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Oral Answers To Questions

Volume 406: debated on Thursday 12 June 2003

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The Chancellor of the Exchequer was asked

Economic Growth


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.



If he will make a statement on the impact of his economic policies on manufacturing. [118658]

Manufacturing output is expected to grow by between ¼ and ¾ per cent. this year, and by between 2¼ and 2¾ per cent. in 2004. Of vital importance to manufacturing in every region of this country is our commitment to pursue policies for economic stability.

I thank my right hon. Friend, because under this Government manufacturing has been seen as a vital part of the whole economic balance. That is in contrast with previous Governments, who gave manufacturing such a hard time. Does he accept, however, that, with the recent recession in manufacturing, which has seen cuts in employment and production, we need to restate the importance of growth and the fact that a consistent manufacturing base is at the very centre? Does he agree that now that the economy is getting into balance, the preoccupation with the financial services sector—a constant feature of previous Governments—is not something that we should pursue?

I thank my hon. Friend for the efforts that he puts in for manufacturing in his constituency and the wider north-west. He will have noticed that manufacturing output was rising last month, and that our policies are designed to give this country modern manufacturing strength. In contrast to the previous Government, who preferred services to manufacturing, we want that modern manufacturing strength, and that is why we are introducing the research and development tax credit, through which £200 million has already gone to small businesses; regional venture capital funds, which manufacturing in his region is benefiting from; and permanent capital allowances, which benefit manufacturing in particular. Most important of all, interest rates in this country, which averaged 10.5 per cent. under the Conservatives, have averaged 5 per cent. under this Labour Government, and that is why we have the economic stability on which we can build. No one is complacent, but we will build on this.

Does not the future of our manufacturing base depend crucially on trade? Will the Chancellor now answer one of the many questions that he did not answer on Monday? Will he confirm that his figures for increased trade if we were to join the euro are based on studies of currency unions involving Angola and Mozambique; Burkina Faso and Chad; Vatican City and San Marino; and Tuvalu and Tonga?

What the study says—[HON. MEMBERS: "Answer."] What the study says, and I shall read it directly, is that those conducting it discount industrialising and non-industrialised countries and that they have looked at the experience of the euro over its first few years, and whether there has been an increase in trade in the euro area. The idea that, in a single currency area, with the exchange rate barriers removed and a far freer flow of trade, no benefits are produced is quite ridiculous. If the Opposition are going to peddle the idea that somehow, with sustainable convergence, there are no advantages in trade, that reveals exactly where the Shadow Chancellor wants to take his party today, and that is against the European Union altogether.

No, no. That will not do, I am afraid. Let us look at the Treasury documents. Will the Chancellor confirm that paragraph 3.36 on page 35 of "EMU and business sectors" expresses concern that, far from trade increasing,

"In the absence of an independent nominal exchange rate, and if wage growth exceeded that in other EU countries without an offsetting productivity gain, UK export levels could fall and firms would have to reduce output and employment"?
Why did he not mention that on Monday? Do not manufacturing industry and others need to be given a balanced assessment of euro membership?

The right hon. and learned Gentleman should turn to the conclusion on what EMU could mean for UK trade, where what he has been going on about for the past few days—comparisons with industrialising areas—is discounted, and it is stated very clearly that there have been gains in trading in the euro area identified by all the studies that have been carried out, which he cannot deny. Of course the issue is sustainable convergence, because we are not going to make the mistakes of the exchange rate mechanism era with which he is associated. [Interruption.] Oh, so we are to blame for the Conservatives' decision, and an apology from the shadow Chancellor is enough! It was this shadow Chancellor who said that we must punish the people who made mistakes.

I have in fact apologised for the euro; will the Chancellor apologise for the fact that he was calling for early entry into the euro a year before we joined? Is it not true that even the Treasury's documents put what it describes as potential increases in trade—potential increases—that are critically dependent on sustained convergence in a range of between 5 and 50 per cent.? So why is the Chancellor quoting just the 50 per cent. figure? Why did he ignore the fact that the Treasury's own figure for the effect so far in the euro area, to which he has just referred, is much lower? Why did he also ignore the conclusion that the

"potential benefit of fixed exchange rates to the traded goods sector may be less than is sometimes claimed",
and the further conclusion that there is some "evidence" for
"the view that euro membership would not increase UK euro trade by much"?
Is it not the case that the Government's presentation of information on the euro has been even dodgier than their presentation of intelligence on Iraq? Is it any wonder that nobody believes a word they say?

The party that has a problem with credibility on matters European is the Conservative party. [Interruption.] Let us recall the following: interest rates at 15 per cent., 10 per cent. inflation, 1 million jobs lost in manufacturing, unemployment up by 1 million, negative equity—[Interruption.]

Order. The Chancellor has been asked a series of questions and he is entitled to be able to reply without shouting.

If the shadow Chancellor, who is trying to distort the Treasury summaries, were to quote fairly from these studies, he would see that the Treasury discounted all that he said about non-industrialised countries on Monday in its assessment, and that our assessment is based on real happenings within the euro area, in which trade has increased. Of course we give a range of figures, because this issue depends on sustainable convergence. But it is absolutely the case that in a single currency area such as the United States, trade between the different parts of the area increases as a result of barriers being removed.

The Conservatives want to rewrite every part of history in this matter, but the fact is that the only reason why the shadow Chancellor fails to give us a balanced assessment is that he has no interest in joining the euro. He is against it as a point of dogma, and he would be against it even if all the proof were before him that there are indeed matters in the national economic interest that commend it to us. The Conservative party had better start thinking again about these issues.

One of the major problems facing manufacturing in the north-east is the high value of the pound against the euro. This is a particular problem in the north-east because 78 per cent. of the region's exports are to the eurozone. Does my right hon. Friend agree that one advantage of joining the eurozone would be to give a boost to manufacturing in regions such as the north-east?

Our studies set out these issues in great detail, and the fact that there is open government in this regard is in complete contrast to what happened when we entered the exchange rate mechanism, when no assessment was published or, so far as I can see, even made. We have set out the advantages in trade, the advantages in exchange rate stability and the advantages in cutting the cost of currency transactions. But we also say very clearly that these advantages and this potential are dependent on there being sustainable convergence: in other words, that we are able to live comfortably with the euro area interest rate.

We have presented a balanced picture of the national economic interest in this matter, and I agree with my hon. Friend that we should look at all the issues, particularly as they affect individual regions such as the north-east, which he represents. But it is outrageous for the Conservative party to distort one piece of information and then to use it as a case not even for rejecting the euro, but for rejecting the European Union altogether.

Assuming that the Chancellor said enough on Monday to satisfy the Prime Minister on the euro, and that he therefore has no worries about the forthcoming Cabinet reshuffle, could he tell us whether he accepts the advice received in the study that he commissioned from Professor Simon Wren Lewis? Over the last few years, manufacturing has seen a slump in investment and jobs, associated with the high value of the pound, but the Government have refused to clarify what they believe the right equilibrium rate for the exchange rate would be. Professor Wren Lewis suggests €1.37 to the pound; does the Chancellor accept that recommendation?

Professor Wren Lewis made that estimate on the basis of the position as he saw it a year ago when he carried out his study. It was based on his analysis of the trading relationships evident at the time. However, the present Government are not going to set an exchange rate target, which is the Liberal Democrat party policy, not ours. We believe in a stable and competitive exchange rate over the medium term, and that that exchange rate will reflect fundamentals.

As to joining the euro, if a decision were taken before the point of transition, we would deal with it, but I caution the hon. Member for Truro and St. Austell (Matthew Taylor) about his over-enthusiasm for ignoring all the national economic interest questions in this matter. It is one thing to believe in the principle of the euro, but quite another to demand that we join it at every point in time, no matter what the exchange rate, interest rates and the wider economic picture. The summary of our assessment shows that, if we had taken the hon. Gentleman's advice in 1999, there would have been a stop-go cycle, leading to exactly the same problems that the Conservatives gave us in the early 90s.

World Debt


What progress has been made in pursuit of Government strategy on relief of third world debt. [118659]


If he will make a statement on the progress the G7 Finance Ministers are making in tackling world debt. [118669]


What further measures he is taking with G7 Finance Ministers to tackle world poverty. [118672]

Following the Evian summit, finance Ministers will review debt relief to consider an extra £1 billion for the poorest countries. Europe will now produce proposals to match the welcome American contribution to the global health fund, particularly to deal with HIV/AIDS. In addition, G8 finance Ministers have been asked to report by September on the UK's proposal for an international finance facility, which will raise up to £50 billion annually to fund the millennium development goals. On that, I am grateful to have had all-party support.

I congratulate the Chancellor on the tremendous energy and enthusiasm that he has shown on issues of international debt, backed by one of the strongest economies this country has ever known. Specifically on non-heavily indebted poor countries and middle-income countries, will the Chancellor tell us what progress we are making, particularly in the light of G8 involvement? Finally, on falling commodity prices, drought and other issues, is the Chancellor satisfied that the World Bank and the International Monetary Fund operate with criteria that are appropriate to reaching the millennium goals that he mentioned?

My right hon. Friend has taken a longterm interest in these matters and has led the campaign for debt relief in his own area. On debt relief, $1 billion was pledged at the last G7 summit in Canada, and that money has now been put into the World Bank trust fund. After a submission by finance Ministers at the G8 Evian summit, it was recognised that more needed to be done for countries at the point of completion. Twenty-six countries are in the debt relief process; eight have completed, but they need additional money to deal with the changes that have taken place, particularly in commodity prices, since the debt relief package was agreed. We have been asked by the Heads of Government to examine how best to improve the system so that those countries can receive the benefit of debt relief, freeing up resources for education and health rather than having to spend them on repaying debt. I am confident that the £62 billion of debt relief that we are achieving now will be increased as a result of the proposals.

My right hon. Friend is absolutely right that we need a new finance facility so that we can move forward with anti-poverty programmes to meet the millennium development goals. I believe that that issue unites the whole House and I hope that, together with other countries, we can make further progress over the next few months.

I thank the Chancellor for the international leadership that he gives on this issue. What progress is being made, specifically, to encourage other countries to sign up to the Government's proposal for the international finance facility?

I am grateful to my hon. Friend for taking an interest in the issue and leading on it in her constituency. I am pleased to say that the G8 communiqué from Evian mentioned the international finance facility. The Finance Ministers have been asked to produce a report on the issue. The timescale is short, because we have to do it by September. It is recognised that there is a shortfall in funding to meet the millennium development goals and to maximise the opportunity given by the Monterrey agreements, in which the US and Europe agreed to pay more money. We can build on that with a finance facility that uses funds from the private sector. We are confident that our September report will be the next stage in persuading countries round the world that that is the way forward. We have also had support from African countries and many other countries that are not part of the G7.

In setting ourselves ambitious targets for achieving the millennium development goals, how confident is my right hon. Friend that all the industrialised countries will make available the resources necessary to meet the challenge? What encouragement can he give those organisations led by Christian Aid which are organising rallies at the end of this month and are campaigning for trade rules to be weighted in favour of poor people?

My hon. Friend has played a major part in the campaign on that issue in Wales, and I also applaud the work of Christian Aid, whose campaign week has just finished. During its last campaign, my mother sent me a postcard at the Treasury demanding that I took action and spent more money, so it was obviously a successful and broad-based campaign. The millennium development goals cannot be achieved without the additional finance, but I believe that we will win wider support for it. I applaud the Opposition Front Benchers, the Liberal Democrats and other parties, because it is important that we have all-party support as we take the initiative round the world.

The Chancellor will be aware of the role of private investment in stimulating economic activity in the indebted nations as a way of relieving their plight. To that end, will he consider developing a tax credit mechanism that would encourage private sector investment in the poorest countries, to help to offset the risks of investing in them but to encourage that beneficial activity?

I am grateful to the right hon. Gentleman, who takes an interest in the matter as a former Treasury Minister. He may know that we have introduced a tax credit for pharmaceutical companies, which they can use in developing countries and set against tax in Britain. That started at the beginning of April and I hope it will yield results. I will also look at the proposals that the right hon. Gentleman has made for other private sector companies. If only 1 per cent. of private investment round the world is in Africa, the chance for that continent to move forward is limited. Therefore, we must stimulate far more private investment. The right hon. Gentleman will welcome the International Monetary Fund initiatives to set up centres to advise countries about obtaining such investment, and I was talking to a group of American business men yesterday about those issues. If the right hon. Gentleman sends me his specific proposals, I shall look at them.

Given that we hand over nearly £1 billion a year to the EU overseas aid package, and given that the majority of that money is spent on political purposes—as evidenced by the fact that Poland receives twice as much aid as Latin America and Asia combined—does the Chancellor agree that that money could be so much better spent on tackling world poverty if it was redirected to where it was most desperately needed?

That is a European issue on which we can agree. There is a need for major reform in the operation of the European aid budget and the European development fund. The hon. Gentleman may be interested to learn that the European development fund provided money when debt relief was provided, and that was a useful initiative on its part. As for the global health fund, the US Government have made a contribution of $3 billion and it is proposed that the European development fund make a similar contribution. I agree with the hon. Gentleman entirely, because only 38 per cent. of money from the fund goes to the poorest countries and, therefore, to tackle poverty. That is not acceptable and that is why I hope he will support proposals that the Department for International Development and the Treasury have already put forward to reform that aid budget. I believe that we will win support from other countries in Europe which understand clearly that our responsibilities to the poorest countries of the world must mean that we get the best out of the European aid budget, so that it tackles poverty, illiteracy and disease.

Does the Chancellor agree that current events in Zimbabwe underline the fact that much third-world debt has been caused by the profligate attitudes and policies of dictators, which also deter people from investing in southern Africa? Does he have a mechanism for ensuring that future aid, including the aid that Zimbabwe will need when it is free again, will be directed with proper regard for ensuring that it does not fall into the wrong hands?

I am grateful to the hon. Gentleman. He is absolutely right. As he knows, Zimbabwe is not a HIPC country and does not receive money from that initiative. The hon. Gentleman is involved in all the parliamentary get-togethers in the Commonwealth that look at these issues, and so will know that the next stage is the African initiative, the New Partnership for Africa's Development. That has got to be made to work, but the conditionality built into NEPAD is that the money will be provided only if we can be absolutely sure that there is transparency in the way that it is handed out; that anti-corruption mechanisms are put in place; that there is a welcoming environment for the investment that is needed for the future; and that policies for economic stability are being pursued. Equally, we have a duty towards all the countries in Africa that are making efforts to put those conditions in place to provide money to relieve illiteracy, disease and poverty. I hope that the hon. Gentleman and I can agree with each other on those matters, as well as on Zimbabwe.

A number of hon. Members heard from Senegalese parliamentarians yesterday about their frustration at the debt process. They said that, if the previous HIPC process had worked, there should be no need to launch another decade of poverty relief. One of their main frustrations was that the African voice was not heard clearly enough. Would my right hon. Friend support giving African countries an extra seat on the boards of the IMF and the World Bank, and reallocating shares of votes according to population rather than according to the wealth of individual countries?

I am grateful to my hon. Friend, who does a great deal of work on these matters. Her meetings with delegations from other countries are very important indeed. We have been trying to reform the operation of the IMF, whose committee I chair. More resources have been made available for the African countries. South Africa's Finance Minister, the chairman of the development committee, has been invited to sit on the IMF committee, thus securing greater representation of the African voice. In respect of the international finance facility, we have made a point of sending representatives to explain to Finance Ministers in countries around Africa what we are doing. I appreciate what my hon. Friend says about ensuring that the voice of Africa is heard properly. The whole point of the NEPAD initiative is to establish a partnership in which the voices of the developed and the developing countries can come together.

Financial Flows (Eu)


If the Treasury will conduct an analysis identifying the (a) direct and (b) indirect financial flows in and out of the United Kingdom arising from EU membership; and if he will make a statement. [118660]

The UK conducts the majority of its trade—50 per cent.—with the EU. It also receives 55 per cent. of its inward foreign direct investment from the EU, and invests 40 per cent. of its outward foreign direct investment there. In addition, 61 per cent. of the UK's inward mergers and acquisitions activity, and 54 per cent. of its outward mergers and acquisition activity, are also with the EU.

I am grateful for that answer, but it does not cover indirect fund flows from and into the UK. In a recent parliamentary answer, the Foreign Office confirmed that no such analysis, including of indirect fund flows, has been undertaken since around 1992. Will the Chancellor ensure that such an analysis is now made? Is he aware that a recent analysis by the US Treasury suggested that the net cost to the UK of EU membership was of the order of $40 billion a year—almost equivalent to a doubling of the state pension. Clearly, that finding cannot be true. No Opposition Member believes that there can be any question of withdrawal from the EU, but it is not about time that our own Treasury conducted an analysis of indirect and direct costs, so that we can know how much we benefit from the EU?

I have looked at the American authorities' analysis and I shall do so in more detail now that the hon. Gentleman has drawn my attention to it again. He says that no analysis has been conducted since 1992. He might have been more successful in persuading the previous Government to conduct it between 1992 and 1997.

The hon. Gentleman really cannot tell us that he does not want to take Britain out of the European Union. I shall read from his article in The Birmingham Post. He wrote:
"I believe that 20 or 30 years from now, far from debating the euro, we might well be out of the European Union altogether and into something far more prosperous and constructive."

If my right hon. Friend performs that analysis, will he be sure to track how much inward investment we have received, especially in manufacturing, since we became been a member of the EU? Most of the figures I have seen show the beneficial effects of membership in terms of jobs, investment and productivity.

My hon. Friend chairs the Select Committee on Education and Skills and throughout his parliamentary career has taken an interest in all matters industrial, so he knows that since 1972, when 40 per cent. of our trade was with the EU, the figure has risen to 55 per cent. It was on that basis that the figure of 3 million jobs was first used, if I remember aright, by the Confederation of British Industry about 10 years ago, and has been updated ever since. It would be difficult for any Member to deny that there has been increased trade within the EU as a result of what has happened over the past 30 years or that that is very important to the future of every region of our country. My hon. Friend is right to remind people that those who want to take us out of the European Union are making a terrible mistake.

Unlike the Chancellor, who was elected to the House on a pledge to leave the European Community, I have always been, and remain, an unwavering supporter of British membership, so I should welcome a study of the kind advocated by my hon. Friend the Member for Lichfield (Michael Fabricant). Such a study would show that, over recent years, it has been to the benefit of this country to be a member of the EC but that as the Chancellor has shown recently, it would have been to our disadvantage to have been in the euro. Will the Chancellor confirm that there can be benefits from being in Europe yet outside the euro?

I have just said that we would have been wrong to take the advice of the Liberal party and to join the euro in 1999. When the Liberals look at our detailed studies, they will see that their 1999 proposal was wrong. Equally, however, we would be wrong to rule out membership of the euro entirely. The Conservative party is making a historic mistake. The Conservatives have turned their back on their previous position—to review membership during a Parliament and then to leave it for two Parliaments—and they are now against it altogether. I am afraid that they are in danger of moving from being not just against the euro but against Europe altogether, although I accept that the right hon. Gentleman is not.

Tax Credits


What estimate he has made of the impact of the new tax credits on low-income families in Warrington, North; and if he will make a statement. [118661]

Six million families are expected to benefit from the new tax credits, including 250,000 low-income working families without children.

Seven hundred and fifty thousand families in northwest England are expected to receive the child tax credit, and 210,000 families in the region are expected to receive the working tax credit, including some who are also expected to receive the child tax credit.

I am grateful to my right hon. Friend for that reply. Does she agree that, despite some of the difficulties of implementation, the new system of tax credits will provide a major boost to the incomes of many families in constituencies such as mine? However, the problems that my office is picking up result mainly from people filling in the forms wrongly or from changes in circumstances that they have notified since completing the original form. Will my right hon. Friend look into the application process for tax credits and, if possible, simplify it, and will she also consider how we can deal more quickly with changes in circumstances, so that families are not left in the lurch?

My hon. Friend is right about the benefits to families from the new tax credits; millions and millions of families have applied.

On moving to the new system, we required information to establish the claim and looked for clear ways to show simple things on the application form—name, address, national insurance number, work details, pay and number of children and their age. It was important to get all those details into the system.

Next year, the renewal of claims for those already in the system will be much simpler and the forms will be much shorter. Despite the fact that the new tax credit forms are half the size of those for the working families tax credit—its predecessor—and notwithstanding the extensive testing that we did on the original form, I agree that it would be wise to consider whether further improvements could be made.

Many people in Warrington, North—indeed, in the whole north-west—would be interested in the Paymaster General's answer. On 28 April, she promised the House that

"anyone who has made a complete application and has yet to receive money will do so by the end of this week".—[Official Report, 28 April 2003; Vol. 404, c. 54.]
Obviously that would include people from Warrington, North. That week ended on 2 May, yet, one month later on 4 June, the Government's own figures showed that, in fact, 750,000 eligible claimants across the country had yet to be paid. Why did the Paymaster General break her promise? Given what this shambles has cost people in bank charges and interest payments, will she now apologise to the many families affected and compensate all those who are out of pocket?

I appreciate that figures are challenging for the hon. Gentleman, but, to return the statement that I made on 28 April and the number of claims that we had received by that date, I told the House that those claims would be either processed into payment or claimants would be contacted where issues were still outstanding. Every day, because of the popularity of this policy, thousands of forms arrive, and the position that I stated on 28 April remains the case. It is important to check applications with outstanding queries, because I am sure the House would not wish us to pay public money to those who may not be entitled to it, but every claim received by that date is in payment or the claimant has been contacted by the Revenue to ensure that the claim is correct.

Vat (Tourism Services)


When he last met representatives of the tourism industry to discuss value added tax rates applicable to tourism services; and if he will make a statement. [118662]

There have been no recent discussions on that specific subject, but whenever we receive representations on tax matters we consider them carefully.

The Minister is right: the Government probably consider such representations carefully, but they do not do very much in this sector. May I remind the House that hotel accommodation in the United Kingdom is very expensive in comparison with other European countries? For example, France has a 5.5 per cent. VAT rate; Spain, 7 per cent.; and Ireland, 12.5 per cent. Would it not be a boost for the tourism industry, which is a very large employer in the UK, to look again at the VAT rate?

It might not offer the boost that the hon. Gentleman imagines, and let me explain why. We have the highest VAT registration threshold anywhere in the European Union, so half the hotels in this country do not fall within the system and therefore do not charge VAT. The type of measure that he proposes would cost the Exchequer about £650 million, most of which would benefit the major hotel chains and luxury city hotels. So the blunt measure that he proposes may not have the effect that he would wish.

My hon. Friend may not be aware that tourism is one sector that we are trying to develop in north Staffordshire, precisely because of the difficulties in our manufacturing industry and the urgent need for regeneration, so I welcome the Chancellor's Budget commitment to regionalism, but may I ask all my right hon. and hon. Friends on the Front Bench whether—as well as supporting our diversification efforts, including tourism—they would be receptive to a bid from north Staffordshire for Government agency jobs that will relocate from London and the prosperous south-east in future?

I welcome the efforts that my hon. Friend and those with whom he is involved in north Staffordshire are making to promote tourism. I know how beautiful the area is, and there must be a lot of potential to develop. On the specific point that he makes, the movement of civil service jobs out into the regions of England is being considered at the moment, and we will report on any plan in due course.

Will the Economic Secretary clarify the legal situation, bearing in mind our EU obligations? Do the Government, in this Parliament, have the right to abolish VAT on tourism services, for example, or to move the rate from the higher band to the lower band? What freedom of action is available to the Government?

VAT in this country is governed by European rules. We have long-standing formal agreements with other European states that we cannot introduce new zero rates or extend or introduce new ones, to which the hon. Gentleman refers. In relation to reduced rates and tourism, the Government considered the matter in 1998. No persuasive economic case existed for moving, as I have indicated, and there was not a strong fiscal case for doing so either. I must say to the hon. Gentleman that little has changed since then.

Pensioner Incomes


What the average income of pensioners was in 2002–03. [118663]

The latest information available is for 2000–01. In that year, pensioner couples had an average income of £301 per week, and single pensioners had an average income of £160 per week.

Does the Chief Secretary accept that the highway robbery of £5 billion a year from pension funds through advance corporation tax by the Chancellor and his partner in crime, the Prime Minister, is a major cause of the devastating failure of final salary pension schemes?

No, that analysis is as misleading as it is inaccurate. The truth is that ACT was part of a wider package that involved reductions in corporation tax—long overdue reforms addressing a distortion that was not promoting investment in the British economy, which ought to be widely welcomed on both sides of the House.

When calculating pensioners' income, does my right hon. Friend set aside expenditure that pensioners incurred previously but no longer have to incur—in particular, expenditure on eye tests, bus travel and, for older pensioners, television licences? Is not the true income of pensioners even greater when that is taken into consideration, showing that pensioners are much better off under this Government than they were under the Conservative Government?

My hon. Friend makes a fair point. He might have added to it the reduction in VAT on fuel, concessionary travel for pensioners and the introduction of a 10p starting rate of tax, all of which have benefited pensioners. All of those are things that we have done, and that Conservative Members failed consistently to do during the years in which they had stewardship of the economy.

On the issue of pensioner incomes, does the Chief Secretary recall reading recently about the agreement between the Chancellor of the Exchequer and the Prime Minister a number of years ago to sign up to something called a fairness agenda? Under what part of the fairness agenda should the Chancellor of the Exchequer, who earns about £140,000 per year, pay the same council tax as many poor pensioners on far lower incomes?

The hon. Gentleman's point fails to address the real benefits that have accrued to pensioners. The reality is that the fairness to pensioners comes from an average increase for the poorest third of pensioner households of £1,600 a year in real terms, amounting to more than £30 a week, from October 2003. That is the real fairness for pensioners. With the minimum income guarantee, and with 400,000 fewer pensioners living in relative low-income households than in 1996–97, pensioners are really benefiting from the measures taken by my right hon. Friend the Chancellor.

Will my right hon. Friend accept congratulations from many pensioners who live in Wallasey and elsewhere on the magnificent record in ending pensioner poverty, with the introduction of the minimum income guarantee, and in dealing with the terrible legacy of pensioner poverty left by the previous Government? Will he also look forward to the introduction of the pension credit, which will build on that, in October?

My hon. Friend makes an important point. I want to pay tribute to the contribution that she made as a Minister in the Department of Social Security, as it then was, to alleviating pensioner poverty. The reality is that, as a result of the pension credit, we are currently spending £9.2 billion extra in real terms on pensioners, which will be £5.7 billion more in 2004–05 than if the basic state pension had been linked to earnings since 1998. Those are real benefits in tackling pensioner poverty.

Private Finance Initiative


What the current total is of PFI debt guaranteed by the Treasury; and what the mechanism is for reflecting this in the national accounts. [118664]

PFI debt is not normally guaranteed by the Treasury. A letter of comfort has, however, been issued in relation to the debt issued by London Underground. A guarantee is in place in relation to the bonds issued for the public-private partnership development of the channel tunnel rail ink. Contingent liabilities for both have been laid before the House.

Many people will be surprised that the total PFI figure is not larger, but is that not because the Government exclude from their PFI calculations the debt of Network Rail and London Underground? Can the Chief Secretary tell the House what the total PFI figure would be if it included the debt of Network Rail, as the National Audit Office says it should?

I can tell the hon. Gentleman exactly: £28.9 billion. All our PFI deals are subject to audit by the NAO or the appropriate audit body. The rules for accounting for PFI are drawn up by the independent Accounting Standards Board, not by the Government. We have a record of transparency and accountability that far exceeds the record of the previous Administration.

Will the Chief Secretary confirm that total Government PFI liabilities have risen some 17 per cent. to £109 billion, and that those gross liabilities, payable over 25 years, are now equivalent to 12.5 per cent. of GDP or, if discounted at 5 per cent.—a high level in today's interest rate environment to 9 per cent. of GDP? On the figures that he has just given, does the right hon. Gentleman accept that if one adds to those the liabilities guaranteed by the Strategic Rail Authority, the figure is 15.5 per cent. of GDP, or 12 per cent. of GDP, which the Government have off balance sheet, resulting from PFI and PPP liabilities? [Interruption.] The Chancellor, who is chattering to himself, has not commented that no other EU country has off balance sheet PFI or PPP liabilities of that size. Do the Government propose to harmonise or reduce their PFI liabilities as part of their convergence agenda?

The hon. Gentleman made rather a mess of that one. He makes precisely the opposite point from that made by his hon. Friend the Member for Bexhill and Battle (Gregory Barker). The figures are as I gave them to the hon. Member for Bexhill and Battle. The rules that we use to account for PFI are no different from the accounting treatment used by the previous Government. If anything, the accounting standards have become stricter since 1997 because of our adoption of FRS 5. The only figure that the hon. Member for Arundel and South Downs (Mr. Flight) need bear in mind is the 20 per cent. cut in public services—which are currently being improved by PFI—that would be imposed were he ever to gain the stewardship of our economy.

Biofuel Duty


If he will make a statement on the level of duty on biofuels. [118668]

In his Budget statement, my right hon. Friend the Chancellor announced that, from 1 January 2005, we would introduce a duty incentive for bioethanol, set at 20p per litre below the rate for sulphur-free petrol. Biodiesel already benefits from a duty incentive of 20p per litre below the rate for ultra-low sulphur diesel.

I am grateful for my hon. Friend's continuing interest in the matter. Has he had an opportunity to read the recently published Sheffield Hallam university report, which concludes that the rate of carbon dioxide reduction is greater than previously thought? Given the clear environmental gains and the new biofuels directive that is coming, will he and his colleagues re-examine the rate of duty in time for the next Budget?

I am indeed aware of a Sheffield Hallam university study. It was designed to give us better evidence to make such judgments in future. For the moment, we judge the duty rates that we have set to be appropriate to reflect both the potential environmental benefits of biofuels and what is affordable and good value for public money to achieve those environmental gains.

Over the years, the Chancellor has consistently advocated in his Budgets the role of the Treasury in promoting good environmental practice and given us lectures on joined-up government. Is there not an inconsistency between the policy of rebates for biofuels that the Minister has just announced and the determination of the Department for Environment, Food and Rural Affairs that the crops cannot be grown on land set aside and otherwise wasted?

Although we are conscious of the potential of the duty rate cuts for farming and non-food crops and support diversification across government in other ways, the incentives for biofuels are not targeted at supporting farmers or subsidising agricultural production. I offer the hon. Gentleman a word of caution: if we introduce these biofuel duty discounts too fast or they are too large, we will increase the incentive to import biofuels, decrease the prospects of our own UK-based production industry growing and increase the risk that farmers in countries other than our own will benefit.

Does my hon. Friend accept that, despite all he has said, changes are taking place with regard to the widening of the European Union and the common agricultural policy, and will he assure me that we will keep the policy in mind so that we can make it possible for people to continue to grow biofuels in a sensible way?

As with all taxation, we monitor the issue very carefully and we are prepared to review the appropriate rate, particularly if new evidence and analyses are presented to us.

Tax Credits


If he will make a statement on the administration of tax credits. [118670]

I can confirm that tax credits are now being paid to 3.8 million families, in addition to the 1.3 million families with children on income support and income-based jobseeker's allowance who are receiving the increased levels of support now through their benefits. The Inland Revenue is deciding more than 100,000 cases a week on average. All the claims that are yet to be decided are incomplete or require further checks to verify information, or involve applications that have arrived at the Department in the past few weeks.

Will the Paymaster General ensure that those of my constituents who have incurred bank overdraft charges and mortgage interest penalties purely as a result of the non-arrival of tax credits on the dates when the Treasury was due to pay them are compensated? Given that she has made allegations that my hon. Friend the Member for Havant (Mr. Willetts) said on the Floor of the House that he would scrap tax credits, will she give me the Hansard reference? She will no doubt be aware that, although the Opposition have considerable criticisms of the complexity and implementation of tax credits, we have at no point said that we would scrap them.

Clearly, it is difficult to comment on the specific cases that the hon. Gentleman raised with regard to compensation without all the details—something that we would not do on the Floor of the House. Each case will turn on its own facts, but the most important thing is to ensure, as he is encouraging me to, that families get the service to which they are entitled. Where the Inland Revenue was unable to deliver the level of service that might have been expected, I will certainly consider what action, if any, may be appropriate. With regard to the second question, I regret that I did not hear—

My right hon. Friend will be aware that many of my constituents work on the tax credits helpline. Will she take this opportunity to thank them for the very hard work that they have put in to deliver this very important new tax credit? Will she also acknowledge that many of those staff throughout the country need continuing support? They need support from their management and appropriate training, and access to the computer systems to get the information that they need to answer the questions asked by the people who are ringing them up.

I am more than happy to congratulate on the Floor of the House the staff of the Inland Revenue, who have worked so splendidly to ensure the delivery of the new tax credits, at times under extreme pressure, with which we are all familiar.

Families are desperate to get the money that they can see the Government are now prepared to pay to them through the new tax credits; many of them are getting it for the first time. My hon. Friend is right that the Department needs to ensure that it provides proper training—which it has done—and updates training to give support to those who are in the front line, both in the contact centres and the Inland Revenue inquiry centres, and who see members of the public face to face. That work will continue.