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AMENDMENT OF THE LAW

I congratulate the Chancellor on the Budget, which will benefit families, society and business. He has taken 600,000 pensioners out of taxation and increased child benefit, and that is extremely important and welcome. However, he has also given us a Budget for business, with corporation tax being reduced to its lowest level ever, and income tax to its lowest level for 75 years. I want to congratulate both the Chancellor and the Prime Minister. The Select Committee on the Treasury is undertaking an inquiry into the 10 years of the Monetary Policy Committee. We have had some eminent witnesses, not least the former Governor of the Bank of England, Lord George, who came before us yesterday. Some people are asking whether it is through luck alone that the MPC has managed to keep our economy stable, with low interest rates and inflation. However, almost all the witnesses who have appeared before the Committee have rejected that notion. Instead, they have described the instability in the rest of the world and pointed to global difficulties such as the problem with long-term capital management that arose in 1998, and the Asian crisis of 2000. They attribute the success of our arrangements to the structural architecture that we have set up for both monetary and fiscal policy, and they have noted that the accompanying fiscal rules—the golden rule, or spending to invest, and the sustainable investment rule—are extremely important. Some of the witnesses have noted, very perceptively, that the Government’s arrangements would not have succeeded without the accompanying welfare-to-work programmes, such as new deal. Unemployment stood at 3 million 20 years ago—Labour has created 2 million extra jobs, and that growth in employment has given the Government an opportunity to achieve economic stability. If the mix that I have described had not been available, the pressures already in the system would have rendered it impossible to ensure the stability that has given us record low levels of inflation and interest rates in the past decade. This is definitely the Prime Minister’s final Budget—at least, that is what I am told. However, both he and the Chancellor deserve congratulations on their commitment to maintaining the stability and confidence in our economy—something to which all the political parties are now signed up. In the early 1990s, the Prime Minister and the Chancellor committed the Labour party to that project, thus inspiring confidence in a system that the City, the business community and society as a whole have all accepted. The International Monetary Fund and the Organisation for Economic Co-operation and Development have analysed the British economy, and they have remarked on its stability. Indeed, the IMF recently said that Britain had the best growth levels in the G7. Yesterday, Professor Charles Goodheart, an eminent former member of the MPC, told the Treasury Committee that the stability that Britain has achieved is remarkable. However, he warned that people might be taking it for granted, especially the young people who have grown up in the stable environment of the past 10 years. It is therefore important for all of us to work to ensure that confidence in the system and the credibility of the framework are maintained. That will be one of the many objectives of the Treasury Committee as it continues its inquiry into the MPC framework 10 years on. I want to look at the Budget measures in the context of a number of themes that have emerged from the current and recent work of the Treasury Committee: for example, the prospects for economic growth in the medium term; the role of the fiscal rules, particularly in the next economic cycle; the prospects for public expenditure and the role of the comprehensive spending review; the importance of education expenditure—in particular the delivery of capital expenditure on education, which exercised the Committee at the pre-Budget report stage; the need for transparency in demonstrating the success of the Gershon efficiency programme across Government, about which we have a number of questions; and lastly the importance of environmental considerations and the economics of climate change in Treasury policy, both now and in the future. The Budget painted an encouraging picture of economic growth and the Committee has noted the signs for business investment—the Chancellor’s announcement today that business investment will grow by 7 per cent. is encouraging. The Committee was puzzled about why it had not grown in the past, given the prosperity and stability that have been brought about, so the Chancellor’s announcement is welcome. Unemployment is falling, and the Chancellor mentioned that 220,000 more people were in work this year, which is extremely important. We need to continue the welfare-to-work programmes, not least the initiatives that have been mentioned, so that people aged over 55, in particular, can go back to the work force. One of the trends of the past year or so is that there are more older people returning to work, so we need to encourage them. A while ago, I pointed out that although people aged over 65 who work do not need to pay national insurance contributions, their employers do. Why does not the Treasury give a further boost to encouraging older people to work by ensuring that employers do not need to pay insurance contributions if their employees do not pay them? That would be an encouraging sign. From the Committee’s inquiry into the MPC, it has become clear that for the past decade economic conditions have been exceptionally favourable. Indeed, the Governor of the Bank of England, Mervyn King, has described that decade as the NICE decade—the non-inflationary, consistently expansionary decade. Will those conditions be maintained for the next 10 years? Yesterday, one of the witnesses at the Committee said that we would have to be prepared for the fact that the next 10 years might be less rosy. The Governor has compared the economy to a car on the road; it is not that the wheels will come off the car, but that the car will be travelling over a bumpier road. We all have an interest in ensuring that we are realistic about what will happen in the next 10 years. The Chancellor’s economic stewardship has been exemplary, as was his foresight in establishing the MPC. Global factors have helped, too; for example, the tail wind of globalisation has been beneficial for growth in our economy, as more individuals have entered the country to join the labour force. Will that situation prevail? We need policies to ensure that it remains a success.