When he last met the Governor of the Bank of England to discuss the exchange rate against the euro. [27551]

The Chancellor meets the Governor regularly, and they discuss a wide range of issues.

That is a matter of great comfort. Ministers have previously said that they have no intention of entering an exchange rate mechanism between sterling and the euro. Will the Chief Secretary now rule out absolutely the question of an exchange rate mechanism prior to any arrangement for joining the euro?

We have made it clear that we have no intention of rejoining the exchange rate mechanism. I am happy to confirm that that is indeed the policy.

Following the letter in The Guardian this week from numerous Labour colleagues urging the Government to ignore the costly distraction of the euro, will the Chief Secretary discourage his more zealous Cabinet colleagues from trying to pre-empt the debate on this issue, especially given the fact that the five economic tests are increasingly as obscure and ambiguous as tests set by Edexcel?

There is no inconsistency between investment in high-quality public services and a policy on the euro that is in Britain's economic interests. The truth is that we are delivering on both, whereas the Conservative party could do neither.

Will the Chief Secretary clarify an issue that seems to be dividing the Government? Does the Treasury maintain the view that the five tests can be answered clearly and unambiguously in economic terms, or is it a political test, as the chairman of the Labour party has suggested?

The five economic tests are clearly set out, and, as we have said time and again, it is our policy that it must be clearly and unambiguously in Britain's economic interests before we would recommend entry to Cabinet, to Parliament and in a referendum. When that recommendation is made, the issue will of course enter the political process and be the subject of political debate, but the economic tests must clearly and unambiguously be satisfied in the country's interest before we recommend entry.

Does the Chief Secretary agree with me that we cannot have everything in this world, but that we do not want high interest rates, high unemployment and instability in finances, to which the shadow Chancellor is inextricably linked? We want low inflation, low unemployment rates and stability in public finances. Does my right hon. Friend agree that fiscal autonomy for individual member states is important? Will he and the Chancellor resist every attempt at harmonisation of taxes in Europe, ensure tax competition and that our policy delivers our economic stability and social justice objectives?

As I made clear in the Economic and Finance Council this week, the Government's priority is economic reform. As my hon. Friend says, we believe in tax competition, not tax harmonisation.

It is meaningless for Ministers to go on saying that they will never join the exchange rate mechanism but that they hope to join the single currency in certain circumstances. If we were unwisely to join the single currency, we would, in effect, automatically be members of the exchange rate mechanism with no opportunity to get out of it, as we were able to do in 1992. Will the Chief Secretary take on board the fact that the concept that there might one day be a right rate of exchange at which sterling could join the euro is nonsense? The right rate of exchange for Britain changes from day to day, and from hour to hour. Would he accept that the economic crises that overtook Thailand and now Argentina stemmed primarily from the fact that their currencies were on a fixed rate to the dollar?

I thought that the leader of the Conservative party had urged his colleagues not to be monomaniacs on this issue, but it seems that they are not listening to him. As the Commission confirmed last week, flexibility on the ERM condition has been shown to other entrants to the euro in the past. I repeat that we have no intention of rejoining the ERM. The sustainability of exchange rates will be factored into the economic tests on the sustainability of convergence.

Is the present exchange rate with the euro, which has been sustained for about four years, consistent with the Government's longer-term policies for growth and rising employment?

As we have made clear, we do not maintain a running commentary on satisfying the five tests. That assessment will be undertaken rigorously, and only if it is in Britain's economic interests, unambiguously and clearly, will we join.

Has the Chief Secretary read the report of the Ernst and Young Item club of economic forecasters, published this week? It argues that there has never been a better time for the Government to adopt an active exchange rate policy to bring about a more competitive exchange rate.

"there is something fundamentally wrong in the current euro-pound exchange rate"

No, I have not read the report that the hon. Gentleman mentioned. As for what he says about the exchange rate, I have already made it clear that sustainability of convergence, one of the economic tests, would cover that.

Yesterday the Secretary of State for Trade and Industry said:

"there is something fundamentally wrong in the current euro-pound exchange rate".

"The Government should not try artificially to massage down the level of the exchange rate, which is properly the outcome of sound economic fundamentals."—[Official Report, Westminster Hall, 15 January 2002; Vol. 378, c. 24WH]

My right hon. Friend the Secretary of State for Trade and Industry was rightly identifying the fact that manufacturers exporting to the eurozone are having to cope with the weakness of the euro. That is why we are taking steps to help manufacturing industry with the research and development tax credit and the cuts in business taxation. What is most important to manufacturing industry, as to other businesses, is that we continue to deliver a platform of economic stability. What manufacturers certainly do not need is a return to the 15 per cent. interest rates—for a whole year—and the 10 per cent. inflation that they experienced when the shadow Chancellor's party was in government.

What changes he plans to NHS spending commitments. [27553]

As the Chancellor has previously announced, NHS resources in the UK are planned to reach £69.5 million by 2003–04. That represents an annual average increase of 5.7 per cent. in real terms over the period 2001–02 to 2003–04. Plans for future years will be set out in the 2002 spending review.

Towns such as mine are having to cope with unprecedented spending on their public services, especially those provided by the national health service. Rightly, they—and I—want to hear from the Treasury team that the commitments are real and sustained, and will produce the public services that we so richly deserve. Is it not good to hear that spending is sustainable, and will benefit our communities?

I know how actively, energetically and effectively my hon. Friend has campaigned for health services on behalf of her constituents. She is entirely right. It is because the Government made the tough decisions required to establish the monetary and fiscal framework that the country needs, because we reduced the millstone of debt that we inherited from the Conservatives, because we placed the public finances on a sound basis and made the economic fundamentals strong, and because we are maintaining a platform of economic stability that we can and will sustain investment in our front-line services, which would be at risk if the Conservatives ever came near them.

Is the Chief Secretary concerned that the savings ratio has fallen by a third in the past year?

In fact, the savings ratio has been higher than the low point it reached under the—

Order. The savings ratio has nothing to do with this question.

Rightly, constituents compare the state of the NHS in this country with other parts of Europe. However, NHS funding here is much lower than elsewhere. Last year, the Chief Secretary confirmed to me in a parliamentary answer that Britain remains one of the lowest tax countries in Europe; it is third from bottom. When will we bring in the resources required from those most able to pay—higher rate taxpayers—to ensure that we have financial security for the NHS not just in the short term but in the long term?

The share of GDP invested in the NHS was 6.2 per cent. under the Conservatives. It has risen from 6.9 per cent. to 7.4 per cent. this year. It will be 7.6 per cent. next year and reach 7.7 per cent. in 2003–04 as we move towards achieving the European average. On my hon. Friend's comments on taxation, we will keep each and every promise on taxation in our manifesto, on which both of us fought the general election.

I am afraid that if the hon. Member for Crawley (Laura Moffatt) wants an extra £200,000 for her hospital, she will have to ask rather more biting questions than she did a moment ago.

The figure to which the shadow Chancellor refers is just 1.5 per cent. of the NHS budget. Last year's health underspend was lower than in just about any other Department. With end-year flexibility—this did not happen under the Conservative Government—Departments and agencies can carry forward money from one year to the next. A third of that money was specifically earmarked for expenditure which was known to be coming forward. The NHS plans to spend all the money that it has been allocated for this year.

In view of last year's history, how can the Chief Secretary possibly explain the letter from the chief executive of the south east region of the NHS, in which she asks trusts in the region, including in my constituency, to reduce spending in the current year by £60 million? Is it not clear that, from top to bottom, despite the heroic efforts of the doctors and nurses who work in it, the NHS is in a state of crisis?

I understand that the pressures to which the shadow Chancellor refers arise from extra prescribing costs during the year. There is no doubt that his trust, along with every other trust, is getting a very substantial increase in resources under this Government: a real increase on average of 5.7 per cent. year on year, more than twice the level that was provided by the Conservatives. When the Leader of the Opposition accuses NHS staff of treating patients no better than dogs, that is a grotesque slur on NHS staff dedicated to the principles of a caring service.

If he will make a statement on Government policy on tackling pensioner poverty. [27554]

The Government are committed to tackling pensioner poverty and helping those in greatest need. The Government introduced the minimum income guarantee and are committed to raising that in line with earnings throughout this Parliament. From 2003, the pension credit will ensure that those with a modest amount of savings stand to gain on average just over £400 a year.

I thank my hon. Friend for that reply. Last week, I met the Cleveland pensioners convention forum. Pensioners told me that they support the Government strongly for all they are doing to tackle poverty among pensioners, but that they are concerned about one issue: nursing and personal care for the elderly. Given the recent decision by the Scottish Parliament to provide services free for the elderly, will my hon. Friend look at that issue again, so that my constituents can enjoy the same privileges as pensioners in Scotland?

I share, as I am sure do all hon. Members, the concern felt by my hon. Friend about the care of elderly people in our society. In England, the Government's key priority is to improve services for older people by promoting independence and minimising the need for institutional care. Overall, the Government will be making available an extra £1.4 billion a year for older people's services. That will emphasise the importance of maintaining the health and independence of older people, preventing unnecessary ill health, ensuring that health and social services are working in partnership and that older people have fair access to services, and making the funding fairer. The Government have decided that that is the best and quickest way to restore to older people the independence and the care that they say they so desperately want to be re-established.

Is the Minister proud of the dramatic increase in the number of pensioners forced on to means-tested benefits since the Government came to power?

I am proud that the Government have introduced the minimum income guarantee, raised pensions and established the £200 fuel allowance for pensioners. We are now spending around £6 billion a year extra on pensioners, which includes £2.5 billion more being spent on the poorest third of pensioners in our society. As I said, the pension credit to be introduced in 2003 will further increase the resources going to the very poorest. That is the way to tackle the poverty among pensioners that we inherited from the Conservative Government.

The Government's strategy to tackle pensioner poverty rests on the minimum income guarantee, which is a means-tested benefit. The widening use of such benefits is dubious enough anyway, but their use in relation to pensioners is especially doubtful. Successive Governments have found that, however much is spent on the take-up campaign, there will always be a substantial proportion of pensioners who are too proud to claim means-tested benefits. Does my hon. Friend agree that a strategy to counter pensioner poverty that rests on means-tested benefits always risks leaving a substantial number of pensioners in poverty?

As my hon. Friend will know, the Government are doing far more for pensioners in addition to the minimum income guarantee. The full state pension for a single pensioner will rise by £3 in April. That is on top of last year's increase of £5, £4.55 more than the normal inflation rise, and £2.10 more than the earnings link would have produced over those two years. In 2003, the annual basic state pension will rise by £100 for single pensioners. In the future, it will always increase by at least 2.5 per cent., even if the retail prices index is lower. I think that my hon. Friend would agree that, alongside the minimum income guarantee, the increase in the basic state pension that underpins our commitment to pensioners, and the annual £200 allowance to pensioners comprises the most effective, speedy and productive approach to ensuring that we tackle pensioner poverty.

The Minister's final statistics will not wash with pensioners because the Government are busy increasing pensioner poverty by pushing up council tax by three times the rate of inflation. Does the Minister realise that more than 1 million pensioners now have to pay more than 10 per cent. of their disposable income in council tax? I hope that the Minister believes that fuel poverty is unacceptable, so why are the Government creating council tax poverty?

That is truly breathtaking from a member of a party that introduced the poll tax, forcing millions of pensioners into long-term poverty to pay it, put VAT on fuel for pensioners and denied decent rises in the basic state pension to every pensioner in the country. Pensioners are better off under the policies that the Government are pursuing and it is about time that the hon. Gentleman recognised that.

The Minister will be aware that my constituency has one of the highest concentrations of people over 60 not only in the United Kingdom but in Europe. Nearly a third of the electorate is over the age of 60. Although we have the minimum income guarantee, pensions are going up and we are helping small pension holders, a great many elderly people in Glasgow, Anniesland do not have any pension other than the state pension. Is it not time for the Government to look forward and put in place a 21st century plan for pensioners?

I assure my hon. Friend that the Government have exactly that plan. In addition to the state pension, the minimum income guarantee and the pension credit, the introduction of the stakeholder pension will ensure that future pensioners have an income that will protect them. The Government are also supporting pensioners in a number of other ways.

If he will make a statement on the impact of the level of the pound on the manufacturing industry in Scotland. [27555]

What assessment he has made of the impact of UK interest rates over the past three years on the UK manufacturing sector. [27557]

The Government's latest assessment of developments in the manufacturing sector, based on all relevant factors, was published in November's pre-Budget report. The world economy slowed significantly last year, and this has clearly affected manufacturing in all parts of the United Kingdom and throughout the rest of the G7. Nevertheless, the UK is now in a better position than on previous occasions to cope with the turbulence in the world economy.

Yesterday, Scottish manufacturers reported that they had suffered the sharpest drop in exports for three years, with output and employment falling. What more can the Chancellor do to help Scottish manufacturers? How long will we have to wait for action, especially when further falls in output, productivity and employment are predicted?

Scotland, of course, cannot be insulated from the global downturn. Scottish manufacturers—and I was up in Scotland last Friday talking to one section of industry there—appreciate that not only have they been assisted by the sound public finances that now benefit the United Kingdom, the action that has been taken in terms of the Scottish Executive and the RDA but, importantly, the cuts in corporation tax and capital gains tax as well as research and development tax credits. All those measures contribute to a sound basis for manufacturing industry. That, rather than anything else, is likely to bring benefits in the medium term.

In view of the relatively rosy picture of the UK economy that the right hon. Gentleman has painted, will he go into some detail as to why he believes that the manufacturing sector, compared with others, is doing so badly?

I do not think that there is any question of painting a rosy picture or of any complacency. I refer the hon. Gentleman to the words yesterday of Mr. Martin Temple, the director general of the Engineering Employers Federation. He referred specifically to the incredibly powerful base of our manufacturing industry. What he also called for—something that the Government are providing—is joint action to encourage investment in research and development and in plant and to ensure that we have the skills available in our economy to promote manufacturing. All those things have been addressed by the Government. They are judged in the pre-Budget report to be important and they are being delivered.

I congratulate my right hon. Friend on his recent visit to Scotland. Does he agree that the measures introduced in the pre-Budget report will be of specific relevance and importance to small businesses in Scotland, creating more productivity and competitiveness and increasing investment in enterprise, which will, in the long term, mean more jobs in the Scottish economy?

My hon. Friend takes a particular interest in small and medium-sized enterprises in Scotland. His analysis is absolutely right. It is significant that there has been a greater number of business start-ups in Scotland and that those businesses are more likely to succeed and endure as a result of this Government's policies and actions than ever was the case under the last Government.

Notwithstanding those points, does the Minister accept that the level of the pound is higher than is good for manufacturing industry and that, indeed, if we are ever to consider joining the euro, the present exchange rate is unsustainable and Britain would require a devaluation?

No, I do not agree with my hon. Friend, although I respect his views. The issue is not the strength of the pound, but the weakness of the euro. The Government's objective is to make sure that exchange rates remain stable and that we have a competitive pound in the medium term. The best contribution that the Government can make is to ensure that we maintain sound public finances and low inflation. This Government, unlike our predecessors, have delivered and will continue to deliver that.

Does the Minister think it right for the Government unilaterally to seek to redefine national statistics classifications in order artificially to boost manufacturing output figures?

We have done no such thing. My right hon. Friend the Secretary of State for Trade and Industry has rightly pointed out the contribution that the services sector makes to industrial output. That is a perfectly proper reflection for her to make and one that the hon. Gentleman would do well to consider himself.

My right hon. Friend will know that many of my constituents work in the steel industry. Does he agree that while a more favourable exchange rate would be important, equally important is the stability that the Government are delivering in the economy, which enables the steel industry to plan for the future?

My hon. Friend takes a particular interest in the steel industry for understandable reasons. I am grateful to her for the representations she makes on its behalf. Her analysis is absolutely right and the steel sector recognises that.

Given that manufacturing output has slumped by 5.5 per cent. in the past 12 months, that the Engineering Employers Federation, to which the Financial Secretary has just referred, says that the climate change levy punishes competitiveness and initiative by world-class manufacturing companies and that the Director General of the CBI says, "I have members in south Wales and the midlands who are laying off people in order to write cheques to the Government to pay the energy tax", is it not time that the Secretary of State for Trade and Industry and the Minister for Europe stopped blaming the exchange rate for the problems of British manufacturing industry and started to do something to arrest and reverse the tide of regulation that is drowning British businesses the length and breadth of the land?

The reality is far from that. Under this Government we have taken steps to make sure that manufacturing is put on a sound basis. Under this Government when we have taken steps to deliver on our Kyoto obligations we have involved industry, including the manufacturing sector, in order to help us design the effective tools to do that. That is why we invited Lord Marshall, whose leadership of the CBI was without parallel, to help us devise a climate change levy. That is what is delivering our Kyoto obligations and it is our sound management of the economy that is delivering to manufacturing industry. The sooner the hon. Gentleman learns that, the better. He should stop giving lectures to this House and continue to give lectures to his constituency party and his party because they have need of them.

Is it not the case that the long-term interests of manufacturing industry in Scotland, Wales and rest of the United Kingdom are served by an economic policy that pursues low inflation, high growth and productivity, and that those things have been achieved by the present Government's economic policy? The only manufacturing that we get from Conservative Members is manufactured synthetic anger. Is it not the case that a policy of devaluation would fail because it is short-termist and short-sighted?

I could not have put it better myself.

What discussions he has had with those in agriculture in advance of his forthcoming Budget. [27556]

Treasury Ministers have regular contact with a wide range of interest groups and individuals, including those with an interest in agriculture.

I thank the Minister for that answer. Considering that the Government have overseen a crisis in agriculture and in rural Britain since May 1997, crops grown for biodiesel would provide an excellent additional agricultural income and substantial environmental benefits. In the Chancellor's 2001 Budget, he announced that biofuels would qualify for a 20 per cent. tax rebate in fuel duty. The Minister should tell the House why the environmentally superior biofuels have not been given the same duty rebate as the gas fuels, currently 40p per litre, and that that anomaly will be addressed to the benefit of agricultural incomes throughout the United Kingdom.

I am absolutely delighted that the hon. Gentleman recognises the sense of the Chancellor's proposal in the previous Budget to introduce a specific rebate for biodiesel in the next Budget. We have been listening to representations on that subject. I believe that there will be significant environmental improvements as a result of that rebate and I am sure that the Chancellor will listen very carefully to the representations that have been made today.

When my hon. Friend meets representatives of the farming industry before the Budget, will she discuss the increased resources that the Government have put into organic conversion, and the support that they have given to agri-environmental schemes such as Tir Gofal in Wales, which has been remarkably successful and was commended by those organic producers from my constituency whom I saw yesterday? Does she agree that the future for agriculture must be to support those family farmers who farm in an environmentally sustainable way, instead of giving disproportionate subsidies to large-scale producers in the east of England?

I thank my hon. Friend for his comments. I certainly agree that the organic sector of our farming industry has an important role to play in the development of that industry. At the moment, I believe, about 2.5 per cent. of agricultural land is devoted to organic farming. There have been calls from the organic sector to increase that to about 30 per cent., which, at first glance, strikes me as rather ambitious.

I shall meet members of Macclesfield and district National Farmers Union on Saturday morning, and I should like to take them a message of hope from the Government. Does the Minister accept that if we are to maintain the countryside and to produce from land within the United Kingdom that food which we can economically and properly produce, the Budget must include some assistance, incentive and encouragement for our farmers? Will the Minister give me that assurance, to take to my farmers on Saturday morning?

I certainly ask the hon. Gentleman to pass on my warmest regards to members of his local NFU when he meets them. He can of course tell them that it is the present Government who have commissioned the Food and Farming Commission, led by Don Curry, to look at the development of the sector to ensure that it can be developed in a sustainable way. The commission includes stakeholder representatives from all parts of the industry, and we look forward very much to considering their representations.

What assessment he has made of the impact of the global downturn on the future performance of the UK economy. [27558]

No country can fully insulate itself from developments in the world economy, but the UK is now in a better position than on previous occasions to cope with turbulence in it. As a result, leading external forecasters expect UK economic growth to be the fastest in the G7 this year.

I thank the Economic Secretary for that reply, and I believe that the very challenging global circumstances—this is the first time for 30 years that every region of the world is facing a downturn—are only matched by the fact that this is the first time in the same period that Britain is the best-placed country in the world to face them. Does she agree that this is a very difficult time to consider increasing taxation to improve our public services because of that challenging global situation?

I thank my hon. Friend for her comments and for pointing out that Britain is indeed in a very positive economic situation and better placed than any of the other 29 member countries in the Organisation for Economic Co-operation and Development to weather the very serious global economic downturn that has taken place since 11 September and as a result of the unwinding of the high-technology boom, as she rightly appreciates. Of course, we in this country must have a debate about the funding of our public services; it is important that people realise that, to correct 30 years of underinvestment, we need to put public services on a sustainable footing. What the Opposition consistently refuse to tell us—it became apparent just this week in the debate on public services—is whether they would match our funding plans, or whether they would slash public services.

May I ask the Economic Secretary to turn her attention to one of our key international trading partners and markets—Germany? What assessment has the Treasury made of the degree to which the problems in Germany are either caused by the current international situation or, as increasingly frequent independent analysis argues, are long-term, structural and caused by the fact that it joined the euro at the wrong rate? Is that latter analysis the accurate answer?

The hon. Gentleman refers to the problems that the Germans are currently experiencing. In fact, growth in the euro area has turned out to be weaker than most independent forecasters were predicting only a few months ago. However, the European Council confirmed at the December ECOFIN meeting that the economic fundamentals are sound in the EU and that it expected a gradual recovery during 2002. What is important is that we have sound fundamentals and that we take the measures on economic reform to improve labour market flexibility and product-market competition and to ensure that it is as easy as possible for the EU to recover from the slowdown in global demand.

Does my hon. Friend agree that, at this time of global downturn, it remains an absolute Government priority to allow industry to invest, especially in research and development and in high-value, high-skill products, so that we are best advantaged when the markets start to pick up?

I completely agree with the points made by my hon. Friend, and it is incredibly important that we improve the manufacturing base and increase productivity in our manufacturing sector, so that we can take full advantage of the upturn in global demand when it comes. That is why the Government have introduced tax credits for small and medium sized enterprises and are consulting on how to extend those measures to larger firms. It is why we set up regional development agencies to drive forward economic growth in each of the regions. It is why we set up venture capital funds to ensure that small and medium sized enterprises have the access to capital that they so desperately need to grow, and it is also why we are working in partnership with the CBI and the TUC to look at ways of raising skills in the workplace, so that we have people who are fully trained and able to take advantage of those opportunities as they arise.

What plans he has to review the provision of roll-over relief on capital gains tax on the sale of agricultural land for development; and if he will make a statement. [27559]

We currently have no plans to review this relief, which supports trading including farming.

May I put it to my hon. Friend that the windfall profits arising from planning permission for agricultural land are already sufficiently enormous without it being necessary to award the landowner tax relief as well, especially since one of the effects is artificially to inflate the price of agricultural land? Whose idea was this? How can it possibly be in the public interest? Is it really not about time that a stop was put to it?

I have discussed this matter with my hon. Friend before and I know that he follows the subject very closely. The proceeds of the sale have to be reinvested in trade assets for the roll-over relief to be available in the first place. Roll-over reliefs are designed to allow traders to Modernise and expand without an immediate charge to tax being made on the money of the business.

When the hon. Lady is examining submissions about tax relief and other initiatives for the Budget, will she take into consideration a recent European Commission survey that showed that, contrary to the beliefs of some Labour Members, Britain provided the lowest state aid to agriculture of any country in the European Community, whether that was measured as a percentage of GDP or in terms of the number of people employed?

I am sure that the hon. Gentleman is aware that a vast array of tax reliefs and supports are available for the farming community. He went on to make an important point about the diversification of rural communities and about considering ways in which we could assist that. I assure him that the issue is a high priority for the Government. I take his contribution to be a Budget representation and I will draw it to the attention of my right hon. Friend the Chancellor.

May I welcome my hon. Friend's comments? The last thing in the world that we should be doing is putting up more barriers to farmers diversifying from agricultural overproduction and into new rural industries. I shall meet members of the Glamorgan branch of the NFU in Cowbridge tomorrow, and I would be delighted to be able to tell them that the Government plan to do even more to help them with diversification.

My hon. Friend can take my best wishes and those of my hon. Friend the Economic Secretary to the group that he will meet. I am sure that he will be able to reassure its members that the Government continue to take the views of the rural community very seriously. Not least, I point to the substantial help that Customs and Excise and the Inland Revenue were able to give members of the rural community during the difficult period that they all experienced during the foot and mouth crisis.

What recent assessment he has made of the state of the services sector. [27560]

The Government's latest assessment of the United Kingdom economy, including the service sector of course, is contained in annexe A of the pre-Budget report.

In the last quarter, we saw the end of employment growth in the service sector. It is now clear that it cannot absorb job losses elsewhere in the economy. When will the Government realise that their policies on red tape and taxes are damaging all sectors of the economy, not just manufacturing?

The capacity of Opposition Members to talk down important and successful sectors of the British economy never ceases to stagger me. The truth is that the service sector, notwithstanding the difficulties arising from foot and mouth disease and the events of 11 September, has continued to perform strongly, with outputs up 3.7 per cent. on the previous year and employment in September 229,000 higher than a year before. As the figures that came out yesterday show, the sector made a trade surplus contribution to the economy of more than £12 billion in the first 11 months of last year, although there are, of course, difficulties in some sectors.

May I take the Chief Secretary back to the answer given a few minutes ago to my hon. Friend the Member for Kingston and Surbiton (Mr. Davey)? Is he aware that the Government proposal to redefine services to boost manufacturing output has been roundly condemned by, among others, the director of the highly respected National Institute of Economic and Social Research, because to do that unilaterally would be against Britain's international treaties and bring the statistical service into serious disrepute? Will he agree to approach the issue with a little more humility than the Financial Secretary and to take a fresh look at it?

The derivation and basis of official statistics is independent and the statistical service will form its own judgment. When my right hon. Friend answered that question he said that what is at issue is the very important contribution that services make to manufacturing success. Genuine issues, however, arise as a result of the fact that there is less vertical integration within industry than there was in the past.

If he will make a statement on the progress in capital investment made by Government Departments toward their public service agreement targets. [275611]

The projections contained in the pre-Budget report show that we are on course to meet our ambitious targets on public sector net investment over the three years to 2003–04. This substantial increase in investment, matched with reform, will help Departments in achieving their public service agreement targets.

I congratulate my right hon. Friend on the progress that has been made. It stands in marked contrast to the days of successive Conservative Governments who borrowed for day-to-day spending and fecklessly neglected investment in schools, hospitals and railways. What are the possible impediments to maintaining the momentum of the capital investment programme? Such as they are, can they be overcome quickly? What steps are being taken to ensure that investment projects continue to be made on time and achieve their timetable as set out in public sector agreements, and that they are completed to best effect?

As for the record of the previous Administration, the last time they were in office public sector net investment fell by an average of 15 per cent. a year whereas in this spending period it is increasing by 40 per cent. a year. On bringing capital investment on-stream, my hon. Friend mentions impediments. It is the case, of course, that projects must be planned, implementation teams put in place, planning permission secured and so on.

Was not the legacy of the Tory Government—[Interruption.]

Order. The hon. Gentleman should not be worrying about the last Conservative Government. The Minister is responsible for his Department and his Government.

rose—

Order. Perhaps the hon. Gentleman should leave it.

indicated assent.

When he last met the Governor of the Bank of England to discuss prospects for manufacturing industry. [27562]

The Chancellor and the Governor meet regularly to discuss a wide range of issues. As I made clear in my earlier answer to the hon. Members for Edinburgh, West (John Barrett) and for Cities of London and Westminster (Mr. Field), the Government have introduced a wide range of policies that benefit the manufacturing sector. The economic stability that our macro-economic frameworks are delivering offers the best foundation for manufacturing to thrive once global prospects strengthen.

I am grateful to the Minister for that reply. Since the latest discussions to which he referred, employment in manufacturing is now at its lowest level since records began. Manufacturers in my constituency and elsewhere tell me that they are struggling under a burden of regulation; small firms, in particular, are struggling with payroll regulations. Given that the Government have had the answer to payroll regulations since September, in the form of the Carter review, can the Minister tell the House why they are dithering over that report? How many more people have to lose their jobs in manufacturing before the Government act?

We are of course doing no such thing. The document to which the hon. Gentleman refers is a consultative document, aimed at finding out from business what it wants by way of Government action. We listen to business and we involve business. Interestingly enough, Mr. Martin Temple was good enough to acknowledge that fact yesterday in his observations about manufacturing. We are not prepared to accept any suggestion from Conservative Members that red tape is the minimum wage, that red tape is health and safety at work and that red tape is combating poverty through tax credits. We are proud to do all those things while removing burdensome regulation, much of which accumulated while the Conservatives were in charge of government.

Does the Governor of the Bank of England show any concern for matters beyond overall fiscal policy when he is involved in these discussions? Is he concerned about the fact that manufacturing in certain areas faces considerable problems, such as those in north Derbyshire, where several firms have closed? At the moment, Chesterfield Cylinders is downsizing because it faces problems, yet it has Ministry of Defence contracts and it is important that those are maintained. What ideas does the Governor offer the Government to try to solve those problems?

My hon. Friend understands that the Governor will speak for himself. He will also realise that the Governor has the benefit of the Bank's regional network, and that all relevant factors, including those that he mentioned, are taken into account by the Monetary Policy Committee.

Does the Minister remember Labour's promise in opposition to implement an industrial policy to enable our manufacturing industries to grow again? Given that manufacturing output fell by over 5 per cent. in the last year alone, when will Labour deliver on its promises to our manufacturers?

Not only do I remember that promise, but I am part of a team that is delivering it. The hon. Gentleman needs to understand that in 2000 manufacturing output grew at its fastest rate since 1994. That is a tribute to this Government and an indictment of his.

What his estimate is of the impact of working families tax credit in reducing child poverty in (a) Mitcham and Morden and (b) the UK. [27563]

The introduction of the working families tax credit, along with other changes to the personal tax and benefit system since 1997, means that there are 1.2 million fewer children in relative poverty in the United Kingdom than there would otherwise have been. In Mitcham and Morden, 1,600 families are currently benefiting from the working families tax credit.

I thank the Minister for her answer. Will she look at the categories of child care that are eligible for the child care tax credit? As she knows, a number of us are concerned that although registered child minder costs are covered, those of resident Nursery Nurses Education Board nannies are not, even though the training for that child care qualification is significant. That restricts the ability to work of people who work shifts, particularly NHS nurses.

I can tell my right hon. Friend—my hon. Friend; I nearly promoted her—that the question of care for children in their homes, whether they are disabled or their parents work unsociable hours, is of great importance. I am currently discussing with Ministers in the Department for Education and Skills how to ensure that regulation is in place so that the child care element of the working families tax credit could be paid. My hon. Friend will understand that it is not for the Treasury to regulate the standard and quality of care; that is the responsibility of the Department for Education and Skills. I hope that we can resolve that problem soon.