the proposal to the electorate and they supported it at the general election. We said that we would create a new opportunities fund to provide help for fitness centres, out-of-school centres and homework centres that would not otherwise have been provided. That is why it is possible to say that the money is being put to good use.

We must now move on. There will be other opportunities to pursue these matters.

New Member

The following Member took and subscribed the Oath:

Mark Oaten Esq., for Winchester

Welsh Assembly

5.3 pm

On a point of order, Mr. Deputy Speaker. Could you advise the House whether the Secretary of State for Wales has sought permission to make a statement to the House, following an announcement last night that the new assembly building will now not be sited in City hall? There is also speculation that it will not be sited in Cardiff at all.

One of the main arguments during the referendum debate was that the assembly should be kept within budget. We stated that it would cost £100 million over four years. We were told that that was a gross over-estimate, and that it would cost less than that figure. If the assembly has to move into either temporary accommodation or alternative new-build accommodation, the final cost of the assembly in Wales could be far more than £100 million over four years.

No such request has been made. I can say only that those on the Treasury Bench will perhaps have noted the hon. Member's remarks.

Reform Of Quarantine Regulations

5.5 pm

I beg to move,

That leave be given to bring in a Bill to allow the importation of pet animals from the European Union and rabies-free countries without quarantine upon proof of vaccinations, blood tests and permanent identification by microchip; to improve standards in quarantine kennels; and for connected purposes.
The word "rabies" undoubtedly brings terror into people's minds. It is an awful disease. Each year, between £720,000 and £760,000 is spent on actively encouraging the existing system. It seemed rather bizarre, then, that when I recently visited a number of quarantine kennels I observed owners in the cages with their animals kissing and cuddling them. That seemed to me to defeat the object of quarantine.

Rabies was eradicated from the United Kingdom in 1922 and is fast disappearing from the rest of the European Union. It is often claimed that the controls that have been used for the past 100 years have served us well. However, a critical examination of the facts reveals that the current arrangements for pet quarantine, as stipulated in the Rabies (Control) Order 1974, are outdated, unnecessary and in need of urgent reform.

In the past 25 years, 1.7 million mammals, including 200,000 cats and dogs, have entered the United Kingdom. In 1983 and 1990, two cases of suspected rabies were reported in kennels in the United Kingdom, but in both cases the dogs had been deliberately infected with a live vaccine. Neither had revealed any clinical symptoms. Those facts are in the public domain. The only cases of rabies in Britain in the past 18 years have been carried here by humans.

Those who defend the present system need to answer the following question. If no cases of rabies have been detected in quarantine in the past 25 years, why are we maintaining the present system? They will no doubt argue that there is no sufficient scientific basis for reforming the existing system. Besides, they will point to the fact that the current controls have operated successfully. I believe that those points are contentious, because developments in science in recent years have presented an overwhelming case for change.

The World Health Organisation has confirmed that modern inactivated vaccines are both safe and effective for cats and dogs. According to last year's report by the Royal Society for the Prevention of Cruelty to Animals, 72 per cent. of the population believe that the vaccination system would be an acceptable alternative to quarantine. Vaccinations have a duration of one year and need to be renewed annually. Microchips, I am delighted to say, can now be implanted into a cat or dog at an early age. Microchips are now recognised according to world standards.

No argument for change can be considered without reflecting on the risk assessment. Such an assessment has not been undertaken in Britain, although I welcome the decision of the Minister of Agriculture, Fisheries and Food, announced this autumn, to establish a panel of experts headed by Professor Ian Kennedy, to look into the matter. I understand that he is the only person to have been appointed to the panel so far. We should examine carefully the assessment made by the New Zealand Ministry of Agriculture. It is particularly pertinent. It tells us that quarantine based on a six-month period of isolation has an 11 per cent. failure rate, whereas a method based on vaccination has only a 6 per cent. failure rate.

In the past 25 years, 170,000 families have put their pets through quarantine. A total of 2,500 pets have died during that period, which represents roughly 10 animals a month, and in the past five years, 735 cats and dogs have died in quarantine. All those animals are loved by their owners and are greatly missed.

Anecdotal evidence suggests that quarantine can cause some animals, especially dogs, to stop eating and to stop drinking. Many die when they come out, having picked up something during the isolation period. Judging by the standard of some kennels, that is hardly surprising, because there is no statutory code covering standards in kennels. There is a voluntary code, under which the Ministry makes quarterly visits and approves kennels' licences, but the emphasis on security is uppermost— certainly not welfare.

I am advised by all the interested parties that conditions in kennels vary considerably. The cost of putting an animal into quarantine varies from £1,500 to £3,000. I believe that my Bill would remedy some of those matters, especially the very high charges.

Other countries have successful rabies-free policies. Forty-eight countries are rabies-free. We should also reflect on the successful change that Sweden made in its quarantine laws three years ago.

On top of all the unnecessary cruelty of the current system, not to mention the inconvenience to pet owners, there is a complete lack of consistency because it applies only to pets, not to animals that have been brought to the United Kingdom for sale. They require only the necessary licences and vaccination certificates, just like pet passports. There are no quarantine requirements for all the cattle moving in and out of this country, which makes no sense as the animals are all warm-blooded and capable of carrying rabies. In effect, the existing system allows traded animals to enter the country and move around freely without being subject to quarantine requirements.

Responsible pet owners ensure that their pets are vaccinated against rabies, but they are still forced to put their pets into quarantine. The regulations affect tens of thousands of British people who work abroad, including diplomats, those in the armed forces, holidaymakers and the blind.

I am obliged to the Royal Society for the Prevention of Cruelty to Animals, the pet passport organisation, the Kennel Club and many other organisations for their advice on these matters, and I suppose that I am also inspired by my black labrador puppy, Michael. Eighty-six per cent. of the population would like a change.

I am delighted to see the Home Secretary in his place. I am not challenging the Government's intentions in this matter but, with the best will in the world, it will be a very long time before effective legislation is in place so, as we approach Christmas, I appeal to the Government to reflect on what I have said, and on the views of the former Secretary of State for the Environment, Mr. Chris Patten, and of Lord Waddington. Those former colleagues seem to have changed their minds on the matter, and I was especially moved by the noble Lord, who told the other place that his dog died two days after it was released from quarantine.

I am not necessarily looking for charity in this matter, but I am looking for charity from the Government before Christmas, and I believe that this limited measure would give some relief.

I intend, not to destroy Britain's reputation as a rabies-free country, but to prevent the cruelty, suffering and inconvenience that pets and their loving families experience when they enter the United Kingdom. Pet passports should be introduced into this country. I commend the Bill to the House.

Question put and agreed to.

Bill ordered to be brought in by Mr. David Amess, Mr. Ivor Caplin, Mr. Alan Clark, Mr. Roger Gale, Mr. Mike Hancock, Mr. John Heppell, Mr. Robert Key, Mr. Terry Lewis, Mr. Alan Meale, Mr. Colin Pickthall, Sir Teddy Taylor and Miss Ann Widdecombe.

Reform Of Quarantine Regulations

Mr. David Amess accordingly presented a Bill to allow the importation of pet animals from the European Union and rabies-free countries without quarantine upon proof of vaccinations, blood tests and permanent identification by microchip; to improve standards in quarantine kennels; and for connected purposes: And the same was read the First time; and ordered to be read a Second time on Friday 12 December, and to be printed [Bill 87].

Orders Of The Day

European Parliamentary Elections Bill

Order for Second Reading read.

5.14 pm

I beg to move, That the Bill be now read a Second time.

The Government were elected in May with firm commitments to improve the democratic process in this country. As the House knows, our programme of constitutional reform is already well advanced. It gives me great pleasure to add another item to the list of manifesto commitments that are being fulfilled.

In the manifesto, we promised to introduce a proportional voting system for elections to the European Parliament; the Bill does just that. It will enable the 1999 and subsequent elections to the Parliament to be conducted using a proportionally based regional list system.

The Bill has had a long genesis. Twenty years ago yesterday, a Bill to provide direct elections to the European Parliament was introduced into the House following a White Paper in April 1977. The Bill initially provided for a regional list system, but in December 1977, the House voted by about 100 votes to reject that system and instead to put in its place one based on first past the post. It is that system which has remained in place ever since.

The first direct elections to the European Parliament took place in June 1979. Since then, for almost all of the past 20 years, the European Union has been attempting to ensure that elections to the European Parliament in each of the member states are based on common principles. The system that we are proposing in the Bill is in conformity with those principles.

A regional list system of elections to the European Parliament has been Labour party policy for a number of years. In 1993, Professor Raymond Plant, as he then was, who is now a distinguished Member of another place, produced a report for another place—I am sorry, for the Labour party—

Well, these days it is very easy to get a place.

Professor Plant produced a report recommending a regional list system for those elections. That policy was endorsed by the Labour party conference the same year, confirmed by the Joint Consultative Committee on Constitutional Reform in February 1997 and included in our formal election manifesto.

Before discussing the Bill, let me say something about electoral reform generally. I believe that it is reasonably well known that I do not have a reputation as an evangelist for proportional representation for the Westminster Parliament. However, I have never been opposed to proportional representation for elections to the European Parliament nor, in certain circumstances, for local elections.

It is of the utmost importance that any voting system is appropriate for the nature and functions of the body that is being elected. My arguments against proportional representation for the Westminster Parliament have been based on the mathematical and political difficulty of securing an identity between votes cast, seats gained and power secured. It is possible to devise a voting system where the seats won are proportional to the votes cast— but there follows a serious conundrum. The greater the proportionality of votes to seats, the less may be the proportionality of votes to power.

PR systems typically give disproportionate power to the smaller minority parties, while first-past-the-post and similar systems with single-member constituencies give power to the largest plurality and so help secure a system where the proportionality, not between votes and seats, but between votes and power, may be the greater.

However, those characteristics of proportional representation and the consequences that may go with it— unstable Governments—can apply only where a Government are being elected. There are fundamental differences between the European Parliament and our United Kingdom Parliament. The European Parliament is a representative body; it is not a Parliament from which a Government are drawn.

As it is clear to those of us who have served in the European Parliament that many other European countries envy the connection between elected Members and their constituencies and understand that it has one enormous advantage over a system under which the parties control the list, will my right hon. Friend give us the real justification for the system that he is proposing this afternoon?

I accept entirely what my hon. Friend says in terms of the Westminster Parliament. She has outlined one of the great strengths of our system of representation, based on single-Member constituencies. It is well worth remembering that the root of the word "Commons" is the French word "commune", meaning a community. I believe—and I am sure that my view is shared by anybody who has been a Minister or a shadow Minister— that one of the enormous strengths of our system is that, however high and mighty we think we may be, the fact that we have to go back to our constituency on a Friday evening, sit in a community centre and receive representations from our constituents, gives us a direct link to our constituents in a way that it is impossible to replicate under a system of multi-member proportional representation.

However, there is a world of difference between a constituency that one can comprehend in terms of its size—such as Crewe, Blackburn and similar places or parts of cities, which broadly accord with the majority of communities—and the vast constituencies that form the basis of representation in the European Parliament, where the direct connection between the Member and his constituents is very much more tenuous.

In the United States, Congressmen often represent districts with substantially larger electorates than those proposed by the right hon. Gentleman for the European Parliament. There is a direct relationship between those big electorates and their representatives. Anyone who knows the United States well will know that people continually say, "My Congressman said this," and, "I wrote to my Congressman about that." Under the proposals, that close relationship would be lost.

What the hon. Gentleman says is accurate, but Members of Congress in the United States have huge support—typically they have 40 or 50 staff to enable them to achieve the connection. They also have strong media backing and are constantly campaigning as the elections take place every two years.

Moreover, there is a critical difference that strengthens the connection between a constituency and a Member of Parliament or a Member of Congress. In both cases, we are talking about people who act to form a Government— in this country, they act directly to form a Government and in the United States, they act to support and form part of a Government—and to ensure that the Government are provided with revenue. In the European Parliament, those considerations do not apply. The European Parliament does not form the basis of a Government, but is simply a representative body.

Had the hon. Gentleman been correct in his assertion, we would have seen over the past 20 years a close connection between the European Parliament's constituencies and its Members. However, generally speaking, that is not the case.

Even granted the truth in what the Home Secretary is saying, it would have been possible for the Labour Government to come forward with proposals that provided for proportional representation, but maintained a constituency base for the electorate. The Home Secretary has not said why he has chosen the one PR system that ensures that there is no constituency basis.

I shall come to that point—I have only just started my speech. If the right hon. and learned Gentleman is dissatisfied with the explanation that I shall give later, I shall happily give way to him again.

I merely wanted to deal with a myth. The Home Secretary is making a perfectly reasonable case for the different nature of the European Parliament, but lest he should imagine that it is impossible to have a constituency link in a PR system, may I suggest that he visits the Irish Republic, where Members elected under the single transferable vote system are well aware of their link to constituencies and most certainly spend their Friday nights addressing constituency problems?

I have studied voting systems for more than 30 years and I have kept a close eye on the politics of the Irish Republic, where the Irish have a system to which they are attached. I have always found it difficult to understand a system whereby the voters' will does not always appear to be translated into either a change of Government or the sustaining of a Government. In the Irish Republic, Governments have changed every three years with extraordinary regularity.

We are dealing not with the election of a Parliament which then sustains a Government, but with the election of a representative body in Europe. The role of a Member of the European Parliament is different from that of a Member of Parliament, yet they are both directly elected by the same method.

The United Kingdom returns only 87 Members to the European Parliament and, quite apart from the disconnection between the constituencies and the Members, the huge constituencies that we currently have mean that disproportionate results are greatly magnified. As a result, even a small swing in the vote can lead to a substantial difference in the number of seats, as the fluctuating composition of the UK delegation to the European Parliament over the past 20 years has demonstrated.

Members of the House who have studied such matters with care may be aware that it is easy to construct an index of proportionality of seats gained to votes cast. I should be happy to explain the method of calculation to hon. Members who are not familiar with it, either now or later. I hope that colleagues will take my word for the fact that Westminster elections and the first-past-the-post system typically score between 80 and 89 per cent. in terms of proportionality—quite a high score, bearing in mind the criticisms that are sometimes made of the first-past-the-post system in Westminster.

In the last European elections, because of the size of the constituencies, the proportionality index score was only 70 per cent. For that reason, we believe that a simple regional list system of PR, for which the Bill provides, is the most appropriate one for electing Members of the European Parliament.

The Minister stated that he has kept a close eye on electoral reform over the past 30 years. I have kept a close eye on the document that he produced for the national executive of the Labour party a number of years ago. I shall not embarrass him by quoting from the document, but will he clarify two points? Is he in favour of proportional representation for election to the House of Commons? Following on from the point made by my hon. Friend the Member for Crewe and Nantwich (Mrs. Dunwoody), is my right hon. Friend now accepting that under a regional list system, Members of the European Parliament will not be accountable to their electorate?

I am not sure whether my hon. Friend was present for my opening remarks, when I think that I made it tolerably clear that I am not enthusiastic about proportional representation for Westminster elections. My hon. Friend would not embarrass me if he were to quote from the document that I produced some years ago, as my views on the subject have not changed. I have always accepted that electoral systems must be appropriate for the particular political institution to which they apply. We must consider the nature of the relationships that we are trying to establish and, for that reason, I am highly sceptical of any systems that move away from single-Member constituencies for the House of Commons. However, as I am seeking to explain, different considerations must be borne in mind in relation to the European Parliament.

Would the right hon. Gentleman be good enough to explain why the Amsterdam treaty, which amends the European Union treaty and which we shall be debating in a couple of days' time in Committee, contains a provision stating:

"The European Parliament shall draw up a proposal for elections by direct universal suffrage in accordance with a uniform procedure in all Member States"—
which pretty well follows the words of the arrangements entered into at Maastricht, but also adds
"or in accordance with principles common to all Member States."?
In other words, the treaty that the Government— and, presumably