Pre-Budget Report 2006

rose to move, That this House takes note with approval of the Government's assessment as set out in the Pre-Budget Report 2006 for the purposes of Section 5 of the European Communities (Amendment) Act 1993. The noble Lord said: My Lords, I welcome this opportunity to debate the information provided to the European Commission under Section 5 of the European Communities (Amendment) Act 1993. Each year the Government report information to the Commission on the economic and budgetary position and our main economic policy measures, and each year we aim to ensure that each member state’s economic policies are consistent with the goals of the treaty. That includes non-inflationary economic growth, high levels of employment and social protection and better living standards for citizens in the UK and across the EU. These goals are consistent with the Government’s approach to economic policy to maintain long-term stability. The Government’s monetary policy framework seeks to ensure low and stable inflation, while fiscal policy ensures sound public finances over the medium term. Section 5 of the European Communities (Amendment) Act 1993—or the Maastricht Act, as it is better known—requires Parliament to approve the information sent by the Government to the Commission for this purpose. We set out such economic information in the Pre-Budget Report earlier this month, and this material forms the basis of what we send through to the Commission. It is this assessment, set out in the PRB, for which approval is sought today. By formally sharing information from the Pre-Budget Report with our European partners, we can help ensure a proper, accurate and effective EU system, contributing to enhanced employment and growth. The background for debate on the economic position is the need to address the great global challenges ahead. Asia is already out-producing Europe; China alone is manufacturing half the world's computers, half the world's clothes and more than half the world's digital electronics. But in the next 10 years, the competitive challenge is even more profound. Once responsible for just one-eighth of the world's growth, China and India will soon capture almost half. So economies like ours have no choice but to out-innovate and out-perform competitors by the excellence of our science and education, the quality of our infrastructure and environment and our flexibility, creativity and entrepreneurship. Just as in the last decade by planning long term we created a new and enduring British framework for economic stability, so, too, for the coming decade the task is to think long term again and create a new framework for investment and innovation, a strategy to make the next stage of globalisation work for the British people. To put this challenge in context, we should lookat some of the global developments and trends inthe past year: global imbalances, exchange rate uncertainties, stalled trade talks and high commodity prices. Against this backdrop, growth this year is expected to be 2.75 per cent, rising to 2.75 per cent to 3.25 per cent next year. The UK is experiencing its longest unbroken expansion on record, with GDP having grown for 57 consecutive quarters. By mid-1997 we expect inflation to be at its 2 per cent target and remain at target in 2008. Productivity, which in the last economic cycle up to 1997 grew by 1.9 per cent, is averaging 2.4 per cent since 1997. This year alone there are 200,000 more people in employment; there are 2.5 million more jobs than in 1997, the highest ever number of men and women in work in our country, and employment is higher in every region and nation since 1997. Over the past 35 years, employment has risen by 17.8 per cent. Well over half of that rise has occurred under this Government. Taken together, the UK is currently experiencing the longest period of sustained productivity and employment growth since the 1950s, when records began. This performance is the direct result of the monetary and fiscal policy framework we have introduced. We will continue to maintain fiscal discipline; I am sure that all Members of this House would expect no less. Our two fiscal rules are the golden rule that current spending should be paid for by current revenues, not borrowing, and the sustainable investment rule that debt is held at a prudent and stable level over the economic cycle. In the Pre-Budget Report, the Chancellor announced that we are meeting both rules. With an overall surplus of £8 billion in this economic cycle, we are meeting the golden rule, and are already on course to meet it in the next. While net debt is 47 per cent of national income in the USA, 55 per cent in the euro-area and 90 per cent in Japan, in the UK it stands at 37.5 per cent. With debt lower than our competitors, Britain is also meeting the sustainable investment rule, and at the same time it has tackled the historic under-investment in our infrastructure and doubled capital investment in health, education and transport. Alongside each Pre-Budget Report that we publish, we publish a long-term public finance report, providing a comprehensive analysis of long-term socio-economic and demographic developments, and their likely impact on the public finances. Even taking into account our new commitments on pensions, it showed that the country’s public finances are also on a sound and sustainable basis for the long-term. Within this strong and sustainable fiscal position we are therefore well placed to make decisions about our long-term priorities. As recently as the mid 1990s, 75 per cent of all new public spending went to debt interest and social security benefits. Today it is down to less than 20 per cent. And the purpose of all these savings is to ensure that front-line services will have the resources they need. So up against the global challenge and with fiscal rules that allow us to borrow for sustainable investment we should not postpone or avoid essential new investment in infrastructure and education. Capital investment in education stood at only£1.5 billion in 1997; it will be £8.3 billion next year and we will set out long-term plans for investment to rise further over the next decade. Investment in transport—just £4 billion in 1997—will be £9.6 billion next year and in the Comprehensive Spending Review we will set out an updated 10-year spending plan; and investment in housing, which was just £2 billion in 1997, will be nearly £8 billion next year, with sustained investment in the next spending round. In an increasingly integrated and competitive global economy, raising UK productivity is critical to delivering continued economic growth and sustained increases in standards of living. Raising productivity requires the openness and flexibility to seize new opportunities in the global economy, while making the essential long-term investments needed to support business growth—including vital infrastructure and skills. The Leitch report says that instead of today's6 million unskilled workers, the 2020 economy will need only half a million unskilled workers and that instead of 9 million high skilled workers and graduates today we will need 14 million. The Government want British workers to gain the skills for these higher-paid jobs of the future. So our aim by 2020 is to have 90 per cent of adults reaching at least the equivalent of 5 GCSEs—achieving in just over one decade an ambition that no other country has yet managed; by reforming underperforming colleges, doubling from 2 million to 4 million the number of adults achieving A-level equivalent skills; and ensuring that our economy has over 5 million more men and women with high level professional and graduate skills. In addition, the Secretary for Education has also appointed Sir Digby Jones to advance an agenda of: employees taking more responsibility to train; employers taking more responsibility to offer time off with, in return, more say over what training is provided; and Government taking more responsibility to reform and invest in training provision at work, in colleges and online. We are determined that Britain will be a world-class location for future medical research, including stem cell. So that Britain leads the world in developing new treatments and new drugs, we will bring together the research capability of our universities, institutes and pharmaceutical companies with the unique resources of the NHS. I can confirm that with a pooled budget of over£1 billion a year and a new fast-track procedure for priority research, the president of the Academy of Medical Sciences, Professor John Bell, will lead this new drive to identify for Britain the most useful and fruitful areas for potential medical breakthroughs. Twenty-five years ago the market value of our top companies was no more than the value of just their physical assets. Today the market value of Britain's top companies is five times their physical assets, demonstrating the economic power of knowledge, ideas and innovation. The Gowers review has set out reforms to ensure that the UK’s intellectual property system is fit for the 21st century and able to capitalise on innovation,and the Government have welcomed all the recommendations that that review has made to them. The next challenge for Britain is to match strength in basic research with success all round in transforming knowledge into successful products and new jobs. Therefore the Government will, from 2007-08, award universities an extra £60 million of quality-related funding. The planning system is fundamental to the contribution of sustainable development and employment to economic growth. The Government will take full account of the Barker review of land use planning, which recommends improvements to streamline the planning application process and reduce the burden on business, and that a test of economic benefit be factored into planning considerations. The same partnership of responsible individuals, companies and Governments is vital to meeting the environmental challenge. A key component of that is to use market mechanisms and incentives to work towards global carbon trading. Following the Stern review, 31 countries in the EU and EFTA have already signed up to emissions trading as the first step to this global framework. We are bringing together the major financial institutions, our being aim to make London the world’s leading centre for carbon trading. Our task is to meet and master the global economic challenge, making critical decisions to secure Britain’s long-term economic future. The Pre-Budget Report drives forward the great economic mission of our time: to meet the global challenge and unleash the potential of all British people so that the British economy outperforms our competitors, and to deliver security, prosperity and fairness for all. That is the programme set out in the 2006 Pre-Budget Report, and, with the approval of the House, is the basis on which we will send updated information to the European Commission. We are fulfilling our commitment, under the Maastricht Act, to report on our main economic policy measures, and maintaining our position, developed by this Government, at the heart of the EU policy process. I welcome the debate we are about to have on this issue. I beg to move. Moved, That this House takes note with approval of the Government's assessment as set out in the Pre-Budget Report 2006 for the purposes of Section 5 of the European Communities (Amendment) Act 1993.—(Lord McKenzie of Luton.)