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Mr. Ian Taylor (Esher and Walton): Of course some matters of detail that the Chancellor has announced today, such as the encouragement of science, innovation, technology transfer and employee share ownership, are sensible; but on the wider economy, I wonder whether the Chancellor is sanguine about the fall in interest rates that will be necessary if we are to converge with the rate that is set by the European Central Bank. In that context, how will he set his active fiscal policy, to use his words, over the next year or two--or does he think that, as a result of the meeting in Austria last weekend, the change in the economic and stability pact will mean that more borrowing on the continent will force the European Central Bank to put rates up to converge with ours?
Mr. Brown: I know that the hon. Gentleman takes a special interest in matters European, even if that sets him against his Front-Bench team, but on this point, I disagree with him. The worst thing to do would be to rush headlong into monetary union by cutting interest rates just for the sake of dealing with the present situation. The Liberal Democrat party is proposing interest rates at 3 per cent., or something similar.
We have to base the decision on monetary union on the economic tests that have been set down and with proper preparations, leaving the final decision to the British people, but the reason why I believe that economies will, over time, converge is that we are taking action to remove the boom-bust cycle in this country and we will, in time, have a smoother economic cycle than ever existed under the 18 years of the Conservative Government.
Mrs. Louise Ellman (Liverpool, Riverside):
I congratulate the Chancellor on his statement, which reaffirms confidence in his handling of the economy. Will he make a statement, first, on the curious reaction of Opposition Members who, when they hear that we have not been set off course, display a mixture of mirth and consternation; and secondly, on the role that he envisages for regional development agencies in taking forward his important agenda of support for business, including technology transfer and commercial development of the knowledge in our universities, so that we can ensure that all the regions benefit? I remind him that, as part of their negative approach to anything that brings jobs and employment, the Opposition opposed the setting up of such agencies.
Mr. Brown:
When the record of this Parliament is written, the Opposition's opposition to the regional development agency proposals, the minimum wage, the working families tax credit, the independence of the Bank of England and to spending sensibly on health and education will be a blot on their record for all time.
I met the chairmen of the new regional development agencies and, with the Deputy Prime Minister, talked to them about their work. I believe that, like Scottish Enterprise, the Welsh Development Agency and the Northern Ireland Development Board, an immense contribution can be made at a regional, Scottish, Welsh and Northern Irish level to the development of the economy.
On my hon. Friend's comments about the Opposition, in all their difficulties--when they had the poll tax, all the problems over the health service, sleaze and everything else--it used to be said of the Conservatives by some of the press that they were at least competent in the management of the economy. That can no longer be said of the statements that are being made.
Mr. Nicholas Winterton (Macclesfield):
Will the Chancellor accept that manufacturing industry is the main source of sustainable non-inflationary economic growth? Will he therefore take seriously the request made of him by the hon. Member for Hackney, North and Stoke Newington (Ms Abbott) relating to the criteria on which the Monetary Policy Committee takes its decisions--because without manufacturing industry, this country is lost? Is it right that, with inflation at 2.5 per cent., business should be paying around 10 per cent. or more in interest to the banks for money that they borrow to invest in employment?
Mr. Brown:
The hon. Gentleman has spoken on manufacturing industry throughout the time of his Government and ours. The review that we are setting up with Mr. Don Cruickshank will look at how the banks are servicing the needs of industry, and I hope that the hon. Gentleman will want to feed in his comments to that.
On interest rates and the Bank of England, as someone who has followed that matter for many years the hon. Gentleman should understand that the causes of low growth and high inflation in the British economy have been the same. They have included the lack of capacity in the economy; therefore, every time there has been growth it has been unsustainable because of the development of inflationary pressures. It is by tackling that problem head on--the independence of the Bank of England helps that--and by creating a credible framework for action that we can begin to address the long-standing problem of stop-go.
As regards individual instances in innovation, investment, training and skills shortages, we are doing what we can, working with manufacturing industry, to deal with some of the problems it faces. I think that the hon. Gentleman will know that the pound is now 10 per cent. down from its peak and is now lower than it was when we took office.
Dr. Lynne Jones (Birmingham, Selly Oak):
I, too, congratulate my right hon. Friend on his statement, particularly the emphasis on research and innovation. Bearing in mind that even his predecessor, the right hon. and learned Member for Rushcliffe (Mr. Clarke), acknowledges that Britain's debt to GDP ratio is one of the lowest in the world, will he consider further investment in public sector infrastructure, particularly housing and transport? That would benefit business
Mr. Brown:
Employment has risen by 400,000 and many of those who have been making predictions every month for the past year that unemployment would rise were found to be wrong in February, March, April, May, June and July. On future public investment, I think that my hon. Friend will acknowledge that not only have we doubled public investment over the next three years, but we have enhanced the private-public partnerships to invest £13 billion more in the economy, thanks to the work of the Paymaster General in moving that project forward.
On capital receipts and housing--my hon. Friend mentioned housing in particular--at the time of the comprehensive spending review, we announced a further release of capital receipts to enable house building and house repair to move ahead. When my hon. Friend looks at the figures in the pre-Budget report, she will see that public investment next year rises considerably, which means that investment as a whole in the economy continues to rise. My hon. Friend will want to acknowledge that the Government have done a great deal to move public investment forward. We are never complacent, but we will continue to take the necessary action.
Mr. John Butterfill (Bournemouth, West):
When the right hon. Gentleman first became Chancellor, the OECD in Paris forecast that British growth of GDP would be the highest in the European Union and was likely to continue to be so for the foreseeable future. Will he accept any responsibility for the fact that it is now forecast to be the lowest, and that we may have recession? If he is so interested in research, why did he slash the funding for the research councils this year to the point where, in university after university, there is no money to fund postgraduate research?
Mr. Brown:
When I became Chancellor and walked into the Treasury one of the first things I was told was that the inflation target could not be met, that inflation would rise to 4 per cent. and above and that inflation--
Mr. Brown:
The right hon. Gentleman does not seem to understand basic economics. When one sets interest rate policy, it is set with a view to the next 12, 18 and 24 months. If action is not taken early enough, interest rates will have to rise later to deal with the problem of inflation. The truth is that when we came into the Treasury, we were told that inflation would rise and that it would be twice that of our competitors.
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