HC Deb 17 December 1986 vol 107 cc1233-306
Mr. Speaker

I must announce to the House that I have selected the amendment on the Order Paper.

5.15 pm
The Chancellor of the Exchequer (Mr. Nigel Lawson)

I beg to move,

That this House approves the Autumn Statement presented by Mr. Chancellor of the Exchequer on 6th November; welcomes the prospect of continuing low inflation and steady growth as the basis for maintaining the trend of rising employment; and congratulates Her Majesty's Government on the continuing reduction in the share of national income pre-empted by public expenditure. Before I begin my remarks, may I apologise to the House for the fact that, since this debate has started unnaturally late, I may have to leave the Chamber at a rather early stage in the proceedings for reasons which I have explained to the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley).

Mr. Roy Hattersley (Birmingham, Sparkbrook)

The Chancellor of the Exchequer will confirm, on reflection, that he was courteous enough to send me a message saying that he would be leaving the debate early long before anyone knew the time at which the debate would begin. But putting aside that little slip, will he take it from me that it is wholly unacceptable that when the House has on the agenda the principles of the Government's economic policy, for which he is wholly and personally responsible, and on which the Treasury and Civil Service Select Committee has adjudicated and in many particulars found the Chancellor wanting, he should not remain in the Chamber to hear the House's criticism of his conduct?

Mr. Lawson

As to the right hon. Gentleman's first point, I was well aware when my office telephoned his office that there would be an agriculture statement and that you, Mr. Speaker, would let that run for quite a long time because it was a very important statement and many right hon. and hon. Members would have wished to take part. But I have listened to what the right hon. Gentleman said. I have conflicting obligations. I will, of course, consider his request—

Mr. Hattersley

So that the apology, which I repeat is wholly unacceptable to the Opposition, might have a little more grace, will the Chancellor tell us whether he is now going to a meeting to validate the decision on AWAC which the Prime Minister announced yesterday afternoon?

Mr. Lawson

The right hon. Gentleman should know that that decision can be taken only by the Cabinet and that the Cabinet does not meet this afternoon.

Mr. Ian Wrigglesworth (Stockton, South)

On a point of order, Mr. Deputy Speaker. Is it not a fact that the call of the House to Ministers is paramount and must be heeded before any outside demands? Is not the Chancellor simply following his precedent in previous economic debates, when he has treated the House with contempt by listening to almost none of the speeches by hon. Members?

Mr. Deputy Speaker (Sir Paul Dean)

Order. The hon. Gentleman knows that that is an expression of opinion. It is not a matter for the Chair.

Mr. Willie W. Hamilton (Fife, Central)

Further to that point of order, Mr. Deputy Speaker. The Chair is responsible for safeguarding the interests of Back-Bench Members in these matters. As the hon. Member for Stockton, South (Mr. Wrigglesworth) said, Ministers' first duty is to the House. Especially with such a major debate, the Chancellor should know that, whatever his commitments outside, the House must take priority. He has not yet explained to us which engagement is more important than listening to the debate. But whatever it is, the House is far more important. If he does not stop treating the House with contempt, the country will reserve its judgment on him. Will he now say that he is cancelling all outside appointments and devoting all his attention to the debate?

Mr. Lawson

I shall stay as long as I can, but I have to say that this is not assisted by the time-wasting tactics of certain hon. Members opposite.

Mr. David Winnick (Walsall, North)

Where is he going?

Mr. Lawson

I see that hon. Members are not the slightest bit interested in this debate or the economy, and that goes for right hon. Members, so I fail to see why they should make a fuss—[Interruption.]

Mr. Deputy Speaker

Order. I am sure the House wishes to hear the Chancellor.

Mr. Alan Williams (Swansea. West)

On a point of order, Mr. Deputy Speaker. As you will recollect, last Thursday the House approved the business programme for this week. That programme was drawn up by the Government's business managers after consultation with Ministers. They then presented to the House their programme for this week's debates, and many of my hon. Friends have come here so that the Chancellor can hear what they have to say in this most important debate.

Surely it is not enough for the Chancellor to make a last minute phone call, although he has known for a week when the debate was to be, to my right hon. Friend the Member for Birmimgham, Sparkbrook (Mr. Hattersley) to say, "I am sorry but I am going to slide out when I have said my bit." Surely he should make a full statement to the House about what has taken him away from his prime responsibility.

Mr. Deputy Speaker

That point has been made already. I hope that we can get on with the debate.

Several Hon. Members


Mr. Lawson

This is time wasting, and it is an abuse of the House and totally undermines every single point that the Opposition have sought to make—

Mr. Stuart Bell (Middlesbrough)

On a point of order, Mr. Deputy Speaker. You will recall that some two years ago the Chancellor of the Exchequer was so late for the winding up speeches that he did not come in for them. This was drawn to the attention of Mr. Speaker, who issued a statement saying that it was the duty of the Ministers of the Crown to put the House before other commitments. That was written into Hansard. We are looking to you for reiteration of that statement, Mr. Deputy Speaker.

Mr. Deputy Speaker

The Chair has no control over the movements of Ministers. I hope, now hon. Members have expressed their view, that we can get on with the debate.

Mr. Tam Dalyell (Linlithgow)

Further to that point of order, Mr. Deputy Speaker. You have said that the Chair has no control over the movements of Ministers. It will be within your recollection that, faced with similar problems, Mr. Speaker Selwyn Lloyd issued what might generally be assumed as guidance to Ministers, stating that the needs and the requirements of the House of Commons were paramount. Is the attitude now being taken different from that of a distinguished Conservative former occupant of your Chair? Has there been a change of policy?

Mr. Deputy Speaker

The hon. Gentleman knows very well that Ministers must be judges in these matters.

Mr. Peter Shore (Bethnal Green and Stepney)

Further to that point of order, Mr. Deputy Speaker. The Chancellor is treating the House of Commons in an extremely unsatisfactory way. If the Chancellor cannot be brought to cancel his engagements and treat the House with the respect that it deserves, will you consider whether it would be possible to suspend the proceedings until the Chancellor is free to come back, face the House and attend the debate in the proper way?

Mr. Deputy Speaker

I say again that time is running out. The debate started late for reasons that we all understand. This is an important debate and I hope that we can get on with it.

Mr. Lawson

I have to say, Mr. Deputy Speaker, that I have learned one lesson from this farcical charade, that in future I shall not make the mistake of affording the right hon. Member for Sparkbrook the courtesy of giving him advance warning.

Mr. Hattersley

Has the Chancellor still not understood that his offence is not against me—that does not matter —but against the House? Until he understands that, he is not worthy to address the House this afternoon.

Mr. Lawson

I understand fully well that it is the House that comes first and that is why I began with an apology to the House, but I also understand that the right hon. Gentleman and hon. Members opposite are wasting the time of the House deliberately.

Several Hon. Members


Mr. Deputy Speaker

Order. I hope that we shall not have more points of order on the same point. I have already dealt with it and I suggest that it is in the interest of all of us to get on with the debate.

Mr. Laurie Pavitt (Brent, South)

On a point of order, Mr. Deputy Speaker. The whole House has sympathy with Mr. Deputy Speaker when he faces a difficulty. However, I wish to make a suggestion based on precedent. As you can see, the House is a little turbulent. Perhaps Mr. Speaker could be sent for so that the rest of our proceedings can be orderly. I am not decrying your responsibility, Mr. Deputy Speaker. We know well the way that you conduct our business and have no criticism. However, this is a difficult situation. Therefore, I suggest you consider the possibility of asking Mr. Speaker to resume the Chair.

Mr. Winnick

Further to that point of order, Mr. Deputy Speaker. We have rightly complained that the Chancellor has said he is going somewhere else without giving any further explanation. However, in the past few minutes the right hon. Gentleman has aggravated his offence by telling my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) that in future he will not bother to give notice that he will not be here. Does not what the Chancellor is doing show a complete contempt for the House? Instead of trying to correct what he said earlier, he is saying that in future he will not bother to give notification that he will not be here. The least that he can do is to explain why he will not be here. If he is not willing to do so, we shall continue to raise the point.

Several Hon. Members


Mr. Deputy Speaker

Order. I hope that the Chancellor will now have the opportunity to say what he wants to say.

Mr. Dalyell

Further to that point of order, Mr. Deputy Speaker. As one who has been asked to withdraw from the House because of his use of language, may I be forgiven for being particular about the use of language? The Chancellor of the Exchequer referred in the hearing of all of us to the House of Commons as a "farcical charade". Is that parliamentary language and is that acceptable? What is sauce for the goose must be sauce for the gander.

Mr. Deputy Speaker

It will be much better to allow the Chancellor of the Exchequer to explain himself.

Mr. Lawson

This is the now traditional debate on the autumn statement, and it is a relatively recent tradition. This is only the fifth autumn statement that we have had. The first was the invention of my predecessor, my right hon. and learned Friend the present Foreign Secretary, in 1982, and I have been responsible for the subsequent four, but the tradition is none the worse for its recent origin. This year, however, and unusually, we have already had our debate on the autumn statement by courtesy of the Opposition on the day of the oral statement. That does not mean that this debate has to go over the same ground as the first. It gives the House the opportunity to consider for the first time the report on the autumn statement produced by the Treasury and Civil Service Select Committee, under the distinguished Chairmanship of my right hon. Friend the Member for Worthing (Mr. Higgins). Certainly, I feel compelled to do so, for who could not fail to be moved by the Committee's sole recommendation—namely that I should make any statements on what it calls macro-economic policy in the House and not outside it, as I did with my lengthy exegesis of the Government's fiscal and, in particular, monetary policy to the Lombard Association earlier this year? Moreover, the right hon. Member the Leader of the Opposition referred approvingly to this recommendation only last week.

Some of us may be a little surprised to discover that the Leader of the Opposition has developed a taste for this sort of thing, given the manifest inadequacy of his understanding of it. But I suppose the same could be said of his recent excursions into the field of strategic defence.

Be that as it may, I see little practical alternative to continuing as I have begun during my first three and a half years as Chancellor—and, indeed, as my predecessors have before me—making some speeches, such as the Budget, in the House and others, such as the annual speech to the Lord Mayor's Mansion House banquet, outside it.

I readily concede that some may feel—[Interruption.] I am afraid that it is abundantly clear, Mr. Deputy Speaker, that the Opposition's pretence that they wish to debate the economy is just that— a complete pretence, because there is no attempt to listen to what I have to say.

Mr. Bell

On a point of order, Mr. Deputy Speaker. The Chancellor of the Exchequer has referred to his Mansion House speech. On the last occasion that he made a speech to the House on the same subject, he repeated the speech that he gave at the Mansion House. May we have your guidance that this is a different speech from that which the Chancellor made at the Mansion House earlier this year?

Mr. Deputy Speaker

That is not a point of order for the Chair. [Interruption.] I appeal to the House to give a fair hearing to the Chancellor of the Exchequer.

Mr. Lawson

I readily concede that some may feel a sense of deprivation in the fact that this Government have reverted to the old-fashioned practice of having only one Budget a year, unlike the previous Labour Government, who were forced to have them every few months. But I am not altogether sure that this sense of deprivation is shared throughout the House. When, in this year's Budget speech, towards the conclusion of a relatively brief passage, I uttered the words I will say no more about monetary policy the reaction was scarcely one of profound disappointment. Indeed, Hansard records hon. Members as having interjected Hear, hear."—[Official Report. 18 March 1986: Vol. 94, c. 170] None the less—[Interruption.] I may say, Mr. Deputy Speaker, that this is, in particular, an insult to the Select Committee. What I propose to do is to deal with the points that the Select Committee has made in its report.

Mr. Hattersley

Sharing the Chancellor's desire to pay proper respect to the Select Committee, will he assure the House that he will be here when the Chairman of the Select Committee makes his speech?

Mr. Lawson

I have already discussed the matter with my right hon. Friend the Member for Worthing.

Sir Paul Bryan (Boothferry)

On a point of order, Mr. Deputy Speaker. Is it not absolutely obvious that this is organised barracking?

Mr. Richard Hickmet (Glanford and Scunthorpe)

Further to that point of order, Mr. Deputy Speaker. If the Opposition wish to cover the confusion of the Leader of the Opposition because of his failure to come to the House to make a statement explaining his behaviour in the Wright case, it does not serve their case to bring this Chamber into disrepute by rubbishing my right hon. Friend's statement.

Mr. Hattersley

Further to that point of order, Mr. Deputy Speaker. I asked the Chancellor of the Exchequer a very serious question about the relationship between the Government and the Select Committee. I am anxious that these interventions should not prevent the Chancellor from telling us whether he is or is not staying for the speech of the Chairman of the Select Committee.

Mr. Lawson

Let me say to the right hon. Member for Sparkbrook that I shall stay to hear what he has to say. —[HON. MEMBERS: "Oh."] I hope that now we can get on with the debate in a civilised manner and that the Opposition will not create the bear garden that they have been creating.

This is clearly the occasion to respond to the Select Committee's report. Since I shall have one or two critical observations to make, let me hasten to add that I do not blame the members of the Committee for their report— [Interruption.] Hon. Members should wait. It is clear that they had little time to alter what had in effect already been published by their specialist advisers.

The report levels two main charges. The first is that, and I quote—

Sir Kenneth Lewis (Stamford and Spalding)

In terms of the Select Committee of this House, professional advisers are there to advise. The report is the Committee's report. It must not be other than the Committee's report. I do not think that my right hon. Friend should leave on the record the fact that specialist advice is reflected in the opinions that are contained in the report.

Mr. Lawson

I would say in reply to my hon. Friend that of course the report is the Committee's report. And this speech is my speech.—[Interruption.]

Mr. Ray Powell (Ogmore)

On a point of order, Mr. Deputy Speaker. Some hon. Members have come to the House today to listen to the Chancellor of the Exchequer's speech on the autumn statement. It has been suggested that the Opposition are organising these points of order. I notice that you have accepted quite a number of points of order from Conservative Members. I want to hear the Government's response to the Select Committee's report. I am concerned about what was said about the Select Committee's report. I am even more concerned about the Chancellor's contempt not only for the Select Committee but for this House.

I wonder whether you would reflect upon the suggestion by my hon. Friend the Member for Brent, South (Mr. Pavitt) that Mr. Speaker should be called and that the sitting should be suspended so that he can examine what has already transpired since the Chancellor was called to speak.

Mr. Deputy Speaker

I am not prepared to suspend the sitting. I hope that the House will listen to the Chancellor of the Exchequer.

Mr. Austin Mitchell (Great Grimsby)

On a point of order, Mr. Speaker. The Chancellor has already said that he will not stay to hear the speech of the Chairman of the Select Committee. He then attacked the Opposition Members of the sub-committee and said that its report is effectively the work of our advisers. That is a slur on the sub-committee. Is the Chancellor going to withdraw what he said?

Mr. Deputy Speaker

Order. Interventions in the guise of points of order are an abuse of the procedures of the House. We must get on with the debate.

Mr. Lawson

May I, Mr. Deputy Speaker—[Interruption.]

Mr. Austin Mitchell

On a point of order, Mr. Deputy Speaker.

Mr. Deputy Speaker

Order. I have already heard the hon. Gentleman.

Mr. Austin Mitchell

May I have a ruling on that point of order, Mr. Deputy Speaker?

Mr. Deputy Speaker

I have listened to the hon. Gentleman. He knows very well that the point he raised is a legitimate matter for debate or intervenion, but that it is not a point of order for the Chair. The Chancellor of the Exchequer.

Mr. Austin Mitchell

I have not finished my point of order, Mr. Deputy Speaker. The Chancellor has made a quite deliberate slur on the Select Committee on the Treasury and Civil Service. Will he withdraw that slur?

Mr. Deputy Speaker

It is for the Chancellor of the Exchequer to make his own speech.

Mr. Lawson

The report—[Interruption.]—levels two main charges. The first is that: The operation of monetary policy has become increasingly obscure. The second is that in a number of areas, to quote the report's concluding paragraph which was contributed by that dispassionate seeker after truth, the hon. Member for Great Grimsby (Mr. Mitchell), There has been a substantial change of policy. I will discuss each charge in turn.

The first can be quickly dismissed. As Mr. Gordon Pepper, who has forgotten more about monetary policy than most of the Committee's specialist advisers have ever understood, put it in a talk to the FOREX Association of London earlier this month, and I quote: Mr. Lawson has gone out of his way to explain how monetary policy is being operated in practice, and how it has evolved, probably more so than any previous Chancellor. As I have time and again made clear, the central task of monetary policy is to create monetary conditions that, over time, will bring steady downward pressure on the rate of growth of money GDP, and hence on inflation. The principal indicators of monetary conditions are the rate of growth of both narrow and broad money, and the behaviour of the exchange rate. In present circumstances, when the behaviour of broad money has been particularly difficult to interpret, it is the behaviour of narrow money—most conveniently measured by MO—and the exchange rate that have assumed greatest importance. And the essential instrument of monetary policy is the level of short-term interest rates. The Committee appears to suggest that monetary policy is uncertain because the Government are unwilling to raise interest rates when it is necessary to do so. If that were true, it is difficult to understand how interest rates have come to stand at the level they do today.

I now turn to the Committee's second charge—that is, that there has been a substantial change of Government policy. It is important to be clear on what is in question here. The Committee allows that our central objective has been the same since 1979—to reduce inflation and to create the conditions for sustainable growth—and it also accepts that economic policy has always had two essential elements—firm control of monetary conditions and the reduction of public borrowing. What the Committee—and some others—claim to have found are changes in the way in which we have pursued an unchanging objective. Looking first at monetary policy, let me start with what has not changed, and come on to what has.

There has been no change whatever in this Government's view that monetary policy is the key to controlling inflation, and there has been no change either in our view that interest rates are, and must be, the essential instrument of that policy. And there has been no change either in our view that a sound monetary policy needs to be accompanied by a prudent fiscal policy, by which I mean a low budget deficit.

The Committee suggests in its report that what it calls "the enhanced role" for interest rates is new. But that is surely exaggerated, to say the least. Monetary policy, everywhere and always, has to operate through interest rates, for the simple reason that interest rates are the price of money. Even as far back as 1980, in the Green Paper on monetary control, it was explicitly acknowledged that, alongside fiscal policy, the main instrument for controlling monetary growth was interest rates.

I readily concede, though, that in the implementation of policy, a number of things have changed.

First, interest rates have come to bear more weight in restraining money and credit because we have, quite rightly, swept away a whole apparatus of controls. When we took office, we inherited a corset for the banks, foreign exchange controls for everyone, and mortgage rationing for those buying houses. Such controls have increasingly become unworkable, as the financial system becomes more sophisticated. This inevitably puts more immediate weight on interest rates as the instrument of policy.

Secondly, we did for a while come to use systematic overfunding—the practice of selling more gilts than needed to fund the PSBR—as a way of reducing the recorded growth of sterling M3. This led to undesirable distortions in financial markets, which also made policy harder to operate, and so we concluded that the practice could not be justified—a point made forcefully in the past, as I recall, by the Select Committee itself—and I explained that fully in last year's Mansion House speech.

Thirdly, I accept that in setting interest rates it has become harder to use as a guide the particular measure known as sterling M3. But this is in no sense a bolt from the blue. The 1980 Green Paper said that, and I quote: no single statistical measure of the money supply can be expected fully to encapsulate monetary conditions". That was what we said in 1980. In 1980, it did, nevertheless, make sense to have only one target aggregate, and one with which the markets were already familiar, because it had been the target aggregate chosen by the previous Labour Chancellor, the right hon. Member for Leeds, East (Mr. Healey), and it was clearly important then to give a simple indication of our commitment to financial discipline. But in the day-to-day operation of monetary policy, we recognised, to quote the 1980 Green Paper again—and I do quote—that It is insufficient to rely on one measure alone". That was in 1980.

We also recognised that the definition used and the choice of target aggregates might need to be adjusted, again in the words of the Green Paper, and I quote from the 1980 Green Paper: as circumstances change and in the face of long term changes in the institutional structure". And, of course, that is precisely what has happened. Circumstances have changed, and the institutional structure has altered, with the result that the behaviour of sterling M3 has become increasingly hard to interpret.

In what attempts to be a serious discussion of monetary policy, the Committee's report makes hardly any mention at all of these developments. It is even more extraordinary that there is no reference at all to experience overseas, for the experience in this country has been similar to that of other major countries, most of which, including Germany, have found their monetary targets overshooting this year, while inflation has unambiguously come down.

We cannot and we do not ignore the continued rapid growth of sterling M3 and other measures of broad money, but for a long period now this growth has proved consistent with downward pressure on inflation, so it must be looked at in conjunction with the evidence of other indicators. Principal among these is M0, the broad monetary base, which has proved a reliable indicator with a stable trend in velocity. This is why, throughout my time as Chancellor, I have chosen to set targets for narrow money in terms of M0.

The Select Committee says that it is not convinced that M0 is a useful indicator of monetary conditions. It does not say why. It is clearly absurd to imply that all narrow aggregates are misleading because the behaviour of M1 in the early 1970s did not foreshadow the subsequent inflation. It did not, but had the Committee looked at the behaviour of M0 in the early 1970s instead, it would have seen that it did, indeed, warn of the coming inflation.

In operating and formulating monetary policy, the exchange rate is clearly very important both as a transmission mechanism and as an indicator of monetary conditions. In this country, as in the other major economies, it has come to play a more prominent policy role in recent years, as institutional developments have made the monetary aggregates more difficult to interpret. But as long ago as 1980 and early 1981, interest rates were reduced because the exchange rate was clearly indicating that conditions were tight, despite the fact that at that time there was a monetary overshoot, measured by sterling M3. The 1982 medium term financial strategy explained that, and I quote once again, from the 1982 medium term financial strategy this time: The behaviour of the exchange rate can help in the interpretation of monetary conditions, particularly when the different aggregates are known to be distorted … the Government considers it appropriate to look at the exchange rate in monitoring domestic monetary conditions and in taking decisions about policy".[Interruption.] I have to tell the House, and, in particular, the Opposition, that I am responding directly to the sole recommendation of the Select Committee which was that statements on monetary policy should be made in the House, and that is what I am doing.

So there should be no surprise about an inevitable and, many would say, desirable development in the appraisal of monetary conditions. Nor, incidentally, as the date of the quotation that I have just read shows, is there anything particularly recent about this evolutionary change.

Let me now turn to fiscal policy. The Committee's complaint here is not that the Government's policy has changed, but rather that it is the same. Specifically, it is unhappy that the autumn statement reaffirmed the Government's commitment to the same fiscal stance as was set out in the 1986 MTFS.

I find the reasoning in this part of the report obscure, to say the least. In places the report appears to be hankering after a return to the old neo-Keynesian fine tuning of the PSBR, against which this Government have set their face—indeed that is part of the very essence of .the MTFS. But at the same time, spurred on no doubt by its advisers, the Committee appears to have decided after all these years to abandon the PSBR as the measure of the fiscal stance. No reasons are given for this change of mind other than the fact that the PSBR can be measured either inclusive or exclusive of privatisation proceeds.

The Committee then goes on to argue that the public sector financial deficit—which is calculated not on a real-life cash basis, but on an estimated accruals basis—is a more "relevant and useful figure". This might be slightly more impressive were it not for table 1 of the Committee's report, which sets out what purport to be the public sector financial deficits for each of the past seven years, together with estimates for this year and next year. For four out of the past seven years, the figures in the report's table are wrong, with an average error of approximately £1 billion. For this year, the Committee's PSFD estimate is a perfectly reasonable one, but its estimate for next year, which, after all, is a matter of some importance, is wholly incompatible, by a very wide margin, with the PSBR figure to which I have already unequivocally committed myself, and which at the same time is incongruously placed alongside it in its own table.

But much more important than that, on the central issue of fiscal policy, the Committee has no advice whatever to offer the House. It questions vaguely whether the PSBR should be held to 1.75 per cent of GDP next year. But it expresses no view al all as to what would be the appropriate level at which to set either the PSBR or the PSFD. It cannot say whether the Government's current and prospective fiscal stance is too loose, or too tight, or just about right.

This deficiency, though inexcusable, is perhaps understandable. I recall that last year one of the Committee's specialist advisers was urging a PSBR of £16 billion this year and £17 billion next year—something he may well wish to forget. But I find it very hard indeed to understand the justification for the doubt which the Committee attempts to cast on the Government's commitment to hold the PSBR next year to 1.75 per cent of GDP.

The reason given in the report for this—that any forecast of the PSBR is uncertain and subject to a margin of error—is beside the point, and reveals something of a misconception. When the Chancellor of the Exchequer on Budget day sets the borrowing requirement at a particular figure, he is not simply making a forecast. He is above all making a judgment about the appropriate fiscal stance and sets tax rates accordingly. And this judgment is an essential counterpart to monetary policy in the Government's overall economic strategy.

Clearly, the PSBR set at the time of the Budget has to be validated by events. But let us have a look at the record. I have so far introduced three Budgets—in 1984, 1985, and 1986. In 1984–85 the PSBR did indeed overrun, but that was because of the cost of successfully resisting the coal strike—an exceptional event which it was clearly right to take on the PSBR.

Last year, 1985–86, the PSBR undershot the figure I had set at the time of the Budget. And this year, 1986–87, the PSBR is clearly well on track. Indeed, as the figures for the first eight months published yesterday show, if anything it is more likely to undershoot than overshoot the figure that I set at the time of the Budget of £7 billion. So the Committee's implication that any figure set in the Budget is likely to be exceeded can be seen to be wholly without foundation.

We have set out to reduce the level of the PSBR, and that is what we have done. At an estimated 1¾ per cent of GDP, this year's PSBR is low by any reckoning, below the general levels of recent years, below the OECD average, and far below the grossly excessive levels from 1974 to 1979, when it averaged nearly 7 per cent of GDP or over £20 billion at today's prices. Moreover, this would still be true had there been no privatisation proceeds at all.

I do, of course, take account of the estimated proceeds of privatisation in setting fiscal policy. But, as I have always made clear, privatisation is a policy that is fully justified on its own merits. It is emphatically not a policy undertaken to massage the PSBR. Just ask the 5 million successful subscribers to British Gas.

Like other commentators, the Treasury and Civil Service Committee has speculated about the outlook for tax cuts. I decided last year no longer to publish a projection for the fiscal adjustment in the autumn statement so as to discourage the pointless and misleading calculations which are regularly made at this time of year. Subsequent events last winter proved that that judgment was right, but speculation nevertheless persists.

Let there be no mistake about this. As I have said repeatedly, a pound used in additional expenditure is a pound which is not available for reductions in taxation, unless borrowing increases, and I have categorically ruled out higher borrowing.

The House should therefore be in no doubt that the sizeable increase in next year's public spending plans, which I announced in the autumn statement, means that, despite the current buoyancy of the revenues, I very much doubt whether there will be much scope for reductions in taxation in next year's Budget.

On public expenditure, the Committee has again engaged in a textual critique worthy of Shakespearean scholars to try to demonstrate a major change of direction. The true position is very simple. We have long maintained that the state takes too much of the nation's income and its share should be reduced. This formulation can be traced back not only to the 1979 manifesto, but even before that to our policy document "The Right Approach to the Economy". And we have pursued this objective consistently.

It is true that some of the targets we have set ourselves have in the event proved too ambitious. And I have already explained to the House that we thought it right to increase the planning totals this year. But it is better to attempt to meet demanding targets than to have the complete absence of financial discipline to which the Labour party is committed.

The progress that we have made is considerable. As I explained at the time of my autumn statement, the rate of increase of public spending in real terms, even excluding privatisation proceeds, has come down from 3 per cent in the decade to 1978–79 to 2¼ per cent in the last Parliament and to 1¾ per cent a year so far in the present one. Our latest plans continue this improvement.

We have also reversed the trend of public spending as a proportion of GDP. Until 1982–83, the previous long-term growth pattern continued, mainly as a result of the severe world recession. But in the four years since then, the proportion of public expenditure has fallen progressively. Our present plans mean that this downward trend will continue so that by the end of the 1980s public spending as a proportion of national income will be back to levels last seen in the early 1970s.

I have set out the policy in terms of general Government expenditure. I had hoped that the Committee would welcome this approach, because for some time it has criticised me for focusing on the planning total and so ignoring debt interest. Yet this year, when I have based my presentation on an aggregate which includes debt interest I note it now seems to want me to go back to the planning total.

To sum up, as I said in my Lombard Association speech in April, The policy we are pursuing today is identifiably the same as that which we embarked on seven years ago. But it has clearly evolved—in terms both of presentation and of substance. Indeed, it would be extraordinary had it not evolved. Since 1979, there have been enormous changes in world economic conditions, in the position of the United Kingdom, in technology, and in the operation of the financial markets. The Select Committee, the House, and indeed the country would be rightly concerned if Government policy had not evolved in the light of these developments. But to depict this evolution as a substantial change of policy is absurd.

If the Committee needs to be reminded of what a real shift of policy is, it need look no further than the last Labour Government—pre and post the flight to the International Monetary Fund.

Indeed, if ever there was a year in which I might have been expected to change policy, it would have been this year, 1986, with the halving of the oil price. Many people duly advised me to make such a change. I rejected that advice, and maintained the same course, and there has been no crisis. Inflation has fallen to levels not seen for almost 20 years. After a short pause, growth has continued steadily. The number of people in work has continued to rise, and unemployment now looks to be firmly on a downward trend.

The way that both the private sector and the public finances have withstood the fall in the oil price is remarkable. That is the best possible vindication of the economic policy which we have pursued since 1979, a policy which has brought five years of steady growth, low inflation, and a million new jobs since 1983.

For 1987, I foresee a continuation of this pattern, with growth slightly faster than this year, and inflation staying low. The figures that have been released since the autumn statement confirm that picture. Output and exports have both picked up, with industrial production and exports in the three months to October both 1½per cent higher than in the previous three months and manufacturing output up 3 per cent since the beginning of the year. And the latest estimate that the surplus on invisibles was some £750 million a month in the third quarter of this year, with a still larger surplus likely in the fourth quarter, puts into perspective the advice confidently given to the Select Committee by one of its specialist advisers that the earlier projection of £600 million a month was "particularly optimistic".

Seasonally adjusted unemployment fell by 25,000 in October, making a total fall of 56,000 over the last three months, the best performance for 13 years. While the inflation rate did rise last month, chiefly as a result of the rise in the mortgage rate, the underlying inflation rate remained broadly stable.

The outlook for the British economy will, as ever, be critically affected by developments in the wider world economy. One clear danger, which is more acute now following the recent Congressional elections in the United States, is that world trade will become much less free. A retreat into protectionism would be a disastrous step backwards. Following the agreement on a new GATT round, it would be tragic if unilateral action were to undermine this progress. The United States would do well to recognise that multilateral negotiation and moderation where disputes arise are in all our interests.

The past year or so has seen substantial changes and discontinuities—the halving of the oil price, sharp falls in other commodity prices, and the major realignment of exchange rates following the Plaza agreement. The world economy is adjusting to all this, with, so far, merely a pause in the growth of world trade. In part at least, this is because the major countries have co-operated in pursuing soundly based policies. The world outlook for 1987, at the present time, like our own, is good; and it is crucial that we do not lose our way through a retreat into protectionism.

1986 has also been a notable year in the annals of the Labour party. It is the year in which it has reassembled carefully all the economic policies that have failed before, and been rejected by the electorate before. It is the year too in which it has broken with the traditions of previous Labour Governments by abandoning the effective defence of this nation. But I had better be careful, because if I am too critical of the right hon. Member for Sparkbrook he may cancel his reply, just as he refused to speak to the Confederation of British Industry last week because it criticised his policies. We have sought in vain for clarity about how he would run either monetary policy or fiscal policy. Even on public spending, his views are—shall we say—less than entirely clear. Ever since my right hon. Friend the Chief Secretary and I costed Labour's programme at some £28 billion—and that was before we had heard about the £6 billion training levy—the right hon. Gentleman has consistently failed to explain how he would finance it, whether by taxation or by borrowing, or by both. If he intends to drop any of the pledges, he should say very clearly which.

Mr. Alan Howarth (Stratford-on-Avon)


Mr. Lawson

I am coming to the end.

I have, of necessity, Mr. Speaker, ranged widely in my speech, and I hope that this has helped the House in its consideration of the autumn statement, even though it is clear that the Opposition are not the slightest bit interested in the economy or in the report by the Select Committee.

In conclusion, let me come back to the autumn statement itself. The forecast it contains offers the prospects of another year of low inflation and steady growth. It sets out public expenditure plans which make increases in spending in priority areas, within a framework in which public expenditure in total continues to fall as a proportion of national output. It is the latest step in a firm economic strategy which has been pursued consistently since 1979, and I commend it to the House.

Mr. Alan Howarth

On a point of order, Mr. Deputy Speaker. Is it not a gross abuse of the House—

Mr. Michael Forsyth (Stirling)

On a point of order, Mr. Deputy Speaker. Is it not a gross abuse of the House —[Laughter.]

Mr. Deputy Speaker

I shall take the hon. Member for Stirling (Mr. Forsyth).

Mr. Forsyth

I suspect that it may be the same point of order as my hon. Friend the Member for Stratford-on-Avon (Mr. Howarth) was going to make. Is it not a gross abuse of the House that throughout the Chancellor's speech many Conservative Members who wanted to listen were unable to hear because of the organised barracking led by Opposition Front Bench Members and the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) who has abused the Chancellor's courtesy in telling him that he had to leave the Chamber? Surely Conservative Members have a right to hear the Chancellor and not be subject to such juvenile tactics.

Mr. Patrick Nicholls (Teignbridge)

Further to that point of order, Mr. Deputy Speaker. It cannot have escaped your notice that over the past hour there has been a systematic attempt to break up the speech that was being delivered by my right hon. Friend the Chancellor. I appreciate that there is nothing that you can do about the yobbo tendency on the Opposition Benches if the Opposition choose to conduct themselves in that way. However, is there nothing that you can do to ensure that such behaviour is not egged on and actively abetted by the Leader of the Opposition? Is there nothing that you can do to make it clear to him that the standards that are acceptable on a Saturday night at a rugby club hop are not acceptable in the House of Commons?

Mr. Frank Cook (Stockton, North)

Further to that point of order, Mr. Deputy Speaker. Is it not preposterous for Conservative Members to make such protestations about the level of noise from Opposition Members when some of the few who have been in their places throughout the speech of the Chancellor of the Exchequer have been visibly slumbering?

Mr. Deputy Speaker

Order. Hon. Members having got things off their chests, perhaps we can get on with the debate.

6.11 pm
Mr. Roy Hattersley (Birmingham, Sparkbrook)

I wish to make it clear, in response to the point of order raised by the hon. Member for Stirling (Mr. Forsyth), that at no time during the speech of the Chancellor of the Exchequer did I abuse him. I propose to start doing that now.

I am sure that the Chancellor of the Exchequer will recall that when last he addressed the House one British newspaper of some distinction described him as having turned in a "tawdry" performance. I have no doubt that even now the pencils are being sharpened in the Press Gallery. Let me tell the right hon. Gentleman that his performance matched unbridled arrogance with stupefying complacency. During the Conservative party conference it was put about by his advisers that he was being helped in the preparation of his oratorical efforts by one of the scriptwriters for "Yes Minister". I doubted that at the time, but I do not doubt it now.

Apart from the absurdities at the beginning of the right hon. Gentleman's speech—absurdities that underline the boneheaded insensitivity that marks so much that he does—there was an extraordinary attack on the Select Committee on the Treasury and Civil Service. It was one of the most unexpected attacks that any of us in the House have ever heard. I remind the Chancellor of the Exchequer of the composition of the Select Committee. It comprises seven Conservative Members, three Labour Members and a Conservative Chairman of great distinction, an ex-Treasury Minister, who is, I believe, respected on both sides of the House. Under his chairmanship a Conservative majority turned in a unanimous report. It happened to be a report which criticised the Chancellor of the Exchequer, but to justify an attack on the Committee and its advisers —

Mr. Nicholas Budgen (Wolverhampton, South-West)

Will the right hon. Gentleman give way?

Mr. Hattersley

No. I should make it clear—

Mr. Budgen


Mr. Deputy Speaker (Mr. Ernest Armstrong)

Order. It seems clear that the right hon. Gentleman is not giving way.

Mr. Hattersley

If I give way, I shall postpone the opportunity for the Chancellor of the Exchequer to leave to sabotage the British aircraft industry. I tell the hon. Member for Wolverhampton, South-West (Mr. Budgen) —

Mr. Budgen


Mr. Hattersley

I tell the hon. Gentleman and the House that, with the exception of the Chancellor of the Exchequer and that of the Chairman of the Select Committee, the right hon. Member for Worthing (Mr. Higgins), I do not propose to give way to anyone. I take that view because we should be examining—this is what I intend to do—the Government's economic strategy and the commentary upon it which the Select Committee provided. What we should be doing, and what the Chancellor of the Exchequer prevented us from doing in a proper fashion by his earlier behaviour, is taking the opportunity that these debates provide to examine the principles upon which the Government's economic policy is based.

In the recent past—I believe for seven years—we have at least agreed on what comprised the Government's policy, for the principles of the Government's economic policies were set out in the medium-term financial strategy. We knew what the principles were and we argued about their values and merits. We noted that the monetary targets on which the policies were based were consistently and constantly missed. We knew what the policy and strategy were even as we observed their practical results. These included the highest unemployment level in our history, the highest real interest rates in our history, the worst balance of payments in our history and the lowest sterling value in our history. We have known the results of the policies as we have heard the boasts that have been made about them. We have known also of the money that has been spent in an attempt to ensure their success.

The medium-term financial strategy can be compared only with the Chelsea football club. Each week the Chancellor announces that he is certain to win the next match. If we take account of history, however, we note that our performance is worse than that of our competitors. We note that our performance is much worse than it was before the medium-term financial strategy was put in place. For years the Chancellor assured us that as long as the Government kept their nerve and adhered to their strategy, eventually interest rates would fall, sterling would appreciate, the balance of payments would produce a surplus and there would be a real and sustained reduction in unemployment. Up to now none of those things has happened, yet on all the evidence, which was documented carefully by the Select Committee, which is the offence which resulted in the abuse that has been heaped upon it, the medium-term financial strategy has, in truth and reality, been abandoned.

As the strategy has been abandoned, the question I ask, which the House asks, and which the country will ask, is how the Government can possibly justify all the waste and suffering which was inherent in the strategy over the past seven years. If the strategy has been abandoned, for what purpose did we cut public expenditure, close hospital wards, reduce pensions, end local authority housebuilding, increase rate bills and persist with the petty but mean cuts such as the reduction in mortgage interest that is eligible for reimbursement through supplementary benefit payments to the unemployed?

Mr. Michael Forsyth


Mr. Nicholls

Will the right hon. Gentleman give way?

Mr. Hattersley

No. I have made it clear that I do not propose to give way.

Mr. Nicholls


Mr. Deputy Speaker

Order. The right hon. Gentleman is saying that he is not giving way.

Mr. Hattersley

I have no doubt that weak-minded Government Back Benchers will argue that the medium-term financial strategy has achieved its crucial objective of lower inflation. Some, in an excess of loyalty, may even assert—

Mr. James Couchman (Gillingham)

On a point of order, Mr. Deputy Speaker. Is it in order for the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) to refer to Conservative Back Benchers as weak-minded?

Mr. Deputy Speaker

Order. Various exchanges take place and I am sure that "weak-minded" is not an unparliamentary term.

Mr. Hattersley

Those who believe that the medium-term financial strategy is still in place and alive and well should consider some of the passages in the Select Committee's report which the Chancellor of the Exchequer did not deal with when addressing the House. I am sure that he omitted to do so only because he was hurried. I repeat that the Select Committee came to a unanimous judgment with a Tory majority under a Tory Chairman. Explicitly on the Government's inflation record, it stated: since its first term in office, the rate of inflation has remained broadly unchanged, and has declined in 1986 mainly because of the steep fall in oil and other commodity prices. Domestic symptoms of inflation have been not greatly affected. I remind the Chancellor of the Exchequer of the figures on which that assertion its based. In June 1983, the retail prices index was 3.7 per cent. This month it is 3.5 per cent. It is forecast on the Government figures that it will rise to 3.75 per cent by the end of this Parliament.

Mr. Alan Howarth


Mr. Hattersley

No. I shall not give way. More objective predictions suggest—

Mr. Howarth


Mr. Deputy Speaker

Order. The hon. Gentleman should know that the right hon. Gentleman has said he is not giving way.

Mr. Hattersley

I do not want the House to miss the figures, so, because of interruptions, I shall repeat them. In 1983 the retail prices index was 3.7 per cent. —

Mr. Michael Brown (Brigg and Cleethorpes)

On a point of order, Mr. Deputy Speaker. The right hon. Gentleman has referred to a Select Committee, and you will recall that a recent Select Committee on Procedure suggested that one of the problems about our debates was that right hon. and hon. Members did not indulge in the old-fashioned practice of giving way, thus ensuring that there was not proper debate. Will you remind the right hon. Gentleman of the findings in that Select Committee's recent report?

Mr. Deputy Speaker

As the hon. Gentleman knows, that is not a point of order for me.

Mr. Hattersley

I shall try a third time. In 1983 the RPI was 3.7 per cent. It is 3.5 per cent. this month and rising, and it will be 3.75 per cent. by the end of the year, on the Treasury's own estimates. On a more honest and objective analysis, it will be over 4 per cent.

Sir William Clark (Croydon, South)

Will the right hon. Gentleman give way?

Mr. Hattersley


In the debate on the economy on 6 November the Chancellor was absolutely explicit about how the Government should be judged. He said that the Government must be judged by what has happened since 1983. Does the right hon. Gentleman accept that criterion, which is his own, for the inflation rate? If so, the Government have not only failed to hold down inflation during this Parliament's lifetime, but will have presided over a period during which inflation has risen.

I suspect that the Chancellor will shift his ground, as he usually does, and will say that the inflation rate has to be measured from 1980; that being the time when the Government, having inherited an inflation rate just below 10 per cent. and having pushed it up to more than 21 per cent., began to bring it down again. As the Chancellor is arguing with me about the base date, I shall ask him—and I have said that I shall give way to him—to tell us the date from which he believes that the Government's economic record should be judged.

In a single speech, in one and a half columns of Hansard, the Prime Minister chose five different base years as the basis for her phoney statistics: 1979 for manufacturing productivity; 1981 for economic growth: 1982 for public spending; 1983 for manufacturing output; and 1985 for manufacturing investment. The Prime Minister talks as though the Government came to power bit by bit, when really they are disintegrating bit by bit. The country will want to judge the Government on all their seven years in office. Let me remind the Chancellor of what they involve. Two million full-time jobs have been lost, unemployment has increased by 2 million, manufacturing output is down by 7.5 per cent. and manufacturing investment is down by 17 per cent. Moreover, our manufacturing balance of trade has been turned from a £4 billion surplus into a £4 billion deficit.

One could go on and on listing the failures of the past seven years. The point is that the failures of the past have all been justified on the promise that as long as we stick to the medium-term financial strategy, everything will come out right in the end. But we now conclude that the medium-term financial strategy has lost its purpose, its heart and its central core. In the words of the Select Committee, the Government

lacks a coherent strategy for the setting of fiscal strategy". The Select Committee went on to say, in another point that the Chancellor did not deal with, that it

notes the disappearance of the Treasury's former claim that the MTFS would damp down inflationary expectations. If the Chancellor wants to argue with that, I shall certainly give way to him. Even the promises on public expenditure, the commitments that so excited those new, hard-faced Conservatives who have done well out of privatisation, have been broken. Whether or not the Chancellor likes it, the Select Committee is explicit and precise in describing his change of stance and position.

The Chancellor's first intention was a reduction in public expenditure. His second intention was to hold it constant in real terms. Now, the best that he promises, or the worst in terms of public services, is that it should be held steady as a percentage of gross domestic product. The truth is that he has constantly failed to hit his targets on spending and on money supply, and now he has left that whole policy to disintegrate.

The medium-term financial strategy has disintegrated partly because of the Government's hope that they can now suddenly pretend to be enthusiasts for public expenditure, and enthusiastic about the public services that that expenditure provides. But the real reason for the collapse of the medium-term financial strategy is its own internal contradictions.

In the real world, the medium-term financial strategy could never have worked. It is now dead, and it is being kept from putrefaction by the one firm item of economic policy that the Government possess and the one firm item of economic policy that the Select Committee identified: the commitment to historically high interest rates, which are very much higher than those found in our competitor countries and in our more successful industrial neighbours. The Select Committee quoted the Chancellor's extraordinary words, when he said:

the guiding principle of policy is to maintain … a level of short term interest rates that will deliver the monetary conditions needed to reduce inflation. The Chancellor made some references to Shakespearean scholars. As he seems to be in a textual and semantic mood, I shall ask him when short term turns into long term. After all, we have had historically high short term interest rates for longer than ever before. He has maintained interest rates at such a high level that manufacturing industry has been unable to afford the new investment that would enable it to expand output and exports, and to drag our balance of payments back into surplus. It is, of course, the Chancellor's interest rate policy that has increased the RPI this month. It was his interest rate policy that pushed mortgage rates to record heights.

Our real interest rate now stands at 8 per cent., and that uniquely high interest rate is the crutch on which the ailing pound now leans. But it is the policy of high interest rates that has put the pound under pressure, and that has done the damage to sterling from which we now suffer. We all know why there has been pressure on the pound and when it will reappear. International opinion has judged that we cannot pay our way in the world and that without oil we shall become a debtor nation. Those countries have seen oil income fall and they know that it is running out. They have also witnessed the Chancellor's complacency in the face of that. Three months ago he told us that we had lost half of our oil income in 25 weeks and had survived.

We have survived but at the price of a balance of payments that has moved from surplus into deficit, and at the price of interest rates that penalise home owners and incapacitate industry. That is why, in the long term, high interest rates are putting such pressure on sterling. They have undermined our capacity to export, because they have prevented manufacturing industry from expanding, held back investment, and made it impossible for manufacturing industry to fill the gap left in our balance of payments by the reduction in oil revenues.

We have survived, as the Chancellor said, at the cost of creating a vicious spiral. The monthly announcement of balance of payments deficits undermines sterling. Interest rates are then increased to prop up sterling. The interest rate increases themselves debilitate industry, making it impossible for it to export, and further undermining our balance of payments. The idea that the Chancellor should think that high interest rates are an unequivocal boon when they are destroying manufacturing industry, destroying our export potential, undermining our balance of payments and therefore bringing fundamental pressure on the pound, answers many of the questions about which international opinion now ponders and wonders.

Because of industry's inability to invest, to produce and export, last month we had the brief and crude statistical deception to obscure the balance of payments record during the three months in early autumn. That record was a disaster in August, a catastrophe in September and just plain bad in October. It is against that background that the Chancellor says in his more expansive moods, hoping that he can win a few tawdry votes, that public expenditure is increasing.

As is clear after an analysis of the autumn statement, the real increases in public expenditure that it entails have been very much exaggerated. When the increase is genuine, it is more often than not the result of mistakes rather than intentions. The increase in the social services budget is largely the product of unemployment and therefore higher unemployment benefits. I give the Government credit for that not being their intention when last year's plans were set. On present economic policies, the current level of public expenditure cannot be sustained, for it is being financed by a combination of short-term expediency and long-term profligacy. It is being financed by the sale of public sector capital assets—

Mr. Nicholls

Will the right hon. Gentleman give way?

Mr. Hattersley

When I talk about profligacy, I talk about the sale of valuable national assets, badly underpriced so that the Tory party's friends in the City can get them at bargain prices. If that is not profligacy, I do not know what is. Current public expenditure is being financed by tax income, which has come from the boom in credit and consumption.

Mr. Couchman

Will the right hon. Gentleman give way?

Mr. Hattersley

That boom is sucking in imports and making certain that our balance of payments is in deficit. That extra tax income—

Mr. Ian Gow (Eastbourne)

Will the right hon. Gentleman give way?

Mr. Hattersley

That extra tax income—what the Chancellor coyly calls buoyant tax receipts—is the direct result of earnings outstripping the inflation rate—levels of wage settlements which he used to condemn—so I ask the Chancellor again, for I am more than willing to give way to him—[HON. MEMBERS: "Come on."] I ask the Chancellor again, for I am more than willing to give way to him, does he still condemn wage settlements that are moving forward faster than the rate of inflation, and if he does not condemn them—[Interruption.]

Mr. Deputy Speaker

Order. The right hon. Gentleman must not persist in asking the Chancellor of the Exchequer to intervene—

Mr. Budgen

On point of order, Mr. Deputy Speaker. Is not the attitude of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) an insult to the House? He is not here to have a private conversation with the Chancellor of the Exchequer. He is here to address the whole House. It is no less than an insult to all of us if he gives way only to the Chancellor of the Exchequer.

Mr. Deputy Speaker

Order. Fortunately, it is not my job to determine the attitudes of right hon. or hon. Members. It is my duty to uphold the rules of the House. That was not a point of order.

Mr. Gow

Further to that point of order, Mr. Deputy Speaker. Is it not your duty to ensure that Members of the House can follow what is being said from the Opposition Front Bench? It is extremely difficult to follow what the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) is saying. His speech is so full of inconsistencies—

Mr. Deputy Speaker

Order. [Interruption.] Order. It is, indeed, difficult to follow the right hon. Gentleman because of the noise from the House. We believe in hearing every point of view, and the House would get on much better if there were not so many interruptions from a sedentary position.

Mr. Nicholls

Further to that point of order Mr. Deputy Speaker. May I ask for clarification of the ruling that you have just made? As I understand it, you said that because the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersely) has refused to give way, on any new points that arise, he cannot be asked to give way on them. Why is the right hon. Gentleman under your personal protection, Mr. Deputy Speaker, and why can we not ask—[HON. MEMBERS: "Withdraw."]

Mr. Deputy Speaker

Order. I did not hear what the hon. Gentleman said. It is in order for any hon. Member to try to intervene. It is not in order for him to persist when it is obvious that the Member who has the Floor does not intend to give way.

Mr. Hattersley

I shall ask the Chancellor my question again. For some years he has condemned wage increases running ahead of the inflation rate. For some years he has attempted to exhort British industry to hold down those increases. It is that disparity between inflation and earnings that has produced the buoyant economy on which he now relies to meet his tax bills.

Mr. Lawson


Mr. Hattersely

If the right hon. Gentleman is saying "Nonsense" while sitting down, will he get up and tell us where the new buoyancy is coming from?. Which of the taxes, VAT or otherwise, is providing the extra revenue? Is it the result of the disparity between earnings and prices? Answer came there none. What the Chancellor knows, and why he is wise not to speculate on those matters, is that the expedient on which he relies for paying his temporary bills cannot last for ever. Sooner or later there will be no more national assets to sell off. I describe that policy as profligacy again. Sooner or later the export—import imbalance will be so great that the right hon. Gentleman will not be able to continue in his present vein. The election tactic that the Government now operate is to pray that they can win the race between a general election and a sterling crisis, and in the meantime spend now in the hope that they will be able to make the country pay later.

Sir William Clark

Will the right hon. Gentleman give way?

Mr. Hattersley


The tax cuts that I confidently predict will come in the next Budget, generally financed out of asset sales, cannot be sustained. Were the Tories to win the election, their victory would he followed by a massive increase in taxation—

Mrs. Elaine Kellett-Bowman (Lancaster)

Like the last time.

Mr. Hattersley

The hon. Lady is absolutely right. They did it last time. They did it in 1979. I was about to make the point, and I am grateful to her for making it for me, but I shall repeat it. An election victory would be followed by a massive increase in taxation, as it was in 1979. More essential services would be jeopardised by privatisation. There would be more public expenditure cuts. Lord Young's manipulation of Government statistics would be abandoned and even the official unemployment total would begin to rise again.

That leads me to my one criticism of the Select Committee. It seemed surprised as well as offended that the Chancellor chose to make his policy speeches outside the House to carefully selected audiences of bankers and stockbrokers. They like his policy. His policy has pampered them at the expense of manufacturing industry. They like his policy because it has made them rich while it has increased poverty and unemployment. Outside the charmed circle of his own choosing, the Chancellor relies on bogus statistics and fraudulent forecasts. He may care to comment on this, or tell the Minister of State to do so. He is, after all, the Chancellor who dare not publish his own Department's report on the economic effect of income tax cuts. The truth is that the Chancellor has been rumbled. What made him in such a savage temper today is the fact that he was rumbled by a Select Committee with a Tory majority. That Committee proved—and the country knows it—that the Chancellor lives on arrogance, faked figures and borrowed time. That is why we will vote against his autumn statement tonight.

6.40 pm
Mr. Terence Higgins (Worthing)

I greatly welcome the positive response of my right hon. Friend the Chancellor of the Exchequer to the report of the Treasury and Civil Service Committee. Its task is to monitor the operation of his Department and to report to the House on the basis of the evidence that it has received. I believe that it has carried out that duty and provided a better foundation for debate than would otherwise have been the case.

Before I consider some of the technical matters to which reference has already been made, I should comment on one or two of the remarks made by my right hon. Friend. If I recall correctly, he sought to say that he did not blame the Committee for its report. I am sure that I speak on behalf of every member of the Committee when I state that we accept full responsibility for what was said in the report and that we reported on a unanimous basis. Of course, we take advice from those who have kindly agreed to give us advice, but the analysis and the report are entirely the responsibility of Committee members who have thought out matters for themselves. The report is based on a Chairman's draft, which I prepared. Indeed, I have done little else for the past three weeks or so except prepare drafts for one Committee or another.

It is wrong of my right hon. Friend to suggest that the report is not the responsibility of the Committee or, as he preferred to put it, that he did not blame the Committee for what was said in the report. Those from outside who advise Committees do so for a pittance compared with what they usually earn. They provide us with expect advice across a wide range of opinion. They are not taken from one or other part of the political spectrum.

There is a more fundamental point. It is a recognised practice in the House that one does not attack the Government's advisers. The reason for that is sound—they are unable to defend themselves. It is unfortunate, therefore, that my right hon. Friend has sought to ascribe blame—

Mr. Lawson

They can defend themselves.

Mr. Higgins

Perhaps they can, but not in the House. However, with respect to the Chancellor, it is not a question of their advice being the Committee's report. That is totally and utterly wrong. The report is that of the Committee. My colleagues on the Committee have developed considerable expertise in the light of the numerous inquiries that have been made.

I should also mention that the Committee has a wide spectrum of members ranging from the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) to my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen). That is a wide spectrum, and there is much opinion in between.

Mr. Budgen


Mr. Higgins

With respect, I should like to finish.

As economic policy changes, so, of course, the Committee's angle of attack when taking evidence from the Chancellor is also inclined to change. None the less, the report was the unanimous report of the Committee.

Mr. Budgen

My right hon. Friend seems somewhat offended by the Chancellor's attack upon the Committee. We made a vigorous attack upon some parts of the Government's economic policy. It would have been rude and patronising if the Chancellor had not dealt with such criticism as vigorously as we attacked the Government's policy. There need be no collective sense of irritation because the Chancellor has taken the opportunity to criticise our report with the same vigour as we criticised his policies.

Mr. Higgins

I cannot agree more. I began my remarks by saying that I greatly welcomed the Chancellor's positive response. On one side of the fence is the business of the Select Committee and on the other side is the Chancellor. It is our task to monitor his actions.

I want to quote from the report because that is the nub of the Chancellor's concern. Paragraph 4 states:

In previous reports we have drawn attention to the fact that, although the Government has been successful in achieving a number of its economic ends, the manner in which these have been achieved has differed from that originally propounded in successive versions of the Medium Term Financial Strategy. It is important that economic policy should be flexible, and able to deal with circumstances not originally foreseen, but we think it would be more appropriate, when policy has obviously changed, for the Chancellor to admit it. Otherwise it is more difficult for us to learn lessons from past experience or indeed to ascertain what present policy really is. We drew attention to a number of changes that have taken place. In reply, the Chancellor has stressed that the objectives of economic policy have remained the same. We do not dispute that. Indeed, we emphasise that that is so. However, it is absolutely clear that once we have the objectives—which may be common on both sides of the House—the policy that is adopted to implement those objectives may vary greatly. I do not think that it can be seriously argued, in the light of the clear quotations that we made from previous Budget and autumn statements, that the policy has not changed. We have explained in great detail how it has changed, and I do not understand why the Chancellor objects to admitting that it has changed. No one will complain if the Government show flexibility in these matters.

It is right that we should acknowledge the Government's achievements, not least in controlling inflation. That is very important if we are ever to combat the basic problem of unemployment. We should also recognise the extent to which employment has been increasing and the rate of economic growth.

It would be extraordinary if any Select Committee came out with the view that everything that the Government were doing was marvellous. That is not our function. Inevitably, the Chancellor must recognise that Committees tend to be critical, and to a large extent that is their proper function.

I want to spend a moment or two detailing some of the changes, the most obvious of which has occurred in connection with public expenditure. The Government started off by saying that they were going to cut public expenditure in real terms. Then they gradually moved to a different position and said that it would be held roughly constant in real terms and would decline as a percentage of GNP. That is a radical change in policy, and for many Conservative Members it is a considerable disappointment. The Chancellor must recognise that change. I do not see how it can sensibly be argued that that is not the case.

The report details the change in the use of monetary indicators. We complain not that the Chancellor has been flexible, but that he insists that he has not been flexible. A similiar observation was made about the exchange rate.

I want to consider a technical point made by the Chancellor. We say in the report that the public sector financial deficit is a better guide than the public sector borrowing requirement to what is really happening. That is entirely consistent with a point that the Committee has stressed—that the PSBR is not a good guide when the receipts from privatisation are treated as a reduction in public expenditure. We have consistently argued that that is an absurd way of looking at it. We make the constructive suggestion that the public sector financial deficit is a better guide.

In his speech, the Chancellor objected to the figures that were quoted. He said that some were out by as much as £1 billion. However, if one were to look higher up the page, one would see that the PSBR is subject to a margin of error of something like £2.5 billion. That may be so. We are perfectly happy for the Chancellor to correct the figures if we have got them wrong. After all, he has more advisers than we have and I would not criticise those advisers whatever they came up with. We are perfectly happy to accept the figures that the Chancellor puts forward, but we believe that the concept that we have advanced in what we hope is a practical suggestion is a better guide than that previously advanced. We appreciate that there is a certain convenience about the public sector borrowing requirement—everyone is used to it and to the problems that go with it—but to argue that it is an ideal measure is, in our view, a mistake.

Mr. Lawson

I have listened carefully to what my right hon. Friend has said. If he wishes—I quite understand this and I have made this point on many, many occasions —if he wishes to look at what the PSBR would be if privatisation proceeds were added back in, in other words, if they were not counted as negative expenditure, it is a perfectly reasonable thing to do. But that is no case for looking at the public sector financial deficit, which is a different aggregate, done on an accruals basis with an accruals adjustment in it, on an estimated basis, and fluctuates in a very unpredictable way and which has no relation whatsoever to underlying conditions. What he has not explained is why, if his problem is privatisation proceeds, he does not simply look at the PSBR with privatisation proceeds added on top and why he goes to the PSFD. That is what I do not understand.

Mr. Higgins

I fear that I do not have time to deliver the Chancellor a lecture on the subject, but there are substantial arguments—quite apart from the point about privatisation proceeds—in favour of the public sector financial deficit. Indeed, I have argued consistently that the whole thing should be examined in a balance sheet context as well, because that is very important. The Chancellor says that the public sector financial deficit is subject to random fluctuation, but he knows perfectly well that the public sector borrowing requirement does not distinguish between intended changes in borrowing and changes resulting from subsequent external events, so the same argument applies equally to the PSBR. I hope that we can have a debate about this. One of our recommendations—indeed, our only recommendation, as the Chancellor rightly pointed out—is that these matters should be debated on the Floor of the House, not outside. I therefore welcome his intervention and hope that we shall be able to pursue this matter.

I am anxious not to take up too much time because much has already been wasted, but I should like to deal with two further points. With regard to exchange rates and interest rates, I commend paragraph 19 of our report to the House. In that paragraph we state our belief that at present monetary policy is uncertain because the Government wish to prevent interest rates from rising and the exchange rate from falling. As this relates to changes in policy, I feel bound to point out in parentheses that, although there has been a reduction in the PSBR which I welcome, there has not been the corresponding fall in interest rates that was envisaged when the policy was originally put forward. As we point out in our report, that is because the exchange rate has been given greater emphasis than before and essentially we now have an interest/exchange rate policy.

The Opposition will he less happy about my next point. I have no doubt at all that if there is any possibility—I do not myself recognise it—of a hung Parliament or a Labour Government there will inevitably be downward pressure on the exchange rate as the election approaches due to fears aroused by Opposition policy. If the Chancellor does not want the exchange rate any lower, as he has stated, there will be upward pressure on interest rates—but he does not want that either. Therefore, as our report points out, there is a real dilemma that the Chancellor has not spelt out in detail and that he did not deal with today.

Having said all that, I think that in many ways the Chancellor is not over-optimistic. I do not share the concern expressed by some about the balance of payments. I think we are very fortunate that exchange rates have moved as they have, with no great change in relation to the dollar but a substantial reduction in relation to the deutschmark. To the extent that we buy in dollars and sell in deutschmarks, that is a good thing. Given the so-called J-curve effect, we may reasonably hope that the balance of payments will remain secure. Therefore, I do not share the concern expressed by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley).

Finally, one of the functions of the Select Committee is to warn of impending problems. We regard that as an important function and we have expressed concern about what the Governor of the Bank of England, in evidence to us last year, described as the overhanging glacier of liquidity. It is a matter for conjecture to what extent comparison of the present situation with the period 1972 to 1974 produces a sense of déja vu. The Chancellor made a point about MO in his speech today. Nevertheless, the Committee is concerned about the increase in liquidity. It is, indeed, an overhanging glacier, but it is largely frozen at the moment due to a combination of interest rates and expectations about inflation. Like my right hon. Friend the Chancellor, I believe that inflation will remain at a very low level—a better level, as he rightly points out, than we have known for 20 years or more. Nevertheless, there is a difficult situation and we should expect the Chancellor, in the light of our recommendation, to analyse it in the House, not just outside. If an important statement is to be made on monetary policy, it is right that it should be made in this House.

I have spoken for longer than I expected because my speech was not precisely as I expected. We have pointed out the disappearance of rational expectations from the Government's economic policy, and no one in this place should have rational expectations about what is going to happen next. Having said that, I believe that ours is a constructive report and that our comments are fair. The report is part of a continuing debate, and it is a function of the House of Commons to debate these matters in a serious way. Only if we do that can we fulfil the obligation placed upon us by the electorate to ensure that the economy is managed as effectively as we can arrange. I believe that the Select Committee, having produced a unanimous report on this matter, has made a contribution to the debate—no more, no less. We may be shown to be right or we may be shown to be wrong, but the level of debate and the extent to which policy is examined is far greater than it was before the Select Committee system was set up. I believe that that is an advantage to democracy.

6.57 pm
Mr. David Penhaligon (Truro)

I beg to move, to leave out from "House" to the end of the Question, and to add instead thereof,

rejects the Autumn Statement presented by Mr. Chancellor of the Exchequer on 6th November, noting that after seven and a half years of the Conservative Government both long-term unemployment and real interest rates are at record levels; further notes that inflation is once again on a rising trend, that earnings are being allowed to increase far ahead of productivity, and that the current account of the balance of payments is moving into rapidly worsening deficit; and therefore calls on Her Majesty's Government to strengthen investment in manufacturing industry, the infrastructure, and training, to negotiate entry into the exchange rate mechanism of the European Monetary System at a competitive rate and to introduce an incomes strategy to reduce the increase in unit labour costs to the level of the United Kingdom's major competitors. I congratulate the right hon. Member for Worthing (Mr. Higgins) on opening the debate, as there was very little debate before. The Chancellor's pressing engagement was apparently less pressing than he made out. [HON. MEMBERS: "He has just gone."] I did not expect his patience to stretch so far as to listen to what the alliance had to say. He has never listened before, but he will discover what we have to say when the election comes. [HON. MEMBERS: "Where are your friends?"] There is a higher proportion of alliance Members here than of any other arty. [HON. MEMBERS: "An alliance of one."]

The Select Committee report makes the obvious point that what were thought to be the all-important guides have been dropped. I tried to intervene to ask the Chancellor exactly what were the distortions of M3 to which he referred. I suspect that there is some truth in his claim that M3 does not accurately record for the nation's interest all that it was thought to record. Some of us never thought that it did. Nevertheless, I should have liked to ask the Chancellor exactly what had allowed M3 to reach 20 per cent in real terms but 23 per cent in absolute monetary terms. Unfortunately, he did not want to reply.

It is clear from the Select Committee report and from the comments of the Opposition spokesman that there is general recognition that interest rates are the Chancellor's chief weapon today. High interest rates have become endemic in the economy. Few hon. Members are prepared to argue through the reason why the Chancellor is pursuing high interest rates and to outline an alternative.

The Chancellor has admitted once or twice why he is pursuing high interest rates. I believe that he is pursuing high interest rates because he knows that, with such conditions, the pound is likely to sustain a higher value. Not many would argue with that. It is a deliberate ploy to make exports dearer and imports cheaper. Manufacturing industry therefore has difficulty selling abroad and at home. The Chancellor pursues that policy because he wants to put maximum pressure on what he believes to be the engine of pay settlements that are above what he considers a tolerable level.

I am willing to continue the argument through, whereas the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) is not. I believe that pay settlements during the past several years have been higher than is in the nation's interests. If we want to restore our manufacturing strength and to give some of our young people a real chance in productive employment, we have to do something about pay settlements. As the amendment says, I and my party believe that the method lies with an income strategy which, if announced and discussed during a general election campaign, would command much support, bearing in mind the fact that the alternative is how the Government are running the economy now. High interest rates are destructive. I understand the reason for the Chancellor keeping them high, but there is a less destructive way in which to tackle the problem.

I am not surprised that the debate has drifted somewhat wide of the autumn statement—we have to discuss the general trend and what policies are being pursued. I am deeply disturbed by several things. It is said with increasing optimism by Conservative Members that we might be entering a period in which the number of registered unemployed people declines. That may well be true, but it is worth remembering why. There are four principal reasons. First, we have had 18 recalculations of the number of unemployed. Secondly, we have the restart interview. My constituency was one of the trial areas, so I have some knowledge of restart, and I am not impressed. Thirdly, there has been a credit boom which is generating employment in shops. Fourthly, the Government have an enormous special measures programme.

The jobs involved, which are real for the people who have them, fall a long way short of the self-sustaining real employment that we heard so much about in 1979. I do not believe that even that which we have is sustainable for long. We now have 1.2 million people who have been unemployed for more than one year, a manufacturing surplus of £5.5 billion has fallen to a deficit of more than £3 billion and interest rates are the highest in the western industrial world. They are probably 8.5 per cent. in Britain, which is three or four points higher than elsewhere.

The irony of the autumn statement is that the Chancellor has presented figures which, within his limited ambitions, balance the books, but he has managed to balance the books only because his policies are failing. The Government are near to balancing the books and might be able to make tax cuts, but it is not because their policies have been a success. Consumer credit has increased from 45 per cent. of average annual disposable income in 1979 to 70 per cent. today. We have overtaken the United States in consumer credit during the past 18 months. Pay rises are too high.

Mr. Alan Howarth

If the hon. Gentleman is concerned about the increase in consumer credit, does he believe that the remedy is higher interest rates?

Mr. Penhaligon

I did not accuse the Chancellor—[HON. MEMBERS: "Answer."] I do not claim to know the answer to everything but, unlike other hon. Members, I am stupid enough to have a try.

I did not argue that the Chancellor pursues high interest rates to reduce consumer credit. Consumer credit is out of hand because of its availability and we will have to develop some method of controlling it. We will have to revert to artificial controls such as we had several years ago. I remember, when I was first interested in politics, that Budgets were dominated by charts which said that we could borrow 25 per cent. as opposed to 30 per cent. of the price of a television. If the House applied its mind to the consumer credit boom, it might make progress. I am not arguing that interest rates are the solution—the Chancellor has demonstrated that they are not.

The Chancellor's programme might be able to deliver tax cuts, but only because of the failure of his policies. He gets a tax break on the consumer credit boom in the shape of VAT and corporation tax. Most of the money seems to be going on consumer goods, and the Chancellor gets a 15 per cent. cut. The vendor gets a profit—at least, I hope he does—and the Chancellor gets a break on that as well.

As the Chancellor has said, he has had an unexpected tax break from the consumer boom. He also gets a break from the pay rises which he and I believe are too high. He has also gained from public asset sales.

I shall not argue the economic merits of that, but the fact remains that all those forms of income cannot be sustained. The credit boom cannot continue for ever and we cannot continue to sell public assets. I hope that high pay rises will end too, because they are a self-destruct mechanism. The three pillars of the Chancellor's fortunate position are unsustainable or self-destruct mechanisms. His position can be sustained for one quarter of one third of a Parliament at best, but no long-term recovery for Britain is built in.

The only alternative that has been proposed today is the alliance amendment. We are drawing near to a general election. We do not know when it will be, but we will be nearer to it tomorrow than we were yesterday. It is amazing that, in a major economic debate, there is no official Opposition amendment saying what they would do.

We make it clear what our fears are and what we believe is an alternative. We must start to invest in manufacturing industry, infrastructure and training. We must negotiate entry into the exchange rate mechanism of the European monetary system at a competitive rate and introduce an incomes strategy to reduce the increase in unit labour costs to the level of our major competitors.

Some hon. Members, when trying to be elected to Parliament, are afraid to say, "Elect us to power and we shall keep your wages down." They are right that that does not sound like a ringing phrase which, when delivered to the nation, will cause it to vote for them. At the general election this Bench will explain to the British people why, without an incomes strategy, there is no alternative to the way in which the country is at present run, no hope for young people and no re-establishment of our manufacturing base. Without that ingredient, at best we carry on as we are and at worst have a Government who not only have no incomes policy but who spend money as if it grows on trees. Therefore, we shall vote for our amendment, believing that it makes a useful contribution to the debate.

7.10 pm
Mrs. Marion Roe (Broxbourne)

I welcome the autumn statement and its reaffirmation of the Government's determination to achieve the conditions in which this country can flourish. In particular, the statement emphasised two key points: first, that rigorous control of public expenditure will always be vital to the economy, and, secondly, that that has been the base of economic growth which has allowed for increased resources for priority programmes.

I shall concentrate on the provision for local government and taxation policy. Local government receives the largest increase in the changes that have been outlined. It continues to have a significant effect on public expenditure, and the increase for 1987–88 alone is some £4 billion. In a single year, taxpayers will contribute through aggregate Exchequer grant an additional £1.5 billion.

In theory, that should keep rate rises low—at worst, in line with inflation. Yet we are already hearing rumours of large rate rises planned in some authorities, particularly in the London boroughs. At the same time the Audit Commission has reported that the financial behaviour of some authorities is heaping up trouble for the future. Some authorities have entered into financial arrangements with city institutions, apparently in the belief that they will be bailed out in future. That is alarming.

According to the Audit Commission, in London some £600 million has been borrowed and in Sheffield the figure is £110 million. When repayments start, the citizens of Sheffield and taxpayers will be repaying at a rate of £25 million a year for seven years. That is about 10 per cent of Sheffield's total budget.

What implications will that have for future public expenditure control? Are these sums included within PSBR figures? 'There is nothing illegal about these arrangements; either future rates will have to take them into account, or some solution will have to be found by the Exchequer.

We have already heard that Opposition Front-Bench Members have decided to bury their heads in the sand about the activities of those Labour councils. A responsible Government cannot do that. Within the next three years, the problem will have to be solved. It remains to be seen whether the sensible introduction of the community charge will be enough to bring proper accountability to Labour councils. Let us all hope so. With local authority current spending up 9 per cent this year, the thought of these irresponsibly financed borrowings adding to that is greatly disturbing. We need to hear louder condemnation from the Opposition. Otherwise, ratepayers will begin to realise that they are as unfitted for government as some of their councillors are for local office.

On the tax side, the statement was encouraging. The buoyancy of non-oil revenues would appear to indicate a strong level of underlying economic activity. I congratulate the Government on their achievement of a PSBR unchanged from the Budget forecast, despite the huge drop in oil revenues.

That raises an interesting point. We have heard that the Opposition plan to include in their manifesto for the next election a pledge to raise £3.5 billion by excess taxation of people whom they describe as very rich. Once again, their thinking seems to be set in old, failed policy.

A recent conference organised by the Adam Smith Institute concluded that there was increasing evidence to suggest that reductions in income tax would lead to a greater overall revenue for the Treasury. The consequences of that should be examined, particularly in relation to the boost it would provide to economic activity and entrepreneurial flair. At a time when our major economic competitors, regardless of political persuasion, are cutting tax, we need to examine as carefully as possible the feasibility of extensive reductions in rates.

Finally, I should like to congratulate the Government on their resolve to pursue the reform of personal taxation, in particular through the mechanism of transferable allowances.

7.16 pm
Mr. Robert Sheldon (Ashton-under-Lyne)

We heard a distinguished contribution from the right hon. Member for Worthing (Mr. Higgins). He stated the case, not only for the Treasury and Civil Service Select Committee, distinguished and important though it is, but for all Select Committees when he pointed out that the Government rubbished his Committee's report. That is utterly wrong.

Select Committee members are chosen by the House. Their task is to report to the House and inform us of the views of several individuals, acting together largely, but not always, in a non-partisan way. The Treasury and Civil Service Select Committee has met the finest standards that we have known in that regard. When we look at its work and advisers, it is clear that to diminish them is wrong.

Some years ago, when I was a member of that Committee, I was pleased and surprised that we could pick the best advisers that we could name. We chose them ourselves. In those days we had a rule that, if more than one hon. Member wanted a specialist adviser, that specialist adviser could be selected to help the Committee. We had five specialist advisers and they were the best advisers that we could think of. They all agreed immediately, despite the pittance that they were paid. To abuse them after they have given their distinguished services is utterly wrong, and the Treasury Bench should be aware of that.

Over time, the expertise of the Committee has increased. It does not act over the whole range of responsibilities of the Chancellor of the Exchequer. It does not have to attend Cabinet Committees and perform the many other tasks which the Chancellor must do. Therefore, in the areas for which the Committee has responsibility and in which it has an interest, it becomes extremely expert. Together with its expert advisers, it can question policy in a way that the Chancellor of the Exchequer, however able and well-served he is, cannot question it.

The Committee sees people who are at a much lower level than the people whom the Chancellor would normally see. The members of the Committee see the people who initiated a policy, not those who consider its consequences. They question their assistant secretaries and under-secretaries and find out how the policy came to be adopted in the first place. Then, rightly—continuing the practice that was introduced when I was a member of that Committee—they see the permanent secretary or perhaps the special adviser to the Chancellor and then continue the investigation, bearing in mind the knowledge that they have gained from the people who formulated the policy. They see how the policy was adapted.

Finally, the Committee meets the Chancellor of the Exchequer. I have known Committee members who knew more about a matter than the Chancellor. They used to smile indulgently and the Chancellor looked a bit sheepish. Everyone knew that the Chancellor had got it wrong and that the Committee had got it right. They did not make much of that. It is normal for that to happen when a Select Committee with good advisers and good members decides to investigate a matter in which it has an interest. I am delighted to see that tradition exemplified by the character, demeanour, behaviour, interest and concern of the right hon. Member for Worthing, who shows his value not only in that Committee but in the Liaison Committee of which I have the privilege to be a member.

I say to the members of the Committee, "Carry on your work." It is clearly wrong for Ministers to show disdain for such a distinguished Committee. Ministers are servants of the House, as indeed is the Select Committee, which also acts on our behalf.

I agree with the comments of the right hon. Member for Worthing and the hon. Member for Truro (Mr. Penhaligon) on the autumn statement. The amount of money in the economy is a worry to us all. I see from the latest figures that, in October, £2.8 billion of new credit was advanced by finance houses, other specialist creditor guarantors, retailers and bank credit cards. The sums involved are substantial, because house prices have increased enormously.

The hon. Member for Stratford-on-Avon (Mr. Howarth) asked the hon. Member for Truro whether he wished interest rates to rise. We must go further back than that. We must understand why house prices rose so enormously. A person with a £40,000 house probably bought it some years ago for £20,000. He may have a mortgage of £10,000 on it and he has £30,000 of collateral. When he walks into a finance house or a bank he is welcomed with open arms. Millions of such people are welcomed with open arms in a way they would never have been years ago. They have collateral that only a few people used to have.

We must ask why house prices have risen. One reason was mortgage interest relief. It makes economic sense, not for the nation—heaven forbid—but for the individual to overhouse himself. As soon as he has managed to reach some equilibrium in the purchase of a house, he sensibly looks to the purchase of a larger and more expensive house to make use of some of his available money. In the rush for these bigger and better houses, prices go up. As the prices rise, the collateral goes up, and as the collateral goes up so, too, does the credit advance. That is one of our major problems.

The north-south divide is causing me increasing anxiety. I am an ex-officio director of the Manchester Chamber of Commerce and Industry. Many of my friends have been associated with it for 20 or 30 years. A claim that I make on their behalf is that they tell things as they are. I always tell them, "I know that you are not all Socialists, but for heaven's sake when you see Ministers please do not get involved in questions of money supply and the public sector borrowing requirement. There are clever people in Government who know all about that sort of thing, but you know what they do not know. You know something about orders, expansion and exports. You go there and you feel that they are cleverer than you. You are wrong. In your area, no one knows more than you." So it was with great pleasure and great delight that, on Thursday of last week, I heard the president of the Manchester Chamber of Commerce and Industry telling it as it is.

We need a wider understanding of his comments, made in the presence of the Prime Minister. The Prime Minister changed her speech either because she knew what he was going to say or as a consequence of what he said.

The president repeated the claims made by the chairman of the Conservative party:.

The north of England has only itself to blame for its problems. He said we suffer from self inflicted wounds which were listed as appalling industrial relations, failure to adopt new technology, left wing councils, and doom merchants. He said that the people in the north are complaining that they are not getting a fair share of the nation's resources. The president discussed those points one by one at a splendid dinner in the heart of Manchester. He said: It seems as though we have been giving out some unclear messages. After Tebbit's blast for the North, here is Morris's retort from the regions. Let me take Mr. Tebbit's points one by one. First, industrial relations in Manchester have been traditionally excellent. This is fitting in the city which gave birth to the Trades Union Congress. I cannot remember a strike taking place in my constituency. The firms are small, largely engineering; they are owned by the person who is there on the shop floor and problems are settled immediately. The trouble is that not as many of those firms exist as existed seven years ago. Just over a third of them are left. They are the small firms that are supposed to have been given encouragement. They are small, medium-tech, highly skilled engineering firms. They should always have a place in any country, whether it is Japan, the United States, France, Germany or wherever. Traditionally, our industrial relations have been excellent.

The president of the Manchester Chamber of Commerce and Industry mentioned the Tory party chairman's second criticism of the north—its failure to adopt new technology—and said: What an inappropriate criticism for the cradle of the world's first programmable computer, headquarters of the National Computing Centre, ICL and Ferranti, and home of Europe's biggest university campus which is heavily biased towards technical innovation. The president then mentioned his third attack, on Left-wing councils. I remind the House that that chamber of commerce is not a Socialist grouping. He said: They are not peculiar to the north west. But frankly we in the business community are making a far better job of partnership with local government than Westminister seems able to do. The president also said that certain campaigns were a notable example of local business and local authorities working together.

We do not give local government sufficient credit. It is much more efficient than central Government. The advantage of local government is that councillors and employees and anyone connected with it pass by the problems every day on their way to work or on their way home. What do the people in Whitehall see of these problems? They read about them, if they are lucky. No one doubts that there are some silly councils, but there are also some silly civil servants. We must not forget that, nor the fact that there are some useless Ministers, too. We must not assume that the solutions lie in Whitehall, remote from where the problems exist.

We see how the criticisms of the chairman of the Tory party were counterblasted by the president of Manchester chamber of commerce. He said enough to demonstrate his positive belief in and practical commitment to the economic potential of the region. He stated:

We do have a problem and we do believe a change in central Government policy is needed to help us put it right. It is a problem which, if allowed to get worse, will not just prevent the north west from exploiting its potential but will strangle our national growth. This problem is known … as the north/south divide but it is actually much more specific than that. It is the escalating concentration of the nation's wealth and resources in the south east. To illustrate the problem consider the wealth of the average English person. It is made up of income and capital. Let us take income first, or to use the jargon of official statistics 'personal disposable income per head'. Income in every single region other than the south east is less than the national average. That is the predominant statistic.

The president continued: What about the Englishman's capital? The most valuable item most people ever possess is their house … In every other region house values were below the national average. In the south-east, they are well above the national average. He continued: We all know that the south east is the richest region. But how many realise that the excess wealth in the south east is now sufficient to balance the deficit in wealth of all the other regions put together? That is the price we pay for a policy that is geared and motivated towards the City of London, which produces enormous advantages to those who deal with finance and enormous disadvantages to those who deal with the production of manufactured goods.

The problem was analysed 60 years ago by Winston Churchill when he was Chancellor of the Exchequer. Everyone knows about the problems. The trouble is that the City of London appears daily on the Chancellor's doorstep, whereas the remote regions are visited by the Prime Minister and by other Ministers only now and again.

Mr. Alan Howarth

Does the right hon. Gentleman recall that, during the Labour Government of which he was a distinguished member, when regional policy was in its heyday, the northern regions prospered relative to the south and south-east?

Mr. Sheldon

All that I know is that, during the past seven years, my constituency has lost 35 per cent of its manufacturing companies. All that I know is that, seven years ago, pay was higher than the national average, whereas it is now lower. Our unemployment was lower than the national average, and now it is higher. That has happened because of the changes in regional policy.

The president of the chamber of commerce went on to mention the implications of the serious gap between north and south. The House is largely divided between north and south, more's the pity. We used to have the enormous advantage of being a united country. Things that happened in one part of the country tended to happen in another, and people's views in one part of the country tended to be similar to views in other areas. The president said: The implications of this widening gap for the national economy are serious. We now have severe skill shortages and labour shortages in the south east with high unemployment everywhere else … Now we have a growing inability by executives and technical staff to move between the south east and the regions. The problem is the price of houses.

The president pointed out to the Prime Minister that, in Manchester, we search in vain for some indication that Government is adapting its policies to take account of the problem. There was a time when we addressed ourselves to problems and said that there was nothing insuperable in a problem as important as unemployment. We said, "We cannot be considered as an effective Government unless we can solve those problems." The Government are not dealing with the problem. They are dealing with the unemployment figures, but not with the problems of unemployment, and their failure in that regard is one of the most severe accusations that can be made against them.

The president mentioned the Government's failure to decentralise the Civil Service and commented on the massive public investment in infrastructure to serve the Channel tunnel and to complete the M25. There is some anger about the fact that all the giant projects tend to be in the south of England. He also mentioned the expansion of London's three airports and said that those projects will fuel the south east furnace for a generation. The president went on to say to the Prime Minister: The reason you and your colleagues hear so many complaints outside London … is because frankly we do not see a willingness to address this problem. Finally, he quoted from

an illuminating letter from the Parliamentary UnderSecretary of State for Industry … stating the Government's view that London offers the best professional and legal expertise, communications, living and leisure facilities. With that kind of bias, there is no wonder Government is ignoring the vastly superior investment potential of the regions. It is useless to talk about a population movement given the housing market. When I was a young man and I went to a new town to get a job. I could walk down the street and get lodgings easily. One cannot do that today. There was much more mobility of labour in those days than there is now. There will be an increasing division in the country. Not just its economic implications but its political implications alarm me. Of course, we will get a few more Labour seats in the north, but that is not the most important thing— [Interruption.] Please do not smile at this. This is one of the most serious problems facing us. When I get out of the train in Manchester, I can sense the deprivation there. When I get out of the train in London, I can sense the affluence here. I may be wrong. Millions of people in the north may be wrong. But the Government must take note of the strength of feeling that exists and must do something about it.

7.36 pm
Mr. Michael Fallon (Darlington)

One aspect of the Select Committee's report that cannot be faulted is its analysis of public expenditure. I only wish that the Select Committee had been as ruthless in its examination of the reality of public spending as it was in its examination of the rhetoric used by the Government to explain it.

If the autumn statement was the U-turn that it has been painted, I would have welcomed it. On the contrary, all that it seemed to signal was what we already know: that public spending is increasing and, to confirm what we already fear, that public spending will continue to increase. Between 1979 and 1989, the average annual increase in public spending will be about 1.3 per cent. Under the Labour Government, the average annual increase in public spending was only 1 per cent. Indeed, if we exclude receipts from privatisation and the sales of houses and of land, under this Government average annual public spending has grown by about 1.6 per cent a year as against a reduction in public spending of just under 1 per cent during the five years of the Labour Government. The continuing growth in public spending leads me to doubt the Government's new objective of reducing the proportion of gross domestic product consumed by public spending.

I enter three caveats on the Government's objective. First, we have not yet reduced the proportion in relation to the figure that we inherited. When we came into office in 1979, it was 43.3 per cent of GDP; today it is 44.5 per cent. Secondly, the target expressed in the autumn statement is the fairly minimal one of 42.75 per cent by March 1989, or a reduction of only 0.55 per cent over 10 years of Conservative government. Thirdly, it is only a relative target. If GDP growth has been averaging 3 per cent a year since the end of the recession in 1981, the Treasury might ask itself why we cannot expect public expenditure to fall in absolute terms from the total that we inherited in 1979.

There are several reasons for this. First, public expenditure continues to be dominated by public sector pay. We all know that pay and pensions in the public service take a huge slice of public expenditure. What is fascinating, looking back over the past seven years, is that despite all the privatisation that we have achieved, despite the cuts in Civil Service staff, pay restraints across the public sector and the freeze on town hall recruiting, wages and salaries in central and local government consume roughly 27.8 per cent of central and local government spending—almost the same proportion as when we came into office in 1979. In some individual programmes, the percentage is very much higher: 70 per cent of the law and order programme, 60 per cent of the education budget and half of the cost of the National Health Service. We have not yet succeeded in reducing the proportion of public spending consumed by public sector pay.

It should be obvious to all of us that either we impose more central control over the pay arrangements of public service workers, teachers, police, and so on, or we delegate that function to responsible local bodies that can truly reflect the realities of regional labour markets. The middle way—such as we have seen recently with teachers' remuneration and other public sector groups—simply leaves public spending as a whole at the mercy of indirect pressures that Ministers cannot control.

The second reason why we have not succeeded in controlling public expenditure is that so much of it is constructed on the basis of political entitlement rather than continuing need. There are sectional interests, to which reference has already been made. One is the demand for mortgage interest relief on second, third, fourth and fifth mortgages taken out by families. Another is the payment of three quarters of the amount spent on child benefit to people in receipt of no other payment, and thus the payment of a fairly meagre sum to those who need it. The addition of both those sectional interests and their removal could allow a reduction of income tax to 20 per cent—far beyond my right hon. Friend the Chancellor's target of 25 per cent.

As well as the sectional interests, there are important geographical interests. Most dramatically, there is the consistent and continuing over-provision in Scottish spending. The territorial analysis of the outturn for the year 1985–86 shows that spending per head in Scotland is now £2,362 compared with £1,838 in England. That is a discrepancy between England and Scotland of over 20 per cent., and in some programme areas the difference is very much wider. There is 80 per cent higher spending on industrial support in Scotland than in the regions of the north-east and north-west directly across the border. There is 94 per cent higher spending per capita on housing in Scotland than in England.

As well as over-provision of public spending in Scotland—the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) should particularly note this point—there is also a continuing subsidy not to the poorest regions in England but to the wealthiest region. I refer to the subsidies to London and south-east commuters through the £300 million a year subsidy to British Rail and its south-east services and the £275 million a year subsidy to London Regional Transport. It is nonsense that the most prosperous area of the United Kingdom should be in that part of the railway network that is most heavily subsidised.

Thirdly, public spending is still dominated by the demand-led pressures that have been all too familiar from the early years of the Government—agriculture and social security. The containing of such pressures cannot be left to departmental Ministers alone and cannot be dealt with in the annual Public Expenditure Survey Committee round. We need a more concerted attack, combining more than one Department, if we are to get to grips with pressures in both of those sectors.

If I have emphasised the need for continuing restraints on public spending, it is because I wish to seek much further scope for reductions in the burden of direct taxation. I say that because, by my calculations, 7 million people earn less than £7,000 a year. From next year, they will pay a higher rate of income tax than top earners in the United States. We cannot substantially increase their standard of living in any other way than by reducing the tax burden upon them. If they are in the public sector, given low inflation and continuing pressure on public spending, we cannot expect pay awards to be high. If they are in the private sector, given the surplus of labour and the need to keep down our unit labour costs and improve our competitiveness against our European partners, we cannot expect substantial pay awards. The only way in which we can raise the living standards of low-paid people is by deep cuts in personal taxation.

I am certain that only this Government can provide the necessary cuts in taxation to improve the living standards of the low-paid. The Opposition parties cannot help. They can only suggest nominally increasing their wages by printing more money or borrowing it and leaving them to the mercy of higher inflation. Only this Government, by substantially reducing the burden of direct taxation, can improve the living standards of low-paid people. It is a profound disappointment to me that I am not as sure now that we are on the road to meeting that target as I was before the autumn statement.

7.47 pm
Mr. Austin Mitchell (Great Grimsby)

I hope that the hon. Member for Darlington (Mr. Fallon) will forgive me if I do not follow his argument, because it is one that both time and the Government have passed by. It was an interesting argument, and probably relevant in 1979 and to Government policy in 1980, but now it is best relegated to the deep freeze of history. The hon. Gentleman should carry his own glass case around with him if he continues to put such an argument to a Government like this.

I shall not even deal, as I was going to in my immediate anger, with the Chancellor's vicious and rather silly attack on the Treasury and Civil Service Select Committee, because the right hon. Member for Worthing (Mr. Higgins) has well and effectively put the Chancellor in his place. It is best to treat these things dismissively. It was an unnecessary, cheap, petty, vicious and silly attack, and it was entirely in character. All that we can do is to be dismissive of it. I am afraid that this is the way that the Chancellor is beginning to behave before the Committee, and he treated it with contempt in his personal appearances. That is a measure of the man—the fun Chancellor, lightweight in everything but physical shape. If he wishes to act in that fashion, we shall have to judge him on that basis.

A major change has taken place in Government policy. For example, in 1980 we were told that the exchange rate was a mere residual. Clearly, the exchange rate is now central to Government policy and a central technique of management. In many respects, in managing the economy through interest rates being high and exchange rates being kept as high as possible, the Government have reverted to the norms of previous Governments since the late 1950s, even Labour Governments, except that, unlike previous Governments, they do not have the incomes policy that most previous Governments had to deal with the situation.

The Government have reverted to the depressing norm of British economic policy. However, there has been a major change. If the Chancellor were to look at the Labour party's economic policy in 1983, he would find that he has implemented most of our major recommendations. We urged a 30 per cent. devaluation. There has been a 30 per cent. devaluation since the change in the exchange rate at the end of 1982, and it has not been accompanied by the inflationary consequences that the Chancellor predicted. We urged that public spending should be increased and referred to a public sector borrowing requirement—it should have been called a public sector financial deficit because of the Government's privatisation programme—of about £15 billion. Next year we shall have that, too.

We referred to getting rid of monetary targets like M3. The Chancellor is getting rid of them. It is no wonder that he is getting rid of monetary targets like M3, because he has been unable to control them, as the Government said they would control them when they came into office in 1979. Up to the end of September, M3 had been increasing at an annual rate of 18.2 per cent. Because of the increase in M3, inflation should increase substantially on their terms. Since 1979, M3 has increased by 165 per cent., yet prices have increased by only 65 per cent.

What, then, about the connection that the Government told us would be central to their policy of proper control of the money supply leading to control of inflation? The Government have not controlled money supply, but inflation has not increased as it ought to have done, according to their theories.

The Labour party's manifesto of 1983 stated that the balance should be shifted. We said that there ought to be, not tax cuts but Government spending to help jobs. The autumn statement does exactly that. We wanted more jobs to be created through public spending. Those jobs are now being phased in, in an attempt to get unemployment, on the Government's cooked figures, below 3 million before the general election.

In 1983 the Government said that all those policies were impossible, but they have now become a central element of the Government's policy. They are too little and too late, but now they are there. In 1983, however, we were told that our plans were irresponsible. I welcome the Government's conversion, but the Chancellor has much further to go on the learning curve upon which he has now embarked.

Either the lady is for turning, or we should redefine the word "turning". These are major turns in the Government's policy. Government policy is now like "Dallas". There was a certain episode in "Dallas" when the curtain was pulled apart, there was Bobby in the shower, and Bobby was alive, after all. We realised that all the preceding episodes were a dream. Likewise, we realise that all the policies that the Government have implemented since 1979 are a dream. Unfortunately, the nightmare consequences of those policies remain. The fact is that 4 million people remain unemployed, manufacturing capacity has been reduced by 30 per cent., and employment in manufacturing industries has been slashed by 28 per cent. The fact also remains that this country is now a net importer of manufactured goods.

Those are the consequences of policies which now, apparently, are a dream and unnecessary. The economics of incompetence have now been replaced by the economics of electioneering. The Government have wasted the oil by investing the revenue from oil in the productive capacity of our overseas competitors so that those revenues will be dribbled back in rentier dividends to keep up the value of the pound and to destroy and weaken manufacturing—just as happened in the Victorian era when the Tory Government paid similar rentier dividends.

The Government have used the oil revenues to bring in imports, thus destroying jobs in this country. They have wasted the growth which we could have had, which would have improved the quality of life for our people. Since 1979 the growth rate has averaged 1.2 per cent. It is pathetic. It is the lowest growth rate in British history since the war. Because of their incompetent and irresponsible management, that is the achievement of this Government. The Government have thrown away the additional growth that this country could have enjoyed.

What is more important, they have wasted the greatest opportunity in British history to expand. Our oil revenues would have allowed us to ride out the balance of payments problems and to invest in manufacturing industry. It was starved of investment. We have wasted that great opportunity. It will never return. The irresponsible economics of this Government have led to the wasting of that great opportunity. They have taken us back to the balance of payments trap in which previous Governments have wallowed. We are sliding back into the balance of payments trap, haplessly and helplessly, but now we are weaker than we were before the interlude of Tory irresponsibility.

There is under-investment in industry, the work force is under-trained and under-skilled and productivity is still too low. It is lower than the productivity of our competitors. All that the Government have done to improve productivity is to take the advice that I give to the Yorkshire county cricket club: to improve its batting average by shooting the last four batsman. The Government have used that technique to fiddle the increase in the productivity figures.

Labour costs are rising far too rapidly and imports are rising far too rapidly. All that is keeping the economy going is a consumer boom. The Government have helped to generate that consumer boom, but it is financed by credit. It will suck in more imports, which will result in a rapid deterioration next year in the balance of payments. The Government make noises and preach sermons about wage increases, but they do not want them to stop. They are helping to sustain the consumer boom upon which they pin their election prospects next year.

I emphasise what was said by my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) about the growing gap between the north and the south. The credit boom is widening the gap between the north and the south. Asset speculation is being fuelled by house prices. Our society is based on the continuous creation of collateral. House prices are increasing, the lending institutions are prepared to lend more money on increased house prices, and the increase in lending on the increased house prices increases the house prices even further, thus making them worthy of more credit. This North sea bubble will burst at some point. It threatens the economic health of the country and it creates a wide gulf between the north and the south. Paper millionaires are being created by house prices in the south. My dog kennel or my garage in London is now worth more than my house in Grimsby. The gulf has now widened to the extent that people cannot move from the north to take jobs in the south simply because they cannot afford to bring their families with them.

The balance of payments problems will cause a major threat to sterling next year. The Chancellor's policy, in the face of that crisis as he described it to the Treasury and Civil Service Select Committee in his usual dismissive fashion, is one of non-accommodation. He says that he will force industry to keep down its labour costs by keeping interest rates high, thus keeping sterling high. Industry will be punished by cheap imports. Sterling will be kept high by interest rates. The markets, if left to themselves—and the Government believe in market forces more than I do—will bring down sterling. The market will be defied only on this question of the exchange rate. It will be defied by the prop of high interest rates. That is the discipline on industry. That is the logic of the Chancellor's thinking. To punish industry, and to stop it increasing its labour costs, he will keep interest and exchange rates high.

That is the policy of non-accommodation and reveals that the Government do not understand industry. They do not understand its dynamics, its organic nature or the painful effort of investing, building business, winning markets and trying to hold and expand those markets. They do not understand how industry is threatened by the crude tactics of high interest rates, higher than those of any of our competitors, and by an exchange rate which threatens the markets which industry is desperately trying to retain.

The Government may understand money and fiddled figures like MO and M3, but they do not understand industry as an organic being. Indeed, they treat it rather like an exercise horse, pummelling and jumping on it, but they never try to encourage it or help to make its way easier in the same way as our competitors help their industries. There is no logic in punishing industry in this way. It is being asked to do what it cannot do. Industry cannot control most of the increases in wage costs that are now taking place. How can it? What is it to do—interrupt production and lose its markets?

Because of the skill bottlenecks, industry will have to pay to attract the skills that it needs. Is it to deny itself those skills? How will it survive unless it goes along with the trend of escalating wage costs? The engine of inflation is no longer industry. The inflation that we have now is not goods inflation; it is asset inflation, and its engine is the rich and not industry. The engine is the financial sector, the City, the company directors who are paying themselves more. The engine is the escalation of asset prices in the south-east, and industry is being punished because the Government will do nothing about all those things. All they do is preach sermons while their friends feather their own nests and get fatter at the expense of the country. The Government then punish industry for the consequences of their action. What kind of logic is that, and what understanding does it betray of the dynamics of industry?

The front line of the economy is the internationally traded sector. We are asking that sector to run in a fierce competition with a ball and chain on each leg. On one leg it has high interest rates, which penalise investment and stop industry making improvements in productivity and research and design and all the other improvements that it has to make to the quality of its products, and on the other leg industry has an exchange rate which prices its goods at an uncompetitive level. The exchange rate subsidises imports and taxes exports. That is how it works, and the Government use that quite deliberately to make a section of society better off through cheap imports. They do that in the hope of winning the next election.

We must divert resources to the emerging balance of payments problem if we are to survive and pay our way in the world. The only way to divert resources to the balance of payments is by a competitive currency channelling investment into industry. The Government are creating a once-and-for-all increase in the standard of living. As my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) said, that is being done particularly in the south-east, because it certainly does not have much effect in Grimsby or in any of the huge areas in the north, the heartland areas of Britain.

The Government are creating that once-and-for-all effect through wage inflation and cheap imports, and as a result they are producing all the classic consequences of over-valuation for sterling and consequent harm to industry and its ability to survive in the world. The Government's policy is essentially a holding operation. The Chancellor is trying to bamboozle the electorate with tricks which he cannot repeat and policies which he cannot sustain in order to keep a rickety show on the road until after the election. He is standing in front of the curtain with that marvellous dead-pan Buster Keaton expression at which he is so good and is trying to keep the electorate amused by unsustainable policies in order to distract attention from the disasters behind the curtain. Those disasters are 4 million unemployed, a rising rate of inflation, national decline, an increasingly shabby society and the growing needs of the Health Service and education and all sectors where public spending is important.

The Chancellor's conjuring tricks are a little more public spending and perhaps tax cuts in the Budget, and he will do that until the election comes along. All the auguries are that the election must now be early rather than late, because of the unsustainable nature of the Chancellor's economics. If the Government win the election, the Chancellor plans deflation, still higher interest rates, a further squeeze and eventual tax increases, because he will have to increase taxes. He will do all those things because they fit the logic of his policy. He will have to increase taxes to replace the revenues that privatised industries are no longer bringing to the Government. Those things will not provide a solution; they are not the way out. They are a holding operation, and that is a disgraceful, irresponsible waste of Britain's time, economic effort, industry and employment.

The Government's policies have manifestly failed, and that is why they are changing them and getting out of policies which are discredited, unacceptable or unworkable. When we form the Government, we will expand the economy. Central to that expansion must be the exchange rate. Since 1968, we have lost 4 million jobs in production industries because we have lost markets at home and overseas. The prime reason for losing those markets is a non-competitive exchange rate. We cannot regain those jobs and begin the work of expansion until we have a competitive exchange rate.

We must regain competitiveness, and we cannot do that by squeeze, freeze and deflation, which is what the Government have been doing, because that penalises investment, reduces confidence and creates the downward spiral that we have had for the past seven years. We can do it only by having a competitive currency and by expansion.

At the end of 1976 we pledged ourselves to the IMF to maintain the competitive position of our manufacturing industries at home and abroad. That is one of the pledges the Government would prefer to forget, but compared to that time in terms of relative export prices the pound is still nearly 20 per cent overvalued against the deutschmark. In terms of the relative export prices in 1976, we would now need an exchange rate of DM 2.40 to the pound in order to be competitive. No wonder we have a £12 billion trade deficit in manufactured goods with the EEC, central to which is our manufactured goods trade deficit with West Germany. Britain is being reduced to an economic colony of West Germany. Our advantage against the dollar, thanks to its overvaluation, has now gone. We are now overvalued even against the dollar. The dollar markets are currently our biggest markets, and because of that change in our relativities our exports will be threatened. That will have disastrous consequences for large sections of our industry.

The pound will come down next year—it may even tumble. It is held up now, not by market forces, a healthy balance of payments, competitive industry, or a naturally dynamic productive economy, but simply by what my right hon. Friend the Member for Sparkbrook rightly described as the crutch of high interest rates. That is the only thing keeping the pound at its present level, and industry of being penalised by that.

It is important that we lift our gaze, not to the next election, on which the Chancellor's gaze is obviously fixed, but to the looming disaster beyond the next election, to the problems that lie ahead in the 1990s. We are hardly surviving now. We have squandered the oil. How will our economy survive in the 1990s as the crisis closes in? Industry is not paying our way in the world now and cannot provide jobs for our people or generate the surplus for public spending, even at the present low and tawdry level.

Once the oil contribution which has kept the Government going fades away, how will we survive? That is the question. That is the perspective on which we must focus, beyond the Government, with their irresponsible conjuring tricks, trying to dazzle our eyes and win support for the next election, to the looming problem of the 1990s. We must begin the work of rebuilding British industry, of re-expanding and reconstructing our economy before then. To do that we must get rid of the tawdry, fiddling flogging irresponsible opportunism which has replaced the discredited doctrines of monetarism as the Government's central strategy.

8.10 pm
Mr. Alan Howarth (Stratford-on-Avon)

I have been impatient that we should make more rapid progress towards stable prices. I have been impatient that we should make more rapid progress towards the full employment which I believe is achievable but only in the context of stable prices. But I have also been impatient that we should make more rapid progress towards the fulfilment of other aspirations of our society—that we should move more rapidly towards a better education system; that we should have better health care; that we should invest more resources in dealing with the problems of law and order.

The political process always has to be a process of the accommodation of competing claims and interests. My right hon. Friends the Chancellor and the Chief Secretary are two voices in the Cabinet. The Cabinet is a much larger body and the Cabinet has a duty to represent and implement the aspirations of a society of 56 million people with all their multifarious demands, with all the differentiated pressures of public opinion and of the institutions of a plural society. It is the particular virtue of this autumn statement that it recognises that reality more fully than ever before.

The autumn statement has been criticised. It was criticised earlier this afternoon by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley). The right hon. Gentleman does at least have the virtue of consistency. In 1975, under the Government of which he was a member, the PSBR was £12 billion. That was 10 per cent of GDP. In today's money terms, 10 per cent of GDP would be £35 billion. If one adds to the £7 billion' PSBR which is envisaged for this year the £28 billion of additional public expenditure which the Labour party envisages, one would return to a PSBR of £35 billion, unless the right hon. Gentleman proposes to raise taxes massively. The right hon. Gentleman is at least consistent, but against that background I cannot derive much enlightenment from the criticisms that he had to offer of the autumn statement.

I was more surprised by the rather plaintive tone of the criticisms advanced by the Select Committee. The gravamen of its charge was twofold. It complained that the Chancellor was not sufficiently exact in monetary policy where exactitude is, I think most would agree, impossible to achieve. It railed at him somewhat for his refusal to admit that he has changed policy when, in the essentials of policy, he has not changed. The policy has been consistent in its essential purposes—to bear down steadily on inflation; to create a monetary framework which will tend to reduce inflation; to create a wider framework of economic conditions which will encourage efficiency and profitability and the private sector to take a greater share in our economy.

The critical question has not been about techniques of policy, or the objectives of policy, which have been consistent; the critical question has always been about the pace at which we should move towards our constant objectives.

There is an economic theory which used to be taught, and possibly still is, in Chicago and Vienna, which says that the process of financial stabilisation could be achieved almost instantly by drastic reductions in public expenditure and by a draconian approach to monetary policy. If the term had not already found a more familiar use elsewhere, I would describe that as the economics of the big bang. I suppose that, in some academic world, the economics of the big bang might produce financial stability, but they would certainly produce political instability. They would produce a kind of economic nuclear winter that not even the most zealous of my hon. Friends have ever desired. My right hon. Friends are politicians and they have recognised, rightly, the need to move gradually.

A number of economic commentators, for whom the holy grail of economic policy is an ever-rising gilts market, have been critical of the autumn statement. They have looked at the various items in public expenditure which have overrun the intended totals. But if one looks at those items of public expenditure which have outrun their originally planned totals, or where the plans have been increased for future years, one sees in every case that the increase in expenditure was effectively inevitable, and, in a great many cases, desirable.

My right hon. Friends have proposed that we should spend an additional £300 million a year on the Health Service. With the availability of new but expensive techniques in health care, with the demands on the Health Service of an aging population, it would be an obsessively narrow view of policy which begrudged such an increase. Indeed, we should all take satisfaction from the fact that there are now 70,000 more doctors and nurses working in the Health Service and 4,500,000 more patients being treated in the Health Service every year than there were in 1979, and that 380 new hospital projects are under way.

My right hon. Friends have been justified in observing that their prudent economic policies have led to the sixth successive year of steady growth and they have been justified in saying that a share of that growth should be allocated to improving the nation's health care. But they have not said that the sky is the limit and they have not shrunk from the arbitrary and difficult necessity of making a judgment, of drawing a line, and saying that we can afford to spend this much more, but there we must set a limit.

There is no use, and there is no decency, in complaining that an extra £1.75 billion is to be spent on the social services. The Government have been right to insist that the British economy must adjust itself to the exigencies of earning our living in the contemporary world. But those necessary transitions carry with them social costs. People have suffered in the process. Again, the only humane and responsible policy is to ensure that we find the resources to take adequate care of people who, through no fault of their own, are hurt in the necessary process of economic restructuring.

Who is to say that the Government have been wrong to commit more resources to law and order? Hardly the Labour party, which in recent months has found it expedient to try to extract political advantage from castigating the Government for not doing enough on law and order. The reality is that in every western urbanised society the rate of recorded crime has been increasing by 5 to 7 per cent a year over a generation. It is a bedrock duty of Government to provide the resources that are needed to preserve law and order. Therefore, the Government have been entirely right to provide resources for an additional 300 policemen in London and a further 500 in the provinces, to add two extra prisons to the prison building programme, and to find more money for the campaign against drugs and for victim support schemes.

I shall not elaborate the case for investing more resources in our schools and universities, in our housing and on our roads. The case for improvement in all those areas is self-evident.

I congratulate the Government on tackling the areas of overrun in public expenditure where there can have been no reasonable justification. I congratulate the Government on their achievement in negotiating improvements in the common agricultural policy which will provide a greater discipline on the excesses of the CAP than any negotiation that I can recall.

I congratulate them too on their willingness to address at a fundamental level the problems of local authority expenditure. Local government current expenditure has been running at 9 per cent above the planned total. In that area of policy, my right hon. Friend the Chancellor has been a prisoner of an ill-designed system. Every device of bureaucratic ingenuity that can be mustered has been brought to bear to try to restrain local government spending. However, the appetite of local authorities to spend more than we can afford in terms of our national economy remains insatiable and the only remedy is to make local authorities far more extensively and effectively accountable to local electors paying the bills for their expenditure. Therefore, I welcome the Government's commitment to introduce the community charge and to standardise the business rate.

Mr. Penhaligon

The hon. Gentleman is obviously keen on the community charge. One listens to what he says and we can argue the merits of that at some time. However, will he tell the House how he understands the way in which the charge for water and sewerage will be levied in England and Wales when the community charge is introduced?

Mr. Howarth

That would be a diversion from the main theme of my argument. I would rather not be side-tracked into a technical discussion of the alternative methods that might be contemplated for charging for sewerage. The hon. Gentleman offers a sporting diversion but I refuse to rise to the bait.

Mr. Steve Norris (Oxford, East)

I am sure that my hon. Friend will agree that, if the hon. Member for Truro (Mr. Penhaligon) had taken the trouble to read the Abolition of Domestic Rates Etc. (Scotland) Bill, he would have seen in the preamble specific proposals for how to deal with water rates. They are simple and no doubt as commendable in themselves as the proposals for the community charge.

M r. Penhaligon

The water authorities in Scotland are financed by the local councils.

Mr. Howarth

Cornwall is a long way from Scotland, but even a Cornishman may be willing to acknowledge that lessons can be learned from John O'Groats.

By what criterion should the autumn statement be judged? It should not be judged by reference to some facile definition of monetary policy or monetary conditions. Any such definition would be arbitrary and all too rapidly obsolescent, given the pace of innovation in financial markets and of institutional change. Adherence to any such definition would run the risk of sacrificing the real economy to a totem. I draw assurance and confidence for the future from my right hon. Friend the Chancellor's demonstrable and courageous willingness to increase interest rates when it becomes apparent that monetary conditions have eased too much. Since he raised the basic rate of interest in October, we have duly seen a stabilisation of sterling and a stabilisation of house prices, which are sensitive indicators of monetary conditions.

Mr. Budgen

Would my hon. Friend indicate to the House, in the way that the Chancellor did not, the various items that he would regard as being good indications of monetary and credit conditions being too lax? Since we do not know what the Chancellor regards as his indicators, but my hon. Friend is obviously a party to the Chancellor's thoughts, perhaps he would be good enough to tell us what he regards as important.

Mr. Howarth

The tolerance of the House might soon become exhausted if I were to regale the House with the sort of disquisition that I would be happy to give to my hon. Friend in the Tea Room a little later.

A number of hon. Members have referred to a boom in credit. I respect the point that was made by the hon. Member for Truro (Mr. Penhaligon). There is a problem and we do not know what the proper answer should be. There are difficulties about the controls that the hon. Gentleman advocated—difficulties which I think he recognised. Clearly, it is not an exaggeration to talk of an explosion in consumer credit. That is one indicator that causes me some anxiety—the depreciation of sterling. The surge in house prices—

Mr. Budgen

It should not be disregarded, then.

Mr. Howarth

Perhaps my hon. Friend was not following the thrust of my argument as closely as I might have hoped. I was commending my right hon. Friend the Chancellor for having responded to the symptoms of relative monetary laxity by raising interest rates in the autumn, and I think that we have seen signs that the economy is responding as he and my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) would wish.

I draw assurance, as I hope will my hon. Friend the Member for Wolverhampton, South-West, from the Chancellor's firm commitment to maintain the PSBR at 1.75 per cent of GDP in 1987–88. That is a sanction he has given against any collapse into a laxity that would run the risk of a serious deterioration in the inflationary position.

We should not judge the autumn statement by reference to whether old techniques of policy have been retained in altered circumstances, which seems to be a complaint of the Select Committee. Nor do I think it is appropriate to measure performance on the basis of whether or not previously published targets have been precisely met. The targets set out in public expenditure White Papers are not tablets of stone. They are inevitably, to a degree, negotiating positions. They are cautionary signals to the market. They are also, of course, objectives that the Government should genuinely pursue.

However, given the variables and the genuine unpredictability of economic circumstances and activity, it is absurd to complain if all the targets are not exactly met. I believe that the proper criterion for judgment of the autumn statement is whether the whole configuration of policy tends systematically to reduce public expenditure as a proportion of GDP. By that criterion the autumn statement is vindicated.

It is true that departmental expenditure in 1986–87 has been rising at a more rapid rate than in previous years. However, we heard my right hon. Friend the Chancellor say again today that taking the position over a period of years between 1982–83 and 1988–89 we will see a significant reduction in public expenditure as a proportion of G DP. It is true that the pressures in the later years for public expenditure once again to exceed the targets that have been set will be real and formidable; certainly, there is never a respite in the battle to control inflation and discipline public spending.

It is true that, in the later years, when the Government will receive less assistance in their financing from the proceeds of privatisation, and perhaps eventually no assistance at all, a higher level of expenditure than was originally envisaged will have to be financed. But it would have been absurd not to take advantage of the opportunities offered by privatisation. The merits of privatisation are not simply the merits of offering a relatively easy windfall way of financing public expenditure. As my right hon. Friend explained earlier, the real validity of the privatisation programme is to ensure that those national assets are deployed in the context of market discipline in which they can be most effectively used in the interest of the nation. The Select Committee, in a manner somewhat inconsistent with the generally censorious tone of its report, praised my right hon. Friend the Chancellor for taking advantage of privatisation to redeploy resources in other areas of constructive investment such as capital expenditure, which is raised in the autumn statement by £1 billion a year.

It is encouraging to see that tax revenue is as buoyant as it is and it is perfectly reasonable for my right hon. Friend to assume that, as a result of the growth that his policies are generating, the tax base will be sufficiently buoyant later on to finance the level of expenditure that we shall have.

My right hon. Friend the Chancellor observed in his speech that, by the end of the 1980s, the ratio of public expenditure to national output will be back to the level at the beginning of the 1970s. Progress is slow and hard won. We shall certainly need to go further. We shall need to progress towards the sort of ratio we experienced in the early 1960s, before the Conservative Government left office in 1964, when public expenditure was more like one third than two fifths of GDP. We need to move towards a balanced Budget, by a reasonable definition of the term. We need to move towards radically simpler and lower taxes, towards stable money and towards a situtation in which the private sector takes a far larger share of resources and in its expansion moves us back to full employment.

All these desirable objectives can be achieved, but they will all take time. It is no good not recognising that it was over generations that public policy moved away from the objectives which I have described. Too violent and too hasty a reversal would be damaging and would not be politically tolerable. It is always tempting to see my right hon. Friend the Chancellor of the Exchequer as Achilles, but he has not overlooked the fact that it was the tortoise which won the race.

8.30 pm
Mr. Ken Weetch (Ipswich)

I begin my short contribution to the debate by saying that it is becoming a more common observation among the public that very few things in politics are what they seem. So it is with the Chancellor's autumn statement. At the end of the day the statement was nothing to do with economics. Instead, it was a good deal to do with political adventurism at a critical time.

I shall quote from the Financial Times—a newspaper which I am never sure I should be reading. The editorial in the financial section reads: The Chancellor does not do things by halves … he has responded to the prospect of an election with some blatant pump priming. That was the editorial comment on the autumn statement.

A vast edifice of complex "economic" argument has been built on the autumn statement, and much of it is not economic; it is blatantly political. The statement was a strong commitment to the Government's determination to pump money into the economy to create a favourable climate to fight a general election. If we take the statement at face value, something can be said on economic grounds. Again, the financial section of the Financial Times summed up the statement: We are back to the bad old days. What was the position in those days? First, there was a worsening balance of payments—and the balance of payments will be a real constraint on the economy next year. There was a time when the most important criterion in economic debates was the monthly balance of payments figures. It then disappeared from our debates and it has not been a factor for a long time, but it seems that it is re-emerging. It will be a real constraint, however, in 1987.

When the Minister replies, I hope that he will explain to me the serious deficit on manufacturing account that is now prevalent in the balance of payments. In 1983, for the first time, we had a deficit on manufacturing account in the structure of the balance of payments. The European side of the account is the worst part of the deficit. I hope that the Minister will explain the benefit that the Economic Community has brought to British manufacturing industry. I shall be pleased to hear the explanation, and I shall be listening carefully.

We have a consumer boom that is based on plastic money. It is doing nothing to halt the serious decline in manufacturing industry. On the other hand, it is doing a world of good for the import of foreign manufactures. With between 3 million and 4 million unemployed, a greater proportion of the work force will be absorbed into the service sector of the economy. In parts of East Anglia we are thankful to get jobs even in the service sector, but the serious point—

Mrs. Kellett-Bowman

The hon. Gentleman said "even in the service sector." In some places it is regarded as being extremely important and is relied upon as a growth area of employment. That is the position in places such as Morecambe and Lancaster, the latter being a category A tourist centre. I would not have used the word "even".

Mr. Weetch

The hon. Lady interrupted me at the wrong moment. I was about to say that if we earn our living by providing services as opposed to manufacturing, the service sector can be regarded in a favourable light. The trend is moving too far, however, and many people are being locked into service employment that is low-paid and dead-ended.

One of the serious features of our economy has been the decline in some industries of a highly technical nature. That is a serious phenomenon. An interesting ITV programme is the one that reports job losses and gains. It is notable that jobs are being lost in manufacturing, often in highly skilled sectors, while jobs are being gained in warehousing and in all sorts of odds and ends. It is not that we are ungrateful in these days for jobs in any sector in which they can be found, but the present structural development in our economy is not one of which we can be proud.

Mr. Norris

The hon. Gentleman has spoken about the new balance which is emerging between manufacturing and non-manufacturing employment. Does he agree that, whatever shade of Government we have and almost regardless of the financial policies that are employed, it is inevitable that the technological advancement of the second industrial revolution means that fewer people will be involved in manufacturing and that more will therefore turn their individual attention to other areas of endeavour instead of spending their days sweating in factories? Does he regard that trend in the long-term as an extremely desirable development?

Mr. Weetch

I would agree with that to the extent that productive manufacturing industry will have to support a greater number of employees in the service sector. When I talk to industrial opinion in East Anglia I am told that the trend has gone too far and that we need the political will to put more backbone into manufacturing industry through interventionist polices.

I shall now address the financial part of the autumn statement, which is said to involve a shift in strategy with tax cuts being superseded by increases in public spending. It is being suggesting in today's financial press that we may have both. It is stated that we may have tax cuts in the Budget to come along with public spending increases. I make no further comment about that because we are talking about futures.

When I read the Select Committee's report, the arithmetic suggested that £4.5 billion to £5 billion would be available if public expenditure targets were met. If that money had been directed to producing tax concessions, it would have been enough to bring the standard rate of income tax down to 25p in the pound. It was suggested, however, that £4 billion would be directed to increased public expenditure in the next financial year, which left about £1 billion for tax relief purposes—a smaller sum than was expected.

It is argued that a wise move was made in that tax increases would augment the consumption of foreign imports to the detriment of the balance of payments. It was an odd financial package. Ever since 1979, the Government, with a great degree of self-righteousness, have been preaching financial rectitude. Suddenly financial rectitude goes out of the window, and we can afford all those things previously said to be beyond the pale of public policy. Suddenly we learn that we can have public expenditure increases of £4.75 billion in 1987–88, and £5.5 billion in 1988–89. That new-found largesse is dismissed or explained by saying that the Government can afford it, and they may even have the money for basic rate tax cuts as well. Given the Government's financial policies since 1979, it is no wonder that people are cynical when they hear, in the autumn statement, that public expenditure increases can be conjured out of nowhere just before the run-up to a general election.

Whenever the Chancellor makes a statement, it must be judged by the contribution that it makes to the long-term soundness of our economy. The Government have not achieved what every Government since the war have aimed at—full employment with a reasonable rate of growth, while at the same time avoiding the evils of inflation. At one point after the war there was relatively full employment but high inflation. We now have low inflation but high unemployment.

We have never been able to achieve the equilibrium of relatively full employment with sound money, an active balance of payments and competitive British industry. We still have not achieved that. The acid test of Government policy will come when the economy is reflated, because we may then once again run into the problem that has arisen so often—inflation. An increase in the rate of inflation is on the horizon now. Hon. Members should make no mistake about it—we shall run into it. There will also be a deficit in our balance of payments. That will take us back to the position decades ago, with no solution in sight.

Despite all the shot and shell and all the suffering that we have been through, we shall have turned full circle and will be back where we started. The Chancellor of the Exchequer plays for high stakes and takes big risks. The City gives the Chancellor of the Exchequer and his antics the benefit of the doubt, because it believes that he will win the next election. If he wins it, the City will be pacified, because the Chancellor will return to the deflation needed to counteract the present attitude of letting things rip.

I am sorry to say that the Chancellor is creating a fast food and ice cream economy that has much froth but no substance. He has encouraged people to run into debt, because our economy is based on plastic money to fuel a spending spree that will create the illusion of prosperity. That economy reminds me of a man with a high temperature whose feverish activity is no guide to his underlying strength.

The Chancellor talks about income restraint. All my life I have supported incomes policies, despite their disadvantages. I know all the arguments against such policies, but in principle it has always been essential somehow to equate the growth in incomes with the real wealth produced by the economy. It is no use the Chancellor preaching restraint to working people while people in the City can earn six-figure salaries for shuffling paper and advising on takeover deals. The Government's economy is one of live now and pay later. The problem is that we shall pay with the continuing decline of the British economy, and that is sad, because we have seen it all before.

8.45 pm
Mr. Steve Norris (Oxford, East)

It is always a great pleasure to speak after the hon. Member for Ipswich (Mr. Weetch), whose opinions I generally respect and listen to with interest. However, I shall try to concentrate on some of the basic, underlying economic facts of life from which we cannot escape no matter how much we may talk in high economic terms. The autumn statement and the remarks of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) might lead us into some sort of fantasy land unless we remember some basic assumptions. In the interest of brevity, I shall list just three.

I shall start with an assumption which, if I recall correctly, was originally uttered by Abraham Lincoln. I am not sure in which of his famous speeches it appeared, but I am thinking of the aphorism that the poor are not made richer by making the rich poorer. My second proposition is that one cannot discuss the distribution of wealth in any technical detail unless one first concerns oneself with the concept of wealth creation. Opposition Members, in particular, should remember that.

My third proposition is that money cannot be spent on the basis of desirability, unless one has the resources for that. At budget time, the various political parties on the county council of which I was a member used to debate the options. The opposition's arguments for more expenditure were based almost entirely on the concept of desirability. They argued that we should have, and vote for, more day centres, home helps, care in the community, expenditure on education, and so on. The justification for that was that it was desirable. It always seemed rather misguided of some of my Conservative colleagues to try somehow to deny that desirability. That was a foolish way to proceed. Of course such developments would have been desirable, but they should be considered in the context of the ability of the individual, community or country to pay. That is the third maxim that we must keep steadfastly before us.

My hon. Friend the Member for Stratford-on-Avon (Mr. Howarth) was interesting and spoke to the point when he discussed how my right hon. Friend the Chancellor has been able to expand expenditure in various areas. The points that he made were well taken, at least by Conservative Members. However, the hon. Member for Ipswich described that increase in expenditure as being profligate. He would be right, and my hon. Friend the Member for Stratford-on-Avon would be wrong, were it not for the most salient factor in the equation, which, as my hon. Friend pointed out, is that increased expenditure is as a smaller proportion of GDP. In other words, we are not squandering resources that we do not have. Instead, we are following the most beneficial of all economic rules, which is that public expenditure can follow in its most desirable forms—which is not to deny the virtues of constant attention to value for money and to prudent economic management—as the tax burden that supports it is capable of being reduced. All the economic benefits of that flow through to industry and to consumers alike.

Let us examine the extraordinary proposition that seems to be at the heart of Labour's economic thinking, that one makes the poor richer by making the rich poorer. The other day I heard the most extraordinary point in a debate, when an Opposition spokesman claimed that this country was suffering from an appalling brain drain. I think that my right hon. Friend the Secretary of State for Education and Science was at the Dispatch Box at the time. The Opposition spokesman said that that brain drain was due to the appalling record of investment on research, or on higher education facilities—I forget the exact nature of the appalling failure to invest of which the Government were accused, setting aside the logic of the totals, which prove that we are investing more than ever before.

It seemed to have totally escaped the Opposition Member that the real brain drain is likely to be occasioned when more of those with brains engage them on the assumption that the basic top rate of tax in the United States this year will be 28 per cent and the basic bottom rate of tax paid by people in this country will be 29 per cent. Top rates on earnings are still at a penal level of 65 per cent. Those with brains, initiative, enterprise and enthusiasm, who are capable of generating real wealth and real jobs, are most likely to say, "This is a ludicrous environment in which to operate. I am a person capable of generating wealth, and the minute I begin to create that wealth, and particularly the minute I begin to benefit from that enterprise, initiative and risk," as anyone in private business knows, "I am faced with a putative Government who say that now that I have made it, now that I have created those jobs, they want to control my company through worker councils and increased powers for trade unions, and they want to take away my incentive to create jobs." It is the economics of the madhouse and, worse than that, the most primitive form of pandering to the politics of envy—something with which no respectable Opposition Member should be associated.

Mr. Bryan Gould (Dagenham)

In the light of the point that the hon. Gentleman is making, no doubt he is as interested as I am in the publication of the Treasury report, which tends to argue against the conclusions that he has enunciated. Will he urge his right hon. and hon. Friends to make sure that the report is published so that we can all judge the truth of the matter?

Mr. Norris

The hon. Gentleman has an advantage over me. It would be dishonest of me to claim that I was as familiar with the report to which the hon. Gentleman refers as he is. Suffice it to say that I am reminded of the fact that it is said that when tax rates on incomes were as high as 98 per cent the tax take was lower than it now is on a lower top rate of tax. Whether or not that is entirely germane to the point that the hon. Gentleman was seeking to elucidate, I work on the primitive basis of the logic of someone who started his own company, largely thanks to the kindness of a major clearing bank, which I had better not name. My heirs and assigns are likely to be eternally grateful to it. At the time, I remember my wife saying to me, "What happens if this all goes wrong?" I said that we had a wonderful Labour council in Oxford, and no doubt it would be able to do something for us.

One of the few incentives to go into business is that when one has created something, it is something that one will own and can keep and, dare I say it—is it so awful? —something that one can enjoy. If the hon. Member for Dagenham (Mr. Gould) or any other hon. Member who has been through the same experience expects me to put in the hours, the effort and the risk in making money to create real jobs for love, I doubt whether my love extends that far. I got hold of two companies, both of which were on the verge of bankruptcy, and they are now thriving businesses employing people.

I should like to refer to the concept of wealth creation and the Opposition's spending plans. I remember the right hon. Member for Sparkbrook getting frightfully agitated when the Chief Secretary to the Treasury produced a Treasury estimate of Opposition spending plans. I do not know whether the current figure is £28 billion or £35 billion or whether it is likely to be over £40 billion by the time of the general election. However, I know that while the right hon. Gentleman has denied the precise calculations and attempted to dismiss the exercise as merely a political gesture, he has never denied the essential truth that Opposition plans will simply burden the taxpayer through direct tax, borrowing and the printing of money. All those three—the only origins of resource to which a Chancellor has access—will damage businesses and individuals alike.

There may be the argument that that massive increase in public spending will reduce unemployment. To believe that is fundamentally wrong and misguided. Analysing it briefly, surely current unemployment is caused by two main factors. One is demography—that is, the large numbers of young people coming on to the job register compared with relatively small numbers of elderly people coming off the register. The second cause is the second industrial revolution, the process to which I referred in an intervention in the speech of the hon. Member for Ipswich. Under Governments of whatever colour, and at whatever time in their development, fewer people will be employed in manufacturing industry as technology inevitably takes over.

It has always appalled me that the Labour party appears to relish the preservation of those appalling hell holes, such as the great factories that developed after the war, through the 1950s, the 1960s and 1970s, where a man went in in darkness and re-emerged in darkness, having worked in Stygian conditions. Surely all that we want to do is to embrace the opportunity that new technology gives us, to take men out of such an appalling environment. We want to give them the opportunity to work in an infinitely more creative and progressive environment. It is one of the most salient achievements of the Government that since 1983 they have created over 1 million net new jobs in British industry, very few of which involve returning people to the conditions of work to which, it seems to me, Opposition Members wish to return them.

It is a fiction that the unemployed can simply be mopped up by public spending plans, which would make them all net taxpayers. The logic does not work, first, because that false employment places a huge burden on those who are creating real jobs by investing in their own businesses; and, secondly, because there is the combination of trade union nationally agreed rates and extra costs attendant upon creating artificial jobs—the costs of providing the materials that go with the labour. The idea is that one can suddenly fuel a wonderfully vibrant economy by using the national taxation resource to put everyone into a job and make everyone a taxpayer, but it would simply increase massively the burden of tax that each taxpayer would be forced to pay. The equation does not balance.

I believe that the only way to keep the economy moving and to create more real jobs is that outlined in the autumn statement—keeping inflation down and spending within the present proportion of GDP, and lowering it from that level, keeping interest rates as low as possible, rather lower than they are at present, and keeping taxation down because of the burden that that represents for the individual and for businesses. In that respect the Government have been, until now, extraordinarily successful. I commend my right hon. Friend on his autumn statement, which I believe is a sign of even greater achievements to come.

8.59 pm
Mr. Tam Dalyell (Linlithgow)

In four minutes, I want to ask four questions, to which I hope the Treasury will reply in writing.

First, it is monstrous that the receipts from privatisation should be seen as a reduction in PSBR. What has happened to the shares in the radiochemical laboratory in Amersham? I have been told that they have been mostly dispersed to big institutions and that they have not remained invested on the wide basis that was first intended.

Secondly, the Select Committee and the autumn statement referred to the oil surplus. That has greatly affected those constituencies close to the North sea and there is an expected decline of £500,000. What estimate has the Treasury made of this reduction in oil-related industries on the east coast of Scotland and the north-east?

Thirdly, paragraph 2.09 of the statement contains the defence savings that the Government claim will be made in the Falklands. Politicians should not sit on green Benches and promise reductions when our forces—through the Government's commitment; it is not their fault—are in some jeopardy. We know that Argentina has re-armed. In quantifiable terms, what saving will the Government make?

Fourthly, where in the statement is there provision for money to cover the security services? A record 13.6 per cent rise has been earmarked for the official budget of Britain's intelligence and security services in the new financial year, according to the figures published by the Treasury Supply Estimates on 19 March. The £11 million increase means that the budgets of the services will rise by £32 million. According to The Times of 20 March 1986, this figure may only represent the cost of salaries and other staff expenditure rather than the global figure for Britain's espionage, counter-espionage and security operations. The increase could mean pay rises with MI5 and MI6 plus extra staff through reorganisation prompted by Security Commission reports on the services. The budget is described as 'for Her Majesty's foreign and other secret services. The Cabinet office will account for this vote' in the estimates. Where do these figures appear in the Estimates? Do they appear under the budget of £110 million for other Departments, the Home Office, or the Foreign and Commonwealth diplomatic wing? I am referring to pages 28 and 29 of the autumn statement. I would be grateful to learn, by letter, where those figures arise.

Finally, has the Treasury any control over the competence of the security services? I want to refer to pages 235–238 of the "Pencourt File" by Barrie Penrose, which outlines in detail the muck-up in the mid-1970s when the security services confused the name of my right hon. Friend the Member for Clydesdale (Dame J. Hart) with Mrs. Tudor Hart. Tomorrow, the Treasury will receive a letter from me giving the full details of that mix-up. I have reason to believe that there has been massive incompetence in other cases.

I want to know about value for money in the security services. I have kept to my bargain and spoken for four minutes. My speech was necessarily truncated, but the Treasury has some interest in the matter of security.

9.4 pm

Mr. Ian Wrigglesworth (Stockton, South)

I am grateful to the hon. Member for Linlithgow (Mr. Dalyell) for truncating his remarks. I too will be brief. I want to comment primarily on the two major defects in the Government's economic strategy contained in the autumn statement. However, first I want to say a few words about the Chancellor's speech and conduct.

The right hon. Gentleman revealed a deplorable lack of respect for the House at the beginning of the debate, and not for the first time. That is why there were protests from the alliance Benches. Today was one of a number of occasions when, during major economic debates, the Chancellor has not paid the attention to the debate that many hon. Members believe he should. His attitude to the House was borne out in his snide remarks about the Select Committee and his attack upon its members. That was entirely unjustified and unworthy. A bigger man would not have stooped to those depths. If he wanted to attack the Select Committee, he should have attacked the arguments and not brushed off the report as the product of the advisers to the Committee. That was deplorable, and I hope that the Chancellor will desist from such action in future.

There are two major defects in the autumn statement, both of which relate to the one subject to which the Chancellor paid hardly any attention—unemployment. It is amazing that, in a major debate on economic policy, the Chancellor's opening remarks showed virtually no anxiety about the continuing high level of unemployment. More than 3 million people are now unemployed and it is the job of those of us with high levels of unemployment in our areas constantly to remind the House that there are levels of 40 per cent and 50 per cent unemployment in many wards in the constituencies of Members on both sides of the House. The prime target of the economic policies of any Government should be to ensure that the misery and waste of resources represented by those figures is overcome. It is deplorable that the Chancellor paid virtually no attention to that in his speech.

The first major defect in the Government's policy is in the nature of the demand within the economy that they are stimulating. We have a public sector financial deficit of £14.5 billion.

Mr. Lawson


Mr. Wrigglesworth

It is not rubbish. It is the forecast in the autumn statement and in the Select Committee report, and it is borne out by many other forecasts. Moreover, it is entirely to be expected.

My point relates not so much to the quantity as to the nature of the demand within the economy. What is wrong is that the Chancellor and the Government are stimulating a short-term consumer boom by allowing wages to plough ahead of inflation and having a very lax monetary policy which is stimulating consumer demand without creating the jobs and wealth in the British economy that we all want to see.

More importantly, the Government are undermining the industrial and economic foundations of this country for short-term political ends. By selective extracts from previous medium-term financial strategies, the Chancellor tries to maintain that he has not changed his economic tune, but anyone who examines the statements and records of Ministers since 1979 knows that a dramatic change in attitude has been forced on the Government by political expediency and the approaching general election. The hon. Member for Wolverhampton, South-West (Mr. Budgen), who still sticks steadfastly to his monetarist principles, knows that as well as the Opposition and the City do. It is a general election strategy, not a serious economic strategy, and it is undermining the long-term interests of the economy and of British industry.

Mr. Patrick Thompson (Norwich, North)

Will the hon. Gentleman give way?

Mr. Wrigglesworth

No, I do not have time; the winding up speeches will have to begin shortly.

The second major defect is in the Government exchange rate policy. As our amendment makes clear, and as we have explained on many occasions, we believe that it would help British industry, the British economy and, indeed, the whole of the Western economy if the Government would only do what all their principal Economics Ministers apparently want to do, and certainly what the Confederation of British Industry and the Governor of the Bank of England want to do—that is, to join the exchange rate mechanism of the European monetary system. There has been overwhelming support for that from all sections of industry and commerce, but it has apparently been prevented by the Prime Minister. That is amazing. We are told that the Chancellor himself wants to do it, and it is a sad reflection on his position in the Government that such a major item of economic policy that he wishes to pursue should be rejected by the Prime Minister.

We believe that joining the exchange rate mechanism would mean much greater stability in our exchange rate. It would not enable us to overcome all the pressures on exchange rates—clearly, we should sometimes have to defend the rate at which we joined by increasing interest rates—but we are currently paying a premium in interest rates for the present lack of confidence in our economy. One of the reasons why our interest rates are, on average, 4 per cent above those of our European partners, which is crippling sections of British industry, is that international markets have no confidence in the pound. Confidence would be maintained to a far greater extent if we were full members of the EMS and it is deplorable that the Chancellor has not been able to pursue that course when he apparently wants to.

There is overwhelming evidence that the Government are pursuing a general election strategy rather than an economic strategy. There is a staggering example of that in my constituency. The Government are proposing to set up an urban development corporation to help create jobs and growth in the area, but they then take away the equivalent of 18p on the rates through the rate support grant settlement to provide relief for places such as North Yorkshire, Hambledon and Richmond.

That is entirely a strategy for votes. It has nothing to do with jobs or the economic revival of my area. The same is true for other urban areas. The Government are undermining large sections of British industry because of their short-term general election interests rather than those of the British economy.

9.11 pm
Mr. Bryan Gould (Dagenham)

Nobody can approach this debate without feeling a sense of obligation to the Treasury and Civil Service Committee and its Chairman. I say nobody, but I must immediately make an exception for the Chancellor of the Exchequer.

The right hon. Member for Worthing (Mr. Higgins) and his Committee deserve to be congratulated on their report and the dignified yet stinging rebuke that they delivered to the Chancellor for his ill-considered remarks. In a sober and restrained way, the Committee produced a conclusion which we, and, I believe, many Conservative Members, are happy to endorse. It concluded that Government economic policy has changed, that, for their own reasons, the Government have chosen to deny that change and that both the change and the denial leave current and future economic policy in an utterly uncertain state.

The Committee's first point is that the obscurity of the autumn statement makes it extraordinarily difficult to treat it as a satisfactory basis for assessing the Government's economic policy. Changes are made but they are neither acknowledged nor explained. That is not an accident. The right hon. Member for Worthing was characteristically generous to the Government on this. I believe that it is not an accident, but part of a general approach to these matters which is perhaps summed up best, in what has become a time-honoured phrase, as being economical with the truth.

The Chancellor and his ministerial team have undertaken a deliberate attempt to muddy the waters and to cover their tracks because they do not want the full extent of their changed policy to be detected by the British people. So far as one can disentangle the changes from the autumn statement and other evidence, in what respect has the policy changed and why does it matter?

The Select Committee provides an excellent guide to the answer to the first question. It makes it quite clear that what has changed is the whole basis, technique and existence of monetary policy. If, for example, sterling M3—so long the favourite broad money measure of the Chancellor and his predecessor—were still the basis of economic policy, as it has risen by 18.2 per cent in the 12 months to September, we should now face an inflation rate of 18 per cent in the forthcoming year or two. I assume that that is not now the Chancellor's prediction.

That rise in sterling M3 is not being responded to with any rise in interest rates, contrary to the policy options taken earlier by the Chancellor and his predecessor. [Interruption.] We have listened to the speeches. I am simply making the point—the Chancellor cannot dispute this—that in earlier days a rise of 18.2 per cent in sterling M3—well beyond the target range—would have been met with a rise in interest rates.

The role of interest rates is another respect in which economic policy has changed. The point of trying to control public spending, on which the Chancellor laid such emphasis in his autumn statement, is to keep interest rates down. That was spelt out in the original medium-term financial strategy. As the Committee points out, the original MTFS states: It is not the intention to achieve the reduction in monetary growth by excessive reliance on interest rates. Yet we have had record interest rates without any real impact on the rate of monetary growth. Therefore, the Chancellor can claim consistency neither in his original policy nor in his abandonment of it.

The Committee details a range of other changes, such as changes in levels of public spending, monetary targets, public spending targets, exchange rate policy and even in such arcane matters as rational expectations. It my be perfectly clear why some of those changes took place. There may be good reasons—indeed, I believe there are excellent reasons—for abandoning many of those aspects of the Government's economic policy. But it is a mystery why other aspects have changed.

Why has the Chancellor for the first time announced a planned increase in the real level of public spending? That is what the autumn statement says, but there seems no reason why the previous position should have been changed. The forecast for economic growth is lower than it was earlier in the year. Perhaps, surprisingly, the forecast for prices is also lower. Therefore, a given quantity of public spending should have secured a greater volume of services and inputs. Despite both those factors, the Chancellor has deemed it wise and prudent to increase public spending.

No explanation is offered in the autumn statement of any change that has occurred to justify the change in policy. Therefore, we must be forgiven for providing our own explanation, which is that the Chancellor has simply lost control of events. He has been compelled to accept increases not merely in public spending, against which he had set his face, but in public spending of the least acceptable sort—the very sort castigated repeatedly by him—namely, increases in public spending largely gobbled up by increases in public sector wage settlements. That is what the Chancellor has had to yield to, and now he seeks to make a political virtue of that necessity.

The Chancellor is trying to pretend that what has taken place is not a change of policy and technique, but, miraculously, a change of substance which will change the course of the economy. He implied no change in the Government's policy, but the reverse is true. As the Select Committee report makes clear, the Chancellor and the Government have changed their policy, techniques and instruments of control. What is missing is any real change in substance of the volume and scale required to meet the needs of the economy. [Interruption.] The Chancellor invented and proclaimed his adherence to techniques, instruments, measures and controls. Now they have been abandoned and he is trying to pretend that that abandonment will somehow benefit the economy on a major scale. That is an illusion and the reverse of the truth.

The Chancellor has abandoned his monetarism in the face of political reality. He has no choice. He has abandoned it for reasons not entirely unconnected with the imminence of the general election. We are forced to conclude that, whereas we used to regard the Chancellor as just a simple-minded monetarist, now we must recognise that the monetarist part of that label is no longer appropriate.

Why does all this matter? Why can we not let the Chancellor off the hook and let him say, as perhaps many politicians before him have said, "We all learn from our mistakes. Now we know that we are wrong and we are making an intelligent adjustment to circumstances as we now see them."? But the very essence of the medium-term financial strategy has always been characterised by its apparent certainty and simplicity.

It is worth recalling just how attractively simple the doctrine was. First, one selected an appropriate measure of the money supply. Then one controlled it. There was no problem about that. One controlled the money supply by fixing a rate of growth at whatever level one chose. Since that fed immediately and automatically through into prices, why not choose zero growth? One then obtained zero inflation. With zero inflation, the economy would suddenly miraculously prosper of its own accord.

That was the simple theory. It was not only simple and certain—here is the real nub of the case—it was immutable. Having set the course and laid down the medium-term financial strategy, the Chancellor, unlike all his wicked and weak-willed predecessors, was going to stick to it come what may. He was not going to be rid of it. That is where slogans such as "There is no alternative" and "The lady is not for turning" came from. The right hon. Lady's reputation is at issue here. Her reputation for inflexibility must be defended. That is why the Chancellor is so unwilling to concede that he has fundamentally shifted course as was well detailed by the Treasury and Civil Service Committee.

In the name of this immutability, simplicity and certainty, immense damage was inflicted on the economy. Another Government and another Chancellor would have realised that the course they had set was doing unacceptable damage, but this Government and this Chancellor persevered. They ploughed on. As manufacturing output and investment fell and 1.3 million jobs in manufacturing industry were lost, as the balance of trade deteriorated and as bankruptcies reached record levels, the Chancellor said, "No, we will stick to our chosen course."

Mr. Budgen

The hon. Gentleman is unfair to the Labour party. Conservative Members sometimes falsely claim that we were the original monetarists. The right hon. Member for Glasgow, Hillhead (Mr. Jenkins), who then represented a Birmingham constituency, was the original monetarist when he was Chancellor of the Exchequer in 1968 and in 1976. The first overt monetarist was the right hon. Member for Leeds, East (Mr. Healey), the present shadow spokesman on foreign affairs.

Mr. Gould

As my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) said, the Prime Minister, in almost a single column of Hansard, has been known to use five different base dates and starting dates for monetarist policy. It is novel to have yet two more added, going as far back as 1968 and 1976, as I understand the hon. Gentleman's rather convoluted remarks.

For all those reasons, and for the reason that the Chancellor proclaimed—the immutability of his policy—and the fact that, in the name of that immutability, he did, and thought he was worth doing, such damage to the economy, he is now—

Mr. Peter Lilley (St. Albans)

Give us quotations.

Mr. Gould

I shall not disappoint the hon. Gentleman. He shall have quotations.

For all those reasons, the Chancellor is unwilling to concede that there has been a change. He knows that if he did, he would have to concede that all the damage has been in vain and the whole basis of his policy has been swept away. It has been replaced by nothing comprehensible or intelligible. It has not yet even been replaced by a new mistake to replace the old ones.

As the basis of the Chancellor's policy has disappeared, even the one achievement claimed for monetarism must now be suspect. It can no longer be chalked up to the Government's credit. The Government claim that their policies have produced a reduction in inflation, yet the policies that were set to produce that reduction have never been applied and have been abandoned as a mistake, as a forlorn hope and as something that could never be put in place. It is difficult for the Government to argue that their policies produced the fall in inflation. That is borne out by the fact that, since 1979, our record on inflation has been worse than the average of the leading OECD countries. In 1979, our inflation rate was 117 per cent of the average for the seven OECD countries. Today it is 144 per cent., and rising.

Mr. Lawson

Quote the figures.

Mr. Gould

I am quoting figures. The Chancellor does not like it because they show that the fall in inflation owes everything to the world recession and the slump in commodity prices, as the Select Committee said. It owes almost nothing—I would say absolutely nothing—to the failed policies of the Government in whose name so much damage has been done.

If, in the light of those facts, the Chancellor still denies that there has been a change, let me try to smoke him out. Let me take as a text the locus classicus—or one of them—of monetarist policy: the speech that he delivered in Zurich on 14 January 1981—the hon. Member for St. Albans (Mr. Lilley), the Chancellor's parliamentary private secretary, asked for some quotations—when he was Financial Secretary to the Treasury. Perhaps he wishes to disown or disavow that part of his career, but we shall give him some quotations. He said:

The heart of our economic policy is the steady deceleration in the rate of monetary growth over a four-year period. The right hon. Gentleman may not wish to stick to sterling M3, which has increased by 18.2 per cent during the past 12 months. In that case, on former theories, we would be looking at an inflation rate of 18 per cent. What would he like to do? Does he wish to place emphasis on PSL1, on which he was especially keen at the time, although I have not heard him mention it much recently—I should be interested to hear whether he wishes to take that measure—or would he prefer one of the narrow money measures? Would he prefer MO or Ml? The latter was a favourite for a time. How would that square with what he said, which was that broad money is the most useful guide? Do we detect a change there?

Does the Chancellor still believe that this is a highly complex matter, but that is no reason for getting it wrong, still less for abandoning the task."? Is that still his position? What is the present basis of his monetary policy? What is the assumed connection between any monetary measure the Chancellor cares to select—I am not fussy about which one he selects—and the assumed or predicted rate of inflation? Unless we know that, we cannot know what has happened to what he said in 1981 was, the heart of our economic policy". The Chancellor said in that speech that the fall in monetary growth was to be achieved by a steady reduction in the real level of total Government spending. When was that target abandoned? Why was it abandoned? Why should anyone believe the Government's plans for public spending in the light of the Chancellor's statement in that speech that there was a steadily declining trend, until by 1982–83 it will be 4 per cent lower than in 1979–80."? Was not the whole point of reducing Government spending the hope that interest rates would be kept down and that there would be no crowding out? Why do we have record real interest rates—the highest in our history and among the highest in the advanced world—and why are our real interest rates twice as high as those of West Germany? Why are we lumbering our industry with such a ridiculous burden? Will the Chancellor give us an answer? He must know.

Let us try another quotation about the exchange rate. In 1981, the Chancellor said: The Government has no exchange rate policy as such. Is that still the case, in view of his repeated statement that he would now resist any further fall in exchange rates and what one assumes to be his preference for joining the EMS although, clearly, he cannot carry his Prime Minister with him? If so, when did the change take place? Is that another change? Can the Chancellor be happy with the situation when the pound is now, as my right hon. Friend the Member for Sparkbrook said, at its lowest level in the trade weighted index, can only be held at that level on the basis of a severely deflated economy—the classic definition of a weaker currency—is bolstered by record borrowing from the reserves, part of which has been spent, has nevertheless produced a rapidly deteriorating balance of trade and is now, as the Prime Minister concedes, too weak to be taken into the EMS and is, above all else, supported by record real interest rates? Is that what the Chancellor believes is an acceptable outcome of seven years of a Government dedicated to what is laughingly called sound money? Is that the apotheosis that the Chancellor so ardently desired?

The Chancellor went on to say that as a result of what had then been done in the name of monetarism—those who remember 1981 and have seen the graphs and the Chancellor's unwillingness to look at any period of government before 1981 will find this a rich irony— British companies are becoming more efficient, leaner, tauter, fitter, and more productive. That is a remarkable statement. Much could have been forgiven if it were in any real sense true. How can it be true when manufacturing output is 7 per cent lower than it was in 1979, when hundreds of thousands of jobs are lost and investment is down?

Let us be fair to the Chancellor. He may want to avoid looking at the economy in the round; he may want to look at companies as individual entities. Will he nominate those of our main industrial rivals against which we have made up ground in terms of productivity, efficiency, unit labour costs and competitiveness? I do not dispute that he may be able to find some, but I wonder whether he would find them among the ranks of our important rivals such as Japan, Germany and the United States. Where would such examples lie?

Let me give the Chancellor a wide choice. Will he choose just one of the various indices of competitiveness that the Treasury sometimes uses and publishes? I do not mind which it is—relative export prices, relative import prices, terms of trade, or relative labour costs. Which of any one of those shows an improvement in our competitiveness since the first quarter of 1979? I challenge him to nominate one. If he cannot—and I know that he cannot—I hope that we shall hear no more of that canard trotted out repeatedly and erroneously by Ministers and other Government spokesmen.

It is significant that we have no answers from the Chancellor or the Chief Secretary. It may be that they are adhering to the policy of being economic with the truth. It may be that they are too busy and that their minds are filled with fantasies and inventions about our spending plans. Those fantasies have been totally discredited by the Institute of Fiscal Studies and Phillips and Drew, which have castigated back-of-the-envelope figures. However, this is a debate about the autumn statement, although I would not be surprised if the Chancellor would dearly like to shift the focus.

The real reason why there is silence on the Government Benches is that they are holding their breath. They know and fear that the simplest gust of wind will bring the whole structure, the whole card house, down. The Chancellor knows that sooner or later it will all collapse because, with his abdication from monetarism, he now runs an economic policy that has no visible means of support.

The Chancellor has one last shot in his locker, if he is to ward off nemesis in the form of a sterling crisis, or a balance of payments crisis, or the blowing up of the consumer boom. That one last, desperate throw is tax cuts. Today the Chancellor affected a pose of fiscal rectitude, but I would lay money on there being some tax cuts in the next Budget, which would go some way towards redeeming the promise that has been made every year for seven years that tax cuts are on their way.

Tax cuts might reverse to some small degree the increased tax burden for the overwhelming majority of families, but they would further stimulate the consumer boom and worsen the balance of payments without doing anything for unemployment, and they would be completely unsustainable for more than a few months. If the Conservatives won the next election, they would have to be reversed as soon as the general election was out of the way. Tax cuts could be made only at the price of further violence to the very policies that the Chancellor has paraded for so long as being at the heart of his economic policy. Tax cuts would be the last desperate throw of a Government who know that the game is up and know, as they go into an election year with more than 3 million people unemployed, that they do not, in the words of the chairman of the Tory party, deserve to be re-elected. They will not be re-elected.

9.36 pm
The Chief Secretary to the Treasury (Mr. John MacGregor)

I congratulate the hon. Member for Dagenham (Mr. Gould) on his appointment to his new post and welcome him to our debates. I shall have a word to say later about his speech and about what he has said elsewhere. As this is my first opportunity since the autumn statement to speak about it in the House, I shall concentrate my opening remarks on the area for which I have particular responsibility, public expenditure.

The hon. Member for Great Grimsby (Mr. Mitchell) accused the Government of major turns in Government policy and of increasing public spending. He described it as the economics of electioneering. On the other hand, my hon. Friend the Member for Darlington (Mr. Fallon) emphasised the need for continuing restraint and regretted that we had not made more progress. I should like to begin by reassuring my hon. Friend and disabusing the hon. Gentleman of his notions.

In his speech my right hon. Friend the Chancellor of the Exchequer said that our consistent view has been that the state takes too much of the nation's income and that our consistent objective is that public expenditure, as a percentage of GDP, should be reduced. My right hon. Friend conceded that some of the targets that we have set have, in the event, proved to be too ambitious.

To reverse public spending trends to achieve the objectives that we have set ourselves requires a constant and firm determination to turn back the inexorable pressures of the 1970s towards higher public spending. Some of them are demand-led pressures, as my hon. Friend the Member for Darlington pointed out. He referred to agriculture and social security. My hon. Friend will be aware that in agriculture the real demand-led area is the common agricultural policy, not the domestic agricultural programme. He will know of the strenuous efforts of my right hon. Friend the Minister of Agriculture, Fisheries and Food—capped with great success during this week, in very difficult circumstances—to restrain the growth of the CAP. I shall deal later with social security.

I have two points to make about public expenditure as a whole. The trends show that we are succeeding. They also show that the Opposition are a constant reminder that without the disciplines that we have continuously imposed both the total and the proportion of the gross domestic product would very rapidly shoot up again.

The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) never likes to be reminded that when his party formed the Government they increased expenditure, in real terms, by 12 per cent in one year. With its £28 billion pledge, the Labour party looks as though it will repeat precisely that mistake if ever again it is given the chance to form a Government. With programmes of that sort, it will certainly not form another Government.

If it were the case, as the hon. Member for Great Grimsby contends, that the Government's public expenditure policy has changed this year, one would expect to be able to detect a break in trend—or example, expenditure rising, instead of falling, as a proportion of the gross domestic product or the growth rate accelerating after it had been decelerating. That is not what one finds. As my right hon. Friend explained at the time of the autumn statement, and again today, the rate of increase in public spending, in real terms, as measured by the combined spending of central and local government—including, as the Select Committee on the Treasury and Civil Service would wish, debt interest but excluding the proceeds of privatisation—shows that progressively the rate of increase has been coming down.

It is worth repeating the figures, because the constant hubbub from the Opposition when my right hon. Friend the Chancellor was making his speech probably meant that most of my hon. Friends did not hear all that he said. The figures are quite clear. They went from 3 per cent in the decade to 1978–79 to 2¼per cent in the last Parliament, and to 1¾ per cent so far in the present Parliament. Far from reversing that trend to slower growth, our plans seek to extend it.

Mr. Fallon

Will my right hon. Friend give way?

Mr. MacGregor

I have a lot to say in response to the debate and a short time in which to say it, so I hope that my hon. Friend will not mind if I do not give way.

If one looks for a break in the trend one can find it, but it was in 1982–83 that the rise in public spending as a proportion of GDP came to an end. I concede that it rose up to that period for a whole variety of reasons which I do not have time to go into now, but in the four years since then the proportion has progressively fallen.

With spending planned to grow significantly more slowly than the economy as a whole, the downward trend will continue, so that by 1989–90 public spending as a proportion of national income will, as my right hon. Friend said, be back to levels last seen in the early 1970s. We have succeeded in making a break with the past and reversing the trend. In the 1970s public spending grew faster than the economy, but now the reverse is true, and this autumn statement accelerates that process.

Some Opposition Members have extended their search for the non-existent U-turn into the detailed programmes. That search will be equally unproductive. Certainly the autumn statement makes additional resources available for priority programmes such as education, health and roads, but these are hardly new priorities.

One advantage of this steady commitment on public spending coupled with a rigorous search for economies is that we have been able to increase spending in the areas to which we attach the greatest priority, while at the same time ensuring that public expenditure has never regained the stranglehold that it once had on our economic life. It is important to look at some of the examples. Looking at our record over the past six years, we see that in education spending per pupil is now at an all-time high and that the proportion of 18 and 19-year-olds entering higher education and the number of graduates are also at record levels.

Spending on the National Health Service has risen by over 24 per cent in real terms since 1978–79, and capital spending on the NHS has risen over 30 per cent. On law and order programmes, spending has risen by nearly 40 per cent in real terms since 1978–79. Capital spending on housing renovation has risen by nearly 40 per cent., and local authorities and new towns improved and converted nearly 100,000 dwellings last year. Over 600 miles of motorways and trunk roads have been completed since we took office and spending on them has risen by more than 25 per cent.

These are all programmes to which we have given priority in the autumn statement and the figures that I have just given demonstrate that we have been consistent throughout and that public spending as a proportion of national income has been coming down. This autumn statement continues the emphasis on those priorities. We are substantially increasing provision for education and, as the House knows, we have made a generous offer of £½ billion next year for teachers' pay. That offer was made in order to get value for money and is offered in return for the right terms, conditions of service and a salary structure in the teaching profession. Spending on hospital and community health services will be up by 2¼ per cent in real terms next year.

The hon. Member for Great Grimsby said that this was an election spending spree, but that increase in real terms is exactly the same as the increase that we planned for this year. We will spend over £700 million more on the police in each of the next two years. By 1987–88 the number of uniformed police will have risen by 10,000 since we took office in 1979. This is not a pre-election spending spree. It is consistent with our progress in the past.

One point to which the Select Committee on the Treasury and Civil Service has drawn attention in the past, but to which it did not draw attention this year, is the balance between capital and current spending. Perhaps this year the Committee did not focus so much on that because it noticed that here again we have been consistent and that our contrast with the Labour record is marked. Since we came to office public sector spending has remained broadly level in real terms, despite our deliberate decision to switch the emphasis from the public to the private sector in the provision of new housing.

The autumn statement shows that we are planning to increase capital expenditure by nearly £1 billion over our previous plans in each of the next two years on roads and prisons, and, despite the switch of emphasis in housing provision, we are making an extra £450 million available next year. We have a £3 billion building programme for the NHS, covering more than 380 major schemes, 110 of which should be completed by 1990.

The interesting point is the contrast between our record on that basis, despite all the attacks that we hear from the Opposition from time to time, on capital spending and on the infrastructure, and theirs. Despite the growth of expenditure under the last Administration, they had to cut capital spending in key areas. Within our restrained totals we have almost identically increased capital spending in the key areas by the same percentage.

The right hon. Member for Sparkbrook referred to the increase in social security spending, which is a marked feature of the autumn statement, and described that as a product of unemployment. [Interruption] It is typical of the right hon. Gentleman to raise a point and then to carry on talking when it is answered. He does not want to hear the answer.

The usual full analysis of expenditure by benefit and type of claimant will be published in the public expenditure White Paper, but it is worth noting that the major factors for the increase that we have announced are an increase in take-up of means test benefits among the long-term sick and disabled and single parents. Average amounts paid in housing benefit to people in and out of work are also increasing, as is spending on family benefits, reflecting among other things a higher birth rate and more children staying on at school after 16.

There is also a continuing increase in the level of take-up of benefits among the existing unemployed. When the right hon. Gentleman puts the burden of the increased expenditure on the unemployed factor, it is worth remembering that most of the social security budget is spent on the elderly, the sick and disabled and on families. Only about one sixth of the social security programme is spent on benefits for unemployed people. As my right hon. Friend the Secretary of State for Social Services has pointed out clearly, our record on increases in benefits since 1979 is good. We have had to take into account the demographic trends and the fact that many people live longer and need such benefits.

If I had had time, I would have spent a few moments on the speech of the hon. Member for Truro (Mr. Penhaligon). I want to contrast our responsible spending with the programmes of other parties. The hon. Gentleman was on his own when he rose to speak and he missed a rare opportunity. He could have said what he liked about the alliance's spending plans without fear of contradiction or of being muzzled. He missed that opportunity, but not all his colleagues have done the same.

According to The Independent last month, the Social Democratic and Liberal parties have been costing and revising what 1 have to describe as a pledge-heavy document, "Partnership for Progress". The right hon. Member for Plymouth, Devonport (Dr. Owen) has, we are told, been laying down the law. I noticed that even while "Partnership for Progress" is at the printers, some of the hon. Friends of the hon. Member for Truro have been blowing a hole in the Social Democratic party's plans and have added, on its own estimate, £.1.5 billion in a pledge to increase pay in the NHS. We shall look forward to seeing continuing disputes between the two parties as they try to grapple with the problem of responsible public spending.

The hon. Gentleman made one fair point. At least the Liberals and Social Democrats have put down an amendment tonight. The hon. Gentleman drew attention to the fact that the official Opposition have not. No wonder. They are terrified of' a focus on their policies.

My right hon. Friend the Member for Worthing (Mr. Higgins) urged strongly, both in the Treasury and Civil Service Committee's report and in the debate, that the matters relating to monetary policy in particular should be discussed on the Floor of the House. I agree. That is precisely what my right hon. Friend the Chancellor was endeavouring to do this afternoon in giving a detailed response to the Committee's report. It was, of course, a strong rebuttal in places, but my right hon. Friend the Member for Worthing is a fair man and I am sure that he will recognise that, as the report criticises the Chancellor, the Chancellor has every right to give his response. His was a detailed response, because he wanted to take the report seriously and argue it point by point.

If my right hon. Friend and the House study the reply, they will find it a fair, reasonable and persuasive response, but they will have to read it, because of the shameful behaviour of the Opposition, led by the Opposition Front Bench. Every observer outside the Chamber must have concluded that theirs was kindergarten behaviour, except that would be unfair to kindergartens. The Opposition did not focus on a single serious issue for one moment during my right hon. Friend's speech. They treated the key economic policy matters as frivolously in this debate as they do in their own internal party discussions on economic matters.

It is fairly clear that the hon. Member for Dagenham wrote his speech before the Chancellor spoke or, alternatively, he could not have heard the Chancellor, because he concentrated on the frivolous aspects of the matter, as did his hon. Friends. He totally failed to see that the Chancellor had responded to his speech in full before he made it—[Interruption.] That is what observers will have seen.

I find the Opposition's attack on these matters extraordinarily hypocritical and schizophrenic. They cannot make up their mind whether the modest increases in spending that we have announced are reckless and a sign of a pre-election spending spree or whether they are totally insufficient. On looking at the Opposition's plans, one must conclude that they would spend a great deal more. They criticise the level of interest rates and inflation. The hon. Member for Dagenham said that we had benefited on inflation this year from oil and falling commodity prices. It is important to look comparatively at the record of inflation over a period of time.

If one compares the record of the last Labour Government and the record since 1979 to the present day, not just in absolute terms, but relative to either the major seven competitors or the rest of the EEC, one finds that under the Labour Government the difference between their inflation level and the average of the major seven was 6.9 per cent., compared with 2.1 per cent under this Government. Even more strikingly, when compared with our European competitors the average was 4.5 per cent during the Labour Government compared with 0.1 per cent now. That is a clear indication of how our policies on interest rates and monetary policy have made a big difference, comparatively, to all that we saw under the Labour Government.

Mr. Gould

I feel justified in intervening, since the inflation rate is the sole achievement that the Government can claim in their economic policy. Does the right hon. Gentleman dispute that our inflation rate today is higher as a proportion of the OECD seven average than it was in 1979 when the Government took office? Does he dispute that, yes or no?

Mr. MacGregor

What matters is the difference that I have just been describing. I utterly reject the hon. Gentleman's statement that inflation, although a key achievement of the Government, is the only one.

The hon. Member for Dagenham wrote a fascinating article in The Times last year. He said:

To say that the Labour party's decline might be terminal has become a commonplace … To lay this bare is not to hasten the decline. A proper understanding of what is happening offers the only chance of doing something to halt a possibly fatal process. Within our geographical and ideological laager a kind of siege mentality prevails. Thus, it is seriously asserted that the obstacle to majority support in the country is that we are not Left-wing enough. It is believed that one day the scales will drop from the eyes of the masses and that a demonstration on the Floor of the Commons will bring the triumph of Socialism closer. It is not really a question whether the debate in the Labour party needs to be fought out in that increasingly isolationist way. If it were, it would not matter to the rest of the country. However, we are seeing that that laager-type mentality is being operated in practice in Labour-controlled authorities involving a not inconsiderable proportion of total local authority spending. The hon. Member for Dagenham knows perfectly well that he was putting his finger on that sort of approach, because he was aware that it could cause increasing unpopularity for the Labour party in the country, but, much more serious, those are the sorts of policies that would be operated if the Labour party ever got the opportunity to return to government.

Labour authority leaders must be worrying the right hon. Member for Sparkbrook enormously. He knows that his colleagues are locked in private discussions. At least, that is what we are told in the press. He must be aware of the irresponsible approach of Labour councillors to public spending. They are piling up commitments for future ratepayers by their creative accounting. Labour controlled authorities continue to spend in the most frivolous fashion, and the right hon. Gentleman must know that the approach that is being adopted by Labour councillors justifies entirely our attack when we say that in practice a Labour Government would not be able to control public spending.

The figure now in circulation is £28 billion, and it has not been challenged seriously. That is the sum to which a Labour Government would be committed, and other commitments are being added to it. That figure destroys the credibility of any attack by the Opposition on the Government's policies on interest rates and inflation, and all the policies that are set out in the autumn statement.

Mr. Gould

As the Minister has been prepared to range so widely to avoid scrutiny of the Government's policy, perhaps I should have foreseen that he would introduce Labour spending yet again. Has the right hon. Gentleman read the study of our programme by the Institute for Fiscal Studies? Does he know what conclusion the institute reached, and does he accept it? Its conclusion is that he has invented figures, or that they are nothing more than back-of-envelope figures.

Mr. MacGregor

I have read the study in full and that which the hon. Gentleman asserts is not what it states. The study makes it clear that the Government's costing is entirely accurate and is not based on back-of-envelope figures. Secondly, it says that some of Labour's commitments are not absolutely clear. On many occasions I have offered the right hon. Member for Sparkbrook the opportunity to tell us which commitments he will take off the list. Some signs were given in a previous debate that commitments that are dear to the hearts of Labour Back Benchers are now being dropped.

The hon. Member for Kingston upon Hull, East (Mr. Prescott), who is the Opposition's employment spokesman, has said that there are commitments that are not "fully there" of £6.6 billion, which he said should be removed from the overall commitment. That statement was negated by the hon. Member for Oldham, West (Mr. Meacher), the Opposition's spokesman on social security matters, who added more than an equivalent sum to the figures that do not come within the commitment of £28 billion.

If we consider what is being done by Labour councils, it is no wonder that Opposition Members are so sensitive. The hon. Member for Dagenham stated that inflation was the Government's one achievement for which we could claim credit. Accordingly, I turn to the record for the past five years, which the autumn statement will continue. Since 1981, growth has averaged 3 per cent., manufacturing investment has averaged 4 per cent. and take-home pay for a married man on average earnings has increased by 17 per cent. compared with a drop of nearly 1 per cent. under the previous Labour Government.

As has been said, the Government's record on inflation is a major achievement. The hon. Gentleman talks about interest rates, but he should recognise that there are other factors that are extremely important to companies. The rate of return for all industrial and commercial companies rose to 12 per cent. in 1985, the highest since 1964, and treble the rate in 1975. The rate of return on manufacturing in 1985 was 7 per cent., the highest percentage since 1973. Companies' liquidity and profitability are returning to the levels that we all want to see. These elements can be set against the impact of inflation.

The autumn statement is consistent with what we have done in the past, which has made possible the achievements to which I have referred. It will enable us to secure balanced growth again next year. It is in the most remarkable contrast with the policies of the Opposition, which is why they will never get the opportunity to implement them.

Question put, That the amendment be made:—

The House divided: Ayes 22, Noes 268.

Division No. 44] [9.59 pm
Ashdown, Paddy Owen, Rt Hon Dr David
Beith, A. J. Penhaligon, David
Bruce, Malcolm Ross, Stephen (Isle of Wight)
Hancock, Michael Shields, Mrs Elizabeth
Howells, Geraint Steel, Rt Hon David
Hughes, Simon (Southwark) Thomas, Dafydd (Merioneth)
Johnston, Sir Russell Wallace, James
Kennedy, Charles Wigley, Dafydd
Kirkwood, Archy Wrigglesworth, Ian
Livsey, Richard
Maclennan, Robert Tellers for the Ayes:
Mallon, Seamus Mr. David Alton and
Meadowcroft, Michael Mr. John Cartwright.
Aitken, Jonathan Fraser, Peter (Angus East)
Alison, Rt Hon Michael Freeman, Roger
Ancram, Michael Gale, Roger
Arnold, Tom Galley, Roy
Aspinwall, Jack Gardiner, George (Reigate)
Atkins, Robert (South Ribble) Gardner, Sir Edward (Fylde)
Baker, Rt Hon K. (Mole Vall'y) Garel-Jones, Tristan
Baker, Nicholas (Dorset N) Gilmour, Rt Hon Sir Ian
Batiste, Spencer Glyn, Dr Alan
Beaumont-Dark, Anthony Goodhart, Sir Philip
Bellingham, Henry Goodlad, Alastair
Benyon, William Gorst, John
Best, Keith Gow, Ian
Boscawen, Hon Robert Grant, Sir Anthony
Bottomley, Mrs Virginia Greenway, Harry
Bowden, A. (Brighton K'to'n) Gregory, Conal
Brooke, Hon Peter Griffiths, Sir Eldon
Brown, M. (Brigg & Cl'thpes) Griffiths, Peter (Portsm'th N)
Browne, John Grist, Ian
Buchanan-Smith, Rt Hon A. Ground, Patrick
Buck, Sir Antony Grylls, Michael
Budgen, Nick Hamilton, Hon A. (Epsom)
Carlisle, Rt Hon M. (W'ton S) Hamilton, Neil (Tatton)
Cash, William Hampson, Dr Keith
Chapman, Sydney Hanley, Jeremy
Chope, Christopher Hannam, John
Churchill, W. S. Harris, David
Clark, Sir W. (Croydon S) Harvey, Robert
Cockeram, Eric Havers, Rt Hon Sir Michael
Colvin, Michael Hawkins, Sir Paul (N'folk SW)
Conway, Derek Hayhoe, Rt Hon Barney
Coombs, Simon Hayward, Robert
Cope, John Heddle, John
Cormack, Patrick Henderson, Barry
Cranborne, Viscount Heseltine, Rt Hon Michael
Crouch, David Hickmet, Richard
Dorrell, Stephen Hicks, Robert
Douglas-Hamilton, Lord J. Higgins, Rt Hon Terence L.
Dunn, Robert Hind, Kenneth
Durant, Tony Hirst, Michael
Dykes, Hugh Holt, Richard
Eyre, Sir Reginald Hordern, Sir Peter
Fallon, Michael Howard, Michael
Favell, Anthony Howarth, Alan (Stratf'd-on-A)
Fenner, Dame Peggy Howarth, Gerald (Cannock)
Fookes, Miss Janet Howell, Ralph (Norfolk, N)
Forman, Nigel Hubbard-Miles, Peter
Forsyth, Michael (Stirling) Hunt, David (Wirral W)
Forth, Eric Hunt, John (Ravensbourne)
Fox, Sir Marcus Hunter, Andrew
Franks, Cecil Jackson, Robert
Jenkin, Rt Hon Patrick Price, Sir David
Jessel, Toby Prior, Rt Hon James
Johnson Smith, Sir Geoffrey Proctor, K. Harvey
Jones, Gwilym (Cardiff N) Raffan, Keith
Jones, Robert (Herts W) Raison, Rt Hon Timothy
Joseph, Rt Hon Sir Keith Rathbone, Tim
Kellett-Bowman, Mrs Elaine Rees, Rt Hon Peter (Dover)
Key, Robert Rhodes James, Robert
King, Rt Hon Tom Ridsdale, Sir Julian
Knight, Greg (Derby N) Rifkind, Rt Hon Malcolm
Knight, Dame Jill (Edgbaston) Rippon, Rt Hon Geoffrey
Knowles, Michael Roberts, Wyn (Conwy)
Knox, David Robinson, Mark (N'port W)
Lamont, Rt Hon Norman Roe, Mrs Marion
Lang, Ian Rossi, Sir Hugh
Latham, Michael Rost, Peter
Lawler, Geoffrey Rowe, Andrew
Lawrence, Ivan Rumbold, Mrs Angela
Lawson, Rt Hon Nigel Sackville, Hon Thomas
Lee, John (Pendle) Sainsbury, Hon Timothy
Leigh, Edward (Gainsbor'gh) Sayeed, Jonathan
Lester, Jim Scott, Nicholas
Lewis, Sir Kenneth (Stamf'd) Shaw, Giles (Pudsey)
Lilley, Peter Shaw, Sir Michael (Scarb')
Lloyd, Sir Ian (Havant) Shelton, William (Streatham)
Lloyd, Peter (Fareham) Shepherd, Colin (Hereford)
Lord, Michael Shepherd, Richard (Aldridge)
Lyell, Nicholas Silvester, Fred
McCrindle, Robert Sims, Roger
McCurley, Mrs Anna Skeet, Sir Trevor
MacGregor, Rt Hon John Smith, Sir Dudley (Warwick)
MacKay, Andrew (Berkshire) Soames, Hon Nicholas
MacIean, David John Speed, Keith
McLoughlin, Patrick Speller, Tony
McNair-Wilson, M. (N'bury) Spicer, Jim (Dorset W)
McQuarrie, Albert Spicer, Michael (S Worcs)
Madel, David Squire, Robin
Major, John Stanbrook, Ivor
Malins, Humfrey Stanley, Rt Hon John
Marlow, Antony Steen, Anthony
Marshall, Michael (Arundel) Stern, Michael
Mates, Michael Stevens, Lewis (Nuneaton)
Mather, Carol Stewart, Allan (Eastwood)
Maude, Hon Francis Stewart, Andrew (Sherwood)
Maxwell-Hyslop, Robin Stewart, Ian (Hertf'dshire N)
Mayhew, Sir Patrick Sumberg, David
Merchant, Piers Taylor, John (Solihull)
Meyer, Sir Anthony Taylor, Teddy (S'end E)
Miller, Hal (B'grove) Temple-Morris, Peter
Mills, Iain (Meriden) Terlezki, Stefan
Miscampbell, Norman Thatcher, Rt Hon Mrs M.
Mitchell, David (Hants NW) Thomas, Rt Hon Peter
Moate, Roger Thompson, Donald (Calder V)
Monro, Sir Hector Thompson, Patrick (N'ich N)
Montgomery, Sir Fergus Thorne, Neil (Ilford S)
Morris, M. (N'hampton S) Thurnham, Peter
Morrison, Hon C. (Devizes) Townend, John (Bridlington)
Morrison, Hon P. (Chester) Townsend, Cyril D. (B'heath)
Moynihan, Hon C. Tracey, Richard
Needham, Richard Trippier, David
Nelson, Anthony Trotter, Neville
Neubert, Michael Twinn, Dr Ian
Newton, Tony van Straubenzee, Sir W.
Nicholls, Patrick Vaughan, Sir Gerard
Normanton, Tom Viggers, Peter
Norris, Steven Waddington, David
Oppenheim, Phillip Waldegrave, Hon William
Osborn, Sir John Walden, George
Ottaway, Richard Wall, Sir Patrick
Page, Sir John (Harrow W) Waller, Gary
Page, Richard (Herts SW) Ward, John
Parkinson, Rt Hon Cecil Wardle, C. (Bexhill)
Patten, Christopher (Bath) Warren, Kenneth
Patten, J. (Oxf W & Abgdn) Watson, John
Peacock, Mrs Elizabeth Watts, John
Percival, Rt Hon Sir Ian Wells, Bowen (Hertford)
Pollock, Alexander Wheeler, John
Portillo, Michael Whitfield, John
Powell, William (Corby) Whitney, Raymond
Powley, John Wiggin, Jerry
Wilkinson, John Younger, Rt Hon George
Wolfson, Mark
Wood, Timothy Tellers for the Noes:
Woodcock, Michael Mr. Mark Lennox-Boyd and
Yeo, Tim Mr. Gerald Malone.

Question accordingly negatived.

Main Question put:—

The House divided: Ayes 268, Noes 204.

Division No. 45] [10.13 pm
Aitken, Jonathan Griffiths, Sir Eldon
Alison, Rt Hon Michael Griffiths, Peter (Portsm'th N)
Ancram, Michael Grist, Ian
Arnold, Tom Ground, Patrick
Aspinwall, Jack Grylls, Michael
Atkins, Robert (South Ribble) Hamilton, Hon A. (Epsom)
Baker, Rt Hon K. (Mole Vall'y) Hamilton, Neil (Tatton)
Baker, Nicholas (Dorset N) Hampson, Dr Keith
Batiste, Spencer Hanley, Jeremy
Beaumont-Dark, Anthony Hannam, John
Bellingham, Henry Harris, David
Benyon, William Harvey, Robert
Best, Keith Havers, Rt Hon Sir Michael
Boscawen, Hon Robert Hawkins, Sir Paul (N'folk SW)
Bottomley, Mrs Virginia Hayhoe, Rt Hon Barney
Bowden, A. (Brighton K'to'n) Hayward, Robert
Brooke, Hon Peter Heddle, John
Brown, M. (Brigg & Cl'thpes) Henderson, Barry
Browne, John Heseltine, Rt Hon Michael
Buchanan-Smith, Rt Hon A. Hickmet, Richard
Buck, Sir Antony Hicks, Robert
Budgen, Nick Higgins, Rt Hon Terence L.
Carlisle, Rt Hon M. (W'ton S) Hind, Kenneth
Cash, William Hirst, Michael
Chapman, Sydney Holt, Richard
Chope, Christopher Hordern, Sir Peter
Churchill, W. S. Howard, Michael
Clark, Sir W. (Croydon S) Howarth, Alan (Stratf'd-on-A)
Cockeram, Eric Howarth, Gerald (Cannock)
Colvin, Michael Howell, Ralph (Norfolk, N)
Conway, Derek Hubbard-Miles, Peter
Coombs, Simon Hunt, David (Wirral W)
Cope, John Hunt, John (Ravensbourne)
Cormack, Patrick Hunter, Andrew
Cranborne, Viscount Jackson, Robert
Crouch, David Jenkin, Rt Hon Patrick
Dorrell, Stephen Jessel, Toby
Douglas-Hamilton, Lord J. Johnson Smith, Sir Geoffrey
Dunn, Robert Jones, Gwilym (Cardiff N)
Durant, Tony Jones, Robert (Herts W)
Dykes, Hugh Joseph, Rt Hon Sir Keith
Eyre, Sir Reginald Kellett-Bowman, Mrs Elaine
Fallon, Michael Key, Robert
Favell, Anthony King, Rt Hon Tom
Fenner, Dame Peggy Knight, Greg (Derby N)
Fookes, Miss Janet Knight, Dame Jill (Edgbaston)
Forman, Nigel Knowles, Michael
Forsyth, Michael (Stirling) Knox, David
Forth, Eric Lamont, Rt Hon Norman
Fox, Sir Marcus Lang, Ian
Franks, Cecil Latham, Michael
Fraser, Peter (Angus East) Lawler, Geoffrey
Freeman, Roger Lawrence, Ivan
Gale, Roger Lawson, Rt Hon Nigel
Galley, Roy Lee, John (Pendle)
Gardiner, George (Reigate) Leigh, Edward (Gainsbor'gh)
Gardner, Sir Edward (Fylde) Lennox-Boyd, Hon Mark
Garel-Jones, Tristan Lester, Jim
Gilmour, Rt Hon Sir Ian Lewis, Sir Kenneth (Stamf'd)
Glyn, Dr Alan Lilley, Peter
Goodhart, Sir Philip Lloyd, Sir Ian (Havant)
Goodlad, Alastair Lloyd, Peter (Fareham)
Gorst, John Lord, Michael
Gow, Ian Lyell, Nicholas
Grant, Sir Anthony McCrindle, Robert
Greenway, Harry McCurley, Mrs Anna
Gregory, Conal MacGregor, Rt Hon John
MacKay, Andrew (Berkshire) Shaw, Giles (Pudsey)
MacIean, David John Shaw, Sir Michael (Scarb')
McLoughlin, Patrick Shelton, William (Streatham)
McNair-Wilson, M. (N'bury) Shepherd, Colin (Hereford)
McQuarrie, Albert Shepherd, Richard (Aldridge)
Madel, David Silvester, Fred
Major, John Sims, Roger
Malins, Humfrey Skeet, Sir Trevor
Marlow, Antony Smith, Sir Dudley (Warwick)
Marshall, Michael (Arundel) Soames, Hon Nicholas
Mates, Michael Speed, Keith
Mather, Carol Speller, Tony
Maxwell-Hyslop, Robin Spicer, Jim (Dorset W)
Mayhew, Sir Patrick Spicer, Michael (S Worcs)
Merchant, Piers Squire, Robin
Meyer, Sir Anthony Stanbrook, Ivor
Miller, Hal (B'grove) Stanley, Rt Hon John
Mills, Iain (Meriden) Steen, Anthony
Miscampbell, Norman Stern, Michael
Mitchell, David (Hants NW) Stevens, Lewis (Nuneaton)
Moate, Roger Stewart, Allan (Eastwood)
Monro, Sir Hector Stewart, Andrew (Sherwood)
Montgomery, Sir Fergus Stewart, Ian (Hertf'dshire N)
Morris, M. (N'hampton S) Sumberg, David
Morrison, Hon C. (Devizes) Taylor, John (Solihull)
Morrison, Hon P. (Chester) Taylor, Teddy (S'end E)
Moynihan, Hon C. Temple-Morris, Peter
Needham, Richard Terlezki, Stefan
Nelson, Anthony Thatcher, Rt Hon Mrs M.
Neubert, Michael Thomas, Rt Hon Peter
Newton, Tony Thompson, Donald (Calder V)
Nicholls, Patrick Thompson, Patrick (N'ich N)
Normanton, Tom Thorne, Neil (Ilford S)
Norris, Steven Thurnham, Peter
Oppenheim, Phillip Townend, John (Bridlington)
Osborn, Sir John Townsend, Cyril D. (B'heath)
Ottaway, Richard Tracey, Richard
Page, Sir John (Harrow W) Trippier, David
Page, Richard (Herts SW) Trotter, Neville
Parkinson, Rt Hon Cecil Twinn, Dr Ian
Patten, Christopher (Bath) van Straubenzee, Sir W.
Patten, J. (Oxf W & Abgdn) Vaughan, Sir Gerard
Peacock, Mrs Elizabeth Viggers, Peter
Percival, Rt Hon Sir Ian Waddington, David
Pollock, Alexander Wakeham, Rt Hon John
Portillo, Michael Waldegrave, Hon William
Powell, William (Corby) Walden, George
Powley, John Wall, Sir Patrick
Price, Sir David Waller, Gary
Proctor, K. Harvey Ward, John
Raffan, Keith Wardle, C. (Bexhill)
Raison, Rt Hon Timothy Warren, Kenneth
Rathbone, Tim Watson, John
Rees, Rt Hon Peter (Dover) Watts, John
Rhodes James, Robert Wells, Bowen (Hertford)
Ridsdale, Sir Julian Wheeler, John
Rifkind, Rt Hon Malcolm Whitfield, John
Rippon, Rt Hon Geoffrey Whitney, Raymond
Roberts, Wyn (Conwy) Wiggin, Jerry
Robinson, Mark (N'port W) Wilkinson, John
Roe, Mrs Marion Wolfson, Mark
Rossi, Sir Hugh Wood, Timothy
Rost, Peter Woodcock, Michael
Rowe, Andrew Yeo, Tim
Rumbold, Mrs Angela Younger, Rt Hon George
Sackville, Hon Thomas
Sainsbury, Hon Timothy Tellers for the Ayes:
Sayeed, Jonathan Mr. Francis Maude and
Scott, Nicholas Mr. Gerald Malone.
Abse, Leo Barron, Kevin
Adams, Allen (Paisley N) Beckett, Mrs Margaret
Alton, David Beith, A. J.
Archer, Rt Hon Peter Bell, Stuart
Ashdown, Paddy Benn, Rt Hon Tony
Ashley, Rt Hon Jack Bennett, A. (Dent'n & Red'sh)
Ashton, Joe Bermingham, Gerald
Atkinson, N. (Tottenham) Bidwell, Sydney
Banks, Tony (Newham NW) Blair, Anthony
Boothroyd, Miss Betty Hughes, Dr Mark (Durham)
Boyes, Roland Hughes, Robert (Aberdeen N)
Brown, Gordon (D'f'mline E) Hughes, Roy (Newport East)
Brown, N. (N'c'tle-u-Tyne E) Hughes, Simon (Southwark)
Brown, R. (N'c'tle-u-Tyne N) Janner, Hon Greville
Brown, Ron (E'burgh, Leith) John, Brynmor
Bruce, Malcolm Johnston, Sir Russell
Buchan, Norman Jones, Barry (Alyn & Deeside)
Caborn, Richard Kaufman, Rt Hon Gerald
Callaghan, Jim (Heyw'd & M) Kennedy, Charles
Campbell, Ian Kinnock, Rt Hon Neil
Campbell-Savours, Dale Kirkwood, Archy
Canavan, Dennis Lamond, James
Carter-Jones, Lewis Leadbitter, Ted
Cartwright, John Leighton, Ronald
Clark, Dr David (S Shields) Lewis, Ron (Carlisle)
Clarke, Thomas Lewis, Terence (Worsley)
Clay, Robert Litherland, Robert
Clelland, David Gordon Livsey, Richard
Clwyd, Mrs Ann Lloyd, Tony (Stretford)
Cocks, Rt Hon M. (Bristol S) Lofthouse, Geoffrey
Cohen, Harry Loyden, Edward
Coleman, Donald McCartney, Hugh
Cook, Frank (Stockton North) McDonald, Dr Oonagh
Cook, Robin F. (Livingston) McGuire, Michael
Corbett, Robin McKay, Allen (Penistone)
Corbyn, Jeremy McKelvey, William
Cox, Thomas (Tooting) MacKenzie, Rt Hon Gregor
Craigen, J. M. MacIennan, Robert
Crowther, Stan McNamara, Kevin
Cunliffe, Lawrence McTaggart, Robert
Cunningham, Dr John McWilliam, John
Dalyell, Tam Madden, Max
Davies, Rt Hon Denzil (L'lli) Marek, Dr John
Davis, Terry (B'ham, H'ge H'l) Martin, Michael
Deakins, Eric Mason, Rt Hon Roy
Dewar, Donald Maxton, John
Dixon, Donald Maynard, Miss Joan
Dobson, Frank Meacher, Michael
Dormand, Jack Meadowcroft, Michael
Douglas, Dick Michie, William
Dubs, Alfred Millan, Rt Hon Bruce
Duffy, A. E. P. Mitchell, Austin (G't Grimsby)
Dunwoody, Hon Mrs G. Morris, Rt Hon A. (W'shawe)
Eadie, Alex Morris, Rt Hon J. (Aberavon)
Eastham, Ken Nellist, David
Edwards, Bob (W'h'mpt'n SE) O'Brien, William
Evans, John (St. Helens N) O'Neill, Martin
Fatchett, Derek Owen, Rt Hon Dr David
Faulds, Andrew Park, George
Field, Frank (Birkenhead) Parry, Robert
Fields, T. (L'pool Broad Gn) Patchett, Terry
Fisher, Mark Pavitt, Laurie
Flannery, Martin Pendry, Tom
Foot, Rt Hon Michael Penhaligon, David
Forrester, John Pike, Peter
Foster, Derek Powell, Raymond (Ogmore)
Foulkes, George Prescott, John
Fraser, J. (Norwood) Radice, Giles
Freeson, Rt Hon Reginald Randall, Stuart
Garrett, W. E. Raynsford, Nick
George, Bruce Redmond, Martin
Godman, Dr Norman Rees, Rt Hon M. (Leeds S)
Golding, Mrs Llin Richardson, Ms Jo
Gould, Bryan Roberts, Ernest (Hackney N)
Gourlay, Harry Robertson, George
Hamilton, James (M'well N) Rogers, Allan
Hamilton, W. W. (Fife Central) Rooker, J. W.
Hancock, Michael Ross, Ernest (Dundee W)
Harrison, Rt Hon Walter Ross, Stephen (Isle of Wight)
Hart, Rt Hon Dame Judith Rowlands, Ted
Hattersley, Rt Hon Roy Sedgemore, Brian
Heffer, Eric S. Sheerman, Barry
Hogg, N. (C'nauld & Kilsyth) Sheldon, Rt Hon R.
Holland, Stuart (Vauxhall) Shields, Mrs Elizabeth
Home Robertson, John Shore, Rt Hon Peter
Howarth, George (Knowsley, N) Short, Ms Clare (Ladywood)
Howell, Rt Hon D. (S'heath) Short, Mrs R.(W'hampt'n NE)
Howells, Geraint Silkin, Rt Hon J.
Hoyle, Douglas Skinner, Dennis
Smith, C.(Isl'ton S & F'bury) Thorne, Stan (Preston)
Smith, Rt Hon J. (M'ds E) Wallace, James
Snape, Peter Wardell, Gareth (Gower)
Soley, Clive Wareing, Robert
Spearing, Nigel Weetch, Ken
Steel, Rt Hon David Welsh, Michael
Stott, Roger White, James
Straw, Jack Wigley, Dafydd
Taylor, Rt Hon John David Williams, Rt Hon A.
Thomas, Dafydd (Merioneth) Wilson, Gordon
Thomas, Dr R. (Carmarthen) Winnick, David
Thompson, J. (Wansbeck) Woodall, Alec
Wrigglesworth, Ian Tellers for the Noes:
Young, David (Bolton SE) Mr. Ron Davies and
Mr. Sean Hughes.

Question accordingly agreed to.

Resolved, That this House approves the Autumn Statement presented by Mr. Chancellor of the Exchequer on 6th November; welcomes the prospect of continuing low inflation and steady growth as the basis for maintaining the trend of rising employment; and congratulates Her Majesty's Government on the continuing reduction in the share of national income pre-empted by public expenditure.