HC Deb 27 June 1985 vol 81 cc1066-8
7. Mr. Merchant

asked the Chancellor of the Exchequer what further evidence he has of the strength of the economic recovery.

Mr. Lawson

Gross domestic product grew by an underlying 3½ per cent. between the first quarters of 1984 and 1985. This year the United Kingdom is likely to have the fastest growing economy in the European Community, and in all probability it will grow faster than that of the United States, too.

Mr. Merchant

Does my right hon. Friend agree that this good news will produce an effect that will result in even better news, namely, a reduction in unemployment? Does he broadly agree with a recent CBI study which illustrated this effect by predicting that 1 million new jobs would be created by the end of this year?

Mr. Lawson

My hon. Friend is right to draw attention to the CBI study, which was extremely encouraging both about manufacturing in general and about employment. I referred earlier to the growth in employment during the last two years. That is expected to continue. The level of unemployment will be assisted by the measures which I took in this year's Budget, which will not have an effect until next year. It will also be affected by the level of pay increases, which is still running at too high a level if we are to price sufficient numbers of people back into work.

Mr. Wrigglesworth

Does the Chancellor agree that, if interest rates remain at their present high levels, that will severely damage the prospects for economic growth as they will increase the level of inflation, give rise to inflationary expectations by wage bargainers and result in a higher value for the pound, which will make it more difficult for manufacturing and service industries to export? In the light of that, will he reconsider his condemnation of the call by the CBI to reduce interest rates, and will he take action to do so?

Mr. Lawson

No, but the House will have noted that the SDP representative is in favour of measures which would undoubtedly lead to faster inflation.

Mr. David Howell

Does my right hon. Friend accept that his renewed commitment to tax cuts as the path to recovery, higher employment and enterprise is very welcome? Will he also confirm that his right hon. Friend the Secretary of State for the Environment has authorised greater capital spending by local authorities from capital receipts? Will that not also make a great contribution to economic recovery, and is that not consistent with the Government's financial strategy?

Mr. Lawson

On the first half of my right hon. Friend's question, I am indeed glad to have his endorsement of the importance of further reductions in the burden of income tax on the people as a whole as a means of ensuring a sound, healthy and growing economy. I also believe that that is what the people want. As for local authority capital expenditure, it appears that there is some overspend on the figures originally allowed for. This is catered for by the reserve, but at this stage it is difficult to say precisely what the overspend will be.

Mr. Robert Sheldon

Will the Chancellor now answer the question which he declined to answer a few minutes ago? Is it the Government's intention to keep the value of the pound as high as they can get away with to keep up pressure on prices and wages?

Mr. Lawson

I do not determine the rate of exchange, as I have made clear to the House on a number of occasions, but I have noted that the Opposition are always complaining that the pound is either too high or too low.

Mr. Beaumont-Dark

Does my right hon. Friend accept that there are very real signs of a recovery in manufacturing industry, as shown by the recent unemployment figures in the midlands, which dropped while those for the nation as a whole went up? Does he also accept, since a review is now taking place into export credit guarantees, that we have lost some contracts to overseas business whose terms have been more generous? Will he urge on the Department of Trade the importance of making sure that financing is available on equal terms with our competitors?

Mr. Lawson

The Export Credits Guarantee Department does an excellent job, as I am sure my hon. Friend will concede. The whole question of export credit and aid and trade provision is constantly under review. I am sure my hon. Friend will agree that there is little point in extending credit to countries beyond their capacity to repay. As for the recovery in the midlands, since I represent a midlands constituency, as does my hon. Friend, I find that particularly welcome. I am sure that my hon. Friend will also warmly welcome the recent announcement that non-North sea profits during the first quarter of this year are 25 per cent. up on the first quarter of last year.

Mr. Hattersley

If the recovery is so well established, why did the index of manufacturing output fall by 1.3 per cent. in one month? Indeed, why is manufacturing output still substantially lower than it was in the spring of 1979?

Mr. Lawson

Manufacturing output is steadily rising. Last year's increase of 3.5 per cent. was the highest in any year since 1973. The right hon. Gentleman may not be aware of it, but the shape of the economy is changing, and many manufacturing industries here, just as in many other countries, are now a smaller part of the total economy, whereas other sectors are growing very rapidly. The overall economy is growing fast, and I would hope that the right hon. Gentleman would be the first to welcome that.

Mr. Higgins

With regard to local councils spending the receipts from council house sales on further housebuilding, will my right hon. Friend accept that this is not import-intensive but it is labour-intensive; it increases labour mobility and is likely to encourage greater employment?

Mr. Lawson

I am glad to say that the numbers of total housebuilding starts are looking very encouraging. I believe that it is more desirable to encourage the growth of private sector housing than a further extension of municipal ownership.