What assessment he has made of the advantages of extending the principle of hypothecation in the tax system. [56858]

In general, the Government determine their expenditure according to need, not according to the sources of their revenue. However, we will continue to look at each case on its merits.

The answer is encouraging in so far as it goes. The first stage should be to find a more friendly word. "Hypothecation", like subsidiarity, is an excellent concept but not a good word—perhaps we should use the word "earmarking". What will the Government do to encourage the earmarking of national or local taxes or charges for a specific related purpose? For example, office parking charges or road pricing could fund improvements in local public transport or, as Lord Marshall proposed, national taxes on energy could be spent on energy efficiency.

We said in our transport White Paper that we would consider carefully any pilot schemes in which revenues were earmarked for particular purposes. Our general view is that we need, as a Government, to identify our own priorities. That is why we have committed £40 billion to hospitals and schools over the period of the comprehensive spending review—spending that Her Majesty's official Opposition have still not supported.

Is my right hon. Friend aware that his answer will give great encouragement? He said that he would look at the issue on its merits, which I have never before heard said about this matter; so I am grateful for that. I share the usual Treasury view that hypothecation is a danger. However, there is a case for it in one instance—the national health service. Expenditure on the health service will not fall, which is one of the problems with hypothecation, and an increase in any tax related to health service expenditure could command widespread support.

There are always presentational arguments for earmarking taxation, but the Government's fundamental principle is that we need to identify our priorities as a Government and allocate resources accordingly. The health service will, of course, benefit from that approach, as we are committing an extra £21 billion to it over the three years from next April. Moreover, on Tuesday, in his pre-Budget report, the Chancellor committed a further £250 million this year to ensure effective health care across the country.

On earmarking tax revenues, may I draw the attention of the Chief Secretary to a report in The Independent today, which states that Ministers want to let the married couples allowance "wither on the vine"? Is that report true? If so, would that not represent yet another tax increase on childless married couples?

I have not seen that report. One of the reasons that I do not read The Independent is that I do not always believe the stories that it covers. The hon. Gentleman will have to wait and see, but, if I were him, I would not rely on reports in The Independent.

If he will make a statement on his recent productivity seminars. [56859]

With business, we are putting in place a strategy to tackle the long-term economic weakness of a 40 per cent. productivity gap between this country and our most successful competitors. The pre-Budget report sets out what we must do in the coming year to help to equip the British economy for the challenges ahead.

Does my right hon. Friend agree that, in constituencies such as mine, where unemployment is almost zero, there is no cause for complacency, and that productivity is a key to achieving all our targets?

I agree that productivity is a central issue for the British economy. The director-general of the Confederation of British Industry told its conference that our productivity is 37 per cent. behind that of the United States and that the big picture is clear. The CBI agrees about the action that is necessary. I believe that our discussions with British business will yield results, and I have always said that we will make changes in the Budget, in regulations or in public spending, if necessary—if a case is proven—to help to bridge the productivity gap. The only party that does not seem to be willing to join the debate is the Conservative party.

Will the Chancellor acknowledge that, in the seminars, business leaders have argued that productivity is predominantly their responsibility and that the Government's responsibility is to create the climate in which they can compete? The 0.5 per cent. reduction in interest rates announced this morning is welcome, but do we not have to go a lot further down that road before we are competitive in Europe and have a sustainable exchange rate? What policies will the Chancellor pursue to help the Bank of England to deliver interest rates that are much closer to the European average?

Of course I welcome the Bank's decision. I think that the hon. Gentleman will agree that the most important thing that the Government can do is to create a long-term framework for monetary and fiscal stability. That is exactly what we have done by making the Bank of England independent, tackling the inflationary pressures in the economy and cutting the fiscal deficit by £20 billion. Of course we must work with business to tackle any barrier to productivity that exists in our economy. That is why we are looking at the future of competition policy and at regulation in some areas, and why we have agreed to look at some aspects of the tax system.

Is the Chancellor aware that, according to his own figures, the additional tax and regulatory burden on British industry will amount to £39 billion over this Parliament? The figure comes from published tax revenues and from compliance cost assessments published by Government Departments. Instead of lecturing British industry about productivity, will the Chancellor do something to reduce the daily burden on its ability to compete in international markets? Will he immediately take steps to repeal regulations and remove the additional burdens before they do more damage to employment? Above all, will he stop blaming British industry for Government failings?

The first people to draw attention to the productivity gap in British industry were the previous Government, in the competitiveness White Papers that they published every year, saying that we had to do better.

When he next expects to meet the Governor of the Bank of England to discuss jobs and inflation. [56860]

I meet the Governor of the Bank of England regularly. Today's cut in interest rates, which I welcome, follows the global downturn, which the Bank and I agree will lead to more moderate growth next year. The cut is possible because of the tough long-term decisions that we have taken: making the Bank independent, cutting the deficit by £20 billion and getting inflation back on target. In an uncertain world, Britain is steering a course of stability.

Does my right hon. Friend agree that the political climate in which interest rates had to be cut was created by people in the media and in the House, including a little touch and a steer from him over the past couple of weeks? I am sure that he will not want to be complimented on that, but will he tell the Governor of the Bank of England and the Monetary Policy Committee that they are not dealing with an exact science but making a political judgment, and that we, not they, will have to carry the can? What happened today complements what he said in his pre-Budget statement the other day. To ensure that unemployment does not rear its ugly head in the next few months, will he give the Bank another little steer?

My hon. Friend will make his own points. We have made the Bank of England independent, and we will support it in all the difficult decisions that it makes. The Bank of England's notice states that the international environment and the prospects for domestic activity have led the committee to make its decision. It is because we have created a long-term system and tackled the inflationary problem that it has been possible for monetary policy to respond to the downturn in the international environment. In the previous downturn, interest rates had to be above 10 per cent. for four years and at 15 per cent. for one year as a result of the failure to tackle inflationary pressures. The former Chancellor said that he was ready to consider independence for the Bank of England, and we are in a better position to make adjustments now because we have created that long-term framework.

Will the Chancellor say where the long-term monetary strategy exists? In the press briefings that he was giving until a few months ago, he said that the Bank of England should have raised interest rates further and faster than it was doing, but in the press briefings he has given since Washington, he said that the Bank of England should start to reduce interest rates. Will he acknowledge that, when he welcomes the present reduction in interest rates, he does so in the face of the policy-induced slowdown that his errors and those of the Bank has caused, and will he invite the Monetary Policy Committee to be alert to the consequences of worldwide slowdown, which will come on top of the slowdown that he has already put in place?

I have always said, and I think that the right hon. and learned Gentleman will accept this, that I will support the Bank of England in all the difficult decisions that it makes. Having set up a new framework for interest rate policy decision making, we will find that all political parties will come to support it over time.

Will my right hon. Friend join me in welcoming the interest rate reduction as a great step towards helping to ensure that his cautious growth targets are met, and does he agree that any further reductions would be welcome? I invite my right hon. Friend to speculate about the situation that we might have been in had the former Chancellor's policies been pursued.

As everybody now knows, when we came into power, inflation was set to rise to twice that of our competitors. If we had not taken action, we would have been back to the old boom-bust that existed in the British economy. The Opposition should not forget that interest rates were above 10 per cent. for four years, and when it was right to lower interest rates because of the international situation in the early 1990s, the Government of the day were unable to do so. It is because we have created a long-term framework for this country that we are able to reduce interest rates. I hope that, in time, the Opposition will see the wisdom of making the Bank of England independent.

Is it now clear that not even the Bank of England believes the Chancellor's fantasy forecasts? When will he bring his forecasts in line with the majority of independent economists and begin to take serious policy steps to avoid a rising toll of job losses and business closures?

This morning, the shadow Chancellor said:

I am afraid that the Chancellor has made it less likely that interest rates will be able to be cut by the amount that is needed by the way he has conducted policy."

We will be ready to welcome what is happening when interest rates come down to the figure at which the Chancellor inherited them. Is it not clear that the outlook for Britain's economy is the worst in the western industrial world, and that Britain has gone into the downturn ahead of north America and Europe? There will be a fearsome toll of job losses, and the blame lies at the Chancellor's door.

The facts of the matter are that forecasts for the world economy have been downgraded by 2.4 per cent. for this year, and 1.2 per cent. for next year. The idea that Britain is somehow unique in downgrading its forecast by three quarters of 1 per cent. is ridiculous. It is another example of how out of touch the shadow Chancellor is. I note that he has not corrected his remarks this morning that the Bank of England would have been unable to take the action that was necessary. It is about time that, instead of making comment after comment—later proven to be untrue or incorrect—the shadow Chancellor woke up to the fact that there is a global downturn and that the Government are dealing with it by steering a course of stability. It is also about time that the shadow Chancellor gave us a straight answer on the first issue of economic policy—whether his monetary policy is that the Bank of England remains independent. Until we get a straight answer on his support or otherwise for Bank independence, he will have absolutely no credibility. The real deficit in the United Kingdom is the deficit in Conservative thinking.

Is my right hon. Friend aware that he is being rather generous to the Conservative party in his account of history? He said that interest rates were above 10 per cent. for only four of the years in which the Conservatives were in office. In fact, there were interest rates of more than 10 per cent. for more like three quarters of that time. This morning, I attended a meeting sponsored by the chamber of commerce in Slough, a town in which new industries and businesses are part of the engine of our economy. Is my right hon. Friend aware that, in towns such as Slough, the main anger is not with what he is doing but with the feeling that people are talking business down and making it more difficult for successful companies to export and to do their business well?

I agree with my hon. Friend. It is about time that the Conservative party started to support the potential in our country. Welfare to work helps thousands of people, but the Conservatives oppose it.

When the Chancellor next meets the Governor of the Bank of England will the Chancellor ask him to prepare and publish a report for the House on how he would like to see the Bank of England's independence strengthened? Will the Chancellor ask him for his views on the model of central bank independence contained in the Maastricht treaty—a treaty agreed to and signed on behalf of this country by the shadow Chancellor of the Exchequer?

The hon. Gentleman is indeed right. The person who signed the Maastricht treaty on behalf of the British people was none other than the shadow Chancellor when he was Financial Secretary to the Treasury. There should be a welcome from the whole House for his action. As I said yesterday to the hon. Member for Gordon (Mr. Bruce), we are prepared to listen to views about the structure and accountability of the Bank of England. I hope that the hon. Gentleman will agree that the reform announced only a few weeks ago, that the Bank of England would publish its minutes within two weeks of its meeting, is a welcome step forward. This comes back to the central question: unless hon. Members make up their mind, on macro-economic policy and monetary policy in particular, and decide whether or not they support the independence of the Bank of England, they have no credibility in terms of their economic policy. The former Chancellor of the Exchequer is facing up to that fact. The Conservative party and the shadow Chancellor must face up to that now.

What measures he is taking to protect the UK financial services industry from the proposed provisions of the EU directive on the taxation of savings income. [56861]

The Government are taking an active part in discussions on the draft directive. We have made it clear on a number of occasions that we will not agree to any course of action that would seriously damage the United Kingdom and other European financial markets.

Given that the Government are in such a decisive frame of mind this afternoon and that the Chancellor has spent the entire week lecturing the House about the importance of stability, the opportunity occurs now for the Government to tell the House their proposals on withholding tax. Given the experience of the withholding tax in Germany, the United States and Japan, where serious damage was done to domestic bond markets, and given the report produced for the Corporation of London by Professor Dale, which concludes that the European capital market would suffer a serious capital disadvantage if the tax were imposed, will the Financial Secretary take this opportunity to reassure the City on exactly what the Prime Minister promised he would do, namely, use the veto when that was possible, and tell the House in a moment of decisiveness—yes or no—whether in three weeks' time that veto will be used?

The report by Professor Richard Dale of Southampton university was reported yesterday in the press. It is a rather limited report. We have now received a copy, and of course we are interested in studying the conclusions. We have made it clear that we would not accept a solution that obliged the United Kingdom to withhold tax, although we would be attracted to action based on the principle of exchange of information—as were the Conservative Government when, in May, June and December 1989, they agreed the conclusions of the Economic and Financial Council, that the way forward was an exchange of information.

The Financial Secretary will know that Labour Members are confident that the Government will do everything in their power to protect the financial services industry. She will also be aware that the pensions and salaries scandals of the 1980s revealed many structural problems in the financial services industry, including dependence on bonus-driven sales, the lack of transparency and the lack of training. Does she agree that it would be very wrong to divest swathes of pension and sickness provision to the private pensions industry without doing something about financial services regulation to address the structural problems that the pensions mis-selling revealed?

The Government are addressing the issues that my hon. Friend has identified through the Financial Services Bill, which my hon. Friend the Economic Secretary will help to steer through the House. The Government are in favour of taking effective international action against tax evasion, which I hope Conservative Members will support. Discussions on the directive are about addressing that issue.

In a written answer last week, the Financial Secretary was robust in rejecting any European Union proposal to harmonise income tax rates. She made it absolutely clear that income tax was firmly a matter for national Governments, and we welcome that. Why was she not prepared to give the same firm undertaking about EU proposals to harmonise corporation tax rates? Will the Government veto any such proposal on corporation tax—yes or no?

I welcome the hon. Gentleman to the Dispatch Box. The directive on taxation of savings is not about corporation tax rates but about effective ways to prevent avoidance of taxation. He knows that any change requires a unanimous vote. The Government have made it absolutely clear that we intend to maintain for this House decisions on taxation.

If he will introduce a tax redistribution arrangement based on turnover for professional football clubs. [56862]

The football authorities, which are independent of Government, are best placed to make decisions on the development of football, including the distribution of income within the game. The tax system is not an appropriate mechanism for redistributing funds between football clubs.

If Ministers are unaware of the financial apartheid in professional football, they should have a word with the Deputy Prime Minister, who may be able to tell them about the plight of Hull City. The gap between rich and poor football clubs grows by the day. Contrary to what the Minister said, the football authorities have failed to act. Will she give an assurance that the Government will consider measures for a fair redistribution of the huge amount of money in football?

I understand that the hon. Gentleman supports Colchester, who are currently 20th in the second division, so I suppose that he well knows what it is like to be in the second division. It is not the job of the tax system to redistribute income between clubs; it is the responsibility of the Football Association and the football authorities. The hon. Gentleman should press them to make the changes that he wants.

As we are on the subject of taxation and football clubs, will the Government do what they can to ensure that football clubs are not taken over by multinational, tax-avoiding media moguls?

I know that some people think that the Treasury is all-powerful and commands everything in the country, but my hon. Friend must direct his point to another Department.

What plans he has to help working families on low incomes. [56863]

From April, as a result of abolishing the entry fee to national insurance, all employees will receive a tax cut of more than £1 a week. The working families tax credit will be introduced, guaranteeing a minimum income of at least £190 a week for working families. That will back up the national minimum wage, which will be introduced next April, helping 1.9 million employees.

My right hon. Friend's reply will be widely welcomed, not least in Scotland where 1 million people—one in five of the population—receive less than half the national average income. Does he agree that those people will find new hope in the measures that he outlined and be disgusted that the Tories, who created so much misery and inequality, still oppose those policies, including the working families tax credit?

I am grateful to my hon. Friend for reminding us of the challenge of tackling in-work poverty. The national minimum wage will help to do that. It is unfortunate that a policy that was supported by the Sir Winston Churchill and many Conservatives right up to the 1980s cannot be supported by the existing Conservative—[Interruption.] It is strange; the Conservatives are now attacking Sir Winston Churchill. I know that they have lost touch with the country. It is hardly surprising that Lady Thatcher has written an article in Saga Magazine saying that they have not got a chance of winning the next general election.

Will the right hon. Gentleman assure me that no individual in a family receiving working families tax credit will pay tax on child benefit?

The hon. Lady knows perfectly well that we announced in the Budget a review of that matter. We shall report by the time of the next Budget. As for child benefit, we have made our position clear. Child benefit is paid to every mother. Yesterday, we had some problems with the Conservative party over the policy on pensions. I hope that the Conservatives will be able to say that they support our measures to raise child benefit.

Is it not a fact that the package that my right hon. Friend just referred to, with the national minimum wage and all the other things taken together, is the fairest and best policy initiative that any Government have given to low-paid people this century? The package is welcomed in areas such as mine, where many people have been in poverty and on low pay for many years.

I applaud my hon. Friend for being a champion of action on those matters over the many years that he has been in the House of Commons representing his constituents. He is right to say that people will ask the Conservative party whether it would take away from 2 million people a national minimum wage and whether it intends to oppose the working families tax credit. If so, more than 1 million people would have a tax rise under a future Conservative Government. What do the Conservatives intend to do about child benefit, which we support raising? We still have not had answers from the Conservative party.

If he will make a statement about the UK's position in the economic cycle relative to that of the rest of the EU. [56864]

At present, the United Kingdom's business cycle is clearly not convergent with that of the rest of our European partners. However, the United Kingdom's divergence is not a new factor and is in part a legacy of our past susceptibility to boom and bust—the damaging boom of the late 1980s and the recession of the early 1990s, when the shadow Chancellor was a Treasury Minister, when manufacturing output fell by 7 per cent. and when half a million manufacturing jobs were lost—and the failure to raise interest rates in the run-up to the last general election.

I have always wondered what caused the business cycle. Will the hon. Lady comment on the fact that The Economist has pointed out that, since June, forecasts for the British economy have shown that the growth rate is set to fall by 56 per cent., but that, for the corresponding period, growth rates for France will fall by only 14 per cent. and for Germany will fall by 21 per cent? Why is it so much worse here? Has it anything to do with the Chancellor of the Exchequer's policies?

The hon. Gentleman may not understand the basics of the business cycle, but presumably he understands that forecasts for world growth have been slashed as a result of what is going on in the world economy; that this country—[Interruption.] Just listen a minute and give the hon. Gentleman a chance to learn. This country is not immune from what is happening in the rest of the world. We have a larger exposure to trade with the rest of the world than most of the continental countries, but if the hon. Gentleman looks at the three-year period starting last year, he will see that, even with our revised growth forecasts for next year, growth in France, Germany and the United Kingdom will be about the same. Perhaps the hon. Gentleman will also recall that unemployment in this country is well below the level in France and Germany.

Does my hon. Friend agree that what matters is not only where we are in the business cycle, but how big the peaks and troughs in that cycle are; and that today's welcome news shows that the peak in interest rates required to control that is at least half of what we had last time? Does she also agree that the next movement in interest rates is more likely to be downward, because the world knows that it was a technical, non-party political decision that was taken today?

I am delighted that my hon. Friend welcomes both today's decision and the steps that we have taken to create economic stability. It is the Conservative party that is the party of boom and bust; we are the party of economic stability.

Do Treasury Ministers agree that, for the British people sensibly to decide whether sustainable economic convergence between the United Kingdom and continental Europe can be achieved and whether economic benefits to this country of a "clear and unambiguous" nature—I am quoting the two criteria mentioned by the Prime Minister yesterday— would flow from joining economic and monetary union, it is extremely important that, as almost all independent economists agree, two complete economic cycles be concluded before any judgment based on those criteria is reached? Do Treasury Ministers agree with that assessment?

I thank the hon. Gentleman for giving us the benefit of a speech that I am sure that he made during the Conservative party's referendum on that issue. We have set out the five economic tests that will enable the Government and the country to decide whether sustainable convergence has been demonstrated. Unlike the Conservative party, we have a policy for monetary and fiscal stability that will enable those tests to be met in future.

If he will make a statement on his policy to promote improvements in the productivity of UK firms. [56865]

If he will make a statement about his policy to promote productivity increases in UK firms. [56870]

It has been clearly established by the Conservative party that there is a major and fundamental productivity gap between this country and others—our major competitors. It is a gap that we intend to close, in partnership with businesses and companies.

My hon. Friend rightly acknowledges the productivity gap between ourselves and our competitors. I am sure that, like me, he understands the fears of some workers, such as those at Barclaycard in Northampton, that the productivity gains needed to maintain a competitive edge might have an impact on job numbers. What can the Government do to mitigate those fears, and what would my hon. Friend say to the Barclaycard employees, most of whom are women?

My hon. Friend will be aware that we have engendered 400,000 jobs since the election and that, in her constituency, unemployment has dropped by 583, which represents a 23 per cent. drop. She will also be aware of the tremendous strides being taken by the welfare-to-work programme: despite the Opposition's position on that programme and their commitment to getting rid of it, we can now say that, through that programme, 30,000 people have gone into jobs. Throughout the country, 150,000 people are in the gateway, and we have partnership agreements with 29,000 companies. Those are the things that I would tell my hon. Friend's constituents, as I am pleased to tell the House today.

When we talk about the need for productivity improvements in the motor industry and elsewhere, contrary to what is said in some sections of the media, we are not making any allegations about so-called lazy workers. What we are talking about is essentially four things: first, the need for real partnership between management and work force to achieve productivity improvements; secondly, the need for the companies concerned—Rover and others—to put in the investment necessary for the companies to prosper; thirdly, the need for that process to be given Government backing; and, fourthly, the need for the banks to provide the right financial climate, one that is sensitive to the needs of manufacturing. Does my hon. Friend accept that we in the west midlands welcome today's cut in interest rates, we welcome the announcements on more help for business made by my right hon. Friend the Chancellor in the pre-Budget statement earlier this week, and we look forward to further action being taken at Rover and elsewhere?

I very much agree with my hon. Friend, and the Government are conscious of the position of Rover, which is in his constituency. We have spoken of the Government bridging the productivity gap in partnership with business, but equally, management, together with the unions and the work force, must make a determined effort to do so. That effort is being made, but a good deal still has to be achieved before we can say that we are reaching the levels of productivity that we see in other countries. We shall do that together, it will need a determined effort, and I am sure that I can count on my hon. Friend to play his important role in that.

In spite of the Government's somewhat idiosyncratic interpretation of socialism in one country as the unilateral abolition of boom and bust, does the Minister agree that the experience of his hon. Friends the Members for Northampton, North (Ms Keeble) and for Birmingham, Northfield (Mr. Burden), speaking about Barclaycard and Rover, shows the sad fact that economic downturns tend to mean that productivity increases are interpreted as a loss of jobs? Therefore, will he re-emphasise the message that is coming from Conservative Members to his right hon. and hon. Friend—that they should eschew all the additional tax and regulatory burdens on business, to the tune of £1,500 per worker, that are being imposed? Will he argue with his right hon. and hon. Friends that they must seriously sharpen up their act first?

The only act that really needs sharpening up is the performance of the Opposition's economic team, and, my word, that does need sharpening up.

Is it not a fact that agriculture, above all British industries, has shown the most outstanding productivity increases during the past 50 years, yet finds itself in the most dire financial straits today? Given that the Government now intend to do all that they can to help employees on low incomes, what will be done for that industry?

I am aware of last night's debate on that subject, in which the hon. Gentleman spoke. All who know anything about the farming industry know of its fine productivity record, particularly under the proficiency payments systems introduced by the first Labour Government after the war. We are considering those matters and my right hon. Friend the Minister of Agriculture, Fisheries and Food will make a statement to the House in the near future.

My hon. Friend will be aware that we are repeatedly being told that productivity levels in Germany are far higher than they are here in the United Kingdom. Why is that? What is so special about the German system that enables Germany to score far higher ratings than we do?

I agree with my hon. Friend. It is puzzling that, in the past century, Germany has continued to outstrip Britain in productivity. Two important points that we can learn from the Germans emerged clearly from the series of seminars that we initiated. The first is that capital investment is much higher in Germany. There is no question about that. The second is that skill levels throughout the work force, from the management at the top right down to the technicians and the shop floor workers, are much higher in Germany, and its education system is geared to provide that. If we learn both those lessons and pool them, we can start closing the gap, and it is Government policy to do so.

If he will list the assumptions on which his new growth forecasts have been based. [56866]

Full details of the Treasury's new forecasts were published in the pre-Budget report on 3 November. They were based on a number of realistic assumptions.

Given the scepticism of the Chancellor's growth forecasts shown by many economic forecasters, is the Chancellor happy for the achievement or not of those forecasts to be the judge and jury of his chancellorship?

It is worth examining the average of the independent forecasts for next year, which is 1.1 per cent. The European Union is forecasting growth at 1.3 per cent. We are able to forecast that growth figure because the economy is well placed as a result of the tough decisions that the Government took last year. We have given independence to the Bank of England—we have not heard the shadow Chancellor confirm whether the Conservatives would continue that arrangement—reduced the deficit by £20 billion and ensured that we have strong and robust public finances. That is what we have done, and I think that it is unfortunate that the hon. Gentleman has not acknowledged that, since his election to the House in May last year, unemployment in his constituency has dropped by 32 per cent.

Can the Minister assure me that, built into every one of the Government's forecasts, will be a firm commitment to maintaining social support for pensioners and children—an approach that distinguishes us from the Conservatives?

We shall certainly do that. I am sure that my hon. Friend welcomes the news today of the creation of 500 jobs on Tyneside in the ship repair industry. That is good news for both our constituencies.

On Tuesday, the Chancellor described his growth forecasts as "prudent" and "cautious". Today, the Chief Secretary has said that they are "realistic". Why, then, is it almost impossible today to find a single independent forecaster who agrees with them? Will the Minister explain why the Chancellor is almost alone in upgrading his growth forecasts for the year after next? Will he give an assurance that the Chancellor will not be forced to return to the House in a few months to admit that, once again, he got it wrong?

Most independent forecasters—out of the 45 consulted—anticipate growth next year to average 1.1 per cent. The most effective forecast for two years' time from the National Institute of Economic and Social Research, which was published last week, is in line with the figures produced in the pre-Budget report. They are the facts; they are not fantasy. Another fact is that, when the shadow Chancellor was a Treasury Minister, inflation was at 10 per cent. and interest rates were at 15 per cent. They are not fantasy figures. They are real figures and, as a result, more than 1 million people lost their jobs.

What discussions he has had with representatives of independent financial advisers regarding the investigations into the selling of pensions during the 1980s. [56868]

As the hon. Gentleman will recall from the debate earlier this week, I am well aware of the concerns of the Independent Financial Advisers Association about phase 2 of the pensions review. The hon. Gentleman and many other hon. Members have registered those concerns with me. I shall be meeting representatives of the IFA Association later this month.

Is the Minister also aware of the Personal Investment Authority ombudsman's practice of charging IFAs £500 every time a complaint regarding pensions or other financial services products is made against them? Even if the complaint is not upheld—if it is found to be frivolous and thrown out—the company cannot claim back that £500. That is surely not natural justice.

I am sure that the hon. Gentleman shares my belief that we need a high-quality IFA sector that customers can trust. An effective regulatory regime, including an ombudsman system to which consumers can take their complaints, is part of that sector. Of course it is right that the industry as a whole should cover the costs of that regime, because it stands to benefit from it.

Might it not be helpful if the pensions industry examined its own codes of practice? A constituent recently complained to me that, before his endowment policy was due to be paid, independent financial advisers seemed to know that he was due for some money. Is that not yet another instance of pension companies selling on the names of people who are beneficiaries?

I share my hon. Friend's concern about such a practice. Despite the welcome progress that has been made, particularly by the large firms, in putting right the scandal of personal pensions mis-selling, the financial services industry still has some way to go before we reach the standards that all of us have a right to expect.

What steps is the Minister taking to ensure that the burden of the mis-selling scandal is borne by the shareholders of insurance and pension companies, rather than by other policyholders in those companies?

As the hon. Gentleman knows, from the beginning of our action on the personal pensions mis-selling scandal, we have taken the view that the costs of putting matters right should be shared by all those who stood to benefit from it. Therefore, where with-profits policyholders have shared in the growth in their fund, the costs should be shared in the normal proportion—90:10. We are keeping a close eye on the allocation of the costs of the pensions review, and of course we shall intervene, if necessary, to protect policyholders' reasonable expectations.

Given the Minister's statement earlier this week that compensation under phase 2 should be calculated on present market conditions, does she agree that, in order to take account of market conditions, the Financial Services Authority should raise the compensation cap, which has not been raised for 10 years, in cases where the IFA is not able to make the compensation?

The hon. Gentleman raises an important point. As I stressed in the debate on Tuesday, we have put in place a system for calculating any loss that may arise from mis-selling at the time, on the basis that has been advised by senior actuaries, and that would be applied in the courts. I shall write to the hon. Gentleman in more detail on the specific point that he raises.

What assessment he has made of the effectiveness of his reforms to the monetary policy framework on meeting the inflation target. [56869]

The new framework has been successful in reducing inflation and inflation expectations close to the target level, and has led to long-term interest rates falling to their lowest levels for 35 years.

My hon. Friend may be aware that, last night, the shadow Chief Secretary to the Treasury refused to debate with me in interventions those important points about the framework. Is it not a fact that, in the 12 months leading up to the general election, the Conservative Government managed to meet the inflation target just once, and that the long-term stability and framework that we have put in place will take Britain forward?

My hon. Friend is right. As we saw over and over again last night, the Conservatives cannot or will not tell us what they would do about the Bank of England and about the monetary framework that we have put in place, which has brought interest rates to their lowest level for 35 years.

I am sure that, even before she became a Member of Parliament, the hon. Lady will have followed the debate about the independence of the Bank of England. We were all told that the one plus that would result was that real interest rates—the difference between the rate of inflation and the interest being paid—would go down. Since the independence of the Bank of England, people have been paying three times the rate of inflation. Why? Can the hon. Lady explain that to the House?

As I just said, long-term interest rates are at their lowest level for 35 years. It was the Government whom the hon. Gentleman supported who, for short-term party political reasons before the last general election, failed to take the necessary action to stem inflationary pressures. This Government will take no lectures on interest rates from a Government who were responsible for interest rates of 10 per cent. for four consecutive years, and of 15 per cent. for 12 months. I remember, as do my constituents, what that did to our mortgage rates. We will not take lessons from the Conservatives.

What plans he has to introduce tax and fiscal measures to encourage investment in small and medium enterprises in the regions. [56871]

The Government are examining how best to develop an environment which encourages investment and growth in enterprising small and medium businesses.

Will my hon. Friend back the channelling of support for small and medium enterprises through the regional development agencies so that regions such as the north-west, and particularly Merseyside within the north-west, can improve their rates of small and medium business formation and success?

I can confirm that the regional development agencies, starting from next April, will have to draw up regional and economic strategies, which will cover encouraging investment and innovation. They will, of course, address themselves to small and medium businesses.

If the Financial Secretary wants to encourage investment in small and medium enterprises in the regions of the United Kingdom, why is it that she is not prepared flatly to condemn the £40 billion additional tax and regulatory cost put upon those enterprises in the lifetime of this Parliament, a policy that the Confederation of British Industry, the Institute of Directors, the Federation of Small Businesses and the Forum of Private Business are united in condemning?

We just need to remind the hon. Gentleman that it is this Government who have cut the small business rate for corporation tax; abolished advance corporation tax, giving small and medium companies £1 billion in cash-flow benefits; enhanced venture capital reliefs; and increased the taper on business assets to help entrepreneurs. As a result, unemployment in the hon. Gentleman's constituency has been reduced by 28 per cent., but he does not have the good grace to say that.