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Economic Growth

Volume 406: debated on Thursday 12 June 2003

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1.

What changes there have been to his projections for economic growth since (a) the 2002 Budget and (b) the 2002 pre-Budget Report. [118657]

In the 2002 Budget, United Kingdom GDP growth was forecast to be 3 to 3½ per cent. in 2003 and 2½ to 3 per cent. in 2004. In the 2002 pre-Budget report, growth was forecast to be 2½ to 3 per cent. in 2003 and 3 to 3½ per cent. in 2004. In this year's Budget, our forecasts are growth of 2 to 2½ per cent. in 2003 and 3 to 3½ per cent. in 2004.

The Chancellor of the Exchequer downgraded his economic growth predictions in his statement last autumn and again in April. Even his new figures are out of step with those of the Institute for Fiscal Studies. Why should we believe he has got it right now?

What we have got right in these uncertain times, when America, Germany and Japan have been in recession for the past two years, is sound economic fundamentals: low interest rates, low inflation and a record number of people in employment—all things that the Conservatives got terribly wrong.

May I tell my right hon. Friend on behalf of households and businesses in my constituency that the most remarkable thing about the 2002 forecast was that, despite global recession, we were able to predict and to deliver economic growth? Is it not the case that the business cycle in the UK previously worked in such a way that shocks from the outside world were amplified, often with disastrous consequences for investment, jobs and growth in the UK? Now, those external shocks are mitigated, exactly because of the framework for macro-economic stability that we have put in place.

My hon. Friend is right. We took the hard decisions in the early days to set the Bank of England free, opposed by Conservative Members, and to establish the new deal, opposed by Conservative Members. We took the decisions that were necessary in order to create the climate of stability that is the best news that business can have. That is why we are succeeding in creating jobs. Currently, we are doing better than the other G7 countries on employment and indeed doing increasingly well on investment and productivity.

Given the importance of rising house prices to confidence, consumption and growth in the UK, what lower growth forecast will be needed given the Chancellor's decision to tax the housing market into submission and to try to stop house price rises? When will the capital gains tax and higher stamp duty come in?

There is no such intention. That is a bit rich coming from the right hon. Gentleman, who served in a Government under whom Britain suffered two of the deepest and longest recessions since the second world war, during which unemployment rose to 3 million, inflation rose to almost 10 per cent., interest rates hit 15 per cent. and negative equity hit an all-time high. We will take no lessons from Conservative Members on economic stewardship. Our record is one to be proud of. His was one to be ashamed of.

Has not the substantial level of investment by the British oil and gas industry made a major contribution to economic growth over many years? Is my right hon. Friend concerned about the low level of exploration that we have had for the past two years, which threatens that continued investment at that level? I welcome the announcement in the Budget that that matter was being looked at, but will he undertake to complete that review speedily so that some proposals can be brought forward for the pre-Budget report in the autumn?

I thank my hon. Friend for all the efforts that he puts in on behalf of the oil industry and of those in his constituency who benefit from it. It was as a result of representations such as his that my right hon. Friend the Chancellor took the actions that he did in the last Budget to encourage and support new investment in the oil industry. Those steps are specifically designed to promote research and development, to promote the exercises in modernisation and exploration that are the best hope for his industry and offer the most to UK plc.

Why does the Chief Secretary think that the introduction of the euro has so much reduced economic growth in Germany, with inevitable knock-on effects in this country? Do Treasury Ministers agree that the unwise monetary policies of the European Central Bank have increased the risk that the German recession will have an adverse effect on our economy?

The hon. Gentleman parades the prejudices and misconceptions of his party in relation to the euro. His analysis of the German economy is a little simplistic. He will agree that we need to ensure that we implement the reforms in relation to the growth and stability pact and the European Central Bank outlined in the Chancellor's statement earlier this week. Allied with the reforms in our own economy, those can only be good news for our economy and that of Germany and the rest of the eurozone.