If he will make a statement on the money allocated in the spending review 2002 for the voluntary sector. [99461]

The Home Secretary and I plan to publish a paper on future policies for the voluntary sector. In addition to matching £400 million in gift aid with money for the active community unit and £125 million for the futurebuilders fund, the spending review gave priority to, and targeted extra resources on, voluntary sector participation in sure start, children's services, IT centres, community economic regeneration and the new deal. We also plan to introduce proposals to encourage gap year voluntary service by young people.

I thank my right hon. Friend for his comments about sure start, which has been amazingly successful in my constituency, affecting 788 families. It is an example of the charitable and voluntary sectors and the Government working together. I urge him to do three things in respect of that superb project: to provide more investment; to join me in urging all parties to support it; and to consider allowing greater local flexibility, so that boundaries, which are rigid at the moment, could be bent a little to provide help to families who need it but who just happen to live across a boundary.

I know that my hon. Friend has a sure start scheme in his constituency that has had capital funding and helped 770 children in the area. We are very pleased that as a result of the engagement of the voluntary sector in every sure start project—it now runs 10 per cent. of the projects as the lead manager—we have managed to increase sure start child care and early-years budgets from £973 million last year to £1.5 billion by 2005–6. We are determined to improve provision in every area of the country where sure start projects are needed. The best way forward is to engage the voluntary sector, but that would not be possible if there were a 20 per cent. cut in public spending.

Given that the Government promised an extra £50 million for specialist palliative care, including additional support for voluntary sector hospices, and that that commitment was underlined by the Under-Secretary of State for Health, the hon. Member for Salford (Ms Blears), as recently as 21 October last year, how does the Chancellor explain the fact, which infuriates the hardworking hospice movement, that it has so far received only 8 per cent. of the money first promised two and a half years ago?

The hon. Gentleman knows that the funding has been made available from the Treasury. Arrangements with individual hospices must be addressed locally, based on the view of local palliative care services. We are determined to put extra money into the hospice movement to help it, but I repeat that that would not be possible if the Flight plan for a 20 per cent. cut in public services were introduced.

Northwest Leicestershire is fortunate in having a flourishing and independent voluntary sector. What plans does the Chancellor have to encourage greater corporate support for the voluntary sector and, in particular, for individual businesses to be able to give financial backing to those in their local community?

The Chief Secretary has been leading the way from the Treasury in trying to engage the corporate sector in several new initiatives that would increase the amount of money available for, and the numbers of people engaged in, voluntary, community and charitable work. It would be welcomed on both sides of the House if we could increase the amount of corporate giving and corporate engagement in some of our voluntary and community projects. I look forward to publishing with the Home Secretary proposals on how we can move the process forward in the next few years. I remind my hon. Friend that gift aid is available for companies as well as for individuals, that it is the most generous system of tax relief for charities that has been made available in this country, and that it surpasses what is available in most other countries. I hope that the £400 million that we are now devoting to gift aid will increase over the next few years, from increases in both corporate and individual giving. I hope that we will have all-party support for that.

Given the pressure that the Chancellor has put on the funds of the voluntary sector, with the decline in charities' income—such as that experienced by hospices—from his removal of the advance corporation tax dividend credit and the imminent imposition of his jobs tax through the increase in the national insurance levy, can he find the resources to refund the £500 million per year of irrecoverable VAT to charities? If he can, we will back him every step of the way and fully co-operate on the issue during the passage of the forthcoming Finance Bill.

I find it amazing that the Conservative party, which raised VAT and then put it on fuel, is now claiming that these measures have harmed charities. On help for charities, we have the best regime for individual and corporate giving, with tax reliefs higher than they ever were under the Conservatives, and an active community unit budget that has been increased massively. At the same time, the futurebuilders programme, led by my right hon. Friend the Chief Secretary, is putting £125 million extra into charities. None of the problems of charities could be solved if the Flight plan cut 20 per cent. from their expenditure.

What plans he has to extend the scope of international debt relief. [99463]

With your permission, Mr. Speaker, I shall answer this question together with Questions 14 and 16.

On behalf of trade justice campaigners in Gloucester and around the country, may I sincerely congratulate my right hon. Friend the Chancellor on providing 100 per cent. debt relief to 26 developing countries? At the same time, however, does he share my concerns about the activities of private companies, of which those of Nestlé in Ethiopia offer one example? Such companies are pursuing litigation against heavily indebted poor countries, which often hampers our efforts to provide debt relief.

I am grateful to my hon. Friend and I thank him for the work that he does in his constituency to promote the debt relief campaign and the pursuit of the millennium development goals.

I call Phyllis Starkey.

Where is she?

Not here. I call Helen Jackson.

Where is she?

Order. Will the Chancellor investigate whether Phyllis Starkey and Helen Jackson were notified? I call Sir Patrick Cormack.

He is always here.

May I add my thanks and congratulations to the Chancellor? What steps are being taken to ensure that corrupt and tyrannical regimes are not the beneficiaries of what he is doing?

The whole House appreciates the hon. Gentleman's work in respect of Commonwealth countries. If we are to provide additional help for health, education and anti-poverty programmes, we must have a guarantee that the money will go not to corrupt elites, wasteful military expenditure and prestige projects by bureaucracies, but to the people. That is why the IMF's poverty reduction strategy programmes are so important, and why the initiatives that we have taken on transparency for fiscal and monetary policies in the highly indebted countries are important. The hon. Gentleman will be interested to learn that we are offering help to those countries to build up their capacity to run transparent financial policies, and thereby ensuring that everything possible is done to prevent the corruption to which he referred.

Does my right hon. Friend the Chancellor recall the UN development programme head who stated that the reason for 11 September was not Islam but the failure of Governments? Will my right hon. Friend continue to articulate the view that the world's long-term stability lies in easing the deep resentments in many developing countries? Will he work with the trade justice campaign and other campaigns to ensure that trade barriers are reduced, that the common agricultural policy is reformed, and that the World Trade Organisation fulfils its remit in respect of people in developing countries?

My hon. Friend is Chairman of the Select Committee on the Treasury and he is absolutely right: a world that is divided between people who have plenty and those who are denied basic necessities can be neither just nor stable. That is why it is so important that we move forward to build a better relationship between developed and developing countries. As well as the actions that I have set out—on corruption and on providing extra aid resources—that better relationship includes the opening up of trade. Therefore, I appreciate what the hon. Gentleman says. One of the biggest boosts to tackling poverty in the poorest countries will be progress at the WTO talks in Mexico in September.

What estimate he has made of the effect on employment of the national insurance rises due in April. [99464]

In line with long-established practice, the Government do not forecast employment. However, estimates by independent analysts show that the impact on employment from an increase in national insurance contributions is likely to be close to nil.

Perhaps it is just as well that the Paymaster General does not predict the effects on employment. May I remind her of the words that the Government used in a press release that tried to justify the climate change levy after the 2000 Budget? They said:

"The lower National Insurance Contributions will act to promote employment opportunities".

I am sure that the hon. Gentleman welcomes the fact that the reform of national insurance for the low paid removes the barrier that existed for so many people in taking jobs and being employed in the economy. He will remember that he put out a press release calling for more funds to be made available to the national health service. The national insurance rise that provides for that money is supported by people such as Anthony Goldstone, who says that business can benefit from it. If we are to have a first-class health service, we must pay for it. The national insurance rise is the best way to do so and will save money for business, which is currently losing about £11 billion a year in sickness days. It will ensure a healthier work force as well as a more just nation.

Does my right hon. Friend remember that when we introduced the national minimum wage the comments made by Conservative Members were very similar to those that we are hearing this morning about the increases in national insurance contributions? I remind my right hon. Friend that we were told that unemployment would go up by hundreds of thousands and that it would be the end of civilisation as we knew it. I do not think that any Conservative Member would criticise the national minimum wage today.

My hon. Friend is right. The right hon. and learned Member for Folkestone and Hythe (Mr. Howard) forecast repeatedly over a number of years that the introduction of the national minimum wage would lose 2 million jobs. In fact, since the election of this Government, there have been more than 1.5 million new jobs in the economy, unemployment is at its lowest rate and employment is at its highest rate. When we compare that with the record of the previous Government— 2 million jobs lost, 1 million of which were in manufacturing, and 1.4 million disappearing from the economy—we can see the effect of their proposal for a 20 per cent. cut in public expenditure. That would have a real impact on employment, not the national insurance—

Order. May I say to the Minister that her answers are getting overlong and bordering on matters that are outside her responsibilities?

Does the Paymaster General accept that, typically, low-taxed economies are dynamic and high-taxed economies are static?

To be brief, I entirely agree with the hon. Gentleman. I am glad that he supports this Government, who, according to the Organisation for Economic Co-operation and Development, have created one of the lowest tax environments in the world, certainly lower than any of our European competitors, and the soundest economy of our European partners. What is more, we are paying for a national health service that this nation wants to be the best health service in the world, so that his constituents will get the treatment that they need.

Will my right hon. Friend confirm that all the money raised by the national insurance rises will be invested in the national health service and that the largest proportion of money will go towards employing extra staff, extra nurses and extra doctors, thereby helping employment?

I can confirm that the rises in national insurance have led to approximately £40 billion more for the national health service. They have meant more nurses, more doctors and more patients being treated, including Conservative Members' constituents, who would not be treated if the Conservative party cut public expenditure by 20 per cent. under the Flight plan.

Why is the Chancellor tightening his fiscal stance by increasing national insurance contributions when the growth rate is declining? Does he expect the Bank of England to accommodate his spending plans through further reductions in interest rates? What is the point of pursuing conflicting fiscal and monetary policies?

We are increasing public expenditure at a time when it is vital to do that; the Conservative party wants to cut it.

Is my right hon. Friend aware that she has the full support of Labour Members for the increases that will take place in April to ensure that we have a properly funded national health service that is financed through taxation? I remind her that, in my constituency, expenditure on the health service has more than doubled in the past five years. We will get a new hospital, and the primary care trust's budget has increased by 30 per cent. in real terms. The new hospital will stimulate employment in the constituency—the Opposition often forget that point.

My hon. Friend is right. There are 20,000 more nurses, 7,500 more consultants, 2,000 new GPs and 60 new hospitals. Those developments create jobs and services in our constituencies. The Conservative party would cut all that through the Flight plan.

May I invite the Paymaster General to return to the real world for a moment? Will she confirm that the tax on jobs and pay, which comes into force 38 days from today, will cost a typical family £440 a year? Will she also confirm that, at the same time, massive council tax increases—even greater than the huge rises forecast in the pre-Budget report—will take effect? Is it any wonder that the Health Secretary recently said that there would be

"one hell of a lather about taxes rising",

The right hon. and learned Gentleman should return to the real world in his constituency, where he calls for more expenditure on health. He needs to tell hon. Members where he would find the extra money. He should explain to the House and his constituents why he supports the Flight plan, which would cut public expenditure by 20 per cent.

The Paymaster General and the Chancellor can dissemble all they like about our policies, but we will tell the truth about theirs. Has the Paymaster General forgotten the Labour party's 1997 election manifesto? It stated:

"The level of public spending is no longer the best measure of the effectiveness of government action".

The right hon. and learned Gentleman has selective amnesia. He does not remember that he has called for more GPs in his constituency. He says one thing to his constituents about wanting more money and another in the House, where he proposes the Flight plan and 20 per cent. cuts. The Government's record on employment, job creation and funding the NHS and public services forms such a contrast to the economic policies of the Government of whom he was a member. They had the highest unemployment, lost the most jobs and had the highest interest rates.

If he will make a statement on his forthcoming report on travel insurance regulation. [99465]

I presume that my hon. Friend is asking about the recent consultation on whether travel insurance sold as part of a package with a holiday should be regulated by the Financial Services Authority. The Government are currently analysing the responses to the consultation on "Regulating Insurance Mediation". The consultation closed on 31 January. I will make an announcement on the outcomes of that consultation, including whether or not travel insurance sold with a holiday should be included in the scope of FSA regulation, in the second quarter of the year.

I thank my hon. Friend for that reply. Given that in 2001 the financial ombudsman said that one in eight of all insurance complaints related to travel insurance, and that last year complaints about travel insurance increased by 14 per cent., does my hon. Friend agree that we need to regulate to protect the consumer buying travel insurance, wherever it is bought from?

I thank my hon. Friend for his comments. There has been an intense debate on this subject with those respondents who have come back to the consultation with diametrically opposite views. Many bodies are in favour of FSA regulation; many are against. We have to strike the right balance between, for example, the perceived benefits of creating a level playing field for firms selling the same product and the evidence that my hon. Friend puts before the House today against the perceived regulatory costs placed on travel agents, for whom travel insurance forms a very small part of turnover. I shall certainly take into account my hon. Friend's evidence when making the decision, which I shall announce in due course.

What changes there have been to his projections for economic growth since (a) the 2002 Budget and (b)the 2002 pre-Budget report; and if he will make a statement. [99466]

UK gross domestic product grew by 1.6 per cent. in 2002, as projected in the pre-Budget report, and we will update our forecasts for the UK and world economies in the forthcoming Budget as normal.

I thank the Minister for that reply, but does he accept that the reality is that the Chancellor got his figures wrong and that sustainable growth in this country is not compatible with high taxes? Bearing that in mind, will he now reverse the irresponsible increases, particularly in national insurance, that will come into force in April?

We will do no such thing. Those increases fund a health service that is delivering to the hon. Gentleman's constituents, and that is widely supported on this side of the House, even if it is undermined by Opposition Members.

Predicting growth is particularly difficult at present. Hon. Members on both sides of the House should recognise that. Many factors are affecting spending in the shops across the world. May I ask for an assurance that the Government's spending plans will be maintained, because if they are not, growth in this country could be put at risk?

My hon. Friend, who studies these matters in great detail and whose contribution to the Treasury Committee is much appreciated, is absolutely right about the uncertainty in the time in which we live. One thing we can be certain about, however, is that our projections for public finances are based on reasonable and cautious assumptions, with built-in margins for the very uncertainty and shocks to which my hon. Friend rightly draws our attention. They are and remain fully affordable. That includes our proposals for the NHS and the increase in national insurance contributions that funds them.

Is it not extraordinary that, important as the voluntary sector and overseas aid undoubtedly are, the Chancellor ducks responding on the rather more fundamental issues of tax rises and the fall in economic growth currently taking place in this country? Can the shadow Secretary [HON. MEMBERS: "Shadow?"] I am sorry. Can the Chief Secretary, the Chancellor's shadow, explain—[Interruption.]

Order. I appeal to the House for calm. The Liberal Democrat spokesman should be heard.

Can the right hon. Gentleman explain why the Government seek to continue to blame world recession for problems where Britain is clearly doing worse, with investment now falling faster than in any other OECD country, with the exception of Iceland? Are the Government now pinning their reputation on beating Iceland?

The shadow Chancellor from Truro is, I fear, in a bit of a muddle, and not for the first time. The fact remains that GDP growth in the United Kingdom was higher than that of any of our major EU partners and competitors in the last two years, and it is predicted to remain so in the next.

Will my right hon. Friend give an assurance that he has no plans to change our published growth rates from pounds to euros? I note that the French growth rate last year was 1.2 per cent. in real terms, and the British growth rate was 1.6 per cent., but that the growth rate in euros was much greater in France due to currency fluctuations. Will my right hon. Friend assure me that the House will look at the real growth rates and continue to underline the success of our economy compared with those of our economic neighbours?

My hon. Friend, who represents the interests of Croydon so very well, will understand if I do not go down the euro path, but I can assure him that we have done better than France in terms of growth over the past two years and that we are predicted to do so in the next.

Has the Chief Secretary forgotten that barely two weeks ago the Chancellor was boasting, on the Frost programme, that his November forecast for growth had been exceeded? Will the Chief Secretary acknowledge that yesterday's figures show that even that boast, based on the Chancellor's downgraded forecast of barely two months ago, was false? How many profit warnings does the Chief Secretary think the Chancellor can survive?

The amnesia is on the side of the right hon. and learned Gentleman. He seems to have forgotten that, at the last time of global downturn, inflation peaked at almost 10 per cent. and he faced interest rates that had doubled for four years. That is the Conservative record; ours is one of sustained growth and stability. That is something of which we are proud and which the Conservatives should be applauding.

What effect on fuel tax revenues will result from changes that he has made in the taxation of green fuels. [99467]

The Government are committed to using duty incentives to promote increased use of alternative and green fuels to improve the environmental performance of road transport. In the next financial year, the wide range of existing duty incentives to use green fuels will be worth approximately £1.4 billion.

I thank my hon. Friend for that answer, which demonstrates the Government's commitment to encouraging the development of alternative fuels. Does he accept that tax signals need to be stable and long term to assist that development? Does he intend to relate reductions to the need and opportunity for development, such as the tremendous opportunities for the development of biofuels as blends to existing fuels at the pumps?

My hon. Friend, who is knowledgeable about these matters, makes an important point. At each stage since we introduced measures on duty discounts for fuels, we have both weighed the evidence available to us and signalled in good time the changes that we plan to bring in—the very point that my hon. Friend makes. We have done that both with the new cut on biodiesel that we introduced in July last year and in the pre-Budget report, when we announced ahead of time our intention to introduce a 20p per litre cut on bioethanol.

Is the Minister aware of the experimental station near Selby, which was looking into making biofuels from willow produced by many farms in the Vale of York and which, regrettably, closed, despite the measures that the Government introduced? Looking ahead to the coming year, what representations has the Minister received about the extension of the lower rate of duty to biofuels? That would obviously be beneficial to the farming community, but how would he square it with the long term interests of the oil companies in this country?

We have received a wide range of representations and I have held meetings with a wide range of interest groups on our policies for biofuels, as the hon. Lady would no doubt have anticipated. On her point about farmers, we have set our discount duty rate at 20p per litre for biodiesel and announced our plans for bioethanol. Although the Government recognise the wider importance of the biofuel industry and the diversification potential for farming, the principal policy purpose of the biofuel duty cuts is to improve the climate change performance and to reduce climate change gases in this country. We believe that the cuts that we are proposing are sufficient to recognise the environmental benefits that we shall gain while providing good value for public money.

What assessment he has made of the impact of his proposed international finance facility on education in developing countries. [99468]

What talks he has had with the European Union on the proposed international finance facility. [99472]

The international finance facility is designed to provide additional funds, and it is estimated that at least $10 billion will be needed for education alone to meet the 2015 development target that every child across the world will have access to primary school education by that date. I have discussed those proposals with a number of European Union Finance Ministers. At the G7 meeting at the weekend, we decided that further work should be done on a joint approach to the facility. The European group of Finance Ministers, ECOFIN, will consider this issue at the meeting in March.

I congratulate my right hon. Friend on that initiative. It was fairly obvious to many involved in international development that we were unlikely to meet our development goal targets under existing arrangements. Once again, my right hon. Friend has demonstrated his commitment to helping to alleviate illiteracy, poverty and underdevelopment. Does he agree that getting every child into school is part of that programme and that, unless we can get that message across and deliver that, all the work that we are doing on debt is liable to run into the sand?

I am grateful to my hon. Friend for that. He has taken up those issues in Scotland and in his constituency, working with Churches and faith organisations, and he is absolutely right. I was sorry that the shadow Chancellor from Truro said that it was wrong that I should be answering these questions today because half of Africa's children do not go to school. The development aid for Africa has fallen from $30 per head to only $18 per head over the last period of years. This is the first period in which international aid will rise to enable more young people to go to school, but there are still 115 million children who will not be going to school this week, or any week, as a result of the failure to fund education properly, and it cannot be done unless there is a breakthrough in long-term funding for countries to develop their education systems. That is why we need international support from America, France, Germany and other European countries to build that finance facility, and I hope that there will be all-party support not just for that initiative, but for the importance of publicising it and gaining support around the world.

My right hon. Friend has been congratulated by me already on that marvellous initiative, but will he press on his colleagues at the ECOFIN meeting in March the fact that economic development is the best route to peace and prosperity? In these troubled times, we all ought to be aware of that. Will he ensure that his partners will share with him the long-term commitment that is needed to make sure that the peace that we all strive for can come from economic growth?

I am grateful to my hon. Friend for that. She, too, has been active in those issues, and the important thing that she is saying is that the poverty that exists around the world and the lack of access to education and health offends not only our basic values that there should be dignity for every individual, but the national security interests of every country. That is why, for all those reasons—enlightened self-interest, as well as altruism—it is necessary to make a breakthrough on those issues. I believe that, over the next few months, working with our partners, we can make progress, and I am grateful to hon. Members on both sides of the House for their support.

I welcome the facility and the move for primary education, but is there not a possibility that—just as congestion charges may cause congestion elsewhere—if we do not have a plan to lead on to secondary and tertiary education, we will short-change those young people? The experience in Malawi recently is that Chancellor university has not the facilities even to provide up-to-date education to provide leadership in that country.

I agree that simply to spend money on primary education, not on secondary and tertiary education, will not be sufficient, but the key to this issue lies not only in developing new systems with the capacity to deliver education, but in money. It is true that we are setting down conditions about the use of aid, transparency, avoiding corruption and opening up to trade and investment, but at the end of the day we must face up to the fact that if we are to solve those problems in the poorest countries, or to help them to solve their problems, we must provide additional aid. That is why using private as well as public funding to do so is the way forward, and I believe that we can move the international community on this project over the next few months.

What estimate he has made of the effect of the national insurance rises due in April on (a) individuals, (b) corporate profitability and (c) voluntary organisations. [99469]

Employees, employers and the self-employed will pay an additional 1 per cent. of their earnings above the national insurance threshold following the increases in contributions due from April, which will raise revenue to pay for the national health service additional funding. For employers, it is estimated that the changes will increase pay costs by an average of 0.7 per cent. next year. All employers, including those in the voluntary sector, have an interest in an efficient and effective national health service and one that is properly funded.

Will the Paymaster General take more seriously than the Chancellor the impact of her jobs tax on hospices? Does she acknowledge that they stand to suffer a shortfall of more than £2 million because of her jobs tax at a time when their share of NHS funding is shrinking? In the case of many children's hospices in particular, that share is at zero. In addition, will she acknowledge the impact that that is having on many voluntary organisations, such as the Alzheimer's Society, in relation to their professional staff, and that those costs come on top of the significant extra training standards costs arising from the Care Standards Act 2000? How would she advise those essential voluntary organisations to make up the revenue shortfall from her jobs tax? Alternatively, what front-line services should they cut?

The hon. Gentleman and the whole House would want to pay tribute to the work that is done particularly by the hospice movement. He will also know that, as a result of the national insurance rises, some £40 billion extra will be available for spending by the national health service, as my right hon. Friend the Chancellor said, on care in the community and to assist specifically with palliative care. I find it breathtaking that Conservative Members continue to ask for more money while advancing proposals either for cuts in public expenditure or for an imposition of charges and the use of private medical insurance.

Order. I have said to the Paymaster General that she has been verging over the boundaries of her responsibilities. I repeat that little message.

I think that the Paymaster General is being a little unfair to the Conservatives about their opposition to national insurance charges and the subsequent expenditure on the health service. To let the House judge whether that is so, will she conduct an exercise to see the effect on the health service of a 20 per cent. cut, and another exercise to see the financial effect on the typical family, as quoted by the shadow Chancellor, of having to meet medical costs through private insurance?

Order. I do not think that the right hon. Lady should answer that question.

Will the Paymaster General look again at my hon. Friend's plea on behalf of the voluntary sector? It is her Government's policy—one that I support—that health and social services should have a much closer working relationship. In the voluntary sector, those services are delivered by organisations such as Age Concern and many mental health charities. We know that local authority social services are cutting contracts to the core because they can now only afford to commission statutory packages of support. The additional national insurance charge will add to that. [HON. MEMBERS: "Question."] Here comes the question: what will she do about the reduction in services in the community that do not have the hallmark of a Government target behind them?

I pay tribute to the hon. Lady's work in this area, as I know that she has been very involved. I am sure that she would join me in congratulating the Government on the complete reform, including additions through gift aid, and the support to charities and the voluntary sector. On her specific point, I am sure that she will welcome the £125 million futurebuilders scheme, involving the voluntary and community sector, to address the questions that she poses in the House today. I am sure that she is sad that, after years of being in government, she had to wait for the election of a Labour Government to deal with that issue.

My right hon. Friend will be aware of the high unemployment rate among my constituents—double the national average. In addition, the number of people on benefit is well above average. They require help to get back into work and many of them are disabled. What will she do to ensure that the 1 per cent. burden on earnings will not be a disincentive to getting those people back into employment?

I am grateful to my hon. Friend for that question. I know that he will join me in congratulating the Government on, I think, halving unemployment in Glasgow since 1997. I remind him of the reforms—the new deal, the national minimum wage, the welfare-to-work improvements and the investment in the national health service—that we have introduced to tackle health inequality, from which communities such as his suffer. A national insurance rise based on the Beveridge principles is the right, just and best way forward.

If he will make a statement on the work being undertaken on the background studies associated with the five economic tests for UK entry into the euro. [99470]

As I reported to the Treasury Committee this morning, 18 studies are being undertaken, including four that I announced in detail this morning, as part of our technical and preliminary work for our assessment of the euro tests.

I thank the Chancellor for that answer and I had the great pleasure of listening to his evidence in the Treasury Committee over the past two hours on the studies and background tests. Is it not the case, however, that while the Prime Minister remains passionate about joining the euro, the Chancellor remains deeply sceptical about the economic case? No matter how many background studies we have—I do not know whether there will be more than the 18 already in place— they will not be sufficient to paper over the yawning chasm between the two men.

There are those, like the Liberals, who would join the euro as a matter of principle without looking at the economic tests. There are those, represented by the shadow Chancellor, who would never join under any circumstances. There are those, like me, who believe that we should join the euro in principle but must get the national economic interest assessed properly by the five economic tests that we have laid down. It is precisely on that basis that I gave evidence to the Select Committee this morning to set out that the Prime Minister and I both believe in the principle of the euro, but that we must get it right economically for Britain.

One of the five tests is on whether joining the euro would create conditions to encourage investment in Britain. When the Treasury looks at the studies that are being undertaken, will it take account of the consequences on inward investment of not joining the euro as well as the consequences of joining it?

Absolutely. One of the five tests is what effect being part of the euro will have on investment. Clearly, we have to consider both sides of the debate. Our studies are yielding a great deal of information about what motivates inward investment and what is happening to investment as a whole. Although I cannot tell my hon. Friend the results of an assessment that has not yet been completed, I am sure that he will be interested in the full and detailed results as they affect the economy as a whole and the inward investors that he mentions.

When making the assessment, is the Chancellor going to agree with those private sector forecasters who think that the irresponsible housing boom under the Government will be followed by a housing bust in many areas, showing that we have not converged with the continent and should not accept a one-interest-rate-fits-all policy?

Those issues are part of one of the studies that is being undertaken. The right hon. Gentleman should wait to see the results of that study on both housing itself and its implications for the rest of the economy. Again, detailed work, which I am sure he would agree is necessary, is being done, but I am not going to take any lectures on the housing market from a member of a Government who put inflation at 10 per cent. and interest rates at 15 per cent., and who caused such unnecessary damage to millions of home owners in this country.

If the five tests are satisfied, what is the likely timetable before the United Kingdom joins the European monetary union?

That matter will be addressed in the assessment that I will bring before the House after we have completed our work. If the answer is yes, we would move for a vote in Parliament on the issues and hold a referendum in the country. The people would make the final decision. If the answer is no, then I would set out the details of what will happen then.

Is the Chancellor aware of the Swedish proposal on the creation of a buffer fund to protect employment in the event of that country's entry into the euro? Does he see any merit in the idea of a stabilisation fund for the UK, and does he accept that there would be savings if another study were commissioned? Will he agree to meet representatives of the TUC, which has developed detailed proposals for this country based on the Swedish model?

I do not know of the TUC's detailed proposals, but obviously if it wants to put them to me, I shall look at them. The hon. Gentleman is talking about a proposal that is similar not only to the Swedish proposal but to practice in Finland. Of course, we will look at all those details, because that is part of the assessment that we are carrying out.

It is absolutely right that the people of Britain should have the final say. The Leader of the Opposition is on the record as saying:

"I am for keeping the Pound. If you want a leader who may one day vote to abolish the Pound, I am simply not your man."

The issue on the single currency is this—those who would rule it out on principle are saying that even if it were in the national economic interest to join they would not do so because of dogma, which is clearly the wrong position for our country.

Yesterday, in a speech to CBI London, the Chief Secretary to the Treasury advised that in addition to the Chancellor's five existing tests, the Government's decision on the euro would depend on the European Union reforming its labour and capital markets further. Does the Chancellor seriously believe that, whatever labour and capital reforms he wants, they will be in place by June so that he can assess whether their aims have been achieved? Does he have the Prime Minister's agreement on the new additional test that the Chief Secretary announced in public yesterday?

Once again, the hon. Gentleman should do his research.

I was there.

The shadow Chief Secretary should do his research. To be there is not necessarily to interpret things correctly, as we have found with him on previous occasions. If he looked at the second test, he would see that it is about flexibility and is asking whether there is sufficient flexibility in economies to cope with shocks. That is exactly what the Chief Secretary was talking about yesterday. We will take lectures from the shadow Chief Secretary once he has sorted out the problem of publishing his report on 20 per cent. cuts in public spending.

What his policy is on the taxation of friendly society savings products. [99471]

The Government recognise the contribution of friendly societies in encouraging regular savings, particularly among the less well-off, and want a thriving friendly society sector in future. The Sandler report recommended a change to the tax rules that, if adopted, would affect some of the insurance policies sold by friendly societies, particularly their tax-exempt savings products. As announced in the pre-Budget report, we are considering that recommendation as part of the Budget process.

I thank my hon. Friend for her answer. When considering the proposals, will she bear in mind the fact that the abolition of tax-exempt savings products could well result in the devastation of the friendly society movement? The Association of Friendly Societies has estimated that some 50 per cent. of their members could close to new business if the proposals proceed. As my hon. Friend rightly pointed out the importance of the friendly society movement in encouraging people on low incomes to save, I hope that she will realise the consequences of implementing the proposals as they stand.

I know of my hon. Friend's deep interest in those issues. Of course, we are fully aware of the representations and concerns about possible implications that are regularly raised by the Association of Friendly Societies and other interested parties. However, as I said, we want to see a thriving sector in future. If my hon. Friend looks at the pre-Budget report, he will note that when designing the child trust fund another method of encouraging savings, the open market option, was preferred to licensed providers precisely because it would allow institutions such as friendly societies to offer an alternative, distinctive channel of distribution and encourage saving among the less wealthy.

What discussions he has had in advance of the Budget with the Secretary of State for Trade and Industry on the effect of his microeconomic policies on the business environment. [99474]

The Chancellor and other Treasury Ministers regularly meet ministerial colleagues across Government in advance of the Budget statement. Treasury Ministers and officials have also been conducting a programme of regional visits to listen to the views of businesses throughout the country.

May I respectfully suggest to the Minister that in those discussions special attention is paid to the financial burden of our increasingly inflexible labour laws on small businesses in particular? Does he agree that one of the reasons that unemployment has been so low in this country over the past 10 years compared with Germany, for example, is the fact that we have had flexible labour laws, and that that competitive advantage of the UK is fast being undermined?

I know that the hon. Gentleman follows these matters closely, and I well recall his contributions on the matter in the Committee that considered last year's Finance Bill, but he might usefully follow the speeches of his right hon. and learned Friend the shadow Chancellor, who, as recently as last month, was opining:

"Our labour market is still more flexible than that in other EU countries."

Does my right hon. Friend recall that last week Mr. Adair Turner, no less, suggested that labour market flexibility had gone far enough, and that it was not the way forward for the future if we want a high investment, high growth economy?

We need to make sure that we get the balance right. We make no apology, however, for introducing measures dealing with fairness at work. We make no apology for introducing the minimum wage. All those contribute to a high wage, high skill economy in which we maximise the productivity of all employees and managers.

Does the Minister accept that the micro-economic effects of an increase in employers national insurance must be to reduce employment, cut wages or increase prices? Which of those three does he expect to happen?

I am afraid I do not accept the hon. Gentleman's simplistic analysis. He should tell us how he would explain not only to his hon. Friends on the Liberal Democrat Benches, but to all the readers of "Focus"—a diminishing band, I am happy to say—how the improvements in the health service are to be paid for without the increase in national insurance contributions.

If he will make a statement on the consequences of the changes to VAT charges for welfare services provided by state-regulated private welfare agencies. [99476]

From 31 January, all state-regulated private welfare agencies have been able to exempt their welfare services, including home care, from VAT. That means that 60,000 sick, elderly and disabled people will no longer have to pay VAT on their home care costs. Those least able to look after themselves should find it easier to remain independent and to remain in their own home.

Has my hon. Friend any plans to extend the exemption from VAT to welfare companies?

The VAT exemption applies to state-regulated welfare agencies that provide commercially delivered services. It covers home care agencies, foster agencies and adoption agencies. It puts them on the same VAT-exempt footing as public agencies and charities have always been. It has been widely welcomed because of that. When we announced that, the chairman of the United Kingdom Homecare Association said:

"This exemption will make services more affordable for more people."

"will be straightforward for providers to implement and readily understood by care users."

What discussions he has had in advance of the Budget with the Secretary of State for Trade and Industry regarding new taxes and regulations affecting small businesses. [99478]

The Chancellor regularly meets my right hon. Friend, at which time he discusses a full range of relevant issues, including the Government's success in reducing corporation tax on companies and introducing such reforms as the research and development tax credit and improvements to the capital gains tax regime.

When those Ministers meet, why do they not hang their heads in shame at the dreadful effect of their policies? On tax, have they not put £37 billion on businesses? On regulations, have there not been 3,866 every year under this rotten Government?

I do not know where the hon. Gentleman has been, but this Government have cut small business tax and cut corporation tax. We have reformed capital gains tax so that we have the most competitive system and introduced research and development tax credits. As the Organisation for Economic Development and Co-operation has pointed out, we have an entrepreneurial base and the best environment of any economy.