First Standing Committee on Delegated Legislation
Wednesday 12 May 1999
[Mr. Humfrey Malins in the Chair]
Financial Statement and Budget Report 1999-2000 and the Economic and Fiscal Strategy Report 1999-2000
4.30 pm
The Economic Secretary to the Treasury (Ms Patricia Hewitt): I beg to move,
That the Committee has considered the Financial Statement and Budget Report 1999-2000 and the Economic and Fiscal Strategy Report 1999-2000 for the purposes of their approval under section 5 of the European Communities (Amendment) Act 1993.
As part of the process for multilateral surveillance in the European Union, the Government are required to send a report to the European Commission setting out our main economic policy measures. The procedure is set out in articles 103 and 104c of the Maastricht treaty, which relate to the broad economic guidelines and the excessive deficits procedure respectively.
I am aware that, in the last year's debate, my predecessor participated in a lively discussion. However, given the paucity of attendance on the Opposition Benches, I am not sure whether we shall have an equally robust and lively debate today. The hon. Member for Maldon and East Chelmsford (Mr. Whittingdale) and I seem to be in almost permanent session in Committee.
The purpose of the broad economic guidelines and the excessive deficits procedure is to help ensure that member states' economic policies are consistent with the goals of the treaty. Those include non-inflationary economic growth respecting the environment, a high level of employment and social protection, and raising the standard of living and quality fo life. The objectives of the treaty are entirely consistent with those of the Government.
Section 5 of the European Communities (Amendment) Act 1993, usually known as the Maastricht Act, requires Parliament to approve the Government report sent to the Commission for the pruposes of multilateral surveillance. The Government's strategy for economic policy is set out in the Economic and Fiscal Strategy Report and the Financial Statement and Budget Report, brought together in the Government report ``Budget 99'', and it is our intention to base any information sent to the Commission on the material in the ``Budget 99'' document.
``Budget 99'' set out the Government's strategy for achieving high and stable levels of growth and employment. The 1999 budget will help build a stronger economic future for Britain through reforms that will put work, enterprise and families first. By protecting the environment and ensuring that growth is sustainable, the 1999 Budget will also ensure a better quality of life today and for future generations.
Of course, I cannot possibly let any description of the Government's economic policy pass without stressing that it is designed to put an end to the years of boom and bust, from which Britain has so grievously suffered.
The key elements of the Government's strategy are, first, to lock in economic stability as a platform for long-term sustainable growth; secondly, to raise productivity through promoting enterprise and investment; thirdly, to increase employment opportunity with a better deal for working families that makes work pay; and finally, to build a fairer society, with a better deal for families and children. In order to deliver economic stability, low inflation and sound public finances, we have introduced an open and transparent monetary framework that is already beginning to deliver low and stable inflation. We have introduced a transparent fiscal framework set out in the code for fiscal stability, with two strict fiscal rules to deliver sound public finances; and a new public expenditure regime with new three-year spending plans to provide greater certainty, better use of public resources and more effective long-term planning.
The 1999 Budget continues to lock in the structural improvement of public finances. This Government inherited an appalling level of public deficit. Under the last Government, net borrowing rose to over £50 billion. Since coming into office, this Government have brought public finances back under control. That has allowed interest rates to peak at a much lower level—indeed, at half the level that we saw in the previous economic cycle—and subsequently to fall more quickly to the lowest long-term interest rates for 40 years.
We remain on track to meet our tough fiscal rules over the economic cycle, while guaranteeing to invest an additional £40 billion in health and education over the next three years. We also announced extra resources for schools, hospitals and safer communities in the Budget. I am not sure whether the official Opposition still regards that additional spending as reckless, whether they have changed their mind, or whether they are as divided on that issue as on almost everything else. Perhaps we will find out later this afternoon.
Net borrowing in the last financial year was £1 billion, and we ran a current budget surplus of just over £4 billion in the past year, in contrast to the deficit in all but three of the past 25 years. As a result, net borrowing in the 1999 Budget is projected to remain low, and total projected net borrowing over the next five years is lower than in any single year in the previous Parliament. Current budget surpluses totalling £34 billion are expected over the next five years, compared with the staggering deficit over the previous economic cycle of £149 billion. Public sector net debt has fallen from 44.3 per cent. of GDP in 1996-97 to an estimated 40.6 per cent. of GDP in 1998-99. It is projected to fall to less than 40 per cent. of GDP next year, and to less than 35 per cent. of GDP by 2003-04. I hope that all Committee Members will welcome that.
Our prudent approach to the management of public finances means that we can combine a falling debt ratio with rising public sector investment. Public sector net investment is set to double to 1 per cent. of GDP by 2001-02. That will begin to address the years of neglect in public sector infrastructure, especially in our hospitals and schools.
Our reforms in monetary and fiscal policy will help us to steer a course for stability. The global downturn will inevitably impact on growth this year. Lower growth this year is mainly due to weaker growth in UK export markets. The Budget forecast is for GDP growth of 1 per cent. to 1.5 per cent. this year.
The economy is therefore well placed for stronger growth into 2000. The combination of timely policy loosening—under our new arrangements for the Bank of England—the underlying financial strength of the private sector, increased Government investment and an easing in trade conditions is expected to underpin stronger growth, back towards trend rates, into 2000. The Budget forecast is in line with the latest assessments of a number of leading organisations, including the Bank of England, the European Commission and the National Institute of Economic and Social Research. Independent forecasts have also appeard firmer in recent months, and a clear consensus exists that the economy is well placed for stronger growth into 2000, in striking contrast to the predictions of gloom and doom, and the talking down of the British economy, that we heard from the official Opposition only a few months ago.
By building on a platform of stability, the Budget creates the opportunities for business to succeed and the incentives to increase productivity. It cuts taxes on small businesses for the second year running, with a new 10p rate of tax, and a new small business service will offer a way through red tape and regulation. The Budget also supports innovation and encourages businesses to create incentives for their managers, owners and employees. Increasing productivity and closing the productivity gap with our main competitors, which we inherited, will help to raise living standards in the economy as a whole.
We also need to do much more to create a fairer society, by making work pay, giving families a better deal and protecting the environment. Further steps were taken in the Budget to make work pay. Moving people from welfare to work is a key priority. The new deal will help people who for years have been detached from the labour market, including the young, the long-term unemployed, lone parents, disabled people and the partners of the unemployed.
In the Budget, we introduced the lowest rate of income tax for more than 35 years. The basic rate, at 22p in the pound, is the lowest for 70 years. The reforms that we have made to national insurance contributions remove nearly 1 million low-paid people from national insurance, while protecting their benefit entitlement which will boost their rewards from work and spread the burden of contributions more fairly.
The new 10p rate combined with the working families tax credit increases mean a minimum income guarantee of £200 per week for a family with a full-time earner. No working family with earnings of less than £235 a week—some £12,000 a year—will pay net income tax from October 1999. I know how welcome that proposal will be to my constituents and to people throughout the country.
We are determined to make work pay. That is the best way to reduce this country's utterly unacceptable levels of poverty, especially among children. We have also said that we will consider extending the principle of the working families tax credit to those without children, to help them to move from welfare to work.
The Budget introduced several measures that will help to build a fairer society, in particular by delivering a fairer tax system for families with children and a minimum income, as I said, for a family with a member who is in full-time work. The new children's tax credit and increases in child benefit will deliver the lowest tax burden since 1972 for families with children. The Budget, and last year's Budget, mean that families with children will be on average £740 a year better off. Seven million families stand to gain, and 700,000 children will be lifted out of poverty.
The Budget also included the most radical and far-reaching package of environmental tax reforms that this country has ever seen. That package includes measures to help to tackle climate change by reducing emissions of greenhouse gases, to improve local air quality—
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