Debate on the Address

My Lords, yes, indeed, and how Parliament will be involved in that. I think that is a matter for Parliament. I am grateful to the noble Lord. My noble friend Lord Haskel raised an interesting point about whether we are measuring the right things in the modern economy, with all its intangibles and what is happening in our changing world. The new arrangements certainly emphasise the fact that what statistics should be determined are an executive function. But we need the strength of the new arrangements to make sure that they are relevant. A number of noble Lords spoke referred to the Stern report, including the noble Lords, Lord Newby, Lord Vallance and Lord Beaumont, and my noble friends Lord Haskel, Lord Barnett, Lord Peston and Lord Whitty. I have dealt with the point about the percentage of GDP which is taken in green taxes. The Government welcome the Stern review of the economics of climate change. It leaves us in no doubt as to the seriousness of the threat to our economies. The noble Lord, Lord Newby, attacked the Government’s record on the environment but he was less than fair. If he looks at the Government’s intervention and the principled framework outlined in the statement of intent on environmental taxation and tax in the environment, he will see that the strategy is, in a sense, consistent with what is coming out of Stern. Funding has been provided for newer, cleaner technologies. The noble Lord, Lord Vallance, made some interesting propositions about the role of science. Indeed, the business community has helped to drive a solution on this. He acknowledged that we have funded, on a joint basis, the Energy Technologies Institute. As to the upstream carbon tax, the Government’s approach is to ensure that the climate change levy is driving energy efficiency. The emissions trading scheme is the right way to get the pricing of carbon into the system. The UK economy has performed extremely well since 1997, both compared with its own historical record and relative to other major economies. The strengthening of the underlying UK performance reflects a number of policy innovations. The Government’s macroeconomic framework is designed to maintain long-term economic stability. Large fluctuations in inflation add to uncertainty for firms, consumers and the public sector and can reduce the economy’s long-run growth potential. Stability allows businesses, individuals and the Government to plan more effectively for the long term, improving the quantity and quality of investment in physical and human capital and helping to raise productivity. My noble friend Lady Kingsmill spoke about this and it was acknowledged by the noble Lord, Lord Dykes, as well. In 2005, the economy was affected by sustained rises in oil prices, weak euro-area demand and a subdued housing market. In previous decades, these factors would have risked being accompanied by recession. By contrast, through this challenging period, the Government’s macroeconomic framework has continued to deliver unprecedented macroeconomic stability, with GDP having grown for 57 consecutive quarters, compared with the previous longest expansion of 24 quarters. Reforms to monetary and fiscal policy frameworks have been crucial in putting the UK economy on a sound and stable footing and strengthening underlying performance. My noble friend Lord Bhattacharyya reported how, on his travels around the world, this was widely acknowledged. My noble friend Lord Peston called it, I think, a near-Utopia. So the UK continues to strengthen and evolve to reflect the requirements of a modern global economy. Let me spell out in more detail the benefits that our macroeconomic reforms have delivered. In 1996, Britain was seventh in the G7 for national income per head, while in 2005 it was second. Growth has been more stable and stronger than in the past, and by international standards. No other OECD economy has enjoyed an expansion as long as the current one in the UK in the post-war era. Inflation has been kept low through policy credibility, and without high interest rates. Base rates in the UK remain low by historical standards; they averaged over 10 per cent between 1979 and 1997, hitting a peak of 15 per cent, compared with the current rate of 5 per cent. Mortgage rates have been at their lowest since the 1950s. We also have a robust labour market. Whereas once low inflation came at the cost of high unemployment, now the UK labour market is an example of international best practice. Developments in the UK economy are obviously heavily influenced by what goes on in the world economy. The world economy presents challenges as well as opportunities, but the economy was able to weather these challenges well with a short and shallow downturn, contrasting with previous periods of prolonged recession, and has now gained momentum. GDP rose at its fastest rate since mid-2004 in the third quarter and provisional business investment growth saw its strongest quarterly growth for two years in the third quarter of 2006. Manufacturing output is rising, with growth in the first quarter of 0.9 per cent and 0.6 per cent in the second. Retail sales growth has picked up since 2005. The Treasury has long been expecting a slowdown in private consumption, and business surveys suggest further gains in activity in the business sector to come, consolidating this rebalancing. Unprecedented macroeconomic stability and microeconomic reforms are providing the right environment for UK business to succeed in a competitive global economy. That is one reason that the UK remains at the heart of global direct investment patterns. The UNCTAD World Investment Report 2006 shows that in 2005, the UK had the world’s largest stock of inward FDI. As a percentage of GDP, this is the highest stock of any G7 country. The domestic stability delivered by the Government’s macroeconomic framework, with volatility in the UK economy at historically low levels and the lowest in the G7, puts the UK in a strong position to respond to the global economic challenges of the next decade. Far-reaching and fundamental changes in technology and trading patterns are transforming the global economy. Meeting the long-term economic challenges and opportunities will require sustained effort from across a range of policy areas aimed at entrenching macroeconomic stability; promoting an enterprise culture; strengthening innovation; opening up skills to all; ensuring fairness through a flexible and responsive welfare state; and promoting sustainable development, including through multilateral action. There is no room for complacency and the Government are aiming even higher; they want the UK to become the global hub for international, high-value and creative economic activity, including inward investment from China and India. The economy continues to perform strongly, with the best combination of economic fundamentals seen in a generation. It is open and flexible, and has responded quickly to changing global markets. Consumer spending and retail sales have undergone some necessary rebalancing. We should be proud of this record. Since 1997, the Government have shown that they can deliver a strong economy and sound public finances hand in hand with sustained and substantial growth in investment in public services. But the world has not stood still, which is why we are publishing today the examination of the key long-term trends that will shape the decade ahead. It will also shape our debates in the coming Session and beyond. On Question, Motion agreed to nemine dissentiente, and the Lord Chamberlain was ordered to present the Address to Her Majesty.