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Treasury

Volume 404: debated on Thursday 8 May 2003

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The Chancellor of the Exchequer was asked—

Euro

1.

If he will make a statement on his policy towards UK membership of the single currency.[111882]

9.

If he will make a statement on progress made with satisfying the criteria for joining the euro. [111890]

As I said in my Budget speech to the House on 9 April,

"I will present the Government's statement on the assessment on the euro by the first week of June.
The House will have before it all 18 of our background studies as well as our assessment of the five economic tests."—[Official Report, 9 April 2003; Vol. 403, c. 284.]

I am grateful to the right hon. Gentleman for that reply. Given that the so-called five economic tests have not been met, and that the harder the Government have tried to persuade the British people of the case for euro entry, the more strongly they have resisted, why does not the Chancellor abandon any plan to hand over massive powers for ever to people whom we do not elect and cannot remove, and concentrate instead on the crisis in our public services, which is letting people down week by week, month by month, and year by year of this failing Labour Government?

We will take no lectures from the Conservatives about either how to run a European policy or how to run our public services. As far as the five economic tests are concerned, those tests are designed to examine whether it is in the national economic interest to join. Some people, like the Conservatives, would refuse to join as an act of dogma, even if it were in the national interest, and some, like the Liberals, would want to join irrespective of whether the five economic tests were met. Our position is the right one, and I will report to the House in due course.

Does my right hon. Friend accept that even those of us who are supportive of the European project and of joining the euro at some point feel that recent events with our European partners over Iraq has made it less likely in the short term than it might otherwise have been? Does he agree that to go for a referendum early and fail would be the worst of all policies?

Will my right hon. Friend also make it very clear to the House that he rejects totally the nonsense peddled by Conservative Members that we must never, under any circumstances, join the euro?

The issue is that this is a long-term decision about the future of Britain. It should be made not on short-term considerations based on foreign policy or on other events that are happening this year, but on a long-term assessment of the national economic interest.

As for those people who would rule it out as a matter of principle, I have said before in this House that if the case for joining is clear and unambiguous on economic grounds, the constitutional factor should be taken into account, but it should not be an overriding factor. It is a pity that Conservative Members, who said that they were ruling out the single currency for the duration of a Parliament, now appear to be ruling it out for ever.

Does the Chancellor agree that there can never be a satisfactory convergence of exchange rates in Europe that will be permanently beneficial to Britain unless the age-old trade cycle is exorcised from the economic textbooks? Does he think that that is at all likely?

I do not agree with the hon. Gentleman. He is finding another way to justify ruling out a single currency on the ground of principle and as an act of dogma. I hope that those in his party and others who support that position will recognise that the assessment is about whether this is in the national economic interest. We are looking at investment, employment, financial services, sustainable convergence and issues of flexibility in the economy. Those are the tests that ought to be met, and it is on that basis that we will make a judgment in the national economic interest. It would be wrong for this country to rule out the single currency, as the Conservatives want to do as a matter of dogma.

If the time is not right for the moment, would the Chancellor consider introducing parallel pricing showing the price of goods in pounds sterling and in euros?

On all the details relating to the single currency, my hon. Friend will have to wait until the statement is made in the House of Commons. We will publish the 18 studies. This is the most detailed, comprehensive and rigorous assessment of these issues that has ever been made. It is a lesson of history that nearly 13 years ago, when the country joined the exchange rate mechanism, no analysis was done, no preparation was done, and no assessment was made. The result was the disaster presided over by the shadow Chancellor, who was Secretary of State for Employment at the time; we will not make those mistakes.

Inward investment in Europe in the decade before the launch of the euro averaged 39 per cent. for the UK, but Britain's share since the euro was launched three years ago has averaged only 23 per cent.—almost half the previous figure. Does the Chancellor attribute that to Britain's absence from the euro or his economic failures in the UK?

The hon. Gentleman has to look at the picture in some detail. Inward investment from the United States as a share of investment in Europe and Britain has increased. One cannot extrapolate a general picture from one year's figures.

Or from three years' figures. The issue must be considered as a whole. That is why one of the 18 studies is being conducted on inward investment and general investment. I hope that the hon. Gentleman will be sufficiently patient to consider the results when the assessments, especially that on inward investment, are published.

For far too long, the Liberal party has held the position that it wants us to join the euro irrespective of the economic issues. That would repeat the mistakes of 1990 when we joined the exchange rate mechanism. We need a proper analysis and assessment. We shall not repeat mistakes, nor should the Liberals.

While we await the report on the assessment of the five economic tests with great interest and anticipation, does my right hon. Friend agree that a review of the stranglehold of the stability pact in the European Union is long overdue? Will he confirm the Government's policy that there will be no harmonisation of taxation in the European Union in pursuit of euro membership?

We have already made our position on taxation clear. We have examined matters that relate to the stability and growth pact in European Finance Ministers' meetings, and further discussion will take place. We made the points that the stability and growth pact must take account of investment and acknowledge that there are pressing reasons for countries to make long-term investments. It must take account of the economic cycle, as the latest recommendations attempt to do, and the sustainability of the debt position. We have made those three points about the stability and growth pact consistently. I am pleased that opinion in Europe is moving in our favour on all those matters.

Has it momentarily escaped the Chancellor's mind that he and the Labour party supported entry into the ERM and that his permanent secretary is on record as saying that the five tests can never be clearly and unambiguously met?

In the past few weeks, we have read reports that the Education Secretary, the Health Secretary, the Trade and Industry Secretary and the Defence Secretary were gearing up for a concerted attack on the Treasury; that the Welsh Secretary has said that the pound has fallen to levels that would make British membership of the euro possible; that the Chancellor's faction has briefed that a referendum will be ruled out before the next election, and that the Prime Minister's faction has briefed that the Chancellor's chief economic adviser should be sacked for poisoning the Chancellor's mind. Is not it clear that the Cabinet is in disarray over the issue? Will not the terms of the Chancellor's forthcoming statement be determined not by an objective assessment of the effect of euro membership on jobs and prosperity in this country but by the outcome of the furious faction fighting in the divided Cabinet?

Why cannot the Conservative party address genuine issues to do with the economy? When we discuss stability, employment, investment and financial services—the subjects of the tests—Conservative Members can only cite unattributable gossip. The shadow Chancellor was Employment Secretary in 1990, and he cannot escape his responsibility for the events of 1990 to 1992. The British people will never forget them: 15 per cent. interest rates, mortgage repossessions, negative equity, businesses going bankrupt and massive deficit. The Conservatives will never be forgiven.

.

May I commend the Chancellor on his rigorous approach to the economic tests and direct his mind to the Treasury Committee's equally rigorous approach in its report, "The UK and the Euro"? I draw to his attention the comments of Professor Michael Moore of Queen's university, Belfast, who said that waiting for two economies to converge was like waiting for two lovers to pick the perfect moment for marriage—it will never happen. Convergence can take place only within a monetary union. On that basis, what criteria is my right hon. Friend using to ensure that we will ultimately have sufficient convergence with euro countries?

Question one of the tests relates precisely the point that my hon. Friend ends with. It asks whether there is sufficient convergence for Britain to be able to live comfortably with the interest rate set in the eurozone. Question two, if I may put it like that—the second test—is about whether there is sufficient flexibility. My hon. Friend rightly points out that this is a serious economic analysis of the consequences for Britain and Europe. We are looking at these issues in more detail than any Government have done in the past. We are not going to make the mistakes of the early 1990s, and I believe that the House will look forward to seeing not only the 18 studies that are being produced on all the difficult issues that my hon. Friend mentioned, but the assessment itself. I praise the Treasury Committee for involving itself in the detail of this work, and I just wish that the Opposition would take the issue as seriously.

Dividend Tax Credit

2.

What estimate he has made of the effect on pensions of the removal of dividend tax credit. [111883]

Payable tax credits were withdrawn on dividends paid to pension funds as part of a package of reforms that included cuts in corporation tax and the abolition of advance corporation tax. These changes were designed to improve the climate for long-term investment in the United Kingdom. In the long run, this should benefit all investors, including pension funds and those saving for retirement.

Will the Paymaster General now accept that, although the removal of dividend tax credits in the afterglow of the 1997 general election victory might have seemed like a clever wheeze and a clever stealth tax at the time, many pensioners in my constituency and elsewhere are suffering hugely in the cold light of today because of this irresponsible raid on pension funds?

As the right hon. Gentleman knows, the abolition of the dividend tax credit was part of a wider corporation tax reform to remove a distortion in the market—a distortion that the then Chancellor of the Exchequer, now Lord Lamont, described as having a "damaging economic effect" when the Tories themselves reduced the tax credit. Furthermore, in an article published on 24 November 2002, when asked whether the Conservatives would reintroduce the tax credit, the hon. Member for Havant (Mr. Willetts) said:

"Actually, I don't think we'll be doing that. Helping pensions funds doesn't mean going back to the same system we had before. you know."
Precisely. The Government are helping pension funds and pensioners through their Green Paper on pension reform, their support through the tax system and their simplification of the tax system, and by providing a stable economic framework of low interest rates and low inflation, allowing the economy—and, therefore, future investment—to do well.

Does my right hon. Friend agree that the message for those who are in work is that they must save more for their pensions? In that way, they will have a better future once they have retired. Has she made any assessment of the effects that the removal of the money released by the abolition of the dividend tax credit from public spending would have on public services?

My hon. Friend raises an important point. This is precisely why the Government have introduced proposals on the simplification of tax payments and support to those saving for retirement. The Green Paper looks at ways to give greater choices, more flexibility and secure savings, so that people can plan for the long term. The money released in the way that my hon. Friend described was used to cut corporation tax and to help to introduce reforms in the corporate tax system to enable our businesses to become more competitive and to tackle the productivity gap. That is why this country has, according to the Organisation for Economic Co-operation and Development, one of the best environments for companies in the European Union.

The Minister seems to hold the almost incredible belief that removing £5 billion a year from pension funds has no negative effect on those funds. Does she know anyone who shares that view, other than the late Robert Maxwell?

As the right hon. Gentleman knows—or as I thought he knew—the effects on pension funds and on the stock market are varied. To try to attribute those effects to changes in the tax system—changes that were beneficial to our companies, and which his party pursued when in government—is absolutely ridiculous. He needs to address the question of why the hon. Member for Havant, the Conservative spokesperson on social security, now says that he does not think that the Conservatives will be returning to the tax credits. There are better ways of helping pensions and pension funds than going back to the old system. It is the right hon. Gentleman who lives in the past; this Government are placing the economy in a competitive system to benefit citizens now and in the future.

What analysis did my right hon. Friend make before taking decisions on the future of pensions, based on the comparison of £4 billion taken out of pensions in an unregulated pension market by the previous Government? When looking at how money is used in the pensions services, is it not better to consider a proper, regulated market with properly managed funds in a strong, stable economy in which people can make proper decisions about their futures?

I entirely agree with the points that my hon. Friend makes, and I remind her that the right hon. Member for Hitchin and Harpenden (Mr. Lilley) was a member of the Government who presided over mis-selling and the cheating of millions of people in this country of their pension rights. This Government enabled that mis-selling to be put right and put in place the financial services structure to protect pensioners in the future.

National Insurance

3.

What estimate he has made of the effect of the recent national insurance rises on UK competitiveness. [111884]

With regard to national insurance rises to pay for the national health service, employers' costs for health care have reached £30 a week in Germany, £60 a week in France and £70 a week in the United States. Even after the national insurance rise, employers' health care costs in Britain are, on average, £10.50 a week, while average wages rose by just 2.4 per cent. last month.

Why has the rate of productivity gone down ever since the day that Labour took office?

Productivity in this country is growing. I am glad that the hon. Gentleman has raised this: the only years in which productivity has been negative were Conservative years. The only years in which manufacturing productivity has been negative were also Conservative years—1995 and 1996. I am afraid that he wants to oppose the national insurance rises in health care because he does not believe in the NHS.

What assessment has my right hon. Friend made of the effect of past under-investment in the NHS on UK competitiveness?

I am grateful to my hon. Friend, because the Confederation of British Industry did a study on those issues fairly recently and it is estimated that the cost of sickness is over £11 billion to business every year. The British Chambers of Commerce president said last year that it is our duty to ensure that investment takes place in health care for the interests of business and of employers. The choice is very clear for this country: the national insurance tax rise, which is paying for 80,000 extra nurses between 1997 and 2008 and for 25,000 extra doctors, or the Flight plan, which means 20 per cent. cuts in our public services.

Is it not extraordinary that the Chancellor apparently made no assessment of the effect of the additional £3.9 billion of national insurance employment tax that he is imposing this year on employment and business competitiveness? Has he forgotten, or changed, his conclusion of 21 March 2000 that lower national insurance contributions would act to promote employment opportunities? Is he not concerned at the findings of the recent British Chambers of Commerce survey that one firm in five intends to lay people off and that 16.7 per cent. of firms plan to cut investment as a result of the additional national insurance tax when the profitability of British companies is at its lowest for a decade?

The hon. Gentleman seems to forget that there are 1.5 million more jobs in the economy and that unemployment is at its lowest since the 1970s. Unemployment is lower than in America, lower than in Japan and lower than in the rest of Europe. We have the lowest inflation for 30 years and the lowest long-term interest rates for 40 years. Now, on national insurance, perhaps he will get to the Dispatch Box and explain how he could save 80,000 nurses' jobs in the health service with a plan to cut 20 per cent. out of public expenditure.

Is it not clear that there is a direct correlation between health expenditure funded by the national insurance fund and a productive labour force? Many people in my constituency and elsewhere have long-term illnesses, although they might be able to get back to work if the health service was properly funded. Derek Wanless clearly showed that 40,000 of the 110,000 people who die each year from coronary heart disease would still be living, and perhaps be contributing to a productive economy, if the health service was adequately funded, as it will be under this Chancellor.

That is precisely why the health service is performing more operations, more beds and hospitals are being opened in the health service, and more nurses and doctors are being employed. I believe that in every part of the country people want that additional investment in the NHS. As for its general effect on competitiveness, perhaps the shadow Chancellor and members of the Conservative party generally will read their own observations about the United Kingdom being the most liberal economy in the European Union. How can they say at one and the same time that it is wrong to invest in the NHS and that ours is the most liberal economy in Europe?

Tax Receipts

4.

If he will make a statement on the methodology used to calculate tax receipts. [111885]

The Treasury makes forecasts for each individual tax based on relevant economic assumptions and forecasting methodologies, and then aggregates them to arrive at forecasts of total taxes.

I am grateful to the Chief Secretary for admitting that the Treasury produces forecasts for each tax. The Treasury makes available, in public, its economic model, and independent commentators can offer their own views about the performance of the economy. Will the Chief Secretary publish the economic model that underpinned his answer to me, so that in the interests of transparency, knowledge and understanding of the economy we can all know more about the way in which our tax receipts are progressing?

We have no intention of producing any such publication, but as a former Financial Secretary the right hon. Gentleman understands very well the basic methodology that is applied in these cases. He understands it well because it is exactly the same as that used by past Governments, including the Government in which he served.

There are, however, a number of crucial differences. The most important are that the key assumptions underlying our forecasts are subject to audit by the National Audit Office, that we are committed to more transparency than the right hon. Gentleman ever was, and that we ensure that our forecasts are cautious and seen to be cautious—something that the right hon. Gentleman and his Administration never did.

Is not a policy of full employment the best guarantee of a solid base of tax receipts, and in that regard is there not a fundamental contrast between Labour in power and that lot when they were in power?

My hon. Friend is absolutely right. The difference is between stability under a Labour Government and instability under a Conservative Government; between employment under a Labour Government and unemployment under a Conservative Government. The right hon. Member for Fylde (Mr. Jack) is himself the beneficiary, in his constituency, of a 32 per cent. drop in the claimant count, a 74 per cent. drop in long-term youth unemployment, and a 66 per cent. drop in long-term unemployment. That is the record under a Labour Government. Imagine what it would have been like had the right hon. Gentleman's party been in power!

If by any chance the private-sector forecasters were right and the Treasury wrong, and growth this year and next were 0.5 per cent. lower than the central Treasury forecast, what would be the shortfall in tax receipts compared with what is in the Red Book?

I refer the right hon. Gentleman to table C.8 in the Red Book, which I think he will find useful and valuable. The fact is, however, that UK growth is still strong in global terms, and is forecast to be higher than growth in Italy, Germany and France. That is a record of which we are proud, and the right hon. Gentleman should at least give us some credit for it.

Football Clubs

5.

What his policy is on the Inland Revenue's dealings with professional football clubs in administration. [111886]

When a football club, or any other business, goes into administration, the Inland Revenue must act in accordance with insolvency law, and will seek to recover no more and no less than that to which it is legally entitled.

I declare an interest as the unpaid chairman of Supporters Direct. The Minister will know that the collapse of ITV Digital last year left many of the great names of English football on the brink of collapse. I thank him for the Inland Revenue's general approach of rescuing those clubs, rather than closing them down, but I draw his attention to the inconsistency in some of the deals struck in respect of unpaid tax. For example, the business consortium at Leicester City paid 10p in the pound, yet the not-for-profit supporters trust at York City paid more than 60p. Will he agree to meet MPs from the all-party group on football to discuss whether a standard approach could be adopted towards unpaid tax, to ensure fair competition in the league? In particular, will he look at a special regime for not-for-profit supporters trusts, given the community benefits that they can bring?

The Inland Revenue does indeed have a good track record in helping some of our football clubs out of administration, and has been party to agreements in 13 cases in the past couple of years. It is serious about trying to secure a viable future for such clubs, at the same time as fulfilling its duty towards the taxpayer. So it has a consistent policy and approach, but every situation in every business is different: the assets, liabilities, prospects and potential investors are all different, so it is not surprising that the agreements struck are different. Notwithstanding those remarks, my right hon. Friend the Paymaster General will indeed meet my hon. Friend and his colleagues in the all-party group.

May I congratulate the Government on reaching an agreement with the administrator to allow York City football club to be taken out of administration? The club was given a tax reduction of about £60,000, which made the difference between its having a future and not having one. In particular. I thank the Minister for responding so quickly when I wrote to her asking for the quick decision that was needed. As a result of that quick decision, she is seen as a good supporter of York City, and I give her colleague who is answering—he is a good Yorkshire lad—the opportunity to wish the club well for this season, and for the future seasons in which it will play because of this decision.

For the avoidance of doubt, the Minister whom my hon. Friend refers to is not me but my right hon. Friend the Paymaster General. The Paymaster General has indeed worked closely with the Inland Revenue. I welcome my hon. Friend's remarks, and the support given and the part played by the Revenue in reaching this latest agreement relating to the succession of problems that football clubs have experienced. We wish York City well for the future now that it has come out of administration, along with the other clubs that are suffering similar financial difficulties. The pressures are indeed severe in the lower divisions.

World Trade Agreements

6.

What plans he has to raise world trade agreements at the next meetings of the (a) IMF and (b) World Bank. [111887]

In my capacity as chairman of the international monetary and financial committee—the governing body of the International Monetary Fund—I will seek to ensure that, just as trade was discussed in our April meetings, it will be considered at the annual meetings of the IMF and World Bank in September, and in the sessions on the global economy and the needs of low-income countries.

I am grateful to the Chancellor for his response. It is widely recognised that nobody has done more internationally than him to push the case for the poorest people in the poorest countries, but does he accept that trade is probably the best mechanism that we can offer to those people in order for them to join the world economy? Does he accept that the IMF's historical pursuit of the case for the destruction of protections for infant economies has been disastrous for the poorest people? We need to bring the poor into the world economy, but the way to do so is by recognising the fragility of their economies and the need for real assistance from powerful economies in Europe and north America.

I am grateful to my hon. Friend, who has taken a wide interest in all the issues affecting developing countries. He will agree that the benefits of a successful trade round could be between $250 billion and $400 billion a year for the world economy, a third of which would go to the poorest countries. So that would be a major injection of resources and make possible the development of these countries. He will also agree that, although it is true that structural adjustment policies have, in the past, been very damaging to some of the poorest countries, the IMF has now changed its policy on these issues. We now have country and civil common ownership of poverty reduction strategy programmes, which—in partnership with the World Bank—are the means by which trade issues, health, education and other economic development matters can be considered together. I hope that the whole House will support the IMF and the World Bank working more co-operatively to make those programmes work in order to secure over the next few years and, ultimately, by 2015, the halving of world poverty.

I welcome the Chancellor's statement, but does he share the concern of the Trade Justice Movement that more needs to be done, particularly by the developed countries, which often protect their own industries and farming communities at the expense of the developing countries?

I am grateful to the hon. Gentleman. In thanking people for their work on development issues, I include those in all parties who have taken them up. The hon. Gentleman is right that the Trade Justice Movement, which brought thousands of people to the House of Commons a few months ago and is organising a major event in a few weeks' time, has put on the table a set of issues that the developed world must now address. The European Union initially made an offer to the 49 least developed countries of duty-free and quota-free access for all products except arms. That offer is still to be taken up by some developed countries, which should support it. Equally, I agree with the hon. Gentleman that the EU should also respond to the American offer of the past few months to remove the remaining barriers, especially those of agricultural protectionism.

Earlier this week the European Union held a conference attended by representatives from developing and industrial countries on the future of the textiles and clothing industry after the phasing out of the multi-fibre agreement and the Doha round, which seemed to show that China would be the main winner at the expense of some developing nations and our own industry. In that light, will my right hon. Friend discuss with his colleagues at the Department of Trade and Industry whether any further help could be given to our own industry to remain competitive in world markets, and to invest in new technologies and training? That is necessary to maintain the industry in line with the work of the national industrial strategy drawn up by the industry with the Government.

I know of my hon. Friend's work in her constituency and beyond in putting the case for the textile industry. It is important that the Department of Trade and Industry and other Departments help the textile industry as it moves towards high-quality and high-technology products. We will continue to provide help with investment, regional development grants and training. I hope that the regional development agency in my hon. Friend's area will continue to take seriously the needs of the textile industry. The fact remains that in her constituency and many others, the number of jobs is still rising. As to trade agreements around the world, we have four blockages that affect industries in many of our constituencies. There are continuing problems with agriculture and services, which need to be addressed, and many hon. Members will know of problems relating to pharmaceuticals, with poor countries being denied drugs at prices that they can afford. It is urgent to make progress on that, because lives are being lost unnecessarily as well as damage done to trade.

Research And Development

7.

What steps he is taking to encourage investment in research and development in the north-east. [111888]

The Government are encouraging investment in research and development throughout Britain. Last year, we allocated the largest sustained increase in the science budget for more than a decade and, to boost commercial research and development, we have introduced tax credits for large and small companies.

I welcome my hon. Friend's response. For the record, my region has accorded widespread praise for the research and development credits proposals announced in the Budget. However, will the Minister acknowledge that the management of British industry needs an urgent change of culture, given that Corus spends only £64 million out of an operational budget of £7.2 billion on research and development in the steel industry? Is not that simply managing decline in the steel industry rather than growth in the UK?

My hon. Friend is right to point to the importance of private sector investment, because the major variation in research and development spending in each region primarily reflects private sector variations. My right hon. Friend the Chancellor is well aware of the particular challenges faced in my hon. Friend's region. He mentioned in his Budget statement that business R and D in the south-east is worth £450 a head, and that in my hon. Friend's region, the north-east, it is only £50 a head. The £650 million in R and D tax credits will help, as will the work being done in the region by One NorthEast. My hon. Friend might like to know that her regional development agency is now investing more than twice the average amount invested in other regions in support of regional science, engineering and technology.

Universities are at the very heart of the north-east region's research and development programme, as they are in any region. Does my hon. Friend agree that any proposal that suggested a further concentration on a few universities, nearly all of which would be in the south-east, would be a disaster for regional regeneration?

I pay tribute to my hon. Friend's expertise in this area. He is Chairman of the Select Committee on Education and Skills, and has also worked for a long time on these matters. What he says is right, of course, but he is also right to say that RDAs have a very important role now. They must encourage regional innovation and better local transfer of knowledge, and—crucially, as my hon. Friend mentioned—they should foster better and more collaboration between universities and businesses in the regions.

Growth Forecasts

8.

What methodology he used in drawing up the growth forecasts in the 2003 Budget. [111889]

The forecasts for the UK economy are constructed using the Treasury's model of the macro-economy as a framework within which to apply forecasters' judgments, and to ensure consistency.

At the time of the 2002 Budget, the Chancellor's forecast for UK growth was way ahead of independent forecasts. The independent forecasters were right, and the Chancellor was proved wrong. At the time of last autumn's pre-Budget report, the Chancellor's forecasts were again more optimistic than those of independent forecasters. They were right, and the Chancellor was proved wrong. In this year's Budget, the Chancellor is again completely out of step with independent experts. How can anyone have confidence in his forecasting ability, or is he simply hoping that it will be third time lucky this time?

I am afraid that it is the hon. Gentleman who is wrong. The heightened uncertainty in the world economy has resulted in forecasts for almost all the major economies being downgraded. Since the pre-Budget report in November last year, almost 90 per cent. of independent forecasters have revised down their forecasts. At Budget time, the Chancellor's forecasts for the current year were in line with those of three quarters of independent forecasters, who expected gross domestic product growth to be within or above the Budget range. Finally, of course, at each and every point the British economy, unlike the economies of some of our competitors, has continued to grow.

Paragraph 1, annexe a, of the Budget report makes it clear that long-term economic growth depends on long-term fiscal sustainability, which cannot be achieved if we switch financial burdens to future generations. How does my hon. Friend the Minister set that against the growing and damaging impact of the private finance initiative, which does just that—transfer financial responsibilities to future generations, with a damaging effect on growth?

I do not accept my hon. Friend's contention. The Government, and the Chancellor in his Budget statement, are able to be so confident about future increases in investment in public spending because of the tough decisions taken earlier on tax and spending. They included reducing debt as a share of GDP to the lowest of any country in the G7, and they mean that, despite the challenges of the world economy, the Government can meet their public spending commitments and tough fiscal rules. Also, the Government can be sure that the current Budget will be in surplus over the cycle.

Will the Minister explain why there are no specific growth targets for the UK's constituent nations? Is the reason that no target has been set for Scotland that Scotland has once again experienced chronically low economic growth, compared to the UK as a whole?

The reason is clear. We are the United Kingdom; we do not devolve macro-economic management. I remind the hon. Gentleman that during this Government's period in office, 150,000 extra jobs have been created in the Scottish economy as a result of this Government's measures.

Does my hon. Friend agree that growth is something that does not just happen, that it depends on economic policies and that the Government can use the levers of macro-economic power to make sure that it takes place? I hope that my right hon. Friend the Chancellor and hon. Friends will do that. Does my hon. Friend also agree that giving up those levers of power by joining the euro would not be sensible?

The general contention laid out by my hon. Friend is absolutely right. Of course we are in the present situation not by chance, but as a result of deliberate policy choices by the Government. That is why, 10 years ago, inflation was at 10 per cent. and is now one of the lowest levels in the EU, and why it has been consistently low. That is why, 10 years ago, interest rates were in double figures for four years in a row and are now the lowest since 1955. That is why 1.5 million new jobs have been created in the British economy since 1997.

Is it not astonishing that the Chancellor once again refuses to answer questions on his forecasts? At the time of his Budget, the Chancellor blamed his downgraded forecast on world growth and world trade. Yet his forecast for G7 gross domestic product growth in the 2003 Budget was identical to his forecast in the 2002 Budget. His forecast for growth in world trade in the 2003 Budget was actually higher than in the 2002 Budget. Does the Economic Secretary agree that it is absurd for the Chancellor to continue to cling to such ridiculous excuses that lack all vestige of credibility?

What is absurd is for the shadow Chancellor to try to pick holes in the forecasting record of the Treasury. Since 1997, the Treasury's forecasts have been better than the independent consensus. For every year-ahead projection since 1997, we have had a smaller or identical size of error than the average of independent forecasters. The right hon. and learned Gentleman might like to consult his colleagues on the Treasury Select Committee, who will have heard my right hon. Friend the Chancellor dealing with these questions in detail. They will also have heard the views of independent experts called by the Committee, such as Peter Spencer from the university of York, who said:

"There is no doubt the Treasury has a good forecasting record."

The Economic Secretary seems to have forgotten that the last time the Chancellor got his forecasts wrong—four or five months ago, in the pre-Budget report—it took him 24 hours to abandon his lame excuses and accept responsibility. This time, helped by the co-incidental timing of the fall of Baghdad, he has not abandoned his excuses at all. Will the Economic Secretary finally and belatedly do so on behalf of the Chancellor, accept responsibility and apologise to the British people for misleading them twice in a row?

I will do no such thing. I explained earlier that with the sharp economic downturn across the world in 2001, compounded by the added uncertainty of last year, independent forecasters across the board have been downgrading their forecasts in line with the Chancellor and the Treasury.

Northwest Development Agency

10.

What recent discussions he has had with the north-west regional development agency on unemployment. [111891]

Treasury Ministers have met with members of regional development agencies and particularly value their input, but we have had no specific discussions recently with the Northwest Development Agency on unemployment.

Unemployment in my constituency has fallen dramatically in recent times, with one of the main driving forces for that being small businesses. Will the Chief Secretary comment on the work of the development agency in helping small businesses to develop broadband, which is vital to them? What measures can he put in place to support small businesses and help job creation?

My hon. Friend takes a real interest in small businesses and the work of his RDA. We particularly welcome the proposals coming from the Northwest Development Agency in relation to broadband infrastructure in Cumbria. Both sides of the House will welcome that, not least because of the concerning state of affairs exposed by the Countryside Agency a few days ago, which found that only 7 per cent. of rural villages and 1 per cent. of remote rural areas had access to affordable broadband internet connections. The NWDA is right to bring forward proposals and I hope that others will do likewise.

We, in the meantime, are assisting small businesses investing in information and communications technology, and that is why my right hon. Friend the Chancellor announced in last month's Budget the extension of 100 per cent. first-year capital allowances for a further one year. That is the sort of help that small and medium-sized enterprises are getting under the Labour Government, and it is help that they never had when Opposition Members had stewardship of the economy.

Does my right hon. Friend accept that the Northwest Development Agency is doing tremendous work in developing the former Michelin site to provide employment in Burnley? It is important to encourage all investment in research and development and in manufacturing industry if we are to gain employment in towns such as Burnley.

My hon. Friend works hard in Burnley on employment issues, and he is absolutely right to point out the importance of investment in this area. He will appreciate the work on skills that the regional development agency is doing with local higher and further education institutions. He will know that employers are more likely to invest in areas such as Burnley when real efforts have been made to enhance the skills of the people who make up the labour market. That is happening, and it is good news for Burnley and the rest of the north-west.

Child Tax Credit

11.

If he will make a statement on access to free prescriptions for families in receipt of child tax credit. [111892]

Claimants receiving the child tax credit can get access to free prescriptions if they have an annual income for tax credits purposes—that is, income assessed before any tax credits are paid—of £14,200 or less. This will be the income set out on the claimant's tax credit award notice. If claimants meet the qualifying conditions, and have a tax credit award, they will automatically be sent an NHS tax credit exemption certificate by the Prescription Pricing Authority on behalf of all the Health Departments—that is, the Health Departments in England, Scotland, Wales and Northern Ireland. In the period between receiving their award of tax credits and receiving the NHS exemption certificate, claimants can sign for free prescriptions and use their tax credit award as evidence of entitlement.

I am grateful to my right hon. Friend for such a comprehensive reply. Can she assure us that no one who previously received free prescriptions under the working families tax credit will lost out under the new child tax credit system? Before Conservative Members comment on the implementation of the child tax credit system, does she agree that the Government have made the most generous investment in families that any Government have ever undertaken? No Opposition party would ever have introduced such generous investment for British families.

As my hon. Friend says, the new tax credits are more generous than any predecessor payment made directly to mothers to support their children. As for access to free prescriptions, the level was set to ensure not only that all those who received free prescriptions through the working families tax credit and the disabled tax credit will continue to do so, but that another 80,000 families will benefit for the first time. I know my hon. Friend's enthusiasm for campaigning on these issues, and I am sure that he will be keen to ensure that constituents of his who newly qualify for free prescriptions will take them up.

What role did the Treasury play in the decision announced yesterday to reduce the renewal period for prescriptions from three months to two months, thereby increasing prescription charges for those long-term sick people who are not on benefit or tax credit by 50 per cent?

That is a matter for the Department of Health, and I will ensure that the hon. Gentleman's comments are drawn to the attention of the relevant Minister.

Notwithstanding the complacent answers that the Paymaster General has given so far, is she aware of the outrage and anxiety that the shambles, chaos and confusion of the Chancellor's burdensome new child tax credit system are causing the constituents of Members on both sides of the House? She told us 11 days ago that 700 staff had been added to the tax credit helpline personnel. To check whether it is now working effectively, my office made 80 calls in 90 minutes yesterday and did not get through to speak to any member of the helpline staff. Will the Paymaster General now get a grip on that failing service and tell us how much the 700 extra helpline staff are costing, in addition to the £53 million of taxpayers' money that she has already spent, and why the helpline is still not working effectively?

The Opposition said that the take-up of the new tax credits would be low and a disaster. They were wrong. The take-up of the new tax credits has resulted in more than 4 million people currently claiming, tens of thousands of applications coming in each week and 1.3 million people on income support and jobseeker's allowance also receiving their payments. Indeed, the hon. Member for Havant (Mr. Willetts) said, when forecasting that take-up would be low, that he preferred the working families tax credit. That is interesting because, in March 1998, he attacked the introduction of the working families tax credit and said that take-up would be low and that it would not work. The Conservative party's history on this is to deny families money, to attack a system that delivers—

Tax Credit System

13.

What representations he has received about the administration of the tax credit system. [11189]

My statement to the House last week reflected a range of representations received about the two new tax credits—child tax credit and working tax credit—currently being introduced. I made it clear then that more than 4 million claims have already been received and that, along with the 1.3 million families who will get the benefit of the increased generosity of the child tax credit through income support or jobseeker's allowance this year, more than three quarters of the number of families that we expected to get the new credits have therefore already either claimed or are benefiting from them. I also said last week that all claimants whose claims were received by the Inland Revenue by Friday 25 April would be contacted and either be in payment or have received inquiries from the Inland Revenue to complete their forms by the end of this week.

May I take the Paymaster General back to the question asked by my hon. Friend the Member for Eddisbury (Mr. O'Brien), which she did not quite answer? Will she tell the House what was the Government's original estimate of the cost of setting up and administering the child tax credit and the working tax credit? Has the administrative cost subsequently increased?

If my memory serves me correctly, the figure given to the House on the budget for setting up the new tax credits was about £300 million, and I can confirm that we are well within budget, as we always are.

Iraq

14.

if he will estimate the cost of the military action in Iraq. [111895]

It would be premature to make such an estimate, but we expect the costs of the military campaign to be covered by the £3 billion reserve announced by my right hon. Friend the Chancellor in the Budget.

I would say to my hon. Friend the Father of the House that we have made available a £3 billion reserve. That is the figure announced by my right hon. Friend the Chancellor, and it is our best estimate of the right figure to make available in the reserve at this time.

I understand why the Minister is vague on such large figures, but when he eventually gets around to computing them, will he also take into account the costs to the country that will be saved of not having to fight a third Gulf war as a result of finally winning the second one?

G8 Summit

15.

If he will urge the forthcoming G8 summit to tackle the shortfall in the HIPC trust fund. [111896]

At the forthcoming G8 summit, we will push for a change in the HIPC rules to exclude additional voluntary bilateral debt relief from the calculation of topping up at completion point. The aim of that measure is to provide an estimated $1 billion extra debt relief to low-income countries.

I congratulate my right hon. Friend, in particular, on his efforts to promote the international finance facility. I wish him every success in promoting that initiative at the forthcoming G8 summit, and I hope that he can persuade other members of the G8 to join it. Does my right hon. Friend agree that an urgent need exists to review the HIPC scheme and to adopt an approach whereby it should be based on the country's ability to meet its basic needs rather than putting priority on debt reservicing?

I thank my hon. Friend for the work that she does in promoting the case of debt relief and the international finance facility. It is absolutely true that the HIPC initiative achieves many but not all our aims. Twenty-six countries are receiving debt relief, and another nine could qualify. The long-term solution to the problems that she identifies—both debt and poverty—is a major initiative for a funding mechanism that could double the amount of aid available. That is why we are supporting the international finance facility, and I am pleased that there is all-party support for that.