Finance Bill

Inflation is currently at 3.1 per cent., and the hon. Lady may have noticed that the recent sending of a letter by the Governor of the Bank of England to my right hon. Friend the Chancellor was the first time it had happened in 10 years. At the outset, it was expected that that would be required every year or two. The system and the macro-economic framework that we have put in place have been remarkably robust and successful. Inflation at 3.1 per cent. is a great deal lower than the rates of inflation that obtained when the party that she speaks for was last in government. At that time, we had double-digit inflation and double-digit mortgage rates. The system continues to work extremely well and the fact that, after 10 years, it has been necessary for a letter to be sent need not give rise to undue concern. Indeed, it is generally agreed by those who study these things that the rate of inflation will fall sharply towards target in the second part of this year. From 2008, as I said, there will be a cut in the main corporation tax rate from 30 per cent. to 28 per cent. That is a lower rate than those of all our major competitors and has been widely welcomed by, for example, the Institute of Directors and the City of London Corporation, which said:"The City is very pleased that the Government is making such a clear commitment to keeping London competitive." There is clear evidence that a lower headline rate of corporation tax attracts foreign direct investment and that the change will strengthen our position further.