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Orders of the Day — Finance Bill

Part of the debate – in the House of Commons at 3:25 pm on 20th April 2004.

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Photo of Doug Henderson Doug Henderson Labour, Newcastle upon Tyne North 3:25 pm, 20th April 2004

I understand what the hon. Gentleman says and recognise that we live in a more global economy, with more interaction between different parts of the world economy. That is the background to what has happened. Without policies geared to stabilisation, however, it would have been perfectly possible, even in an expanding global economy, to have massive stop-go, which would have undermined our ability as an economy to perform. If he looks at some of the examples around the world, he will see that that is the case where economies have not performed in this period of globalisation. One might have thought that the Japanese economy would perform much more effectively in this era, but it has not, because Japan's domestic policies, and the sense of economic integrity in the country, have not been continued over the years. Some EU economies also failed to perform in the way that they perhaps could have, had they been able to achieve greater stability. I recognise that we live in a more globally minded economy, but that does not in itself explain the difference.

What has changed the economic performance? The basic point is that markets are more confident in their predictions, and wage earners, house purchasers, investors and savers are also more confident. In a sense, stability breeds stability. Some colleagues might argue that all this happened just because there was a Labour Government. I do not argue that, as I implied in my previous remarks. The Labour Government have adopted a change in economic thinking, responded to the changing economy and begun to adopt new approaches. The independence of the Bank of England is an example of that. It would have been heresy for any Labour Member to argue for that in the early 1990s or before. It was recognised, however, that if we are to give markets more confidence—let us remember that markets are not just about capitalism, but about the workers, their expectations and their predictions—people must believe that macro-economic policy has been based on what the economy needs, not on what a political party needs. When we give that degree of independence, while maintaining some influence over the long-term shape of the responsibilities of the Bank of England, we nurture that improvement.

On borrowing policy, one problem in the past was that, in the 1960s, 1970s and 1980s, many people still lived under the economics of the 1930s. In a less global economy, with massive deflation domestically, public expenditure programmes were necessary to create work. If it was useful work, that was fine—sometimes it may not have been, although most of it was. If we tried to conduct an economy on that basis, with a more globalised economy and a nearness to full employment that did not exist in the 1930s, inevitably, again, expectations would be affected. A crucial reform of the Labour Government was to say that borrowing is for investment over the economic cycle, not for plugging the gaps in revenue except in the very short term. That gave markets great confidence in our economy.

The social programmes that have been introduced, and the emphasis on expenditure on health, education and so on, have been important in carrying people along with the changes that have taken place. The investment programmes in education, training and science have been important in bringing about the changes, not in the sense of health expenditure, which gives people a belief that things are going well, but because by investing in education we are creating a skill base for tomorrow.

Those are the main changes that have taken place over the past five or six years that have helped to reinforce the stability of the economy. The Budget this year again does that and I believe that the Finance Bill also provides a fiscal framework for stability.