Orders of the Day — The Economy

Part of the debate – in the House of Commons at 7:35 pm on 1st December 1998.

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Photo of Ruth Kelly Ruth Kelly Labour, Bolton West 7:35 pm, 1st December 1998

It is always an honour to speak in one of the debates on the Gracious Speech, especially when the Gracious Speech features such an ambitious agenda.

The right hon. Member for Horsham (Mr. Maude) said that the second Gracious Speech of a new Government should involve the maximum purposeful activity. I asked myself what he meant, and, having looked at the Gracious Speech, could only conclude that it involved precisely that. In what other way could we describe a programme that introduces, for the first time, a working families tax credit that will make work pay for thousands of families? How else could we describe a programme that will introduce a minimum wage that will set a floor for earnings, and will end the scandal of in-work poverty pay? The new deal has already created opportunities for thousands of young people, and I am delighted that it is to be extended to cover even more groups.

I consider the macro-economic agenda equally impressive. The Government are taking action to create an economy that is capable of sustained and steady growth. It is essential, over the next year, for them to build on what they have already achieved, steering a careful course even when growth in world trade has fallen by two thirds.

I welcome the Government's commitment to new fiscal rules and to more transparency in our national policy-making, but I believe that vigilance in national economic policies must be matched by a willingness to reform the international financial system to secure greater international stability. The Opposition may argue that the slowdown forecast for Britain was made in Downing street, but it is clear to all but a few that the impact of the crisis in east Asia has reverberated across the developed world. We ignore at our peril the fact that a quarter of the world economy is now in recession, including the economy of Japan. The right hon. Member for Horsham mocked the Chancellor's attempt to forge a new financial infrastructure for the global economy. In that, too, he is isolated and increasingly extreme.

I was very interested by the speech of my right hon. Friend the Member for Coatbridge and Chryston (Mr. Clarke), and intend to build on some of what he said.

A key challenge for the Government over the next year must be the devising of new international rules of the game to build confidence and credibility in the global system. It is worth recalling the remarkable growth that has taken place in the foreign exchange markets over the past 25 years. Since 1973, the foreign exchange market has grown fourteenfold, thriving in a world free of capital controls. The $1.3 trillion traded daily in the foreign exchange market that was registered in 1995 represents an increase of 50 per cent. since 1992. Unfortunately, however, the global financial infrastructure has become increasingly outdated.

The events of the past few months have demonstrated the deep-rooted inadequacies of our understanding of the relationships between financial markets and between countries—especially in regard to developing, emerging market economies, the quality of risk assessment and gaps in the international regulatory structure. That is why it is particularly appropriate for the Chancellor to be at the forefront of international attempts to rethink the financial institutions. I accept that capital market liberalisation can bring enormous benefits to developing countries. The theory is that freer capital markets can give developing countries access to global savings, so that they can invest more in order to grow faster. Until recently, Asia seemed to prove that case.