§ The Chancellor of the Exchequer (Mr. John Major)
I beg to move,That this House approves the Autumn Statement presented by Mr. Chancellor of the Exchequer on 15th November 1989; welcomes the continuing reduction in the share of national income taken by public expenditure, and the provision of substantial extra resources for priority areas; congratulates Her Majesty's Government on its policies of sound financial discipline and supply side improvement which have been the foundation of record growth of employment, investment, and business formation; and commends the Government's determination to maintain downward pressure on inflation and to bring further improvements in economic performance.
§ Mr. Major
This is probably the last occasion that the House will have to debate the economy before the Budget, which I can now inform the House will be on Tuesday 20 March.
I am grateful that we are aided in the debate by a very comprehensive and helpful report on the Autumn Statement from the Select Committee on the Treasury and Civil Service, under the chairmanship of my right hon. Friend the Member for Worthing (Mr. Higgins). The Committee is to be congratulated on the thoroughness and the speed with which it dealt with the comprehensive range of matters covered in the Autumn Statement. I have taken careful note of its recommendations, I am studying them, and I hope that I shall be able to respond in full before the House debates the public expenditure White Paper in a short while.
In its report, the Committee also focused on the broader issues, and I wish to concentrate on those this afternoon. The annual Autumn Statement effectively serves two main purposes. It provides a mid-year forecast of the prospects for the economy, and it gives the opportunity to set out the Government's plans for public spending for the coming three years.
Our general attitude to public spending has not changed one iota since we were first elected. We believe, as do an increasing number of people throughout the world, that an economy in which the state takes and spends an increasing share of the national wealth cannot be successful—nor, by definition, can it be sustained.
Proper control of public spending—tight control—remains central to the Government's economic strategy. It has enabled us to reduce the ratio of public spending to gross domestic product to less than 40 per cent. in recent years. That is nearly 10 percentage points below the level in the mid-1970s and 8 per cent. below the peak in the early 1980s. In the next two years, the ratios will be unchanged from our plans announced last year, and by 1992–93 the ratio is expected to fall still further, to its lowest level since the mid-1960s.
§ Mr. A. J. Beith (Berwick-upon-Tweed)
The right hon. Gentleman has said that a policy under which public expenditure as a proportion of gross domestic product increased year by year, could not be sustained. Does he think that a policy in which it is decreased year by year as a proportion of GDP can be sustained?
§ Mr. Major
That depends upon the amount of growth in the economy. Provided that growth in public spending is proportionately less than growth in the economy, there will of necessity be a decline in the ratio. That is what has happened in recent years. I shall return to that subject, in terms of the quantum of public expenditure, in a few moments.
The fall in the proportion of national income—the point that the hon. Member for Berwick-upon-Tweed (Mr. Beith) specifically referred to— has not been at the expense of real growth in spending on priority services. One of the great myths of fashionable opinion in recent years is that we have starved important public services, such as education and health, of funds. However, when more than £1 billion a week is going to social security, over £0.5 billion to the Health Service and nearly £400 million a week to education, that is a hard case for the hon. Gentleman to sustain.
§ Mr. Major
In my last speech I gave way on more than 20 occasions. I shall give way in due time, but a large number of right hon. and hon. Members are waiting to speak, so I shall be more stringent with interventions today than normal, if the hon. Gentleman will forgive me.
It is true that we have reduced public spending in a number of areas. In particular, we have returned loss-making companies to profitability and transferred them to the private sector. For example, British Steel was making a loss of £800 million a year in the early 1980s and yet it is now a successful private sector company. Is not that better than keeping it as a public company, drawing £800 million of taxpayers' subsidies and perhaps taking resources that might otherwise have gone to the Health Service? As nationalised industries have improved productivity and profitability, their subsidies have also been reduced. Services have been contracted out at a lower cost to the taxpayer. A number of executive functions within Government Departments have been set up as agencies under the Next Steps initiative. That motivates people within the agency to provide a better service—and to provide it more efficiently—and it promises to be a great success.
Of course, the whole expenditure survey process is essentially about ensuring that we are getting the best possible value for the money that we spend on behalf of the taxpayer. Not least, that means taking as hard a look at pay and running costs as any private sector employer. The private sector meets pay costs out of its own money; the Government meet their pay costs out of other people's money, and we have to balance the taxpayer's interest too. We must also ensure that the money that we provide for public service is spent predominantly on services, and not on unjustified pay increases at the expense of the services for which it was provided in the first instance.
We need to review priorities constantly, and sometimes to change them—for, as an economy grows and prospers, the demands on it necessarily change as well. As output and activity increase, more freight moves around the country; with average real take-home pay over a quarter higher in real terms than it was 10 years ago, more people have cars and wish to use them. As medical science advances, more costly remedies are sought, and, in a society that is experiencing real growth in wealth, the disadvantaged and the elderly should benefit too.
751 Those are among the reasons—although they are not the only reasons—why spending on the National Health Service has increased by over a third as much again in real terms compared with 1978–79. Between this year and next year, it will grow by a further £2,400 million. With income generation and cost savings, the increase in resources will not be £2.4 billion, but the equivalent of £2,600 million—a 5½per cent. increase in real terms. A great deal of that money has been provided to finance improvement in services to patients, to allow an additional £200 million for hospital building and other capital spending and to enable the important Health Service reforms to be implemented and thus improve the service that the NHS offers our nation.
§ Mr. Home Robertson
The Chancellor makes great play of the expenditure on the Health Service. What is the good of investing money on improvements in the Health Service if health authorities—or, in Scotland, health boards—cannot then commission the new facilities? Is the Chancellor aware of the special problem affecting Lothian health board, in my part of the country? A shortfall of £12 million in the current year's budget has led the board to consider closing no fewer than six hospitals. Who is the Chancellor kidding?
§ Mr. Major
As the hon. Gentleman will know if he studies the position across the entire Health Service, the growth in provision over recent years has been continuing year-on-year in each and every part of the United Kingdom. I welcome that, and the Government have provided the resources necessary to ensure that it continues. That has been our policy, and undoubtedly—by any yardstick that the hon. Gentleman chooses to use—that is continuing and will continue in the future.
There has also been a substantial increase in spending on social security since 1979. Not only that, but we have managed to target that spending better than was the case in the circumstances that we inherited. Spending on services for the elderly has increased by £5 billion in real terms, and spending on the long-term sick and disabled has almost doubled in real terms—again, I am taking account of inflation. This year, we have announced real increases in benefits to help 1.5 million of the less well-off families. My right hon. and learned Friend the Secretary of State recently announced changes in benefits for the long-term sick and disabled. When the improvements in that package are fully implemented—that is, by 1993–94—they will add a further £300 million to expenditure on that group, helping an extra 850,000 people. There is also an additional £250 million over two years for a new initiative to tackle homelessness.
§ Mr. Garrett
Does the Chancellor agree that the relative price effect on the National Health Service in the last two expenditure programmes, to which he has referred, is a rise of 10 per cent. or more in costs? To that extent, his "extra funding" for the Health Service is significantly overstated—a point made in the report on the Autumn Statement by the Treasury and Civil Service Select Committee.
As for pensions and benefits, a higher rate of inflation applies to the expenditure of the very poor on, for instance, 752 food and housing than to the heavier spending of the rest of society on consumer durables. Is not the Chancellor also exaggerating the increase in benefits? Would he care to enlighten the House by giving the true figures?
§ Mr. Major
I do not share the hon. Gentleman's pessimistic view of what has happened. As relative price indices turn up from time to time, it is certainly true that they go back to the days when we had volume increases in expenditure and lost control of public expenditure. Whatever indices the hon. Gentleman legitimately uses, it is undeniable upon the figures available that there has been a real and genuine increase in what can be purchased by the groups I have mentioned with the resources that the Government have provided.
We recognise no less than do Opposition Members the importance of maintaining and improving the basic infrastructure in Britain in a period of growth. What is more, we have produced the growth in the economy that has enabled us to afford to do so, unlike the 1970s when most capital programmes were cut. For example, there has been a 40 per cent. real increase in spending on motorways and trunk roads, adding nearly 1,000 extra miles. The new plans announced in the Autumn Statement include significant further real increases. Capital spending on roads will increase by about 25 per cent. over the next three years, and capital spending on railways by 75 per cent. in the same period. British Rail has now embarked on the largest programme of capital investment since the change from steam to diesel. Investment in London Underground will increase by £440 million, including the announcement that we will build an extension of the Jubilee line through docklands to Stratford in east London.
None of those improvements would have been possible without a growing and successful economy. Without that we would have faced the cuts in capital expenditure that occurred in the second half of the 1970s.
§ Mr. Graham Riddick (Colne Valley)
I certainly appreciate and accept that the Government have pumped a great deal more money into British Rail. Does my right hon. Friend agree that as long as British Rail is in the public sector, the increased efficiency and investment that we all seek will never come about? We must therefore move towards privatising the industry and get British Rail away from the dead hand of state control as quickly as we possibly can.
§ Mr. Major
I certainly share the medium-term aspirations that my hon. Friend sets out. I very much hope that the new chairman of British Rail will look carefully at ways of improving the commuter service, particularly in the stress areas around London.
The investment in London Underground to which I referred incorporates all the necessary safety elements illustrated in the Fennell report, which I know the House will welcome and will wish to see carried out as speedily as possible.
The growth in the economy during the 1980s has not only financed those increases in expenditure, but has produced material changes in the propects of large numbers of our citizens as 2¾ million new jobs have been created over the past six years. No other nation in Europe can match that rate of job creation. There has been a 40 per cent. increase in business investment in just the past three years. Both those achievements are without precedent for a generation. For eight years there has been 753 strong and steady growth of output—a clear demonstration of the very much improved supply side response which was the aim, and has been the result, of our policies to reduce direct taxation and Government intervention in industry, and to revive and deregulate the economy.
The supply side of the British economy has performed admirably in recent years. The decline in our share of world trade that had lasted for decades has been stopped. It is now almost certainly in reverse. But even in a faster growing economy, domestic supply has not kept pace with domestic demand over the past couple of years, and that has caused the increase in inflation and a rise in the current account deficit.
With hindsight it is clear that we should have acted earlier to restrain this excessive demand growth. Indeed, we acted on our concerns as early as August 1987, when my right hon. Friend the Member for Blaby (Mr. Lawson) raised interest rates by 1 per cent. But that preceded the stock market crash, and the associated risk of recession, shared by Opposition Members, led us, along with all other major nations, to reduce interest rates—certainly, with hindsight, a mistake, but only with hindsight. At the time all the outside commentators agreed that policy loosening was appropriate, as did Opposition Members who were, in fact, urging far greater relaxation of policy. The right hon. and learned Member for Monklands, East (Mr. Smith) was in the vanguard in expressing that view—effectively, "Cut interest rates, boost demand." That is what the Opposition wanted at that time.
§ Mr. Giles Radice (Durham, North)
Did not the Treasury and Civil Service Select Committee in April 1988, also warn the then Chancellor of the risks of overheating?
§ Mr. Major
My right hon. Friend tightened policy frequently during the period that the hon. Gentleman has just mentioned. The underlying essence is something that the hon. Gentleman cannot deny. At the time of the stock market crash it was the hon. Gentleman and his hon. Friends who wanted us to loosen policy far more than we did, and it would have been disastrous had we taken their advice.
§ Mr. John Townend (Bridlington)
Does my right hon. Friend agree that, in retrospect, it is clear that it was a mistake to shadow the deutschmark and, thus become de facto members of the ERM?
§ Mr. Major
I think that my hon. Friend is well aware of what happened during that period. I see no purpose in trailing over that matter yet again, and have no intention of doing so.
A moment ago the hon. Member for Durham, North (Mr. Radice) referred to the position in 1988. For his benefit I reiterate that monetary policy was tightened throughout the second half of 1988 by my predecessor, and it has been tightened progressively since then as it has become clear that demand has been resilient and that the inflationary pressures remain.
§ Mr. Robert Sheldon (Ashton-under-Lyne)
The right hon. Gentleman says that his solution was to tighten monetary policy, but was not what happened at the time a relaxation of fiscal policy—in particular, in respect of higher-rate taxpayers?
§ Mr. Major
Expressly not. I think that if the right hon. Gentleman actually studies what happened subsequently he will find it hard to say that fiscal policy was relaxed, as the public sector debt repayment grew inexorably year after year. If that is a relaxation of fiscal policy, by any yardstick I should be extremely surprised. The reality is that the cut in tax rates that I think the right hon. Gentleman has in mind produced a greater fiscal yield than do the higher rates at which fewer people pay tax.
Just as the problem took some time to develop, and even longer to become obvious, so it is bound to take some time to remedy fully. I have no doubt that the rapid growth of domestic demand has come to an end and that demand is now growing at a much more modest pace. The housing market, which was such an important factor in the upsurge in inflation, has cooled off; retail sales growth in the last year has been very modest indeed; and the trade deficit now shows signs of improvement, with our exports performing exceedingly well, but import growth moderating.
So no one should doubt that interest rates are working. There is evidence aplenty to prove it. But reassuring as those signs are, they simply tell us that we are turning the corner. They certainly do not yet tell us that we are back where we wish to be. That will take time, so I am afraid that there can be no question whatsoever of an early relaxation of policy. Interest rates will remain high for some time to come.
§ Mr. Roger Knapman (Stroud)
As a partner in a building company, let me reassure my right hon. Friend that his policies are working.
§ Mr. Major
I am grateful to my hon. Friend for what I take to be his endorsement.
The undeniable fact is that in our present circumstances it is right for spending and borrowing to be less attractive and for saving to be more rewarding. I understand that that message will be disappointing to home owners and business men, but it would be even more unfair to them, and to everyone else, to relax policy now and to risk the problem recurring later.
We need inflation to turn down decisively and to be confident that once it has done so it will stay down. No hon. Member wants to see a return to the 1970s and to the untold damage that runaway inflation inflicted on savers, on competitiveness, on families and on the weakest in our society. Lower inflation has been the essential foundation for success in the 1980s. Recently, inflation has risen. First we must bring it down, and then we must keep it down and get it lower still.
So I tell the House in as clear terms as I can that of course I look forward to the day when I can say that interest rates can come down, but I do not see that day as being imminent, and I do not think that it would be wise for anyone to act in the belief that it will be.
Nor is it any part of policy to restrain private spending only to let public spending grow out of control. Tight monetary policy must be supported by tight fiscal policy. Our fiscal stance clearly is tight, with the prospect of clocking up a further substantial surplus again this year, even if it is less of a surplus than once we thought.
The debt repayment this year now looks likely to be somewhat less than the £12½ billion projected at the time of the Autumn Statement. Corporation tax receipts are lower than forecast, possibly—probably even—due in part 755 to even higher levels of investment than were previously estimated, and local authorities' debt repayment has been lower than expected. None the less, I repeat that there will still be a healthy fiscal surplus this year.
The wider economic outlook for the coming year is for modest growth, with demand at home pretty flat. That is not, I know, the most appealing prospect, but the alternative, which is allowing the British economy to face the coming decade under a serious inflation handicap, would be quite unforgiveable. There are great opportunities for us in the 1990s, but they depend on our not squandering the achievements so hard won in the 1980s.
Those achievements have been considerable by any yardstick. Business investment as a share of national output has reached an all-time high. In fact, since 1980 it has grown faster than in all the other major EC countries, and in the G7 is outpaced only by Japan. Manufacturing investment, too, is at its highest level ever, having grown at an average of 8.5 per cent. a year since the low point in 1983.
Most importantly—this point constantly escapes those who take a never mind the quality, feel the width approach to investment—the quality of British investment is vastly improved. Following the corporation tax reforms of my right hon. Friend the Member for Blaby, unprofitable investment is no longer favoured by the tax system, and industry is earning a higher rate of return than for 20 years. That point is both true and crucial, and if anyone doubts it they should look at the position in eastern Europe. The starkest lesson of all from eastern European Socialism has been that massive quantities of inefficient investment in heavy industry gets one nowhere. In countries such as Poland and Romania, investment accounted for around one quarter or more of national income, significantly higher than in this country or any other advanced industrial countries. However, we know from the dire economic straits in which those countries find themselves, that the quantum of investment means nothing. It is the efficiency with which resources are used which is crucial for the growth of an economy.
§ Mr. Major
If the hon. Gentleman will forgive me, many right hon. and hon. Members wish to speak and I wish to make some more progress.
I regret that the tremendous improvement in investment performance receives little or no welcome from Opposition Members. Clearly, they will call for massive public subsidies to industry, whatever the state of British business. They have warned of bad times around the corner in every year that we have been in office, and I doubt whether their tune will change in the future.
Whether the Opposition can bear to admit it or not—I fear that they cannot—the fact is that British industry enters the 1990s in a vigorous and healthy condition that would have been unthinkable a decade ago. We have come a long way from the 1970s. Then we were at or near the bottom of every league and year after year we were falling further behind.
§ Mr. Major
As my hon. Friend says, the sick man of Europe. That was the result of years of over-regulation, excessive union power, a culture of penal taxation and 756 pervasive subsidy, a bloated and poorly run public sector and year upon year of runaway inflation. We know the legacy that that left at the end of the 1970s.
It has taken us a decade to put all that behind us. Doing so has had a dramatic effect on motivation, as the British economy—[Interruption.] It is interesting how little the Opposition like the successes that have been achieved by the Government.
§ Mr. Major
If the hon. Gentleman will listen. he may hear a little more of the successes.
Putting the legacy of the 1970s behind us has had a dramatic effect on motivation. The British economy, which had become a byword for low productivity, has outperformed Germany, France and Italy and the rest of the European Community on productivity growth since 1980. The Opposition dislike the fact that that has been achieved in the past decade.
Not only have British companies become more productive and profitable, there are simply far more of them. That is a point that the Leader of the Opposition failed to notice earlier. Self-employment has shot up and the small business sector has blossomed. Business start-ups have exceeded stops by 27,000 in 1986, 42,000 in 1987 and 64,000 in 1988. Even though interest rates have been in double figures for over 18 months, the growth continues apace. In 1989 Customs figures for VAT registrations—companies do not register for VAT unless they have to—showed that net business creation—that is, start-ups in excess of closures—was up, yet again, by over 25 per cent. compared with the year before, to another record.
That is a dramatic increase by any standards. That increase in the number of new businesses sharply contradicts the crude caricatures of our economic policies that we so frequently hear.
§ Mr. Major
I wish to finish this point.
Far from being divisive, the economic and social changes that we have seen in the 1980s have positively eroded the "them and us" divide. To be an owner, a manager, or a business man is no longer the preserve of one class, one income group or one part of the country. It is now open to everyone. Masses of ordinary people, who once voted Labour, and never will again, have joined the ranks of those who work for themselves or run their own company, own their own home, have their own pension provision or shares. That is a remarkable social change in the past decade. It is the story of the past 10 years. Ownership of capital and financial independence is increasingly becoming the aspiration of, and the reality for, increasing numbers of our fellow citizens.
Of course, there is still a great deal more to be done. That is always the case and that is why we shall need a Conservative Government for many years—to continue to do it. We have still not yet exorcised the inflationary psychology of our economy, which was the curse of the 1970s—[Interruption.] I am surprised that the hon. Member for Brent, South (Mr. Boateng) finds inflation so funny. Perhaps he is insulated from it, but businesses and people are not. Although he prefers inflationary policies, we do not.
§ Mr. Major
No. It is precisely because we do not prefer inflationary policies that we shall take action to make sure that we get inflation down. We recognise that we must not fall behind in the effort to match and to beat our overseas competitors. That means that it is essential to keep tight pressure on costs, particularly labour costs, and it means making sure that we maintain investment in fixed assets, innovation and training, as we approach the opportunities and the stiff competition that will come with the single market in Europe in 1992.
§ Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)
Does my right hon. Friend accept that many of us entirely agree with him that one of the great problems facing industry is the wage increases of 10 per cent. or more that are bound to be most damaging? However, does he agree with the Confederation of British Industry that taxes on corporate incomes in this country are about 4 per cent. of GDP, against 2 per cent. in West Germany and 3 per cent. in the EEC as a whole? Does he further agree that if we could get sensible wage increases and a proper basis for corporate taxation, which a Budget should bring about, industry would have a real chance to forge forward?
§ Mr. Major
I certainly share my hon. Friend's concern about the level of wages and the necessity for them to be affordable unless people are to price themselves out of jobs in a fashion that we would not wish to see them do. On corporate taxation, my hon. Friend knows that the CBI regards the corporate tax reforms that were introduced by my right hon. Friend the Member for Blaby as a remarkable step forward. The increasing investment and profitability that have followed them have made a remarkable difference to businesses' prospects for the future.
The essence of what happens in business is not what the Government alone can do for business. We recognise that business men know better than Government what they need to do in the interests of their own businesses and I hope that in the months ahead they will have the sense of self-interest to ensure that they do it, in the interests of their own businesses.
Our prospects for the 1990s are excellent provided we stick to sound anti-inflationary policies. Britain has nothing to gain—not now, not ever—by tolerating a high rate of inflation or even a modest rate of inflation. That would be the worst possible thing for everyone—for business, for families, and for the weakest in our society.
§ Mr. Major
If the hon. Gentleman will forgive me, I shall not.
That is the Government's part of the bargain for the 1990s—to take whatever action is necessary to get inflation down. It cannot be done with hopes, nor with lurches in policy. But it can be done by the persistent and consistent use of monetary and fiscal policy, and that is what we shall do. To businesses, I say simply that they should look ahead, beyond the year of slow growth and depressed demand to the tremendous opportunities that exist in the 1990s. Vast new markets are opening up on our doorstep, and the changes of the past 10 years mean that British industry and commerce are better placed than ever before to capture those markets and to seize the opportunities that are open to us.
758 There should be no doubt in anyone's mind. We will bring the economy back on track, as a preparation for prosperity in a decade of promise. The Autumn Statement sets out the policies by which that will be achieved, and I commend it to the House.
§ Mr. John Smith (Monklands, East)
I beg to move, to leave out from "House" to the end of the Question and to add instead thereof:declines to approve the Autumn Statement, deplores the continuation of economic policies which have caused a record balance of payments deficit, high inflation and the highest interest rates of the leading industrial nations; and calls for a strategy to promote investment in manufacturing industry and the public services in order to strengthen the economy, improve the efficiency of industry, and enhance the quality of life and opportunities for all citizens in the decade ahead.".This is the first economic debate in the House in the new decade. Perhaps it is not inappropriate to seek to take stock—as the Chancellor did to some extent—of where we stand in economic terms at the end of the 1980s and to look ahead to the prospects for the 1990s. Today we had a modified version of the hype, exaggeration, self-congratulation, casuistry and complacency that have, over the decade, characterised the Government's presentation of economic policy. Unfortunately, for apologists such as the Chancellor, they have been blown apart by three stark economic facts which no Government apologists or media apparatchik can gainsay and which, significantly, the Chancellor did not mention in his speech.
The first fact is that we have the highest balance of payments deficit in our economic history. Is it not remarkable that the Chancellor can come to the House with the knowledge of such a fact, yet not manage even to mention it in the first economic debate of the decade? The second stark and unavoidable fact is that Britain's rate of inflation is the highest of the major countries in the European Community. Why should we be lectured about the perils of inflation by this Chancellor when we have a worse record than our principal competitors in the Community?
Another stark fact that the Chancellor hardly mentioned is that interest rates, at 15 per cent.—they have increased 11 consecutive times in the past 18 months—are the highest among the leading industrial nations. What a verdict that is on the so-called successful economic policies followed during the 1980s. Because reading previous speeches of Conservative Ministers is as instructive as reading their current ones, I referred back to the corresponding debate last year, when the former Chancellor said that inflation wouldedge up a little over the next few months … But then, just as it did in 1985, it will start coming down again. Let there be no doubt about that whatever."—[Official Report, 12 January 1989; Vol. 144, c. 1007.]I remind the House that Conservative Ministers are good at the reassuring game. Whenever any awkward matter comes up, they assure us that things will be all right for the future. I will tell the House what the rate of inflation has been in the subsequent months. In January 1989, when the former Chancellor gave us that confident prediction, it was 7.5 per cent.; in February, it was 7.8 per cent.; in March, 7.9 per cent.; in April, 8 per cent.; in May, 8.3 per cent.; in June, 8.3 per cent.; in July, 8.2 per cent.; in August, 7.3 per cent.; in September, 7.6 per cent.; in October, 7.3 per cent.; in November, 7.7 per cent.; and in December—the last available figures—7.7 per cent. 759 Anyone can work out that those figures are steadily high—[Interruption.] I am reminded by Conservative Members that the former Chancellor may have been predicting that in the careful words that he used. That will not wash. He said that it would come down, but in only two of the 11 months since has it been marginally below; in nine months it has been higher. The underlying rate of inflation that the Government prefer as a criterion—they hope to exclude the mortgage interest effect from the calculation, as though millions of people did not have to suffer the burden of extra mortgage payments—was 5.5 per cent. when the former Chancellor made that optimistic statement. For the past three months the figure has been 6.1 per cent. the highest that it has been for almost seven years. We end the decade with not much success on the one front to which the Government appear willing to sacrifice all other economic objectives.
I do not think that I am the only hon. Member to sense that feeling of a decade ending and a new one beginning. During the Christmas recess, I was looking at an interesting speech by the Lord President of the Council who, since he has been relieved of some of the cares of his former onerous offices, has taken to giving his observations on the British political and economic scene. In his new year's message to the East Surrey Conservative Association, the Lord President of the Council—whom I think has the habit of giving such communications to the east Surrey Conservatives from time to time—addresses some of those questions. He tells the good folk in the East Surrey Conservative Association that the re-conquest of inflation is a vital condition for progress. It was the word "re-conquest" that attracted my attention. If we have successfully vanquished the dragon of inflation during the 1980s, why do we need to reconquer it? The right hon. and learned Gentleman is very careful with his words.
He went on to give some of his thoughts on how Britain stood in relation to competitor countries, and said:Britain enjoys no automatic pilot to prosperity. Much, much more, remains to be done if we are to match the living standards of West Germany, the public facilities of the French"—I was not quite sure what he meant by "public facilities"; if I thought that the right hon. and learned Gentleman was intending to be witty, I would give him the benefit of the doubt, but I rather doubt that there is a hidden message there, so let us loosely interpret the phrase as meaning public services—or the can do entrepreneurial culture of the United States—let alone the low crime rates of Japan.I think that there are some other features of Japanese society that we might aspire to as well as the low crime rates.
That was an interesting example of how the right hon. and learned Gentleman was beginning to understand that we were falling behind others; that is the coded message there. He has been thinking about his period as Foreign Secretary. He has plenty of time to think about it now and he has been pondering these matters.
Warming to his theme, the right hon. and learned Gentleman then tackled the question of manufacturing industry. It is almost incredible that he of all people should say this, but he said to the people of east Surrey:We need equally to conquer the tendency of regarding manufacturing as almost a residual element, a left-over in our economy.Who on earth created this tendency but the right hon. and learned Gentleman when he was Chancellor of the 760 Exchequer, from 1979 to 1983? I feel that the right hon. and learned Gentleman was the most militant of the monetarists, who started this process of the decline of British manufacturing industry.
Then he turned his attention to public services. He said:Litter and scruffiness in our public places, and in far too many of our public services, are the breeding ground for delinquency. Poor standards of service are far too widely tolerated … Shoddy bus stations or dirty trains or noisy hospitals or cold waiting rooms are unworthy of the nation we aspire to become.It is very interesting that after these 10 years of marvellous progress these debilitating signs should be all around us, but there we are.
He then went on to reflect further on it, and this will astound the House as well. He said:Putting an end to this scruffiness will require public money, of course …There is something going on in the brain of the right hon. and learned Gentleman.
But behind all this persiflage, this circumlocution, this coded language, what is the message which some of the east Surrey Conservatives may or may not have been able to detect? I will put it simply to them and help any members of the East Surrey Conservative Association who still remain puzzled. What he is saying is very simply this. First, the battle against inflation has been lost; secondly, other countries which we were supposed to have surpassed are doing better than we are; thirdly, manufacturing industry is, after all, very important; and, fourthly, our public services are in a shocking and disgraceful condition.
§ Mr. Beaumont-Dark
Will the right hon. and learned Gentleman agree that in his excellent speech the Lord President of the Council also talked about the need for wage restraint, which the Opposition parties seem to be doing little to encourage? Does he not agree with the hon. Member for Birkenhead (Mr. Field), Opposition Chairman of the Social Services Committee, that the Labour party's policy on wage bargaining and giving a minimum wage would cost 400,000 jobs and add 4.4 per cent. to industry's costs? How would that help industry? He should at least be honest and say what his policy is instead of knocking other people. What would he do?
§ Mr. Smith
I am quite happy to tell the hon. Gentleman, and I will do so. In the course of my speech I shall offer some suggestions for amendments to Government policy that come from the considerations of the Opposition. I must gently remonstrate with the hon. Gentleman. One is entitled to mock even people as great as the Lord President of the Council, particularly when they are giving us such useful messages. I am trying to help the House, as I am trying to help the people of east Surrey, to decipher the true meaning behind the somewhat Delphic statements, because these indicate a very important change.
An attempt is now being made to rewrite recent history. We heard the Chancellor of the Exchequer have a stab at it in his speech today. "Not everything is perfect," is now the line; "there have been some mistakes along the way." I think that there is a tendency to seek to bury the last Chancellor's with him. I noticed that first when the new Chancellor was asked whether inflation would be his judge and jury. He said, "These are not my words." It was almost a case of "Don't watch my lips as far as this is concerned." It is now said that mistakes were made, but hon. Members will notice that most mistakes fall within the period of 761 office of the departed Chancellor. I do not think that will do, however, because the present Chancellor of the Exchequer was an enthusiastic participant, as Chief Secretary to the Treasury, in the development of a great many of these policies. He was as guilty as any of the hype, the exaggeration, the gross inflation of the Government's alleged achievements.
Perhaps the best example came during that period of intense excitement which convulsed the Conservative party at about the time of the March 1988 Budget. Then they were telling us that Britain's economic miracle had become the outstanding reality of the decade, if not of the century. The right hon. Gentleman, opening the debate on 26 April 1988 on the Finance (No. 2) Bill, said that the Government's strategy hadwithout doubt transformed the British economy.[HON. MEMBERS: "Hear hear".] I am glad that I take the House with me, but I wonder if I shall get as ready assent for the next proposition to which the present Chancellor of the Exchequer drew attention. He said:During the 1960s we praised and envied the German economic miracle. In the 1980s the position has been precisely reversed."—[Official Report, 26 April 1988; Vol. 132, c. 214.]I notice that there is not quite so much baying from Government Members and that is an extremely wise position for them to adopt, because they may have noticed—it was reported in the financial news in The Guardian today—the report by Herr Haussmann, the German economics Minister, on the state of the West German industry: 3 per cent. growth predicted next year, 2.5 per cent. inflation, 7 per cent. rise in personal disposable income, 6.5 per cent. rise in consumer spending and, perhaps most important of all, a huge trade surplus last year of 148 billion deutschmarks, which in sterling terms is just over £50 billion.
What on earth do hon. Gentlemen mean when they talk about our having somehow surpassed the German economic miracle? The previous Chancellor did it as well. He said that Japan still had an economic miracle, but Germany's was in the past. Here we have facts that cannot be gainsaid and the present Chancellor, like the former Chancellor, should apologise for ever having dreamt of such fantastic ways of expressing the Government's policies, because the facts do not fit the hype.
§ Mr. Jonathan Sayeed (Bristol, East)
Does not the right hon. and learned Gentleman accept, however, that the German economy began from a start point far in advance of that of the British economy? The point is essentially that the Government, through their 10 years of office, have had to revitalise the economy, so deeply damaged by the Labour party, which had no interest in real investment.
§ Mr. Smith
I thought that the hon. Gentleman intended to chide me and give me facts to substantiate the notion of an economic miracle, but he departed from that. He said that the West Germans started from a better position at the beginning of the decade. For decades, the West Germans have been following consistently policies that have given long-term support to their manufacturing sector and have built up good public services. They have been following that path consistently, and the key to it—as I shall point out when I have an opportunity to 762 proceed with my speech—has been investment. If we have a lesson to learn from West Germany, it is the crucial importance of that factor.
§ The Chief Secretary to the Treasury (Mr. Norman Lamont)
Does the right hon. and learned Gentleman consider it to be entirely without significance that the British economy, whether measured from 1980 or 1979, has grown faster than that of Germany, whereas in the 1970s it grew more slowly? Does he regard that as a point of interest?
§ Mr. Smith
During one part of the decade we had a spurt for growth which is coming to a halt, and we shall have a repeat of the stop-go policies. If there has been a successful decade and if we have been better than the West Germans—that is the burden of what the Chief Secretary and his colleagues have been saying—why do we have a record balance of payments deficit of well over £20 billion while they have a trade surplus of £50 billion?
The Government cannot wriggle out of that. They made an absurd and ridiculous claim and, now that the facts are revealed, they will not even admit that they made such a claim. The hype and over-exaggeration has come back to haunt them, and so it should because they should never have attempted to mislead the public in that way.
§ Dr. John Reid (Motherwell, North)
In addition to explaining the conundrum of the miracle, will my right hon. and learned Friend answer a question that I would have asked the Chancellor had he permitted me to intervene in his speech? The Chancellor claimed twice that our share of world trade had risen inexorably in the last few years. But in that time our balance of trade surplus of £4 billion has grown to a deficit of £20 billion. Does that mean, in the logic of the Chancellor, that the better we do in world trade, the bigger our trade deficit will become?
§ Mr. Smith
I too have been puzzled by some of the Chancellor's claims. In the early part of the decade, our share of world trade, by volume or value, dropped. It may have stabilised in recent years, and I am not certain where it is headed—[Interruption.]—and it may be at a lower level than when the Conservatives came to power. But I get the feeling, which I am sure others will have got, that a desperate attempt is being made by Conservative Members to clutch at a few straws that are about. But the major facts are there and cannot be gainsaid.
A major reason why the Federal Republic of West Germany has had consistent success is the importance that that country gives to investment in manufacturing and to public services, particularly education and training. The West Germans have by far and away the best record in the European Community on education and training, and that has stood them in excellent stead. We failed to invest in education and training in the 1980s, and we have inadequate ambitions for the 1990s.
§ Mr. John Townend
Will the right hon. and learned Gentleman accept that the attitude of education and universities to industry in Germany is far better than it is in England? Indeed, Sir Peter Parker said that, when he was at Oxford and Cambridge, he was the only one of his year going into manufacturing industry. He said that if more encouragement was given for people to go into manufacturing industry, rather than into the social services, the professions or the City, we would do much better.
§ Mr. Smith
If the hon. Gentleman will bear with me, I will give him some detailed statistics on that. Perhaps the crucial difference between Germany and Britain is that the attitude of the Government there is different both to education and industry, and they encourage both to work together to improve the quality of the staff employed in West German industry.
Concern is being expressed by British industry about the level of investment. The CBI felt moved to submit a memorandum to the National Economic Development Council about what it saw as the real problem of investment now. I remind Conservative Members that this is at the end of this so-called fabulous decade. The CBI says:it is no exaggeration to state that the United Kingdom economy is at a crossroads. The twin problems of price inflation and a serious deficit on the current account of the balance of payments must be tackled, without tipping the economy into recession and against the background of a pitifully low level of personal savings, which account for no more than 4 per cent. of personal disposable income, down from 13 per cent. in 1980.One gets the feeling that the CBI does not believe that it has been the most fabulous decade of the century. It goes on:If the objectives of reducing inflation and the current account deficit are clear"—and the Chancellor said nothing about an ambition of eliminating the current account deficit; indeed, I do not think he even mentioned it—so is the economic priority for 1990. It can be summed up in one word: investment.The CBI goes on to express its concern:Yet all the indicators suggest that business investment, particularly in plant and machinery, is set to level off in the two years ahead and is in danger of falling back … it is investment—in new plant, in training and in new products and services—which is the key, not just to economic growth but to growth without inflation.The CBI draws attention to what it calls "a worrying investment gap" between Britain and our principal competitors, and points out that fixed investment in 1988, the boom year, in Japan was £3,699 a head; in the United States, £3,234; in France, £3,190; in West Germany, £2,946; and in the United Kingdom, £2,318, the bottom of the league for fixed investment in the best year that one could take for the Government. The CBI says:The threat to investment is, therefore, the most significant feature of the current economic situation.
§ Mr. Major
As the right hon. and learned Gentleman is saying much about investment—the underlying propositions about the importance of investment are understood as well on these Benches as on the Opposition Benches—may I ask him to remind the House which European country had the greatest growth in investment throughout the 1980s? Was it not this country?
§ Mr. Smith
I was about to deal precisely with that point—[Interruption.]—because it is a misleading way of presenting economic statistics. The Chancellor claims that the Government have a successful record of investment. The Government always define it as business investment. They constantly say, as the Chancellor just said, "Do not worry about it; we have a good record." One wonders why the CBI does not think that.
764 I drew attention previously to an important article by Mr. Andrew Glyn in the Financial Times on 8 November of last year. That was recently picked up by Mr. Edward Streator, president of the American Chamber of Commerce (United Kingdom), who, many hon. Members will recall, was a former distinguished Minister at the United States embassy in London and a former United States ambassador to OECD. He, too, noticed the importance of that article and the difference between business and manufacturing investment. Ambassador Streator said:I would refer to the work done by Andrew Glyn of Oxford, who pointed out recently the stark contrast between material production where investment was still below the level of 1979 in 1988 and the services sector where the level of investment has practically doubled. In terms of business investment, gross fixed capital stock for agriculture and industry"—and most of it is for industry—actually declined 8.4 per cent. between 1979 and 1988, while it increased 93.1 per cent… in the same period for services.He endorsed Mr. Glyn's conclusion:It would be a fantasy to believe that finance and business services can take over from manufacturing and generate the foreign exchange necessary to pay the import bill.I hope that we all agree with that. That is the distinction. Manufacturing investment has languished, although overall business investment may have increased.
I will put that in starker terms for the benefit of the Chancellor, because he counts as business expenditure even expenditure on a car park outside a leisure centre or a metro shopping centre which has been built on the former site of a manufacturing enterprise. That is going on all over the country. Most of my hon. Friends have constituencies in which once there were productive engineering companies, but they have been knocked down, the sites have been cleared, and now leisure centres or large shopping complexes are being built. The Government say that such investment is as good as or perhaps even better than the previous investment. The crucial difference is that, when we had a bigger manufacturing sector, we made goods and sold them abroad. Now we have shops that import the goods that other people make, and we buy them.
§ Mr. Roger King (Birmingham, Northfield)
I am grateful to the right hon. and learned Gentleman, as he has given way many times. He will accept that the Ford Motor Company is one company that has invested heavily in the United Kingdom, with record investment currently under way. What advice, therefore, does he have for the tens of thousands of Ford workers who are being balloted at present on their wage agreement? Would he urge them to accept the wages on offer or to go for an ever-inflationary, higher wage increase?
§ Mr. Smith
I shall not give way again to Conservative Members. The hon. Gentleman's question was not relevant to the points that we were discussing. I shall leave the settlement of the industrial relations dispute between the Ford management and the workers to the negotiations in which they are engaged. I must remind the hon. Gentleman—because I do not think that he was here at the time—that in the latter months of the previous Government there was an economic debate in which the Opposition took what I can only call a highly irresponsible attitude to the situation at Ford. I shall not, therefore, take lectures on responsibility from the Conservative party.
765 We know what the Government could do about investment. I must tell the House about the Autumn Statements—not only this one, but the public expenditure programme of the past decade. In the period 1978–88, in real terms, industrial research and development was cut by 30 per cent., regional development by 72 per cent. and export promotion by 81 per cent. How can a country with a massive trade and balance of payments deficit cut export promotion support for British exporters? The result is that as export markets open up in the Soviet Union and throughout eastern Europe, British companies could not be worse placed in relation to their competitors in the European Community. Year after year, the Government have cut back their support, especially for smaller businesses which have difficulty in maintaining an export service and an export initiative. Once again, the result is that, in the new trade routes which will open up in eastern Europe, Britain will be left at the back of the queue because of the activities of this Government.
Most bizarre of all in this Autumn Statement is the fact that expenditure on training is to be cut for the year to come by £110 million. If that was not enough, it is to be cut for the next year by £220 million. One of the Chancellor's elusive devices is to talk about priority areas in public expenditure. He selects some items of expenditure as priorities and he says that, although he is prudent about public expenditure, we can see how much more he is spending in the priority areas. If there are priority areas, it follows, as night follows day, that there are non-priority areas. Training is clearly a major non-priority area for the Government.
We have a crisis in training which does not seem to have penetrated the Chancellor's mind; he scarcely mentioned it once in his speech today. In case it is thought that I am seized by a sense of exaggeration to criticise the Conservative party, I shall quote from objective commentators on these matters. Perhaps I should not say "objective commentators", because I shall quote from the proceedings at a conference of the Institute for Economic Affairs. I do not claim that the conference was objective, but it is interesting to consider what was said, as described in the Financial Times on 15 January 1990. The article said:Mr. David Lomax, group economic adviser for the National Westminster Bank, spoke for many at last week's IEA conference in describing the standard of vocational training and education up to school-leaving age in the UK as 'appalling' and the Government's performance on education and training as 'execrable'. Another speaker, Mr. Walter Eltis, director general of the National Economic Development Office, pointed out that 90 per cent. of 16 and 17-year-olds in Japan and the US are in full-time education. In Britain this applies to less than 50 per cent. of 16-year-olds and only about 30 per cent. of 17-year-olds".I hope that the Government will take account of the fact that he also cited research showing thatan upgrading of 1 per cent. of the labour force from unskilled to skilled can boost productivity by about 2 per cent.The work of Professor Sig Prais for the National Institute of Economic and Social Research is possibly even more interesting. He went through a number of issues of industrial importance and looked at the training record of parts of British industry. In an article on 11 January, he pointed out:The essential difference between Britain and Germany lies… in the proportions with intermediate qualifications, 766 such as apprenticeships, City and Guilds certificates, or … secretarial qualifications. He pointed out that 60 per cent. of the German workforce had such qualifications, compared with only 30 per cent. in the UK.He then went through various areas in which we are losing out. He mentioned kitchen furniture in which, as we all know, British industry is losing out. He mentioned clothing manufacture, and I hope that the Chancellor will pay a little attention to this. The professor found that in clothing manufacture 80 per cent. of German machinists had completed two or three-year examined courses. In the United Kingdom plants, the survey did not come across a single machinist with such a qualification. If we do not train our people, and especially our young people, what chance do we have of competing against the country with the best education and training record in the European Community, if not the world?
§ Mrs. Maureen Hicks (Wolverhampton, North-East)
Will the right hon. and learned Gentleman give way?
§ Mr. Smith
No, I must get on. I have given way frequently.
The case for training is unassailable. When we cause people to be trained effectively, we do not create only an important economic asset. The difference between a successful and an unsuccessful economy is the investment in human resources—in training our people so that they can beat the competition. The Chancellor might also reflect—and this aspect is mentioned far too little—that an intelligent anti-inflationary policy would release labour bottlenecks by training people, reskilling them and upgrading their skills so that unnecessary inflationary impulses did not come from that sector.
Perhaps most importantly, the case for training is one of personal opportunity and of giving our young people the opportunity that young people in other countries already have. I know that the Government always say that we should look at the increase in jobs over a particular period. However, many of those jobs are part time and low skilled—what the former Chancellor of the Exchequer once called "low-tech, no-tech" jobs, which he thought were quite suitable for our young people. Young people in other countries are having their minds stretched, their ambitions enlarged, their skills developed and their personal happiness increased at the same time as their economy is being strengthened while our Government do nothing.
It is no wonder that we heard on the radio this morning from the chief inspector of education in Bedfordshire about the shambles in which the schools in his area find themselves. We can go right through the infrastructure and find examples of the Government's neglect. In the past decade, they have persistently been indifferent to the manufacturing sector and have persistently neglected the public services.
Most disturbing of all, as we consider the development of our economy at the end of the decade, is the feeling that we are adrift and that the Government do not seem to have any policy or strategy in crucial areas of economic interest. What is the Government's exchange rate policy? Has fighting finally ceased between No. 10 and No. 11? Is it true, as the former Chancellor told us, that the Conservative party would never be a party of devaluation, or is it true that the rather more surreptitious policy of the present Chancellor is to allow the pound to slide gently downwards?
767 What is the Government's strategy on inflation? How can they have a sensible counter-inflationary strategy when they have interest rate increases which provoke mortgage increases and are bound to be reflected in wage claims? They have also let loose a series of Government-caused price increases in the economy from electricity, transport and water through to other areas. What is their strategy to promote investment and to deal with the investment gap, to which the CBI rightly draws attention? Is there still a medium-term financial strategy? Those who study the history of the Conservative party must have been curious about the fact that medium-term financial strategy, which was the rock on which Conservative economic policy was based, was not even mentioned in the Chancellor's speech. I suspect that we no longer have an MTFS—a medium-term financial strategy—but an STES—a short-term electoral strategy.
What the Chancellor hopes to do is somehow to get by until the next election, stagger through the months ahead, in the hope that when she blows the whistle for the next election—and he hopes desperately that this will be the case—the economy will not appear in too unfavourable a light. That is what Government economic policy is all about. What the Chancellor said in his evidence to the Select Committee was very revealing, the Select Committee which once again gave us such an interesting report. Sometimes it is in the evidence rather than in the conclusions of our colleagues who sit on the Committee that one finds the interesting nuggets of information. The most interesting to me was when the Chancellor described—and he volunteered this; he was not led into it—managing the British economy as "surfboarding on a fairly heavy sea".
It is revealing that the Chancellor sees himself as a surfboarder. All Chancellors have some sort of image of themselves. The lately departed Chancellor, although a former naval person, seemed to think from time to time that he was an aviator: we were treated to his notions of soft and hard landings. Unfortunately, he took some advice from the Opposition and left the plane rather hurriedly. His predecessor had a slightly different image. One sometimes wondered whether he knew if he was the shepherd or a member of the flock—alive or dead—but his image was much less dynamic.
Now we have a surfboarding Chancellor. In his mind's eye he is a sort of bronzed figure in Bermuda shorts, riding the waves, practising to take on all comers at the next Commonwealth Finance Ministers' conference. But is not the reality also revealed by that imagery? Surfboarders are not much in control of the essential elements; they are at the mercy of winds, waves and hidden currents. That is what is happening now. The Chancellor is moving from wave to wave, not sure if he is heading for the beach or the rocks and in perpetual danger of suffering what surfboarders call a "wipeout". In his case, I suppose I might say—and I ask the forgiveness of the House in advance—it is a major wipeout.
That is no way to run an economy, either in imagination or in reality. We end the 1980s disorganised, uncertain, confused, not knowing what the Government's policy is—and I speak for the nation because it is a worried, perplexed and disturbed nation. That is one of the things from which Ministers seem, at their peril, to be happily insulated. They believe that variations in public opinion are merely temporary and that all will come right, 768 as it did—did it not?—in 1985: inflation came down and they went on to win the election, and it will all happen again.
Ministers are in for a very rude awakening because the people are beginning to realise that things have gone badly wrong in the British economy, and that we are slipping behind our prinicipal competitors, particularly as we face the challenges of 1992. They know, despite the hype, that the Government have been responsible for some major mistakes in the 1980s, and they know that those who made the mistakes should not be given the responsibility for guiding our affairs in the 1990s.
§ Mr. Terence L. Higgins (Worthing)
At the beginning of his speech, the shadow Chancellor told us that he would give us some indication of Labour party policy. My right hon. and hon. Friends may feel that they have waited in vain for some such revelation, so we must adopt the approach of the right hon. and learned Member for Monklands, East (Mr. Smith) and see what coded message we can divine from his speech.
The core element of the right hon. Gentleman's speech was the reference to ambassador Streator's remarks. If we take that, the coded message is very clear: the next Labour Government would reintroduce a selective employment tax. Apart from that, we gained very little idea about what the Labour party might do in the present economic situation.
As this is the first occasion when the Autumn Statement debate has been televised, I begin by thanking my right hon. Friend the Chancellor for his commercial for the Treasury and Civil Service Select Committee's report. The report is a serious contribution to this debate and, as has already been pointed out, in many ways the evidence contained in it is as important as its conclusions.
The report deals with public expenditure and with general economic aspects of the Autumn Statement. The first matter, part I of our report, is probably best debated when we consider the White Paper, so I shall concentrate on the general economic aspects of the problem. I stress once again that the report of the Committee was unanimous and that its conclusions deserve careful consideration. In many ways the evidence of my right hon. Friend the Chancellor was the heart of the matter. He analysed in considerable depth the causes of our present problems while at the same time fully accepting collective responsibility for the policies pursued by his predecessor. We would expect that of him.
That said, however, we now face serious problems of inflation and the balance of payments, although it is important not to underestimate the achievements of the economy under the previous Chancellor's guidance, not least the reductions in taxation, the substantial increase in living standards, the massive and unprecedented reduction in the national debt and, as my right hon. Friend tightly pointed out, the huge increases in priority areas of spending such as the National Health Service.
Nevertheless, we must analyse why many of these problems face us again. Opposition Members seem not to understand that we must fight a constant war against inflation, rather than winning a battle and that being the end of the matter. There are lessons to be learnt from the experience of the past two years, and the Committee's report seeks to show that.
§ Mr. Higgins
I hope that the hon. Gentleman will be brief, because I believe that Privy Councillors should speak only for a maximum of 12 minutes.
§ Mr. Higgins
It is a difference of rhetoric rather than of substance.
As I was saying, there are some lessons to be learnt. First, it is absolutely essential to improve our economic statistics. This is a constant burden that successive Chancellors have faced and the measures now being taken should help in that respect. Secondly, the forecasts in the past two years have been seriously misleading in underestimating the extent of the upturn in the economy; there is also some danger that they are now underestimating the downturn, and I hope that my right hon. Friend will take this into careful account.
Over the past 10 years, however, we have progressed fairly steadily from very simple monetarism to a degree of pragmatism, and I hope that when my right hon. Friend comes to make his Budget speech he will set out clearly his analysis of policy and what he believes should be done. I have always believed that the right approach is an eclectic one that takes into account the views of those who may be described as monetarists and the views of those who may very loosely be described as Keynesians. There is some danger that we shall underestimate the importance of the money supply in the present approach to economic policy.
As the chief economic adviser to the Treasury said, the recent totally unprecedented fall in the savings ratio combined with an unprecedented rise in the investment ratio has caused serious problems. My right hon. Friend's approach to the rate of interest must be supported because it is right. At the same time, however, there is some confusion when we talk of monetary policy. At present, there is a concentration on the price of money—the interest rate—and insufficient attention is devoted to the quantity of money. The report tries to bring out that point. I have serious doubts whether the present approach to funding policy and control of the money supply is right. Of course, it is much easier when one has a budget surplus to deal with the problem by a policy of fully funding than it is with a budget deficit, when one must fund the deficit by borrowing from the non-bank sector.
I commend strongly to the Chancellor the important passages in our report, particularly paragraphs 83 and 87, where we urge him to consider the whole issue of funding policy. The present policy is to sell bills to buy gilts, and the opportunity for controlling the broader monetary aggregates is being ignored. I hope that he will consider the matter carefully before he delivers his Budget in a few weeks' time. That is one lesson that we must learn from the experience of the past couple of years.
The other problem—wage settlements—has only recently reasserted itself as a problem. It is wrong to say, as those with a simplified monetarist approach do, that so long as we control money supply we need not worry about wage settlements. I have gone through various cycles of so-called incomes policy, opposing successive Labour Governments who went from no incomes policy at all to 770 the most rigorous statutory policy and then, on the Government side, promoting everything from no incomes policy to a statutory incomes policy.
As the subject is coming up again, it is important to remember the lessons of the past, and in particular the very dangerous doctrine associated with the idea of productivity and comparability. Of course, overall there is a relationship between productivity and wages. That relationship may or may not be inflationary, but it is dangerous to argue, as I sought to point out at Prime Minister's Question Time a few days ago, that if productivity in a firm increases, it necessarily justifies a comparable wage increase. The relationship is not automatic. It depends also on what is happening on the demand side of that company's output and what it can charge for its products.
If a relationship is established and if other firms decide to award comparable wage increases, that is unquestionably inflationary. There is an important distinction to be made. In the private sector the Government set the framework and private negotiators for unions and employers must work out the answer. They must bear in mind the effect that those wage settlements will have and the repercussions on unemployment of comparable wage settlements. I hope that the trade union movement will remember the lessons of 1979–80; over the past 10 years trade unions seem to have realised what was happening.
Despite my right hon. Friend's determination to bring inflation under control, and despite the fiscal and monetary policies that he is adopting, inflationary wage settlements will have a most serious effect on unemployment. It is the impact of those settlements, not the Government's policy, which needs to be taken into account and where the fault will lie if that unfortunate position arises.
That is what is happening in the private sector. In the public sector, as my right hon. Friend implied in his speech, the Government have a responsibility to adopt a sensible pay policy because that has a direct impact, first, on the size of the budget surplus or deficit and, secondly, on the distribution of resources between pay and services and physical resources. It would be a total abnegation of Government responsibility not to take a serious attitude to inflationary pay settlements in the public sector.
Finally, I want to say a word about the balance of payments referred to in depth in the Committee's report. Although I recognise, as the Committee does, that this is a matter of serious concern, I believe that the measures that the Chancellor has already taken on fiscal and monetary policy will be adequate to put the balance of payments right, though not immediately. If the Government try to correct the imbalance hurriedly, the cost will be too high, as our concluding paragraph says. Over time the position will improve.
As to foreign confidence, the trend in the balance of payments is vital, both on the import side where one can see clearly that domestic demand is declining—which is likely to have an effect on imports—and externally on exports, where the fall in the exchange rate has been helpful. I believe that it is adequate to put the matter right. We may be reasonably certain that my right hon. Friend's policies will succeed.
I had a concluding passage about surfboarding, to which the right hon. and learned Member for Monklands, East has already referred. It was a memorable phrase. I do 771 not think that undercurrents are important in surfboarding, nor does it follow that a surfboarder does not know the direction in which he should go, or can go. It may be necessary from time to time to tack. To go straight into the wind may be a mistake, but I believe that my right hon. Friend's skill will be adequate to get us home safely to port.
§ Mr. Robert Sheldon (Ashton-under-Lyne)
The right hon. Member for Worthing (Mr. Higgins) is to be congratulated, as always, on the work that he does in bringing certain matters before the House following actions by the Chancellor of the Exchequer and others responsible for the economy. I disagree with the right hon. Gentleman about the importance of money supply, but that will come as no surprise to him. I noted that the Chancellor did not deal with that in discussing monetary policy, nor did he mention the balance of payments, to which my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) referred in his splendid speech.
On this occasion I am prepared to be generous to the Chancellor. These are early days. He is the first Chancellor of the Exchequer of this Government without responsibility for a largely blameworthy past. Of course, he was Chief Secretary to the Treasury, but that is not the same as having responsibility for so many economic decisions that were taken while he was at the Treasury. Some of the nonsenses of monetarism cannot be laid at his door. I had hoped that we might speak less of those today, but the right hon. Member for Worthing brought up a murky past which reminds us of the certainties that the Government once had.
I am prepared to accept the limited responsibility of the Chancellor of the Exchequer for those matters and, even more important, for the squandering of North sea oil, the only real chance the Government had to do valuable things which they failed to do. At that time there was a belief, breathtaking in its naivety, that pay demands had nothing to do with inflation—a view that even the Prime Minister does not share now. We had the associated nonsense that doubling VAT would have no effect on prices, which was effectively disproved when the RPI went up to 21.9 per cent. in May 1980. When the Government talk about their splendid record on prices they should remember that the RPI was 21.9 per cent. in May 1980, a year after they took office. So there is something to be said against the Government on inflation, even at a time when they thought they had it completely right.
Rises in inflation under the Labour Government were a consequence of the quintupling of oil prices when virtually all our oil was imported. The 21.9 per cent. inflation under this Government was entirely home-manufactured. It was brought about by a Government who, to quote a phrase, did not understand sixth form economics. Clever as they are, they are the modern equivalent of the wisest fools in Christendom. I always think that a country pays a heavy price for trying to teach parties how to govern. They subsequently regret the commitments that they enter into without the benefits of a Civil Service machine; and the country regrets them even more.
In this regard I must applaud my right hon. and learned Friend the Member for Monklands, East and my hon.
772 Friend the Member for Derby, South (Mrs. Beckett) for not promising more than they can deliver and for laying the foundation for a responsible and reforming economic policy. The Government have had 10 years and it is sad that they have not learnt all that much.
In the famous Financial Statement and Budget Report of 1980, the Red Book, the Government mentioned some of the problems that they faced. In it they disclosed their medium-term financial strategy. The book is a prized possession of mine and bears the signature of the right hon. Member for Blaby (Mr. Lawson). In it he states:high nominal interest rates are a deterrent to investment.That is what we have now. He continued:If interest rates are to be brought down to acceptable levels the PSBR must be substantially reduced as a proportion of GDP over the next few years.However, the PSBR is now negative: we have a PSDR. Does that mean that there is no problem about high interest rates any more? Of course there is.
Not only did the Government get it wrong, but they got it diametrically wrong. That was their mistake and they continued with it year after year. Those of us who repeatedly attempted to bore the House knew that it was crucial to get that message across. We have finally done so because the new Chancellor of the Exchequer did not even mention that subject. We applaud him for that. The monetarist nonsense and its consequences have been scrapped, but unfortunately we now have the poll tax, the one-club activity and the scorning of the big balance of payments deficit. All those remain. However, the Chancellor of the Exchequer has no black marks against him yet. He may be regarded as tardy, but if that were shown to be a consequence of well-laid plans we might be persuaded that the results were worth waiting for. He is on trial; that is not a bad position for him to be in. When he presents the Budget we shall know how to assess his activities.
The Chancellor of the Exchequer has an abominable inheritance: inflation, a balance of payments deficit and decaying public services. All those exist while everyone is fighting for the ear of the Chancellor. We must hope that he has realised that there is only one way out of the crisis, which has been held in abeyance for 10 years. The crisis did not come about until the advantages of North sea oil had been squandered and the country was once again forced to look the same recurring problems in the face. This sad aspect is like that in one of the stories of the brothers Grimm. The good fairy gave us the oil and the wicked fairy made us abuse it.
Abuse is probably the right word. We are now near the time when we can seriously question whether it might have been better not to have had North sea oil. France, Germany, Italy and Japan had no oil and prospered in the 1980s. If we had not had the oil we might have been forced to realise earlier the reality facing us. That cushion enabled the Government to ignore the pleas of our companies which shed a quarter of our manufacturing industry—one third in my constituency. Those included small and medium-tech firms which were forced to close by the 17 per cent. interest rates and a pound worth $2.40. We faced such disaster in the first two years of the Government. My town lost a great deal of its manufacturing industry and suffered unemployment levels such as no one expected.
What is the Chancellor to do? First, and most importantly, he must show that he is in charge of economic policy. He must be more than just a tenant of his next door 773 landlady. To do the minimum to demonstrate that, he must engage her prejudices head on. Any increase in mortgage relief will write him off completely. For too long we have entertained nonsense about absurd encouragement of overpriced housing. We tax almost anything. Anyone living in expensive accommodation is not only free from tax but receives a subsidy to go for a larger and better dwelling. Industry cannot get the finance it should because the investing public realise that unnecessarily expensive housing is the best investment of all. There is no schedule A tax to pay on imputed rents, no capital gains tax on main residences, mortgage relief and now the poll tax. Can anything more be given?
If from No. 10 we hear the word that there should be an increase in the limit in mortgage tax relief, we shall know that the right hon. Gentleman's effective Chancellorship is coming to an end. Future economists will conclude that we have some obsessional neurosis about this and I am not sure that they will be entirely wrong. That is what the Chancellor should not do, but what should he do? He must take action to reduce the bonanza of tax-free pension schemes for the well-to-do. That will earn him the appreciation of those who call out for the minimum of fiscal sense. Assistance for industry and training will earn him essential bonus points. My right hon. and learned Friend the Member for Monklands, East was quite right to put this matter at the centre of his urgent call for action.
Ten years ago in Stockport and Tameside—I am associated with the two areas because they are linked—there were 20,000 skilled working engineers. Last year, there were 5,000. We have created that shortage of skills. It was created by people who retired early and will not go back to work. The Chancellor can do something about this. He may not recall this but he can learn about it: at the beginning of the war the same skill shortages existed and, in an emergency exercise, the Government set up a Government training scheme. People were paid to take a six-month course to learn basic engineering skills.
I was then an apprentice and I remember seeing such people. We scorned them because they did not have the skills that we thought that we had. However, they did a useful job and, as time went by, they were able to replace some of the skills of the other people. I am not saying that that is a model, but it is an example of what could, and needs, to be done if we are serious about this problem.
I have one other plea for the Chancellor's Budget. Setting capital allowances at 25 per cent. is unreal. If I buy a machine tool costing £1,000, the Inland Revenue will say that it has depreciated to £750 at the end of the first year. The assumption is that I can readily sell the machine tool, which I bought at £1,000, for £750 at the end of a year. That is absurd. Few machine tools can be sold on the open market for that price. If the dealer's margin is generous, it cannot be sold the following week at that price.
I urge the Chancellor of the Exchequer to look at the trade press to see how much secondhand machinery fetches. In a company which needs to be not too distant from the technological frontier, it is right that it should not be disadvantaged in that way. There should be some incentive for such an investment rather than the reverse. As my right hon. and learned Friend the Member for Monklands, East said, there is no discrimination between 774 the capital allowances given for this essential investment and those for fancy city offices They are both given in precisely the same quantitative amounts.
Service industry, to which the Government were so deeply wedded, rests on the back of manufacturing industry. Financial markets follow industrial success. The service industry is no more use on its own than is the practice of taking in each other's washing. The City of London was created from a successful economy and so was New York. Tokyo and Frankfurt are rising on the strengths of their manufacturing industry. They will pose severe problems to London.
The trouble is that through most of this century this country's financial activities have been considered as more important than its industrial operations. That led Winston Churchill to ask that finance be less proud and industry more content. Of course, we need the constraining function of proper financial management. As a country, we have superb accountants, but not many good, and certainly not many adequately-rewarded, engineers. We have the snaffle and the bit—well structured and hand-tooled they are, but where is the bloody horse? The inadequacy of our training and education to provide the motive power for such people is a shaming indictment of our time.
The trouble is that the same financial activities have led the rush to London, even of our manufacturing industry. Out of the top 100 companies in Britain, 95 have their headquarters in London. Some years ago I compared that with the city of New York, the financial centre of the United States, where 29 out of the top 100 companies had their headquarters based. Companies such as 3M, Boeing, Ford, IBM and Du Pont are all geographically spread around and give value to the rest of the country. In Germany, companies such as Mercedes, Bauer and Siemens are all provincially based, giving strength to the rest of the country. In Britain, even Scotch Whisky has its headquarters in London. That leads to a centripetal effect and has consequences for our regional policy and activities.
The squeeze on credit, which started 17 or 18 months ago, is painfully slow. Society is different today. More people have capital on which they earn increasing dividends or interest, and they are not so likely to reduce their newly-accustomed standard of living. That was the case for credit controls or tax increases, and that is the case for the restoration of the investment income surcharge. It was absurd to abolish it.
Historically, it existed because it was held that capital was more secure than earned wages—but that is not so true today, when the justification for the surcharge is different. The cost of working has increased and will continue to do so. People are obliged to spend substantial sums of money on travelling to work. It is no longer a case of living just along the road from the mill or the factory. The cost of meals taken at work is also a burden, for today a sandwich often costs as much as a meal did in the past. Working clothes also must be paid for.
None of those expenses is allowable against income tax. That may have been all right when people worked at the factory bench in their old clothes, but not today. There is a real cost involved in the process of earning a living, for which the Inland Revenue does not allow. I appreciate full well the problems of opening the floodgate of the allowances to set off against tax, but in the past it operated 775 on the basis that there is a cost involved in earning a living, whereas if one only sits at home and receives dividends or interest, no such cost arises.
The major task confronting the Chancellor of the Exchequer is to ensure that the economy is restored to a non-inflationary trend. He has a task ahead in respect of the balance of payments deficit, and he can be effective only if he does something for manufacturing industry. The level of assistance that it is given will be of supreme importance.
§ Sir Peter Hordern (Horsham)
I have followed the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) on many previous occasions, but I do not recollect him advocating before an investment income surcharge. I thought the present problem is one of a shortage of personal savings. I ask the House to consider what the likely impact of an investment income surcharge would be on the propensity of private individuals to save, and I imagine that such a surcharge would not be recommended by members of the Labour Front Bench.
I noticed during the speech of the right hon. and learned Member for Monklands, East (Mr. Smith) that he was, as always, short on specifics when it came to taxation. He has some very worthy ambitions in respect of training and education, with which I entirely concur. However, he is not quite so forthcoming in explaining how that extra expenditure will be met. He fails to give sufficient credit to my right hon. Friend the Chancellor of the Exchequer for the measures already taken by the Government and for the vast increase in expenditure that has occurred.
Every potential Labour Government have the problem of paying for the large increase in public expenditure that a Socialist programme necessarily involves. The hon. and learned Gentleman may disagree, but the fact remains that if such expenditure is to be incurred, and if we are to follow the hon. Member for Oldham, West (Mr. Meacher) in thinking that state pensions should increase in line with earnings as well as with prices, large sums of money will inevitably have to be raised by borrowing—which would of necessity mean higher interest rates. That is when the problems invariably begin, with the International Monetary Fund being called in before long.
The right hon. Member for Ashton-under-Lyne spoke of the importance of manufacturing industry, and I do not dissent from that. However, page 53 of the Autumn Statement shows that over the past decade manufacturing productivity in the United Kingdom increased by 5¼ per cent.—and a conveniently adjacent column reveals that the decade before that recorded the lowest increase in manufacturing output per head. That suggests that, while manufacturing investment is important, one should not ignore the rapid and considerable improvements in manufacturing output per head over the past 10 years, which I hope will continue.
Perhaps it is wrong to draw too much of a distinction between business investment and manufacturing investment. Again, I follow the remarks of the right hon. Member for Ashton-under-Lyne concerning North sea oil.
Labour always keeps very quiet about the way in which this country's overseas assets have been built up over the past 10 years. British business has now invested £90,000 million overseas, which is the largest single amount invested by any country, not excluding Japan or the 776 United States. Manufacturing companies such as GKN now produce rather more in the United States than they do in this country, while companies such as Ford, with substantial operations in the rest of the European Community, spread their investment between one country and another. It is unrealistic to suppose that Britain can become the engine room of western Europe or play a large part in world manufacturing capacity.
§ Mr. Jeremy Hanley (Richmond and Barnes)
Does my right hon. Friend agree that many people think that Britain is the 51st state of America? The reality is that investment by British companies in America is well in excess of investment by American companies in Britain.
§ Sir Peter Hordern
I agree entirely. It would be perverse always to look backwards and to think of ourselves as an individual nation intent on manufacturing production. That is not the reality of the situation as we move towards the end of the 1990s and the turn of the century. We must follow Adam Smith's adage about the division of labour in manufacturing.
The Opposition naturally picked on some of the more inconvenient parts of the Government's economic record. such as the balance of payments deficit and inflation. Inflation is the single most important issue confronting the Government, whose policy has always been very clear—that it should be tackled by monetary means, which I think is right. However, the figures have not been entirely convenient, and the measure of monetary aggregates has seemed to vary from one year to the next. I do not know the latest fashion, but I notice that little MO still occupies quite an important place—as does M4, which is the broader measure.
I assumed that after 18 months or two years of expansion and of whatever monetary aggregate was in favour at the time, inflation would follow. Happily, during 1985, when there was a rapid expansion of M4 of about 15 per cent., inflation mercifully fell to little more than 4 per cent. at the time of the 1987 general election. However, I do not so disregard the increase in monetary aggregate as to think that it has no effect. The increase recently in both M0 and M4 is a cause for considerable concern. We cannot continue that way, and if it was not for the fact that bank lending for the latest quarter shows signs of slowing by comparison with the previous quarter—and, as my right hon. Friend the Chancellor said, retail expenditure is decreasing—there would be cause for more alarm than there is.
However, I do not believe that monetary policy in the sense of measurement of monetary aggregates is enough. Interest rates must remain the main weapon, but even they are not sufficient to deal with the situation, for we also need to ensure that the exchange rate does not go down too far against other currencies. That is presenting difficulties because in the past year the deutschmark has appreciated by some 16 per cent. against sterling.
Much of our manufacturing industry is devoted to components, and it takes place in different countries in Europe. For example, the other day, I was talking to someone who works for the Ford Motor Company, and he told me that they manufacture the engines for all the Ford 2 litre cars in West Germany. The price of those engines is some 16 per cent. cheaper than it was a year ago. Ford has 777 no incentive to keep down wage increases. It knows that it can well afford to pay at least 10 per cent. more because the cost of producing the engines has gone down.
More and more companies which trade within the European Community—as most of them now do—will find that a declining exchange rate makes it more difficult to restrain wage claims than it would be if the exchange rate were kept constant.
Trade with western Europe and the European Community accounts for 51 per cent. of British imports. Therefore, we cannot be oblivious to what the exchange rate should be, nor can we say that we should leave it to the market. We cannot pursue that option.
The 16 per cent. movement in the deutschmark against sterling has meant that Ford can afford to pay more and so can other companies which manufacture and export to the European Community. The public sector regards the private sector as a benchmark for its own wage claims but whereas Ford may be able to pay 10 per cent. more in wages, the public sector certainly cannot. Therefore, I impress upon my right hon. Friend the Chancellor the absolute importance of making it clear to everybody that—
§ Mr. Ronnie Campbell (Blyth Valley)
The hon. Gentleman, as a Member of Parliament working in the public sector, is getting a rise of more than 10 per cent.
§ Sir Peter Hordern
I am grateful to the hon. Gentleman for his intervention. If we are to be judged by other parts of the public sector in relation to the reports of the Review Body on Top Salaries, we would be regarded as the worst negotiators in the public sector, and I say that without fear of contradiction.
I do not wish to be sidetracked, and I shall return to the question of where the market leads. Some people have the idea that one cannot buck the market but, as I said a moment ago, because Britain has investments of £90,000 million abroad, a finance director of a major company has to study his firm's assets every day, and it is his duty to protect them. Trade and business today consist of finance directors protecting their firms' overseas assets. If sterling were pegged to the deutschmark—as I think it should be—that work would not exist for finance managers.
The market does not force us to have a flexible exchange rate policy. If we had a firm exchange rate policy, aligning sterling with the deutschmark, and took the necessary measures, there would be no need for all the business in the foreign exchange markets that is taking place now. If we are to overcome inflation and to improve the markets, an exchange rate policy is very important.
The right hon. Member for Ashton-under-Lyne was talking about the Labour Government's bad luck when the oil price quintupled. It must be hard for the Opposition to accept this, but the oil reserves in the North sea have been helpful, because they enabled Britain to invest £90,000 million abroad, which gives us a considerable cushion. We can urge people who work in the United States and elsewhere to work harder on our behalf. I see nothing wrong with that.
The prospects for economic advance as a result of the recent events in eastern Europe will inconvenience the Opposition even more. The events in eastern Europe are momentous. In 1989 750,000 people moved from the East 778 to West Germany—they were ethnic Germans. West Germany was faced with the consequences of an acute shortage of skilled labour, but it is probable that there will now be a considerable increase in production and economic growth in West Germany this year. West Germany's economy grew by 4 per cent. last year. At a press conference on 11 January, Herr Kohl said that it was in the interests of Europe as a whole that the European Community continued to develop as a model of an association of free nations. I think that that commends itself to all hon. Members.
An association of free nations would mean that there would be free movement of people, capital, goods and services within Europe. The European Community plans to make considerable investment by means of loans and grants to the countries of eastern Europe, but if the European Community got rid of the common agricultural policy it would do much more good for the people of eastern Europe. Eastern Europe is primarily an agricultural community, and that would encourage it to increase its production of agricultural produce. It would be able to get higher prices for the goods and increase productivity, and that would do more good than all the money the Community could give. I believe that that should and will happen.
Eastern Europe will resemble America at the beginning of the American industrial revolution, in the 1830s, when there was a similar vast movement of population, because people moved across the Atlantic to the United States. Western Europe will experience a similar increase in economic growth as the United States did at that time.
The future of the British economy is bright because its manufacturing and service industries are enmeshed with the economies of the other countries in the European Community.
I commend my right hon. Friend the Chancellor for all that he is doing. If he keeps a tight control of public expenditure and keeps interest rates high for as long as necessary, which I understand to be his policy, he will have my wholehearted support.
§ Mr. A. J. Beith (Berwick-upon-Tweed)
If I could have brought some of my constituents, or some of the people who are now packed like sardines on the Underground, into the Chamber to listen to the Chancellor's opening remarks describing the Government's success, they might have asked sharper questions than many hon. Members tend to ask. They would want to know why, if the economy is such a success, we have such squalid and declining public services. If it is such a success, why are the lowest-paid workers being told that it is irresponsible of them to seek a small share of the success that the country is supposed to be enjoying? If this is success, why have home owners, who have struggled to get on the ladder of home ownership, been so heavily penalised for so long by high interest rates? If this is success, what is failure like? I think that those people would have critical words to say about the measurement of success implicit in the Chancellor's earlier remarks.
The Chancellor could direct our attention to some successes, but in key respects, which affect the lives of ordinary people in Britain, that success is not a reality—the down side is the reality.
779 The Autumn Statement refers to the Government's commitment to reduce public expenditure year by year as a proportion of what the nation produces. That policy has not been achieved this year, but it continues to be the Government's policy. When I challenged the Chancellor earlier today, he said that that policy was sustainable because we will have so much growth that the amount of money realised by the declining proportion of national production would be sufficient to maintain and perhaps improve public services. If we do achieve that continual growth, we should expect some improvement in our public services rather than a standstill or even a decline.
The doctrine of a perpetual reduction in the proportion of public expenditure is one that various members of the Government clearly find difficult. Whenever an Autumn Statement is presented and the Government issue their various comments and press releases, the next day's papers are confused about whether the Government have said that they are cutting public expenditure and doing very well, or that they are increasing expenditure on important services and doing very well. That, it seems, is not surprising: it is instructive to examine what some Departments have to say.
The Treasury and Civil Service Select Committee examined the pronouncements of the Department of Employment, whose expenditure is being reduced because the Government believe that if fewer people are employed less training will be needed. Nothing could be further from the truth: skill training is desperately needed in the present circumstances. The Department, far from saying in its press statements how successful it has been in cutting public expenditure, tries to pretend that it is increasing that expenditure. Its argument is, "If we compare the figures with those of 1979, it is clear that we are doing very well." The Government's objectives seem to be somewhat confused; we had better clear that up so that we can get down to establishing what Departments such as the Department of Employment should actually be spending.
Analysis of the figures of other Departments is also instructive. The Department of Transport waxed lyrical about its increased spending on London's public transport, but that has amounted merely to permission for the extension of the Jubilee line: no expenditure has been allowed for the two lines across London which everyone who studies London's transport problem knows to be essential. The Department of Trade and Industry, I note, has cut export promotion and regional expenditure.
Examination of the relative price effect is even more instructive: although the relatively lower inflation rate in the cost of defence materials has meant a gain for the Ministry of Defence, there has been no renegotiation and no clawing back of that money. Conversely, no allowance has been made for the high rate of inflation affecting the commodities that the Department of Health has to buy, and that has had a significant effect on the NHS spending figures.
The Government claim to be increasing NHS resources by 5.5 per cent. Let us consider that figure in detail. First, it falls to 4.9 per cent. if cost improvements—the money resulting from savings and income generation within the NHS, about which there is considerable doubt—are excluded. There should be an incentive for those who make such savings to do better than the Government's published overall figures, but that incentive will not be 780 there if the cost improvements—some of which seem to have been counted more than once—can only comply directly with those figures.
§ The Financial Secretary to the Treasury (Mr. Peter Lilley)
Why exclude them?
§ Mr. Beith
The Financial Secretary to the Treasury is intervening from a sedentary position. I am trying to deal with the arguments as I go along, but if he wishes to speak I will give way.
If the cost of the NHS review and the policies arising from it is excluded—as seems perfectly sensible in the measurement of overall Health Service expenditure—the real increase is brought down to 3.7 per cent., a figure calculated through the use of the GDP deflator, which is widely considered to be lower than the inflation rate within the NHS. The Department's own figures suggest that the inflation rate in the hospital services is 10.5 per cent., and the rate in the family practitioner services 10.3 per cent. The actual real-terms increase in NHS expenditure may be as low as 1.5 or 2 per cent., a figure that may not be sufficient to account for demographic changes which, as everyone recognises, place additional demands on the service. I am not saying that the Government have not made an extra effort this year to find more funds for the NHS. Nevertheless, they must not claim that the NHS is suddenly in a position greatly to improve the quality of its service by means of the Government's funding, given the background against which the figures are set.
As well as the impact of the Autumn Statement on the public services, we must look at what the statement says and at what has happened to the general conduct of the economy since it was issued. The position has certainly not improved overall: we still have high inflation, high interest rates and a large trade deficit. Exports are growing more quickly—which is a welcome sign—and they will benefit from the depreciation of the pound over the past year but, as the hon. Member for Horsham (Sir P. Hordern) pointed out, there is a reverse side to that.
The progress made so far has still not removed the basic danger posed by our large trade deficit. Even one bad set of trade figures can put pressure on sterling, and thus either increase the inflationary pressures in the economy or trigger a further base rate rise. Every time a bad set of trade figures emerges, a waiting game ensues to see whether the Chancellor will have to increase the base rate again to stem a flow from sterling. This week's trade figures, for which we are now waiting, have already prompted nervousness.
According to this week's figures, manufacturing output appears to be declining to an alarming and unexpected degree, while the figures for bankruptcies and liquidations again show a high rate of increase. The inflation rate is the worst since 1982. If I wished to hire an exorcist, I would not hire members of the present Government, for the job of an exorcist is to get rid of something once and for all. Year after year, the Government have promised the Treasury and Civil Service Select Committee that in three years' time inflation will be down to 3 per cent., but they have never achieved that objective, which has seemed to recede further as each three-year period has gone by.
There can be no reason to expect the realisation even of the Autumn Statement forecast of a 5.75 per cent. inflation rate, especially in view of the alarming money supply and bank lending figures and the depreciation in sterling. The 781 Treasury model predicts that a 5 per cent. fall in sterling will add 4 per cent. to the retail prices index over a four-year period. Sterling has risen slightly since the beginning of the year, but that will not make much difference to a depreciation as large as that of the past 12 months.
The Government are clearly worried about the impact of wage inflation. Inflation in average earnings is now running at over 9.25 per cent. and the prospect of double-figure wage inflation is in sight. The pressure on wages is increased by rising mortgage interest rates. It is no use for the Government to say continually that those rates have nothing to do with inflation and should not be included in the retail prices index; the fact remains that high mortgage rates and heavy expenditure on buying a home are factors that fuel wage demands, and it is hardly surprising that people ask for larger pay increases to cope with those effects. The Government must recognise the reverse side of their interest rate policy.
There is also the effect of the own-goal inflation referred to by the CBI. Privatisation price increases for water and electricity have been very high: in my constituency, the price of water has increased by more than 18 per cent. this year. Furthermore, waiting to hit the people who are seeking reasonable wage increases to meet those costs is the threat of the poll tax.
When the Agricultural Wages Board for England and Wales meets in the spring, it will have to face the fact that most farm workers will expect to have to pay about £600 a year out of their taxed income that they have never had to pay before. Hitherto they have lived in rent and rate-free accommodation, but now they will have to pay poll tax for themselves and their wives. Will the board ensure that they receive an increase of £600 a year to meet that cost, or will the Government say that it is irresponsible for these workers to be allowed to retain even the low living standards that they have enjoyed for the past year? The Government face a dilemma of their own making because of the impact of the poll tax on that section of the community, but the effect on many other sections will also be powerful.
No one still believes what the Government say about inflation. They say that they want a high pound to prevent import prices from rising, and to force employers to be tough in wage negotiations, but then they let the pound fall and plead with the employers to be tough. As other hon. Members have pointed out, those employers can obtain the benefit of the depreciation in sterling through the prices that they obtain for their goods overseas.
As part of their medium-term financial strategy, the Government say that they intend to bring MO under control, but when MO rises to well above its target range after a year of high interest rates they do not push up interest rates further. Of course, we should all be alarmed if they did, but where does that leave the strategy and the policies that were based on it?
What has happened to the Government's incomes policy? The two aspects of the Government's incomes policy were a high pound and high unemployment. Thankfully, unemployment has fallen, although it may now start to rise again. Those were the two elements by which the Government sought to contain inflation, but 782 neither will do so any longer. The Government will have to look elsewhere for a credible framework for an anti-inflation policy.
We have argued, as have other hon. Gentlemen who have taken part in the debate, that a better framework for an anti-inflation strategy would be found if Britain joined the exchange rate mechanism of the European monetary system. But we know who we are up against. We are not up against the Chancellor, who has said that he has been in favour of it for a long time. We are up against the Prime Minister's prejudices. The Prime Minister hates the idea of the Government who she heads being inhibited in any way. She adopts exactly the same attitude in her opposition to the previous Chancellor's proposal that there should be a more independent central bank. It was instructive to hear what the Prime Minister said about that. She was opposed to it because she believed that the bank must be under the control of Parliament.
Who here believes that the day-to-day operations of the Bank of England are under the control of Parliament? The Bank of England is under the influence of the Government of the day in a way that cannot be held accountable to Parliament. We do not know what conversations the Chancellor has with the governor, or what was said or to what extent the governor's actions follow from the Chancellor's advice. That is one of the most closely guarded secrets of Government. What is really at stake is the Prime Minister's desire not to be inhibited even from doing things which officially she opposes, such as debauching the currency. She hangs on to the freedom to do things which she says Governments should not do. The Prime Minister's prejudices stand in the way of providing a firm anchor for the anti-inflation policy.
§ Mr. James Hill (Southampton, Test)
The hon. Gentleman suggests that we should join the exchange rate mechanism of the European monetary system. Have not the Government made it clear that we will not join until two major EEC countries have the same rules for exchange controls or the lack of exchange controls that are proposed? Would that not be the right time to join? If the economy is as bad as the hon. Gentleman is suggesting, it would be quite wrong to join the European monetary system with some countries obeying some rules and some countries obeying others.
§ Mr. Beith
The condition that the hon. Gentleman has advanced is well on the way to being satisfied and would be satisfied pretty quickly if Britain announced that it would join on that condition only. The hon. Gentleman has overlooked another condition, which is that our inflation rate must be close to that of our competitors. On present figures I see no prospect of that. It is the Prime Minister's way of buying as much time as she wants. She will be able to say for a long time that that condition is not satisfied because she knows that she will not meet even her Government's targets for dealing with inflation.
The Government should be seeking that anti-inflationary framework and taking the opportunity that it provides to invest in the long-term health of the economy—in training, education and transport—and to make other structural changes in the British economy that are necessary to drive inflation out of our system. The Government should be looking more closely at opportunities to extend profit-related pay if they want to ensure that the wage bargaining process is informed by 783 companies' productivity and profitability. There is a case for a national mechanism so that we can discuss and agree on what would be a reasonable increase for the economy, and a mechanism to ensure that firms which achieve high productivity can pass on that benefit to their employees and their employees can reasonably negotiate for it.
There can be no prospect of a giveway Budget this year. The Government must take the opportunity to deal with some of the anomalies such as high-rate mortgage tax relief and the payment of tax relief at the top rate to those least in need of subsidy. The Government should tackle some of the remaining anomalies in the national insurance system and take steps to encourage savings. Those factors must be part of the Chancellor's Budget considerations in the next couple of months.
The Chancellor is the ultimate pragmatist. He is not a monetarist. His evidence to the Select Committee made it clear that he is in no way attached to monetarist theories. Monetarism is out; the medium-term financial strategy is out; and the idea of an independent central bank even in Britain, let alone as part of the new European model, is excluded—if not by the Chancellor, very firmly by the Prime Minister. The EMS is still a long way off. It is surfboarding, but this surfboard has a back-seat driver—the Prime Minister. The Chancellor's pragmatism may be attractive to those who are unhappy with some of the dogma that has dominated recent economic policy, but in the absence of any other anchor for an anti-inflation policy, it gives no prospect that some of the fundamental weaknesses of the British economy will be corrected under the present Government.
§ Sir William Clark (Croydon, South)
The hon. Member for Berwick-upon-Tweed (Mr. Beith) spent some time trying to disprove the Government's increase in expenditure on the National Health Service. Suffice it to say that since 1979 expenditure on the National Health Service has increased by about 45 per cent. in real terms and the number of people whom it employs has increased by 77,000. The hon. Gentleman cannot make such accusations when the facts belie what he says.
The hon. Gentleman said that his party's answer was to join the EMS—as though that were the panacea for all our ills. I should like to know how the hon. Gentleman or the right hon. and learned Member for Monklands, East (Mr. Smith) would pay for the policies that they put forward were they ever to form a Government.
The right hon. and learned Member for Monklands, East spent much time discussing our manufacturing industry. Not once did he say that during the 1960s many trade unions were responsible for pricing their members out of jobs. Shipbuilding and steel became uncompetitive. Of course, the manufacturing base will shrink if we do not remain competitive. That is one of the main reasons why we start from a low manufacturing base.
I agree with my right hon. Friend the Member for Worthing (Mr. Higgins) that, having listened to the right hon. and learned Member for Monklands, East, one would think that selective employment tax was coming back, possibly in company with the national insurance surcharge.
I am sure that more than 9 million shareholders will take no comfort from the fact that if the party represented by the right hon. Member for Ashton-under-Lyne (Mr. 784 Sheldon) were ever to form a Government, the investment surcharge would be reimposed. He spoke about capital allowances, but they were traded off by reducing corporation tax. We have one of the lowest rates of corporation tax in the Common Market.
§ Mr. Sheldon
Surely the hon. Gentleman recalls that there was a minimum level before investment surcharge was levied on a person's income tax. It did not start from the first £1 of income tax. The hon. Gentleman must realise that nothing like 9 million people would be affected.
§ Sir William Clark
I am sure that that will be a comfort to some shareholders. However, I do not think that it will encourage savings.
We could use a straight line 25 per cent. reduction for capital allowances, but I agree with my right hon. Friend the Chancellor that inflation is enemy number one. Last week there was a flurry in the City, the media and the press because of fears that the inflation rate was going up. It is affecting our economy and it is certainly affecting the value of the pound. We take our economic pulse too often and we say what it will be before we have taken it. That is why we get all the flurry. Hon. Members will recall that last week people forecast that inflation would go up to 7.9 per cent. but, in fact, it remained at 7.7 per cent. Indeed, if one discounts the mortgage interest element, it was 6.1 per cent. and there was no change at all.
Opposition Members should pay tribute to the fact that the economy has underlying strength. Over the last 10 years the average family's standard of living, in real terms, has gone up by nearly one third, and the income of the pensioner has gone up by nearly one quarter. That is not a bad record. Of course, it could be better, but the position is much better than it was before 1979. Unemployment is down, the number of jobs is up, growth is up, investment is up, and manufacturing output is 12 per cent. higher than it was in 1979. Consequently, it is wrong to write off our manufacturing base. In fact, the manufacturing base is building up. Take, for example, foreign investment. There has been massive Japanese investment in the motor car industry. Opposition Members should realise that a time element is involved. From the initial stages of setting up a factory it may take two or three years—possibly less—for cars to come off the production line. The fact that we attracted investment last year does not mean that cars wi11 come off the production line in the immediate future, but they will be produced in due course.
I am delighted with the remark of my right hon. Friend the Chancellor that public expenditure is under very strict control. When the present Government came to power public expenditure represented 44.5 per cent. of gross domestic product; this year it will be 39 per cent. Despite the fact that the proportion has gone down, more and more money is being spent on the Health Service, transport and education. The simple reason is that the economy is growing. Opposition Members may shake their heads, but they should look at the facts and the statistics. They will see that, in real terms, more and more money is being spent on those services. Anybody who does not believe that will not believe anything.
Of course, we have a balance of payments problem, and my right hon. Friend the Chancellor admitted it only this afternoon. With hindsight, one sees that it was a mistake to relax interest rates at the beginning of 1988. But if I had known yesterday what I know today I would be a 785 millionaire many times over. There is strength in the economy, and our surplus this year will be £12 billion or thereabouts.
The statistics show that imports have flattened out and that in the past three months exports have increased by 7 per cent. Of course, we must do better, but there has been an increase in exports. As a result of the budget surplus the Government have been able, over the past three years, to repay some £30,000 million of the national debt. In interest charges alone that has resulted in a saving of about £3 billion to £5 billion per year, which is the equivalent of 2p or 3p in the pound on the standard rate of income tax. That is not just for one year, but for year after year. Such is the achievement of this Government.
Obviously the national debt is a burden, but the burden is being reduced, and I hope that the Treasury team is taking into account the fact that, as the national debt is reduced, problems arise, particularly in relation to the national savings movement. If the national debt were paid off, there would be no national savings and no gilts market. This is something that needs a lot of forward thought. The hon. Member for Berwick-upon-Tweed mentioned savings. I agree with him—this is something that I hope my right hon. Friend will take on board—that, as a result of the Chancellor's policy, those without money who want to spend have to borrow. But the Chancellor has made it far too expensive to borrow and, as a result, consumer demand has come down. Retail spending in December was up slightly, although not as much as in previous years, but I do not think that one can use that for purposes of comparison. One must wait for the January figures because high street sales, which are normally held in January, were brought forward to December. By making borrowing too expensive my right hon. Friend has prevented people from spending.
But an awful lot of people in this country have money and do not need to borrow. Those people are spending. I am thinking in particular of people earnings between £20,000 and £35,000 a year—probably middle-aged people whose children are off their hands and whose mortgages are manageable. Such people have quite a lot of money to spend. My right hon. Friend has introduced personal equity plans, which are an extremely good idea, but to the average person PEPs are not enough of an incentive. Suppose that an average person puts £1,000 into PEPs. He or she is exempt from income tax on dividend. On £1,000 the dividend would be about £60 a year—about 6 per cent. Thus, the tax saving would be £15. What about capital gains tax? In that case, because of the £5,000 exemption limit, no capital gains tax has to be paid anyway.
I am not decrying PEPs altogether, but my right hon. Friend should adopt a more radical approach. He should introduce a system whereby a person could enter into a contractual saving arrangement and have the amount of money involved taken off the amount of his taxable income. That should not be beyond the wit of the Inland Revenue. A person saving, say, £1,000 a year would pay £250 less in tax, but £750 would come out of the consumer spending market. I hope that my right hon. Friend will consider that suggestion.
Many right hon. and hon. Members have said that interest rates are high. The base rate is 15 per cent., and one would be lucky to be able to borrow at 17 or 18 per 786 cent. Interest rates are high enough, and I urge my right hon. Friend not to increase them further. The market in the deutschmark and the dollar is fairly stable at the moment, and we all know what a burden interest rates are for industry.
I hope that my right hon. Friend will examine capital gains tax. I realise that since 5 April 1982 we have had indexation and that it has been a great help. But a capital gains tax rate of 40 per cent. is locking up the market. Many people do not and will not change their stocks, and they are locked in. Capital gains tax should at least be reduced to the standard rate, if not abolished.
There is a great move to entice married women back to work, and one pressure that will build up as a consequence is to provide créches in the workplace. If one enjoys that perk it has to be entered on a form P11D and the employee is surcharged according to what the perk is worth. That applies to everybody earning more than £8,500 a year and it places a tremendous burden on industry. The figure of £8,500 per annum was fixed in April 1979, but it is time that we allowed employers to provide a créche without the employee having to pay tax.
At this time of the year, my right hon. Friend the Chancellor receives advice from all quarters. The hon. Member for Berwick-upon-Tweed said that there must be a reduction in taxation, but I remind hon. Members that the separate treatment of husband and wife for tax purposes will cost the Exchequer about £1.25 billion. If there are to be any tax cuts, I would plead, as I have in the past, that we should concentrate on thresholds. A single man can earn only £53 a week before he starts paying 25p in the pound to the Exchequer and a married man can earn only £84 a week.
This will be my right hon. Friend the Chancellor's first Budget. His forecast was accurate when he said in the last quarter of 1989 that inflation would be about 7.5 per cent. If I were my right hon. Friend, I would ignore some of the siren voices that we have heard from the Opposition Benches suggesting an increase in expenditure here and an increase there. He should keep a tight control on public expenditure and ignore requests for an increase. All my right hon. and hon. Friends will wish my right hon. Friend well in his first Budget.
§ Mr. Giles Radice (Durham, North)
I congratulate the right hon. Member for Worthing (Mr. Higgins) on his skilful work in getting all the members of the Treasury and Civil Service Select Committee, with their broad range of views, to agree on a single report. That is a great achievement and it is one which he repeats, with customary skill, at least twice a year. He is not present at the moment, but I am sure that he will be back.
Our report, which is being debated with the motion today, is of considerable value to the House. As my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) said, its importance lies not so much in its conclusions—conclusions go to the heart of the debate about economic policy on which one is unlikely to achieve a consensus—as in the wide range and depth of our investigative hearings and the accuracy and quality of our economic analysis. I want to look at both those points.
The Select Committee procedure allows Members to put questions at length and in depth to the Chancellor and his advisers in a way that is often not possible on the Floor 787 of the House, and that gives us a great advantage. For example, at our hearing on 4 December, the Chancellor had to admit that the balance of payments did matter. He also accepted that the deficit was caused not merely by an increase in investment goods but by a surge of consumer goods. That was something that he had not previously admitted on the Floor of the House, but he did so in answer to a series of questions from a number of Members.
The Chancellor revealed as much by his evasions as by his direct replies. We have already heard from the hon. Member for Berwick-upon-Tweed (Mr. Beith) about his neglect of monetarism, but there is also the shift in exchange rate policy. In autumn 1988, the previous Chancellor lectured us about the need for a stronger exchange rate as a counter-inflationary discipline. This December, the present Chancellor was a good deal less emphatic when he said:It is worthwhile to have a firm exchange rate to bear down on inflation with all the other elements of monetary and fiscal policy as well.He went on:As to the judgment as to what is or is not a firm exchange rate, that is a matter which one has to consider as and when necessary".Now we all know what the Government exchange rate policy is.
It is not only the hearings that are valuable; it is the analysis underlying our report. Thanks mainly to our advisers, the Select Committee's track record has been a good deal better than that of the Treasury. In the spring of 1988, when the then Chancellor was boasting all over the world about the British economic miracle, we warned about the excessive growth in consumer credit, the impact of tax cuts in the Budget and the dangers of overheating. So we have not just spoken with hindsight; we said it then.
In our April 1988 report, we expressed disappointment about the failure to bring down inflation. We were concerned about the balance of payments. Presciently we said:we consider that uncertainties over domestic demand growth and the continuing capacity of the United Kingdom economy to respond, and over the likely growth of the international economy suggest that careful monitoring of the state of the current account will be needed.We can say that again. We went on:Clearly there would be risks if the balance of payments deficit continues to rise.But the Chancellor said that all was under control.
In view of the Select Committee's relatively good track record, it is well worth considering what we have to say this year about the British economy's prospects. We remain sceptical about the Government's ability to bring down the inflation rate. Commenting on the Treasury's forecast of 3 per cent. inflation by 1992—the hon. Member for Berwick-upon-Tweed said that the Treasury always forecasts 3 per cent. three years ahead—we note thatRepetition in the face of failure has not added credibility to this forecast.We underline the significance of the huge current account deficit. As we point out, it has already been responsible for a substantial 10.5 per cent. depreciation, a rise in base rates—the hon. Member for Croydon, South (Sir W. Clark) has already pointed out the impact of that—and a loss of official reserves. It also puts the exchange rate very much at the mercy of market sentiment, as the hon. Member for Horsham (Sir P. Hordern) pointed out.
Like my right hon. and learned Friend the Member for Monklands, East, in his excellent speech, the Committee is 788 rightly worried about the supply side. In our report, we note with concern the £17 million deficit in manufacturing and we wonder whether British industry is any longer capable of supplying the range of goods that people want to buy in domestic markets and abroad. Sadly, we have not yet replaced the 20 per cent. of manufacturing capacity that we lost in the deep recession of 1979–82.
We also remain extremely sceptical about the theory put forward by the Government's chief economic adviser that our balance of payments deficit is, in some way, self-correcting. We explicitly warn that the process of adjustment will not be painless. As we say, it could even lead to a recession—a recession induced by high interest rates.
The new element in the Select Committee's analysis is our warning about the danger of recession, with all that that could mean for output, investment and employment. To sum up our message in simple terms, we warn about the risk of stagflation—that is, the danger of a relatively high rate of inflation combined with a stagnant economy. That is how the position looks at present.
§ Mr. Hanley
Perhaps the hon. Gentleman will take this opportunity to explain his party's policy to counter inflation, something which all of his hon. Friends have refused to do.
§ Mr. Radice
I was coming to that. If the hon. Gentleman listens patiently, he will hear.
The real question that faces the House—although it faces both the Opposition and the Government, it is more urgent that the Government face it—is how to bring an unbalanced economy back into equilibrium without endangering our long-term economic prospects. We have the difficult task of slowing down the economy, reducing inflation and shifting resources from imports to exports without clobbering output and investment, undermining productive potential and increasing unemployment.
It is already clear that the Government's over-reliance on high interest rates has damaging side effects. As we can see only too clearly in our constituencies, high interest rates are influencing the current wage round. That is not a theoretical concept or a matter of how the retail prices index is calculated, as the former Chancellor of the Exchequer, the right hon. Member for Blaby (Mr. Lawson), used to say. It is a simple matter of bread and butter. If the Government increase interest rates, the cost of mortgages inevitably rises. Given the almost universal use of mortgages in Britain to finance house purchase, that inevitably feeds into the cost of living and so into pay bargaining. That is one of the unpleasant side effects. The other is the impact on investment.
Already there are signs that the welcome investment boom of the past two years is dying away. Faced by contracting domestic demand and the high cost of borrowing, about which we have heard from people who should know, investors—particularly small businesses—put off investment decisions. The Chancellor of the Exchequer is well aware of that. If we are to reduce inflationary expectations and improve the prospects for investment, it is essential to bring down interest rates as soon as possible. That is why we need a new policy initiative.
Many of us accept that we should join the exchange rate mechanism. No one argues that membership is a panacea. However, at this stage of the economic cycle, it would give 789 us several crucial advantages. That brings me to the question that the hon. Member for Richmond and Barnes (Mr. Hanley) asked. The experience of several other countries which are members of the ERM, particularly France, shows that membership provides a useful counter-inflationary discipline. If business men and trades union negotiators are assured that there will be currency stability, there is less incentive for inflationary pay increases. To that extent, membership is counter-inflationary.
At the same time, membership of the ERM would allow Britain to bring down its interest rates. There is little doubt that one of the prices that we have paid for an independent monetary policy has been higher interest rates than those of our European competitors.
As my right hon. and learned Friend the Member for Monklands, East said, if we joined the ERM at a competitive rate it would also help on the balance of payments side. As several hon. Members have said, the Prime Minister has imposed conditions on our entry into the ERM. It is clear that she is unwilling to join. She has even persuaded Treasury Ministers who ought to know better that we cannot join the ERM until our inflation rate improves. The trouble with that is that it is a chicken-and-egg argument. The Prime Minister says that we cannot join the ERM until our inflation rate comes down, but until we join it our inflationary prospects are unlikely to improve. We are in a cleft stick.
I fear that under present policies we shall continue to stagger along with inflation which is higher than that of our competitors, a record balance of payments deficit and higher interest rates than most of our competitors. We shall be very much the sick man of Europe, as was said earlier, and I believe that we need a change of policy.
§ Mr. Radice
I am afraid that the same is true at the end of the 1980s. That is why we need a change of policy. If we are to square our present inflationary circle, keep investment up and bring the economy back into balance without harming our productive potential—as we are doing now—our early entry into the ERM is entirely necessary.
§ Mr. Tim Yeo (Suffolk, South)
I enjoyed the analysis of the economy which the hon. Member for Durham, North (Mr. Radice) has just given, but I hope that he will forgive me if I do not respond to his remarks. Instead, I should like to refer to the speech of the right hon. and learned Member for Monklands, East (Mr. Smith). The right hon. and learned Gentleman enjoys a well-deserved reputation as a formidable debater, and his performance this afternoon was characteristically entertaining. However, it suffered from the same omissions as were apparent from his speeches in the four or five debates on the economy that we have had since the summer recess.
We all understand why the right hon. and learned Gentleman does not wish to refer to the record of the Government of which he was a member. I trust that my right hon. Friend the Chief Secretary to the Treasury will not accept any strictures on inflation from a member of a 790 Government who even in their best year could not reduce inflation to the present rate, which we regard as unacceptably high.
What I found more significant in the right hon. and learned Gentleman's speech was his reluctance to say anything about his party's policy. He may be reticent because he does not believe that he will ever have the chance to put those policies into practice. Whatever the reason, it may be instructive to the House to explore Labour policy more deeply.
During the debates on the economy before Christmas the right hon. and learned Gentleman made great play of his enthusiasm for entering the exchange rate mechanism of the European monetary system. Try as we would, my hon. Friends and I could not tease out of him any clue about the right level of sterling for entry into the ERM. I now understand why he was so reluctant to or could not answer that straightforward question—it was his adherence to what I might call a traditional Labour party source of advice. In October the right hon. and learned Gentleman told my right hon. Friend the Member for Blaby (Mr. Lawson):He should listen, … to the advice that he received from…the annual conference of the Trades Union Congress.That remark was a timely reminder of who would run the British economy if the Labour party ever returned to power. The right hon. and learned Gentleman deserves the gratitude of the House and the country for giving with such candour and courage an early and open warning of his dependence on his party's paymasters.
Unfortunately, the annual conference of the Trades Union Congress did not appear to have a clear view about the ERM. At TUC conferences motions and debates about crucial matters such as lesbian rights and reform of the blasphemy laws are perfectly routine, and I am sure that the House will be relieved to know that the right hon. and learned Gentleman has such a valuable source of advice on those topics. However, the TUC conference does not appear to have a clear view on our entry into the ERM.
In 1988 the annual conference of the TUC staged a debate on Europe which was opened by no less a personage than the President of the European Commission. Thereafter, the comrades did not make a single reference to the exchange rate mechanism in the entire debate, nor did the motion that they were debating refer to the exchange rate mechanism. I am sorry to say that the verbatim transcript of the proceedings of the 1989 TUC annual conference has not yet reached the Library, but I dare say that that is a source of some relief to the Labour Front Bench. However, I have scrutinised the daily reports in the Financial Times, a newspaper that can be relied upon to cover any reference to the exchange rate mechanism given that in September of last year it was such a topic of controversy—
§ Mr. Terry Fields (Liverpool, Broadgreen)
On a point of order, Mr. Speaker. It is not often that I get to my feet on a point of order, but I have scoured the pages of the Order Paper and have read the Orders of the Day and the notices of motions. Although the topic before us is fairly wide-ranging, covering the Government's economic policy and the amendment tabled by my right hon. Friend the Leader of the Opposition, in the past five minutes, since the hon. Member for Suffolk, South (Mr. Yeo) has been on 791 his feet, all that I have heard has been an exposure of Labour policy—as he sees it—and of the TUC policy, but no reference to what is on the Order Paper.
§ Mr. Speaker
The hon. Member for Suffolk, South (Mr. Yeo) is in order. He has not been on his feet for more than five minutes and no doubt he is deploying his case.
§ Mr. Yeo
I am most grateful to you, Mr. Speaker, because that is exactly what I am trying to do. The majority of hon. Members who have spoken have referred to the exchange rate mechanism. I am merely trying to tease out of the right hon. and learned Member for Monklands, East a little more about his attitude to this important and highly relevant subject.
Once again, it seems that in 1989 the delegates at the TUC's annual conference did not have the exchange rate mechanism at the top of the agenda—
§ Mr. Smith
The hon. Gentleman is clearly in need of some education. I do not know what he reads or how he gets his information, but I advise him that I was at that TUC conference as an observer of an interesting debate on the exchange rate mechanism. The conference passed a resolution that Britain should join the ERM. That is a fact. Will the hon. Gentleman now proceed on the basis of facts rather than on these ridiculous surmises, all of which are wrong?
§ Mr. Yeo
All right, I am happy to acknowledge that there was a debate and I am grateful to the right hon. and learned Gentleman for pointing it out. I am glad for his sake that he has a source of instruction on which he can act on this crucial subject because, under pressure from my hon. Friends, the best that he could come up with on the exchange rate mechanism in our debate last October was that entry to the ERM will be effectedat the right and appropriate rate for the success for British industry."—[Official Report, 24 October 1989; Vol. 158, c. 684–85.]That piece of waffle could easily have come straight from the lips from the Leader of the Opposition.
§ Mr. Yeo
Another aspect of Labour party policy is its enthusiasm for an industrial strategy for manufacturing industry, which is another subject on which we have heard a great deal this afternoon. If that phrase means anything, it presumably means that the Labour party favours increased investment. The question that we must ask is, 792 where will that investment come from? Not from the poor old private investor, I fear, whose plight under a future Labour Government would be even worse than under previous Labour Governments. Under Labour, individual investors would find their capital gains taxed at income tax rates of up to 59 per cent.
§ Mr. Radice
The hon. Gentleman has been referring to my right hon. and learned Friend the Member for Monklands, East and to what he said about the exchange rate. I remind the hon. Gentleman that when the Chancellor appeared before the Treasury and Civil Service Select Committee, he said, on exchange rates:As to the judgment as to what is or is not a firm exchange rate, that is a matter which one has to consider as and when necessary".I repeat that that was what the Chancellor said. It is clear, is it not?
§ Mr. Yeo
The Chancellor has made his support for entry into the exchange rate mechanism under the proper conditions perfectly clear to hon. Members and to the public at large. I fully support his views. I hope that with the skilfully managed depreciation of the pound over the past three months, we have now arrived at a level for sterling that is appropriate for British entry into the exchange rate mechanism. That is my view.
The Labour party proposes that the individual investor should also lose his current modest annual exemption for capital gains, or that at the very least it would be substantially reduced. The income that individuals receive from their investments in manufacturing industry would in future be subject to an extra deduction, which would be equivalent to the deduction of national insurance contributions on earnings. Launching a double-barrelled attack on investors' income and capital gains is hardly the best way to promote investment in manufacturing industry. Indeed, there are only two possible explanations for this attack. The first is that it was launched on the advice of the TUC. The second is that the Labour party is looking forward to a return to the bad old days when men in Whitehall found how difficult it was to pick industrial winners, at great cost to the taxpayer and the country.
The final aspect of the Opposition's policy that is relevant to the debate—
§ Mr. Speaker
Order. I have been listening carefully. I have a suspicion that the hon. Gentleman's case would have been admirable last Friday, but he must now relate his remarks to the Autumn Statement and to the Opposition's amendment.
§ Mr. Yeo
I am most grateful to you, Mr. Speaker, for that guidance. Obviously, I am concerned to relate my remarks closely to the subject under debate, but since the Autumn Statement is the document that shows the balance between revenue and expenditure, any proposals to alter the revenue-raising taxation of this country are relevant to a discussion of the Autumn Statement.
It is clear that the Labour party is desperate to raise the rate of personal income tax. We understand that the top rate would be increased to 59 per cent. and that between that and the existing basic rate of 25 per cent. would be other rates, higher than 25 per cent. Many taxpayers who are currently paying a rate of 25 per cent. would pay substantially more in taxation.
Equally damaging is Labour's pledge to abolish the upper earnings limit on employees' national insurance 793 contributions. That would hit hard and indiscriminately at everyone earning £325 per week or more—a figure that is not much above the rate of average male industrial earnings, if overtime is taken into account.
Let me turn—no doubt to your relief, Mr. Speaker,—to the Autumn Statement, three features of which, unfortunately, have not received the attention that they deserve. The first and most important feature of this year's Autumn Statement is that public spending is rising in real terms. As my right hon. Friend the Chancellor said at the start of the debate, substantial extra sums of taxpayers' money are being allocated to health, transport and higher education, to name but three of the areas that are receiving additional resources. That increase in spending is wholly welcome. I am sure that there is overwhelming public support for applying a share of the nation's growing wealth to improving the quality of vital public services.
However, there is nothing new about that trend. Since the Government came to power, public spending has risen by 16 per cent. in real terms—a fact which, like so many others, contradicts the beloved Left-wing myth of Government cuts. Furthermore, while there is plenty of room for debate about how far Government decisions can affect the rate of inflation, economic growth or productivity, there can be no doubt that one aspect of the economy that is exclusively under the Government's control is the amount of public expenditure.
This year's Autumn Statement is a further confirmation of the Government's clear and deliberate intention to improve and expand public services. The second feature of the Autumn Statement is that that increase in spending is soundly financed. From time to time in the past, this country has suffered from Governments who have embarked on spending sprees paid for by borrowing. It is only a few years since the nation's debts were spiralling upwards at such a dizzy rate that the British Chancellor had to go cap in hand to the International Monetary Fund as though Britain was some third-rate, debt-ridden banana republic.
Today there is a different and happier story to tell as the whole of this year's public expenditure will be covered by revenues received from taxation. Indeed, those revenues will be sufficient to repay a substantial amount of the very debt that this Government and this generation of taxpayers inherited from their irresponsible and profligate predecessors. Repayment of debt lightens the burden on future generations so that resources that might have had to be used to pay interest become available to train more teachers, to pay more doctors and so on. That sound basis for the expansion of public services and expenditure also deserves a warm welcome.
The third, equally welcome, feature of the Autumn Statement is that it shows that the proportion of the nation's wealth being consumed by Government spending is now down to under 39 per cent.—the lowest level for more than two decades. That is one measure of the admittedly gradual progress that the Government are making to get off people's backs.
Those three central features of the Autumn Statement—more spending, soundly financed spending, and a smaller state grab of the country's production—are worth spelling out because in recent economic debates, and even today, they have tended to be overlooked. The fact that 794 that treble has been secured at a time of steady falling personal and corporate tax rates makes the achievement all the more remarkable.
In the 1970s, the economic decision-making process was one of agonising between whether we should cut spending or raise taxes. In the early 1980s, that changed to a choice between whether to increase spending or to cut taxes. Even if 1990 has to be a year without any cuts in taxation, I am confident that later in the decade we can look forward to higher spending and lower taxes. For that reason, I commend the Autumn Statement to the House.
§ 7.3 pm
§ Mr. John Garrett (Norwich, South)
I wish briefly to talk about the Autumn Statement. Therefore, I shall not be following the remarks of the hon. Member for Suffolk, South (Mr. Yeo) as for much of the time I could not understand the points that he was making. It was as though he was rehearsing an address to the Primrose League in some village hall this weekend, and trying to frighten the good ladies with tales of Socialism—red in tooth and claw—that is about to come over the horizon in his part of Suffolk.
The main point of interest in the Autumn Statement was the Government's forecast for 1990. Although every year is one of transition, clearly the Chancellor forecast a change in our economic performance for next year. Therefore, it is right that we should examine the credibility of some of those forecasts. All Chancellors are haunted by their forecasts within a few years, but I expect this Chancellor to have a nasty turn this mid-summer.
What struck me most about the public expenditure part of the Autumn Statement was the inadequate allowance for the relative price effect in the National Health Service—the tendency for Health Service costs, as a result of the high level of staff in total costs, new medical equipment, and the rising costs of drugs, to rise faster than the retail prices index. In the Select Committee on the Treasury and the Civil Service report it was pointed out that in 1988–89 cost inflation in the National Health Service was well above the RPI, at about 10 per cent. When the Chief Secretary gave evidence on that question to the Committee, he said:When you take account of income generation and cost improvements in the National Health Service, we will see an increase in patient care and quality of service".That does not seem to be much of an offer. He therefore assumed that unquantified revenues—because they cannot be quantified yet—and cost cutting, also unquantified, would come to the rescue of underfunding. I thought that to be a dubious assumption, and so did the Committee, which concluded:Because of the high inflation of Health Service costs the increases may not allow the improvement of services that the published figures imply.
In the public expenditure White Paper, which will be published in the near future, we should look for real evidence of increased output from the NHS as a result of the so-called increased inputs, which are clearly exaggerated as a result of the relative price effect. The Chief Secretary and I have been interested in improving the output figures from public expenditure programmes for a long time. They have improved, but the crucial point when this year's National Health Service programmes are presented is to show the extent to which revenues and cost cutting have made a contribution to the improvement to service. At the end of the day, we must show what the 795 outputs were, what happened to the waiting lists, the number of operations carried out and the relative costs. We want more sophisticated output indicators to test the validity of what the Chief Secretary alleges will be the increase in Health Service performance.
As I tried to point out to the Chancellor during his speech, that is not the only area where there is a differential cost. The Low Pay Unit points out that when the retail prices index rises by 7 per cent., the cost of living for pensioners, those on benefits and those earning low pay is about 10 per cent. because they have a different pattern of expenditure. Therefore, benefits that relate only to the retail prices index and not earnings—as they were under a Labour Government—continually chip away at their standard of living. The basic things that those people buy, such as housing, food and clothing, rise in price relatively quickly compared with the pattern of expenditure of the middle class.
In his economic forecast, the Chancellor modestly said that 1990 would be a less easy year. However, table 2.12 in the summary of economic prospects shows zero growth for 1990. In anywhere else in the world that would be a recession. The United States Treasury description of a recession is nil growth in two consecutive quarters. We have a forecast of virtually nil growth in four consecutive quarters.
The hon. Member for Berwick-upon-Tweed (Mr. Beith) and my hon. Friend the Member for Durham, North (Mr. Radice) pointed out that we have the phenomenon of a dramatic fall in inflation in three years' time. That is like pursuing the Holy Grail or the Hound of the Baskervilles across the Grimpen Mire—it is always slightly out of reach. For the past six years the Government's medium-term forecasts have each forecast inflation at 3 per cent. in three years' time. The outturn has usually been 7 per cent. or more. As those forecasts have never been achieved, I am not sure why the Government bother to make them. In 1985, the forecast for 1988 was 3 per cent., but the result was 7 per cent. In 1986, the forecast for 1989 was 3 per cent., but it was 7 per cent. This year's Autumn Statement leads us to believe that inflation will fall from 7.7 per cent. in 1989 to 5.5 per cent. in 1990 and to the magic figure of 3 per cent. in 1991.
In December 1989, inflation was 7.7 per cent.—the highest figure since 1982. That was characterised by what the CBI called a series of inflationary own goals. The CBI quoted as inflationary "own goals" the poll tax, the business rate, the level of income tax and the continuing forcing up of utility prices—above all, gas, electricity and telecommunication prices, in order to stuff those companies for privatisation and enable them to make a return to their shareholders.
As the Treasury and Civil Service Committee said,repetition in the face of failure has not added credibility to this forecast.That, I think, is a very modest all-party way of putting total disbelief in this chimera of the 3 per cent. inflation rate which is continually vanishing over the horizon.
We also have a forecast of a dramatic improvement in the balance of payments deficit from over £20 billion—I think the outturn was getting on for £22 billion in 1989—to £15 billion in 1990. Presumably this is a result of nil growth. If there is nil growth in the economy, imports are that much less and therefore the balance of payments deficit improves, but it is a tough way of improving the balance of payments deficit for those on low pay. Even at 796 this level, it is still 2.75 per cent. of GDP, which will be the largest relative balance of payments deficit in the Western world.
We have had a running dispute during these years of mounting trade deficits as to whether it matters. It used to matter a great deal. Then, when balance of payments deficits began to get into double figures in billions every year, Government spokespersons said that it did not matter anyway as it was funded by capital inflows, and it would be all right on the night.
I liked some of the remarks of the chief economic adviser to the Treasury on this matter. He said—modestly, I thought—that no one is ever comfortable with a deficit this size. He said that under pressure, I am told. He also said that, given a choice between this deficit and a smaller one, he would choose a smaller one. I found that very reassuring from somebody paid to advise the Chancellor on economic policy. He then said that he expected the deficit to be self-correcting. He is no doubt right, in that deficits of this order are unsustainable in the long term, but the question is with what kind of cataclysm it will correct itself. We have dropped the term "soft landing" nowadays, I understand. We simply hope that—
§ Mr. Garrett
As my hon. Friend says, we simply hope that we shall make land.
One of the advisers to the Treasury Committee has said that if it proves self-correctingit may only be because the private sector eventually reacts very abruptly—leading to a recession as companies slash investment, employment and stocks.The truth of the matter is that investment is falling and certainly industry is rapidly destocking at the moment. So some would say that the recession is well under way already. There was an increase in business failures of 10 per cent. in 1989, and the regional figures are quite interesting: an increase of 17 per cent. in the south-east, 18 per cent. in the DTI's east region and 22 per cent. in the east midlands. What this tells me is that all those new and under-capitalised companies that have sprung up in the enterprise society in the relatively prosperous regions have been hit by interest rates and have gone out of business; and, of course, shortly they will be hit by the unified business rate. In those regions, the increase in that rate will be exceptionally high, as we know.
In Norwich, a 160-year-old clothing company, the last remnant of our clothing industry in the city of Norwich, has recently gone out of business, making 450 people redundant—people whose skills are not easy to utilise nowadays in that city. The owners actually quoted high interest rates as the reason for their going out of business.
§ Mr. Roger King
The hon. Gentleman has mentioned that businesses have failed and he has laid the blame on high interest rates. Clearly he has never run a small business, because a business can fail for a vatiety of reasons—the wrong product, the wrong quality, the wrong many things. So he cannot say specifically that interest rates have caused the problem. He also commented on the situation in Norwich, where, as I understand it, there is almost full employment and companies such as Norwich Union are taking people from the schools into their business because they are so short of staff. While it is a tragedy for any business to close, manufacturing and the commercial sector constantly regenerate themselves.
§ Mr. Garrett
I have run several small businesses, and quite successfully. I was saying that the reason for the collapse of that particular business was given by its owners as high interest rates. I did not pick that out of the air; it was what the employees were told, and those employees are now redundant. Of course, small companies go out of business for a variety of reasons. I suppose that bad management is the usual one. But what we are discussing now is the high level of interest rates in relatively small under-capitalised companies which have embarked on business with a relatively high level of debt, as many such businesses do, as the hon. Gentleman should know.
Since I first represented it the city of Norwich has been transformed from a manufacturing city to one which is largely based on financial services and retailing. I am not saying that there is anything specifically wrong with that, but it gives a very unbalanced local labour market if people with manufacturing skills cannot find jobs, as in the case of the machinists from the clothing company I cited. We want a balanced economy in the city I represent, just as we want it in this country. The loss of our footwear industry and of much of our electrical, manufacturing and engineering industry has been disastrous. It is true that Norwich Union is offering school leavers jobs, and that is all to the good, but it leads to an unbalanced local labour market and economy.
In the area I represent we see failures and redundancies spreading, as they usually do at the beginning of a recession, throughout the building and double-glazing industries and, lately, in retailing, as interest rates bite harder and the property market dries up. So we are getting into, first, low growth, then no growth and then recession.
I do not see any vision in this Autumn Statement, any looking ahead of the kind referred to by my right hon. and learned Friend the Member for Monklands, East (Mr. Smith). We do not see any long-term strategy, and it seems to me to be the duty of a Government to produce a long-term strategy for those things that only the Government can deal with—research and development, education and training, communications infrastructure and transport. For example, the share investment in GDP in Britain is below the EEC average, at 18 per cent. compared with 20 per cent., and it is falling further. The share of manufacturing investment in GDP has fallen by a quarter in the past decade. Our expenditure on research and development per employed person is well below EEC levels, and Government expenditure on civil research and development is also lower. We have seen the closure of a number of very important sources of civil research and development in this country—in the food industry, for example—in recent months.
In the last decade expenditure on education and science as a percentage of GDP has fallen and we are a poorly educated and trained nation compared with our competitors. We have half the number of 16 to 18-year-olds in full-time education and training—35 per cent.—that there are in France and Japan. We have half the number of school leavers reaching university entrance level that are doing so in France and Germany. There is a whole series of studies by the National Institute of Economic and Social Research which shows the damage done to our industry by the lack of training of shop floor workers and supervisors; and of course the Government have announced further cuts in education and training for 1991–92. It always surprises me that the Conservative 798 party seems to think of education and training as some kind of burden on the economy rather than as an investment which provides the wealth of the future.
When I went to school we had textbooks. At the schools my children have gone to they have work sheets, which are substitutes for textbooks, simply run off by the teacher and handed round the class. They do not have books. That is the result of progressive cuts in education. About 29 per cent.of our schools need major refurbishment because they are not up to the physical standards required.
The Autumn Statement is really a statement of hope that we are not yet tipping over into recession, whereas the Government's figures show that we are well into one. They admit their mistakes of last year when tax cuts fuelled an import boom, but simply hope that interest rates will choke off demand when it looks as if the adjustment is already leading to rising numbers of bankruptcies and mortgage foreclosures. The Government are not laying the foundation in investment, research and development, education, training, transport and communications that we need if we are to be competitive in 1992 and the following years.
§ Mr. John Townend (Bridlington)
Listening to the hon. Member for Norwich, South (Mr. Garrett) makes me believe that the Government are achieving a better balance in the economy. East Anglia has been a prosperous part of the country and has boomed. I come from the north, where we have suffered restructuring and many problems, yet there are no signs of recession there.
The city of Hull, which borders my constituency—some of the eastern suburbs are in my area—is booming in a way that it has not boomed for 25 years. Enormous development is taking place there, not only in retail and leisure but in manufacturing, and since the ending of the national dock labour scheme the port is beginning to take off. The container terminal that was left idle is once more working and an extra 1 million tonnes of goods will be going through the port next year.
I always listen with interest and respect to the hon. Member for Durham, North (Mr. Radice) when he addresses the Treasury and Civil Service Select Committee. He speaks with the erudition and moderation that one would expect of a Wykehamist, so when my hon. Friend the Member for Richmond and Barnes (Mr. Hanley) asked him to say what changes in economic policy the Labour party would make, I waited for the answer with bated breath. It appeared that his only change of policy would be to join the ERM now. I found that intriguing because his right hon. and learned Friend the Member for Monklands, East (Mr. Smith), the shadow Chancellor, has always been careful not to say that. He will join it only when the time is right.
§ Mr. John Smith
I would not wish to claim credit for having a policy which said I would join when the time was right. The hon. Gentleman has it wrong because that is the Government line. I have explained that we would join on the basis of the four conditions that I set out fully in our debate on the subject. I am concerned for the hon. Gentleman's political good health. He should sort out the difference between the Government and the Opposition because that is basic to our debates.
§ Mr. Townend
I am past the time when I need bother about my political good health, as the right hon. and learned Gentleman may appreciate as my speech proceeds.
This year's Autumn Statement shows how successful the Government have been in controlling public expenditure since 1985–86. Table 1.1 shows that expenditure in 1985–86, at 1988–89 prices, was £188.7 billion and that in the current year, at constant prices, it is below that. In the same period, the percentage of GDP going on public expenditure fell from 45.3 to 38.3 per cent.
That has been a remarkable achievement. It is the lowest level of Government spending since Lord Wilson of Rievaulx was in office in 1967. The Government are to be congratulated on that magnificent achievement, and particularly the Chancellor for his work when he was Chief Secretary to the Treasury.
I detect, if not a change in policy, a slight easing of Treasury control. That worries me, for the Government are proposing a real increase in spending next year in general Government expenditure of £4.3 billion, and £3.8 billion in the following year. The GDP percentage is set to rise for the first time since 1984–85 by 0.25 per cent., and in the following year it is projected to fall by only 0.25 per cent.
Those figures disguise the true increase in departmental spending. As table 1.12 shows, the real increase next year is £8.7 billion, excluding privatisation, and the figure is that high because of the reduction in debt interest. That is worrying because there is always pressure on the Treasury from the spending Departments and I get the feeling that that pressure is beginning to have some success. That is dangerous for the Government because for every extra £1 billion expenditure, there is less opportunity for a £1 billion reduction in the tax burden on industry and business or the individual.
Expenditure in the current year on the EEC has doubled, from £1 billion to £2 billion. However, many people in this country would take the view that the benefit to the United Kingdom from the Common Market has doubled in the last year.
Overseas aid has increased to £1.7 billion. That expenditure contributes directly to our balance of payments deficit. Without doubt, whatever one's feelings—one has a feeling of compassion for many of the countries involved—much of that aid is wasted by incompetent, Left-wing Governments who are inefficient and are causing much of their nation's poverty. In many cases, they have been trying in vain to implement Socialist-Marxist policies, copying eastern Europe, when such policies are now clearly seen to have failed and are being rejected.
Expenditure on the arts has gone up to almost £0.5 billion. I am not opposed to expenditure on the arts, but I am worried by the fact that a high percentage of it is spent in the south-east of England and benefits upper-middle class yuppies. Little of it is spent in the north of England to benefit my constituents. We need a change of emphasis in that expenditure.
Opposition Members will welcome the fact that spending on social security is going up by £2 billion, over 10 per cent. I am surprised that the increase is so high because, with the consistent reduction in unemployment month on month, one would have thought that there would have been some saving.
The cost to the nation of broken marriages and one-parent families is increasing annually, so I welcome 800 the Government statement that greater efforts will be made to make fathers accept their responsibility for children in families whom they have deserted. I hope that they will be pursued relentlessly. That should result in future savings to the Treasury.
Expenditure in Scotland, Ireland and Wales is raised automatically in line with the so-called Barnett formula. Whereas other spending Ministers must justify their budgets to the Treasury, the Secretaries of State for those three countries get their cash automatically. That does not seem fair on the other Secretaries of State or on the English.
The Barnett formula was fixed in 1978 and was based principally on population. Since 1978, the population of Scotland has fallen whereas the population of England has risen. The last year for which I have been able to obtain figures is 1987–88, but for identifiable expenditure per head of the population the figure in that year was £2,676 for Scotland and only £2,063 for England, a difference of more than 25 per cent. That is unfair on the English and especially unfair on the northern English, who have all the problems of Scotland and are, in many ways, less affluent and so need more public expenditure.
I have heard it said that we spend more per head on health in Scotland because the Scots suffer from poorer health. It is right and proper to ask why that should be so. If it is because they spend a lower proportion of their income on housing and a higher proportion on alcohol and tobacco than the English do, we have a right to ask why the English should have to finance the excesses of the Scots. Similarly, is it right that expenditure per pupil should be higher in secondary schools in Scotland than in England? Without doubt, people in England are beginning to feel increasingly dissatisfied with the Barnett formula. They think that it should be scrapped and that there should be equity between the three kingdoms of the Union.
My right hon. Friend the Chancellor said that any increase in public expenditure should go principally to improving services, such as health and education, and not to excessive wage claims. One problem in our economy is that we still have a tendency to increase pay faster than do our competitors. The latest figures show that, despite increases in productivity, our unit labour costs are now rising faster than those of our European competitors. If that continues, it will undermine our competitive position and it will take us longer to reduce our balance of payments deficit to an acceptable level.
It is no good the Government exhorting the private sector to keep settlements down. Exhortation never works. When I hear the Goverment making such exhortations, I believe that it is the first step to an incomes policy, and we all know that that never works. The Government should refrain from interfering in private sector wage negotiations, but should make it clear that they will not let the pound fall to accommodate excessive wage increases. There is no doubt that the fall in the value of the pound before Christmas enabled many of our manufacturers to accommodate higher wage increases than would otherwise have been the case.
The Government should also make it clear that the higher the wage increases, the longer it will be necessary to keep interest rates high. They can set an example in the public sector, where they are the employer—[Interruption.]
§ Madam Deputy Speaker (Miss Betty Boothroyd)
Order. The House is an institution which should show great tolerance. I will not allow running commentaries from sedentary positions when an hon. Member is trying to express himself.
§ Mr. Townend
Regrettably, after 10 years in government, pay bargaining in the public sector is still in a bit of a shambles. There has been little reform and the Government have failed to play their part in bringing about a more flexible labour market, which is necessary if our economy is to compete on equal terms with our major competitors, who have market economies. Much of our public sector is still highly unionised, restrictive practices are still rife and pay bargaining is carried out nationally. Local productivity deals are virtually impossible in many areas. National settlements do not take account of the great regional differences in the labour markets. In the past, only a small proportion of public sector wage increases have been paid for by increases in productivity, unlike the position in the private sector.
We made a serious mistake last summer when we encouraged British Rail to go for regional pay bargaining and then, when the workers went on strike and the commuters were caught in traffic jams, gave the nod for British Rail to give an 8.5 per cent. inflationary settlement. I am convinced that that settlement played a significant part in the ambulance workers' dispute. In addition, had the Government scrapped central pay bargaining, we should not have an ambulance workers' dispute because pay and productivity would be negotiated piecemeal by local managers.
The balance of payments deficit is another problem that the Government face. We should examine the problem in a little more detail than the Opposition do. The biggest element is the deficit of about £6 billion in motor vehicles. Our motor industry was devastated, not by high interest rates or Government policy, but by the activities of militant trade unions, which were out of control. Restrictive practices, over-manning, and a refusal to accept new technology meant that the British public and our friends abroad stopped buying British cars. We did not produce cars of the right quality, at the right price and when they were wanted. There were cases in which, as a result of union pressure, there was no proper quality checking and quality controllers were told that they should reject only so many cars per shift. Cars went out although they had not been checked properly, so the public found that they were not reliable and bought foreign cars. There were also inter-union disputes in which the unions destroyed themselves.
Today, the British motor car industry is rising like a phoenix from the ashes although, regrettably, that is not because of Ford or British Leyland, but because of the Japanese investment which has been encouraged by the atmosphere that has been brought about by the Government. Nissan will increase production to 400,000 units a year, Toyota will produce 200,000 cars a year and Honda will produce 200,000 a year. With Datsun, the Japanese will reconquer our home market and use this country as a launch pad for Europe—and we all know that the EC is petrified of Japanese industry in Europe. All this will take time, as my hon. Friend the Member for Croydon, South (Sir W. Clark) said. I am convinced that over the next four or five years it will have an important impact in reducing the deficit.
802 I support my right hon. Friend the Chancellor in his main aim of bringing down inflation. I have every confidence in him. When inflation is brought down to 3 per cent. and when we are able to use the surplus that we have built up by our own good housekeeping by giving it back to the British people, to whom it belongs, that will be the launch pad for another election victory.
§ Mr. Graham Allen (Nottingham, North)
I am sorry that the Chancellor of the Exchequer is not in his place at the moment and I am also sorry for the Chancellor. He seems to be having an unfortunate baptism, in view of the way he entered the job and the state of the shop left for him by the right hon. Member for Blaby (Mr. Lawson). The Chancellor told the Treasury and Civil Service Select Committee that running the economy was rather like being on a surfboard in high seas. Once again, one must feel sorry for a person who has crashed on to the rocks in consecutive economic indicators and who lies gasping on the beach only to find that when my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) comes along, he kicks sand in his face. That is heaping indignity upon indignity and perhaps my right hon. and learned Friend should be a little more sympathetic in future when dealing with the Chancellor. He needs all the assistance that he can get, having been left by the previous Chancellor, as is now evident, with the debris to clear up.
There were many rumours and explanations about why the former Chancellor left as he did, but it is clear that he, unlike anybody else, had access to all the background documents and papers for the forecasts for this coming year and the year after. He decided to get out while he could still get the directorships that are being bandied about in the Sunday papers, and a decent contract for his memoirs; and he left his former deputy to clear up the mess. One cannot but feel sympathy for a man who, after all, is very reasonable and nice—prone to certain lapses in judgment, such as supporting Chelsea football club, but by and large quite an honourable person. He has been given a task that he will find very difficult to perform.
One of the harder aspects of the job is that the Chancellor will not be allowed to get on with it, to formulate his own ideas and use his own initiative to carve a way forward. Just when he thinks that it is safe to go back into the water on his surfboard, the phone will ring, and it will be No. 10. Every time he moves vaguely forward on something like the exchange rate mechanism there will be someone on the Front Bench coughing gently at his side.
When the Chancellor looks at the implications of higher wage settlements for inflation, he cannot buck the market. We need to ensure that people are paid at the rate necessary to make enterprises work. When he moves away, as he has, from out-and-out monetarism he finds that there is a gentle reminder—perhaps not Sir Alan Walters but certainly a gentle reminder—that monetary indicators continue to exercise a profound influence.
Some of the ancient pharisees of the Conservative party—the hon. Member for Horsham (Sir P. Hordern) and the right hon. Member for Worthing (Mr. Higgins)—have contributed to the debate. Rather like guarding the gospels, they referred to those ancient times of M4 and, when that did not work or was inappropriate, M3. Now we are on MO—that is apparently the fashionable one. if 803 in doubt, get the "M" correct and that will justify one's monetary stance. The Chancellor does not believe that, and his beachboys on the Front Bench do not believe that. Unfortunately, soon he will be told that, whether he believes it or not, that is the way things must go.
The same argument could apply to public investment. There was a lot of rhetoric about the importance of public investment in the interview that the Chancellor gave to the Financial Times. The reality is slightly different: No. 10 believes that, wherever possible, private investment should take the place of public. In my area that dogma is highly destructive. The east midlands as a whole and Nottingham in particular will suffer because we are not in British Rail's plan for a link through London to the Channel tunnel.
Perhaps under a Labour Government such investment will be forthcoming. Everyone in my region realises that it is essential. It will not come through the private sector but only through the public, and it is folly to imagine that we should have only private investment when all our major continental and G7 competitors are pouring money into the infrastructure and the railway network. In France, for example, every last chicken shack appears to be on an electrified line; in Germany two brand-new north-south routes are being built; in Spain they are ripping up the gauge completely and replacing it. Yet we say in this cheese-paring manner that we are not prepared to invest £95 million to electrify the line to connect our region with the Channel tunnel. That is madness when the CBI, the TUC, chambers of commerce and members of all political parties in my region are united in believing that, for such a small sum, there could be a tremendous economic pay-off in the long run.
§ Mr. Hanley
Does not the hon. Gentleman welcome the relocation of the Civil Service? Up to 4,000 civil servants will move to Nottingham in the near future. Is that not a large public investment?
§ Mr. Allen
I thank the hon. Member for Richmond and Barnes (Mr. Hanley) for his intervention. I welcome those jobs coming to Nottingham and I hope that they will be encouraged. I hope, too, that public sector bodies will co-operate and that the Government and the Minister for the Civil Service will make sure that there is no long and protracted struggle, but that British Rail, the land-owners and the unit concerned, the Inland Revenue, will talk together so that members of all parties are not forced to exert pressure to achieve that welcome move.
§ Mr. Rhodri Morgan (Cardiff, West)
Will my hon. Friend confirm that when the present Government came to office in 1979 one of the first things they did was to scrap Government dispersal from London? Eight years later, they did a massive U-turn and decided, in view of labour market pressures in the south-east, that it would be a good idea to disperse Civil Service jobs to the regions, and they decided to resuscitate the programme undertaken by the previous Labour Government under which various jobs were sent to the regions.
§ Mr. Allen
I accept my hon. Friend's point. His work on relocation and in trying to get a proper distribution of jobs is well known. I am a little more magnanimous than he; if the Government are beginning to realise the efficacy of relocation, they may start to drop some of the rhetoric in other areas and operate a more realistic economic industrial and relocation policy.
804 We must support the Chancellor in his undoubted battles with No. 10 as he begins to creep back towards what is almost a neo-Keynesian position, if we read between the lines. On the public investment side, such moves are to be welcomed for their beneficial effects for all our constituents. Relocation is one of the things mentioned in a budget that I had the privilege of putting together for Nottingham; we are making a budget submission, and relocation is one of the things that we emphasise strongly. I hope that my hon. Friends on the Front Bench will make sure that their alternative Budget strikes a chord with the public and is not formulated purely on an arid fiscal basis. There are areas where we can seize the initiative, and even if the Government choose to accept those initiatives they are things that we would commend.
I think particularly of the reference by the hon. Member for Croydon, South (Sir W. Clark), although expressed in grudging terms, to child care and workplace nurseries. Demographic, if not moral and social, reasons for getting women back to work underline the need for the Chancellor to make considerable progress in encouraging child care and workplace nurseries that are beneficial to employers, to the parents concerned and to the children. That is one area where the Government can win some political kudos as well as doing the right thing, and I hope that we would welcome it.
Progress could also be made in giving a green tinge to the Budget. I welcome what the right hon. Member for Blaby (Mr. Lawson) did on lead-free petrol, and I hope that the success of that experiment will lead to other ventures, notably tax incentives on energy conservation, and additional incentives to ensure, for example, that coal-fired power stations are brought into a comprehensive scheme to reduce acid rain. One area that might be somewhat controversial would be to reconsider the abolition of the road fund licence and the collecting of revenue through the duty on fuel. This and other matters would benefit from further consideration and they might attract greater cross-party support than some of the more strident views that Opposition Members need to put forward and win on industrial policy.
The more I visit people and places in my constituency, the more I share the view of many hon. Members that there is a developing consensus—what I call a "manufacturing alliance". Very recently in the east midlands the CBI published a document containing five or six major areas of economic and industrial thought on education, training, land availability, infrastructure, transport and encouraging manufacturing investment, any of which could have been written by my hon. Friends on the Front Bench in an alternative Budget. That consensus extends across almost all Opposition parties. It certainly extends through the CBI, the TUC, chambers of commerce and other bodies. There is room for measures acceptable to a large percentage of the electorate. I hope that the Chancellor will accept that there would be great support for him in the no doubt private but none the less serious battles that he will have in asserting his independence from No. 10 Downing street.
The main starting point of the budget produced for Nottingham is education and training. It is a cliché worth repeating that our future is invested in young people. Unless they have adequate training and education, all our future economic and industrial strategies are worthless. A number of initiatives could be taken, but above all we need 805 the political will to invest money in education and training. If the will is there, ways will be found to ensure that all 16 to 18-year-olds who want to stay at school or take further training can do so, so that we may have the same standards of training as our major competitors. That is not an over-ambitious aspiration. All that we ask is that we are as capable of delivering economically as our key competitors.
Another point that should be mentioned is the incentives that are necessary for manufacturing industry. Recently all hon. Members received a briefing from the CBI which sets out three key proposals. We may disagree with the percentages of capital allowances or whether there should be a return to the indexation of allowances, but there is room for progress in building an engine of investment for the economic revival that we need.
Not only do we conduct less research and development than our main competitors, but the emphasis is on defence rather than civilian activities. Without making the macro-political point about the future of the nation and its defences, may I point out that no other nation twists its research and development expenditure as we do. Sir Trevor Holdsworth, in his address to the CBI annual conference, said that some of that expenditure should be redirected. It is recognised nationally that current policy perverts the effort that we are trying to put into longer term investment. Once again, the Chancellor might address that matter in his Budget statement.
One item that the Chancellor will not address and with which we shall have to deal when we come to power is the flow of capital and money across the computer screens of the world. We will address it as a nation state. The United States, Japan and countries in the rest of Europe are also prey to major fluctuations of capital in the world. Whatever economic strategies may be agreed in the European Community, globally or nationally, they can be washed away by major capital flows. It is not an easy question and I do not pretend that there are easy answers. Perhaps one way to provide the answers is to co-operate with other nation states and discuss how we can affect the speed of the flows and their volume. Whether that means building on the institutional arrangements that we already have or whether we need to start looking at other transglobal institutions is a matter that needs more thought than I can give it here.
§ Mr. Morgan
Does my hon. Friend agree that the truly appalling measure of the country's current economic uncompetitiveness is the figure produced by the National Institute of Economic and Social Research in the past few weeks in its study of the size of our current account deficit, plus the non-bank capital inflows required to finance that debt, plus the net capital outflows for long-term investment abroad, which now amount to 9.8 per cent. of our gross national product?
§ Mr. Allen
My hon. Friend makes a pertinent point. I join him in pressing Labour Front Bench spokesmen to use some of their valuable time to put the message over clearly and simply, although not on a partisan or party political basis because it affects all parties and all national economies. There is room for international co-operation.
There is more to be said, particularly on whether we should return to a non-allowance personal tax structure, where income tax could be reduced dramatically and 806 certain benefits increased dramatically, so eliminating the poverty trap. My right hon. and hon. Friends need to put together a comprehensive package which the electorate will understand. In the meantime, there will be another year or two years of this Government. I hope that my right hon. and hon. Friends will do everything possible to ensure that the battle, assuming that the Chancellor is the person we think he is, is fought hard. I hope that he, rather than the occupant of No. 10, will be victorious.
§ Mr. John Watts (Slough)
A considerable part of the debate has been concerned with inflation. That is not surprising as it is our principal economic problem. My right hon. Friend the Chancellor placed considerable emphasis on the need to continue to bear down on inflation. The right hon. and learned Member for Monklands, East (Mr. Smith) told us that inflation had not been vanquished, but my right hon. Friend the Member for Worthing (Mr. Higgins) went on to enlighten him that inflation could not be defeated once and for all but required continuing and constant vigilance.
Several Opposition Members have referred to that part of the Committee's report in which we draw attention to the way in which, in succeeding Autumn Statements from 1984, the target for inflation has always been 3 per cent. in the third year. The hon. Member for Norwich, South (Mr. Garrett) was a little ungenerous in suggesting that the target had never been met. It was met in 1986, but only in that year. If the 3 per cent. target three years out in this year's Autumn Statement is to have any chance of achievement and, if having been achieved, that control of inflation is to be sustained for longer than in the past, we must seek to identify the causes of current inflation.
My right hon. Friend the Member for Worthing recommended that we should adopt a pragmatic approach rather than seeking to be purists of either the monetarist or the Keynesian school. I agree with him. I do not believe that the economy behaves precisely in the same way as any economic theory suggests it should, or that the real economy responds in the way of an economic model. I think that our current problems are primarily monetary.
My right hon. Friend the Member for Blaby (Mr. Lawson), the then Chancellor of the Exchequer, in giving evidence to the Treasury and Civil Service Committee about the Autumn Statement of 1989, acknowledged that monetary policy had been too lax during the summer of 1988. In paragraph 54 we report that the then Chancellor said:we relaxed monetary policy…at precisely the moment that we should have made it a little more severe".I make no criticism of the relaxation of monetary policy which took place in the aftermath of the stock exchange crash of 1987. That policy was pursued by monetary authorities around the world. It is possible to say with hindsight that perhaps that injection of liquidity was unnecessary because we now know that no disaster occurred. However, had the authorities not made it clear that they were prepared to make liquidity available to prevent the collapse of any of the great financial houses, we might have had more trouble in the economy than actually occurred.
Therefore, I make no criticism of that policy decision which was pursued in this country, as in all the other major financial centres. The error was to continue the lax monetary policy after the 1988 Budget, by which time it 807 was becoming perfectly clear that no damage had been sustained in the economy as a consequence of the stock exchange collapse in October 1987.
The Treasury Committee's report contains a paragraph which could have explained this event most eloquently, but alas it was one of the paragraphs which did not gain support of a majority of the Committee members. However, its message is important. In that missing link to the argument we said that:in early 1988, the previous Chancellor forced interest rates down to curb the upward pressures on sterling. Interest rates were thus falling when they should have gone up. In our view, a great deal of the policy error over this two-year period can be attributed to the excessive weight placed on tacit exchange rate targeting. The result was that too little attention was paid to the inflation warning signalled by the extent of domestic credit and growth of the broader monetary aggregates. This error has clear implications for the future conduct of policy.The major error in policy which exacerbated the inflationary pressures already there as a result of lax monetary policy was the decision that we should behave as though we were members of the exchange rate mechanism even though we were not. It seems that my right hon. Friend the Member for Blaby had in mind a parity of three deutschmarks to the pound. Through the summer of 1988 he strove to prevent sterling from rising above that parity. In that attempt, interest rates went down to a low point of 7.5 per cent.
The attempt failed because the reaction of the market is often perverse and the sight of the Chancellor confident in his ability to refuse interest rates produced greater confidence in the value of sterling. While policy was trying to reduce parity with the deutschmark, sentiment was driving it up. That period of continuing reductions in interest rates stimulated an extra £40 billion worth of borrowing. That £40 billion borrowed in the credit expansion makes the £4 billion of tax remissions in the 1988 Budget pale into insignificance.
We have heard reiterated today the argument that the tax reductions in the Budget fuelled a great consumer spending spree which led to our inflationary and balance of payments problems. Not a bit of it. The £4 billion worth of injected demand did not have those undesirable effects, but the 7.5 per cent. interest rate and the extra £40 billion worth of credit did. The experience of those inglorious summer months of 1988 should serve as a warning to all those who are enthusiastic for our early membership of the exchange rate mechanism of the European monetary system.
The claimed benefits of full membership that have been reiterated today are stable exchange rates and lower inflation, coupled with lower interest rates. I am sure that when the Confederation of British Industry and other business representatives urge upon us membership of the ERM, and when the TUC urges that policy—as one of my hon. Friends said earlier—they are looking for stability in exchange rates. They are certainly hoping for lower inflation and interest rates, but early membership does not act as a panacea. It is not an instant solution to current inflation problems, as the hon. Members for Berwick-upon-Tweed (Mr. Beith) and for Durham, North (Mr. Radice) suggested earlier.
There is a failure to recognise that the exchange rate mechanism with sterling in it would be a different animal from the exchange rate mechanism as it is at present. As it exists today, ERM is basically a deutschmark area. The deutschmark is the only heavy currency in the system and 808 the only one traded internationally to any significant extent. All the other member currencies are pegged to the value of the deutschmark and, therefore, the system can confer some stability in parities. The outcome would be very different if there were, within the system, two currencies, both of which were traded internationally to a significant extent, as are the deutschmark and the pound sterling today.
Therefore, there would not be the same stability in parities between the European currencies and externally if sterling were in the system, as exists now while sterling remains out of it. Whatever we within the European Community might decide should be the parity between the pound and the deutschmark, if it appeared to be out of line with underlying realities as perceived by the market and because people trade dollars and yen for deutschmark and pound, the pressures would build up from that international trading and we would be unable to hold a parity which had been agreed in the European Council of Finance Ministers.
Let us suppose that we had joined the exchange rate mechanism during 1988, perhaps during the summer when the former Chancellor was trying to hold down sterling. There would still be the same inflationary pressures within the British economy because we would already have had that period of fairly lax control of money supply. As market sentiment sought to push up the value of the pound, we would have had to make the same policy response as my right hon. Friend the Member for Blaby did when he shadowed the deutschmark—reduce interest rates in an attempt to cap the rise in the value of the pound sterling.
There is no reason to suppose that if we had been in the system the effect on the British economy of reducing interest rates to a low point of 7.5 per cent. would have been any different from the effects that we can assess now, looking back with the benefit of hindsight. At other times, the pound would come under downward pressure, as it has during recent months. With a commitment to a fixed parity we would have no option but to raise interest rates to try to maintain that parity.
Since he took office, my right hon. Friend the Chancellor of the Exchequer has successfully steered us through some fairly rough seas, as he described his attempt to manage the economy. He guided us through periods when the pound was under pressure but without increasing interest rates above 15 per cent. Had Britain been firmly committed to a fixed parity, my right hon. Friend would have been unable to steer us through those rough seas. In recent weeks, the pound has recovered and is now up to 88.1 or 88.2 on the trade weighted index. That has been achieved without interest rates being increased to 15 or 16 per cent., or even to 17 per cent.
Maintaining a fixed parity would take precedence over every other aspect of monetary policy, and my right hon. Friend the Chancellor would not have the flexibility that he has now. He was right to resist a further increase in interest rates, because they are high enough to curb the growth of money supply and to exert the downward pressure on inflation. Any further tightening could lead to an over-tight policy, which would enhance the fears of recession that have been voiced today, mostly by Opposition Members. We have a tight monetary policy that is set by reference to monetary conditions in the British economy and not by reference so much to the pound's external parity, which is how it should be.
809 My right hon. Friend the Chancellor put his finger on the problem of managing the economy with low interest rates when he referred to the psychology of inflation. I understand him to mean that too many people will still have vivid memories of inflation running at 20 per cent. or higher. I believe that inflation of 26.9 per cent. was the pinnacle achieved by the last Labour Government.
§ Dr. John Marek (Wrexham)
Although I do not agree with every point that the hon. Gentleman makes, he has presented a number of sensible arguments—but his speech is now becoming very partisan. Perhaps he will remind the House of the highest rate of inflation reached under the present Administration.
§ Mr. Watts
The figure quoted earlier, if it was correct, suggested that the highest inflation seen under the present Government was 21 per cent. That was the consequence of the inflationary pressures that built up in 1978–79, during the death throes of the last Labour Government. In the same way, we are now experiencing the effects of the inflationary pressures that built up in late 1987 and 1988.
§ The Economic Secretary to the Treasury (Mr. Richard Ryder)
It may be helpful to my hon. Friend to be reminded that the average inflation under the last Labour Government was 15½ per cent., compared with 7½ per cent. today. What was good enough for Labour—inflation of 15½ per cent.—is not good enough for us.
§ Mr. Watts
My hon. Friend reinforces my point about the national psychology of inflation. Because inflation of 15, 20 or 25 per cent. might at one time have seemed normal for our economy, when it falls to 4 or 5 per cent., most people stop worrying about it.
The same is true of the price of money. Because we have long been accustomed to high interest rates as a consequence of high inflation—over the past decade, interest rates have on average been on the wrong side of 11 per cent.—we are not yet attuned to running our economy at an interest rate of 7½ per cent., as we did in June 1988. Until business men and the man or woman in the street are worried about inflation of only 4 per cent. or even 3 per cent., the Government will not be able to conduct the economy on an even keel when interest rates are much below 10 per cent. That psychology must change before there can be low interest rates consistent with lower inflation.
My right hon. Friend the Chancellor is right to set interest rates that meet the requirements of domestic monetary policy. If that policy is set tightly enough to bear down on inflation, there will be no need to worry about the parity of sterling. If holders of sterling are confident that it provides a stable store of value, there will be less speculative pressure on the pound. Of course there will be short-term pressures, but not long-term pressures of the kind seen when inflationary expectations are high.
If a choice must be made between using interest rates to control money supply or using them to fix the exchange rate, I have no doubt that they should be set by reference to the needs of money supply. If economic policy moves in the right direction, there will be no conflict between tight control of money supply and maintaining a firm exchange rate.
810 If I have any advice for my right hon. and hon. Friends on the Treasury Bench, it is to progress slowly towards full membership of the European monetary system. The exchange rate mechanism is not the anti-inflationary panacea that its enthusiasts choose to believe it is, and we should not contemplate the major step in economic policy that adoption of the ERM represents merely to establish our European credentials, whether for the benefit of Members of the European Parliament or for our partners in the Community. In the months ahead, and in preparing his first Budget, the most important task for my right hon. Friend the Chancellor of the Exchequer is to control money supply so that inflation is not accommodated.
§ Mr. Ronnie Campbell (Blyth Valley)
A measure of hypocrisy has been evident in tonight's debate, especially in the speeches of Conservative Members. Many of them argued that the public sector wages bill should be kept down, whereas their own wage increases will be reflected in their bank balances next week. Government Members also work in the public sector and are enjoying wage increases of 10 per cent. or more. Others are entitled to ask for the same 10 per cent. that we are receiving.
Now that the Government have made a right mess of the economy, all of a sudden they want to blame the workers—miners, dockers, car workers and ambulance staff. They are the people who are, according to Conservative Members, to blame for all the mess by asking for big pay rises. There should be less hypocrisy and more honesty on the Tory Benches.
Some of the richest people in the country were awarded overnight tax cuts of as much as £5,000 per year under the former Chancellor's penultimate Budget. Those tax cuts were totally imposed. Right hon. and hon. Members may recall Budget day in 1988, when the sitting was suspended for 15 minutes because of the response to the news that the Chancellor had spent that much money on the rich. No fewer than 780,000 of the richest members of the population received that money, not the workers. I remind the House that the rich received £20 billion of taxpayers' money, not the workers. Tory Members should refrain from attacking the workers and from blaming them for the mess that the former Chancellor created.
At the same time, the poor were subjected to benefit cuts. That is what you gave the working people and the unemployed in the north-east, Scotland and Wales. Since the Government came to power in 1979 there have been 60,000 bankruptcies, and 170,000 firms have gone to the wall. Since 1979, 100,000 families have had to sell their homes because they could not afford the mortgage. That is your economic miracle.
§ Madam Deputy Speaker
Order. I dislike stopping the hon. Member, but he is taking my name in vain. I know that he has a lot of good material that he wants to use, so would he refer to the House through the Chair?
§ Mr. Campbell
I shall try to refrain from using the word "you". I have a habit of doing that. I think that I am back on the pedestal at the miners' meeting. Those home owners were not to blame, it was you—[Laughter.] I am sorry, I am only joking Madam Deputy Speaker—it was the Conservative Government.
Since the Government came to power poverty has increased—9 million people in Britain, including some 2 811 million children, are living below the poverty line and that has happened since 1979. That is 17 per cent. of the population and it represents an increase of 55 per cent. since 1979. Do not blame the Opposition for Britain's ills, because the Conservative record is there and it is atrocious. The Conservatives must study the problem and put it right.
What have the pensioners got from the Government and their so-called miracle? In the early days of the Tory Government, the link between pensions and earnings was scrapped. Had it not been scrapped, a single person would have had £11 a week more in his pension today, and a married couple would have had £18 a week more. They have been done by the Tory Government, just as the unemployed and those who have suffered from cuts in social security have been done.
As I said before, it is no good blaming the workers. That is what the Chancellor has tried to do, and I shall not let him forget it. That is what the Government are trying to do with the ambulance men. They are picking on the union, trying to take it out and to blame it for all the ills that the Government have caused.
§ Mr. Watts
The hon. Gentleman mentioned the link between pensions and earnings. I wonder whether his memory stretches back far enough to recall that the link was first established by a Labour Government because inflation was running at 26 per cent. and earnings at only 15 per cent. It was a way of abating the costs of increasing pensions which would otherwise have fallen upon that Government. They did it to cut spending on pensions.
§ Mr. Campbell
I do not care what the last Labour Government did. It is what we do in the future that counts. There will be a pledge in our manifesto to restore the link between pensions and earnings, and I shall be here to support it. I doubt whether the hon. Gentleman will be.
§ Dr. Marek
The House should remember that in 1979 the old age pension for a married couple, as a percentage of average earnings, was about 44 per cent. and it is now about 32 or 33 per cent. My figures may be slightly out, but it is clear that pensioners have become considerably poorer in the past 10 years under this Government.
§ Mr. Campbell
I agree. That is the point that I am trying to make. Pensioners are worse off under this Government. One can tell that by meeting them and speaking to them. An old lady whom I know likes to smoke, but when I went to see her on a Tuesday she did not have a pack of tabs in the house. That was unusual for her. Some hon. Members may say that she should not smoke at her age, but she cannot afford to do so until she receives her pension. When pensioners are in that state—when they cannot afford to buy a packet of cigarettes until they get their pension—it is a disgrace. The Government should consider pensioners' needs more often.
The wages council is another scapegoat for the Tories. It will be scrapped because the Tories want a low wage economy. That is already happening. Low wages are being paid throughout the north-east, and that is why one or two firms are moving there from the south. One business man told me a few months ago that he was coming north because of the low wages. The minimum wage is non-existent. We are the only European country that does not have a minimum wage, and we should consider that. If there is a minimum wage, firms can plan a long way 812 ahead, and perhaps we would not get the liquidations that I have mentioned on other occasions. [HON. MEMBERS: "What about redundancies?"] I have been made redundant and I know all about that.
Let us have a decent minimum wage in Britain, as they have in Europe and America. Child benefit has not been touched on in this great Autumn Statement. Let us restore the cuts of £1.70 to every child under the age of 16, and give child benefit back to the women of Britain. Let us stop these means-tested benefits—the so-called social funds. Every good constituency Member of Parliament must have dealt with means testing and know of cases where people have been turned down for loans and grants although their plight is desperate poverty.
Let us have a major reform of the tax system. Every time the Budget is mentioned, the Government lob millions to the rich and nothing to the poor. Let us have a proper reform of the tax system. If you will not look at it, I am sure that Opposition Members will. We will reform it in our best traditions of making things fair and equal for everyone. We want a fair and just approach to the economy. That is what working people are asking for and what we have not had from the Government. It is your fault—
§ Madam Deputy Speaker
Order. I hate to remind the hon. Member again, but he must not burden me with those responsibilities.
§ Mr. Campbell
I will not, Madam Deputy Speaker. I know that you are fighting on our side.
The north-east has not seen any great strides during the so-called economic miracle. Some building is going on in my part of the world, but unfortunately it consists of three large supermarkets, and not factories. [HON. MEMBERS: "Nissan."] Nissan came a long time ago. I am talking about what has happened since the so-called economic miracle, which was the last Budget but one.
The north is in the throes of increasing unemployment, and that is well documented. When the south gets a cold, the north gets pneumonia. I ask the Government to take account of the north-east when they consider the regions. I doubt that they will do so, but I take this opportunity to make the request.
§ Mr. Jeremy Hanley (Richmond and Barnes)
Until the contribution of the hon. Member for Notttingham, North (Mr. Allen) I thought that I had only one thing in common with my right hon. Friend the Chancellor—both our fathers had worked in the circus—but I now discover that there is a great sympathy between us, as we both support Chelsea football club.
This has been an interesting and wide-ranging debate. I should like to summarise some of the good news that we have heard—for not everything is as miserable as the hon. Member for Blyth Valley (Mr. Campbell) tends to suggest. The hon. Gentleman must remember one important fact: hon. Members can promise all the money in the world to all the people whom they think will get them elected, but they must be able to run the economy in a way that will sustain those increases in public expenditure.
When the Labour party was in government, the economy collapsed completely. Conservative Members can trot out the cuts that they made time after time: hospitals suffered cuts of 30 per cent.; the railways were 813 cut; pensions were cut; everything was cut. Those cuts were the result of a Labour economy. The first necessity is a sustainable economy: the party in power must be able to create the wealth which, according to the hon. Gentleman, should be spread so much more widely.
§ Mr. Ronnie Campbell
That is a fair point, but should not the £2 billion provided in the last Budget but one have been spread out more equally and fairly, rather than going to the rich? Should not more have been spent on social security benefits such as pensions?
§ Mr. Hanley
The hon. Gentleman is typical of the many—I do not disparage them—who do not understand exactly why tax cuts occur. When they visit the supermarket to which the hon. Gentleman referred, they see that the manager reduces the price of goods that he wants to sell. Just as a sale in a store attracts purchasers, a reduction in the amount of tax that is taken out of the economy will generate money in that economy, and will increase the number of jobs.
What the hon. Gentleman is really saying is that there should be redundancies, because that is exactly what would follow the policy that he advocates. Instead of viewing tax cuts as a percentage—as numbers—he should look at the results of those cuts, which will show him an entirely different picture. He will see that taxation revenues have increased because tax cuts have led to a new enterprise culture. He will also see a reduction in unemployment, and a dramatic increase in the total revenues into the Exchequer.
It is interesting that the hon. Gentleman should say that the rich have received the tax cuts. That is not true. Ordinary men and women—teachers married to nurses, for instance—benefited from those cuts, because the previous rates were so obscenely high. Let us concentrate, however, on the top 5 per cent. of taxpayers. Under the Labour Government, they paid 24 per cent. of the total income tax revenues; under the present Government they contribute 29 per cent. In volume terms, we are collecting more money than ever before.
§ Mr. John P. Smith (Vale of Glamorgan)
If the hon. Gentleman looked more closely at the effect of the tax cuts that the Government have made over the past 10 years, he would discover that the top 10 per cent. of owners of private wealth currently own 52 per cent. of that wealth. The bottom 50 per cent. own less than 8 per cent. That is the largest inequality in wealth ownership since before the second world war.
§ Mr. Hanley
I was not going to mention housing until later, but following the hon. Gentleman's intervention I feel that I should point out that 68 per cent. of householders are now owner-occupiers. Thousands, indeed millions, of ordinary men and women who were never able to own a house, get a foot on the capital ladder, protect their families or give to their children can now do so, thanks to the Government. Since 1979, there have been 1.4 million sales of public sector houses: 1.4 million people can now say, "This is my house."
§ Mr. Roger King
May I apply a balance to the earlier statement about the ownership of wealth? Let us look at what is happening in eastern Europe. How much wealth is 814 owned by those living in the ideal social democracies that Opposition Members have championed since the last war, and have they accepted any of it?
§ Madam Deputy Speaker
Order. May we leave eastern Europe for the time being and return to the Autumn Statement?
§ Mr. Hanley
How kind you are, Madam Deputy Speaker. Nevertheless, it is relevant to point out that in eastern Europe we have seen the death of Communism and the rise of the enterprise culture mirroring our own experience. We have emerged from our own mini-revolution, that of 1979. We had our problems during the winter of discontent. Ours was a bloodless revolution, but its effects will be felt as deeply as those of the revolutions in eastern Europe.
§ Mr. Hanley
I will, but this is the last time that I will accept an intervention from across the Floor.
§ Mr. Rogers
May I ask the hon. Gentleman to dwell a litte more on the figures relating to owner-occupancy, of which he seems to be making a good deal? My constituency has the highest rate of owner-occupancy in Great Britain, but it is also the poorest, by any economic indicator. Owning a home does not mean sharing in the current great revolution in the acquisition of wealth; indeed, many of those who own their homes will become extremely poor as a result of the Government's recent policy of raising interest rates.
§ Mr. Hanley
I will not speak about the hon. Gentleman's constituency, nor would the House like me to do so. Other hon. Members will be speaking. What I will say is that anyone who has decided to buy his own home, and is struggling to cope with interest rates that are higher than any sane person could possibly enjoy, is making a worthwhile effort. Although some will find the struggle impossible, many more will find that, in the long run, it is worth the effort for their family's sake.
Although millions of people have mortgages, everyone in the country is affected by inflation—people who own their homes and people who do not; people living in council houses, and pensioners living in council flats. The battle against inflation must take precedence.
§ Mr. Hanley
No, I will not give way any more. Other hon. Members wish to speak. The hon. Gentleman is a charming fellow and I would love to give way to him, but we can chat later.
Let me summarise some of the more important points that have been made. First, our gross domestic product is at its highest-ever level: it rose by 4½ per cent. in 1987 and 1988, and a further 2 per cent. increase is forecast for 1989. We have experienced eight successive years of sustained growth averaging 3 per cent. and we need that growth if we are to increase expenditure on essential services. Moreover, the United Kingdom has grown far faster than any other major European country during the 1980s—well ahead of Germany and France—and that growth was vital. Manufacturing output is also at its highest-ever level.
We were talking about investment earlier. The Autumn Statement forecasts a 9¼ per cent. increase in 1989, and 815 business investment will have increased by 40 per cent. in the three years to that date. That shows the extent of confidence in the present Government and their economy. Under the Labour Government, investment averaged between a quarter of 1 per cent. and 1 per cent. annum. That was the measure of confidence in them. There was no confidence, especially when the IMF had to bail them out.
Total investment growth in the 1980s was higher in Britain than in any other European country, although we were near the bottom of the league in the 1960s and 1970s. That is reflected in real take-home pay. Between 1978–79 and 1989–90 the real take-home pay of the average married man with two children went up by one third. I admit that that is part of our problem as we are creating an economy in which people get more money.
The problems were exaggerated when the Government tried to repair the potential damage of the October 1987 slump. I remind my right hon. and hon. Friends on the Treasury Bench that, understandably, they were fooled by the depths of that recession. Anybody could have made that mistake in the interests of the nation, and newspapers have been trying to talk every mini-slump into a major slump ever since. It is now a sport to say in newspapers and on television that the stock market will crash on Monday. On that occasion, which really was a black Monday, the Government tried to inject money into the economy to save misery and prevent a slump from occurring. But the slump was not as big as we thought and the recession that we expected afterwards did not happen. However, I am prepared to forgive the Government for that because we learnt our lesson and it will not happen again.
Real wealth and prosperity have increased under this Government. Real personal disposable income is now at a record level and is 5.5 per cent. higher than it was a year ago. I mentioned that the extra yield for the wealthy has produced more taxes to pay for essential services.
One person who has not received the plaudits that he deserves today is the Chief Secretary to the Treasury. We have talked about the Chancellor, who is doing an excellent job, but the Chief Secretary created the Autumn Statement and calculated the levels of expenditure in many difficult areas, trying to balance the demands of one Government Department with those of another.
The hon. Member for Berwick-upon-Tweed (Mr. Beith) picked out three figures from the list in the Autumn Statement and said that the Government had cut here, here and here. He did not mention any more for the simple reason that there are no more. The Government have increased expenditure in 23 out of 25 headings in the Autumn Statement. In only two headings—the Department of Energy because of electricity privatisation, and the EEC—will there be any reductions in 1990–91. It should be clear to anyone that the successful running of the economy has meant that we have been able to increase expenditure in many important sectors. I have a list of all the extra services that are being provided because the economy is being run well enough to provide them.
In 1990–91 an extra £2.5 billion will be available for the National Health Service, representing an increase of 5.5 per cent. in real terms. Opposition Members will carp about the fact that wages in the National Health Service are going up faster than elsewhere, that there are more people to care for, and there is more this and more that. There is more this and more that, but the Government have come up with more money. Spending on the National Health Service has increased by 40 per cent. since the 816 Government took office. There are now 10 per cent. more outpatients, 20 per cent. more inpatients and 60 per cent. more day cases treated in hospital than there were in 1979. The staff has increased from 440,000 to 520,000 and that does not come cheap. Those people deserve to be paid well and they are being paid the money that they did not get under Labour. The Labour Government had to reduce expenditure because they could not run the economy. Gross capital spending in the National Health Service is 55 per cent. higher than it was in 1978–79. That means that the Health Service is half again as big as it was, while under Labour expenditure fell by 30 per cent.
Opposition Members talk about spending on the poorest. This year social security expenditure is running at £1 billion a week, which is an increase of 36 per cent. in real terms.
§ Mr. Hanley
The hon. Gentleman says that it is our fault because we created the unemployment, but we have reduced unemployment by 3 million people. A Labour Government could not have achieved that as they would seek minimum wages and minimum hours. We have an enterprise culture.
The list of expenditure shows increases in services that really matter. Expenditure on British Rail and London Regional Transport, which affects all Members of Parliament, is going up by £2.2 billion in the coming year. Expenditure on Network SouthEast has increased by £1.2 billion. The British Rail spending programme is now £3.5 billion. Expenditure is higher than ever on housing and on the environment, but spending on defence has increased by only 1 per cent. I remind the warmongers on the Opposition Benches that defence comes fourth behind the National Health Service. That was not the case under Labour. For the first year ever National Health Service expenditure outstrips defence expenditure, and not before time.
We have been able to maintain the economy to pay for essential services. I was saddened by the response to my intervention during the speech of the hon. Member for Durham, North (Mr. Radice), who is an intelligent and reasonable man. I asked him exactly what would be his party's plan if he thought that ours was so inadequate. He said that we should join the exchange rate mechanism as soon as possible. But that was all he said. He said that he would explain, but he did not say how Labour would pay for its spending plans. He did not say how Labour would tackle inflation; he did not say how Labour would pay for the confiscation of the industries that have been privatised; he did not say how Labour would pay for any of the massive expenditure that the hon. Member for Blyth Valley was talking about; he did not explain how Labour would pay for giving child benefit even to the wealthy and pay back the backlog.
The hon. Gentleman did not say what the standard rate of income tax would be or what company tax rates would be under Labour. He did not say how many new national taxes a Labour Government would have to create. He certainly did not say what Labour would introduce in place of the community charge or how people would be hit by Labour's plans to alter mortgage tax relief and what that would do to the cost of living. He certainly did not explain how Labour would reintroduce price controls, 817 import controls, mortgage controls and controls on house buying or car ownership. He did not say what limits he would set for Government spending or Government borrowing. He did not say how much the proposals would cost. The simple reason is that the hon. Member for Durham, North is an intellectual who will remain a political academic because he will be serving only in theory and will never have to put his policies into practice.
The Government have achieved what people said they could not. They have increased Government expenditure in almost every single Government Department—23 out of 25 this year—and have reduced income tax at the same time by generating a healthy economy. That is the most responsible course of action that any Government could take.
§ Mr. Terry Fields (Liverpool, Broadgreen)
If I asked any worker in Liverpool how he knew when the Tories were telling lies, I would get the answer, "As soon as they open their mouths". Tonight we have been listening to distortions, lies and misrepresentation. Not one Tory Member has spoken without injecting into his speech what Labour was doing in government over a decade ago, when our debate tonight is on the Chancellor's Autumn Statement and Labour's amendment about what we plan for the future.
I accept that we need to look to the past, but there are none so blind as those who will not see. The proposals put forward by the Chancellor and the Government are totally irrelevant to the needs of the majority of people in Britain today. We are looking over a precipice. We are looking over the edge of a major financial crisis in Britain and internationally. We are contemplating an international crisis of finance and business confidence in the United States. The problems there are well documented. Such is the interrelationship between international capitalism around the world that, as my hon. Friend the Member for Blyth Valley (Mr. Campbell) said, if America sneezes we catch pneumonia and we will follow America as sure as night follows day. The boom in the States, which has relevance and is mirrored here, has been fuelled by credit. Today, money is being given away to enable people to buy cars so that the system can be kept going. [Interruption.] No, I do not want to go to America.
The euphoria that greets the statements by some Tory Members bears no relation to the absolute crisis in the advanced industrial countries, which are facing rises in inflation even as we speak.
What of the British economy? The Government's friends in the Financial Times and in The Sunday Times are saying, quite rightly, that we are going back to the good old days of the stop-go cycle in Government policy. We keep having the Thatcher miracle thrust down our throats. What is the Thatcher miracle? What does it mean to millions of workers in this country, to unemployed people, to people like my hon. Friend the Member for Blyth Valley, who is waiting for treatment for his gallbladder but cannot have it? To those people the Thatcher miracle is absolutely meaningless.
After 10 years in office the Government talk about wage restraint and blame working people for the crisis in the capital system, as Conservative Governments have done 818 historically and as, unfortunately, has been done by some Labour Governments also. It is the same old blackmail: "You are pricing yourselves out of jobs. One man's pay rise is another man's job loss"—all the usual nonsense. At the same time, we read in the pages of the Financial Times and the other more serious newspapers of this country about the state of the economy and about the vast number of millions of pounds being made on the stock market where many a person has no work to do and sheds not a drop of sweat. It is referred to as the casino economy—and quite rightly so. That is what it is all about. People spin the wheel and take their chances. They gamble on the markets in the hope of taking the loot. That has no relevance to the economic and industrial situation in this country, yet it is the game that they are playing. As usual, of course, according to the Government, it is the workers who are responsible.
We have problems about investment. It is not just the loony Left that is talking about this. I would remind the House of a House of Lords inquiry of 1984, which this Government have disregarded totally. The report of that inquiry referred to the manufacturing base and to the service economy and all that it means for the future prosperity of this country and those who live and work in it. Of course, that continues to be disregarded by this Government. The squeals and screams that are being heard now are coming from the bosses and are echoed by Tory Members because profits are starting to fall. During the boom period they could afford to give working people a few crumbs in the shape of decent wage rises. But now the reality of what the economic future of this country holds for them is hitting them in the face, and they are looking for scapegoats.
Look at the economy and then look at the stock market. A report in The Independent on 4 January appeared under the headlineShares Hit Record amid Hope of Loan Rate Cut.The article says that the previous record for sales of shares was set on 16 July 1987. What it does not say is that that record of July 1987 preceded the stock market crash by 15 months. Of course, the record set on 4 January this year must be seen in the context of the fact that only yesterday £8,000 million—70 points—were knocked off shares in this country. That, of course, is reflected in America, where the Dow Jones index fell by 77 points. But these statistics are meaningless when one gets down to the reality of how ordinary working people in this country are affected. Nevertheless, we have to explain what is taking place.
Daily we hear Tory Members say that Socialism is dead. I am not straying into eastern Europe; I am talking about the economy of this country and thinking of the Socialist measures that will resolve the problems of the mass of people here. Even in the United States—the arch exponent of capitalism—pressure is now being put on George Bush for state intervention in the infrastructure because big business and those people who should be paying due regard to the infrastructure are doing nothing about it. In America there is now talk of pump-priming by the state. That is something that the Government here refuse to do.
The Autumn Statement will do absolutely nothing for millions of people in this country. It will do nothing for old-age pensioners, to whom my hon. Friend the Member for Blyth Valley has referred. It will do nothing for the disabled, or the sick and infirm, or the single parents, or the unemployed, or the low paid, or young people, who, 819 under this Government, have no future because all that they are given is phoney schemes and exploitation. Wages councils have been done away with, and people are put at risk of death and disfigurement on schemes where there are no health and safety provisions. Students have also been attacked in the form of cutbacks in loans. There have also been cutbacks in education provision. We have heard during this debate how home owners have been attacked with mortgage rate increases. Doctors have been abused, as have ambulance drivers, nurses, lawyers and, in particular, working-class families.
We are talking about inflation. Consider a place like Liverpool, whose city treasurer has estimated that the poll tax, at minimum, will be £476 for every person over 18. The authorities there will be told to cut back on staff. But sacking people will only increase unemployment, poverty and deprivation. Water rates are going up, as are transport and travel costs and gas prices—a whole catalogue of further burdens on working-class people.
Tory Members know nothing about how to resolve this problem. They are making a fast buck on their own behalf. No wonder they put up a smokescreen by referring to Labour's record. Just consider the consultancy positions and directorships that they hold. They are doing very well. It is only the working-class people of this country—the masses who create the wealth that Tory Members and the people that they represent can spend—who are doing anything about the situation.
There has been a 50 per cent. reduction in the infrastructure in this country in the past decade. That has meant decay in our hospitals. Hospitals in Liverpool are being closed down. At Question Time today, my hon. Friend the Member for Liverpool, Riverside (Mr. Parry) and I asked about the Park hospital. Geriatrics and people who are psychologically unfit are being thrown on to the streets to live in cardboard boxes, wander around and get themselves into trouble. Instead, they should have the benefit of proper care.
Today I was told about a man working for the local authority in Liverpool. He has been told that he will have to wait four years for a heart operation. To have it done privately he would have to pay £2,500. He is a cleaner, and the workers in his yard are talking about collecting money to pay for the operation so that he will not die during the waiting period. Yet the Government tell us that the Health Service is doing well and that they are investing in it. Half of them do not even use the service, so they do not know about its inadequacies, but we and our constituents use it, and we know at first hand that there is no proper health service as we knew it in the past.
During this Government's period of office more and more people have become alienated. With hindsight, we have to say that we in this country once had a far-sighted ruling class. In its place we now have the most economically ignorant, crude and short-sighted Government ever to look after the interests of big business. I am not being disparaging about other countries when I say that there is more manufacturing industry in India than there is in Britain, and I am not being chauvinistic when I say that Britain, once the workshop of the world, is now the warehouse of the world, full of foreign imports. That is the reality of the British economy.
Following the stock market crash we have been left far behind our major competitors such as France and 820 Germany. The Government's policies, as set out in the Autumn Statement, will mean more poverty and debt for the ordinary working people of Britain.
The hon. Member for Richmond and Barnes (Mr. Hanley) talked about Britain's home-owning culture, but he did not give the true facts. In 1987, 23,000 homes were repossessed by the building societies compared with only 2,000 in 1979. The Prime Minister tells people to go out and buy their council houses, but if they get into debt or become unemployed as a result of the Government's policies they are punished by being made homeless. When they want a council house there is none. That is the home-owning culture that the Government have created. Building society loans are crippling as a result of the Government's policies.
As some of my comrades want to say a few words, I shall cut my remarks short. We are being kidded by the Government, but more and more people are seeing through their policies. They can see through the lies and distortions that we get daily from the Dispatch Box and from Conservative Members. The working people, the wealth creators in Britain, know the reality of what is going on. They know that there are no long-term prospects for them under the Tory Government.
People ask about the Labour party's policies, but my outlook is different from some of my good colleagues on the Opposition Front Bench. We should not be going down the road of the Wilson or the Callaghan years, trying to manage a mixed economy. I am in the Labour party because I am a Socialist. I believe in the Socialist transformation of society. We cannot control what we do not own and we will take the money off Conservative Members' friends in the City. We will take over their banks and their insurance companies. We will take over the commanding heights of the economy. When they want compensation we shall treat them as they treat the poor and the unemployed—we will means test it.
Capitalism has failed not only here but internationally. Increasingly, workers will come to the only conclusion, that they must take their destiny in their own hands, just as the workers in eastern Europe are doing. They are not saying that they do not want Socialism or Communism; they have never seen either. They have thrown off Stalinism because they want to run their own lives. The British workers applaud what they are doing and will be going on to the streets themselves because the Government's policies will bring about social convulsions.
§ 9.1 pm
§ Mr. James Hill (Southampton, Test)
We have heard an almost classic speech from the hon. Member for Liverpool, Broadgreen (Mr. Fields). It was almost 15 to 20 years old; an example of class warfare at its worst. Once again, he was trying to arouse the emotions of his constituents, making them more radical and militant.
But to Conservative Members the hon. Gentleman's ideas were almost laughable simply because they are part of history. Events in central Europe should convince even the last of Militant Tendency supporters that this is a changing world and that politics have moved on. The Opposition Front Bench have accepted that.
It is unfortunate that we in this Chamber always talk in jargon. Today I heard several references to fiscal and monetary policies and the supply side. To people outside, that does not mean a thing. As the Treasury Front Bench 821 spokesmen will know, people are interested in their expectations. They are already convinced that their circumstances are much better than they were 10 years ago, but they are still looking for more.
We have heard that there is 68 per cent. home ownership in the United Kingdom, the highest in Europe, but nobody ever mentions that. Those people do not rely on local government for housing; they do their own maintenance and take pride in their property. At the same time they are anxious to leave their property to their children when they have paid the mortgage.
Not one Opposition Member made any conclusive statement on the Labour party's future policies. The majority of speeches from Opposition Members were confidence destroying and, as anyone in business knows, confidence is essential in business. If people do not have confidence they do not invest or they invest outside the country. People realise that the market place now is not just the United Kingdom or, indeed Glasgow or anywhere else; it is world-wide.
The strength of our economy was shown by our recovery from the major stock market depression. The stock market is probably healthier for being culled then. The lesson which every member of the Opposition Front Bench should note is that the market place cannot be worked in isolation. We cannot attract investment in isolation. We must rely on the large companies in the world to invest in Britain, and they will invest in Britain only if they have confidence. No amount of talking down the economy will create that confidence. If there is a lack of confidence now, it is because the Opposition have no policies to put forward. They have nothing to say about how they would run the economy. That is why the market place is extremely sensitive.
I give the House a horrifying scenario to consider. What will happen if that crowd on the Opposition Benches comes to power? The market place will go bananas. That is no slur on anyone. I am sorry to say that confidence will be exactly the same as in 1974 and 1964.
I did not agree with the remarks of the hon. Member for Berwick-upon-Tweed (Mr. Beith). He suggested that if we joined the exchange rate mechanism of the European monetary system we should begin to do as well as Germany overnight, and that our interest rates and inflation would tumble. The German Bundestag would dominate the scene through the Bundesbank. That is not what we want. We did not join the Community to have our full range of fiscal policies controlled. The problem is that if we joined the ERM when our inflation and interest rates were high and the playing field was not level, we should be hostage to fortune and to all those on the continent who would welcome us but take advantage of our weaknesses. That is the problem. I am as much in favour of joining the ERM as anyone. However, it must be done at the right time, and now is not the right time.
I should like to make a few comments on how industry could be helped. The investment in plant and machinery that companies can write off against taxation each year should be increased from 25 to 40 per cent. I do not know whether hon. Members remember the halcyon days when it was 100 per cent. That was a tremendous incentive to do what the Opposition recommend on the supply side.
§ Mr. Hill
Exactly. A reduction in employers' national insurance contributions would be another worthwhile move which would not create inflation and would help industry to invest more in plant.
We could also increase investments in transport infrastructure. We are already doing that in no small way. However, in my constituency of Southampton we have had to wait years for the necessary motorways. I know that hon. Members are fed up and sick and tired of me saying this, but we still do not have the M3, although Southampton is a major port.
We must watch local authority rates carefully. The uniform business rate will cause much heartburn, perhaps not to the bigger companies that are spread throughout the United Kingdom, but certainly for the smaller companies that are situated in highly-rated areas.
Therefore, the problem is not quite as simple as Opposition Members would have us believe. The careful juggling—because that is what it is—of the uniform business rate and of the investment world, and the creation of an area of confidence so that people will want to invest in the United Kingdom, must be the best possible way forward.
I hesitate to say this, but I do not think that the banks—certainly not the big five—are as co-operative or as compassionate as they should be with some of our smaller business men. If we are to have a great deal more trouble because smaller business men cannot meet their uniform business rate and are unable to keep going, the banks should take a more lenient view.
I realise that my time is nearly up. Indeed, I am waiting for you, Madam Deputy Speaker, to nod at me. In conclusion, the Government are doing an excellent job. The Treasury team is excellent. I believe that they are what is known as a "vintage year." I hope that the Opposition will eventually begin to make speeches boosting the economy and boosting confidence and that they will not always be such a dog in the manger.
§ Mr. Allan Rogers (Rhondda)
I shall speak only briefly because the debate needs to be wound up and the weaknesses and shortsightedness of the Government's forecasts have been more than adequately highlighted by my right hon. and hon. Friends.
I was impressed by the Chancellor's speech. I thought that he had worked hard at it. Obviously, the Tory drama school told him to gee-up and do a lot better. It was definitely a brighter shade of grey. However, I was sorry that he did not give way to me on one point. I wanted to question him when he made a remark about the quality of investment and said something like, "Never mind the quality, see the width." The Chancellor talked about the quality of investment. It was extremely interesting to discover that by "quality of investment" he meant the amount of money that could be made on an investment in the shortest time.
There we have the substantial difference between the Government and the Opposition—I am not sure why the hon. Member for Croydon, South (Sir W. Clark) is grinning. If the tablets are not working, I can recommend Ex-lax. The big difference between the Government and the Opposition is that we believe that money should be used to create jobs and wealth for the country, whereas the Government and the Chancellor believe that money exists 823 to create money. The investment made in this country now might be bigger and may have greater returns, but, as my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) so eloquently showed when he responded to the Chancellor's speech, that investment is in car parks, supermarkets and the service sector. It is a vital part of our economy, but is not at all helpful to our balance of payments problems. All that we are building are warehouses and supermarkets in which we can store and sell the goods that we are importing.
§ Mr. Eddie Loyden (Liverpool, Garston)
The Chancellor's comment that caused me most despair today was his evaluation of public expenditure versus private expenditure. The Chancellor almost dismissed public expenditure as being a dirty word and a dirty habit. Does my hon. Friend agree that education, health and social services, and all the things that make good provision for our quality of life, are dismissed by the Tory party as the work of the devil?
§ Mr. Rogers
I thank my hon. Friend for that intervention.
I should now like to speak briefly on one aspect of the Autumn Statement, if only to highlight some of the rubbish in it. I refer to the defence expenditure plans in paragraphs 122 to 124, and specifically to the allusion in paragraph 124 tomeasures taken to increase value for money from the equipment programme.
The Government's record in defence procurement and in the defence economy is appalling. The fact that they claim some credit for it in the Autumn Statement is a cheek. It is a phrase trapped in the Ministry of Defence word processor. It comes out every year to order, usually to cover some incompetence, and generally accompanied by equally predictable rhetoric fom the rally-round-the-flag brigade. They are swarthed in references to national security and say, "You cannot have this or that information". If anyone ever criticises the Ministry of Defence or a Minister, he is accused of criticising Britannia.
Britain has fundamental defence problems, and nowhere in the Autumn Statement is there anything likely to do something about them. We are talking about an industry that sustains more than 500,000 jobs. The measures taken by the Government have resulted in a gross mismanagement of Britain's defence economy and taxpayers' money. I hope that in future months we will have the opportunity to take the matter further.
§ Mrs. Margaret Beckett (Derby, South)
On 22 November last year, Sir Terence Burns, the Government's chief economic adviser, told the Treasury and Civil Service Select Committee thatthere is a great deal of uncertaintyin the economy. That should probably be the motto for this Autumn Statement. As for the Government, whose policy stance it is supposed to outline, the more one attempts to scrutinise the Autumn Statement, the more it becomes apparent that it represents not so much a stance as an uncomfortable shuffle on to one foot and then on to the other. From the admitted uncertainty about the economy to the—apparently—greatest certainty of the economic forecasts is one of those steps. I will be fair to the Chancellor, as he insisted that those forecasts are prone to 824 error. However, he also insisted that they represent the best estimate that the Treasury can make—falling interest rates, but not yet; falling trade deficit, but not yet; falling inflation rates, but not yet; and 3 per cent. inflation in three years' time. As a number of hon. Members have said, the Government said that they would achieve that figure last year, the year before, and the year before that. I do not want to be unfair to the Government, but somewhere along that trail they were predicting zero inflation, although I am not sure in which year that was. A number of hon. Members have said that repetition in the face of failure has not added to the credibility of that forecast.
Uncertainty returns in a flood on examination of the reality of our underlying economic strength. The Opposition, including my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon), and others in industry and finance have highlighted fears about our levels of investment, especially in manufacturing, the wealth-creating sector, and about our world performance in that most vital of areas, only to be constantly told by Government apologists about great increases in output and investment in recent years. I want to put it firmly on record that the Opposition are pleased to see any hopeful signs that manufacturing is recovering from the near-fatal blows that that sector took under this Government in the early 1980s. When the Government imply that there is little further cause for concern—even before we had the most recent output figures—they are being more than a little misleading.
The hon. Member for Horsham (Sir P. Hordern) quoted a figure that he has quoted before—the percentage change in manufacturing output between 1979 and 1988. The hon. Gentleman did not point out that on those figures the United Kingdom came 18th out of 20 OECD countries. Moreover, although our share of world exports this year is estimated to rise against the growth in world trade, after a poor year in 1988, and the long-term picture shows a rise in the volume of exports since 1979—this is a figure which the Secretary of State for Trade and Industry quoted with some glee the other day—that is far exceeded by the rise in imports, which the hon. Gentleman neglected to mention, at well over twice the level of exports. This position is not likely to be remedied without substantial investment.
Between 1980 and 1983 manufacturing investment in this country fell back to levels not seen since the mid to late-1950s. Mercifully, since then we have had the recovery about which the Chancellor took the trouble to intervene to remind us. That recovery returned investment to 1.7 per cent. above the level that it reached in 1979—before the miracle-workers took over.
It is suggested that next year world trade in manufactures will grow by 6.5 per cent. and that United Kingdom manufactured exports will also grow by 6.5 per cent., which at first sight might imply that we shall hold our share of world trade. But the forecast for total United Kingdom growth in manufacturing output is only 1.5 per cent. What kind of economic miracle is it where we can deliver a growth in manufacturing output of only 1.5 per cent. when world trade is growing by 6.5 per cent.?
§ Mr. Beaumont-Dark
Does the hon. Lady understand that many of us are very concerned with industry and its profitability and that I have also suggested to my hon. Friends changes that I would like to see? I ask yet again in this long debate, a great deal of which I have heard, about 825 the Labour party's backing for the EEC social charter and its added cost to industry. The hon. Member for Birkenhead (Mr. Field), who is an honourable man, as I am sure everyone agrees, said that if we had a minimum wage and backed the social charter it would cost 400,000 jobs and add 4.4 per cent. to the costs of industry. Does the hon. Lady agree with that or not?
§ Mrs. Beckett
My hon. Friend the Member for Birkenhead (Mr. Field) is, as the hon. Gentleman said, a very honourable and a very nice man in many ways, but his figures are sometimes wrong, and this is one of those cases. Forecasts for investment in manufacturing are also far from rosy—[Interruption.] The hon. Gentleman asked a question and he got a straight answer. What is the matter with him?
The Central Statistical Office forecasts an increase in manufacturing investment in the coming year of no more than 1 per cent. in real terms—a prospect which worries the CBI, the TUC and many commentators far more than it apparently worries the Government. But then the Government's attitude to investing in our future is as far from clear as it is implicitly unhealthy. The point of the Autumn Statement is that it is supposed to tell us something about the overall size of the Government's public expenditure plans, with all that they may or may not mean for investment in our future. To quote one of the Select Committee's advisers, Mr. Brian Reading,Is the planning totalfor public expenditure,the right size? Is its allocation 'appropriate'?Mr. Reading then goes on to say:Neither of these questions can be answered on the basis of the information provided in the Autumn Statement.Although we all recognise that the changed definitions and classifications used in the presentation this year create difficulties, I am bound to say that I agree not only with Mr. Reading but with the Select Committee when it observes that parts of the Autumn Statement can probably be fully understood only by those who compiled it. I thought that the Committee was very restrained in its remarks in this respect and others, no doubt following the lead of the right hon. Member for Worthing (Mr. Higgins), who is always a model of courtesy. I was especially impressed by its restraint when I read the exchange between the Committee and officials, particularly the ones when the Committee sought to get straight answers about data on local capital investment only to be told that they could not interpret the figures because they had not been given all of them.
Not having been present, I cannot judge whether that observation was made gleefully, remorsefully or simply in a "Good God, what did you expect" sort of tone. If I had been a member of the Committee—which, I understand, asked for all the relevant figures and until that moment was under the impression that it had received them—I should have been extremely cheesed off.
But we should all have known better. The Select Committee wanted all the figures so that it could draw its own conclusions about what is really happening in the economy—about whether and to what extent we are really investing in our infrastructure—and that, of course, is the last thing the Government want.
We can deduce from the Autumn Statement that in the coming year the Government plan to spend less than they 826 had originally intended to spend but more than they spent last year. We can also see that most of the increase will be swallowed up either by inflation throughout the economy or by even higher specific inflation in areas such as health care, despite the Government's claims to have acknowledged and met the demand for proper provision in those services.
But the question of real importance, not just for the House but for the country, remains an open question: whether and when the Government will recognise and accept their responsibility to play their proper role in investing in our future—the reponsibility accepted and the role played by the Governments of all our major competitors. On one score there is little doubt. The Government want the public to think that they have accepted that role. Their press releases and public relations address the real concern that they know the public feel at the way in which we are falling further behind our partners and competitors. The hon. Member for Suffolk, South (Mr. Yeo) mentioned those matters and told us how much more the Government were spending.
But the Select Committee pointed out, as did the hon. Member for Berwick-upon-Tweed (Mr. Beith), that although one of the few things that the Autumn Statement makes clear is that expenditure on training is being cut again in real terms, as it was last year—which is extraordinary in view of the damaging effects of skill shortages on inflation, if on nothing else—the Department of Employment was issuing press releases claiming credit for a cash increase.
Whatever the statements made for public consumption about spending increases funded by the Government's economic miracle, in the comparative privacy of the Select Committee deliberations, faced with the stern countenances of the hon. Members for Wolverhampton, South-West (Mr. Budgen) and for Bridlington (Mr. Townend), the Chief Secretary cracked and gave the game away—[Interruption.] In the years from roughly 1984 to 1985, said the Chief Secretary,planned increases in real terms did not actually materialise … I do not think the sort of step change we have now would be very different.Nor do I. He continued:The additions to last year's plans are rather less than the rise in inflation.The hon. Member for Bridlington drew attention to the fact that this is the lowest level of Government spending since 1967. That is not quite what it says in all those ministerial letters to our constituents, or in those brave speeches boasting of the Government's wonderful spending record. In terms of accuracy, the Chief Secretary's version of events is more to be commended.
In 1987, taking investment as a percentage of GDP—broadly, as a percentage of our national income—we were 23rd out of 25 OECD countries. In 1988, the peak year of the investment cycle—the so-called investment boom that we enjoyed recently under the Conservatives—we were 18th out of 23 OECD countries. That lack of investment can be shown by the most simple and incontrovertible evidence—the daily experience of British people.
The Government claim to have put an extra £2.6 billion into the National Health Service, and the hon. Member for Croydon, South (Sir W. Clark), who appears to be getting somewhat agitated at this point, quoted some even more dubious statistics about the Government having, between 1979 and 1988, increased spending on the NHS by 45 per 827 cent. in real terms. I know that the hon. Gentleman got that figure from the Prime Minister. He should seek a more reliable source for his statistics.
On the basis of the old planning total, at the best, using the GDP deflator, which is the average measure of inflation in the economy, one might come up with a figure in real terms as high as 31.6 per cent., which is rather different from 45 per cent. Using the NHS deflator, the one that matters for available spending in the NHS, one comes up with a figure on the old planning total basis of 13.9 per cent.—1.3 per cent. a year while this Government have been in office—which is substantially below the spending needed to meet the increasing demographic and technological demands.
That ties in with the experience of our constituents. If the hon. Member for Croydon, South would prefer a measure of NHS expenditure that includes patient charges and asset sales, on the GDP deflator, one might reach a figure of 36.7 per cent. Again, using the figures for inflation in the NHS, the figure comes out nearer to 17 per cent., which is 1.6 per cent. a year—still well below what is required to meet increasing needs in the NHS.
§ Mr. Hanley
The hon. Lady referred to the National Health Service deflator. Does that mean that when the Government give a generous pay settlement to the nurses the deflator increases and, therefore, the settlement might as well not have been given, according to the hon. Lady's figures?
§ Mrs. Beckett
I shall treat the hon. Gentleman's remarks with the contempt that they deserve.
The Government claim in this Autumn Statement that they have put an extra £2.6 billion into the NHS. Although we have not, as far as I am aware, had a reply, we query whether more than a small part of that—perhaps £500 million—is available to improve services, especially when one takes account of increased prices, of the Government's creative accounting and of the accountancy procedures themselves, to which much of the money will go on a scale that is not only wholly impracticable, but which seems far in excess of what would he needed for prudent management and more like what would be needed to introduce full-scale charging into the NHS.
The Government claim to be increasing investment in housing, hut housing starts have fallen by almost half in the past year, while bankruptcies in the construction industry have soared. Once again, we are running to stand still. The Government are increasing investment in transport, but the subsidy to Network SouthEast is being removed. If there is one area in the country where people do not need a financial inducement to travel by car, it is the south-east.
Some may find these statistical niceties, technicalities and different specifications bewildering. They should not, thereby, conclude that they are not able to judge who is and who is not basically right. Just walk into a local hospital; just get on a Network SouthEast train or a Tube—a traumatic experience if ever there was one; just read the notes from the head of the local school, begging for funds to give our children even the most basic education; just ask charities such as the Salvation Army about the young homeless, or the Family Welfare Association about families without cookers or beds, or the citizens advice bureaux, about the growing queue of people with debts they cannot handle because they believed that there was an 828 economic miracle and we were all part of it. Judge from the daily experience of growing public squalor and growing private distress and—from that—can judge this Government and their "miracle" decade aright.
§ The Chief Secretary to the Treasury (Mr. Norman Lamont)
The debate has covered not only the Autumn Statement, but the report by the Select Committee on the Treasury and Civil Service to which, as my right hon. Friend the Chancellor said, the Government will in time reply.
I am sure that every hon. Member who has been present today will agree with the generous and well-deserved tribute of the hon. Member for Durham, North (Mr. Radice) to my right hon. Friend the Member for Worthing (Mr. Higgins) for his chairmanship of the Committee. My right hon. Friend made a notable speech today in which he touched on various aspects of funding policy and monetary policy, and those points will, of course, be covered in the Government's reply to the Select Committee's report. I am sure that my right hon. Friend will understand why I cannot go further than that today.
The right hon. and learned Member for Monklands, East (Mr. Smith) made much in his speech of the slower rate of growth of the economy which is outlined in the Autumn Statement and he thought that there was an extremely gloomy outlook. The reasons why it is necessary to have a period of slower growth have been spelt out before and I do not intend to go over them again, but it is worth remembering that when my right hon. Friend the Member for Blaby (Mr. Lawson) was Chancellor. in his Mansion house speech of 1988—as long ago as that—he said that he expected that the economy would face a year or two of slower growth before resuming its upward t rend. The Government, as one hon. Member seems to have thought they should, cannot be said to have abolished the trade cycle even though they may have transformed the economy; and just as Britain led the way into the upswing, so Germany is growing faster now, just as it was growing more slowly at the point when the British economy was booming. There is nothing very surprising about that.
Looking at the decade as a whole from 1979 or 1980, whichever base the right hon. and learned Member for Monklands, East wants to take, and even taking into account the lower level of growth expected this year, Britain will still over that decade have grown faster than the EC average and faster than either France or Germany.
§ Mr. Morgan
In spite of his boasting about this wonderful consumption fiesta that we have had, a repeat of the Barber boom of 1973–74, in competitive terms with France and Germany, will the Chief Secretary not agree that the Government's stewardship of the British economy is very much like the Lawn Tennis Association running the Wimbledon championships: it is a wonderful fortnight of tennis but all the British players get knocked out in the first round?
§ Mr. Lamont
That stewardship has resulted in an unprecedented increase in living standards, a vastly greater increase than when the Labour party was in power. We have seen a strong growth throughout most of the 1980s, and that contrasts with our dismal performance for most of the 1970s. It also represents not just an absolute increase but an improvement in our performance relative to other 829 countries. In the United Kingdom, growth since 1980 has averaged a percentage point higher than in the 10 years 1970–80. Most other major countries in the 1980s experienced lower growth than in the 1970s. That demonstrates how this country has improved its performance relative to others.
The right hon. and learned Member for Monklands, East made much of the comparison with the German economy. He said that the German economy had performed so much better than ours, and I asked him whether it was true that our growth rate in the 1980s had been higher than that of the German economy. Of course, it is true, and the right hon. and learned Gentleman ought to have acknowledged it because it is a significant change and a significant improvement in this country's relative position. I share with the right hon. and learned Gentleman an admiration for the German economy, but if he were being realistic and fair and looking at what has happened in the past decade he would acknowledge that there are areas where the British economy has performed better than the German economy, and growth is one of them.
In manufacturing output, in 1980–88, the UK annual average growth rate was 2.1 per cent. and in Germany 1.2 per cent.; in total investment growth, 1980–88, the UK average was 4.5 per cent. per annum and in Germany it was 0.5 per cent. In productivity of the whole economy, the UK figure was 2.7 per cent. per annum and the German 1.2 per cent.; in productivity in manufacturing, the UK figure was 5.3 per cent. per annum and the German figure 2.2 per cent. The facts speak for themselves: this country's position vis-à-vis the very strong and much to be envied German economy has got better. If the right hon. and learned Gentleman had been fair and impartial, which I am sure he really is, he would have admitted it.
§ Mr. John Smith
I was fair enough to take the Tory claims as they put them themselves, namely, that there was a British economic miracle which had eclipsed the Germans. I simply asked, if that was the case, why the Germans had a £50 billion trade surplus and we had a £20 billion trade deficit. All the weasel statistics in the world will not get away from that. Why does not the right hon. Gentleman the Chief Secretary admit that it was a ridiculous exaggeration which has been blown apart by economic experience?
§ Mr. Lamont
The only claim that was made by my right hon. Friend and the only claim that I make is that our economy has improved its relative position very much compared with the German economy. The right hon. and learned Gentleman may call it a miracle; it would be a miracle if it ever happened under the Labour party in government.
The right hon. and learned Gentleman also went on at some length, as he always does, about the current account deficit. We know that he is an old-fashioned mercantilist. He believes that trade is a continuation of war by other means. I noticed that in his Daily Telegraph interview at the beginning of the year he did not talk about getting the current account back into surplus; he just talked about possibly getting it into reasonable equilibrium.
§ Mr. Lamont
He says that that is more than we have done. Basically only two major countries have been consistently in surplus in the last few years. Every other country has been consistently in deficit or in and out of deficit. I am sure that the right hon. and learned Gentleman would not argue that the United States, France and Canada are unsuccessful countries or countries that have not achieved a high growth rate and standards of living that we would seek to emulate.
My right hon. Friend the Chancellor has made it clear that we regard it as prudent that the current account deficit should be reduced. As my right hon. Friend the Member for Worthing said, there are positive signs that the measures we have taken are already moving the current account deficit in that direction.
§ Mr. Lamont
I want to make more progress.
There are two reasons why the current account deficit has appeared. It is not because of a lack of competitiveness but rather because of excess demand and an investment boom that has exceeded domestic savings. I am sure Opposition Members know that by definition the current account is the difference between domestic savings and investment. If a nation invests more than it saves, the current account will be in deficit; if it saves more than it invests, the current account will be in surplus.
There has been a fall in personal savings to which my right hon. Friend the Member for Worthing and my hon. Friend the Member for Croydon, South (Sir W. Clark) referred, although that so-called fall in personal savings has to some extent just been the product of mortgage borrowing; the rise in home ownership has increased personal borrowing and reduced the net figure of personal savings. Although there has been some fall in personal savings, it has been offset by company saving and by the large surplus that the Government have run in their finances. The point is that by far the larger part of the current account deficit has come not from the fall in savings, which has been relatively small, but from higher investment. That is what the current account deficit reflects—an investment boom, not a savings slump.
My hon. Friend the Member for Horsham (Sir P. Hordern) pointed out that we are extremely fortunate in the overseas investment that we have built up over the years. Of course, we did not have and could not create such overseas investment when the Labour party was in power. That is the real strength of the balance sheet of Britain plc. It shows that Britain is in a very strong position because we have overseas assets that are the third largest in the world after Japan and Germany, and, as a proportion of GDP, the biggest in the world. Even in 1988, when we had a large current account deficit, those overseas assets increased in value, which is evidence that the oil surpluses about which Opposition Members are so concerned were wisely invested and are bringing benefit to the people over the years.
The right hon. and learned Member for Monklands, East castigated the Government over their inflation record when he claimed to be reviewing the economic progress of the decade. As my hon. Friend the Member for Suffolk, South (Mr. Yeo) pointed out, if he wanted to compare inflation in the 1980s with inflation in the 1970s, he might at least have admitted that inflation under this Government has never exceeded the heights that it reached 831 under Labour. He cited the underlying rate of inflation. Our 6.1 per cent. highest rate of underlying inflation since 1983 is lower than it ever was under the Labour Government. That is the reality of the difference between our inflation record and Labour's.
The right hon. and learned Gentleman has an excuse for this difference. He always said that inflation under the Labour Government was due to oil. He says that everything that went wrong under the Labour Government was because of an oil crisis, while everything good that has happened under this Government has also been due to oil, never to anything that the Government have done.
§ Mr. Dennis Skinner (Bolsover)
If the economy is going so well, why did the spokesman for the Building Societies Association say on the 9 o'clock news that, as a result of the Chancellor of the Exchequer's speech in the House of Commons today—in which he said that interest rates would have to stay high for much longer—there could well be an increase in mortgage interest rates? If the economy is strong, why are the news media running stories like that? The truth is that we have never had interest rates so high for so long even in the seventies, on which the right hon. Gentleman keeps harping.
§ Mr. Lamont
I have not heard the news, but I understand that the chairman of the Building Societies Association did not say precisely what the hon. Gentleman said. He said that if interest rates were to remain at their present level right up to the summer, it might be necessary to have a 0.5 per cent. increase in mortgage rates. The hon. Gentleman knows that I cannot speculate about what will happen, but interest rates at a proper level are necessary to bear down on inflation. The cure of inflation matters more for everyone in this country, whether wage earner or home owner.
The Labour party has criticised the Government's spending record because it thinks that we have not spent sufficient amounts on priority services. However, my right hon. Friend the Chancellor was able to demonstrate that we have spent considerable extra sums on health and transport while—as my hon. Friend the Member for Bridlington (Mr. Townend) said—maintaining tight control over total spending. We have done that by making the nationalised industries more efficient, cutting debt interest payments and using the advantages of falling unemployment.
It is because our finances are in order that we have been able to do three things simultaneously: control spending, reduce taxes, and give much-needed funds to priority sectors. That was rightly praised by my hon. Friend the Member for Richmond and Barnes (Mr. Hanley).
The real question in this debate is whether there has been an underlying improvement in the performance of the British economy—whether the problems of the current account and inflation are temporary or whether there is a permanent improvement in our competitiveness. The facts speak for themselves. There is the profitability of British industry. There has been a reallocation of a decent proportion of GDP to profits after decades of decline.
We know that Opposition Members are not interested. They think it is a crime to make profits. We think it is a crime to make losses. Productivity in this country has risen faster than in any other country, including even Japan. There has been a revolution in industrial relations. The 832 other day the Confederation of British Industry said that the number of working days lost is about 12 times lower than it was in 1979 when the Labour party was in power. It said that industrial action occurs today in only 1 per cent. of pay negotiations and the threat of action in only 2 per cent. of pay negotiations. So much for the argument that nothing has changed and we are getting back to the industrial relations of the sixties and seventies.
If there had not been a real change in the competitiveness of the British economy, we would not have the considerable and remarkable rise in British exports that we have had in the past year since economic growth began to slow down. In the three months to November 1989, export volumes were up 13 per cent. by comparison with the same period in the previous year. Within that total, car exports were up 29 per cent. and those of intermediate manufactures were up 17 per cent. In the same period, imports increased by only 61½ per cent. Opposition Members who asked about imports may be interested to know that, in the three months to November 1989, imports fell.
My hon. Friend the Member for Croydon, South arid others of my hon. Friends mentioned the remarkable transformation in the British motor industry and the substantial foreign investment that has been made in it, which will add to British capacity by about half a million cars. That will be in place for the next decade. What a contrast with the motor industry when Labour was in power, when production fell by about one third and imports increased threefold. Today imports have stabilised and the industry is strongly placed to recover and expand its market.
When the right hon. and learned Member for Monklands, East presented his case, he said that the 1980s were a wasted decade. He claimed to speak for the whole nation, saying that his view was widely shared. He thought that the beginning of the 1990s would be the time to make a reappraisal. I agree that there could not be a better time to look back on what people thought about the 1980s. Perhaps the right hon. and learned Gentleman noticed that on 2 January a number of newspapers published surveys of the views of British business men in which they reviewed the progress that Britain made in the 1980s. As the right hon. and learned Gentleman raised that matter, and as he has been around a long time and has a good memory, he may recall that similar articles published at the beginning of the 1980s were full of real gloom, real hesitation and real doubt.
By comparison, in an article that was published on 2 January this year, the chairmen of leading British companies gave their view of the 1980s. The chairman of ICI spoke of a decade of unparalleled growth and of increased sales and profits. I dare say that the Opposition would not like me to cite the chairman of British Airways, but his phrase deserves to be remembered. Lord King of Wartnaby said:We should be grateful to the 1980s for helping us to forget the 1960s and 1970s.What do the Opposition make of the comments of Sir Ernest Harrison, chairman of Racal Electronics? He said :The 1980s were a period of strong economic growth because we enjoyed a decade of stable government.What do the Opposition make of the remarks of Sir Trevor Holdsworth, former chairman of GKN and president of the Confederation of British Industry? He said:The 1980s have been the best decade I have known—after 40 years in industry—for managing business.
§ Mr. Lamont
I will, in a minute. Those are the views of practical business men who are responsible for the performance of our economy. I am sure that the British people prefer their views, as I do, to the distorted views of the right hon. and learned Member for Monklands, East, in his speech on behalf of the Opposition.
§ Mr. Smith
Does the right hon. Gentleman seriously expect us to take as unbiased commentators on the British economy top British industrialists who have given themselves huge salary increases over the last 12 months? Was it a sense of discretion that stopped the right hon. Gentleman from quoting Lord King? Does the Chief Secretary think that Lord King's huge salary increase, which he awarded to himself, is a good example to set the working people of this country?
§ Mr. Lamont
The right hon. and learned Gentleman's intervention is ludicrous and irrelevant. He claimed in his speech to speak for manufacturing industry and to represent its views and prospects, but his remarks are totally contradicted by the views of British business men themselves.
The right hon. and learned Gentleman has a point when he says that not everything is perfect, and I admit that some of his criticisms were very telling. I know that we have not lived up to the high standards that we set ourselves. My right hon. Friend the Prime Minister once said that our ambition was to make the British economy so strong that not even the Labour party could wreck it. Manifestly, we have failed because we have not educated or converted the Opposition and, although the economy is strong, it is not strong enough to withstand their onslaught.
Conveniently, that brings me to the subject of the Opposition. Old-fashioned interventionism of the type proposed in Labour's policy review will undermine the health of British industry. We are told that the Department of Trade and Industry under Labour willmake strategic interventions into key sectors".What are they? What are the key technologies that the Labour party says that it will encourage? How do we know that it will be different from the conspicous failures of their last period in office?
The Labour party's document gives one example to help us make up our minds. That example is not encouraging. It says that it will bring about the installation of a national broadband fibre optic network from John o'Groats to Land's End. What is that network? The policy document paints a terrifying picture, and if it gets out the Labour party will have lost all its chances in the next election—although it did not have much chance anyway.
It is suggesting a state-sponsored communication network whichwill bring great rivers of information, sight and sound in and out of every living room, classroom and work place.The mind boggles. What else will it bring—martial music, computer dating or speeches by the right hon. Member for Islwyn (Mr. Kinnock) telling us that the situation on the streets is normal? What is even more alarming, I am told that the cost is estimated at a modest £20 billion. That is a precise example of what the Government ought not to do—try to spot winners in an extremely complex industry. There is nothing more disastrous than a crash programme 834 of Government investment in a high-risk industry that will almost certainly be overtaken by technological change. It is better to have the evolutionary, market-led development of a communications network, as we have at present.
I can think of nothing more likely to lead to a gigantic misallocation of resources. One must be grateful to the authors of the document for giving us such a vivid example of the Opposition's industrial policy.
We were pleased when the hon. Member for Derby, South (Mrs. Beckett) was appointed to her post, and we congratulate her again, because we thought that when she was shadow Chief Secretary we might get answers to questions about Labour policy. We did not get any answers from her predecessor. My right hon. Friend the Chancellor of the Duchy of Lancaster put some 52 questions to the Leader of the Opposition and received no replies. I am more modest, and I shall ask only two questions: what are the costs of Labour's programme, and by how much will taxes go up as a result? I am not optimistic that we shall get an answer.
The Sunday Times on 17 September last year disclosed:Labour leaders have decided not to work out the costs of implementing the policy review in case the figures leak out.
So that is the real position of the Opposition. Is that how they regard their trust with the British electorate and the accountability that they think they should have to the British people? They want the City and the Government to give more information and to be more accountable, but they apply other standards to themselves.
If that is their prospectus, it is the most fraudulent that has been put to the British people since 1710—the time of the South Sea Bubble—when a prospectus was issued to investors which invited them tosubscribe for an undertaking, the nature of which shall in due time be revealed to them.It was disastrous in 1710, and it would be disastrous now.
It is no use for the Labour party to say that what is in the policy review will not be in the manifesto, and that what is in the manifesto will not happen in a single Parliament. That is dishonest politics, and the British people know it. My right hon. Friend has presented the House with an honest appraisal of the British economy, and I invite my right hon. and hon. Friends to back it in the Lobby tonight.
§ Question put, That the amendment be made:—
§ The House divided: Ayes 219, Noes 282.838
|Division No. 42]||[10 pm|
|Abbott, Ms Diane||Bermingham, Gerald|
|Allen, Graham||Bidwell, Sydney|
|Alton, David||Blair, Tony|
|Anderson, Donald||Blunkett, David|
|Archer, Rt Hon Peter||Boateng, Paul|
|Armstrong, Hilary||Boyes, Roland|
|Ashley, Rt Hon Jack||Bradley, Keith|
|Ashton, Joe||Bray, Dr Jeremy|
|Barnes, Harry (Derbyshire NE)||Brown, Gordon (D'mline E)|
|Barnes, Mrs Rosie (Greenwich)||Brown, Nicholas (Newcastle E)|
|Battle, John||Brown, Ron (Edinburgh Leith)|
|Beckett, Margaret||Bruce, Malcolm (Gordon)|
|Beith, A. J.||Buchan, Norman|
|Bell, Stuart||Buckley, George J.|
|Benn, Rt Hon Tony||Caborn, Richard|
|Bennett, A. F. (D'nt'n & R'dish)||Callaghan, Jim|
|Campbell, Ron (Blyth Valley)||Illsley, Eric|
|Campbell-Savours, D. N.||Ingram, Adam|
|Cartwright, John||Janner, Greville|
|Clarke, Tom (Monklands W)||Jones, Barry (Alyn & Deeside)|
|Clay, Bob||Jones, leuan (Ynys Môn)|
|Clelland, David||Kaufman, Rt Hon Gerald|
|Clwyd, Mrs Ann||Kennedy, Charles|
|Cohen, Harry||Kinnock, Rt Hon Neil|
|Coleman, Donald||Kirkwood, Archy|
|Cook, Robin (Livingston)||Lambie, David|
|Corbett, Robin||Leadbitter, Ted|
|Corbyn, Jeremy||Leighton, Ron|
|Cousins, Jim||Lestor, Joan (Eccles)|
|Cox, Tom||Litherland, Robert|
|Crowther, Stan||Livsey, Richard|
|Cryer, Bob||Lloyd, Tony (Stretford)|
|Cummings, John||Lofthouse, Geoffrey|
|Cunliffe, Lawrence||Loyden, Eddie|
|Cunningham, Dr John||McAllion, John|
|Dalyell, Tam||McAvoy, Thomas|
|Darling, Alistair||McCartney, Ian|
|Davies, Ron (Caerphilly)||Macdonald, Calum A.|
|Davis, Terry (B'ham Hodge H'l)||McFall, John|
|Dewar, Donald||McKay, Allen (Barnsley West)|
|Dixon, Don||McKelvey, William|
|Dobson, Frank||McLeish, Henry|
|Doran, Frank||McNamara, Kevin|
|Douglas, Dick||McWilliam, John|
|Dunnachie, Jimmy||Madden, Max|
|Dunwoody, Hon Mrs Gwyneth||Mahon, Mrs Alice|
|Eadie, Alexander||Marek, Dr John|
|Eastham, Ken||Marshall, David (Shettleston)|
|Evans, John (St Helens N)||Marshall, Jim (Leicester S)|
|Ewing, Harry (Falkirk E)||Martin, Michael J. (Springburn)|
|Ewing, Mrs Margaret (Moray)||Martlew, Eric|
|Fatchett, Derek||Maxton, John|
|Faulds, Andrew||Meacher, Michael|
|Fearn, Ronald||Meale, Alan|
|Field, Frank (Birkenhead)||Michael, Alun|
|Fields, Terry (L'pool B G'n)||Michie, Bill (Sheffield Heeley)|
|Fisher, Mark||Michie, Mrs Ray (Arg'l & Bute)|
|Flannery, Martin||Mitchell, Austin (G't Grimsby)|
|Flynn, Paul||Morgan, Rhodri|
|Foot, Rt Hon Michael||Morley, Elliot|
|Foster, Derek||Morris, Rt Hon A. (W'shawe)|
|Fraser, John||Morris, Rt Hon J. (Aberavon)|
|Fyfe, Maria||Mowlam, Marjorie|
|Galloway, George||Mullin, Chris|
|Garrett, John (Norwich South)||Murphy, Paul|
|Garrett, Ted (Wallsend)||Oakes, Rt Hon Gordon|
|Gilbert, Rt Hon Dr John||O'Brien, William|
|Godman, Dr Norman A.||O'Neill, Martin|
|Golding, Mrs Llin||Orme, Rt Hon Stanley|
|Gordon, Mildred||Owen, Rt Hon Dr David|
|Gould, Bryan||Parry, Robert|
|Graham, Thomas||Pendry, Tom|
|Grant, Bernie (Tottenham)||Pike, Peter L.|
|Griffiths, Nigel (Edinburgh S)||Powell, Ray (Ogmore)|
|Griffiths, Win (Bridgend)||Primarolo, Dawn|
|Grocott, Bruce||Quin, Ms Joyce|
|Hardy, Peter||Radice, Giles|
|Harman, Ms Harriet||Randall, Stuart|
|Haynes, Frank||Redmond, Martin|
|Healey, Rt Hon Denis||Rees, Rt Hon Merlyn|
|Hefter, Eric S.||Reid, Dr John|
|Henderson, Doug||Richardson, Jo|
|Hinchliffe, David||Robertson, George|
|Hoey, Ms Kate (Vauxhall)||Rogers, Allan|
|Hogg, N. (C'nauld & Kilsyth)||Rooker, Jeff|
|Home Robertson, John||Ross, Ernie (Dundee W)|
|Hood, Jimmy||Ruddock, Joan|
|Howell, Rt Hon D. (S'heath)||Sheerman, Barry|
|Howells, Geraint||Sheldon, Rt Hon Robert|
|Howells, Dr. Kim (Pontypridd)||Short, Clare|
|Hoyle, Doug||Sillars, Jim|
|Hughes, John (Coventry NE)||Skinner, Dennis|
|Hughes, Robert (Aberdeen N)||Smith, Andrew (Oxford E)|
|Hughes, Roy (Newport E)||Smith, C. (Isl'ton & F'bury)|
|Hughes, Sean (Knowsley S)||Smith, Rt Hon J. (Monk'ds E)|
|Hughes, Simon (Southwark)||Smith, J. P. (Vale of Glam)|
|Snape, Peter||Wareing, Robert N.|
|Soley, Clive||Watson, Mike (Glasgow, C)|
|Spearing, Nigel||Welsh, Andrew (Angus E)|
|Steel, Rt Hon Sir David||Williams, Rt Hon Alan|
|Steinberg, Gerry||Williams, Alan W. (Carm'then)|
|Strang, Gavin||Wilson, Brian|
|Straw, Jack||Winnick, David|
|Taylor, Mrs Ann (Dewsbury)||Wise, Mrs Audrey|
|Taylor, Matthew (Truro)||Worthington, Tony|
|Thomas, Dr Dafydd Elis||Wray, Jimmy|
|Thompson, Jack (Wansbeck)||Young, David (Bolton SE)|
|Vaz, Keith||Tellers for the Ayes:|
|Wallace, James||Mr. Martyn Jones and|
|Walley, Joan||Mr. Frank Cook.|
|Wardell, Gareth (Gower)|
|Adley, Robert||Critchley, Julian|
|Aitken, Jonathan||Currie, Mrs Edwina|
|Alexander, Richard||Davies, Q. (Stamf'd & Spald'g)|
|Alison, Rt Hon Michael||Davis, David (Boothferry)|
|Amess, David||Day, Stephen|
|Amos, Alan||Devlin, Tim|
|Arbuthnot, James||Dicks, Terry|
|Arnold, Tom (Hazel Grove)||Dorrell, Stephen|
|Ashby, David||Douglas-Hamilton, Lord James|
|Aspinwall, Jack||Dover, Den|
|Atkinson, David||Dunn, Bob|
|Baker, Rt Hon K. (Mole Valley)||Durant, Tony|
|Baldry, Tony||Dykes, Hugh|
|Banks, Robert (Harrogate)||Emery, Sir Peter|
|Batiste, Spencer||Evans, David (Welwyn Hatf'd)|
|Beaumont-Dark, Anthony||Evennett, David|
|Bennett, Nicholas (Pembroke)||Fairbairn, Sir Nicholas|
|Benyon, W.||Fallon, Michael|
|Bevan, David Gilroy||Favell, Tony|
|Biffen, Rt Hon John||Fenner, Dame Peggy|
|Blackburn, Dr John G.||Field, Barry (Isle of Wight)|
|Blaker, Rt Hon Sir Peter||Finsberg, Sir Geoffrey|
|Body, Sir Richard||Fishburn, John Dudley|
|Bonsor, Sir Nicholas||Fookes, Dame Janet|
|Boscawen, Hon Robert||Forman, Nigel|
|Boswell, Tim||Forsyth, Michael (Stirling)|
|Bottomley, Mrs Virginia||Forth, Eric|
|Bowden, A (Brighton K'pto'n)||Fowler, Rt Hon Sir Norman|
|Bowden, Gerald (Dulwich)||Fox, Sir Marcus|
|Bowis, John||Franks, Cecil|
|Boyson, Rt Hon Dr Sir Rhodes||Freeman, Roger|
|Braine, Rt Hon Sir Bernard||French, Douglas|
|Brandon-Bravo, Martin||Fry, Peter|
|Brazier, Julian||Garel-Jones, Tristan|
|Bright, Graham||Gill, Christopher|
|Brown, Michael (Brigg & Cl't's)||Glyn, Dr Sir Alan|
|Browne, John (Winchester)||Goodhart, Sir Philip|
|Bruce, Ian (Dorset South)||Goodlad, Alastair|
|Buck, Sir Antony||Goodson-Wickes, Dr Charles|
|Burns, Simon||Gorman, Mrs Teresa|
|Burt, Alistair||Gorst, John|
|Butcher, John||Gow, Ian|
|Butler, Chris||Grant, Sir Anthony (CambsSW)|
|Butterfill, John||Greenway, Harry (Ealing N)|
|Carlisle, John, (Luton N)||Greenway, John (Ryedale)|
|Carlisle, Kenneth (Lincoln)||Gregory, Conal|
|Carrington, Matthew||Griffiths, Sir Eldon (Bury St E')|
|Carttiss, Michael||Grist, Ian|
|Chalker, Rt Hon Mrs Lynda||Ground, Patrick|
|Chapman, Sydney||Grylls, Michael|
|Chope, Christopher||Hague, William|
|Churchill, Mr||Hamilton, Hon Archie (Epsom)|
|Clark, Hon Alan (Plym'th S'n)||Hamilton, Neil (Tatton)|
|Clark, Dr Michael (Rochford)||Hanley, Jeremy|
|Clark, Sir W. (Croydon S)||Harris, David|
|Colvin, Michael||Hayes, Jerry|
|Conway, Derek||Hicks, Mrs Maureen (Wolv' NE)|
|Coombs, Anthony (Wyre F'rest)||Higgins, Rt Hon Terence L.|
|Coombs, Simon (Swindon)||Hill, James|
|Cormack, Patrick||Holt, Richard|
|Couchman, James||Hordern, Sir Peter|
|Cran, James||Howarth, G. (Cannock & B'wd)|
|Hunt, David (Wirral W)||Price, Sir David|
|Hunter, Andrew||Raison, Rt Hon Timothy|
|Irvine, Michael||Rathbone, Tim|
|Jack, Michael||Redwood, John|
|Janman, Tim||Renton, Rt Hon Tim|
|Kilfedder, James||Rhodes James, Robert|
|Kirkhope, Timothy||Ridsdale, Sir Julian|
|Knapman, Roger||Rifkind, Rt Hon Malcolm|
|Knight, Greg (Derby North)||Roberts, Wyn (Conwy)|
|Knight, Dame Jill (Edgbaston)||Roe, Mrs Marion|
|Knowles, Michael||Rossi, Sir Hugh|
|Knox, David||Rost, Peter|
|Lamont, Rt Hon Norman||Rowe, Andrew|
|Lang, Ian||Rumbold, Mrs Angela|
|Latham, Michael||Ryder, Richard|
|Lee, John (Pendle)||Sackville, Hon Tom|
|Leigh, Edward (Gainsbor'gh)||Sainsbury, Hon Tim|
|Lennox-Boyd, Hon Mark||Sayeed, Jonathan|
|Lightbown, David||Scott, Rt Hon Nicholas|
|Lilley, Peter||Shaw, David (Dover)|
|Lloyd, Sir Ian (Havant)||Shaw, Sir Giles (Pudsey)|
|Lloyd, Peter (Fareham)||Shaw, Sir Michael (Scarb')|
|Lord, Michael||Shelton, Sir William|
|Lyell, Rt Hon Sir Nicholas||Shephard, Mrs G. (Norfolk SW)|
|Macfarlane, Sir Neil||Shepherd, Colin (Hereford)|
|MacKay, Andrew (E Berkshire)||Shepherd, Richard (Aldridge)|
|Maclean, David||Shersby, Michael|
|McLoughlin, Patrick||Sims, Roger|
|McNair-Wilson, Sir Patrick||Skeet, Sir Trevor|
|Madel, David||Smith, Sir Dudley (Warwick)|
|Major, Rt Hon John||Smith, Tim (Beaconsfield)|
|Malins, Humfrey||Soames, Hon Nicholas|
|Mans, Keith||Speller, Tony|
|Maples, John||Spicer, Sir Jim (Dorset W)|
|Marlow, Tony||Spicer, Michael (S Worcs)|
|Marshall, John (Hendon S)||Squire, Robin|
|Marshall, Michael (Arundel)||Stanbrook, Ivor|
|Martin, David (Portsmouth S)||Stanley, Rt Hon Sir John|
|Mates, Michael||Steen, Anthony|
|Maude, Hon Francis||Stern, Michael|
|Maxwell-Hyslop, Robin||Stevens, Lewis|
|Mayhew, Rt Hon Sir Patrick||Stewart, Allan (Eastwood)|
|Miller, Sir Hal||Stewart, Andy (Sherwood)|
|Mills, Iain||Stewart, Rt Hon Ian (Herts N)|
|Miscampbell, Norman||Stradling Thomas, Sir John|
|Mitchell, Andrew (Gedling)||Summerson, Hugo|
|Mitchell, Sir David||Taylor, Teddy (S'end E)|
|Moate, Roger||Tebbit, Rt Hon Norman|
|Monro, Sir Hector||Thatcher, Rt Hon Margaret|
|Montgomery, Sir Fergus||Thompson, D. (Calder Valley)|
|Moore, Rt Hon John||Thompson, Patrick (Norwich N)|
|Morris, M (N'hampton S)||Thornton, Malcolm|
|Morrison, Sir Charles||Thurnham, Peter|
|Moss, Malcolm||Townend, John (Bridlington)|
|Moynihan, Hon Colin||Townsend, Cyril D. (B'heath)|
|Mudd, David||Tracey, Richard|
|Neale, Gerrard||Tredinnick, David|
|Needham, Richard||Trippier, David|
|Nelson, Anthony||Trotter, Neville|
|Neubert, Michael||Twinn, Dr Ian|
|Newton, Rt Hon Tony||Viggers, Peter|
|Nicholls, Patrick||Wakeham, Rt Hon John|
|Nicholson, David (Taunton)||Walden, George|
|Nicholson, Emma (Devon West)||Walker, Bill (T'side North)|
|Norris, Steve||Waller, Gary|
|Onslow, Rt Hon Cranley||Ward, John|
|Oppenheim, Phillip||Wardle, Charles (Bexhill)|
|Page, Richard||Watts, John|
|Paice, James||Wheeler, Sir John|
|Patnick, Irvine||Whitney, Ray|
|Patten, Rt Hon Chris (Bath)||Widdecombe, Ann|
|Patten, Rt Hon John||Wilkinson, John|
|Pattie, Rt Hon Sir Geoffrey||Wilshire, David|
|Pawsey, James||Winterton, Mrs Ann|
|Peacock, Mrs Elizabeth||Winterton, Nicholas|
|Porter, David (Waveney)||Wolfson, Mark|
|Portillo, Michael||Wood, Timothy|
|Powell, William (Corby)||Woodcock, Dr. Mike|
|Yeo, Tim||Tellers for the Noes:|
|Young, Sir George (Acton)||Mr. John M. Taylor and|
|Mr. Nicholas Baker.|
§ Amendment accordingly negatived.
§ Main Question put and agreed to.
That this House approves the Autumn Statement presented by Mr. Chancellor of the Exchequer on 15th November 1989; welcomes the continuing reduction in the share of national income taken by public expenditure, and the provision of substantial extra resources for priority areas; congratulates Her Majesty's Government on its policies of sound financial discipline and supply side improvement which have been the foundation of record growth of employment, investment, and business formation; and commends the Government's determination to maintain downward pressure on inflation and to bring further improvements in economic performance.
§ Mr. Jeff Rooker (Birmingham, Perry Barr)
On a point of order, Mr. Speaker. First, have Ministers from the Department of Trade and Industry asked permission to make a statement to the House on the complete and forecast collapse of its largest ever insider dealing case at Southwark Crown court today? More than £500,000 of public money has been wasted as a result of slipshod legislation which has allowed a coach and four to be driven through an important case. It is important that we should have a statement before we proceed on further trade union legislation.
Secondly, can we have a statement from the Attorney-General on the position in which the Crown Prosecution Service has been placed as a result of that case? It was passed the case by the Department of Trade and Industry, a case which the Department knew could never be won because the legislation that it forced through the House required total disclosure in such cases and the Department today refused the judge's order to make such total disclosure.
That own goal requires you, Mr. Speaker, to rule tonight on whether it is right that we should proceed without a statement from the Government when the conduct of public administration has fallen to rock bottom in the Department of Trade and Industry, giving a green light to City slickers to make a fortune at the expense of ordinary investors.
It cannot be right to have no statement from the Dispatch Box when such a major case has been withdrawn after half a day in court and two years' preparation, and when almost £1 million of public money has gone down the drain.
§ Mr. Speaker
I know nothing about the case. I understand from the news that a case has been dropped. I have had no representations from the Government that they wish to make a statement on this tonight.
§ Mr. Bob Cryer (Bradford, South)
On a point of order, Mr. Speaker. This afternoon at 4.15 pm the Joint Committee on Statutory Instruments considered the Code of Practice for Trade Union Ballots for Industrial Action, which we are about to debate. We had a memorandum from the Department of Employment and we concluded our consideration but, because of the pressure of time, it has not been possible to include a notification on today's Order Paper that there is a report from the Joint 839 Committee on Statutory Instruments which includes a memorandum on a relatively minor point which the Committee wishes to draw to the attention of the House.
As you will appreciate, Mr. Speaker, that is unsatisfactory, but we have made every endeavour to fulfil the Standing Order and copies of the report can be obtained from the Vote Office.
§ Mr. Ian McCartney (Makerfield)
Further to that point of order, Mr. Speaker. My hon. Friend the Member for Bradford, South (Mr. Cryer) has given us a helpful explanation, but it does not help those Back Bench Members trying to represent their constituents in the matter. Not for the first time, the Government have brought before the House a statutory instrument which has not gone through its formal proceedings before the Committee. Only now have hon. Members been advised that the Committee has dealt with the matter. It is important for the integrity of the House that the Government should not continue to ride roughshod over the interests of hon. Members. The Government should be asked to bring the matter back on another day together with the Select Committee's opinion so that hon. Members can give it proper consideration.
§ Mr. Speaker
The motion has been on the Order Paper for some time. The Chairman of the Select Committee has already said that the comments on it are of a reasonably minor nature. We should get on with the debate.