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Oral Answers To Questions

Volume 301: debated on Thursday 27 November 1997

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Treasury

The Chancellor of the Exchequer was asked—

Inward Investment

1.

If he will make a statement on the impact of the Green Budget on the Government's policy on inward investment into the United Kingdom. [16585]

Our policies for stability, for sustainable public finances, for long-term investment, including our cuts in corporation tax, and for skills and employment will enhance the attractiveness of the United Kingdom as a location for inward investment.

Does my right hon. Friend agree that partnerships between the public and private sectors, such as the Kent Thames-side group, which is working for the regeneration of north-west Kent including my constituency of Dartford, are the blueprint for inward investment and stable growth that this country needs and that this Government can deliver?

I am grateful to my hon. Friend. I understand that this morning he launched an exhibition on the Kent Thames-side region, and I wish him well in his efforts both to form an effective public-private partnership there and to attract inward investment. What is absolutely clear is that for inward investment we need a stable monetary framework—that is why we gave the Bank of England independence—a commitment to Europe, sustainable public finances and measures such as our cuts in corporation tax for long-term investment, which are all measures that we support. We have still to hear what the Opposition think of them.

While the Chancellor will know of my deep commitment to manufacturing industry and while I commend him on some of the actions that he has taken, is he not worried that in the short term the changes that he has made to corporation tax will cause many companies to have liquidity problems, so that in the short term there will be a problem with investment? Will he perhaps give that matter serious consideration?

I am grateful to the hon. Gentleman for raising that matter. He has always championed the cause of manufacturing industry. I must tell him that businesses have welcomed our proposals: they accept that it is necessary to move to the abolition of advance corporation tax and have welcomed our cut in corporation tax. It is a measure of how much the Conservative party is now out of touch with business that Conservative Members cannot welcome our proposals.

Is it not true that the one policy mentioned by the Chancellor on which we are certain where the Conservative party stands is the policy on Europe? Is it not also true that our commitment to Europe and our insistence that we will be at the heart of Europe are particularly attractive to inward investors after the uncertainties that they suffered with the previous Government's position?

I am grateful to my hon. Friend, with whom I remember working for many years and who has always been a champion of inward investment for Yorkshire. I think that most people in business agree that a stable policy on Europe—one that will make people sure that this country is committed to Europe—will benefit Britain. It is therefore unfortunate that we do not have all-party support for that policy.

I congratulate the Chancellor on his well-deserved award at the Spectator"parliamentarian of the year award" lunch yesterday. Can he confirm that the combined effect of his July and November changes in corporation tax, after taking account of the changes in the rate of tax, will mean that, over the lifetime of this Parliament, British business will have to pay £20 billion more tax?

I do not accept those figures at all. The corporation tax cut will give business an extra £1.5 billion a year. The transitional costs having been met, business will be £1.8 billion a year better off. I thank the right hon. Gentleman for his good wishes on The Spectator award, but if he is going to pursue this course of action, he had better explain why Adair Turner, secretary general of the Confederation of British Industry—[Laughter.] It is interesting that Conservative Members now scoff at the CBI. That is what has happened to the Conservative party.

The Conservatives now call the secretary general of the CBI "Red Adair". That is how far the Conservatives have sunk and how far they have moved away from business. One of their friends at the Institute of Directors, Mr. Richard Baron, its taxation executive, said that abolition of ACT was wonderful for companies. The Institute of Directors, the CBI, the chief executive of BP, and many others, including the Financial Times, have welcomed the proposals.

I fear for the Conservative party. It has moved so far from business that in Scotland, business people who were pro-Conservative are trying to form their own pro-business party to fight the Conservatives. I think that the Conservatives should go back to Eastbourne, hold another bonding session and think again.

Is the Chancellor then denying the figures that he himself published, which show that, over the lifetime of this Parliament, British industry will have £20 billion less to invest and to create jobs with? Does he deny that the effect of his changes will be to make investment abroad more attractive and investment at home less attractive? Those are the figures on page 19 of the document "A Modern System for Corporation Tax Payments", which the right hon. Gentleman published. The document also shows a figure of £2 billion a year extra taxation during this Parliament as a result of the changes announced in November.

Can he confirm that, in the borrowing forecasts that he issued for this Parliament on Tuesday, he did not take into account the extra revenues that he is to raise from the changes in corporation tax, and will he explain why he did not do so? Is it because he did not want Labour Members to realise that he was raising several times more than it would cost to meet recent demands to defer certain changes in benefits?

If the right hon. Gentleman is going to read out that document, perhaps he will remind the House—[HON. MEMBERS: "Answer the question."] I am about to—[Interruption.] They must listen, Madam Speaker. I am about to quote from the very document that the shadow Chancellor mentioned. Will he not thank us for the cut in corporation tax in July, and the further cut announced on Tuesday, and will he read to the House the passage that states:

"After the transition, the annual impact is an Exchequer cost of about £2 billion a year"?
We are doing something to help long-term investment. That is the reason why it is being supported as a principle by business.

Public Expenditure

2.

If he has plans to set a target for public spending as a share of gross domestic product. [16586]

We have no plans to set a target for public spending as a share of GDP.

Does my right hon. Friend recall that the previous Government wanted permanently to reduce public spending as a share of GDP? Does he further recall that the dogma of that ambition was exceeded only by the incompetence of their attempt to achieve it? Can he tell the country that the days of dogma are gone, that spending on high-quality public services will be a first claim on a growing economy, and that, even under an iron Chancellor, fiscal prudence will never be confused with fiscal parsimony?

My hon. Friend is right in that the previous Government ended up spending almost exactly the same share of the national income at the end of their 18 years as they did at the start. He is also right in saying that, although the amount that they spent did not change, what the money was spent on did change. They had to spend more and more on mopping up the failures that their misguided policies created.

The objective of our comprehensive spending review is to examine each and every penny that the Government spend. The test for this Government is not just how much is spent but where it is spent and to what effect. I agree with my hon. Friend that public spending is extremely important for building economic prosperity—important in economic terms and important in social terms; but it is fundamental that we achieve the long-term stability and sustainable public finances that will allow the economy to grow as well ensuring that we have the wealth to provide the services that we all want.

Should we conclude that the threats to benefits for disabled people and the lengthening hospital waiting queues, alongside massive increases in taxes, rising interest rates and slowing economic growth, are somehow a price worth paying for achieving the criteria for economic and monetary union?

The hon. Gentleman is, as ever, obsessed with Europe. He sees Europe behind just about everything. The country will remember that the Conservative party systematically denigrated those on benefits and systematically undermined the benefits system without regard to the consequences. We are determined to build a stable economic platform so that we achieve growth and so that the finances of the country are put on a sustainable long-term footing so that we can provide the very services that hon. Members—certainly Labour Members—want to see in the future.

State Pensions

3.

What discussions he has had with the DSS about the level of future financial provision for state pensions. [16587]

I have regular meetings with my right hon. Friend the Secretary of State for Social Security, at which we discuss a wide range of issues, including pensions.

I thank my right hon. Friend for that reply. Will he accept from my constituents and all Labour Members sincere thanks for the statement by my right hon. Friend the Chancellor last Tuesday, in which he announced help for pensioners throughout the winter and over the Christmas period? That is most welcome. Will my right hon. Friend continue that good work in his talks with my right hon. Friend the Secretary of State for Social Security on improving pensions to a standard at which people no longer rely on handouts, but are offered a pension that sustains the quality of life that the old people of this country deserve?

I am grateful for my hon. Friend's support for the announcement on Tuesday. My hon. Friend has been in the forefront in campaigning for pensioners. I saw that when I visited his constituency recently. Of course, he is right. The Labour Government have delivered their promises to pensioners. We have cut VAT on fuel to 5 per cent. We have uprated pensions in line with prices, as we promised. We have cut fuel bills for pensioners by up £100 a year and there is more to come.

My right hon. Friend the Secretary of State for Social Security has announced a pensions review. We are encouraging pensioners to ensure that they receive all the entitlements that are available to them. Last week, we launched a document on stakeholder pensions which is designed to encourage people to have fully funded pensions in future. Next year we shall consult on the new citizenship pension. The Labour Government are delivering their promises to pensioners and, as a result, this winter many pensioners will no longer have to worry about whether they can heat their houses—something that never happened when the Tories were in power.

Will the Chief Secretary explain to a constituent of mine—a pensioner whom the pensions tax has hurt particularly hard because he belongs to a closed pension scheme—why he refused to extend to closed pension schemes the benefits afforded to charities when the pensions tax was introduced?

I am grateful to the hon. Gentleman for referring to the measures we took in respect of charities— we appreciate that degree of support. As I have said before to the House and to the hon. Gentleman, our reforms to corporation tax announced in July and the further reforms announced on Tuesday are designed to encourage profitability in this country's companies, which, in turn, will benefit pension funds. The fact is that, since July, the reforms we have implemented have been widely welcomed as the far-sighted and long-term reform that people in this country wanted.

The stock market, which has a substantial bearing on the value of one's pension at retirement, has climbed since we were elected, which shows—among other things—that there is another sector that has absolute confidence in the Government's ability to deliver long-term, sustainable economic growth that will benefit pensioners and everybody else.

May I say to my right hon. Friend that there is no such thing as the pensions tax?

Inflation

4.

What assessment he has made of the measures that will be required to control domestic inflation, with particular reference to house prices, in the event of United Kingdom interest rates converging with those prevailing in the other major economies of the EU. [16588]

Will the hon. Gentleman give an assurance that, in pursuing convergence of interest rates so as to achieve his objective of joining a single currency, he will not find that he has to increase the tax burden on the British people in order to achieve his inflation targets?

The question was muddled—I now understand what the hon. Gentleman wanted to say. The position is simple: the Governor sets the monetary policy to achieve the inflation target set by the Chancellor.

Does my hon. Friend agree that the tough measures that he has had to take stand in marked contrast to the policies of the previous Government; and that the failure of the previous Government's policies led directly to nearly 1 million people losing their homes?

My hon. Friend is absolutely correct. It is precisely because the Conservative party did not have the political courage to give operational independence to the Bank of England that economic policy was too often dictated by political expediency. That is why we experienced the two biggest recessions and the two biggest periods of inflation during 10 years of hopelessly incompetent macro-economic policy under the Conservative party.

The Minister had a little difficulty with the question asked by my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond)—I hope that he can do better this time. Can he give the House an assurance that, if this country joins a European single currency and if the interest rate across Europe is inappropriate for the control of domestic inflation, he and his Government will be willing and able to make representations against the interest rate policy of the European central bank?

The hon. Gentleman is as muddled as his hon. Friend. My right hon. Friend the Chancellor made it absolutely clear that five tests would have to be met, the central one of which was convergence. Central to convergence is convergence of interest rates and the question of entry does not arise until that is sustained and a sustainable period of convergence has been achieved.

Economic And Monetary Union

5.

What steps he proposes to take to help business prepare for economic and monetary union. [16589]

18.

If he will make a statement on the steps he is taking to help businesses prepare for economic and monetary union. [16602]

The Government are committed to ensuring that British business is well equipped to take advantage of the introduction of the euro in other member states from 1999. We have set up a new standing committee, the members of which include the president of the Confederation of British Industry and the president of the British Chambers of Commerce, alongside the existing business advisory group to co-ordinate and press forward the preparations agenda. I will be publishing a summary of the advisory group's findings early in the new year.

I have also arranged for the Treasury to publish a practical guide to EMU for business and 55,000 copies have already been issued to a wide range of businesses.

I thank my right hon. Friend for his answer, especially in relation to the establishment of the standing committee. He will be aware that Marks and Spencer has announced that it will install tills to take the euro. Does not that show how British business is getting on, in a practical and pragmatic way, with dealing with the single currency, while the Conservative party is in an ideological time warp?

I agree entirely with my hon. Friend that what frustrated British business was the previous Government's inability to help them with preparations to cope with the introduction of the euro in other member states in 1999. Marks and Spencer has said that it will have the capacity to deal with the euro in the United Kingdom as well as Europe. Other companies such as the National Westminster bank are preparing to trade in euros and to train staff to do so. The Conservative party should wake up to the fact that this is something that is going to happen in other member states in 1999, and it should stop its ideological opposition to a single currency.

Does my right hon. Friend agree that large companies will, in future, increasingly be manufacturing and marketing their products on a pan-European basis and that, as such, they will be concerned about the predictability and stability of exchange rates when making their investment decisions? How does my right hon. Friend think British business will react to the Conservative party when it pursues a policy of saying that it will not join a common currency even if it is in the national interest to do so?

I am grateful to my hon. Friend. British business is reacting: business men in Scotland are about to set up their own party even though they are Conservatives because they are so out of touch with the Conservative party. As for business preparations, I think that business understands and the Conservative party will soon understand—if it does not listen to what its Conservative Members of the European Parliament are telling it, the public will tell it—that 50 per cent. of our trade is with the European Union, more than 60 per cent. of our trade is with Europe and 30 per cent. of inward investment into Europe comes through Britain. It is important for the Conservative party to wake up to those realities.

What is the point of spending all this public money on so many publications if they are shoddily produced or even deceptive about the facts? The document that I have with me, which I think every hon. Member has received, called "UK Membership of the Single Currency", deals on page 10 with the important matter of interest rate convergence. It sets out and compares current nominal interest rates. The Chancellor knows perfectly well that it is not nominal, but real, interest rates that are important for economic behaviour.

If we compare current real interest rates—nominal interest rates minus inflationary expectations—we see that the gap is very much less than that set out in the document. Was that just a schoolboy howler, or were the document's authors, the Treasury Front-Bench team, determined for their own reasons to exaggerate, even dishonestly, the difficulties that this country will have to overcome to converge on interest rates and join a single currency?

The hon. Gentleman is advancing an interesting case: he is putting a case for entering the single currency in 1999; he is totally at odds with his colleagues on the Opposition Front Bench who want to delay entry for 10 years. I have made it clear that we shall have to meet five economic tests, not one. Some of those tests are: unemployment must come down; investment must benefit; inward investment must benefit. The hon. Gentleman should start questioning his own Front-Bench team, as they do not seem to have any answers for him.

In the committee that the Chancellor of the Exchequer has announced, how are the views and concerns of self-employed people and small businesses to be taken into account?

The small business community is already represented on the business advisory committee; it will be on the wider group; it will be consulted on such matters. The Federation of Small Businesses is represented on the business advisory group. The shadow Chancellor is out of touch with events, and should go back and do his homework.

Is my right hon. Friend aware that, long before Marks and Spencer is using the euro, lone parents will be visiting the stores to spend money, and that some of those parents will have less money if the Government continue to implement the Tory dogma contained in the Social Security Bill? I know that my right hon. Friend is against Tory dogma, so let us get rid of the proposal that will penalise lone parents.

It is because we are against Tory dogma that we are giving lone parents new opportunities that they never had under the previous Government. We are giving them opportunities for work, opportunities for training, opportunities for child care—up to 1 million child care places as a result of our £300 million investment. When people see the range of new opportunities available as a result of a £200 million welfare-to-work programme and a £300 million child care programme, they will welcome the changes that we are making.

A written answer from the right hon. Gentleman's Department on 11 November confirms that the Government have no estimate or idea of the cost to businesses, the public or even the Government of converting to the euro. Is it not a disgrace that the Government are calling for a national debate on monetary union without having any idea of what the costs are likely to be? Since unofficial estimates of those costs range up to £19 billion for the private sector alone, will the Chancellor replace his hot air and rhetoric with some hard estimates and facts about what the likely costs of conversion will be, and will he report them to the House?

If the right hon. Gentleman is so interested in that question, why did he not bother to find out the answers when he was the Treasury Minister responsible for those issues? We are now making the preparations and looking at all the necessary detail. The previous Government failed to do that, because they are completely divided over Europe.

Inflation

6.

If he will make a statement on his policy for controlling inflation. [16590]

The Government's policy for controlling inflation is absolutely clear. We have a target of underlying inflation of 2½ per cent. We have put in place the necessary institutional reforms to ensure that the Bank of England delivers that target which has been set by my right hon. Friend the Chancellor.

Is the Chief Secretary aware of concern in the City about how the Government will measure inflation in the future? Will he therefore give an undertaking to the House that the Government will not change the basis of measuring inflation from RPI X to the European Union harmonised index of consumer prices?

The Conservative party is so obsessed with Europe that it cannot see anything rationally. The position is quite clear. The Government have set out their target of 2.5 per cent., and that is only likely to change if, when the circumstances are right, my right hon. Friend the Chancellor comes to the view that that target should be revised downwards. It is widely understood that the target is 2.5 per cent.

I hope that the Chief Secretary will accept that the Liberal Democrats greatly welcome the Chancellor's proposals to lock in economic stability, in particular the fiscal code, but can he explain to the House why the Chancellor is forecasting an inflation rate of 3 per cent. at the end of next year, while the Bank of England is forecasting an inflation rate of less than 2.5 per cent? Is that because the Government are concerned that there is a risk of moving to a mini boom-bust cycle, not least because they have revised downwards their growth forecasts for the same period?

I am grateful to the hon. Gentleman if he supports the Government's policy on fiscal stability, which is something of a change from what he has said at treasury questions in the past. The position of the Government and Bank is clear; our target is 2.5 per cent., and we are confident that all the measures that we have taken and the Bank has taken will result in us meeting it.

I wonder whether the right hon. Gentleman can explain to me what is meant by the term that he keeps using—"fiscal stability". Given that the Bank of England has been changing the interest rate virtually every month, will we achieve fiscal stability when it does that every week? Did the Bank get it wrong four out of five times, or is he satisfied that its policy is the right means to get inflation down? After all, inflation is going up while it is changing those rates.

As I have said before, fiscal stability means ensuring that we get stability in public spending and stability in taxation. The hon. Gentleman is referring to the Bank's monetary policy—[Interruption.] They are complementary, but they are different. As I have said on many occasions before, the Bank has had to increase interest rates because, in the six months before the election, the previous Government did absolutely nothing to deal with the inflationary pressures that were mounting in the economy.

We are determined that the necessary action will be taken in terms of monetary policy and the other measures that my right hon. Friend the Chancellor has announced. They will ensure that we have stability so that we can increase the capacity of the economy, and begin to remove the inflationary pressures which would otherwise exist in the economy. Under this Government we will get long-term stability—and, unlike the previous Government, this Government are not afraid of taking the necessary tough decisions.

I am sure that the right hon. Gentleman will have noticed that his right hon. Friend the Chancellor is not a touchy-feely kind of person, but neither of them is averse to a little bit of ear-stroking of the representatives of industry. Has the right hon. Gentleman not noticed press reports that the Post Office, which is the largest corporation remaining in state ownership, recently settled a 4 per cent. increase in wages, and will he not concede that that, combined with his own projections of the growth rate sinking to as low as 1.5 per cent. in a little over 12 months' time, inevitably means that high and rising unemployment will result?

There are two points there. If the hon. Gentleman considers public and private sector wage settlements over the course of this year, he will find that they have been very low. Most people will welcome that, because they know that we have a choice: we can blow our current prospects in higher wage increases, which lead to higher inflation and therefore higher interest rates and higher mortgage rates, or we can take the opportunity to get sustainable growth in the long term, which will mean increasing prosperity for individuals and ensure that we generate the necessary wealth to improve the public services—and we all want that.

Charities

7.

What representations he has received from charities regarding dividend tax credits; and if he will make a statement. [16591]

We have received some 500 representations, half of which have related to VAT matters, about 20 of which have been concerned with tax credits.

Is the Minister aware that Mencap has confirmed that it will have to find £750,000 to top up its employee pension fund as a direct result of the pension tax introduced in the Budget? Does he agree that that £750,000 would be better spent on Mencap's important charitable purposes than on filling the Treasury's coffers? What remedies does he have to offer the large charities in this country, which would prefer to spend their money on charitable purposes than to fill the Treasury's coffers because of the unnecessary imposition of a swingeing pensions tax in the Chancellor's Budget?

The large companies will benefit from the 10 per cent. rise in the stock market that has taken place since Labour came to office. I was at a recent Mencap meeting, hosted by George Bull, and was very supportive of that charity, which does especially good work. The hon. Gentleman must be aware that, unprecedentedly, the Labour Government—acting much more generously than the Conservative Government did when they took action on tax credits—have delayed the starting date for two years, until April 1999, and there is a further five-year transition period, at a cost of £1 billion to the Government. That is very good treatment.

Will the Minister take into account the representations that I have received from many constituents, regarding their anxieties about possible tax changes and their effects on charity shops? Will he recognise how important charity shops are, not only to the charities that they work for, but to the local community?

I entirely agree with my hon. Friend and I can confirm to her that the position of charity shops is a fundamental part of the charities review, which is under way now and due to report in the spring.

As so many of the services that used to be public services are now rendered by charities, has the Minister made any assessment of the costs to the public purse if charities are forced to retrench on the services that they offer because of the various tax threats hanging over them?

It is a pretty poor reflection on the previous Government if their plans eventuated in charities undertaking necessary public services, but we are aware of the great work done by charities. The charities review is under way, which is considering VAT matters and other matters, and there is a seven-year transition period. Charities have time—I am sure that they will profit from it—to ensure that they can carry on the very good work that they do.

I welcome the assurances about tax credits and charity shops, but will the Minister bear in mind that many charities are suffering under the impact of the national lottery? The charity review needs to take into account not only pension funds but the impact of tax credits on charities' everyday money to help people in need.

Barnett Formula

8.

If he will make a statement on the future of the Barnett formula. [16592]

The Government have made it clear that they intend to keep the existing arrangements. The Government's position was clearly set out in the two White Papers on which the referendum campaigns in Scotland and Wales were fought and won.

I thank the Minister for that reply. Does he agree with members of his own party that there should be cuts in Scottish public expenditure?

I do not think that anyone is saying that. We are determined to ensure that all parts of the country benefit from our economic policies and our spending decisions. That has always been so, and it always will be.

After all the assurances given in and out of the House before and during the referendum, were there by any chance to be any tampering with the Barnett formula, would there not then be a moral obligation to hold yet another referendum on the question, "Do you approve of the Scotland Act 1997–98?"

I never thought I would see the day when my hon. Friend the Member for Linlithgow (Mr. Dalyell) would call for another referendum on devolution. Our position was clearly set out in the White Paper; it remains our position.

I welcome the Chief Secretary's affirmation that that will be the position. I am sure that he would agree, having campaigned on a White Paper in which the Barnett formula was a key component in the funding of the Scottish Parliament, that any Government departure from that position would be a breach of faith. But if there is a need to investigate divergence, will the right hon. Gentleman bear in mind that, under the local government distribution from central Government, Westminster gets £864 a head and Rutland gets £213 a head, which is a greater divergence than any between Scotland and the rest of the United Kingdom?

The hon. and learned Gentleman will know that the Deputy Prime Minister is to make a statement on the local government settlement for England shortly. I do not think I ought to anticipate it.

Does the Chief Secretary agree that it would be supremely self-contradictory if the Barnett formula were now to be abandoned, given that it was invented 20 years ago to cope with the then anticipated devolution of 1978–79? Would he further agree that, in the experience of all countries to have introduced it, devolution can be introduced successfully only if there is an effective resource transfer mechanism from rich to poor regions?

The principle of ensuring transfers between the regions and nations of the United Kingdom has been stuck to by successive Governments of both political colours. I repeat what I said at the outset: the Government fought and won the referendums on the basis of the White Papers; that remains our position.

Perhaps the Chief Secretary would like to count up the number of Members of Parliament who had heard of the Barnett formula outwith the past couple of weeks. More seriously, what assessment has been made of needs? What commitment is there to ensuring that these arrangements continue? We should bear in mind the point raised yesterday with Madam Speaker about the Treasury Committee's assessment of the Barnett formula. May we have an assurance that these discussions will be open and transparent?

This Government are always open. I would agree that there are many people outside and not a few inside the House who may not be aware of what the Barnett formula does. I would commend to them the evidence recently received by the Treasury Select Committee. At the risk of repeating myself, I will state that the Government's position on Barnett and needs assessment remains exactly as set out in the White Papers.

European Single Currency

9.

What representations he has received on the consequences of British entry into the European single currency after 1999. [16593]

My statement of 27 October on economic and monetary union was widely welcomed in this country. Representations are still being received.

I thank my right hon. Friend. Will he comment on the contrast between the Government's policies in Europe, which have given us a leading voice with business in Europe, and the Conservative party's policies? The right hon. Member for Henley (Mr. Heseltine) has said that the Tories are leading the fight against British companies, and we have heard some examples of that today; does my right hon. Friend agree that their increasing isolationism in Europe is leading to increasing isolation in the opinion polls?

I am grateful to my hon. Friend. We have declared for the principle of monetary union: we have not yet had an answer from the Conservative party. We have said that there is no constitutional bar to entry: we have not yet had an answer from the Conservatives. We have said that the economic tests will be decisive, and if entry is in the national interest, that is what we shall do: we have not yet received Conservative party policy. It is small wonder that the former Deputy Prime Minister has said that the Conservative party has fallen out with Britain's leading companies.

Has it occurred to the Chancellor of the Exchequer that by 1999 the danger of inflation may be rather less than the danger of deflation? If that should come about, the economic criteria for the establishment of a single currency laid down in the Maastricht treaty will be not only irrelevant but exceedingly damaging for the people of this country.

That was exactly the proposition that was put forward in 1987, and it led the Conservative Government to cut interest rates, cut taxes and cause boom and bust conditions, as a result of which 1.5 million people lost their jobs and businesses were destroyed. We shall have stability in our economy, and we shall not return to the stop-go days of the Conservative party in government. Even now, they should apologise to the British electorate for what they did.

Economic Growth (North-East)

10.

When he next plans to meet the north-east regional Chamber of Commerce to discuss economic growth. [16594]

I am touched by the support shown by Opposition Members.

My right hon. Friend the Chief Secretary was recently in the north-east to give the Darlington economics lecture to the local employers forum. Although there are no immediate plans for a meeting with the regional chamber, Treasury Ministers regularly meet business representatives, and pay careful attention to what they have to say.

I thank my hon. Friend for her reply. Does she accept that we have very few fat cats in the north-east? With our colleagues in Wales and Northern Ireland, we are last in and first out of any recovery. We understand that the Government have had to make tough choices to secure stability, but does she accept that high interest rates, the strong pound and our exposure due to links with south-east Asia have given us special and particular problems? Is she willing to meet some of us involved in business and some of my hon. Friends from the north-east to work out how we could match the tough patience that we shall need with the tough choices that the Government have had to make?

Recent business surveys indicate that the north-east economy is performing well. In particular, north-east manufacturing industry is growing at a reasonable pace. My hon. Friend has made important points. The Government's policies on regional development agencies and the consultation document that will be released shortly reinforce our determination to ensure prosperity in our regions. I should be happy to discuss with him how those policies can be developed further in the north-east.

Has the Financial Secretary had the opportunity to consider the impact on the local economy in North Yorkshire of the collapse of the Samsung plant at Flaxby moor? Will the Government review the effect that the collapse of south-east Asian economies may have on job prospects and economic development in north Yorkshire generally?

The Government are vigilant on all matters, especially jobs. We need to ensure that the economic framework is sound, so that business can invest, grow and survive in our communities.

National Minimum Wage

1.

If he will estimate at what level of national minimum wage the current departmental spending limits would be breached. [16595]

The level of the minimum wage has not yet, of course, been set. The hon. Gentleman will be aware that the National Minimum Wage Bill received its First Reading today. The level of the national minimum wage will not be decided until the Government have the benefit of advice from the Low Pay Commission, which has already started work.

I am grateful to the Chief Secretary for that answer. I am slightly surprised, however, that his officials have not been carrying out any studies of the impact of a minimum wage at different levels on the Government's spending targets. Will the right hon. Gentleman give a categorical assurance to the House that, if the level of a minimum wage, when it is set, has any impact on the wages bill of the national health service, patient care will not suffer and the Government will make up any shortfall?

It is a bit rich for Opposition Members to lecture us on patient care after their record for 18 years— [Interruption.]The hon. Gentleman does not like being reminded of what the Tories did to the NHS. The minimum wage will be set at a sensible level that is manageable, and we shall keep the promises to the health service that we made during the general election campaign. We are ready to be judged by that at the next election.

Are not the arguments against a minimum wage at a decent level, as put by Tories in business, exactly the same as the arguments advanced by the same people in the 1970s against equal pay for women, being based on the premise that a minimum wage will lose jobs? Just as equal pay for women did not lose jobs but did more to raise the living standards of working-class women than any other act of the Labour Government, will not the minimum wage have the same effect?

My hon. Friend is right. The Conservative party has always been against any economic or social progress. We were told that equal pay would spell the end of British industry, and the Tories say exactly the same about a national minimum wage. We believe that a national minimum wage is right in principle and that it will be good for the economy.

Is the Chief Secretary suggesting that it is possible that a minimum wage level, when set, will be at such a low level that it can have no impact on budgets or cash limits in the health service and other public services?

As I told the hon. Member for West Chelmsford (Mr. Burns), the Government will decide the level at which the national minimum wage will be set when they receive the benefit of the advice and evidence of the Low Pay Commission.

Is it not increasingly obvious that the public support the policy of a national minimum wage and oppose poverty pay, whether in the public or the private sector? They believe that the implementation of such a policy is long overdue. They obviously welcome the policy announced earlier this week by my right hon. Friend the Chancellor of the Exchequer, and believe that it will prevent those who go into work from losing out as a result of the present conflict between benefits and tax. It is a good policy, and it is overwhelmingly welcomed by the people.

I am grateful to my hon. Friend for his support. He is right to say that it is the Government's strategy to ensure that as many people as possible are encouraged to go into work. To that end, we want to remove some of the barriers that face people coming off benefit and going into work. Our strategy is geared to achieve that. As for the minimum wage, many people will wonder why the previous Government put up with a situation in which some employers paid wages so low that their employees were being subsidised by decent employers and by the public purse. That is an intolerable situation and one that we are determined to end.

Eu Tax Co-Ordination

13.

If he will make a statement on his Department's policy towards the European Union paper "Towards Tax Co-ordination in the European Union". [16597]

The Government deposited an explanatory memorandum on 17 November on the Commission communication of 5 November 1997, "A Package to Tackle Harmful Tax Competition in The European Union." The issue was debated yesterday in European Standing Committee B.

This European Union proposal, which the Chancellor of the Exchequer intends to agree to at Brussels on Monday, breaches the principle that the EU does not involve itself in direct tax policies of member states. Why do the Government think that it is necessary to do this?

As I explained repeatedly to the hon. Gentleman yesterday in Committee, the code is a voluntary agreement. There are no sanctions and it is not legally binding. It specifically recognises national competence in direct tax issues. There is no giving away of sovereignty on this issue. The hon. Gentleman is simply wrong.

Does my hon. Friend agree with the Leader of the Opposition when he says that we should realise a single currency for the next Parliament, or does she think that the shadow Chancellor is right when he says that we should not bind future Parliaments?

It will not surprise my hon. Friend to hear that I agree with my right hon. Friend the Chancellor and with the Government's policy on that issue.

Local Authority Expenditure

14.

What studies the Treasury has undertaken into the impact on (a) the national economy and (b) prospects for meeting the convergence criteria for economic and monetary union of the removal of local authority self-financed expenditure from the control total. [16598]

I am not aware of any specific studies of that sort, but I look forward to hearing the hon. Gentleman's supplementary question.

The Government's insistence on retaining capping and on keeping local authorities' self-financed expenditure within the control total is a major reason for many local council cuts. It is therefore an important issue. Will the Minister explain why the Government are so insistent on that policy? If a council, reflecting the democratic wishes of its voters, raises £1 million more in council tax and invests it in employing 40 or 50 more teachers, those teachers will live and spend their money locally. Much of the money—perhaps a quarter or a third—will come back to the Treasury in increased taxes. How does that have a disastrous effect on the national economy, or prevent us from signing up to something with Europe? It is nonsense and I should like some explanation.

The hon. Gentleman will be aware of the £1 billion extra that we have given to schools, which is £1 billion more than even his party asked for. On the narrow question of the control total, with which he seems to be obsessed, he, his local authority and other local authorities should consider what they can do in partnership with the private sector. We are introducing legislation to enable them to do that and we have set up a new energetic task force in the Treasury, run by the private sector, to get private-public partnerships going with local authorities. That is where he should put his efforts.

Will the Minister confirm that, before spending any available money on schools or social services, local authorities are under a legal obligation to put money into their pension funds to make up the cost of his July tax measures?

The hon. Gentleman knows that that question will not arise for two and a half years. It is being studied and we are in discussion with local authorities to find a proper resolution to it in due course.

Corporation Tax

16.

What plans he has to review the effectiveness of corporation tax; and if he will make a statement. [16600]

I apologise. I did not realise that question No. 15 had been passed. I apologise for the delay in locating Question No. 16.

We are satisfied with the excellent measures that my right hon. Friend the Chancellor took in the July Budget and announced in the pre-Budget document which we discussed this week. They put corporation tax on an excellent long-term basis. They do not distort competition and they make for investment. We are pleased with all the long-term, principled reforms that we have carried through.

Has my hon. Friend noticed that some companies do not pay their fair share of corporation tax? One thinks, for example, of the Murdoch empire, which I believe paid only about 2 per cent. of its profits in corporation tax. Does he agree that that is unfair on companies which do pay their fair share? What plans does my hon. Friend have to ensure that all companies do so?

If my hon. Friend brings the matter to the attention of the corporate division of the Inland Revenue, I am sure that it will investigate, if it is not already doing so. My hon. Friend will be aware that the Government have already announced four tough anti-avoidance measures for the corporate sector, which we expect will yield £1 billion in savings.

Does the Minister understand that the changes in corporation tax announced two days ago greatly increase the amount of tax that companies will pay in the next four years? As that will inevitably reduce new investment by companies, what assessment did the Treasury make of the number of jobs that will be destroyed directly as a result of the Chancellor's statement?

The statement has been welcomed by the Confederation of British Industry and by companies throughout the country because they recognise the principled reasoning behind it. The hon. Gentleman is getting his cash flow mixed up with his profits; if he would like a lecture on the subject after Question Time I shall be happy to give it to him.

Euro (Uk Retailers)

17.

What discussions he has had with major United Kingdom retailers concerning their preparations for the introduction of the euro. [16601]

I have had many discussions with United Kingdom companies, particularly retailers, about the introduction of the euro.

Does not the decision made by Marks and Spencer and others show remarkable foresight, and does it not contrast with the immobilism of the Conservative party, whose members cannot make up their minds whether they are for or against the euro in principle? Is it not eccentric of the Conservative party to decide not even to consider joining the single currency for a decade, although to do so may be in the nation's economic interests?

I agree. I think that businesses are increasingly worried by the Conservative party's behaviour in this regard. Those who run businesses are practical people who want to get on with preparing for what will happen, but they are now faced with a Conservative party that cannot give them any answers about future policy other than ruling out the single currency for 10 years.

Of course, not only businesses are now against the Conservative party. The shadow Cabinet is being depleted week after week as its members resign as a result of the policy on Europe, and one former Conservative Member has been added to our side during the past few days. The downsizing of the Conservative party continues.

Certainly not over Christmas.

I welcome the prudent steps that the Chancellor has taken to prepare business for possible entry to monetary union. Does he accept, however, that there is a vast gulf of misunderstanding in businesses of all sizes about what monetary union actually means? In preparing the documents that he rightly intends to distribute to businesses, will the right hon. Gentleman ensure that those documents are carefully tailored to fit the sector and size of the companies to which they are sent?

I am grateful that the voice of one-nation Conservatism is now being expressed in the House. I entirely agree with the hon. Gentleman: business has a right to know the implications of the euro, and the last Government should have made those implications known long ago. We have published a pamphlet by Professor Currie, which sets out the arguments on the euro, and we have now also published a practical guide to the euro. Literature will be available to small businesses. They have a right to know how the euro will affect them, and how British business can benefit from it. We shall take the steps that the previous Government refused to take.

Royal Assent

I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified Her Royal Assent to the following Acts

  • Firearms (Amendment) (No.2) Act 1997.
  • Local Government (Contracts) Act 1997.
  • Plant Varieties Act 1997.