HC Deb 08 December 1988 vol 143 cc419-23
1. Mr. Graham

To ask the Chancellor of the Exchequer what estimate he can provide of the proportion of an average earner's 1988 Budget tax cut that has been absorbed by subsequent (a) water and electricity price rises, (b) mortgage interest rates and (c) interest on personal debt.

2. Dr. Godman

To ask the Chancellor of the Exchequer what estimate he can provide of the proportion of an average earner's 1988 Budget tax cut that has been absorbed by subsequent (a) water and electricity price rises, (b) mortgage interest rates and (c) interest on personal debt.

6. Mr. Nigel Griffiths

To ask the Chancellor of the Exchequer what estimate he can provide of the proportion of an average earner's 1988 Budget tax cut that has been absorbed by subsequent (a) water and electricity price rises, (b) mortgage interest rates and (c) interest on personal debt.

8. Mr. Cummings

To ask the Chancellor of the Exchequer what estimate he can provide of the proportion of an average earner's 1988 Budget tax cut that has been absorbed by subsequent (a) water and electricity price rises, (b) mortgage interest rates and (c) interest on personal debt.

The Chancellor of the Exchequer (Mr. Nigel Lawson)

As the hon. Members know, mortgage interest payments and nationalised industry prices are both reflected in the RPI. Since average earnings have risen faster than the RPI, it follows that the average earner has seen a rise in his standard of living even before any account is taken of the benefit of the tax cuts in this year's Budget.

Mr. Graham

Does the Chancellor of the Exchequer realise that in some parts of the United Kingdom the greatest cause of homelessness is mortgage default? Does he understand that many who bought their houses in good faith are being badly let down by him? How high must interest rates rise before he will admit that his policies are wrong? How many more people will have to be made homeless because of the right hon. Gentleman's incompetence?

Mr. Lawson

I have three points to make to the hon. Gentleman. In the first place, the overwhelming cause of mortgage default is broken marriages. It is nothing to do with the mortgage rate. And that is a fact. The second point is that it is well known that interest rates, and therefore the mortgage rate, fluctuate. The third point which the hon. Gentleman ought to take into account—so should other Opposition Members—is that when interest rates go up, on one side certainly borrowers have to pay more, but on the other side savers are getting more too.

Dr. Godman

What does the Chancellor of the Exchequer say to the average wage earner who received about £12 by way of tax cuts in the Budget, who since then has had to pay an extra £30 a month as a result of increased mortgage payments, leaving him and his wife and family £18 worse off? Should we blame the Chancellor of the Exchequer, or the couple? May I put it to the right hon. Gentleman that it is his fiscal policies and other policies that are driving more and more Scots into the seductive but impotent embrace of the Nationalists?

Mr. Lawson

I understand the acute problem posed to the Labour party by the Scottish National party in Scotland, I do not want to intrude into private grief and I shall not say anything more about that, but it does not really arise from the question anyway. As I pointed out, the average earner, fully taking mortgage rate increases into account, is better off today in real terms substantially, even before taking into account the tax cuts in the Budget.

Mr. Griffiths

Is the Chancellor aware of the statement from the CBI which states: "We are consistently"— [Interruption.] Is he aware of the statement from the CBI which states that it has consistently argued against the need for a price increase in electricity, which has inflicted so much harm on its members and export potential and also on over 20 million households in this country? How does the Chancellor justify forcing up electricity prices by more than 15 per cent. in 13 months?

Mr. Lawson

Since the hon. Gentleman is interested in how business is doing, I shall quote to him, even though he is not permitted to quote to me. I shall quote to him if I may, because it is an important document, from the most recent quarterly regional business survey of the British chambers of commerce, which says: Business remains buoyant"— and this takes full account of electricity rises— Confidence is rising, turnover and profitability remains extremely strong … That confidence is being equally maintained when translated into investment activity and so on. That is the state of business and industry today. I would hope that the hon. Gentleman would welcome it, because that comes from the people who are in business and industry and who know what they are talking about, unlike Opposition Members.

Mr. Cummings

Having heard what the Chancellor has just said, what message can he send to home buyers in my constituency of Easington and home buyers elsewhere in the northern region who are subjected to the horrendous rise in interest rates, but who are earning less than the national average weekly wage? Those people therefore have not benefited from recent tax cuts. What message can he send to the 2,000 shipyard workers who have just lost their jobs in Sunderland and who are subjected to increased hardship because of the rise in home interest rates?

Mr. Lawson

The problem of the shipyard workers in Sunderland has got nothing to do with interest rates. I am indeed sorry about the plight of the shipyard workers in Sunderland, but it is well known that there is gross over-capacity in the shipbuilding industry throughout the world. There is no way in which North East Shipbuilders Ltd. could be made into a profitable enterprise. Instead, we want to see new industries developing in the north-east. Taking the economy as a whole, I remind the hon. Gentleman that there are more people at work in Britain today than at any time in our history.

Mr. Tim Smith

Does my right hon. Friend agree that if we had the misfortune to have a Labour Government, not only would water and electricity prices, and mortgage interest rates have risen, but income tax as well? Will he remind the House by how much the real take-home pay of the average earner has increased over the past nine years and compare that with the record of the last Labour Government?

Mr. Lawson

My hon. Friend is making a very good point. Certainly for a married man on average earnings, with two children, his real earnings have risen during the period of this Government by 29 per cent. in real terms. Under the period of the Labour Government there was virtually no rise whatever. During the period of the Labour Government we had the lowest rate of growth of any Government since the war, the lowest rate of growth of productivity in manufacturing, the lowest level of profitability and indeed a fall in manufacturing output. The only thing that they achieved highs for were inflation and taxation.

Sir Michael Shaw

Does my right hon. Friend accept that this matter must be considered from all aspects? Will he remind us how much the taxpayer is saving by no longer having to subsidise the many loss-making nationalised industries?

Mr. Lawson

My hon. Friend is quite right. There is a substantial saving in not having to subsidise loss-making industries now that these industries have been turned round and are in the private sector. Indeed, we are getting increasing income and increasing yield of corporation tax from those industries now that they are healthy and in the private sector.

Mr. John Townend

Is my right hon. Friend aware that in the north of England, where we have not had the ridiculous rise in property prices that people have had in the south, real increases in wages and tax cuts have made people infinitely better off? Will he resist the pressure from the Opposition Front Bench to increase taxes and continue to decrease taxes? Does he agree that the problem is a fall in the savings ratio and an increase in personal borrowing, and that increases in interest rates will encourage saving and discourage borrowing?

Mr. Lawson

My hon. Friend's understanding of the economy is absolutely correct. As for the regional dimension, he is right there too. The effect of a rise in interest rates, particularly now that the personal sector is a net borrower for the first time ever by a substantial amount, is most pronounced in the south-east, which is where the overheating is, and that shows how well directed that instrument of policy is.

Sir Peter Emery

Will my right hon. Friend point out to the prophets of doom on the Opposition Benches that, to the average earner, the most important thing is to stabilise and lower inflation, and that his policy, to anybody who understands it, is bound to have a lead time of anything between five and eight months? Those critics should keep quiet until we see the success of his policy some time in the new year.

Mr. Lawson

My hon. Friend to some extent flatters the Opposition by suggesting that they have a policy. If they do have a policy, I am sure that the Opposition Members on the Front Bench will seek to catch your eye in a moment, Mr. Speaker, to tell the House what it is, but their track record is one of total indifference to inflation and of allowing inflation to reach record levels. I share my hon. Friend's fear that if they were ever given the chance to get into office—which they will not be—they would do the same again. We, by contrast, will maintain low inflation. That is what we have done since we took office, and that is more important than anything else to the people of Britain, whether business men or private individuals.

Mr. Beith

Will the Chancellor rule out now the tactic of using a further savage rise in interest rates early in the new year as a means of controlling overheating in the economy when there are so many other weapons that he could use—including measures to give tax relief on savings and to encourage the banks to slacken the credit explosion—which would not make him as dependent on interest rates as he has made himself?

Mr. Lawson

Unlike the Labour party, which appears not to have any policy that it is prepared to avow, the Liberal party, or what ever it is now called—always has any number of policies or bright ideas. They are nearly all of them crackpot ideas and the electorate will see through them.

Mr. Butterfill

Will my right hon. Friend confirm that the price increases of public utilities during the last five years of the previous Labour Government were more than double those during the past five years of this Government? Electricity prices increased 170 per cent. during the last five years of the Labour Government whereas they have gone down in real terms under this Government.

Mr. Lawson

My hon. Friend is right. It is also the case that the average earner in Britain is better off in real terms than ever before, and that is what causes the Opposition such deep distress.

Mr. Nicholas Brown

Inflation is higher now than when the Chancellor first started to attack it, and it comes ill from him to demand that we explain our policies when we see his policies in tatters. But I will not be uncharitable. Given the net loss of weekly income to mortgage holders set out in the Chancellor's helpful answer of 31 October to his right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour), how far would the Government have to reduce income tax to offset those losses, and what would be the effect of such a further reduction on interest rates?

Mr. Lawson

What I will tell the hon. Gentleman is that the average earner is far better off now than he was a year ago, despite the increase in mortgage rates. The table was very precise. It did not take into account the increase in earnings. It did not take into account also the fact that there is a higher interest rate on savings—and people have savings too. So I am telling the hon. Gentleman that the average income and the average earnings of the average person in this country are higher than they were a year ago. I am not going to take lectures on inflation from the Labour party, when the average rate of inflation under Labour was 15½ per cent.—and not in one single month did it ever get it as low as it is today.

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